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Industrials - Aerospace & Defense - NYSE - US
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$ 1.56 B
Market Cap
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EARNINGS CALL TRANSCRIPT
EARNINGS CALL TRANSCRIPT 2021 - Q1
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Operator

Thank you for joining us for Vectrus First Quarter 2021 Earnings Conference Call and Webcast. Today's call is being recorded. My name is Sheri, and I'll be the operator for today's call. At this time, all participants have been placed in a listen-only mode. Following management’s presentation, I will open up the call for a Q&A session. .

I will now pass the call over to Mike Smith, Vice President of Treasury, Corporate Development and Investor Relations at Vectrus..

Michael Smith Corporate Vice President, Treasurer, Corporate Development & Investor Relations

Thank you. Good afternoon, everyone. Welcome to the Vectrus first quarter 2021 earnings conference call. 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 Web site, investors.vectrus.com..

Charles Prow

Thank you, Mike, and good afternoon, everyone. Thank you for joining us on the call today. Please turn to Slide 3. During the first quarter, we continue to execute our strategy of making Vectrus the premier converged infrastructure company in our market.

I'd like to thank all of our employees and partners for their contributions in supporting the missions we operate around the world 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 to $434 million and was supported by organic growth of 4%. The growth in revenue was driven by our recent acquisitions, continued phase-in of LOGCAP V, as well as growth in our core programs. We also improved adjusted EBITDA margin by 60 basis points year-over-year to 4.8%.

Additionally, adjusted diluted earnings per share increased 46% year-over-year to $1.20. Last quarter, we completed two strategic acquisitions that added key clients, capabilities and accelerated our converged infrastructure strategy. The integration of these acquisitions is 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 our strategy while helping to lay the groundwork for continued growth. We ended the quarter with total backlog of $4.5 billion.

Pro former total backlog was $5.8 billion and includes contracts awarded to Vectrus currently under protest. Subsequent to the fourth quarter, our $882 million OMDAC-SWACA recompete was protested with the GAO. A decision is expected in June. We remain confident in the Army's award decision.

I look forward to continuing to support this critical mission over the new five-year period of performance. .

Susan Lynch

Thanks, Chuck, and good afternoon, everyone. Please turn to Slide 9. 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, Zenetex and HHB, organic revenue growth was 4%. First quarter results were minimally impacted by COVID-19. Adjusted EBITDA for the first quarter of 2021 was $20.7 million, up 41% from last year. Adjusted EBITDA margin was 4.8%, 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 due to program performance and continued cost disciplines 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 company's two acquisitions late last year. Diluted earnings per share for the first quarter of 2021 with $1.02 compared to $0.74 in the prior year.

Adjusted EPS adding back amortization from acquired intangible assets was $1.20, up 46% year-on-year. The increase in adjusted EPS is a result of our recent acquisitions, program performance, continued cost disciplines 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. .

Operator

Thank you. . Our first question is from Joe Gomes with NOBLE Capital. Please proceed..

Joseph Gomes

Good afternoon. Nice quarter..

Charles Prow

Thank you, Joe.

How are you?.

Joseph Gomes

I’m doing all right. Hope you and everyone's well there. You mentioned in your prepared remarks and in the slide about a growing addressable market. And previously you had in another presentation had talked about a total addressable market of 140 billion.

Are you increasing that size or is that included in what you were talking about today?.

Charles Prow

No. That's included in what we talked about today. And what we mentioned today is really just kind of a continued reaffirmation of the fact that we are seeing greater addressable market, both with U.S. clients as well as overseas clients..

Joseph Gomes

Okay, great. Just wanted to clear that up. And obviously, I think you get asked this question every quarter, so I'll toss it out.

The goals you guys had set for the 2.5 billion of revenue and the 7% EBITDA margin, how comfortable are you still with obtaining that level?.

Charles Prow

Yes, we talked about it at being that level in 2023 and the five-year plan. I have seen nothing to this point in time in our journey 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 expansion results as well.

So it’s not going to be easy. 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?.

Susan Lynch

No, I completely agree, Chuck. That will be at the end of 2023. I think our revenue growth for the quarter was excellent. And we just kind of keep marching along with organic and inorganic growth..

Joseph Gomes

Okay, great. And then kind of more on the big picture here, Chuck. We're seeing, as you mentioned in the prepared remarks, the Biden administration attempting to withdraw from Afghanistan.

How concerned are you with some of the other Middle East locations that you are on, specifically CENTCOM that the administration may start to take a look at that and want to start to wind some of that down?.

Charles Prow

We have not seen nor heard. Both these are publicly and/or through our client channels of major architectural changes outside of Afghanistan. As I mentioned in the prepared remarks, Afghanistan is kind of a low single digit geography for us.

It's also worth noting that much of that work in Afghanistan is communications or comms related, and the exact amount of adjustment to that workload is still a bit unclear, but what we provided and we believe is a very conservative estimate.

The last point that I'll make is, is really we've seen the Biden administration really put a lot of attention to what they call their pivot to Asia. And as you know with our position in INDOPACOM, both with LOGCAP and other contracts, we feel well positioned for that shift as well. So there are changes, as you know.

Most of our revenue comes from the O&M line and the budget, which tends to stay pretty stable. So we're feeling at this point in time like we have a good sense of what’s coming our way from a budgetary perspective..

Joseph Gomes

Great. Thank you for taking my questions. Again, nice quarter..

Charles Prow

Thank you. Good to take to you..

Operator

Our next question is from Joseph DeNardi with Stifel. Please proceed..

Joseph DeNardi

Hi. Good afternoon.

Chuck, now that you all have been operating or have some better transparency into LOGCAP, could you talk about the revenue opportunity you think that exists there once you get to full run rate, even if it's within a range?.

Charles Prow

Sure. Hi, Joe. How are you? So we've talked about this year what we're projecting. We have raised our midpoint. We were very, very pleased with the way that in the rate and pace that we were able to phase into or are phasing into, I should say, Iraq.

We feel that we have a much better understanding now on the workloads that will remain in Kuwait and the rest of the Middle East. And then as you know, we've not even begun yet to do phase-in activities on Kwajalein. So that's a bit of a long winded way of saying that we feel very confident at the spending levels 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 INDOPACOM for non-Kwajalein related tasks. Those tasks are continuing to be visible, and in fact are becoming a bit more substantive from a site perspective as well..

Joseph DeNardi

Okay.

And then maybe just contractually, Chuck, to the extent that the United States tries to establish a bigger presence in the INDOPACOM region, what ability you would play in that process?.

Charles Prow

Well, that will happen in a number of different ways. To the extent that that growth or that expansion would come through the LOGCAP vehicle, we offer the awardee for INDOPACOM and thus have kind of exclusive. We have sole source price for anything that is -- what is considered to be urgent and compelling, vis-à-vis the LOGCAP award.

We have been very pleased with the interaction we've had with the Navy, vis-à-vis the LOGCAP vehicle as well. And there are other emerging contracts, which is a recently released RFP for the Philippines BOS contract as well, which, given our increased scale, we should be able to play 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 INDOPACOM area of operation now. And to the extent that those are LOGCAP supported, you can play that into our growth thoughts in INDOPACOM as well..

Joseph DeNardi

Okay, that's helpful. And then maybe lastly, when we get some additional clarity around the budget hopefully in a few weeks, can you just talk about kind of what you all are going to look at first when that comes out? Kind of what's most relevant for you all within the budget? Thank you..

Charles Prow

What's always most relevant to us is our core competencies, base operations, logistics and IT modernization, particularly O&M modernization efforts. As we mentioned in our prepared remarks, the Army as an example has been very aggressive in its installation upgrade plans. We see the same thing in other clients such as NASA and DHS as well.

So the federal government across the board in my 20-plus years experience in this marketplace are really placing as much emphasis as I've ever seen to upgrading its infrastructures, upgrading its installations, upgrading its supply chain to more innovative and instrumented ways of doing business.

A lot of that is quite frankly it's cheaper to do things that way. And I would like to think that we've played a leading role in positioning for some of these newer capabilities, and these newer approaches to infrastructure installation and supply chain management..

Joseph DeNardi

That’s helpful. Thank you..

Charles Prow

Thank you..

Operator

We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks..

Charles Prow

Thank you very much. And thanks to everybody for joining us on the call today. We've enjoyed the discussion and look forward to updating you next quarter. Have a good day..

Operator

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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