Q1 revenue +5.2% Y/Y to $456.5 million
Operating income of $5.2 million; Adjusted EBITDA margin¹ of 4.0%
Q1 fully diluted EPS of $0.24; Adjusted diluted EPS¹ of $1.01
Several key wins expand and solidify work with Army, Navy, and National Security clients
Reiterating revenue and adjusted diluted EPS¹ guidance

COLORADO SPRINGS, Colo., May 10, 2022 /PRNewswire/ -- Vectrus, Inc. (NYSE:VEC) announced first quarter 2022 financial results.

"Vectrus reported solid first quarter results driven by the continued expansion into LOGCAP V and our focus on diversification to new clients and markets," said Chuck Prow, Chief Executive Officer of Vectrus.

"During the quarter, revenue grew 5% year-over-year and 9% sequentially to $456 million. Revenue growth was driven by the continued phase-in of LOGCAP V, high op-tempo in the regions we operate in support of ongoing world affairs, as well as the progress made in executing growth in our core programs," said Prow. "With a continued focus on the needs of our clients, the Vectrus team supported several important missions during the quarter, including assisting the DoD with the establishment of a water supply system and water remediation efforts in Hawaii. In addition, we demonstrated our ability to transition quickly and recently became fully operational on LOGCAP V Kwajalein, approximately a month and a half ahead of schedule. We also leveraged our process-oriented phase in system and in a short period of time, achieved full operations at Ft. Benning following our December 2021 $250 million award. We are proud of this achievement and look forward to providing world class maintenance, transportation, and supply services for the US Army's Maneuver Training Center over the next five years."

"Notably, late in the first quarter Vectrus was awarded a strategically important task order to provide support for the U.S. Air Force in Europe as part of the European Deterrence Initiative," said Prow. "While currently small in value, this contingency task is providing mission critical services to our Air Force client in Europe. This effort exemplifies our global positioning and rapid response capabilities supporting our clients' most challenging and important missions."

Prow continued, "Adjusted EBITDA for the quarter was $18.2 million or 4.0% margin as we work through program efficiencies in the early phases of LOGCAP V implementation. Additionally, LOGCAP V is generating higher revenue volume with a greater amount of material and pass-through content that has a different margin complexion."

"We are continuing our positive momentum working with the Navy and during the first quarter were selected to complete the final phases of application development for the 5G Naval Base Coronado Smart Warehouse, which is demonstrative of our ability to provide converged solutions and operational technologies to clients," said Prow. "We were also recently awarded the follow-on contract for Spectrum Management with the Navy valued at $60 million. This award continues more than 30 years of support to the Navy in solving afloat electromagnetic interference and compatibility challenges for the fleet. Furthermore, Vectrus won a position on a $250 million five-year IDIQ vehicle that provides rapid development, prototyping, and systems integration to the Navy, Joint, and coalition forces worldwide utilizing numerous platforms and integrated capabilities. Vectrus will focus on embarkable systems that include cyber hardening, new technology insertion and retrofit of existing systems. In addition, we won an effort as subcontractor performing electromagnetic test and evaluation engineering. These are key wins that demonstrate our capabilities in engineering and operational technology, and our commitment to delivering a more integrated and comprehensive suite of solutions in support of the converged environment," Prow elaborated.

Prow continued, "Vectrus has worked diligently over the past several years to expand its presence with national security clients and, during the first quarter our teams were successful in securing several wins that enhance our footprint in the intelligence community."

Prow concluded, "Our first quarter results demonstrate Vectrus' realization and execution of our strategy to strengthen and grow the business through outstanding program execution, capability expansion, and diversification of our geographic and client footprint."

First Quarter 2022 Results

First quarter 2022 revenue of $456.5 million was up $22.5 million year-on-year. "Revenue grew 5.2% year over year boosted by our transition to full operational capability on LOGCAP V programs in Iraq and Kuwait late last year, and Kwajalein this year. In addition, revenue benefitted from transitioning Ft Benning and volume associated with rapid response and contingency efforts," said Susan Lynch, Senior Vice President and Chief Financial Officer. "This revenue growth was impressive given the headwinds associated with the withdrawal of the US military from Afghanistan," added Lynch. Operating income was $5.2 million or 1.1% margin. This includes M&A and integration related expenses of $9.1 million and amortization of acquired intangible assets of $2.3 million which were incurred in the quarter.

Adjusted operating income¹ was $16.6 million or 3.6% margin. Adjusted EBITDA¹ was $18.2 million or 4.0% margin as compared to $20.7 million or 4.8% in the prior year. "The year-on-year margin change was influenced by the significant amount of revenue and contracts that are in the early stages of their lifecycle. We believe margin on these contracts will improve over time as we apply our process improvement and Enterprise Vectrus initiatives. In addition, as we continue to support our LOGCAP V clients' supply chain needs, we are experiencing an increase in material and pass-through content which carries a lower margin. In aggregate, on average and over time we expect to see improvement in the margin profile as we drive operational efficiencies and diversify into higher margin scopes of work," said Lynch.

Fully diluted EPS for the first quarter of 2022 was $0.24 as compared to $1.02 in the prior year. Fully diluted EPS in the quarter included the aforementioned M&A and integration related costs. Adjusted diluted EPS¹ was $1.01 in the quarter as compared to $1.20 in the prior year. The change in adjusted diluted EPS¹ was primarily due to the above-mentioned change in Adjusted EBITDA¹.

Cash used in operating activities through April 1, 2022, was $26.4 million, compared to net cash used in operating activities of $21.7 million through the first quarter of 2021. Cash used in operating activities was negatively impacted in the current quarter by an approximately $8.0 million repayment of CARES Act tax deferrals and $2 million of merger related payments.

Net debt on April 1, 2022, was $96.8 million, down $41.9 million from April 2, 2021. Total debt on April 1, 2022, was $119.8 million, down $57.2 million from $177.0 million on April 2, 2021. Cash at quarter-end was $23.0 million. Total consolidated indebtedness to consolidated EBITDA¹ (total leverage ratio) was 1.4x compared to 2.0x at the same time last year.

Total backlog as of April 1, 2022, was $4.5 billion representing almost 2.5x the company's estimated 2022 revenue mid-point. Funded backlog was $0.8 billion. The trailing twelve-month book-to-bill was 1.0x as of April 1, 2022.

2022 Guidance

Lynch continued, "In light of our solid first quarter performance, we are reiterating our full-year 2022 guidance ranges for revenue and adjusted EBITDA, adjusted diluted EPS, and net cash provided by operating activities, excluding M&A related activities."

Due to the merger activities with Vertex, the company is not providing GAAP guidance or a reconciliation of forward-looking measures including adjusted diluted EPS to GAAP diluted EPS or adjusted EBITDA margin to GAAP net income due to the difficulty in forecasting the transaction timing and quantifying certain amounts that are necessary for such reconciliation. Reconciliations to the closest corresponding U.S. GAAP measures are not available without unreasonable efforts on a forward-looking basis due to the high variability, complexity and low visibility with respect to the charges excluded from these non-GAAP measures. The variability of such charges could potentially have a significant impact on our future U.S. GAAP financial results.

$ millions, except for EBITDA margins and per share amounts	2021 Actual	2022 Guidance			2022 Mid-Point	2022 Mid-Point vs 2021
Revenue	$1,784	$1,820	to	$1,860	$1,840	3.1 %
Adjusted EBITDA Margin	4.7 %	4.5 %	to	4.7%	4.6 %	(10) bps
Adjusted Diluted Earnings Per Share	$4.77	$4.57	to	$4.93	$4.74	(0.6) %
Net Cash Provided by Operating Activities	$61.3	$50.00	to	$53.50	$51.75	(15.6) %

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.

First Quarter 2022 Conference Call

Management will conduct a conference call with analysts and investors at 4:30 p.m. ET on Tuesday, May 10, 2022. U.S.-based participants may dial in to the conference call at 844-825-9789, while international participants may dial 412-317-5180. A live webcast of the conference call as well as an accompanying slide presentation will be available on the Vectrus Investor Relations website at https://app.webinar.net/b4KdmrqJ7En.

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 May 24, 2022, at 844-512-2921 (domestic) or 412-317-6671 (international) with passcode 10166668.

Footnotes:

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

About Vectrus

For more than 70 years, Vectrus has provided critical mission support for our customers' toughest operational challenges. As a high-performing organization with exceptional talent, deep domain knowledge, a history of long-term customer relationships, and groundbreaking technical expertise, we deliver innovative, mission-matched solutions for our military and government customers worldwide. Whether it's base operations support, supply chain and logistics, IT mission support, engineering and digital integration, security, or maintenance, repair and overhaul, our customers count on us for on-target solutions that increase efficiency, reduce costs, improve readiness, and strengthen national security. Vectrus is headquartered in Colorado Springs, Colo., and includes about 8,100 employees spanning 205 locations in 28 countries. In 2021, Vectrus generated sales of $1.8 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 the statements and items listed in the table in "2022 Guidance" above and other assumptions contained therein for purposes of such guidance, other statements about our 2021 performance outlook, five-year growth plan, revenue, DSO, contract opportunities, the 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.

VECTRUS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Three Months Ended
	April 1,	April 2,
(In thousands, except per share data)	2022	2021
Revenue	$ 456,471	$ 434,004
Cost of revenue	419,275	393,648
Selling, general, and administrative expenses	31,959	23,823
Operating income	5,237	16,533
Interest expense, net	(1,681)	(1,932)
Income from operations before income taxes	3,556	14,601
Income tax expense	701	2,553
Net income	$ 2,855	$ 12,048

Earnings per share
Basic	$ 0.24	$ 1.03
Diluted	$ 0.24	$ 1.02
Weighted average common shares outstanding – basic	11,759	11,648
Weighted average common shares outstanding – diluted	11,902	11,827

VECTRUS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	April 1,	December 31,
(In thousands, except per share information)	2022	2021
Assets
Current assets
Cash and cash equivalents	$ 22,999	$ 38,513
Receivables	377,571	348,605
Prepaid expenses	25,923	21,160
Other current assets	11,083	15,062
Total current assets	437,576	423,340
Property, plant, and equipment, net	24,049	23,758
Goodwill	321,734	321,734
Intangible assets, net	64,281	66,582
Right-of-use assets	42,074	43,651
Other non-current assets	9,876	10,394
Total non-current assets	462,014	466,119
Total Assets	$ 899,590	$ 889,459
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable	$ 234,713	$ 212,533
Compensation and other employee benefits	59,059	80,284
Short-term debt	10,400	10,400
Other accrued liabilities	55,421	55,031
Total current liabilities	359,593	358,248
Long-term debt, net	108,392	94,246
Deferred tax liability	32,620	32,214
Operating lease liability	33,167	34,536
Other non-current liabilities	11,643	20,128
Total non-current liabilities	185,822	181,124
Total liabilities	545,415	539,372
Commitments and contingencies (Note 10)
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 shares authorized; 11,805 and 11,738 shares issued and outstanding as of April 1, 2022 and December 31, 2021, respectively	118	117
Additional paid in capital	89,590	88,116
Retained earnings	270,609	267,754
Accumulated other comprehensive loss	(6,142)	(5,900)
Total shareholders' equity	354,175	350,087
Total Liabilities and Shareholders' Equity	$ 899,590	$ 889,459

VECTRUS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Three Months Ended
	April 1,	April 2,
(In thousands)	2022	2021
Operating activities
Net income	$ 2,855	$ 12,048
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	1,591	1,548
Amortization of intangible assets	2,301	2,450
(Gain) Loss on disposal of property, plant, and equipment	(16)	43
Stock-based compensation	2,558	2,622
Amortization of debt issuance costs	204	232
Changes in assets and liabilities:
Receivables	(29,898)	(46,544)
Prepaid expenses	(4,849)	(3,137)
Other assets	4,520	(648)
Accounts payable	22,693	42,054
Deferred taxes	—	2,716
Compensation and other employee benefits	(21,138)	(22,818)
Other liabilities	(7,202)	(12,295)
Net cash used in operating activities	(26,381)	(21,729)
Investing activities
Purchases of capital assets and intangibles	(2,195)	(2,611)
Proceeds from the disposition of assets	17	—
Net cash used in investing activities	(2,178)	(2,611)
Financing activities
Repayments of long-term debt	(2,600)	(2,000)
Proceeds from revolver	217,000	110,000
Repayments of revolver	(200,000)	(110,000)
Proceeds from exercise of stock options	—	113
Payment of debt issuance costs	(458)	—
Payments of employee withholding taxes on share-based compensation	(1,626)	(2,184)
Net cash provided by (used in) financing activities	12,316	(4,071)
Exchange rate effect on cash	729	(191)
Net change in cash, cash equivalents and restricted cash	(15,514)	(28,602)
Cash, cash equivalents and restricted cash-beginning of year	38,513	68,727
Cash, cash equivalents and restricted cash-end of period	$ 22,999	$ 40,125
Supplemental disclosure of cash flow information:
Interest paid	$ 1,513	$ 1,371
Income taxes paid	$ 66	$ (97)
Purchase of capital assets on account	$ 5	$ (132)

Key Performance Indicators and Non-GAAP Measures

The primary financial performance measures we use to manage our business and monitor results of operations are revenue trends and operating income trends. Management believes that these financial performance measures are the primary drivers for our earnings and net cash from operating activities. Management evaluates its contracts and business performance by focusing on revenue, operating income, and operating margin. Operating income represents revenue less both cost of revenue and selling, general and administrative (SG&A) expenses. Cost of revenue consists of labor, subcontracting costs, materials, and an allocation of indirect costs, which includes service center transaction costs. SG&A expenses consist of indirect labor costs (including wages and salaries for executives and administrative personnel), bid and proposal expenses and other general and administrative expenses not allocated to cost of revenue. We define operating margin as operating income divided by revenue.

We manage the nature and amount of costs at the program level, which forms the basis for estimating our total costs and profitability. This is consistent with our approach for managing our business, which begins with management's assessing the bidding opportunity for each contract and then managing contract profitability throughout the performance period.

In addition to the key performance measures discussed above, we consider adjusted operating income, adjusted operating margin, adjusted net income, adjusted diluted earnings per share, EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, and organic revenue to be useful to management and investors in evaluating our operating performance, and to provide a tool for evaluating our ongoing operations. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives. We provide this information to our investors in our earnings releases, presentations, and other disclosures.

Adjusted operating income, adjusted operating margin, adjusted net income, adjusted diluted earnings per share, EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, and organic revenue, however, are not measures of financial performance under GAAP and should not be considered a substitute for operating income, operating margin, net income, and diluted earnings per share as determined in accordance with GAAP. Definitions and reconciliations of these items are provided below.

Adjusted operating income is defined as operating income, adjusted to exclude items that may include, but are not limited to significant charges or credits, and unusual and infrequent non-operating items, such as M&A, integration and related costs, LOGCAP V pre-operational legal costs, and amortization of acquired intangible assets that impact current results but are not related to our ongoing operations.
Adjusted operating margin is defined as adjusted operating income divided by revenue.
Adjusted net income is defined as net income, adjusted to exclude items that may include, but are not limited to, significant charges or credits, and unusual and infrequent non-operating items, such as M&A, integration and related costs, LOGCAP V pre-operational legal costs, and amortization of acquired intangible assets that impact current results but are not related to our ongoing operations.
Adjusted diluted earnings per share is defined as adjusted net income divided by the weighted average diluted common shares outstanding.
EBITDA is defined as operating income, adjusted to exclude depreciation and amortization.
Adjusted EBITDA is defined as EBITDA, adjusted to exclude items that may include, but are not limited to, significant charges or credits and unusual and infrequent non-operating items, such as M&A, integration and related costs, LOGCAP V pre-operational legal costs that impact current results but are not related to our ongoing operations.
EBITDA margin is defined as EBITDA divided by revenue.
Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenue.
Organic revenue is defined as revenue, adjusted to exclude revenue from acquired companies.

Adjusted Net Income, Adjusted Diluted Earnings Per Share (Non-GAAP Measures)
($K, except per share data)	Three Months Ended April 1, 2022, As Reported	M&A, Integration and Related Costs	LOGCAP V Pre-Operational Legal Costs	Amortization of Acquired Intangible Assets	Three Months Ended April 1, 2022 - Adjusted

Revenue	$ 456,471	$ —	$ —	$ —	$ 456,471
Growth	5.2 %				5.2 %
Operating income	$ 5,237	$ 9,068	$ —	$ 2,301	$ 16,606
Operating margin	1.1 %				3.6 %

Interest expense, net	$ (1,681)	$ —	$ —	$ —	$ (1,681)

Income from operations before income taxes	$ 3,556	$ 9,068	$ —	$ 2,301	$ 14,925

Income tax expense	$ 701	$ 1,787	$ —	$ 453	$ 2,941
Income tax rate	19.7 %				19.7 %

Net income	$ 2,855	$ 7,281	$ —	$ 1,848	$ 11,984

Weighted average common shares outstanding, diluted	11,902				11,902

Diluted earnings per share	$ 0.24	$ 0.61	$ —	$ 0.16	$ 1.01

EBITDA (Non-GAAP Measures)
($K)	Three Months Ended April 1, 2022, As Reported	M&A, Integration and Related Costs	LOGCAP V Pre-Operational Legal Costs	Amortization of Acquired Intangible Assets	Three Months Ended April 1, 2022 - Adjusted
Operating Income	$ 5,237	$ 9,068	$ —	$ 2,301	$ 16,606

Add:
Depreciation and amortization	$ 3,892	$ —	$ —	$ (2,301)	$ 1,591

EBITDA	$ 9,129	$ 9,068	$ —	$ —	$ 18,197
EBITDA Margin	2.0 %				4.0 %

Adjusted Net Income, Adjusted Diluted Earnings Per Share (Non-GAAP Measures)
($K, except per share data)	Three Months Ended April 2, 2021 As Reported	M&A, Integration and Related Costs	LOGCAP V Pre-Operational Legal Costs	Amortization of Acquired Intangible Assets	Three Months Ended April 2, 2021 - Adjusted

Revenue	$ 434,004	$ —	$ —	$ —	$ 434,004

Operating income	$ 16,533	$ —	$ 157	$ 2,450	$ 19,140
Operating margin	3.8 %				4.4 %

Interest expense, net	$ (1,932)	$ —	$ —	$ —	$ (1,932)

Income from operations before income taxes	$ 14,601	$ —	$ 157	$ 2,450	$ 17,208

Income tax expense	$ 2,553	$ —	$ 27	$ 428	$ 3,008
Income tax rate	17.5 %				17.5 %

Net income	$ 12,048	$ —	$ 130	$ 2,022	$ 14,200

Weighted average common shares outstanding, diluted	11,827				11,827

Diluted earnings per share	$ 1.02	$ —	$ 0.01	$ 0.17	$ 1.20

EBITDA (Non-GAAP Measures)
($K)	Three Months Ended April 2, 2021 As Reported	M&A, Integration and Related Costs	LOGCAP V Pre-Operational Legal Costs	Amortization of Acquired Intangible Assets	Three Months Ended April 2, 2021 - Adjusted
Operating Income	$ 16,533	$ —	$ 157	$ 2,450	$ 19,140

Add:
Depreciation and amortization	$ 3,998	$ —	$ —	$ (2,450)	$ 1,548

EBITDA	$ 20,531	$ —	$ 157	$ —	$ 20,688
EBITDA Margin	4.7 %				4.8 %

SUPPLEMENTAL INFORMATION

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

	Three Months Ended
	April 1,		April 2,
(In thousands)	2022	%	2021	%
Army	$ 280,113	61 %	$ 257,349	59 %
Air Force	61,474	13 %	78,170	18 %
Navy	75,217	17 %	56,427	13 % %
Other	39,667	9 %	42,058	10 %
Total revenue	$ 456,471		$ 434,004

*Revenue by Contract Type*
	Three Months Ended
	April 1,		April 2,
(In thousands)	2022	%	2021	%
Cost-plus and cost-reimbursable	$ 311,094	68 %	$ 290,230	67 %
Firm-fixed-price	128,004	28 %	128,757	30 %
Time and material	17,373	4 %	15,017	3 %
Total revenue	$ 456,471		$ 434,004



*Revenue by Contract Relationship*
	Three Months Ended
	April 1,		April 2,
(In thousands)	2022	%	2021	%
Prime contractor	$ 427,093	94 %	$ 403,262	93 %
Subcontractor	29,378	6 %	30,742	7 %
Total revenue	$ 456,471		$ 434,004

*Revenue by Geographic Region*
	Three Months Ended
	April 1,		April 2,
(In thousands)	2022	%	2021	%
Middle East	$ 235,754	52 %	$ 240,013	55 %
United States	167,980	37 %	149,811	35 %
Europe	36,531	7 %	40,623	9 %
Asia	16,206	4 %	3,557	1 %
Total revenue	$ 456,471		$ 434,004

CONTACT:

Vectrus

Mike Smith, CFA

719-637-5773

michael.smith@vectrus.com

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SOURCE Vectrus, Inc.

Vectrus Announces Solid First Quarter Results