Q1 2021 Vectrus Inc Earnings Call
Thank you for joining us for vector is the first quarter 2021 earnings conference call and webcast of today's call is being recorded my name is Sherry and I'll be the operator for today's call.
At this time, all participants have been placed in a listen only mode.
Following managements presentation I will open up the call of face Q&A session. If anybody needs. The operator assistance. Please press star One star zero on your telephone keypad I will now pass the call over to Mike Smith, Vice President of Treasury, corporate development and Investor relations at that price.
Yeah.
Thank you.
Good afternoon, everyone welcome to the vector its first quarter 2021 earnings conference call joining.
Joining us today are Chuck Prow, President and Chief Executive Officer, and Susan Lynch, Senior Vice President and Chief Financial Officer.
Slides for today's presentation are available on our Investor Relations website investors got back from <unk> Dot com.
Please turn to slide two.
Okay.
During today's presentation management will be making forward looking statements pursuant to the safe Harbor provisions of the federal Securities laws.
Please review our safe Harbor statements in our press release and presentation materials for a discussion of some of the factors that may cause actual results to differ materially from the results contemplated by these forward looking statements.
The company assumes no obligation to update its forward looking statements.
Okay.
Additionally, I'd like to point out that we will be discussing and reporting adjusted non-GAAP metrics.
Including adjusted operating income and margin adjusted EBITDA and margin adjusted net income and adjusted diluted earnings per share.
The definition of these non-GAAP measures can be found in our presentation materials press release and form 10-Q.
At this time I would like to turn the call over to check growth.
Thank you Mike and good afternoon, everyone. Thank you for joining us on the call today.
Please turn to slide three.
During the first quarter, we continued to execute our strategy of making vectra, the premier converged infrastructure company in our market.
I'd like to thank all of our employees and partners for a debt to contributions and supportive of the mission of Reoperate around the globe throughout the pandemic.
Their innovation and resourcefulness are critical to our performance.
We began the year with strong operating performance revenue in the first quarter increased 23% year over year.
$434 million and was supported by organic growth of 4%.
The growth in revenue was driven by our recent acquisitions continued phasing of the block five as well as growth in our core programs. We also improved adjusted EBITDA margin by 60 basis points year over year to four 8% of.
Additionally, adjusted diluted earnings per share increased 46% year over year to $1 20.
Last quarter, we completed two strategic acquisitions, but out of key clients capabilities and accelerated our converged infrastructure strategy.
The integration of these acquisitions at the well underway and on track.
We remain excited about the combined talent offerings and opportunities for accelerated growth.
In the first quarter, we won several important awards reaffirming of our strategy, while helping to lay the groundwork for continued growth.
We ended the quarter with total backlog of $4 $5 billion flow.
Former total backlog of five $8 billion and includes contracts awarded the vector is currently under protest.
Subsequent to the fourth quarter are $882 million on debt walk the recompete, what the protest with the G O.
The decision is expected in June.
I am confident in the Army The award decision and look forward to continuing to support the critical mission over the new five year period of performance.
Recently, the by the administration of announced at the U S would withdraw suits from Afghanistan.
That's just the revenue in Afghanistan makes up of low single digit percentage of total revenue importantly, the momentum we are seeing on our core business is expected to more than offset the minimal financial impact from Afghanistan.
As such we are increasing the low end of our 2021 guidance.
We are closely managing the fate of Logcap five and currently anticipate being at full operational capacity in Iraq the summer.
In terms of and they'll pay Tom the.
Phase then processed remains the elongated the base access restrictions associated with COVID-19.
We anticipate phasing in later this year with full operational capability in early 2022.
Please turn to slide four where I will discuss market trends.
And we have discussed on prior calls due to technological advancement and cost pressures are clients of rapidly migrating from traditional ways of operating their infrastructures to a much more instrumented predictive and converged approach.
The expectations from our clients the clients are evolving to include enhanced mission capabilities.
So the performance lower cost points and outcome based contract structures at.
At the macro level, we are seeing client examples of end use cases of the rapidly emerging across the fence national security and the federal civilian markets supports our expectation for future growth in the converged infrastructure market.
Examples include five G pilot installations of the future NASA sustainability center at the end Research Laboratory.
So the Air Force base micro grid and the construction of the NGA West Greene Leach facility.
Migration has been amplified by our largest client the U S. Army. The recently released the installation strategy. This is the first strategy to identify the modernized resilient and sustainable installations.
The strategy outlined how every installation will be of smart platform of capabilities utilizing connected sensors to enhance the operational capacity and improve the delivery of services the.
The armies of Golar to modernize its 156 installations over the next 15 years.
One of the army strategic outcomes of to enhance the readiness and resiliency Edison installations, which as seen on the right side of the slide implement solutions for protection resilience mission assurance education and training.
As the leading provider of provider of integrated security solution that provides the stomach protection across the physical and digital spectrum. We believe that price is well positioned to support the army and the mission.
Increasingly clients expect strategic outcomes to be supported by two enablers.
Analytics and partnerships both of which are part of that with the current initiatives. Overall, we believe this converged evolution will transform the federal technical services sector and yield greater addressable market two veteran overtime.
Please turn to slide five where I will discuss how the beckwith of innovating and investing to position of leadership in this market.
As we started this journey in 2017 by constructing of go to market strategy and thoughtfully engaging clients net.
We leveraged our experience and our installations are being supported today without clients should prepare for for the future by providing thought leadership and white papers to the marketplace.
Then we further enhanced our position by engaging of partnerships creating solution.
Ducting strategic acquisitions.
Today, we are on starting operational technologies that provide real world immediately practical capabilities and the core functional services and that's the point solutions to deliver integrated innovative smart city.
<unk> and energy efficient technologies to clients infrastructures.
These solutions, which you can see on the slide include back with the integrated security platform.
The installation of the future platform.
Zero Trust logistics modernization of architectural over five G and electric energy solutions. All of these offerings are now represented a refreshed the vectra Satcom website.
And there are either part of our current programs or big bet into contracts.
As a result of our strategy and execution that Chris is making great progress in positioning to be a leader for the next phase of growth and converged infrastructure.
Please turn to slide six.
Our differentiated capabilities are already resulting in awards such as our work with the Navy and Marine Corps, which is <unk>, which as you can see on the slide you think five G to build smart warehouses are on.
Operational technologies and solutions that have been developed over the past three years places Vectra is at the forefront of five G and converged infrastructure of enablement.
We plan to leverage our operational expertise and the work we are doing as part of the largest full scale five G tests to support our clients' migration to converged infrastructures. Please turn to slide seven.
We continue to make progress on our deliberate campaign based approach to growth with several important new ones in the quarter.
We were awarded the position on the GSA contract to provide facilities maintenance energy management water conservation and support services as well as the aerospace coating solutions to all federal agencies, it's of the new rock the market for mattress debt.
Currently see the approximately $500 million of full and open annual spending.
Plan to utilize this vehicle that the channels of the market. Some of our previously mentioned that the solutions, while accessing new clients such as the V E H H S and DHS.
During the quarter. That's just for the awarded at Seabee are an integrated defense Prime O T. A contract, which was based on a well known capabilities and sensor integration internet of things and perimeter security solutions the.
Ward is valued at $19 million of over two years and extends the accuracy of the Iot machine learning and data analytics offerings.
The separate as co sponsored between D O D and the department of Homeland Security and provide sensor integration as well as data integration and the analysis related to threat detection domestically.
This program brings our digitally integrated solutions that were originally deployed overseas to the U S to support the protection of the homeland. We are proud to have been selected for such an important mission and look forward to the opportunity to bring a unique and differentiated solution utilized by the D O D to a new client.
The market.
This work is illustrative of how all of that sort of says inserting technology to deliver a more integrated and comprehensive suite of solutions in support of the converged infrastructure market.
Our work supporting the airports are the most critical mission requirements was further strengthened in the first quarter with two wins under the Air Force contract augmentation program or have kept five out of your acute contract.
Given current trends, we believe our work on have kept five will support will surpass the $130 million of order we achieved on the App cat four.
Our success on a GAAP demonstrate beckwith of the ability to support our clients' contingency and humanitarian support.
Of course, with a full range of facilities and logistical services across the globe.
We are pleased with the Air Force has confidence on veterans day to support their critical missions and look forward to building on our exemplary service and commitment to this very important program.
We are also continuing to execute on a variety of acute portfolio and during the quarter. One of 22 million dollar five year task order under the Army's I test three years contract to provide enterprise it services to the.
The U S Army Corps of engineers across the Europe, Yes.
The notable win for Vectra is demonstrating an ability to execute on a variety of acute portfolio, while leveraging our 30 year history of providing complex mission critical it services across the globe.
Furthermore, this task order provides veteran with an opportunity to grow its presence in support of the 37000 U S. Army Corps of engineers civilians and soldiers and over 130 countries worldwide.
Well if that Chris is well known for it I T O&M of network communication services, and austere and challenging environments.
We have significantly advanced our offering over the past several years. Most recently the acquisition of genetics brought capabilities such as our it service management design, including cloud implementations and application migration.
Kinetics had worked with more than 25 government clients. The plan design and integrate it service management solutions that are practical and maintainable.
I am pleased to announce that out of the first quarter kinetics was awarded the $33 million for.
All of your contracts to support the Navy's technology modernization efforts, including systems migration reporting and analysis and operational support.
We are using these enhanced capabilities to increase our already robust full lifecycle I T O&M service offerings, while inserting them into current programs.
Please turn to slide eight.
Our wins in the first quarter represent the progress we are making in executing all of our long term strategy.
We expect additional new wins in 2021 from our approximately one $7 billion pipeline of bids currently submitted awaiting award the <unk>.
Outlook for future growth remained solid with $10 billion of new opportunities that we plan to bid over the next 12 months while.
While the timing of awards the difficult to predict we are confident in our ability to effectively compete for business and are approximately 12 billion dollar new business pipeline.
Now I would like to turn the call over to our Chief Financial Officer, Susan Lynch for a review of the financials.
Thanks, Chuck and good afternoon, everyone. Please turn to slide nine.
We are very pleased with our first quarter results and the contributions from our recent acquisitions.
First quarter, 2021 revenue was $434 million up $82 $3 million or 23% year on year.
Excluding the contribution from our two recent acquisitions genetics N H H P organic revenue growth was 4%.
First quarter results were minimally impacted by COVID-19.
Adjusted EBITDA for the first quarter of 2021 was $27 million.
41% from last year.
Adjusted EBITDA margin was four 8% up 60 basis points from the first quarter of 2020.
Adjusted EBITDA was up $6 $1 million year over year as a result of the acquisitions and was up organically do the program performance and continued cost discipline throughout the organization.
First quarter 2021 interest expense was $1 $9 million up slightly year on year due to a higher revolver balance throughout the quarter due to the other companies to acquisition late last year.
Diluted earnings per share for the first quarter of 2021 with the dollar two cents compared to 74 in the prior year.
Adjusted EPS, adding back amortization from acquired intangible assets was the $1 20 up 46% year on year.
The increase in adjusted EPS is the result of our recent acquisitions program performance continued cost discipline and a lower tax rate for the period.
Please turn to slide 10.
Our strategic execution and recent acquisitions have resulted in a more capable and diverse company.
Navy revenue now represents 13% of total revenue compared to 4% during the same period last year, driven by the acquisitions and organic growth.
Our deliberate and tailored efforts associated with the Navy campaign are yielding significant results with a 36% revenue CAGR from 2016 through 2020.
Revenue with the Air Force now represents 18% of total revenue and revenue with the Army now represents 59% of total revenue.
Our strategic acquisitions and execution have also further diversified our geographic portfolio.
In the first quarter, our U S. Based revenue composition grew to 35% of total revenue as compared to 23% at the same time last year.
Our geographical footprint will continue to broaden as we ramp up the logcap five Indo pay Com task order.
Please turn to slide 11.
First quarter 2021, total backlog was approximately $4 $5 billion compared to $4 $1 billion in the first quarter of 2020.
Total pro forma backlog was $5 $8 billion and include the contract wins currently under protest.
Funded backlog was $908 million the company's trailing 12 month pro forma book to Bill was one seven times compared to 1.5 times in Q1 2020.
It's important to note that given the rapid response and contingency nature of Logcap five and similar IDI cues, we are expecting of greater volume of task orders that could quickly migrate from some middle status to backlog.
Please turn to slide 12.
Net cash used in operating activities in the first quarter 2021 was $21 $7 million compared to cash provided from operations of $1 $1 million in the first quarter of 2020.
The operational cash flow usage in the quarter was due to strong fourth quarter collections and several programs startups in the quarter that delayed collections from our historical norm.
We expect operating cash flow to improve from the first quarter and project 2021, net cash from operations between 58 and $65 million.
Cash at quarter end was approximately $38 $3 million.
Total debt was $177 million down $7 million from the first quarter of 2020.
Net debt was $139 million up of $101 million from the first quarter of 2020.
Due to the acquisitions of genetics and H H B on December 31, 2020.
The company's total leverage ratio was two times well below its covenant level of three five times.
Please move to slide 13.
In light of our strong first quarter performance, we are increasing the lower end at the midpoint of the guidance range.
Revenue guidance is 1.68 to $1 71, $5 billion per year on year growth of 20% to 23%.
We are increasing the low end of adjusted EBITDA margin by 20 basis points to four 8% with the high end of 5%.
Adjusted diluted earnings per share guidance, adding back amortization from acquired intangible assets is in the range of $4 of 55, since the $4.85, reflecting year on year growth of 35% to 44%.
We expect net cash provided by operating activities to now be in the range of $58 million to $65 million.
Now I'd like to open the call up to questions operator.
Thank you if he would like to ask the question. Please press star.
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Good afternoon nice quarter.
Thank you Joe how are you.
Hope everyone's well there.
You mentioned in your prepared remarks in the in the the slide about of growing our addressable market.
So previously you had in another presentation of talked about our total addressable market of 140 billion of our U.
Increasing that size or is that included in what you were talking about today.
No. The that that's included in what we talked about today and what we mentioned today is really just.
Kind of of continued reaffirmation of the fact that we are seeing greater addressable market.
Both with U S clients as well as the overseas clients.
Okay, Great just wanted to clear of that up.
Obviously I think you guys get asked this question every quarter. So I'll I'll pass it out you know the the goals you guys had set for the two of the half billion of revenue in the 7% EBITDA margin you know how comfortable are you you're still with obtaining the right level.
Yeah, we talked about on paying that level in 2023, and the five year five year plan on.
I have seen nothing to that point in time in our journey.
That would that would lead us to back away from that.
Continuing to make great progress on the top line.
And as you've seen we've had a couple of quarters now really solid margin.
The margin expansion results of as well so we're.
It's not going to the easy you know, we're going to work hard, but there's nothing that we've seen to this point in time that would have us back off of that commitment Susan.
I completely agree Chuck you know who that will be at the end of 2023, I think our revenue growth for the quarter was excellent.
And we can we just kind of keep marching along with organic and inorganic growth.
Okay, Great and then kind of more on the the big picture here of chalk.
You know what we're seeing as you mentioned in the prepared remarks on the by the administration you know attempting to to withdraw from Afghanistan.
How concerned are you with some of the other you know middle East.
Locations that you want you know specifically.
Centcom that the the administration may start to take a look at that and want to start to wind some of that down.
So we have not seen nor heard both either.
The publicly and of our through our client channel.
The major op type of changes outside of Afghanistan.
As I mentioned on the prepared remarks, Afghanistan is kind of of low single digit geography for us.
It's also worth noting that much of that work in Afghanistan.
On occasion, there comp related and the exact amount of adjustment to of that workload is still a bit unclear, but what we provided and we believe is a very conservative estimate.
Last point that I'll make is it is really we've seen the biting the administration really put a lot of attention to what they call their pivot to Asia and as you know with our position in Endo pay com, both with the Logcap on other contracts, we feel well positioned for that shift.
As well so there are changes as you know most of our revenue come from the O&M line in the budget, which tends to stay pretty stable.
So we're feeling at this point of time like we have a good sense of what's coming our way from a budgetary perspective.
Great. Thank you for taking my questions again nice quarter.
Thank you good to talk to you.
Yeah.
Our next question is from Joseph de Nardi with Stifel. Please proceed.
Oh, Hey, good afternoon.
Chuck now that you all had been.
Operating or have some some better transparency into logcap could you talk about the the revenue opportunity you think that exist there once you get to.
A full run rate.
Even if it's within our range.
Sure. So hi, Joe how are you. So you know we've talked about the.
This year.
What we're projecting right now.
Our midpoint.
We were very very pleased with the way that the and the rate and pace.
Of that we weren't able to phase in two of our phasing into I should say Iraq.
We feel that we have a much better understanding now of the workload debt will remain in Kuwait and the rest of the middle East.
And then as you know we've not even begun yet to do a phased in activities on Kwajalein. So that's a bit of a long winded way of saying that we feel very confident.
At the at the spending level against the Logcap contract and the last point that I'll make and I've made on prior calls is we are really really pleased with the amount of activity that we see.
In the Endo pay com for non quasi lending related task.
The task are continuing to.
To be visible and in fact are becoming a bit more substantive from our side perspective as well.
Okay. Okay, and then maybe just contractually Chuck just to the extent that.
You know the unit.
What is the state strides to establish a bigger presence in the Indo Paik on region.
What ability you would have you would play.
And in that process.
Well.
Well they did.
That will happen and a number of different ways to the extent.
That the.
Of that growth of that expansion.
Would come through the Logcap vehicle.
We all are the awardee for Indo pay com and thus have kind of.
What is the right.
We have oh the.
The whole sort of price for anything.
That is what is considered to be urgent and compelling vis vis the Logcap Award.
We have been very pleased with the interaction we've had with the Navy.
The vis vis the the.
On the Logcap vehicle as well.
And there are other emerging contract, which is the recently released the RFP for the Philippines boss contract as well.
Given our increased scale.
You should be able to play a very aggressively for that award as well.
The last point is and I can't go into a lot of detail, but you can look at the press with regard to various.
Exercises that are occurring in the endo paid time area of operation now and to the extent that those are kind of Logcap supported you can play of that into our into our growth.
Our thoughts and then they'll pay kind of as well.
Okay. That's helpful. And then maybe lastly, when when we get some additional clarity around the budget yeah, hopefully in a state of few weeks can you just talk about kind of what what you all are going to look at first when that comes out of kind of what's the most relevant for you all within the budget. Thank you.
Well you know what what's always most relevant to us is our core competency.
Our base operations logistics and.
Modernization, particularly O&M modernization efforts.
As we mentioned in our prepared remarks the.
The Army as an example has been very aggressive and its installation upgrade.
Our plans are we see the same thing in other clients, such as NASA and D. H S as well.
So the federal government across the board in my 20 plus years experience in this marketplace.
We're really placing as much emphasis as I have ever seen.
Two upgrading its infrastructure.
It's the installation of <unk>.
Grading its supply chain the more.
More innovative and instrumented ways of doing business.
A lot of that is quite frankly, it's cheaper to do things of that way and I would like to think that we've played a leading role and our positioning for some of the newer capabilities and the newer approaches to infrastructure installation and supply chain management.
That's helpful. Thank you.
Very good thank you.
We have reached the end of our question and answer session I would like to turn the conference back over to the management for closing remarks.
Thank you very much and thanks to everybody for joining us on the call. Today are we've enjoyed the discussion on look forward to updating you next quarter have a good day.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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