Vectrus, Inc. (VEC) Misses Q2 EPS by 44c, Revenues Beat; Lowers FY20 EPS/Revenue Guidance Below Consensus

Vectrus, Inc. (NYSE: VEC) reported Q2 EPS of $0.24, $0.44 worse than the analyst estimate of $0.68. Revenue for the quarter came in at $336.1 million versus the consensus estimate of $335.28 million.

"Second quarter results demonstrated solid top line performance, strong new business awards, and favorable cash flow generation despite the impact of COVID-19. Margin and EPS were adversely impacted by one-time closeouts and a contract adjustment to a European program," said Chuck Prow, president and chief executive officer. "The company is working with the client to resolve this issue prior to the next option period in mid-2021. Our updated guidance reflects the continued impact from COVID-19 on existing programs and the delay of LOGCAP V and other new programs due to host nation and base access restrictions. We expect improved margins to drive EPS growth in the second half of the year."

"During the quarter, we won three new contracts with our Navy client, two of which were in collaboration with a joint venture partner and are in the aggregate valued at $554 million," said Prow. "Our prospects for growth, supported by our robust backlog and $10.6 billion pipeline, are unchanged. Our cash flow generation and balance sheet remain strong and we are well positioned for the future. We are maintaining an agile, deliberate posture with respect to COVID-19 with focus on the safety of our clients and team while executing consistently on our programs. I would like to acknowledge the dedication and innovation our entire work force has demonstrated to keep the missions we operate at a high level of readiness throughout the ongoing pandemic for our clients."

GUIDANCE:

Vectrus, Inc. sees FY2020 EPS of $2.68-$2.82, versus the consensus of $3.68. Vectrus, Inc. sees FY2020 revenue of $1.385-1.405 billion, versus the consensus of $1.51 billion.

Vectrus is revising and narrowing its full-year 2020 guidance ranges for revenue, EBITDA, and diluted EPS to include second quarter results. The outlook for net cash provided by operating activities remains unchanged as a result of the favorable impact of the CARES Act tax deferrals, lower capital expenditure outlook and lower EBITDA projections.

The transition of LOGCAP V and newly won programs have slowed due to COVID-19 as restrictions in both host nation and base access continue to be gating factors to full operational capability. Additionally, protests on new business awards are limiting our ability to conduct transition and phase-in activities.

The COVID-19 pandemic is now estimated to defer 2020 revenue of approximately $65 million and EBITDA of $4 million into future periods. While we expect the vast majority of the associated revenue and profit to remain in our backlog, the contribution will be determined by the timing of services performed in future contractual periods. The Company continues to work with its clients to maintain operations and plan a safe return to work in light of the COVID-19 pandemic.

In addition, guidance for capital expenditures has been reduced from $7.0 million to $5.0 million, depreciation and amortization has been reduced from $8.4 million to $8.1 million. Mandatory debt payments of $6.5 million, interest expense of $5.6 million, tax rate of 23%, and weighted average diluted shares outstanding of 11.8 million at December 31, 2020 remain unchanged.

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