Engility Reports Fourth Quarter and Full Year 2013 Results; Establishes 2014 Guidance

  Engility Reports Fourth Quarter and Full Year 2013 Results; Establishes 2014   Guidance    *Fourth quarter revenue of $329 million and adjusted diluted EPS of $1.00   *Adjusted operating margin increases to 9.3% from 8.9% in the prior quarter   *Fourth quarter 2013 cash flow from operations of $41 million and $151     million for fiscal year 2013   *Fourth quarter 2013 book-to-bill ratio of 1.1  Business Wire  CHANTILLY, Va. -- March 13, 2014  Engility Holdings, Inc. (NYSE: EGL) today announced financial results for the fourth quarter and full year ended December 31, 2013.  Fourth Quarter 2013 Results  Total revenue for the fourth quarter of 2013 was $329 million and operating income was $19 million. Adjusted operating income for the fourth quarter was $31 million. Operating margin for the fourth quarter of 2013 was 5.7% and adjusted operating margin for the same period was 9.3%. Net income attributable to Engility was $11 million, or $0.60 per diluted share. Adjusted net income was $18 million, or $1.00 per diluted share. Our adjusted net income and operating margin excludes $8 million for restructuring costs primarily related to lease impairments on facilities which are not being utilized, $1 million of legal and settlement costs, $2 million for a non-income tax expense, and $1 million in acquisition-related costs. Information about our use of non-GAAP financial information is provided below under “Non-GAAP Measures”.  “We had another solid quarter of profitability and cash flow. Our focus on increasing our profitability and velocity of cash enabled us to achieve adjusted EPS and cash flow results that were consistent with our guidance,” said Tony Smeraglinolo, President and CEO of Engility. “Our ability to generate strong cash flow also facilitated our acquisition of Dynamics Research Corporation (DRC) in January 2014. This acquisition adds scale to our business, and expands our addressable markets, customer base and capabilities. It also further diversifies our portfolio away from in-theater efforts to more high-end services in areas such as high performance computing, healthcare IT and financial and regulatory reform. In addition, it is expected to be accretive to our 2014 earnings and significantly accretive to 2015 earnings and beyond.”  “2013 was a year of great uncertainty within the government services market, and we anticipate continued pressure on the Department of Defense and Federal civilian agency budgets. However, we are optimistic that the Federal government’s ability to pass the Bipartisan Budget Act of 2013, which sets fiscal years 2014 and 2015 spending targets for DoD and Federal civilian agencies, will provide our customers with the fiscal clarity and program stability they need to make more timely and cost effective purchasing decisions. We will continue to focus on what we can control to ensure we optimize our business model to further differentiate ourselves from our competitors and provide maximum value to our customers and shareholders.”  Key Performance Indicators    *Funded backlog at the end of the 2013 fourth quarter was $602 million,     compared to $574 million at the end of the third quarter of 2013.   *Contract funded orders in the fourth quarter of 2013 were $357 million,     representing a book-to-bill ratio of 1.1. This compares to contract funded     orders of $263 million, or a book-to-bill ratio of 0.8, for the third     quarter of 2013.   *Days sales outstanding (DSO), net of advanced payments, at the end of the     2013 fourth quarter was 73 days, compared to 77 days at the end of the     third quarter of 2013.   *Cash flow from operations was $41 million for the fourth quarter of 2013     and $151 million for fiscal year 2013.   *Our net debt to trailing 12-month adjusted EBITDA leverage ratio was     approximately 1.2 times as of December 31, 2013 (prior to the closing of     the DRC acquisition).  Significant Fourth Quarter 2013 Awards and Other Highlights    *Awarded a prime position on a $4 billion multi-award contract by the     Defense Threat Reduction Agency (DTRA) to provide technology and     engineering services to support research and development for combating     weapons of mass destruction. Under this ten-year contract (five base years     plus five option years), we will provide a range of work, including     systems engineering, systems survivability, and weapons of mass     destruction medical counter measures and physical counter measures. We     also will provide technical nuclear forensics, nuclear detection, standoff     detection, treaty and verification technologies and nuclear sensor     platforms.   *Awarded a $142 million option year to provide professional, financial and     legal support to the Department of Justice’s (DOJ) Asset Forfeiture     Program. This contract was awarded to Forfeiture Support Associates (FSA)     LLC, a joint venture Engility has with AECOM Government Services Group.     Under this single-award IDIQ contract, we provide analytical, legal and     other program and business support services at various DOJ offices that     are responsible for the administration of Federal Asset Forfeiture     programs.   *Awarded a prime position on a $50 million multi-award contract to provide     a range of engineering and technology support for U.S. Navy anti-submarine     warfare (ASW) sensor systems. Under this new contract, which was awarded     by the Naval Air Warfare Aircraft Division based in Patuxent River, MD, we     will provide technical and scientific research, development, integration,     analysis, assessment, and test and evaluation of ASW sensor systems. Tasks     will include work on manned and unmanned platform avionics and sensors     overseen by the Acoustics Systems Division and the Electro-Optics and     Special Mission Systems Division.   *Awarded a $29.6 million single-award contract to provide engineering and     technology support to the U.S. Navy’s Aircraft Launch and Recovery     Equipment (ALRE) program. This new contract, which was awarded by the     Naval Air Warfare Aircraft Division based in Lakehurst, NJ, will     accommodate incumbent work from other contract vehicles and is also     expected to create opportunities for additional work. This contract has a     base period of approximately $9.8 million and two options years that, if     exercised, will total $29.6 million.   *Engility was ranked among the top 100 Military Friendly Employers by     Victory Media, publisher of G.I. Jobs and Military Spouse magazines. This     designation was based upon a data-driven survey of more than 5,000     companies and assesses a company's long-term commitment to hiring former     military personnel, as well as having the presence of special military     recruitment programs, among other items.  Fiscal Year 2013 Results  For fiscal year 2013, total revenue was $1.4 billion and operating income was $108 million. Adjusted operating income for fiscal year 2013 was $123 million. Operating margin for the 2013 full year was 7.7% and adjusted operating margin for the same period was 8.7%. Net income attributable to Engility was $50 million, or $2.81 per diluted share. Adjusted net income was $61 million, or $3.45 per diluted share. Our adjusted net income and operating margin excludes $8 million for restructuring costs primarily related to lease impairments on facilities which are not being utilized, $4 million of legal and settlement costs, $2 million for a non-income tax expense, and $1 million in acquisition-related costs. Information about our use of non-GAAP financial information is provided below under “Non-GAAP Measures”.  2014 Outlook  The table below summarizes our fiscal year 2014 guidance.                                                                 2014 Fiscal Year Outlook Revenue                         $1.45 billion - $1.55 billion Adjusted Diluted EPS ^(1) ^(2)   $2.70 - $3.20 GAAP Diluted EPS ^(1)            $2.24 - $2.70 Operating cash flow             $95 million - $105 million                                    ^(1) 2014 GAAP and adjusted diluted EPS guidance assumes weighted-average outstanding shares of approximately 18.4 million and a full year effective tax rate of 39.0%. It also includes eleven months of DRC’s expected financial results since the acquisition closed on January 31, 2014.  ^(2) Our adjusted diluted EPS guidance excludes an estimated $5.8 million, or $0.19 per share, of additional amortization of intangible asset expenses, and approximately $8.0 to $9.0 million, or $0.27 to $0.30 per share, of estimated integration costs associated with the DRC acquisition.  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) goodwill impairment charge during 2012, (ii) transaction-related-spin-off costs for the Company’s July 2012 spin-off from L-3 Communications Holdings, Inc., (iii) realignment and restructuring costs, (iv) legal and settlement costs, (v) non-income tax related expenses, (vi) transaction costs and amortization expenses related to our acquisition of Dynamics Research Corporation, and (vii) the write-off of bank debt fees associated with the refinancing of our senior secured 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 March 13, 2014, to discuss the financial results for the fourth quarter and full year 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 fourth quarter and full year 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 (877) 546-5019 (domestic) or (857) 244-7551 (international) and entering pass code 81293360.  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 March 20, 2014 at (888) 286-8010 (domestic) or (617) 801-6888 (international) and entering pass code 58982744.  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. 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, 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. CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS (in thousands, except per share data)                                                                                                                         Three Months Ended                        Year Ended                  December 31,                              December 31,                  2013        2012         Change        2013          2012           Change Revenue          $ 329,063     $ 395,684     $ (66,621 )   $ 1,407,372     $ 1,555,310     $ (147,938 ) Revenue from former            —            —            —            —              100,034        (100,034 ) affiliated entities Total revenue      329,063       395,684       (66,621 )     1,407,372       1,655,344       (247,972 ) Costs and expenses Cost of            281,707       333,641       (51,934 )     1,214,581       1,315,352       (100,771 ) revenue Cost of revenue from former            —            —            —            —              100,034        (100,034 ) affiliated entities Total cost of      281,707       333,641       (51,934 )     1,214,581       1,415,386       (200,805 ) revenue Selling, general and        28,501        34,851        (6,350  )     84,635          142,440         (57,805  ) administrative expenses Goodwill impairment        —            —            —            —              426,436        (426,436 ) charge Total costs       310,208      368,492      (58,284 )    1,299,216      1,984,262      (685,046 ) and expenses Operating          18,855        27,192        (8,337  )     108,156         (328,918  )     437,074 income (loss) Interest           2,549         5,830         (3,281  )     21,648          10,857          10,791 expense, net Other income,     527          188          339          793            136            657 net Income (loss) from continuing         16,833        21,550        (4,717  )     87,301          (339,639  )     426,940 operations before income taxes Provision for     5,240        (19,841 )    (25,081 )    32,584         5,156          27,428 income taxes Income (loss) from               11,593        41,391        (29,798 )     54,717          (344,795  )     399,512 continuing operations Loss from discontinued operations         —             —             —             —               (1,017    )     1,017 before income taxes Benefit for       —            —            —            —              (391      )    391 income taxes Loss from discontinued      —            —            —            —              (626      )    626 operations Net income       $ 11,593      $ 41,391      $ (29,798 )   $ 54,717        $ (345,421  )   $ 400,138 (loss) Less: Net income attributable      914          442          472          5,190          4,952          238 to noncontrolling interest Net income (loss)           $ 10,679      $ 40,949      $ (30,270 )   $ 49,527        $ (350,373  )   $ 399,900 attributable to Engility Earnings (loss) per share allocable to Engility Holdings, Inc. common shareholders – Basic Net income (loss) per share from continuing       $ 0.63        $ 2.47        $ (1.84   )   $ 2.94          $ (21.48    )   $ 24.42 operations less noncontrolling interest Net income (loss) per share from         —             —             —             —               (0.04     )     0.04 discontinued operations Net income (loss) per share            $ 0.63        $ 2.47        $ (1.84   )   $ 2.94          $ (21.52    )   $ 24.46 attributable to Engility Earnings (loss) per share allocable to Engility Holdings, Inc. common shareholders – Diluted Net income (loss) per share from continuing       $ 0.60        $ 2.38        $ (1.78   )   $ 2.81          $ (21.48    )   $ 24.29 operations less noncontrolling interest Net income (loss) per share from         —             —             —             —               (0.04     )     0.04 discontinued operations Net income (loss) per share            $ 0.60        $ 2.38        $ (1.78   )   $ 2.81          $ (21.52    )   $ 24.33 attributable to Engility Weighted average number of shares outstanding Basic              16,928        16,596                      16,873          16,281 Diluted            17,835        17,228                      17,653          16,281                                                   ENGILITY HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (in thousands)                                                                                                                                December 31,                                                   2013          2012 ASSETS Current assets: Cash and cash equivalents                         $ 29,003       $ 27,021 Receivables, net                                    286,272        366,236 Other current assets                               25,892        34,832 Total current assets                                341,167        428,089                                                                               Property, plant and equipment, net                  11,895         11,941 Goodwill                                            477,604        477,604 Identifiable intangible assets, net                 92,205         100,929 Other assets                                       7,183         8,887 Total assets                                      $ 930,054      $ 1,027,450                                                                               LIABILITIES AND EQUITY Current liabilities: Current portion of long-term debt                 $ 10,000       $ 50,250 Accounts payable, trade                             28,286         16,861 Accrued employment costs                            49,582         63,278 Accrued expenses                                    63,843         77,457 Advance payments and billings in excess of          19,087         27,530 costs incurred Deferred income taxes, current and income taxes     10,693         10,607 payable Other current liabilities                          17,928        19,310 Total current liabilities                           199,419        265,293                                                                               Long-term debt                                      187,500        284,750 Income tax payable                                  77,494         68,725 Other liabilities                                  22,487        20,371 Total liabilities                                   486,900        639,139 Commitments and contingencies Equity: Preferred stock, par value $0.01 per share, 25,000 shares authorized, none issued or            —              — outstanding as of December 31, 2013 or December 31, 2012 Common stock, par value $0.01 per share, 175,000 shares authorized, 17,238 and 16,703        172            168 shares issued and outstanding as of December 31, 2013 and 2012, respectively Additional paid in capital                          761,119        755,638 Accumulated deficit                                 (330,911 )     (380,438  ) Non-controlling interest                           12,774        12,943 Total equity                                       443,154       388,311                                                                               Total liabilities and equity                      $ 930,054      $ 1,027,450                                                    ENGILITY HOLDINGS, INC. CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (in thousands)                                                                                                                                  Year Ended December 31,                                                    2013          2012 Operating activities: Net income (loss)                                  $ 54,717       $ (345,421 ) Less: income (loss) from discontinued               —             (626     ) operations, net of tax Income (loss) from continuing operations             54,717         (344,795 ) Goodwill impairment charge                           —              426,436 Share-based compensation                             8,691          7,487 Depreciation and amortization                        12,106         16,410 Amortization of bank debt fees                       6,264          1,662 Deferred income tax benefit                          (1,377   )     (63,375  ) Changes in operating assets and liabilities, excluding acquired amounts: Receivables                                          79,964         28,606 Other assets                                         7,590          (122     ) Accounts payable, trade                              11,425         (32,574  ) Accrued employment costs                             (13,696  )     (9,263   ) Accrued expenses                                     (13,614  )     3,351 Advance payments and billings in excess of costs     (8,443   )     1,944 incurred Other liabilities                                   7,213         (1,783   ) Net cash provided by operating activities from       150,840        33,984 continuing operations Investing activities: Capital expenditures                                 (3,336   )     (2,164   ) Proceeds from sale of property, plant, and          —             680 equipment Net cash used in investing activities from           (3,336   )     (1,484   ) continuing operations Financing activities: Gross borrowings from issuance of long-term debt     200,000        335,000 Repayments of long term debt                         (337,500 )     — Gross borrowings from revolving credit facility      196,000        30,690 Repayments of revolving credit facility              (196,000 )     (30,690  ) Debt issuance costs                                  (2,493   )     (11,005  ) Distributions to non-controlling interest member     (5,359   )     (2,374   ) Proceeds from share-based payment arrangements       936            1,225 Payment of employee withholding taxes on             (1,106   )     (1,778   ) share-based compensation Dividend to prior parent company                     —              (335,000 ) Net transfers to prior parent company               —             (5,235   ) Net cash used in financing activities from           (145,522 )     (19,167  ) continuing operations Discontinued Operations: Net cash provided by operating activities            —              25,952 Net cash provided by (used in) financing             —              (25,974  ) activities Cash balance of discontinued operations             —             22 Net cash provided by (used in) discontinued         —             — operations Net increase in cash and cash equivalents            1,982          13,333 Cash and cash equivalents, beginning of the year    27,021        13,688 Cash and cash equivalents, end of the year         $ 29,003       $ 27,021                                                                               Supplemental cash flow disclosure: Cash paid for taxes                                $ 31,503       $ 15,972 Cash paid for interest                             $ 14,623       $ 9,167   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        Year Ended                                December 31,              December 31,                                2013        2012         2013         2012 Operating income               $ 18,855     $ 27,192     $ 108,156     $ (328,918 ) Adjustments Goodwill impairment charge       —            —            —             426,436 Transaction-related-spin-off     —            —            —             17,300 costs Restructuring costs (1)          7,939        662          7,939         8,222 Legal and settlement costs       1,065        272          4,293         5,552 Non-income tax expense           1,769        —            1,769         — Acquisition-related expenses    903         —           903          — Total adjustments               11,676      934         14,904       457,510 Adjusted operating income      $ 30,531     $ 28,126     $ 123,060     $ 128,592                                                                                    Operating margin                 5.7    %     6.9    %     7.7     %     (19.9    )% Adjusted operating margin        9.3    %     7.1    %     8.7     %     7.8      %             Restructuring costs for 2013 include $7.5 million in lease impairment (1)   costs and $0.4 million in severance costs. Restructuring costs for 2012       are primarily severance costs related to our strategic realignment.                                                   ENGILITY HOLDINGS, INC. Adjusted Earnings Per Share (in thousands, except per share data)                                                                                                         Three Months Ended        Year Ended                           December 31,              December 31,                           2013       2012         2013        2012 Adjusted operating        $ 30,531     $ 28,126     $ 123,060     $ 128,592 income Other items Interest expense, net       2,549        5,830        21,648        10,857 Other income, net           527          188          793           136 Adjustment to operating income Bank fees previously capitalized and            —           —           3,684        — included in interest expense Adjusted income from continuing operations       28,509       22,484       105,853       117,871 before income tax Provision for income       9,724       8,817       39,727       44,917 taxes (1) Adjusted income from        18,785       13,667       66,126        72,954 continuing operations Loss from discontinued      —            —            —             (626     ) operations Net income attributable to non-controlling         914         442         5,190        4,952 interest Adjusted net income attributable to           $ 17,871     $ 13,225     $ 60,936      $ 67,376 Engility Holdings, Inc.                                                                               GAAP earnings per share Net income (loss) attributable to           $ 10,679     $ 40,949     $ 49,527      $ (350,373 ) Engility Holdings, Inc. Earnings (loss) per share attributable to Engility Holdings, Inc. common shareholders Basic                     $ 0.63       $ 2.47       $ 2.94        $ (21.52   ) Diluted                   $ 0.60       $ 2.38       $ 2.81        $ (21.52   )                                                                               Weighted average common shares outstanding Basic                       16,928       16,596       16,873        16,281 Diluted                     17,835       17,228       17,653        16,281 Adjusted earnings per share attributable to Engility Holdings, Inc. common shareholders Basic                     $ 1.06       $ 0.80       $ 3.61        $ 4.14 Diluted                   $ 1.00       $ 0.77       $ 3.45        $ 4.06                                                                               Weighted average number of shares outstanding Basic                       16,928       16,596       16,873        16,281 Diluted                     17,835       17,228       17,653        16,577             Current period end tax provision is calculated at the associated actual (1)   period end effective tax rate. For the fourth quarter and full year       2013, the tax provision was adjusted by $849,000 to remove a favorable       foreign income tax settlement.                                                          ENGILITY HOLDINGS, INC. Earnings before interest, taxes, depreciation, and amortization (EBITDA) and Adjusted EBITDA (in thousands)                                                                                                                    Three Months Ended         Year Ended                                December 31,               December 31,                                2013        2012          2013         2012 Income (loss) from             $ 11,593     $ 41,391      $ 54,717      $ (344,795 ) continuing operations Interest, taxes, depreciation, and amortization Interest expense                 2,549        5,830         21,648        10,857 Provision for income taxes       5,240        (19,841 )     32,584        5,156 Depreciation and                3,051       4,045        12,106       16,410 amortization EBITDA                         $ 22,433     $ 31,425      $ 121,055     $ (312,372 ) Adjustments to EBITDA Goodwill impairment charge       —            —             —             426,436 Transaction-related-spin-off     —            —             —             17,300 costs Restructuring costs              7,939        662           7,939         8,222 Legal and settlement costs       1,065        272           4,293         5,552 Non-income tax expense           1,769        —             1,769         — Acquisition-related costs       903         —            903          — Total adjustments               11,676      934          14,904       457,510 Adjusted EBITDA                $ 34,109     $ 32,359      $ 135,959     $ 145,138                                                                                     EBITDA Margin                    6.8    %     7.9     %     8.6     %     (18.9    )% Adjusted EBITDA Margin           10.4   %     8.2     %     9.7     %     8.8      %  Contact:  Corporate Communications and 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  
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