Attached files
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| 8-K - 8-K - Engility Holdings, Inc. | egl8-kearningsrelease14q2.htm |
Exhibit 99.1
___________________________________________________________________
Engility Reports Second Quarter 2014 Results
• | Second quarter revenue of $364 million and GAAP diluted EPS of $0.61 |
• | Adjusted operating margin of 8.1% and adjusted diluted EPS of $0.83 |
• | Second quarter 2014 cash flow from operations of $32 million, driven by improved DSOs |
• | Book-to-bill ratio of 0.8x for the second quarter 2014 |
• | Updates 2014 Outlook |
CHANTILLY, VA - August 7, 2014, Engility Holdings, Inc. (NYSE: EGL) today announced financial results for the second quarter ended June 30, 2014.
Second Quarter 2014 Results
Total revenue for the second quarter of 2014 was $364 million and operating income was $23 million. Adjusted operating income for the second quarter was $30 million. Operating margin for the second quarter of 2014 was 6.4% and adjusted operating margin for the same period was 8.1%. Net income attributable to Engility was $11 million, or $0.61 per diluted share. Adjusted net income attributable to Engility was $15 million, or $0.83 per diluted share. Our adjusted net income and adjusted operating margin excludes $1 million of restructuring and legal and settlement costs, and $2 million of additional amortization of intangible asset expenses and $4 million of integration costs associated with our acquisition of Dynamics Research Corporation (DRC). Information about our use of non-GAAP financial information is provided below under “Non-GAAP Measures”.
“Our second quarter revenue results were in-line with our internal expectations and our adjusted bottom line results exceeded our plan. We continue to effectively manage what we can control,” said Tony Smeraglinolo, President and CEO of Engility. “We delivered strong cash flow results and reported a significantly reduced DSO level for the quarter, and we are progressing ahead of schedule on the operational and strategic integration of our DRC acquisition. We are continuing to leverage our combined portfolio of contract vehicles and capabilities to pursue larger and more strategic programs."
“Although we experienced a sequential and year-over-year increase in funded orders, contract solicitations and award activity remain slow. We continue to be encouraged by the quality of our pipeline and the amount of bids we have submitted to our customers that are awaiting decision. As we look forward, we remain optimistic about our business and opportunities for continued success. We have accomplished a great deal since our spin-off two years ago. We have added significant talent to our team through our acquisition of DRC, delivered strong program performance, increased our win rates and won prime positions on the right contract vehicles."
Key Performance Indicators
• | Contract funded orders in the second quarter of 2014 were $304 million, representing a book-to-bill ratio of 0.8x. |
• | Funded backlog at the end of the 2014 second quarter was $522 million. |
• | Days sales outstanding (DSO) at the end of the 2014 second quarter, net of advanced payments, was 70 days. |
• | Cash flow from operations was $32 million for the second quarter of 2014. |
Significant Second Quarter 2014 Awards
• | Awarded a $60 million single award indefinite-delivery/indefinite-quantity contract to provide training to enhance the ability of U.S. Agency for International Development (USAID) staff to design, implement and monitor development activities around the world. Under this new opportunity, Engility training and learning specialists will assist USAID with designing, developing and delivering professional development for USAID employees in more than 80 countries. This will be accomplished through a combination of instructor-led training, web-based training, distance learning, and facilitation services. |
• | Awarded a $13.4 million firm-fixed price recompete contract to support the Secure Payment System (SPS) of the U.S. Department of Treasury. SPS provides secure transmission of payment data and strongly auditable certification of payments for the U.S. Government. Engility, through a system they developed for the Bureau of the Fiscal Service’s Payment Management, will support the processing of more than one billion transactions with an estimated annual value of $2.5 trillion. |
• | Awarded an $11 million cost plus fixed fee contract to provide Landing Craft, Air Cushion (LCAC) Technical Support Activity Logistics and Technical Library Support to the Naval Surface Warfare Center, Panama City Division. Under this recompete award, Engility will provide logistics services to support sustainment of legacy logistics products, manage Fleet Modernization Program support, develop logistics support for new equipment introduced into the LCAC program, and provide related technical documentation. |
• | Awarded a $10.1 million cost plus fixed fee contract to provide technical advisory services to the USAID Guatemala office and the Guatemalan government to support the development and implementation of a low emissions development strategy (LEDS). Under this new award, Engility will support USAID Guatemala, the Guatemalan government, the Guatemalan private sector, academia and non-governmental organizations. This team will build local capacity to help implement emissions reduction projects related to large-and-small-scale agriculture, natural resource management and other forms of land use. |
2014 Outlook
We are updating the fiscal year 2014 financial guidance we issued on May 12, 2014 based on our financial results for the first six months of 2014 and our outlook for the remainder of the year. We are revising our revenue guidance primarily as a result of continued contract solicitation and award delays. Despite lower revenue expectations, we anticipate our GAAP diluted EPS and our adjusted diluted EPS will be towards the low-end of our original guidance range as a result of our continuing focus on cost efficiencies. Our operating cash flow guidance is unchanged as a result of our improved DSO performance. The table below summarizes our fiscal year 2014 guidance.
Current Outlook for Fiscal Year 2014 | Prior Outlook for Fiscal Year 2014 | |
Revenue | $1.35 billion - $1.45 billion | $1.45 billion - $1.55 billion |
Adjusted Diluted EPS (1) (2) | $2.70 - $2.90 | $2.70 - $3.20 |
GAAP Diluted EPS (1) | $2.24 - $2.44 | $2.24 - $2.70 |
Operating cash flow | $95 million - $105 million | $95 million - $105 million |
(1) 2014 GAAP and adjusted diluted EPS guidance assumes weighted-average shares outstanding of approximately 18.2 million and a full year effective tax rate of 39.0%. It also includes eleven months of DRC’s expected financial results as the acquisition closed on January 31, 2014.
(2) Our adjusted diluted EPS guidance excludes an estimated $6.2 million, or $0.21 per share, of additional amortization of intangible asset expenses, and approximately $7.0 to $8.0 million, or $0.24 to $0.27 per share, of estimated integration costs associated with the DRC acquisition. The adjusted diluted EPS guidance also excludes an estimated $1.0 million, or $0.03 per share, of restructuring costs.
Non-GAAP Measures
The tables under “Engility Holdings, Inc. Reconciliation of Non-GAAP Measures” present Adjusted Operating Income, Adjusted Operating Margin, Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA), Adjusted EBITDA, EBITDA Margin, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted Diluted EPS, reconciled to their most directly comparable GAAP measure. These financial measures are calculated and presented on the basis of methodologies other than in accordance with U.S. generally accepted accounting principles (“Non-GAAP Measures”). Engility has provided these Non-GAAP Measures to adjust for the impact of transaction and integration costs and amortization expenses related to our acquisition of DRC, as well as restructuring and legal and settlement costs. These items have been adjusted because they are not considered core to the Company’s business or otherwise not considered operational or because these charges are non-cash or non-recurring. The Company presents these Non-GAAP Measures because management believes that they are meaningful to understanding Engility’s performance during the periods presented and the Company’s ongoing business. Non-GAAP Measures are not prepared in accordance with GAAP and therefore are not necessarily comparable to similarly titled metrics or the financial results of other companies. These Non-GAAP Measures should be considered a supplement to, not a substitute for, or superior to, the corresponding financial measures calculated in accordance with GAAP.
CONFERENCE CALL INFORMATION
Engility will host a conference call at 5 P.M. ET on August 7, 2014, to discuss the financial results for our second quarter of 2014.
Listeners may access a webcast of the live conference call from the Investor Relations section of the company's website at http://www.EngilityCorp.com. Listeners also may access a slide presentation on the website which summarizes our 2014 second quarter results. Listeners should go to the website at least 15 minutes before the live event to download and install any necessary audio software.
Listeners also may participate in the conference call by dialing (866) 271-5140 (domestic) or (617) 213-8893 (international) and entering pass code 78586207.
A replay will be available on the company's website approximately two hours after the conference call and continuing for one year. A telephonic replay also will be available through August 14, 2014 at (888) 286-8010 (domestic) or (617) 801-6888 (international) and entering pass code 92899797.
ABOUT ENGILITY
Engility is a pure-play government services contractor providing highly skilled personnel wherever, whenever they are needed in a cost-effective manner. Headquartered in Chantilly, Virginia, Engility is a leading provider of specialized technical consulting, program and business support services, engineering and technology lifecycle support, information technology modernization and sustainment, supply chain services and logistics management, and training and education for the U.S. Government. To learn more about Engility, please visit www.engilitycorp.com.
FORWARD-LOOKING STATEMENTS
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding Engility’s future prospects, projected financial results, estimated integration costs and acquisition related amortization expenses, and business plans. Words such as “may,” “will,” “should,” “likely,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “estimates” and similar expressions are also used to identify these forward-looking statements. These statements are based on the current beliefs and expectations of Engility’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. Factors that could cause Engility’s actual results to differ materially from those described in the forward-looking statements can be found under the heading “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2013, and more recent periodic reports, which have been filed with the Securities and Exchange Commission (SEC) and are available on the investor relations section of Engility’s website (http://www.engilitycorp.com) and on the SEC’s website (www.sec.gov). Forward-looking statements are made only as of the date hereof, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, historical information should not be considered as an indicator of future performance.
Corporate Communications and Media: Investor Relations:
Eric Ruff Dave Spille
Engility Holdings, Inc. Engility Holdings, Inc.
(703) 375-6463 (703) 375-4221
eric.ruff@engilitycorp.com dave.spille@engilitycorp.com
ENGILITY HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three Months Ended | Six Months Ended | ||||||||||||||||||||||
June 30, 2014 | June 28, 2013 | Change | June 30, 2014 | June 28, 2013 | Change | ||||||||||||||||||
Revenue | $ | 363,690 | $ | 377,332 | $ | (13,642 | ) | $ | 702,514 | $ | 739,007 | $ | (36,493 | ) | |||||||||
Costs and expenses | |||||||||||||||||||||||
Cost of revenue | 311,686 | 328,103 | (16,417 | ) | 604,075 | 643,594 | (39,519 | ) | |||||||||||||||
Selling, general and administrative expenses | 28,892 | 19,936 | 8,956 | 55,642 | 36,233 | 19,409 | |||||||||||||||||
Total costs and expenses | 340,578 | 348,039 | (7,461 | ) | 659,717 | 679,827 | (20,110 | ) | |||||||||||||||
Operating income | 23,112 | 29,293 | (6,181 | ) | 42,797 | 59,180 | (16,383 | ) | |||||||||||||||
Interest expense, net | 3,139 | 5,757 | (2,618 | ) | 6,196 | 11,541 | (5,345 | ) | |||||||||||||||
Other income, net | 47 | 44 | 3 | 47 | 73 | (26 | ) | ||||||||||||||||
Income before income taxes | 20,020 | 23,580 | (3,560 | ) | 36,648 | 47,712 | (11,064 | ) | |||||||||||||||
Provision for income taxes | 7,528 | 9,292 | (1,764 | ) | 14,339 | 18,645 | (4,306 | ) | |||||||||||||||
Net income | 12,492 | 14,288 | (1,796 | ) | 22,309 | 29,067 | (6,758 | ) | |||||||||||||||
Less: Net income attributable to non-controlling interest | 1,587 | 1,226 | 361 | 2,533 | 2,227 | 306 | |||||||||||||||||
Net income attributable to Engility | $ | 10,905 | $ | 13,062 | $ | (2,157 | ) | $ | 19,776 | $ | 26,840 | $ | (7,064 | ) | |||||||||
Net income per share attributable to Engility | |||||||||||||||||||||||
Basic | $ | 0.64 | $ | 0.77 | $ | (0.13 | ) | $ | 1.16 | $ | 1.60 | $ | (0.44 | ) | |||||||||
Diluted | $ | 0.61 | $ | 0.74 | $ | (0.13 | ) | $ | 1.10 | $ | 1.53 | $ | (0.43 | ) | |||||||||
Weighted average number of shares outstanding | |||||||||||||||||||||||
Basic | 17,094 | 16,870 | 17,044 | 16,826 | |||||||||||||||||||
Diluted | 18,023 | 17,625 | 17,959 | 17,503 | |||||||||||||||||||
ENGILITY HOLDINGS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands)
As of | |||||||
June 30, 2014 | December 31, 2013 | ||||||
Assets: | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 22,691 | $ | 29,003 | |||
Receivables, net | 302,933 | 286,272 | |||||
Other current assets | 24,533 | 25,892 | |||||
Total current assets | 350,157 | 341,167 | |||||
Property, plant and equipment, net | 20,267 | 11,895 | |||||
Goodwill | 643,211 | 477,604 | |||||
Identifiable intangible assets, net | 131,250 | 92,205 | |||||
Other assets | 10,516 | 7,183 | |||||
Total assets | $ | 1,155,401 | $ | 930,054 | |||
Liabilities and Equity: | |||||||
Current liabilities: | |||||||
Current portion of long-term debt | $ | 13,750 | $ | 10,000 | |||
Accounts payable, trade | 34,735 | 28,286 | |||||
Accrued employment costs | 65,237 | 49,582 | |||||
Accrued expenses | 64,342 | 63,843 | |||||
Advance payments and billings in excess of costs incurred | 20,660 | 19,087 | |||||
Deferred income taxes, current and income taxes payable | 4,404 | 10,693 | |||||
Other current liabilities | 16,913 | 17,928 | |||||
Total current liabilities | 220,041 | 199,419 | |||||
Long-term debt | 346,375 | 187,500 | |||||
Income tax payable | 78,907 | 77,494 | |||||
Other liabilities | 42,144 | 22,487 | |||||
Total liabilities | $ | 687,467 | $ | 486,900 | |||
Equity: | |||||||
Preferred stock, par value $0.01 per share, 25,000 shares authorized, none issued or outstanding as of June 30, 2014 and December 31, 2013 | — | — | |||||
Common stock, par value $0.01 per share, 175,000 shares authorized, 17,601 shares issued and outstanding as of June 30, 2014 and 17,238 shares issued and outstanding as of December 31, 2013 | 176 | 172 | |||||
Additional paid in capital | 766,624 | 761,119 | |||||
Accumulated deficit | (311,190 | ) | (330,911 | ) | |||
Non-controlling interest | 12,324 | 12,774 | |||||
Total equity | 467,934 | 443,154 | |||||
Total liabilities and equity | $ | 1,155,401 | $ | 930,054 | |||
ENGILITY HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended | |||||||
2014 | 2013 | ||||||
Operating activities: | |||||||
Net income | $ | 22,309 | $ | 29,067 | |||
Share-based compensation | 4,884 | 4,440 | |||||
Depreciation and amortization | 9,997 | 7,629 | |||||
Amortization of bank debt fees | 840 | 1,757 | |||||
Deferred income taxes | (3,960 | ) | 5,984 | ||||
Changes in operating assets and liabilities, excluding acquired amounts: | |||||||
Receivables | 26,811 | 1,173 | |||||
Other assets | 9,198 | 8,505 | |||||
Accounts payable, trade | (8,987 | ) | 10,920 | ||||
Accrued employment costs | (1,241 | ) | (6,082 | ) | |||
Accrued expenses | (4,185 | ) | (11,533 | ) | |||
Advance payments and billings in excess of costs incurred | 1,264 | (11,371 | ) | ||||
Other liabilities | (13,497 | ) | (5,554 | ) | |||
Net cash provided by operating activities | 43,433 | 34,935 | |||||
Investing activities: | |||||||
Acquisitions, net of cash | (207,250 | ) | — | ||||
Capital expenditures | (1,637 | ) | (911 | ) | |||
Net cash used in investing activities | (208,887 | ) | (911 | ) | |||
Financing activities: | |||||||
Gross borrowings from issuance of long-term debt | 75,000 | — | |||||
Repayment of long-term debt | (6,875 | ) | (12,562 | ) | |||
Gross borrowings from revolving credit facility | 288,000 | 14,500 | |||||
Repayments of revolving credit facility | (193,500 | ) | (14,500 | ) | |||
Debt issuance costs | (1,106 | ) | — | ||||
Proceeds from share-based payment arrangements | 1,309 | 772 | |||||
Payment of employee withholding taxes on share-based compensation | (2,334 | ) | (1,037 | ) | |||
Excess tax deduction on share-based compensation | 1,642 | — | |||||
Distributions to non-controlling interest member | (2,994 | ) | (998 | ) | |||
Net cash provided by (used in) financing activities | 159,142 | (13,825 | ) | ||||
Net change in cash and cash equivalents | (6,312 | ) | 20,199 | ||||
Cash and cash equivalents, beginning of period | 29,003 | 27,021 | |||||
Cash and cash equivalents, end of period | $ | 22,691 | $ | 47,220 | |||
ENGILITY HOLDINGS, INC.
RECONCILIATION OF NON-GAAP MEASURES
The following tables set forth a reconciliation of each of these Non-GAAP Measures to the most directly comparable GAAP measure for the periods presented.
Adjusted Operating Income and Adjusted Operating Margin
(dollars in thousands)
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, 2014 | June 28, 2013 | June 30, 2014 | June 28, 2013 | ||||||||||||
Operating income | $ | 23,112 | $ | 29,293 | $ | 42,797 | $ | 59,180 | |||||||
Adjustments | |||||||||||||||
Acquisition and integration-related expenses excluding amortization | 3,967 | — | 6,110 | — | |||||||||||
Year-one acquisition-related amortization | 1,683 | — | 2,805 | — | |||||||||||
Restructuring costs | 513 | — | 513 | — | |||||||||||
Legal and settlement costs | 230 | 3,228 | 230 | 3,228 | |||||||||||
Adjusted operating income | $ | 29,505 | $ | 32,521 | $ | 52,455 | $ | 62,408 | |||||||
Operating margin | 6.4 | % | 7.8 | % | 6.1 | % | 8.0 | % | |||||||
Adjusted operating margin | 8.1 | % | 8.6 | % | 7.5 | % | 8.4 | % | |||||||
ENGILITY HOLDINGS, INC.
Adjusted Earnings Per Share
(in thousands except per share data)
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, 2014 | June 28, 2013 | June 30, 2014 | June 28, 2013 | ||||||||||||
Adjusted operating income | $ | 29,505 | $ | 32,521 | $ | 52,455 | $ | 62,408 | |||||||
Other items | |||||||||||||||
Interest expense, net | 3,139 | 5,757 | 6,196 | 11,541 | |||||||||||
Other income, net | 47 | 44 | 47 | 73 | |||||||||||
Adjusted income before income tax | 26,413 | 26,808 | 46,306 | 50,940 | |||||||||||
Provision for income taxes (1) | 9,932 | 10,564 | 18,046 | 19,917 | |||||||||||
Adjusted net income | 16,481 | 16,244 | 28,260 | 31,023 | |||||||||||
Net income attributable to non-controlling interest | 1,587 | 1,226 | 2,533 | 2,227 | |||||||||||
Adjusted net income attributable to Engility | $ | 14,894 | $ | 15,018 | $ | 25,727 | $ | 28,796 | |||||||
Adjusted diluted earnings per share attributable to Engility | $ | 0.83 | $ | 0.85 | $ | 1.43 | $ | 1.65 | |||||||
GAAP Net income attributable to Engility | $ | 10,905 | $ | 13,062 | $ | 19,776 | $ | 26,840 | |||||||
GAAP diluted earnings per share attributable to Engility | $ | 0.61 | $ | 0.74 | $ | 1.10 | $ | 1.53 | |||||||
Diluted weighted average number of shares outstanding | 18,023 | 17,625 | 17,959 | 17,503 | |||||||||||
(1) Current quarter tax provision is calculated at the current quarter tax rate. | |
ENGILITY HOLDINGS, INC.
Earnings before interest, taxes, depreciation, and amortization (EBITDA) and Adjusted EBITDA
(dollars in thousands)
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, 2014 | June 28, 2013 | June 30, 2014 | June 28, 2013 | ||||||||||||
Net income | $ | 12,492 | $ | 14,288 | $ | 22,309 | $ | 29,067 | |||||||
Interest, taxes, and depreciation and amortization | |||||||||||||||
Interest expense | 3,139 | 5,757 | 6,196 | 11,541 | |||||||||||
Provision for income taxes | 7,528 | 9,292 | 14,339 | 18,645 | |||||||||||
Depreciation and amortization | 5,354 | 4,236 | 9,997 | 7,629 | |||||||||||
EBITDA | $ | 28,513 | $ | 33,573 | $ | 52,841 | $ | 66,882 | |||||||
Adjustments to EBITDA | |||||||||||||||
Acquisition and integration-related expenses excluding amortization | 3,967 | — | 6,110 | — | |||||||||||
Restructuring costs | 513 | — | 513 | — | |||||||||||
Legal and settlement costs | 230 | 3,228 | 230 | 3,228 | |||||||||||
Adjusted EBITDA | $ | 33,223 | $ | 36,801 | $ | 59,694 | $ | 70,110 | |||||||
EBITDA Margin | 7.8 | % | 8.9 | % | 7.5 | % | 9.1 | % | |||||||
Adjusted EBITDA Margin | 9.1 | % | 9.8 | % | 8.5 | % | 9.5 | % | |||||||