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Section 1: 8-K (8-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 1, 2018

VECTRUS, INC.
(Exact name of Registrant as specified in its charter)

Indiana
0001-36341
38-3924636
(State or other jurisdiction of incorporation or organization)
 (Commission File Number)
(I.R.S. Employer Identification No.)
 


655 Space Center Drive
Colorado Springs, CO 80915
(Address of principal executive offices) (Zip Code)
 
Registrant's telephone number, including area code: (719) 591-3600

[Not Applicable]
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ]    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ]    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ]    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ]    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨






ITEM 2.02 Results of Operations and Financial Condition.

Attached hereto as Exhibit 99.1 and incorporated by reference herein is a press release issued by Vectrus, Inc. (the “Company”) on March 1, 2018 that includes financial information for the Company for the fourth quarter and full year ending December 31, 2017 and fiscal 2018 guidance. This information shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

ITEM 7.01 Regulation FD Disclosure.

Mr. Charles Prow, President and Chief Executive Officer, and Mr. Matthew Klein, Senior Vice President and Chief Financial Officer, will present the financial information for the Company for the fourth quarter and full year ending December 31, 2017, fiscal 2018 guidance and information on the Company's five-year strategic plan on March 1, 2018. A copy of the presentation is attached hereto and incorporated by reference herein as Exhibit 99.2. This information is furnished pursuant to Item 7.01 Regulation FD Disclosure and shall not be deemed filed for purposes of Section 18 of the Exchange Act or incorporated by reference into any filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.







ITEM 9.01 Financial Statements and Exhibits

(d) Exhibits.

Exhibit
No.    Description
99.1    Press Release of Vectrus, Inc. dated March 1, 2018
99.2    Presentation slides issued by Vectrus, Inc. on March 1, 2018







SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
 
 
March 1, 2018
 
VECTRUS, INC.
 
 
By:
/s/ Kathryn Lamping
 
 
 
Assistant Secretary
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


                






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Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit

Exhibit 99.1 

PRESS RELEASE

CONTACT:

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


Vectrus Announces Strong Fourth Quarter and Full-Year 2017 Results; Issues 2018 Guidance and Five-Year Growth Plan

Fourth quarter revenue $296 million, up 2.6%; Fourth quarter operating margin 3.5%, up 51 bps, compared to fourth quarter of 2016
Full-year revenue $1.115 billion; Full-year operating margin 3.7%, up 10 bps compared to 2016
Projects 11% revenue growth, which includes the acquisition of SENTEL, and margin expansion at the mid-point of 2018 guidance
Issues five-year plan to grow revenue to $2.5 billion and expand EBITDA margins to 7%
Closed on a new and expanded credit facility to support growth strategy
Total backlog increased 24% year-over-year to $2.9 billion


COLORADO SPRINGS, Colo., March 1, 2018 — Vectrus, Inc. (NYSE:VEC) announced fourth quarter and full-year 2017 financial results. For the fourth quarter, revenue was $295.8 million, operating income was $10.3 million, and diluted earnings per share were $3.70. For the full year, revenue was $1,114.8 million, operating income was $41.2 million, and diluted earnings per share were $5.31. Cash provided by operating activities for 2017 was $35.4 million.

“Over the past year, we have made substantial progress in our business while setting the foundation for future growth and continued execution of our strategy,” said Chuck Prow, president and chief executive officer of Vectrus. “We have a lot to be proud of in 2017. Vectrus achieved several milestones during the year, including record quarterly operating margin, backlog, and contract awards. Additionally, our team did a phenomenal job of securing the base by winning all of our scheduled re-competes and significant new work that provides strong visibility into 2018 and beyond.”

“In 2018 and beyond, we will continue to execute our strategy to become a leader in the converged infrastructure market within government services," said Prow. "We will aggressively explore new and adjacent markets, enhanced capabilities, and additional channels to drive growth and increase shareholder value. Specifically, we have established a five-year plan and goal to grow revenue to $2.5 billion and expand EBITDA margins to 7 percent. This is clearly an aggressive goal but we see

1



Exhibit 99.1 

a path forward to achieve this plan through a combination of both strategic organic and purposeful inorganic growth activities."

“Our momentum has carried into 2018 as demonstrated by our recent win of a new $108 million U.S. Army contract to provide services for Kuwait Dining Facilities (DFAC 3.0) and the acquisition of SENTEL Corporation,” Prow explained. “Regarding SENTEL, our cultures including mission, vision, values, and client-centricity, are closely aligned. We are extremely excited about the new clients, capabilities, and contracts that are now accessible to Vectrus. This acquisition is an excellent fit with our three core strategies and accelerates our progress associated with several strategic imperatives. We are optimistic that all of our hard work in 2017 and current strategic initiatives will result in 2018 revenue growth and margin expansion.”


Fourth Quarter 2017 Results

Revenue $295.8 million
Operating income $10.3 million
Operating margin 3.5%
Diluted earnings per share $3.70; adjusted diluted EPS1 $0.57

Fourth quarter 2017 revenue of $295.8 million increased $7.6 million or 2.6 percent compared to the fourth quarter of 2016. The increase is due to higher revenue of $20.2 million from U.S. programs, $15.5 million from European programs, and $3.9 million from Afghanistan programs, partially offset by a $32.0 million decrease in Middle East programs. Revenue in the fourth quarter of 2016 included a $47 million contribution from the Army Pre-Positioned Stocks-5 (APS-5) Kuwait contract, which ended in April 2017.

“The exceptionally hard work of our team paid off in the fourth quarter as strength in our underlying business, recent contract wins, and solid execution resulted in year-over-year growth," said Matt Klein, chief financial officer of Vectrus.

Operating income was $10.3 million or 3.5 percent operating margin in the fourth quarter of 2017, compared to $8.6 million or 3.0 percent operating margin in the fourth quarter of 2016.

Fourth quarter 2017 diluted earnings per share were $3.70 compared to $0.40 in the fourth quarter of 2016. Excluding the impact of the Tax Cuts and Jobs Act (TCJA) legislation, fourth quarter 2017 adjusted diluted earnings per share1 were $0.57.

“It’s important to note that full-year and fourth quarter 2017 diluted earnings per share were positively impacted by recent tax reform, which resulted in the revaluation of our deferred tax liability at the lower 21% federal rate,” explained Klein.




2



Exhibit 99.1 

Full-Year 2017 Results

Revenue $1,114.8 million
Operating income $41.2 million
Operating margin 3.7 percent
Diluted earnings per share $5.31; adjusted diluted EPS1 $2.17
Cash provided by operating activities $35.4 million

Full-year 2017 revenue of $1,114.8 million decreased $75.7 million or 6.4 percent compared to 2016. The decrease in revenue was attributable mainly to lower activity in our Middle East programs of $70.0 million, which was driven primarily by a decrease of $121.0 million from our APS-5 Kuwait contract, and our Afghanistan programs of $32.6 million, offset by increases of $16.7 million from our European programs and $10.2 million from our U.S. programs.

Operating income was $41.2 million or 3.7 percent operating margin for the full-year 2017, compared to $42.8 million or 3.6 percent operating margin in 2016.

“Our commitment to improving the overall margin profile of our business was demonstrated in 2017 as our team’s performance and company-wide initiatives yielded a year-over-year increase in operating margin,” said Klein. "This achievement was particularly notable considering the phase-in of several large, long-term contracts and the investments associated with the implementation of our strategic imperatives."

Full-year 2017 diluted earnings per share were $5.31 compared to $2.16 in 2016. Excluding the impact of the TCJA legislation, full-year 2017 adjusted diluted earnings per share1 were $2.17.

Cash provided by operating activities for the year ended December 31, 2017 was $35.4 million; a decrease of $1.2 million compared to 2016.

The Company ended 2017 with total debt of $79.0 million, which was down $6.0 million from $85.0 million at the end of 2016. As of December 31, 2017, the Company had a total consolidated indebtedness to consolidated EBITDA (total leverage ratio) of 1.64x to 1.00x.

“During the fourth quarter we closed on a new and expanded credit facility, which increased the amount of funding available under our revolver to $120 million from $75 million,” said Klein. “Our new credit facility improves our financial flexibility for future growth opportunities. In 2018 and 2019, the mandatory payments under our new facility are $4 million and $4.5 million, respectively.”

The Company ended 2017 with total backlog of $2.9 billion and funded backlog of $719 million.




3



Exhibit 99.1 


Guidance
"In 2018, we expect annual revenue to be in the range of $1,205 million to $1,275 million with a mid-point of $1,240 million or an increase of 11 percent compared to 2017. We expect full-year operating margin to be in the range of 3.6 percent to 4.0 percent and net income to be in the range of $30.5 million to $36.4 million. We expect to see diluted EPS in the range of $2.70 to $3.22 per share, and cash provided by operating activities from $35 million to $39 million," said Klein. “Our 2018 guidance assumes interest expense of approximately $4.3 million, depreciation and amortization of $4.2 million, non-recurring transaction related expenses of $3.0 million, mandatory debt payments of $4.0 million, a tax rate of 22 percent and weighted average diluted shares outstanding of 11.3 million at December 31, 2018.”

2018 guidance details include:
$ millions, except for operating margin and per share amounts
2018 Guidance
2018 Mid
Revenue
$1,205
to
$1,275
$1,240
Operating Margin
3.6
%
to
4.0
%
3.8
%
Net Income
$30.5
to
$36.4
$33.5
Diluted EPS 2
$2.70
to
$3.22
$2.96
Cash Provided by Operating Activities
$35.0
to
$39.0
$37.0

The Company notes that forward-looking statements of future performance made in this release, including 2018 guidance, 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.

Investor Call
Management representatives will conduct an investor briefing and conference call at 4:30 p.m. Eastern Time on Thursday, Mar. 1, 2018.

U.S.-based participants may dial into the conference call at 877-407-0792, while international participants may dial 201-689-8263. For all other listeners, a live webcast of the briefing and conference call will be available on the Vectrus Investor Relations website at http://investors.vectrus.com.
A replay of the briefing will be posted on the Vectrus website shortly after completion of the call, and will remain available for one year. A telephonic replay will also be available through Mar. 15, 2018, at 844-512-2921 (domestic) or 412-317-6671 (international), passcode 13676767. 
.

4



Exhibit 99.1 


Footnotes:
1 See appendix for reconciliation.
2 2018 EPS guidance is calculated using estimated weighted average diluted common shares outstanding for the year ending December 31, 2018 of 11.3 million.
About Vectrus
Vectrus is a leading, global government services company with a history in the services market that dates back more than 70 years. The company provides facility and logistics services, and information technology and network communication 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 6,700 employees spanning 177 locations in 21 countries. In 2017, Vectrus generated sales of $1.1 billion. For more information, visit our website at www.vectrus.com or connect with us on Facebook, Twitter, LinkedIn, and YouTube.

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, statements in 2018 Guidance above about our revenue, operating margin, net income, EPS and net cash provided by operating activities for 2018 and other assumptions contained therein for purposes of such guidance, our new credit facility, debt payments, expense savings, contract opportunities, bids and awards, collections, business strategy, outlook, objectives, plans, intentions or goals, 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," 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. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements, our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to: our dependence on a few large contracts for a significant portion of our revenue; competition in our industry; our dependence on the U.S. government and the importance of our maintaining a good relationship with the U.S. government, our ability to submit proposals for and/or win potential opportunities in our pipeline; our ability to retain and renew our existing contracts; protests of new awards; any acquisitions, investments or joint ventures, including the integration of SENTEL Corporation into our business; our international

5



Exhibit 99.1 

operations, including the economic, political and social conditions in the countries in which we conduct our businesses; changes in U.S. government military operations, including its operations in Afghanistan; changes in, or delays in the completion of, U.S. or international government budgets; government regulations and compliance therewith, including changes to the Department of Defense procurement process; changes in technology; intellectual property matters; governmental investigations, reviews, audits and cost adjustments; contingencies related to actual or alleged environmental contamination, claims and concerns; our success in expanding our geographic footprint or broadening our customer base, markets and capabilities; our ability to realize the full amounts reflected in our backlog; impairment of goodwill; our performance of our contracts and our ability to control costs; our level of indebtedness; our compliance with the terms of our credit agreement; subcontractor and employee performance and conduct; our teaming arrangements with other contractors; economic and capital markets conditions; our ability to retain and recruit qualified personnel; our maintenance of safe work sites and equipment; our compliance with applicable environmental, health and safety regulations; our ability to maintain required security clearances; any disputes with labor unions; costs of outcome of any legal proceedings; security breaches and other disruptions to our information technology and operations; changes in our tax provisions, including under the Tax Cuts and Jobs Act, or exposure to additional income tax liabilities; changes in U.S. generally accepted accounting principles; accounting estimates made in connection with our contracts; our exposure to interest rate risk; our compliance with public company accounting and financial reporting requirements; timing of payments by the U.S. government; risks and uncertainties relating to the spin-off from our former parent; and other factors set forth in Part I, Item 1A, – “Risk Factors,” and elsewhere in our 2017 Annual Report on Form 10-K and described from time to time in our future reports filed with the 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.
















6



Exhibit 99.1 




VECTRUS, INC.
CONSOLIDATED STATEMENTS OF INCOME
 
 
Year Ended December 31,
(In thousands, except per share data)
 
2017
 
2016
 
2015
Revenue
 
$
1,114,788

 
$
1,190,519

 
$
1,180,684

Cost of revenue
 
1,012,840

 
1,083,607

 
1,075,035

Selling, general and administrative expenses
 
60,728

 
64,086

 
65,687

Operating income
 
41,220

 
42,826

 
39,962

Interest (expense) income, net
 
(4,640
)
 
(5,639
)
 
(6,531
)
Income from operations before income taxes
 
36,580

 
37,187

 
33,431

Income tax (benefit) expense
 
(22,917
)
 
13,532

 
2,458

Net income
 
$
59,497

 
$
23,655

 
$
30,973

 
 
 
 
 
 
 
Earnings per share
 
 
 
 
 
 
Basic
 
$5.40
 
$2.21
 
$2.94
Diluted
 
$5.31
 
$2.16
 
$2.86
Weighted average common shares outstanding - basic
 
11,021

 
10,714

 
10,551

Weighted average common shares outstanding - diluted
 
11,209

 
10,974

 
10,825

 
 
 
 
 
 
 
 


7



Exhibit 99.1 

VECTRUS, INC.
CONSOLIDATED BALANCE SHEETS
 
 
December 31,
(In thousands, except share information)
 
2017
 
2016
Assets
 
 
 
 
Current assets
 
 
 
 
Cash
 
$
77,453

 
$
47,651

Receivables
 
174,995

 
172,072

Costs incurred in excess of billings
 
12,751

 
11,002

Other current assets
 
6,747

 
13,412

Total current assets
 
271,946

 
244,137

Property, plant, and equipment, net
 
3,733

 
3,061

Goodwill
 
216,930

 
216,930

Other non-current assets
 
2,942

 
1,177

Total non-current assets
 
223,605

 
221,168

Total Assets
 
$
495,551

 
$
465,305

Liabilities and Shareholders' Equity
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable
 
115,899

 
118,055

Billings in excess of costs
 
3,766

 
1,421

Compensation and other employee benefits
 
39,304

 
34,917

Short-term debt
 
4,000

 
15,750

Other accrued liabilities
 
19,209

 
17,693

Total current liabilities
 
182,178

 
187,836

Long-term debt, net
 
73,211

 
67,842

Deferred tax liability
 
55,329

 
89,667

Other non-current liabilities
 
1,461

 
2,559

Total non-current liabilities
 
130,001

 
160,068

Total liabilities
 
312,179

 
347,904

Commitments and contingencies
 
 
 
 
Shareholders' Equity
 
 
 
 
Preferred stock; $0.01 par value; 10,000,000 shares authorized; No shares issued and outstanding
 

 

Common stock; $0.01 par value; 100,000,000 shares authorized; 11,120,528 and 10,894,924 shares issued and outstanding
 
111

 
109

Additional paid in capital
 
67,526

 
63,910

Retained earnings
 
117,415

 
57,959

Accumulated other comprehensive loss
 
(1,680
)
 
(4,577
)
Total shareholders' equity
 
183,372

 
117,401

Total Liabilities and Shareholders' Equity
 
$
495,551

 
$
465,305



8



Exhibit 99.1 

VECTRUS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

 
Year Ended December 31,
(In thousands)
 
2017
 
2016
 
2015
Operating activities
 
 
 
 
 
 
Net income
 
$
59,497

 
$
23,655

 
$
30,973

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
Depreciation expense
 
1,686

 
1,920

 
3,138

Loss on disposal of property, plant, and equipment
 

 
405

 
686

Stock-based compensation
 
4,467

 
4,649

 
6,658

Amortization and write-off of debt issuance costs
 
1,464

 
1,198

 
1,130

Changes in assets and liabilities:
 
 
 
 
 
 
Receivables
 
178

 
37,814

 
(9,886
)
Other assets
 
3,455

 
(13,903
)
 
12,005

Accounts payable
 
(4,346
)
 
(3,766
)
 
8,874

Billings in excess of costs
 
2,345

 
(4,605
)
 
219

Deferred taxes
 
(35,321
)
 
(2,163
)
 
(9,404
)
Compensation and other employee benefits
 
3,256

 
(1,808
)
 
275

Other liabilities
 
(1,271
)
 
(6,778
)
 
(25,788
)
Net cash provided by operating activities
 
$
35,410

 
$
36,618

 
$
18,880

Investing activities
 
 
 
 
 
 
Purchases of capital assets
 
(2,344
)
 
(741
)
 
(793
)
Proceeds from the disposition of assets
 

 
116

 
387

Distributions from equity investment
 

 
573

 
524

Net cash (used in) provided by investing activities
 
$
(2,344
)
 
$
(52
)
 
$
118

Financing activities
 
 
 
 
 
 
Proceeds from issuance of long-term debt
 
80,000

 

 

Repayments of long-term debt
 
(86,000
)
 
(29,000
)
 
(23,375
)
Proceeds from revolver
 
42,500

 
74,000

 
324,000

Repayments of revolver
 
(42,500
)
 
(74,000
)
 
(324,000
)
Proceeds from exercise of stock options
 
2,031

 
2,146

 
239

Payment of debt issuance costs
 
(1,844
)
 
(221
)
 

Proceeds from insurance financing
 

 

 
14,857

Repayments of insurance financing
 

 

 
(12,130
)
Payments of employee withholding taxes on share-based compensation
 
(1,317
)
 
(987
)
 
(1,301
)
Net cash (used in) financing activities
 
$
(7,130
)
 
$
(28,062
)
 
$
(21,710
)
Exchange rate effect on cash
 
3,866

 
(848
)
 
(116
)
Net change in cash
 
29,802

 
7,656

 
(2,828
)
Cash-beginning of year
 
47,651

 
39,995

 
42,823

Cash-end of year
 
$
77,453

 
$
47,651

 
$
39,995

 
 
 
 
 
 
 
Supplemental Disclosure of Cash Flow Information:
 
 
 
 
 
 
Interest paid
 
$
5,886

 
$
5,278

 
$
6,047

Income taxes paid
 
$
4,802

 
$
26,068

 
$
16,096


9



Exhibit 99.1 

Key Performance Indicators and Non-GAAP Financial Measures
The primary financial performance measures we use to manage our business and monitor results of operations are revenue trends and operating income trends. In addition, we consider adjusted net income and adjusted diluted earnings per share to be useful to management and investors in evaluating our operating performance for the periods presented, 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.

Adjusted net income and adjusted diluted earnings per share, however, are not measures of financial performance under generally accepted accounting principles in the United States of America (GAAP) and should not be considered a substitute for net income and diluted earnings per share as determined in accordance with GAAP. Reconciliations of these items are provided below.

"Adjusted net income" is defined as net income, adjusted to exclude items that may include, but are not limited to, other income; significant charges or credits that impact current results but are not related to our ongoing operations and unusual and infrequent non-operating items and non-operating tax settlements or adjustments, such as revaluation of our deferred tax liability as a result of the Tax Cuts and Jobs Act, and net settlement of uncertain tax positions.

"Adjusted diluted earnings per share" is defined as adjusted net income divided by the weighted average diluted common shares outstanding.



(In thousands, except per share data)
 
Three Months Ended December 31,
 
Year Ended December 31,
Adjusted Net Income and Adjusted Diluted Earnings Per Share (Non-GAAP Measure)
 
2017
 
2016
 
2017
 
2016
Net income
 
$
41,567

 
$
4,409

 
$
59,497

 
$
23,655

Revaluation of deferred tax liability 1
 
(35,139
)
 

 
(35,139
)
 

Adjusted net income
 
$
6,428

 
$
4,409

 
$
24,358

 
$
23,655

GAAP EPS, diluted
 
$3.70
 
$0.40
 
$5.31
 
$2.16
Adjusted EPS, diluted
 
$0.57
 
$0.40
 
$2.17
 
$2.16
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding, diluted
 
11,234

 
10,988

 
11,209

 
10,974

 
 
 
 
 
 
 
 
 
1 Change in deferred tax liability related to change in federal tax rate under Tax Cuts and Jobs Act.



10



Exhibit 99.1 


SUPPLEMENTAL INFORMATION
Revenue by military branch, contract type, and contract relationship for the periods presented below was as follows:
 
 
Year Ended December 31,
(In thousands)
 
2017
 
2016
Military branch
 
Revenue
 
% of Total
 
Revenue
 
% of Total
Army
 
$
915,554

 
82
%
 
$
1,004,842

 
84
%
Navy
 
21,896

 
2
%
 
20,066

 
2
%
Air Force
 
177,338

 
16
%
 
165,611

 
14
%
Total Revenue
 
$
1,114,788

 
 
 
$
1,190,519

 
 
 
 
 
Year Ended December 31,
(in thousands)
 
2017
 
2016
Contract type
 
Revenue
 
% of Total
 
Revenue
 
% of Total
Firm-Fixed-Price
 
$
295,880

 
27
%
 
$
297,677

 
25
%
Cost-Plus and Cost Reimbursable ¹
 
818,908

 
73
%
 
892,842

 
75
%
Total Revenue
 
$
1,114,788

 
 
 
$
1,190,519

 
 
 
 
 
 
 
 
 
 
 
¹ Includes time and material contracts
 
 
Year Ended December 31,
(In thousands)
 
2017
 
2016
Contract Relationship
 
Revenue
 
% of Total
 
Revenue
 
% of Total
Prime Contractor
 
$
1,083,485

 
97
%
 
$
1,131,773

 
95
%
Sub Contractor
 
31,303

 
3
%
 
58,746

 
5
%
Total Revenue
 
$
1,114,788

 
 
 
$
1,190,519

 
 



Source: Vectrus, Inc.

11

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Section 3: EX-99.2 (EXHIBIT 99.2)

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VECTRUS FOURTH QUARTER 2017 RESULTS AND ISSUANCE OF 2018 GUIDANCE CHUCK PROW PRESIDENT AND CHIEF EXECUTIVE OFFICER MATT KLEIN SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER MARCH 1, 2018


 
SAFE HARBOR STATEMENT Page 2 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, STATEMENTS IN 2018 GUIDANCE ABOUT OUR REVENUE, OPERATING MARGIN, NET INCOME, EPS AND NET CASH PROVIDED BY OPERATING ACTIVITIES FOR 2018 AND OTHER ASSUMPTIONS CONTAINED THEREIN FOR PURPOSES OF SUCH GUIDANCE, OUR NEW CREDIT FACILITY, DEBT PAYMENTS, EXPENSE SAVINGS, CONTRACT OPPORTUNITIES, BIDS AND AWARDS, COLLECTIONS, BUSINESS STRATEGY, OUTLOOK, OBJECTIVES, PLANS, INTENTIONS OR GOALS, AND ANY DISCUSSION OF FUTURE OPERATING OR FINANCIAL PERFORMANCE. WHENEVER USED, WORDS SUCH AS "MAY," "WILL," "LIKELY," "ANTICIPATE," "ESTIMATE," "EXPECT," "PROJECT," "INTEND," "PLAN," "BELIEVE," "TARGET," "COULD," "POTENTIAL,” “ARE CONSIDERING,” "CONTINUE," 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. FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE RESULTS CONTEMPLATED BY THE FORWARD-LOOKING STATEMENTS, OUR HISTORICAL EXPERIENCE AND OUR PRESENT EXPECTATIONS OR PROJECTIONS. THESE RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO: OUR DEPENDENCE ON A FEW LARGE CONTRACTS FOR A SIGNIFICANT PORTION OF OUR REVENUE; COMPETITION IN OUR INDUSTRY; OUR DEPENDENCE ON THE U.S. GOVERNMENT AND THE IMPORTANCE OF OUR MAINTAINING A GOOD RELATIONSHIP WITH THE U.S. GOVERNMENT; OUR ABILITY TO SUBMIT PROPOSALS FOR AND/OR WIN POTENTIAL OPPORTUNITIES IN OUR PIPELINE; OUR ABILITY TO RETAIN AND RENEW OUR EXISTING CONTRACTS; PROTESTS OF NEW AWARDS; ANY ACQUISITIONS, INVESTMENTS OR JOINT VENTURES, INCLUDING THE INTEGRATION OF SENTEL CORPORATION INTO OUR BUSINESS; OUR INTERNATIONAL OPERATIONS, INCLUDING THE ECONOMIC, POLITICAL AND SOCIAL CONDITIONS IN THE COUNTRIES IN WHICH WE CONDUCT OUR BUSINESSES; CHANGES IN U.S. GOVERNMENT MILITARY OPERATIONS, INCLUDING ITS OPERATIONS IN AFGHANISTAN; CHANGES IN, OR DELAYS IN THE COMPLETION OF, U.S. OR INTERNATIONAL GOVERNMENT BUDGETS; GOVERNMENT REGULATIONS AND COMPLIANCE THEREWITH, INCLUDING CHANGES TO THE DEPARTMENT OF DEFENSE PROCUREMENT PROCESS; CHANGES IN TECHNOLOGY; INTELLECTUAL PROPERTY MATTERS; GOVERNMENTAL INVESTIGATIONS, REVIEWS, AUDITS AND COST ADJUSTMENTS; CONTINGENCIES RELATED TO ACTUAL OR ALLEGED ENVIRONMENTAL CONTAMINATION, CLAIMS AND CONCERNS; OUR SUCCESS IN EXPANDING OUR GEOGRAPHIC FOOTPRINT OR BROADENING OUR CUSTOMER BASE, MARKETS AND CAPABILITIES; OUR ABILITY TO REALIZE THE FULL AMOUNTS REFLECTED IN OUR BACKLOG; IMPAIRMENT OF GOODWILL; OUR PERFORMANCE OF OUR CONTRACTS AND OUR ABILITY TO CONTROL COSTS; OUR LEVEL OF INDEBTEDNESS; OUR COMPLIANCE WITH THE TERMS OF OUR CREDIT AGREEMENT; SUBCONTRACTOR AND EMPLOYEE PERFORMANCE AND CONDUCT; OUR TEAMING ARRANGEMENTS WITH OTHER CONTRACTORS; ECONOMIC AND CAPITAL MARKETS CONDITIONS; OUR ABILITY TO RETAIN AND RECRUIT QUALIFIED PERSONNEL; OUR MAINTENANCE OF SAFE WORK SITES AND EQUIPMENT; OUR COMPLIANCE WITH APPLICABLE ENVIRONMENTAL, HEALTH AND SAFETY REGULATIONS; OUR ABILITY TO MAINTAIN REQUIRED SECURITY CLEARANCES; ANY DISPUTES WITH LABOR UNIONS; COSTS OF OUTCOME OF ANY LEGAL PROCEEDINGS; SECURITY BREACHES AND OTHER DISRUPTIONS TO OUR INFORMATION TECHNOLOGY AND OPERATIONS; CHANGES IN OUR TAX PROVISIONS INCLUDING UNDER THE TAX CUTS AND JOBS ACT, OR EXPOSURE TO ADDITIONAL INCOME TAX LIABILITIES; CHANGES IN U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES; ACCOUNTING ESTIMATES MADE IN CONNECTION WITH OUR CONTRACTS; OUR EXPOSURE TO INTEREST RATE RISK; OUR COMPLIANCE WITH PUBLIC COMPANY ACCOUNTING AND FINANCIAL REPORTING REQUIREMENTS; TIMING OF PAYMENTS BY THE U.S. GOVERNMENT; RISKS AND UNCERTAINTIES RELATING TO THE SPIN-OFF FROM OUR FORMER PARENT; AND OTHER FACTORS SET FORTH IN PART I, ITEM 1A, – “RISK FACTORS,” AND ELSEWHERE IN OUR 2017 ANNUAL REPORT ON FORM 10-K AND DESCRIBED FROM TIME TO TIME IN OUR FUTURE REPORTS FILED WITH THE 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.


 
Q4 & FULL-YEAR 2017 HIGHLIGHTS Page 3 • Q4 2017 financial results o Revenue of $296 million, up $8 million or 2.6% o Operating margin of 3.5% o Diluted EPS of $3.70; adjusted diluted EPS 1 $0.57 • Full-year 2017 financial results o Revenue of $1,115 million, down $76 million or 6.4% o Operating margin of 3.7% o Diluted EPS of $5.31; adjusted diluted EPS 1 $2.17 o Net cash provided by operating activities of $35.4 million • Developed and began the execution of our strategy to become a leader in the converged infrastructure market • Added several new leaders to position Vectrus for future growth • Negotiated and closed new and expanded credit facility • Increased backlog 24% to $2.9 billion • Successfully phased-in several multi-year contracts of approximately $1.4 billion (1) See appendix for reconciliation of non-GAAP measure. Change in deferred tax liability related to Tax Cuts and Jobs Act.


 
U.S. Air Force SECURING THE BASE Page 4 Contract Name Contract Type Contract Value Contract Duration Maxwell BOS Firm-Fixed Price $278M May 2017 Mar 2024 Keesler Firm-Fixed Price $97M Aug 2017 May 2024 AFCAP Firm-Fixed Price $23M Mar 2017 Mar 2021 OPMAS-E Firm-Fixed Price $115M Jun 2017 Jan 2022 Kuwait DFAC 3.0 Cost-Plus $108M Feb 2018 Feb 2023 Integrated Electronic Surveillance System Maintenance Firm-Fixed Price $4.5M Jan 2018 Jan 2021 Thule Firm-Fixed Price $411M Oct 2017 Sept 2024 U.S. Army Range Support Services II Cost-Plus $488M Oct 2017 Mar 2034


 
27%25% 73%75% 0% 20% 40% 60% 80% 100% 20172016 Firm-Fixed-Price Cost-Plus and Cost Reimbursable 84% 2% 14% 82% 2% 16% Army Navy Air Force $0.7 $0.7 $2.2 $1.7 20172016 Funded Unfunded SHIFTING PORTFOLIO Page 5 Contract Mix ShiftDiversifying Client Mix Increased Backlog ($B) Favorable Prime / Sub Mix (2017) 97% 3% Prime Sub 2 0 1 7 2 0 1 6 $2.4 $2.9


 
BUSINESS UPDATE Page 6 • Capital deployment will focus on organic and inorganic growth opportunities that align with our strategy • New business update o Almost $7 billion in potential new business opportunities identified over the next 12 months o Approx. $1 billion of proposals submitted and pending potential award • K-BOSSS and LOGCAP V update • Fiscal 2018 guidance • Colorado Springs headquarters relocation to a new, employee friendly, and modernized facility • Subsequent to year-end, on January 23, 2018 Vectrus purchased SENTEL Corporation


 
SENTEL CAPABILITIES Page 7 SENTEL is a mission-focused business with expertise in specialized disciplines including Engineering and Advanced Technology Solutions, Intelligence Mission Support, and Logistics and Supply Chain Management (est. 1986). Fiscal 2017 revenue was $107 million. • Worldwide secure construction design and oversight • Multi-level secure network design and certification • Multi-source intelligence- related services • Horizontally integrated security and engineering techniques Mission Support Provides multidisciplinary mission support across various clients, primarily the intelligence community. In September 2016, SENTEL won its largest intel contract as a prime to provide Worldwide Logistics Management Services. • Systems Integration • Electromagnetic Effects • Engineering • Data Analysis • Software Engineering • Secure Network Solutions Develops solutions designed for spectrum management systems, sensor networks, border surveillance systems, perimeter surveillance systems. Engineering & IT SENTEL has a legacy in electromagnetic effects, ensuring that all components (platforms, systems, subsystems, equipment) on a ship/aircraft can operate without interference. Also provides various IT support and software engineering to DoD & Federal Civilian clients. • Initial Distribution • Storage Warehousing • Asset Management • Management & Redistribution Support • Disposal Operations Logistics Provides a wide range of services to address logistical planning through the execution of sustainment operations. In February 2016, SENTEL was awarded the largest task order in its history to provide logistics support for the Logistics Readiness Center at Fort Bragg.


 
Page 8 DIFFERENTIATE THROUGH HIGHER-VALUE OFFERINGS ATTAIN 7% EBITDA MARGINS GROW REVENUE TO $2.5B HOW: Transform the way in which Logistics and Facilities services are delivered; become a full lifecycle provider in the converged infrastructure market; create partnerships with leading solutions providers ACTION: Transform Vectrus into a higher value, technology-enabled and differentiated platform ACTION: Grow revenue through deliberate organic activities and purposeful and prudent acquisitions HOW: Organic expansion of programs and contracts; Business development/sales enhancement; inorganic opportunities ACTION: Improve business positioning to yield 7% EBITDA margins HOW: Grow Top line; execution of Enterprise Vectrus; infuse higher value capabilities into our programs Vectrus will be an innovator and leader in the convergence of our clients' physical and digital infrastructure and supply chains, targeting $2.5 billion in revenue and 7% EBITDA margins FIVE YEAR PLAN, TARGETED OUTCOMES


 
2017 FINANCIAL RESULTS Page 9 (1) See appendix for reconciliation of non-GAAP measure. Change in deferred tax liability related to Tax Cuts and Jobs Act. (In millions, except Operating Margin and Diluted Earnings Per Share) Q4 2017 Q4 2016 vs 2016 2017 2016 vs. 2016 Revenue 295.8$ 288.2$ 7.6$ 1,114.8$ 1,190.5$ (75.7)$ Operating Income 10.3$ 8.6$ 1.7$ 41.2$ 42.8$ (1.6)$ Operating Margin 3.5 % 3.0 % 0.5 % 3.7 % 3.6 % 0.1 % Net Income 41.6$ 4.4$ 37.2$ 59.5$ 23.7$ 35.8$ Adjusted Net Income 1 6.4$ 4.4$ 2.0$ 24.4$ 23.7$ 0.7$ Diluted Earnings Per Share 3.70$ 0.40$ 3.30$ 5.31$ 2.16$ 3.15$ Adjusted Diluted Earnings Per Share 1 0.57$ 0.40$ 0.17$ 2.17$ 2.16$ 0.01$ Net Cash Provided by Operating Activities 35.4$ 36.6$ (1.2)$ Three Months Ended December 31, Year Ended December 31,


 
BACKLOG(1) Page 10 (2) (1) Total backlog represents firm orders and potential options on multi-year contracts, excluding potential orders under IDIQ contracts. Backlog also excludes contracts awarded to Vectrus but currently in protest with the GAO or the Federal Court of Claims. • Total backlog $2,933 million as of December 31, 2017 o Funded backlog $719 million o Unfunded backlog $2,214 million $0.7 $0.9 $0.9 $0.8 $0.7 $1.7 $2.0 $1.9 $2.3 $2.2 $- $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Funded Unfunded $2.4 $2.9 $2.8 $3.1 $2.9 ($B)


 
2018 GUIDANCE SUMMARY Page 11 2018 guidance assumptions: • Non-recurring transaction related expenses related to acquisition of SENTEL of $3 million • Capital expenditures approximately $9 million • Depreciation and amortization approximately $4.2 million • 2018 mandatory debt payments $4 million • Interest expense approximately $4.3 million • Estimated tax rate of 22% • Diluted EPS assumes 11.3 million weighted average diluted shares outstanding at December 31, 2018 (1) See appendix for reconciliation of non-GAAP measure. Change in deferred tax liability related to Tax Cuts and Jobs Act. $ millions, except for operating margin and per share amounts 2017 2018 Mid Var %Var Revenue 1,205$ to 1,275$ 1,115$ 1,240$ 125$ 11.2 % Operating Margin 3.6 % to 4.0 % 3.7 % 3.8 % 10 bps Net Income 30.5$ to 36.4$ 59.5$ 33.5$ (26.0)$ (43.7)% Adjusted Net Income 1 24.4$ Diluted EPS 2.70$ to 3.22$ 5.31$ 2.96$ (2.35)$ (44.3)% Adjusted diluted EPS 1 2.17$ Cash Provided by Operating Activities 35.0$ to 39.0$ 35.4$ 37.0$ 1.6$ 4.5 % 2018 Guidance


 
APPENDIX Page 12


 
RECONCILIATION OF NON-GAAP MEASURES Page 13 The primary financial performance measures we use to manage our business and monitor results of operations are revenue trends and operating income trends. In addition, we consider adjusted net income and adjusted diluted earnings per share to be useful to management and investors in evaluating our operating performance for the periods presented, 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. Adjusted net income and adjusted diluted earnings per share, however, are not measures of financial performance under general ly accepted accounting principles in the United States of America (GAAP) and should not be considered a substitute for net income and diluted earnings per share as determined in accordance with GAAP. Reconciliations of these items are provided below. "Adjusted net income" is defined as net income, adjusted to exclude items that may include, but are not limited to, other income; significant charges or credits that impact current results but are not related to our ongoing operations and unusual and infrequent non-operating items and non-operating tax settlements or adjustments, such as revaluation of our deferred tax liability as a result of the Tax Cuts and Jobs Act and net settlement of uncertain tax positions. "Adjusted diluted earnings per share" is defined as adjusted net income divided by the weighted average diluted common shares outstanding. (In thousands, except per share data) Adjusted Net Income and Adjusted Diluted Earnings Per Share (Non-GAAP Measure) 2017 2016 2017 2016 Net income 41,567$ 4,409$ 59,497$ 23,655$ Revaluation of deferred tax liability 1 (35,139) — (35,139) — Adjusted net income 6,428$ 4,409$ 24,358$ 23,655$ GAAP EPS, dilu e $3.70 $0.40 $5.31 $2.16 Adju t d EPS, dilut d $0.57 $0.40 $2.17 $2.16 Weighted average common shares outstanding, diluted 11,234 10,988 11,209 10,974 Three Months Ended December 31, Year Ended December 31, 1 Change in deferred tax liability related to change in federal tax rate under Tax Cuts and Jobs Act.


 
CHUCK PROW PRESIDENT AND CHIEF EXECUTIVE OFFICER MATT KLEIN SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER VECTRUS FOURTH QUARTER 2017 RESULTS AND ISSUANCE 2018 GUIDANCE


 
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