On July 5, 2022 ("Closing Date"), Vectrus, Inc. ("Vectrus") completed its merger ("the Merger") with Vertex Aerospace Services Holding Corp. ("Vertex"), thereby forming V2X, Inc. Third quarter "reported results" reflect the contributions of Vectrus from July 1, 2022, through September 30, 2022 and Vertex from the Closing Date through September 30, 2022, unless otherwise noted. Comparisons to historical periods are relative to legacy Vectrus results, unless otherwise noted.
Third Quarter Highlights:
MCLEAN, Va., Nov. 8, 2022 /PRNewswire/ -- V2X, Inc. (NYSE:VVX) announced third quarter 2022 financial results. "I'm pleased to report a strong start for V2X with third quarter results that demonstrate our ability to grow, generate substantial cash flow, and increase value for shareholders," said Chuck Prow, President and Chief Executive Officer of V2X. "Our adjusted operating cash flow1 of $121 million in the quarter was significant and highlights the robust cash generative nature of our business. Additionally, adjusted EBITDA margin1 was 8.2%, which was driven by our teams' successful efforts in delivering solid performance that was also ahead of schedule. We also continue to make significant progress on integration milestones and remain on track to deliver our previously communicated cost synergies. Based on our current momentum, significant progress on integration, and third quarter performance, we are increasing the mid-point of our guidance for revenue, adjusted EBITDA1 and adjusted operating cash flow1. I'd like to thank all of our employees for their focus on delivering results and achieving significant progress on integration, while providing high quality uninterrupted service and support to our clients."
Mr. Prow continued, "We remain excited about the potential opportunities that lie ahead for V2X to lead in the converged environment. The key metrics and leading indicators of our business remain strong. Recent wins have driven our total backlog to $13 billion, which represents over three times V2X's annualized revenue, providing substantial visibility. Additionally, the company does not currently have any contracts that generate more than two percent of revenue up for recompete for at least the next two and half years. With limited recompetes and solid revenue visibility, V2X is focusing on capturing new opportunities and contract expansion. Our $20 billion combined pipeline of new business currently submitted and / or expected to be submitted over the next twelve months provides additional opportunity to further grow the business. Furthermore, V2X has identified revenue synergies that are incremental to our current pipeline that are currently being assessed for resource allocation and pursuit. In aggregate, we believe V2X is well positioned to create additional value for our stakeholders."
Third Quarter Results
"Our third quarter financial results were strong and a great start for V2X," said Susan Lynch, Senior Vice President and Chief Financial Officer. "Pro forma revenue increased 10% year-over-year to $961.3 million. Pro forma revenue takes into consideration the four days of our third quarter where Vertex was not part of V2X. Organic revenue growth was 10% for legacy Vectrus and was driven by continued strong performance on LOGCAP V, growth associated with the Fort Benning Eagle contract award and volume associated with rapid response and contingency efforts in Europe as well as INDOPACOM. Organic revenue from INDOPACOM increased 113% year-over-year, a noteworthy achievement especially given the revenue contribution from the Pacific Defender exercise during the prior year period. Total topline expansion was driven by the Merger with Vertex on July 5, 2022, which includes the ramp of new business including the E-6B, Advanced Helicopter Training System, Navy Test Wing Atlantic, and Global Strike programs."
Ms. Lynch continued, "Our strong performance coupled with a focus on cash collections and process improvement in the quarter yielded strong results with significant cash generated from operating activities of $80.1 million. Excluding Merger related payments of $41.1 million, adjusted operating cash flow1 in the quarter was $121.2 million. This solid performance resulted in a $87.0 million dollar or 7% reduction in the company's net debt since the Merger Closing Date, which exemplifies V2X's ability to generate strong cash flow with low capital requirements. Total consolidated indebtedness to EBITDA1 (total leverage ratio) was 3.7x, a 0.3x improvement from Merger close. Importantly, we have been able to reduce our leverage ahead of plan, which was previously expected to be 3.7x by the end of this year. We anticipate our net debt will show further improvement in Q4 2022."
Guidance
Ms. Lynch concluded, "Given our current momentum, significant progress on integration, and third quarter performance, we are increasing the mid-point of the second half 2022 guidance for revenue, adjusted EBITDA1 and adjusted operating cash flow1."
Guidance for the second half (2H) 2022 is as follows:
$ millions, except for EBITDA margins and per share amounts | V2X 2H 2022 Guidance | V2X 2H 2022 Guidance | ||
Revenue | $1,900 | to | $1,940 | $1,920 to $1,940 |
Adjusted EBITDA1 | $140 | to | $150 | $145 to $150 |
Adjusted Diluted Earnings Per Share1 | $1.94 | to | $2.19 | $2.14 to $2.28 |
Net Cash Provided by Operating Activities Excluding M&A Costs | $130 | to | $150 | $140 to $150 |
Forward-looking statements are based upon current expectations and are subject to factors that could cause actual results to differ materially from those suggested here, including those factors set forth in the Safe Harbor Statement below.
Third Quarter 2022 Conference Call
Management will conduct a conference call with analysts and investors at 4:30 p.m. ET on Tuesday, November 8, 2022. U.S.-based participants may dial in to the conference call at 877-506-6380, while international participants may dial 412-542-4198. A live webcast of the conference call as well as an accompanying slide presentation will be available here: https://app.webinar.net/anKV0d7G8Q9.
A replay of the conference call will be posted on the V2X website shortly after completion of the call and will be available for one year. A telephonic replay will also be available through November 22, 2022, at 844-512-2921 (domestic) or 412-317-6671 (international) with passcode 10171765.
Presentation slides that will be used in conjunction with the conference call will also be made available online in advance at https://investors.vectrus.com/. V2X recognizes its website as a key channel of distribution to reach public investors and as a means of disclosing material non-public information to comply with its obligations under the U.S. Securities and Exchange Commission Regulation FD.
Footnotes:
1 See "Key Performance Indicators and Non-GAAP Financial Measures" for descriptions and reconciliations.
About V2X
V2X is a leading provider of critical mission solutions and support to defense clients globally, formed by the 2022 Merger of Vectrus and Vertex to build on more than 120 combined years of successful mission support. The Company delivers a comprehensive suite of integrated solutions across the operations and logistics, aerospace, training and technology markets to national security, defense, civilian and international clients. Our global team of approximately 14,000 employees brings innovation to every point in the mission lifecycle, from preparation, to operations, to sustainment, as it tackles the most complex challenges with agility, grit, and dedication.
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 under "Guidance" above and other assumptions contained therein for purposes of such guidance, other statements about our 2022 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.
Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," "could," "potential," "continue" or similar terminology. These statements are based on the beliefs and assumptions of the management of the Company 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. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company's historical experience and our present expectations or projections. For a discussion of some of the risks and uncertainties 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.
V2X, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) | ||||||||
Three Months Ended | Nine Months Ended | |||||||
September 30, | October 1, | September 30, | October 1, | |||||
(In thousands, except per share data) | 2022 | 2021 | 2022 | 2021 | ||||
Revenue | $958,156 | $459,408 | $1,912,693 | $1,364,257 | ||||
Cost of revenue | 861,073 | 418,900 | 1,733,654 | 1,235,209 | ||||
Selling, general, and administrative expenses | 92,596 | 27,618 | 154,295 | 77,045 | ||||
Operating income | 4,487 | 12,890 | 24,744 | 52,003 | ||||
Interest expense, net | (27,265) | (1,955) | (30,908) | (6,140) | ||||
(Loss) income from operations before income | (22,778) | 10,935 | (6,164) | 45,863 | ||||
Income tax (benefit) expense | (5,739) | 677 | (2,453) | 7,623 | ||||
Net income (loss) | $(17,039) | $10,258 | $(3,711) | $38,240 | ||||
Earnings per share | ||||||||
Basic | $ (0.57) | $ 0.87 | $ (0.21) | $ 3.27 | ||||
Diluted | $ (0.56) | $ 0.87 | $ (0.21) | $ 3.23 | ||||
Weighted average common shares | 29,830 | 11,726 | 17,806 | 11,696 | ||||
Weighted average common shares | 30,172 | 11,849 | 18,020 | 11,830 |
V2X, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) | ||||
September 30, | December 31, | |||
(In thousands, except per share information) | 2022 | 2021 | ||
Assets | ||||
Current assets | ||||
Cash and cash equivalents | $ 144,061 | $ 38,513 | ||
Restricted cash | 3,312 | — | ||
Receivables | 690,943 | 348,605 | ||
Prepaid expenses | 74,483 | 21,160 | ||
Other current assets | 12,398 | 15,062 | ||
Total current assets | 925,197 | 423,340 | ||
Property, plant, and equipment, net | 75,960 | 23,758 | ||
Goodwill | 1,537,710 | 321,734 | ||
Intangible assets, net | 559,985 | 66,582 | ||
Right-of-use assets | 51,968 | 43,651 | ||
Other non-current assets | 17,632 | 10,394 | ||
Total non-current assets | 2,243,255 | 466,119 | ||
Total Assets | $ 3,168,452 | $ 889,459 | ||
Liabilities and Shareholders' Equity | ||||
Current liabilities | ||||
Accounts payable | $ 385,936 | $ 212,533 | ||
Compensation and other employee benefits | 147,870 | 80,284 | ||
Short-term debt | 11,850 | 10,400 | ||
Other accrued liabilities | 172,027 | 55,031 | ||
Total current liabilities | 717,683 | 358,248 | ||
Long-term debt, net | 1,286,985 | 94,246 | ||
Deferred tax liability | 50,249 | 32,214 | ||
Operating lease liability | 40,234 | 34,536 | ||
Other non-current liabilities | 84,918 | 20,128 | ||
Total non-current liabilities | 1,462,386 | 181,124 | ||
Total liabilities | 2,180,069 | 539,372 | ||
Commitments and contingencies (Note 10) | ||||
Shareholders' Equity | ||||
Preferred stock; $0.01 par value; 10,000 shares authorized; No shares issued and outstanding | — | — | ||
Common stock; $0.01 par value; 100,000 shares authorized; 30,460 and 11,738 shares issued and outstanding as of September 30, 2022, and December 31, 2021, respectively | 305 | 117 | ||
Additional paid in capital | 735,357 | 88,116 | ||
Retained earnings | 264,042 | 267,754 | ||
Accumulated other comprehensive loss | (11,321) | (5,900) | ||
Total shareholders' equity | 988,383 | 350,087 | ||
Total Liabilities and Shareholders' Equity | $ 3,168,452 | $ 889,459 |
V2X, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | ||||
Nine Months Ended | ||||
September 30, | October 1, | |||
(In thousands) | 2022 | 2021 | ||
Operating activities | ||||
Net (loss) income | $ (3,711) | $ 38,240 | ||
Adjustments to reconcile net (loss) income to net cash provided by | ||||
Depreciation expense | 8,663 | 4,788 | ||
Amortization of intangible assets | 28,597 | 7,521 | ||
Loss on disposal of property, plant, and equipment | 59 | 65 | ||
Stock-based compensation | 18,800 | 6,927 | ||
Amortization of debt issuance costs | 3,903 | 689 | ||
Changes in assets and liabilities: | ||||
Receivables | (1,676) | (22,835) | ||
Prepaid expenses | (3,442) | (15,625) | ||
Other assets | 1,119 | (118) | ||
Accounts payable | 50,210 | 55,653 | ||
Deferred taxes | (151) | 780 | ||
Compensation and other employee benefits | 21,200 | (5,737) | ||
Other liabilities | (23,803) | (16,970) | ||
Net cash provided by operating activities | 99,768 | 53,378 | ||
Investing activities | ||||
Purchases of capital assets | (8,231) | (7,650) | ||
Proceeds from the disposition of assets | 20 | 16 | ||
Acquisition of business, net of cash acquired | 194,431 | 262 | ||
Contribution to joint venture | — | (2,496) | ||
Net cash provided by (used in) investing activities | 186,220 | (9,868) | ||
Financing activities | ||||
Repayments of long-term debt | (58,363) | (6,000) | ||
Proceeds from revolver | 392,000 | 352,000 | ||
Repayments of revolver | (495,000) | (397,000) | ||
Proceeds from exercise of stock options | 370 | 114 | ||
Payment of debt issuance costs | (2,324) | (17) | ||
Payments of employee withholding taxes on share-based compensation | (1,934) | (2,317) | ||
Net cash used in financing activities | (165,251) | (53,220) | ||
Exchange rate effect on cash | (11,877) | (2,784) | ||
Net change in cash, cash equivalents and restricted cash | 108,860 | (12,494) | ||
Cash, cash equivalents and restricted cash - beginning of year | 38,513 | 68,727 | ||
Cash, cash equivalents and restricted cash - end of period | $ 147,373 | $ 56,232 | ||
Supplemental disclosure of cash flow information: | ||||
Interest paid | $ 27,035 | $ 4,706 | ||
Income taxes paid | $ 10,344 | $ 9,068 | ||
Non-cash investing activities: | ||||
Purchase of capital assets on account | $ 438 | $ 480 | ||
Common stock issued for business acquisition | $ 630,636 | $ — |
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, adjusted operating cash flow, 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, adjusted operating cash flow, 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.
Non-GAAP Financial Measures | |||||||||||||
($K, except per share | Three Months | M&A, | Amortization | Amortization | Prior | Three Months | |||||||
Revenue | $ 958,156 | $ — | $ — | $ — | $ — | $ 958,156 | |||||||
Operating income | $ 4,487 | $ 44,926 | $ 24,174 | $ — | $ — | $ 73,587 | |||||||
Operating margin | 0.5 % | 7.7 % | |||||||||||
Interest expense, net | $ (27,265) | $ — | $ — | $ 3,515 | $ — | $ (23,750) | |||||||
(Loss) income from | $ (22,778) | $ 44,926 | $ 24,174 | $ 3,515 | $ — | $ 49,837 | |||||||
Income tax (benefit) | $ (5,739) | $ 9,624 | $ 5,070 | $ 678 | $ — | $ 9,633 | |||||||
Income tax rate | 25.2 % | 19.3 % | |||||||||||
Net (loss) income | $ (17,039) | $ 35,302 | $ 19,104 | $ 2,837 | $ — | $ 40,204 | |||||||
Weighted average | 30,172 | 30,172 | |||||||||||
Diluted (loss) earnings | $ (0.56) | $ 1.17 | $ 0.63 | $ 0.09 | $ — | $ 1.33 | |||||||
Non-GAAP Financial Measures | |||||||||||||
($K) | Three Months September 30, 2022 | M&A, | Amortization | Amortization | Prior | Three Months | |||||||
Operating Income | $ 4,487 | $ 44,926 | $ 24,174 | $ — | $ — | $ 73,587 | |||||||
Add: | |||||||||||||
Depreciation and | $ 29,599 | $ — | $ (24,174) | $ — | $ — | $ 5,425 | |||||||
EBITDA | $ 34,086 | $ 44,926 | $ — | $ — | $ — | $ 79,012 | |||||||
EBITDA Margin | 3.6 % | 8.2 % | |||||||||||
Non-GAAP Financial Measures | |||||||||||||
($K, except per share | Three Months | M&A, | Amortization | Amortization | Prior | Three Months | |||||||
Revenue | $ 459,408 | $ — | $ — | $ — | $ — | $ 459,408 | |||||||
Operating income | $ 12,890 | $ 3,284 | $ 2,630 | $ — | $ 10 | $ 18,814 | |||||||
Operating margin | 2.8 % | 4.1 % | |||||||||||
Interest expense, net | $ (1,955) | $ — | $ — | $ 226 | $ — | $ (1,729) | |||||||
(Loss) income from | $ 10,935 | $ 3,284 | $ 2,630 | $ 226 | $ 10 | $ 17,085 | |||||||
Income tax (benefit) | $ 677 | $ 546 | $ 437 | $ 43 | $ 1,526 | $ 3,229 | |||||||
Income tax rate | 6.2 % | 18.9 % | |||||||||||
Net (loss) income | $ 10,258 | $ 2,738 | $ 2,193 | $ 183 | $ (1,516) | $ 13,856 | |||||||
Weighted average common shares outstanding, diluted | 11,849 | 11,849 | |||||||||||
Diluted (loss) earnings per share | $ 0.87 | $ 0.23 | $ 0.19 | $ 0.02 | $ (0.13) | $ 1.17 | |||||||
Non-GAAP Financial Measures | |||||||||||||
($K) | Three Months | M&A, | Amortization | Amortization | Prior | Three Months Ended October 1, 2021 - Adjusted | |||||||
Operating Income | $ 12,890 | $ 3,284 | $ 2,630 | $ — | $ 10 | $ 18,814 | |||||||
Add: | |||||||||||||
Depreciation and | $ 4,320 | $ — | $ (2,630) | $ — | $ — | $ 1,690 | |||||||
EBITDA | $ 17,210 | $ 3,284 | $ — | $ — | $ 10 | $ 20,504 | |||||||
EBITDA Margin | 3.7 % | 4.5 % | |||||||||||
SUPPLEMENTAL INFORMATION | ||||||||||||||||
Revenue by client branch, contract type, contract relationship, and geographic region for the periods presented below was as follows: | ||||||||||||||||
Revenue by Client | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | October 1, | September 30, | October 1, | |||||||||||||
(In thousands) | 2022 | % | 2021 | % | 2022 | % | 2021 | % | ||||||||
Army | $ 352,923 | 37 % | $ 304,341 | 66 % | $ 959,792 | 50 % | $ 869,690 | 64 % | ||||||||
Navy | 270,071 | 28 % | 52,556 | 11 % | 410,173 | 22 % | 165,391 | 12 % | ||||||||
Air Force | 165,085 | 17 % | 63,569 | 14 % | 295,015 | 15 % | 207,565 | 15 % | ||||||||
Other | 170,077 | 18 % | 38,942 | 9 % | 247,713 | 13 % | 121,611 | 9 % | ||||||||
Total revenue | $ 958,156 | $ 459,408 | $ 1,912,693 | $ 1,364,257 | ||||||||||||
Revenue by Contract Type | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | October 1, | September 30, | October 1, | |||||||||||||
(In thousands) | 2022 | % | 2021 | % | 2022 | % | 2021 | % | ||||||||
Cost-plus and cost-reimbursable | $ 505,743 | 53 % | $ 338,007 | 74 % | $ 1,172,397 | 61 % | $ 972,426 | 72 % | ||||||||
Firm-fixed-price | 416,618 | 43 % | 105,619 | 23 % | 672,970 | 35 % | 345,792 | 25 % | ||||||||
Time and material | 35,795 | 4 % | 15,782 | 3 % | 67,326 | 4 % | 46,039 | 3 % | ||||||||
Total revenue | $ 958,156 | $ 459,408 | $ 1,912,693 | $ 1,364,257 | ||||||||||||
Revenue by Contract Relationship | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | October 1, | September 30, | October 1, | |||||||||||||
(In thousands) | 2022 | % | 2021 | % | 2022 | % | 2021 | % | ||||||||
Prime contractor | $ 886,415 | 93 % | $ 429,370 | 93 % | $ 1,781,961 | 93 % | $ 1,272,671 | 93 % | ||||||||
Subcontractor | 71,741 | 7 % | 30,038 | 7 % | 130,732 | 7 % | 91,586 | 7 % | ||||||||
Total revenue | $ 958,156 | $ 459,408 | $ 1,912,693 | $ 1,364,257 | ||||||||||||
Revenue by Geographic Region | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | October 1, | September 30, | October 1, | |||||||||||||
(In thousands) | 2022 | % | 2021 | % | 2022 | % | 2021 | % | ||||||||
United States | $ 582,817 | 61 % | $ 139,357 | 30 % | $ 908,271 | 47 % | $ 435,717 | 32 % | ||||||||
Middle East | 261,997 | 27 % | 263,257 | 57 % | 747,310 | 39 % | 761,758 | 56 % | ||||||||
Europe | 62,669 | 7 % | 34,902 | 8 % | 143,847 | 8 % | 111,604 | 8 % | ||||||||
Asia | 50,673 | 5 % | 21,8924 | 5 % | 113,265 | 6 % | 55,178 | 4 % | ||||||||
Total revenue | $ 958,156 | $ 459,408 | $ 1,912,693 | $ 1,364,257 |
CONTACT:
V2X, Inc.
Mike Smith, CFA
719-637-5773
michael.smith@vectrus.com
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SOURCE V2X, Inc.