Filing summary
Registrant: The supplied filing is for Vectrus, Inc. (NYSE: VEC), not V2X, Inc. It is a Form 10-Q for the three months ended April 2, 2021, compared with the three months ended April 3, 2020. Vectrus provides facility and base operations, logistics, IT mission support, and engineering services, primarily to U.S. government customers.
Financial results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $434.0 million | $351.7 million | Up 23.4% |
| Operating income | $16.5 million | $12.5 million | Up 32.4% |
| Operating margin | 3.8% | 3.5% | Up 0.3 percentage points |
| Net income | $12.0 million | $8.7 million | Up 39.0% |
| Diluted EPS | $1.02 | $0.74 | Up $0.28 |
| Operating cash flow | $(21.7) million | $1.1 million | Decrease of $22.9 million |
| Capital expenditures | $2.6 million | $0.9 million |
Cost of revenue was 90.7% of revenue versus 90.9% a year earlier; SG&A was 5.5% versus 5.6%. The effective tax rate was 17.5%, compared with 19.6%. Interest expense, net, rose 13.4% to $1.9 million.
Liquidity, debt, and balance sheet
- At April 2, 2021, cash and cash equivalents were $38.3 million, plus $1.8 million of restricted cash. Approximately $18.0 million of unrestricted cash was held by foreign subsidiaries.
- Balance-sheet debt was $175.6 million: $9.2 million short term and $166.4 million long term. The company reported net debt of $138.7 million, up from $112.1 million at December 31, 2020.
- Credit facility balances included $62.0 million on the term loan and $115.0 million on the revolver. Revolver availability was $152.6 million, after outstanding borrowings and letters of credit. The facility matures November 15, 2022.
- The company said cash, expected operating cash flows, and revolver availability should fund anticipated operating costs, capital expenditures, and current debt obligations for at least the next 12 months. It was in compliance with debt covenants.
- Operating cash use primarily reflected working-capital outflows, including higher receivables. Days sales outstanding increased to 73 days from 66 at year-end.
Material changes and business developments
- Revenue increased $82.3 million: $68.9 million came from the Zenetex and HHB acquisitions, and $13.4 million from expansion on existing contracts. Zenetex contributed $64.9 million revenue and $2.7 million of pretax operating income in the quarter.
- Operating income benefited from Zenetex and improved operating performance. Contract estimate catch-up adjustments reduced operating income by $1.3 million, versus $2.3 million in Q1 2020.
- Revenue from the United States rose 86.1%, Europe 25.6%, and the Middle East 1.6%. Army revenue was 59% of total revenue, down from 70% a year earlier.
- Remaining performance obligations were $1.289 billion, versus $993 million at year-end; Vectrus expected approximately 62% to be recognized as revenue in 2021 and 38% in 2022. Total backlog was $4.551 billion, down from $5.064 billion.
Outlook, risks, and contingencies
- No specific earnings or revenue guidance was provided. Management described U.S. government defense and infrastructure work as an opportunity, while noting uncertainty in future defense budgets, appropriations, and procurement priorities.
- A competitor protested the $882.5 million OMDAC-SWACA award; a GAO decision was due by June 16, 2021. Vectrus was performing under an extension of the predecessor contract pending that decision. The protest reduced reported backlog by $513 million, partly offset by increased K-BOSSS backlog.
- The K-BOSSS contract, which generated $117 million of quarterly revenue, was exercised through September 28, 2021. Contract options are at customer discretion, and government contracts may be suspended or terminated.
- COVID-19 had an immaterial impact on Q1 financial results, according to management, but government delays and disruptions to facilities, supply chains, and international operations remained potential risks.
- The company accrued $12.0 million for legal proceedings and government-contract claims. It did not expect asserted or unasserted claims to materially affect its financial condition, cash flows, or results. It was appealing government decisions concerning former-parent cost allocations and stated it believed it was indemnified under its agreement with the former parent.
- Other risks include contract performance and cost estimates, U.S. government audits and funding delays, customer concentration, interest-rate and foreign-exchange exposure, and integration of the recent acquisitions. Management reported disclosure controls were effective and said ERP implementation was substantially completed during the quarter.
Important facts for investors to verify
- Confirm the intended issuer: this source filing identifies Vectrus, Inc. (VEC), not V2X, Inc.
- Check the GAO outcome and subsequent contract status for OMDAC-SWACA, and whether the protest-related backlog reduction was reversed or otherwise resolved.
- Monitor renewal or extension of K-BOSSS and other large contracts, as well as the conversion of backlog and performance obligations into funded work and cash collections.
- Assess working-capital trends, particularly receivables, DSO, and operating cash flow, alongside debt levels and revolver availability.
- Review acquisition integration, contract-estimate adjustments, government audit claims, and the accrued legal and contract liabilities for subsequent developments.