vec-20210402

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 2, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-36341

Vectrus, Inc.

(Exact name of registrant as specified in its charter)


Indiana			38-3924636
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

2424 Garden of the Gods Road,	Colorado Springs,	Colorado	80919
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code:
(719)	591-3600

Securities Registered Under Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, Par Value $0.01 Per Share	VEC	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☑

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐

No ☑

As of May 7, 2021, there were 11,721,003 shares of common stock ($0.01 par value per share) outstanding.

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VECTRUS, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


		Page No.
	PART I. FINANCIAL INFORMATION	4
Item 1.	Financial Statements	4
	Condensed Consolidated Statements of Income	4
	Condensed Consolidated Statements of Comprehensive Income	5
	Condensed Consolidated Balance Sheets	6
	Condensed Consolidated Statements of Cash Flows	7
	Condensed Consolidated Statements of Changes to Shareholders' Equity	8
	Note 1. Description of Business and Summary of Significant Accounting Policies	9
	Note 2. Recent Accounting Standards Update	10
	Note 3. Revenue	10
	Note 4. Acquisitions	12
	Note 5. Receivables	14
	Note 6. Goodwill and Intangible Assets	14
	Note 7. Debt	15
	Note 8. Derivative Instruments	16
	Note 9. Leases	17
	Note 10. Commitments and Contingencies	18
	Note 11. Stock Based Compensation	19
	Note 12. I n come T axes	20
	Note 13. Earnings Per Share	20
	N ote 14. Multiemployer Pension Plans	21

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28
Item 4.	Controls and Procedures	29
	PART II. OTHER INFORMATION	30
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	30
	Signatures	31

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VECTRUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Three Months Ended
		April 2,		April 3,
(In thousands, except per share data)		2021		2020
Revenue		$	434,004	$	351,734
Cost of revenue		393,648		319,693
Selling, general, and administrative expenses		23,823		19,558

Operating income		16,533		12,483
Interest expense, net		(1,932)		(1,703)

Income from operations before income taxes		14,601		10,780
Income tax expense		2,553		2,112
Net income		$	12,048	$	8,668

Earnings per share
Basic		$	1.03	$	0.75
Diluted		$	1.02	$	0.74
Weighted average common shares outstanding - basic		11,648		11,545
Weighted average common shares outstanding - diluted		11,827		11,745

The accompanying notes are an integral part of these financial statements.

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VECTRUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended
		April 2,		April 3,
(In thousands)		2021		2020
Net income		$	12,048	$	8,668
Other comprehensive income (loss), net of tax
Changes in derivative instruments:
Net change in fair value of interest rate swaps		295		(1,386)
Net change in fair value of foreign currency forward contracts		(396)		(261)

Tax benefit		24		357
Net change in derivative instruments		(77)		(1,290)
Foreign currency translation adjustments, net of tax		(2,356)		(1,934)
Other comprehensive loss net of tax		(2,433)		(3,224)
Total comprehensive income		$	9,615	$	5,444

The accompanying notes are an integral part of these financial statements.

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VECTRUS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


	April 2,		December 31,
(In thousands, except share information)	2021		2020
Assets
Current assets
Cash and cash equivalents	$	38,347	$	66,949
Restricted cash	1,778		1,778
Receivables	359,182		314,959

Other current assets	27,319		24,702
Total current assets	426,626		408,388
Property, plant, and equipment, net	21,410		22,573
Goodwill	315,401		339,702


Intangible assets, net	71,254		48,105
Right-of-use assets	20,802		18,718
Other non-current assets	6,839		6,325
Total non-current assets	435,706		435,423
Total Assets	$	862,332	$	843,811
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable	$	197,447	$	159,586

Compensation and other employee benefits	56,349		79,568

Short-term debt	9,200		8,600
Other accrued liabilities	41,249		40,657
Total current liabilities	304,245		288,411


Long-term debt, net	166,383		168,751
Deferred tax liability	41,999		39,386
Other non-current liabilities	35,239		42,325
Total non-current liabilities	243,621		250,462
Total liabilities	547,866		538,873
Commitments and contingencies (Note 10)
Shareholders' Equity
Preferred stock; $0.01 par value; 10,000,000 shares authorized; No shares issued and outstanding	—		—
Common stock; $0.01 par value; 100,000,000 shares authorized; 11,700,232 and 11,624,717 shares issued and outstanding as of April 2, 2021 and December 31, 2020, respectively	117		116
Additional paid in capital	82,735		82,823
Retained earnings	234,074		222,026
Accumulated other comprehensive loss	(2,460)		(27)
Total shareholders' equity	314,466		304,938
Total Liabilities and Shareholders' Equity	$	862,332	$	843,811

The accompanying notes are an integral part of these financial statements.

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VECTRUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Three Months Ended
	April 2,		April 3,
(In thousands)	2021		2020
Operating activities
Net income	$	12,048	$	8,668
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation expense	1,548		996
Amortization of intangible assets	2,450		1,015
Loss on disposal of property, plant, and equipment	43		—
Stock-based compensation	2,622		2,367
Amortization of debt issuance costs	232		99
Changes in assets and liabilities:
Receivables	(46,544)		3,942
Other assets	(3,785)		(5,715)
Accounts payable	42,054		(162)
Deferred taxes	2,716		(1,522)
Compensation and other employee benefits	(22,818)		(9,733)
Other liabilities	(12,295)		1,182
Net cash (used in) provided by operating activities	(21,729)		1,137
Investing activities
Purchases of capital assets	(2,611)		(917)



Net cash used in investing activities	(2,611)		(917)
Financing activities

Repayments of long-term debt	(2,000)		(1,500)
Proceeds from revolver	110,000		144,000
Repayments of revolver	(110,000)		(29,000)
Proceeds from exercise of stock options	113		1



Payments of employee withholding taxes on share-based compensation	(2,184)		(1,787)
Net cash (used in) provided by financing activities	(4,071)		111,714
Exchange rate effect on cash	(191)		(1,080)
Net change in cash, cash equivalents and restricted cash	(28,602)		110,854
Cash, cash equivalents and restricted cash-beginning of year	68,727		35,318
Cash, cash equivalents and restricted cash-end of period	$	40,125	$	146,172

Supplemental disclosure of cash flow information:
Interest paid	$	1,371	$	1,469
Income taxes (refunded) paid	$	(97)	$	36

Purchase of capital assets on account	$	(132)	$	(606)

The accompanying notes are an integral part of these financial statements.

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VECTRUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES TO SHAREHOLDERS' EQUITY (UNAUDITED)


	Common Stock Issued			Additional Paid-in Capital				Accumulated Other Comprehensive Loss		Total Shareholders' Equity
(In thousands)	Shares	Amount				Retained Earnings
Balance at December 31, 2019	11,524	$	115	$	78,757	$	185,075	$	(5,082)	$	258,865
Net income						8,668				8,668
Foreign currency translation adjustments								(1,934)		(1,934)
Unrealized loss on cash flow hedge								(1,290)		(1,290)
Employee stock awards and stock options	64	1		—						1
Taxes withheld on restricted stock unit compensation awards				(1,787)						(1,787)
Stock-based compensation				1,720						1,720
Balance at April 3, 2020	11,588	$	116	$	78,690	$	193,743	$	(8,306)	$	264,243















Balance at December 31, 2020	11,625	$	116	$	82,823	$	222,026	$	(27)	$	304,938
Net income						12,048				12,048
Foreign currency translation adjustments								(2,356)		(2,356)
Unrealized loss on cash flow hedge								(77)		(77)
Employee stock awards and stock options	75	1		113						114
Taxes withheld on stock compensation awards				(2,184)						(2,184)
Stock-based compensation				1,983						1,983
Balance at April 2, 2021	11,700	$	117	$	82,735	$	234,074	$	(2,460)	$	314,466

The accompanying notes are an integral part of these financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business and Basis of Presentation

Our Business

Vectrus, Inc. is a leading provider of services to the United States government (U.S. government) worldwide. The Company operates as one segment and provides the following services and offerings: facility and base operations, supply chain and logistics services, information technology mission support, and engineering and digital integration services.

Vectrus was incorporated in the State of Indiana in February 2014. On September 27, 2014, Exelis Inc. (Exelis) completed the spin-off (the Spin-off) of Vectrus and Vectrus became an independent, publicly traded company. References in these notes to "Vectrus", "we," "us," "our," "the Company" and "our Company" refer to Vectrus, Inc. References in these notes to "Exelis" or "Former Parent" refer to Exelis Inc., an Indiana corporation, and its consolidated subsidiaries (other than Vectrus). Exelis was acquired by Harris Corporation in May 2015.

Basis of Presentation

Our quarterly financial periods end on the Friday closest to the last day of the calendar quarter (April 2, 2021 for the first quarter of 2021 and April 3, 2020 for the first quarter of 2020), except for the last quarter of the fiscal year, which ends on December 31. For ease of presentation, the quarterly financial statements included herein are described as three months ended.

The unaudited interim Condensed Consolidated Financial Statements of Vectrus have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the U.S. (GAAP) have been omitted. These unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020.

It is management’s opinion that these financial statements include all normal and recurring adjustments necessary for a fair presentation of the Company’s financial position and operating results. Revenue and net income for any interim period are not necessarily indicative of future or annual results.

Restricted Cash

The Company had restricted cash of $1.8 million related to collateral security for an outstanding letter of credit at both April 2, 2021 and December 31, 2020.

Reconciliation of cash, cash equivalents and restricted cash as of April 2, 2021 and December 31, 2020 are presented in the following table:


(In thousands)	April 2, 2021		December 31, 2020

Cash and cash equivalents	$	38,347	$	66,949
Restricted cash	1,778		1,778
Total cash, cash equivalents and restricted cash	$	40,125	$	68,727

Deferred Compensation Plan

During the first quarter of 2021, the Company established a non-qualified deferred compensation plan under which participants are eligible to defer a portion of their compensation on a tax deferred basis. The assets in the plan are held in a Rabbi trust. Plan investments and obligations were recorded in other non-current assets and other non-current liabilities, respectively, in the condensed consolidated balance sheets, representing the fair value related to the deferred compensation plan. Adjustments to the fair value of the plan investments and obligations are recorded in operating expenses. The plan assets, liabilities and operating expenses were not material for the quarter ended April 2, 2021.

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NOTE 2

RECENT ACCOUNTING STANDARDS UPDATE

Accounting Standards Issued but Not Yet Effective

There were no accounting standards issued during the first quarter of 2021 that are expected to have a material impact on the Company's financial statements.

Accounting Standards That Were Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes (ASU 2019-12). The objectives of ASU 2019-12 are (i) to simplify the accounting for income taxes by removing certain exceptions, (ii) to update certain requirements to simplify the accounting for income taxes, and (iii) to make minor codification improvements for income taxes. The Company adopted the standard as of January 1, 2021 and it did not have a material impact on the Company’s financial statements.

NOTE 3

REVENUE

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue in ASC Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. To determine the proper revenue recognition method, consideration is given as to whether a single contract should be accounted for as more than one performance obligation. For most of our contracts, the customer contracts with us to perform an integrated set of tasks and deliverables as a single service solution, whereby each service is not separately identifiable from other promises in the contract and therefore is not distinct. As a result, when this integrated set of tasks exists, the contract is accounted for as one performance obligation. The vast majority of our contracts have a single performance obligation. Unexercised contract options and indefinite delivery and indefinite quantity (IDIQ) contracts are considered to be separate performance obligations when the option or IDIQ task order is exercised or awarded.

Contract modifications are routine in the performance of our contracts. Contracts are often modified to account for changes in contract specifications or requirements. In most instances, contract modifications are for goods or services that are not distinct, and therefore, are accounted for as part of the existing contract. Modifications to exercise option years create new enforceable rights and obligations and therefore are treated as separate performance obligations.

The Company's performance obligations are satisfied over time as services are provided throughout the contract term. We recognize revenue over time using the input method (e.g., costs incurred to date relative to total estimated costs at completion) to measure progress. Our over time recognition is reinforced by the fact that our customers simultaneously receive and consume the benefits of our services as they are performed. This continuous transfer of control requires that we track progress towards completion of performance obligations in order to measure and recognize revenue. Determining progress on performance obligations requires us to make judgments that affect the timing of revenue recognition. Remaining performance obligations represent firm orders by the customer and excludes potential orders under IDIQ contracts, unexercised contract options, and contracts awarded to us that are being protested by competitors with the U.S. government Accountability Office (GAO) or in the U.S. Court of Federal Claims. The level of order activity related to contracts can be affected by the timing of government funding authorizations and their project evaluation cycles. Year-over-year comparisons could, at times, be impacted by these factors, among others.

The Company's contracts are multi-year contracts and typically include an initial period of one year or less with annual one-year (or less) option periods. The number of option periods varies by contract, and there is no guarantee that an option period will be exercised. The right to exercise an option period is at the sole discretion of the U.S. government when we are the prime contractor or of the prime contractor when we are a subcontractor. We expect to recognize a substantial portion of our performance obligations as revenue within the next 12 months. However, the U.S. government or the prime contractor may cancel any contract at any time through a termination for convenience or for cause. Substantially all of our contracts have terms that would permit us to recover all or a portion of our incurred costs and fees for work performed in the event of a termination for convenience.

Remaining performance obligations as of April 2, 2021 and December 31, 2020 are presented in the following table:



	April 2,	December 31,
(In millions)	2021	2020
Performance Obligations	$

SEC Form 10-Q filed by Vectrus, Inc.