Engility Reports Second Quarter 2013 Results *Second quarter revenue of $377 million and adjusted diluted EPS of $0.85 *Adjusted operating margin increases to 8.6% from 8.3% in the prior quarter *Reiterates 2013 revenue and EPS guidance (now incorporates the anticipated impact from sequestration and adjusts for one-time charges) *Engility closes on new $450 million credit facility, lowering borrowing costs by nearly 50% Business Wire CHANTILLY, Va. -- August 12, 2013 Engility Holdings, Inc. (NYSE: EGL) today announced financial results for the second quarter ended June 28, 2013. Second Quarter 2013 Results Total revenue for the second quarter of 2013 was $377 million and operating income was $29 million. Adjusted operating income for the second quarter was $33 million. Operating margin for the second quarter of 2013 was 7.8% and adjusted operating margin for the same period was 8.6%. Net income attributable to Engility was $13 million, or $0.74 per diluted share. Adjusted net income was $15 million, or $0.85 per diluted share. Our adjusted numbers exclude the impact of legal and settlement costs. Information about Engility’s use of non-GAAP financial information is provided below under “Non-GAAP Measures”. “I am pleased with our second quarter results as we continued to execute effectively against our strategic plan. During the quarter, we won several additional contract vehicles, achieved sequential revenue growth and delivered strong bottom-line results,” said Tony Smeraglinolo, President and CEO of Engility. “We also are expecting to realize increased cash flow beginning in the second half of 2013 from the implementation of our recent cash collection initiatives, as well as from the reduction in required principal payments and lower borrowing costs that we secured in our new credit facility.” “We continue to successfully execute on our customers’ mission priorities in a cost effective manner. We have received feedback from certain of our customers that the efficiencies created by our business model are allowing them to complete their entire contract missions within their reduced budgets. We remain excited by our pipeline of opportunities, broad portfolio of existing contracts and our differentiated low-cost business model, all of which we believe to be strategically important to market success in today’s budget constrained environment. Despite these successes, sequestration and contract award delays are beginning to impact our business.” Key Performance Indicators *Funded backlog at the end of the 2013 second quarter was $649 million. *Contract funded orders in the second quarter of 2013 were $210 million, representing a book-to-bill ratio of 0.6. *Days sales outstanding, net of advanced payments, at the end of the 2013 second quarter was 83 days. New Credit Facility *On August 9, 2013, Engility entered into a new $450 million credit facility agreement, which replaced the Company’s prior $400 million facility. The new facility includes a $250 million revolving credit line and a $200 million term loan with a maturity date of August 9, 2018. The new credit facility also has an accordion feature that will allow the facility to be expanded by up to an additional $150 million. Significant Second Quarter 2013 Awards *A prime position on a $900 million multiple-award IDIQ contract for new work to provide Decision Superiority Support services to the Space and Naval Warfare Systems Center (SSC) Atlantic, Charleston, SC. Under this five year contract, we will provide support services primarily associated with the full system of life cycle support for command, control, communication, computers, combat systems, intelligence, surveillance and reconnaissance (C5ISR). *A prime position on a $900 million multiple-award IDIQ contract for new work to provide Business and Force Support (BFS) services to the Space and Naval Warfare Systems Center (SSC) Atlantic, Charleston, SC. Under this five year contract, we will provide an array of support services to the BFS portfolio, including design, acquisition, production, integration, testing, installation, lifecycle support and configuration management of certified Command, Control, Communications, Computers, Combat Systems, Intelligence, Surveillance and Reconnaissance (C5ISR) capabilities. *A prime position on an $854 million multiple-award IDIQ contract for new work to support the U.S. Marine Corps Logistics Command, Albany, GA. Under this five year contract, we will provide experienced logisticians, trainers, and IT specialists, to perform/support supply chain services and logistics management globally. These efforts will contribute to the overall readiness and sustainability of the Corps and its ability to respond to emerging requirements. *A prime position on a $400 million multiple-award IDIQ contract for the U.S. Agency for International Development’s (USAID) Clean Energy contract for Critical Priority Countries (Afghanistan, Iraq, Pakistan, Sudan and Yemen). Under this five year contract, we will provide a range of key technical assistance activities, from energy sector reform (including legal, regulatory and corporate governance structures and mechanisms) to increasing human resource capacity related to energy services and fostering private sector participation and investment. This new work represents an expansion of the energy support services that our highly skilled team of professionals has been providing on USAID’s behalf for the past 34 years. *A prime position on a $68 million multiple-award IDIQ contract for new work to support Navy computer networks ashore under a contract with the Space and Naval Warfare Systems Center Pacific. Under this three year contract, we will provide contract sustainment services for the Navy Enterprise Network (ONE-Net) including project management; engineering; technical and integrated logistics support; configuration management; certification and accreditation; and enterprise applications. Second Quarter 2013 Recognition *The Association for Corporate Growth’s National Capital Chapter presented Engility with its 2012 award for the Greatest Regional Impact Deal of the Year. This award is presented to the regional company that leads an equity or M&A transaction that is expected to have the greatest regional impact in the coming years. Selection criteria for this award include factors such as transaction value, job creation, industry impact, and national and international recognition. *In our first year of eligibility, Washington Technology magazine named Engility to its list of the Top 100 government contractors. We attribute this accomplishment to our employee’s relentless focus on the success of our customers’ missions. *Engility was recognized by the National Veteran Small Business Coalition for exceptional support to veteran and service-disabled veteran small businesses. We are proud that the work we have performed to mentor and to help small businesses win, staff and execute on government contracts has been acknowledged by such a well-respected organization. 2013 Outlook We are reiterating the fiscal year 2013 financial guidance we issued on May 13, 2013 (adjusted for one-time charges) based on our financial results for the first half of 2013 and our outlook for the remainder of 2013. However, our guidance now includes the potential impact from the federal government’s sequestration budget cuts. As a result, our 2013 financial results may be near the low-end of our guidance ranges. In addition, our adjusted diluted EPS guidance excludes $3.2 million of legal and settlement costs incurred in the second quarter of 2013 and an estimated $3.7 million write-off of bank debt fees in the third quarter of 2013 associated with our prior credit facility. The table below summarizes our fiscal year 2013 guidance. 2013 Fiscal Year Outlook Revenue $1.45 billion to $1.55 billion Adjusted Diluted EPS ^(1) $3.25 - $3.55 GAAP Diluted EPS ^(1) $3.01 - $3.31 Operating cash flow $80 million to $100 million 2013 GAAP and adjusted diluted EPS guidance assumes a weighted-average ^(1) share count of approximately 17.75 million shares and a full year effective tax rate of 39.5%. 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 and Adjusted Diluted EPS Guidance, 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 (i) transaction-related-spin-off costs for the Company’s July 2012 spin-off from L-3 Communications Holdings, Inc. (ii) legal and settlement costs and (iii) in the case of our Adjusted Diluted EPS Guidance, the write-off of bank debt fees associated with our prior credit facility. 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 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 12, 2013, to discuss the financial results for the second quarter of 2013. 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 may also access a slide presentation on the website which summarizes our 2013 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 may also participate in the conference call by dialing (877) 546-5021 (domestic) or (857) 244-7553 (international) and entering pass code 33618715. 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 19, 2013 at (888) 286-8010 (domestic) or (617) 801-6888 (international) and entering pass code 23034505. ABOUT ENGILITY CORPORATION 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 with approximately 7,800 employees worldwide and sales of $1.66 billion for 2012. 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, business plans, and our strategic realignment completed in the first quarter of 2013. 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” in the Information Statement included in our Annual Report on Form 10-K for the year ended December 31, 2012, and our 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. ENGILITY HOLDINGS, INC. UNAUDITED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS (in thousands, except per share data) Three Months Ended Six Months Ended June 28, June 29, June 28, June 29, 2013 2012 Change 2013 2012 Change Revenue $ 377,332 $ 371,889 $ 5,443 $ 739,007 $ 755,129 $ (16,122 ) Revenue from former - 46,413 (46,413 ) - 95,147 (95,147 ) affiliated entities Total revenue 377,332 418,302 (40,970 ) 739,007 850,276 (111,269 ) Costs and expenses Cost of 328,103 305,479 22,624 643,594 629,647 13,947 revenue Cost of revenue from former - 46,413 (46,413 ) - 95,147 (95,147 ) affiliated entities Total cost of 328,103 351,892 (23,789 ) 643,594 724,794 (81,200 ) revenue Selling, general and 19,936 35,666 (15,730 ) 36,233 68,893 (32,660 ) administrative expenses Total costs 348,039 387,558 (39,519 ) 679,827 793,687 (113,860 ) and expenses Operating 29,293 30,744 (1,451 ) 59,180 56,589 2,591 income Interest 5,757 97 5,660 11,541 194 11,347 expense, net Other income, 44 (85 ) 129 73 (45 ) 118 net Income from continuing operations 23,580 30,562 (6,982 ) 47,712 56,350 (8,638 ) before income taxes Provision for 9,292 12,817 (3,525 ) 18,645 23,619 (4,974 ) income taxes Income from continuing 14,288 17,745 (3,457 ) 29,067 32,731 (3,664 ) operations Loss from discontinued operations - (423 ) 423 - (548 ) 548 before income taxes Benefit for - (177 ) 177 - (230 ) 230 income taxes Loss from discontinued - (246 ) 246 - (318 ) 318 operations Net income $ 14,288 $ 17,499 $ (3,211 ) $ 29,067 $ 32,413 $ (3,346 ) Less: Net income attributable 1,226 2,501 (1,275 ) 2,227 3,430 (1,203 ) to noncontrolling interest Net income attributable $ 13,062 $ 14,998 $ (1,936 ) $ 26,840 $ 28,983 $ (2,143 ) to Engility Earnings per share allocable to Engility Holdings, Inc. common shareholders - Basic Net income per share from continuing operations $ 0.77 $ 0.95 $ (0.18 ) $ 1.60 $ 1.82 $ (0.22 ) less noncontrolling interest Net income per share from -- $ (0.02 ) 0.02 -- $ (0.02 ) 0.02 discontinued operations Net income per share $ 0.77 $ 0.93 $ (0.16 ) $ 1.60 $ 1.80 $ (0.20 ) attributable to Engility Earnings per share allocable to Engility Holdings, Inc. common shareholders - Diluted Net income per share from continuing operations $ 0.74 $ 0.95 $ (0.21 ) $ 1.53 $ 1.82 $ (0.29 ) less noncontrolling interest Net income per share from -- $ (0.02 ) 0.02 -- $ (0.02 ) 0.02 discontinued operations Net income per share $ 0.74 $ 0.93 $ (0.19 ) $ 1.53 $ 1.80 $ (0.27 ) attributable to Engility Weighted average number of shares outstanding Basic 16,870 16,118 16,826 16,118 Diluted 17,625 16,118 17,503 16,118 ENGILITY HOLDINGS, INC. UNAUDITED CONSOLIDATED BALANCE SHEETS (in thousands) As of As of June 28, December 31, 2013 2012 Assets: Current assets: Cash and cash equivalents $ 47,220 $ 27,021 Receivables, net 365,063 366,236 Other current assets 26,114 34,832 Total current assets 438,397 428,089 Property, plant and equipment, net 9,599 11,941 Goodwill 477,604 477,604 Identifiable intangible assets, net 96,567 100,929 Other assets 5,921 8,887 Total assets $ 1,028,088 $ 1,027,450 Liabilities and Equity: Current liabilities: Current portion of long-term debt $ 50,250 $ 50,250 Accounts payable, trade 27,781 20,725 Accrued employment costs 57,196 63,278 Accrued expenses 65,924 76,955 Advance payments and billings in excess of 16,159 24,855 costs incurred Deferred income taxes, current and income 9,472 10,607 taxes payable Other current liabilities 22,672 19,311 Total current liabilities 249,454 265,981 Long-term debt 272,188 284,750 Long term deferred income tax 5,309 -- Income tax payable 62,405 68,725 Other liabilities 18,163 19,683 Total liabilities 607,519 639,139 Equity: Preferred stock, par value $0.01 per share, 25,000 shares authorized, none issued or - - outstanding as of June 28, 2013 or December 31, 2012 Common stock, par value $0.01 per share, 175,000 shares authorized, 17,183 shares issued and outstanding as of June 28, 2013 and 172 168 16,703 shares issued and outstanding as of December 31, 2012 Additional paid in capital 759,813 755,638 Accumulated deficit (353,598 ) (380,438 ) Noncontrolling interest 14,182 12,943 Total equity 420,569 388,311 Total liabilities and equity $ 1,028,088 $ 1,027,450 ENGILITY HOLDINGS, INC. UNAUDITED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (in thousands) Six Months Ended June 28, June 29, 2013 2012 Operating activities: Net income $ 29,067 $ 32,413 Less: loss from discontinued operations, net of -- (318 ) tax Income from continuing operations 29,067 32,731 Share-based compensation 4,440 -- Depreciation and amortization 7,629 8,335 Amortization of bank debt fees 1,757 -- Deferred income taxes 5,984 (12,091 ) Changes in operating assets and liabilities, excluding acquired amounts: Receivables 1,173 48,511 Other assets 8,505 (1,041 ) Accounts payable, trade 7,056 (14,378 ) Accrued employment costs (6,082 ) (6,255 ) Accrued expenses (11,031 ) (15,768 ) Advance payments and billings in excess of costs (8,696 ) (128 ) incurred Other liabilities (4,867 ) (75 ) Net cash provided by operating activities from 34,935 39,841 continuing operations Investing activities: Capital expenditures (911 ) (469 ) Net cash used in investing activities from (911 ) (469 ) continuing operations Financing activities: Borrowings from revolving credit facility 14,500 -- Repayments of revolving credit facility (14,500 ) -- Repayments of long-term debt (12,562 ) -- Net transfers from prior parent -- (41,490 ) Proceeds from share-based payment arrangements 772 -- Payment of employee withholding taxes on (1,037 ) -- restricted stock units vesting Distributions to non-controlling interest member (998 ) (1,140 ) Net cash used in financing activities from (13,825 ) (42,630 ) continuing operations Discontinued Operations: Net cash provided by operating activities -- 9,222 Net cash used in investing activities -- -- Net cash used in financing activities -- (9,222 ) Cash balance of discontinued operations -- (22 ) Net cash used in discontinued operations -- (22 ) Net change in cash and cash equivalents 20,199 (3,280 ) Cash and cash equivalents, beginning of period 27,021 13,710 Cash and cash equivalents, end of period $ 47,220 $ 10,430 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 (in thousands, except for ratio and per share amounts). Adjusted Operating Income and Adjusted Operating Margin (in thousands) Three Months Ended Six Months Ended June 28, June 29, June 28, June 29, 2013 2012 2013 2012 Operating income $ 29,293 $ 30,744 $ 59,180 $ 56,589 Adjustments Transaction-related-spin-off -- 7,300 -- 13,300 costs Legal and settlement costs 3,228 -- 3,228 -- Total adjustments 3,228 7,300 3,228 13,300 Adjusted operating income $ 32,521 $ 38,044 $ 62,408 $ 69,889 Operating margin 7.8 % 7.3 % 8.0 % 6.7 % Adjusted operating margin 8.6 % 9.1 % 8.4 % 8.2 % ENGILITY HOLDINGS, INC. Adjusted Earnings Per Share (in thousands, except per share data) Three Months Ended Six Months Ended June 28, June 29, 2012 June 28, June 29, 2013 2013 2012 Adjusted $ 32,521 $ 38,044 $ 62,408 $ 69,889 operating income Other items Interest 5,757 97 11,541 194 expense, net Other income, 44 (85 ) 73 (45 ) net Adjusted income from continuing operations 26,808 37,862 50,940 69,650 before income tax Provision for 10,564 13,698 19,917 26,012 income taxes Adjusted income from continuing 16,244 24,164 31,023 43,638 operations Loss from discontinued - (246 ) - (318 ) operations Net income attributable to 1,226 2,501 2,227 3,430 non-controlling interest Adjusted net income attributable to $ 15,018 $ 21,417 $ 28,796 $ 39,890 Engility Holdings, Inc. GAAP earnings per share Net income attributable to $ 13,062 $ 14,998 $ 26,840 $ 28,983 Engility Holdings, Inc. Earnings per share attributable to Engility Holdings, Inc. common shareholders Basic $ 0.77 $ 0.93 $ 1.60 $ 1.80 Diluted $ 0.74 $ 0.93 $ 1.53 $ 1.80 Weighted average common shares outstanding Basic 16,870 16,118 16,826 16,118 Diluted 17,625 16,118 17,503 16,118 Adjusted earnings per share attributable to Engility Holdings, Inc. common shareholders Basic $ 0.89 $ 1.33 $ 1.71 $ 2.47 Diluted $ 0.85 $ 1.33 $ 1.65 $ 2.47 Weighted average number of shares outstanding Basic 16,870 16,118 16,826 16,118 Diluted 17,625 16,118 17,503 16,118 ENGILITY HOLDINGS, INC. Earnings before interest, taxes, depreciation, and amortization (EBITDA) and Adjusted EBITDA (dollars in thousands) Three Months Ended Six Months Ended June 28, June 29, June 28, June 29, 2013 2012 2013 2012 Income from continuing $ 14,288 $ 17,745 $ 29,067 $ 32,731 operations Interest, taxes, depreciation, and amortization Interest expense 5,757 97 11,541 194 Provision for income taxes 9,292 12,817 18,645 23,619 Depreciation and 4,236 4,150 7,629 8,335 amortization EBITDA $ 33,573 $ 34,809 $ 66,882 $ 64,879 Adjustments to EBITDA Transaction-related-spin-off - 7,300 - 13,300 costs Legal and settlement costs 3,228 - 3,228 - 3,228 7,300 3,228 13,300 Adjusted EBITDA $ 36,801 $ 42,109 $ 70,110 $ 78,179 EBITDA Margin 8.9 % 8.3 % 9.1 % 7.6 % Adjusted EBITDA Margin 9.8 % 10.1 % 9.5 % 9.2 % ENGILITY HOLDINGS, INC. Revision to Costs and Expenses (in thousands) For the Three Month Period Ending For the Six Month Period Ending June 29, 2012 June 29, 2012 Reported Adjustment Revised Reported Adjustment Revised Costs and expenses Cost of $ 307,674 $ (2,195 ) $ 305,479 $ 634,340 $ (4,693 ) $ 629,647 revenue Cost of revenue from 46,413 - $ 46,413 95,147 - $ 95,147 affiliated entities Total cost of 354,087 (2,195 ) $ 351,892 729,487 (4,693 ) $ 724,794 revenue Selling, general and 33,471 2,195 $ 35,666 64,200 4,693 $ 68,893 administrative expenses Total costs 387,558 - $ 387,558 793,687 - $ 793,687 and expenses Impact of the revision on $ - $ - $ - $ - $ - $ - cost and expenses Note – As noted in our Form 10-K for the year ended December 31, 2012, management determined that we improperly classified certain amounts in cost of revenue that were selling, general and administrative in nature. We have assessed the impact of the adjustments on the statements of operations and determined that the period was not materially misstated. This change did not impact the balance sheet or statements of cash flows. The three and six month periods ended June 29, 2012 have been revised to reflect this correction. ENGILITY HOLDINGS, INC. Estimated Adjusted Diluted EPS Guidance For the Year Ending December 31, 2013 Low-End High-End Estimated GAAP Diluted EPS $ 3.01 $ 3.31 Known adjustments, net of tax Legal and settlement costs 0.11 0.11 Bank debt fees previously capitalized 0.13 0.13 0.24 0.24 Estimated Adjusted Diluted EPS $ 3.25 $ 3.55 Contact: Engility Holdings, Inc. Corporate Communications and Media: Eric Ruff, 703-375-6463 firstname.lastname@example.org or Investor Relations: Dave Spille, 703-375-4221 email@example.com
Engility Reports Second Quarter 2013 Results
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