MRO Magazine

Engility Reports Third Quarter 2015 Results


November 5, 2015
By Business Wire News

CHANTILLY, Va.

Engility Holdings, Inc. (NYSE: EGL) today announced financial results for the third quarter ended September 30, 2015.

Third Quarter 2015 Results

For the third quarter of 2015, the Company reported total revenue of $570 million. GAAP operating income was $34 million and GAAP operating margin was 6.0%. GAAP net income attributable to Engility was $4 million, or $0.10 per diluted share. Cash flow from operating activities was $91 million, which reflects a tax refund of $19 million.

Adjusted operating income was $52 million and adjusted operating margin was 9.1%. Adjusted net income attributable to Engility was $23 million, or $0.61 per diluted share. Adjusted EBITDA was $59 million and adjusted EBITDA margin was 10.3%.

Engility’s adjusted results for net income, operating margin and EBITDA exclude $5 million of acquisition and integration costs, and $2 million in legal and settlement costs. Adjusted operating margin and adjusted net income also exclude $11 million of amortization of intangible asset expenses associated with the TASC and DRC acquisitions. Adjusted net income also includes a cash tax benefit of $3 million as a result of Engility’s third quarter 2015 $19 million cash tax refund. Information about the Company’s use of non-GAAP financial information is provided below under “Non-GAAP Measures.”

“Third quarter cash flow from operations was strong as we achieved record low DSOs and realized a tax benefit resulting from our TASC acquisition,” said Tony Smeraglinolo, President and CEO of Engility. “While our third quarter revenue and profitability results were impacted by contract award and start delays, we continue to expect to be within our 2015 full-year guidance ranges given the ramp-up of recent contract wins and ongoing profit initiatives. We are raising our 2015 cash flow guidance to reflect the success of our systems and process integration efforts and the tax refund we received in the third quarter. We remain encouraged by our future growth prospects given our position in the market, the significant amount of submitted proposals we have awaiting adjudication and our business model, which combines our technical expertise and cost efficiencies.”

Key Performance Indicators for the Third Quarter of 2015

  • Book-to-bill ratio was 1.0x on contract awards of $565 million.
  • Book-to-bill ratio was 0.8x on funded orders of $465 million; funded backlog was $804 million.
  • Days sales outstanding (DSO), net of advanced payments, was 55 days.
  • Decreased outstanding debt by $35 million.

Significant Third Quarter 2015 Awards

  • Awarded a $74 million contract by the U.S. Agency for International Development (USAID) to implement the Growth, Enterprise, Employment and Livelihood (GEEL) project in Somalia. GEEL will expand small-and-medium-sized enterprise access to investment opportunities, increase the availability of key business services, and support improved business policy and regulation. This project, which represents new work for Engility, also will stimulate private investment in high growth industries such as agriculture, fisheries and renewable energy, and will boost employment potential for youth and women in regions previously inaccessible due to security concerns.
  • Awarded a $49 million contract to provide and support advanced technical communications systems for the U.S. Northern Command (USNORTHCOM), serving the Department of Defense, civil first responders, homeland defense operations and disaster relief activities. Under this follow-on contract win, Engility will provide full system lifecycle support, including capability design, solutions development, engineering, systems modifications, technical refresh, training and repair.
  • Awarded a contract with a potential value of $35 million to provide technical and administrative support to the Latin America and Caribbean Regional Office of USAID’s Office of Foreign Disaster Assistance (OFDA). Under this recompete contract, in the event of emergencies, such as natural disasters, Engility teams will deploy to disaster sites, perform damage assessments, and provide guidance on disaster response efforts to host country governments and local stakeholders. When not responding to a disaster, Engility provides year-round technical assistance for disaster preparedness and mitigation activities in the region, overseeing instruction in disaster management concepts, training methodologies and related technical disciplines.
  • Awarded a $31 million contract extension to help enhance the effectiveness of psychological health (PH) and Traumatic Brain Injury (TBI) programs that provide care to service members, veterans and their families. This contract was awarded by the U.S. Army Medical Research Acquisition Activity for the Defense Centers of Excellence for PH and TBI.
  • Awarded a $14 million contract to provide technical, policy and program management support for the Army’s Product Director Automated Movement and Identification Solutions (PD AMIS) program. PD AMIS, a part of the Army’s Program Executive Office (PEO) Enterprise Information Systems (EIS), controls all aspects of Automated Identification Technology (AIT), which allows the Army to track assets and manage key elements of logistics, including the procurement, expertise, training, customer support and the introduction of new technologies into all logistical operations. All U.S. Army organizations and several other Department of Defense organizations procure AIT products and services through PD AMIS.
  • Awarded a prime position on a $900 million indefinite delivery/indefinite quantity (IDIQ) contract to provide professional and technical services supporting medical product research and development (MPRD) for the U.S. Army and other Department of Defense entities. The MPRD program provides a mechanism for all aspects of medical product research and development and life cycle support to sustain our nation’s warfighters. This contract, which represents new work, was awarded by the U.S. Army Medical Research and Material Command.

Fiscal Year 2015 Guidance

We are updating the fiscal year 2015 financial guidance we issued on August 6, 2015 based on our financial results for the first nine months of 2015 and our outlook for the remainder of the year. We are increasing our fiscal year 2015 operating cash flow guidance and narrowing the guidance ranges for revenue, GAAP diluted EPS, adjusted diluted EPS and adjusted EBITDA. The table below summarizes our fiscal year 2015 guidance and includes approximately 10 months of TASC’s expected financial results since the acquisition closed on February 26, 2015.

         
    Current Outlook for Fiscal Year 2015   Prior Outlook for Fiscal Year 2015
Revenue   $2.05 billion – $2.1 billion   $2.0 billion – $2.2 billion
GAAP Diluted EPS (1) $0.15 – $0.35 $0.15 – $0.50
Adjusted Diluted EPS (1) $2.05 – $2.35 $2.05 – $2.50
Adjusted EBITDA (1) $205 million – $215 million $205 million – $220 million
GAAP operating cash flow   $65 million – $75 million   $50 million – $60 million
 

(1) 2015 GAAP and adjusted diluted EPS guidance assumes weighted average outstanding shares of approximately 34 million. GAAP diluted EPS assumes a 2015 full year tax benefit of approximately $12 million to $14 million. Adjusted diluted EPS assumes 2015 net cash tax payments of approximately $1 million. Our adjusted diluted EPS and adjusted EBITDA guidance excludes approximately $70 million to $75 million of amortization of acquired intangible assets, and deal and integration costs associated with the TASC and DRC acquisitions.

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 Income before Income Tax, Adjusted Net Income, and 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, among other things, the impact of transaction and integration costs and amortization expenses related to our acquisitions of TASC and 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 8 A.M. ET on November 5, 2015, to discuss the financial results for our third quarter 2015.

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 2015 third quarter results and our fiscal year 2015 guidance. 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) 300-6036 (domestic) or (412) 455-6216 (international) and entering pass code 58341254.

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 November 12, 2015 at (855) 859-2056 (domestic) or (404) 537-3406 (international) and entering pass code 58341254.

ABOUT ENGILITY

Engility is a pure-play government services provider that delivers highly skilled personnel wherever, whenever they are needed in a cost-efficient manner. The Company proudly serves customers that span the federal services market including the Department of Defense, the Intelligence community, Space and Federal Civilian agencies. 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, business plans, as well as the TASC transaction and its expected benefits and the timing of such benefits. 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, 2014, and more recent documents that 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.

   
ENGILITY HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 
Three Months EndedNine Months Ended

September 30,
2015

 

September 30,
2014

 Change

September 30,
2015

 

September 30,
2014

 Change
Revenue $ 570,459 $ 345,061 $ 225,398 $ 1,548,601 $ 1,047,575 $ 501,026
Costs and expenses
Cost of revenue 486,382 293,039 193,343 1,316,482 897,114 419,368
Selling, general and administrative expenses 49,578   25,255   24,323   159,493   80,897   78,596  

Total costs and expenses

535,960   318,294   217,666   1,475,975   978,011   497,964  
Operating income 34,499 26,767 7,732 72,626 69,564 3,062
Interest expense, net 31,261 3,342 27,919 80,589 9,538 71,051
Other income (expenses), net 15   (67 ) 82   44   (20 ) 64  
Income (loss) before income taxes 3,253 23,358 (20,105 ) (7,919 ) 60,006 (67,925 )
Provision (benefit) for income taxes (1,661 ) 9,115   (10,776 ) (15,662 ) 23,454     (39,116 )
Net income 4,914 14,243 (9,329 ) 7,743 36,552 (28,809 )
Less: Net income attributable to non-controlling interest 1,264   1,082   182   4,364   3,615   749  
Net income attributable to Engility $ 3,650   $ 13,161   $ (9,511 ) $ 3,379   $ 32,937   $ (29,558 )
 
Earnings per share attributable to Engility
Basic $ 0.10 $ 0.77 $ (0.67 ) $ 0.10 $ 1.93 $ (1.83 )
Diluted $ 0.10 $ 0.73 $ (0.63 ) $ 0.10 $ 1.83 $ (1.73 )
 
Weighted average number of shares outstanding
Basic 36,623 17,151 32,527 17,080
Diluted 37,136 18,065 33,065 17,994
 
ENGILITY HOLDINGS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands)
 

 

As of
September 30,  December 31,
20152014
Assets:
Current assets:
Cash and cash equivalents $ 75,898 $ 7,123
Receivables, net 389,410 286,403
Prepaid and deferred income taxes, current, net 21,570 296
Other current assets 31,664   27,488  
Total current assets 518,542 321,310
Property, plant and equipment, net 40,523 19,839
Goodwill 1,382,140 644,554
Identifiable intangible assets, net 451,497 123,549
Deferred tax assets 171,337 4,793
Other assets 24,574   8,591  
Total assets $ 2,588,613 $ 1,122,636
Liabilities and Equity:
Current liabilities:
Current portion of long-term debt $ 8,447 $ 13,750
Accounts payable, trade 62,691 49,121
Accrued employment costs 105,810 47,824
Accrued expenses 103,207 71,582
Advance payments and billings in excess of costs incurred 43,962 22,300
Deferred income taxes, current and income tax liabilities 458 9,810
Other current liabilities 39,774   21,098  
Total current liabilities 364,349 235,485
Long-term debt 1,140,571 279,500
Income tax liabilities 69,250 79,713
Other liabilities 71,878   51,185  
Total liabilities 1,646,048   645,883  
Equity:
Preferred stock, par value $0.01 per share, 25,000 shares authorized, none issued or outstanding as of September 30, 2015 and December 31, 2014
Common stock, par value $0.01 per share, 175,000 shares authorized, 36,735 and 17,592 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively 368 176
Additional paid-in capital 1,231,173 770,764
Accumulated deficit (292,164 ) (295,543 )
Accumulated other comprehensive income (8,457 ) (9,018 )
Non-controlling interest 11,645   10,374  
Total equity 942,565   476,753  
Total liabilities and equity $ 2,588,613   $ 1,122,636  
 
ENGILITY HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Nine Months Ended
September 30,  September 30,
20152014
Operating activities:
Net income $ 7,743 $ 36,552
Share-based compensation 9,351 7,283
Depreciation and amortization 42,918 15,840
Amortization of bank debt fees 10,858 1,218
Deferred income taxes 12,198 (1,631 )
Changes in operating assets and liabilities, excluding acquired amounts:
Receivables 46,034 40,555
Other assets 19,890 5,807
Accounts payable, trade (22,113 ) (12,049 )
Accrued employment costs (34,369 ) 5,349
Accrued expenses (1,762 ) (6,673 )
Advance payments and billings in excess of costs incurred 3,658 2,339
Other liabilities (33,870 ) (14,105 )
Net cash provided by operating activities 60,536 80,485
Investing activities:
Acquisitions, net of cash acquired 25,478 (207,250 )
Capital expenditures (12,600 ) (2,765 )
Net cash provided by (used in) investing activities 12,878 (210,015 )
Financing activities:
Gross borrowings from issuance of long-term debt 585,000 75,000
Repayment of long-term debt (376,553 ) (10,313 )
Gross borrowings from revolving credit facility 157,000 383,000
Repayments of revolving credit facility (115,000 ) (323,000 )
Debt issuance costs (42,425 ) (1,131 )
Equity issuance costs (2,590 )
Proceeds from share-based payment arrangements 279 1,481
Payment of employee withholding taxes on share-based compensation (8,017 ) (2,430 )
Excess tax deduction on share-based compensation 5,061 1,642
Dividends paid (204,300 )
Distributions to non-controlling interest member (3,094 ) (4,990 )
Net cash (used in) provided by financing activities (4,639 ) 119,259
Net change in cash and cash equivalents 68,775 (10,271 )
Cash and cash equivalents, beginning of period 7,123   29,003  
Cash and cash equivalents, end of period $ 75,898   $ 18,732  
 

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 EndedNine Months Ended
September 30,  September 30,September 30,  September 30,
2015201420152014
Operating income$34,499$26,767$72,626$69,564
 
Adjustments
Acquisition and integration-related expenses excluding amortization 5,177 2,227 32,770 8,850
Acquisition-related intangible amortization 10,796 1,683 25,968 4,488
Legal and settlement costs 1,586     1,740   230  
17,559  3,910  60,478  13,568  
 
Adjusted operating income$52,058  $30,677  $133,104  $83,132  
 
Operating margin 6.0 % 7.8 % 4.7 % 6.6 %
Adjusted operating margin 9.1 % 8.9 % 8.6 % 7.9 %
   
ENGILITY HOLDINGS, INC.
Adjusted Earnings Per Share
(in thousands, except per share data)
 
Three Months EndedNine Months Ended
September 30,  September 30,September 30,  September 30,
2015201420152014
GAAP net income attributable to Engility$3,650$13,161$3,379$32,937
Net income attributable to non-controlling interest 1,264   1,082   4,364   3,615  
 
GAAP net income4,91414,2437,74336,552
Provision (benefit) for income taxes (1,661 ) 9,115   (15,662 ) 23,454  
Income tax rate (51.1 )% 39.0 % 197.8 % 39.1 %
 
GAAP income (loss) before taxes3,25323,358(7,919)60,006
 
Adjustments
Acquisition and integration-related expenses excluding amortization 5,177 2,227 32,770 8,850
Acquisition-related intangible amortization 10,796 1,683 25,968 4,488
Legal and settlement costs 1,586 1,740 230
Bank fees previously capitalized and included in interest expense     4,602    
Total adjustments 17,559   3,910   65,080   13,568  
 
Adjusted income before income tax20,81227,26857,16173,574
Adjusted provision for income taxes 10,641 28,687
Cash paid (received) for income taxes (3,173 )   1,075    
Adjusted income tax rate (15.2 )% 39.0 % 1.9 % 39.0 %
 
Adjusted net income23,98516,62756,08644,887
Less: Net income attributable to non-controlling interest 1,264   1,082   4,364   3,615  
 
Adjusted net income attributable to Engility$22,721  $15,545  $51,722  $41,272  
 
Adjusted diluted earnings per share attributable to Engility$0.61$0.86$1.56$2.29
 
GAAP diluted earnings per share attributable to Engility$0.10$0.73$0.10$1.83
 
Diluted weighted average number of shares outstanding – Adjusted 37,136 18,065 33,065 17,994
Diluted weighted average number of shares outstanding – GAAP 37,136 18,065 33,065 17,994
   
ENGILITY HOLDINGS, INC.
Earnings before interest, taxes, depreciation, and amortization (EBITDA) and Adjusted EBITDA
(dollars in thousands)
 
Three Months EndedNine Months Ended
September 30,  September 30,September 30,  September 30,
2015201420152014
Net income$4,914$14,243$7,743$36,552
 
Interest, taxes, and depreciation and amortization
Interest expense 31,261 3,342 80,589 9,538
Provision (benefit) for income taxes (1,661 ) 9,115 (15,662 ) 23,454
Depreciation and amortization 17,425   5,843   42,918   15,840  
EBITDA51,939  32,543  115,588  85,384  
 
Adjustments to EBITDA
Acquisition and integration-related expenses excluding amortization 5,177 2,227 32,770 8,850
Legal and settlement costs 1,586     1,740   230  
6,763   2,227   34,510   9,080  
 
Adjusted EBITDA$58,702  $34,770  $150,098  $94,464  
 
EBITDA margin 9.1 % 9.4 % 7.5 % 8.2 %
Adjusted EBITDA margin 10.3 % 10.1 % 9.7 % 9.0 %

Media:
Engility Holdings, Inc.
Eric Ruff, 703-375-6463
eric.ruff@engilitycorp.com
or
Investor Relations:
Engility Holdings, Inc.
Dave Spille, 703-375-4221
dave.spille@engilitycorp.com