Business context and reporting period
This is Vectrus, Inc.’s Form 10-K for the fiscal year ended December 31, 2021, filed March 7, 2022. The filing identifies the registrant as Vectrus, Inc. (NYSE: VEC), not V2X, Inc.; verify the company and filing identity. The filing reports annual results, not standalone fourth-quarter results.
Vectrus provides global facilities and base operations, logistics, IT mission support, engineering and digital integration, security, and maintenance services, primarily to the U.S. government. It operates as one segment and serves customers at 205 locations in 28 countries and territories. Revenue is substantially all from U.S. government customers; the U.S. Army accounted for approximately 64% of 2021 revenue.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $1,783.7 million | $1,395.5 million |
| Operating income / margin | $62.0 million / 3.5% | $43.5 million / 3.1% |
| Net income | $45.7 million | $37.0 million |
| Diluted EPS | $3.86 | $3.14 |
| Cash from operating activities | $61.3 million | $64.1 million |
| Capital expenditures | $9.8 million | $4.5 million |
- Revenue grew 27.8%; operating income increased 42.7%. Management attributed revenue growth mainly to the Zenetex and HHB acquisitions, new LOGCAP V Kuwait and Iraq task orders, and other U.S. and international program growth. The acquisitions contributed $254.4 million of U.S. program revenue in 2021.
- Cost of revenue was $1,623.2 million and SG&A was $98.4 million. Interest expense, net, rose to $8.0 million from $4.8 million, primarily due to greater revolver use. Income tax expense was $8.3 million, compared with $1.7 million; the 2020 rate benefited from a $7.1 million release related to the FDII deduction.
- Cash and cash equivalents were $38.5 million at year-end, including $13.6 million held by foreign subsidiaries. Net debt was $66.9 million. Debt totaled $105.4 million: $55.4 million under the term loan and $50.0 million under the revolving facility. Available revolver capacity was $217.3 million.
- Receivables were $348.6 million, including $240.0 million of unbilled contract assets; days sales outstanding increased to 75 from 66. Total current assets were $423.3 million and current liabilities were $358.2 million.
- Backlog was $5.0 billion, including $1.0 billion funded, versus $5.1 billion total and $843 million funded in 2020. Remaining performance obligations were $1.398 billion; management expected to recognize approximately 77% as revenue in 2022. Backlog includes amounts subject to funding and options and is not assured revenue.
Material changes versus the prior comparable period
- New LOGCAP V task orders in Kuwait and Iraq contributed $211 million and $209 million of 2021 revenue, respectively; neither generated revenue in 2020. K-BOSSS revenue declined to $282 million from $475 million as work transitioned to LOGCAP V.
- Revenue mix shifted: Army revenue rose to $1,134.8 million from $965.6 million, while Air Force revenue fell to $266.3 million from $299.3 million. Navy revenue increased to $224.4 million from $68.7 million.
- Operating margin improved by 0.4 percentage points. Cumulative contract-estimate adjustments remained unfavorable, reducing operating income by $1.3 million in 2021 versus $3.7 million in 2020.
- Operating cash flow declined modestly, partly because 2020 included a $13.2 million CARES Act tax-deferral benefit. Year-end cash decreased by $30.2 million; financing activities used $75.6 million, including $65.0 million of net revolver repayments.
- Headcount fell by approximately 1,100 to 8,100 employees, mainly after a contract ended; the subcontract workforce was approximately 6,100.
Outlook, risks, contingencies and unusual items
- No numerical revenue or earnings guidance is provided. Management said it expects continued demand for mission-essential services and believes its capabilities support long-term profitable growth, while emphasizing uncertainty around defense budgets, appropriations, contract awards and customer priorities. A continuing resolution funded the U.S. government through March 11, 2022, as described in the filing.
- Contract concentration is material: four largest contracts represented approximately 47.2% of 2021 revenue. The company depends heavily on the U.S. government and Army, and contracts may be partially funded, recompeted, reduced or terminated.
- COVID-19’s impact on 2021 financial results was described as immaterial; management estimated a $63.1 million revenue reduction and $0.39 diluted EPS reduction in 2020. Continuing risks include supply-chain and staffing disruption, travel and site-access limits, and potential effects of contractor vaccine requirements.
- Other key risks include cost overruns—especially on firm-fixed-price work, which was 25% of 2021 revenue—recruiting and retention, subcontractor performance, inflation, cybersecurity, international operating conditions, and government audits and compliance. Goodwill was $321.7 million, approximately 36% of total assets; no impairment was recorded in 2021.
- A competitor’s protest of the OMDAC-SWACA award was pending at the U.S. Court of Federal Claims; performance continued, and a decision was expected by the end of Q1 2022. The company had accrued $9.6 million for legal proceedings and government-contract claims. It said legacy cost-adjustment exposure related to its former parent was believed insignificant and that it expected indemnification.
- On March 7, 2022, after year-end, Vectrus agreed to merge with Vertex Aerospace. The proposed transaction contemplated Vertex shareholders owning approximately 62% of the combined company and existing Vectrus shareholders approximately 38%, subject to approvals and other conditions. A $16.6 million termination fee could apply in specified circumstances. This is a significant subsequent event, not a 2021 operating result.
- The January 24, 2022 credit amendment extended facility maturities to November 15, 2023 and transitioned reference rates from LIBOR. At December 31, 2021, the company was in compliance with its debt covenants; reported leverage and interest-coverage ratios were 1.2x and 12.39x, respectively. Management believed available cash, operating cash flow and revolver capacity were sufficient for at least 12 months.
- Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting. The auditor identified revenue recognition estimates and Zenetex customer-intangible valuation as critical audit matters.
Most important facts an investor should verify
- Confirm the filing belongs to the intended issuer: the document is for Vectrus, Inc. (VEC), while the request metadata says V2X, Inc.
- Review the March 2022 Vertex merger terms, required approvals, ownership dilution, financing implications and subsequent closing developments.
- Assess sustainability of revenue and margins after the K-BOSSS-to-LOGCAP V transition, and the renewal, funding and performance status of the largest contracts.
- Evaluate the quality and timing of backlog conversion, particularly unfunded backlog and customer options, alongside the rise in unbilled receivables and days sales outstanding.
- Check the status and outcome of the OMDAC-SWACA protest, government audits and claims, and any changes to accrued contingencies or contract estimates.
- Monitor staffing, inflation, supply-chain and vaccine-policy effects, debt covenant headroom, and the impact of interest rates on variable-rate borrowings.