egl-ex991_27.htm

CHANTILLY, VA – August 1, 2016 - Engility Holdings, Inc. (NYSE: EGL) today announced financial results for the second quarter ended July 1, 2016.

Total revenue for the second quarter of 2016 was $535 million. GAAP operating income was $35 million and GAAP operating margin was 6.5%. GAAP net income attributable to Engility was $2 million, or $0.07 per diluted share. Cash flow from operating activities was $23 million.

Adjusted operating income was $44 million and adjusted operating margin was 8.2%. Adjusted net income attributable to Engility was $13 million, or $0.34 per diluted share. Adjusted EBITDA was $48 million and adjusted EBITDA margin was 9.0%.

Engility's adjusted results for net income, operating income and EBITDA exclude $3 million of acquisition and integration costs. Adjusted operating income and adjusted net income also exclude $6 million of amortization of intangible asset expenses associated with the TASC and DRC acquisitions. Information about the Company's use of non-GAAP financial information is provided below under “Non-GAAP Measures.”

“I am encouraged by our second quarter results. We have established a solid foundation to achieve our strategic objectives of organic growth, attracting and retaining key talent and strengthening our balance sheet,” said Lynn Dugle, Chief Executive Officer of Engility. “We have improved our book-to-bill ratio and increased our pipeline. Our solid operating cash flow results also enabled us to make additional voluntary debt prepayments in the second quarter.”

Based on Engility’s financial results for the first six months of 2016 and its outlook for the remainder of the year, the Company is updating the fiscal year 2016 guidance it issued on May 5, 2016. The Company is increasing its fiscal year 2016 GAAP diluted EPS and adjusted diluted EPS guidance. In addition, the Company is raising the lower-end of its revenue and adjusted EBITDA guidance ranges. The table below summarizes the Company’s fiscal year 2016 guidance. This guidance does not reflect the impact of the potential debt refinancing.

⁽¹⁾ 2016 GAAP and adjusted diluted EPS guidance assumes weighted-average outstanding shares of approximately 37.5 million. GAAP diluted EPS assumes a full-year effective tax rate of 27 percent. Adjusted diluted EPS assumes total cash tax payments of approximately $1 million. The adjusted diluted EPS and adjusted EBITDA guidance excludes approximately $38 million of amortization of acquired intangible assets, and deal and integration costs associated with the TASC acquisition.

“Adjusted Operating Income” represents Operating Income before adjustments related to the amortization of intangible assets.

“Adjusted Operating Margin” represents Adjusted Operating Income divided by revenue.

“Adjusted Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA)” represents net income before income taxes, net interest and other expense and depreciation and amortization and before certain other items.

“Adjusted Net Income” represents net income before: (i) adjustments related to the amortization of intangible assets, and (ii) amortization or write-off of debt issuance costs and write-off of original issue discount, net of the tax effect where appropriate calculated using an assumed effective tax rate.

“Adjusted Diluted EPS” represents diluted EPS calculated using Adjusted Net Income as opposed to Net Income. Additionally, Adjusted Diluted EPS does not contemplate any adjustments to net income as required under the two-class method of calculating EPS as required in accordance with GAAP.

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, 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.

With respect to our “Fiscal Year 2016 Guidance” above, reconciliation of Adjusted EBITDA and Adjusted Diluted EPS guidance to the closest corresponding GAAP measure on a forward-looking basis is not available without unreasonable efforts. We are unable to reconcile Adjusted EBITDA to net income due to our inability to predict certain non-cash items included in net income, including taxes and timing of restructuring charges. We are unable to reconcile Adjusted Diluted EPS to GAAP EPS due to our inability to predict with reasonable accuracy our future stock price, share count and net income that could be impacted by the timing of any restructuring efforts for the remainder of fiscal 2016. The disclosure of such reconciliations may imply to our investors a degree of precision in our calculations that is not possible. The variability of the above charges may result in an unpredictable, and potentially significant, impact on our future GAAP financial results.

Engility will host a conference call at 8:30 a.m. Eastern Time on August 1, 2016 (today), to discuss the financial results for its second quarter 2016 and its fiscal year 2016 guidance.

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 the Company’s 2016 second quarter results and its fiscal year 2016 guidance. 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 (888) 655-5029 (domestic) or (503) 343-6026 (international) and entering pass code 50457672.

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 8, 2016 at (855) 859-2056 (domestic) or (404) 537-3406 (international) and entering pass code 50457672.

Engility (NYSE: EGL), a leading provider of mission-critical and highly technical services to the U.S. government, is engineered to make a difference. Built on a five-decade commitment to our customers and our country, Engility delivers world-class performance, efficiency and value in a broad range of services, including engineering and technology life cycle support, program and business support and specialized technical consulting. Headquartered in Chantilly, Virginia, and with offices around the world, Engility supports customers throughout the defense, intelligence, space, federal civilian and international communities, drawing on our intimate understanding of customer needs, our deep domain expertise and our highly skilled employees to develop and deliver on-target solutions. To learn more about Engility, please visit www.engilitycorp.com and connect with us on Facebook, LinkedIn and Twitter.

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, 2015, 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.

	Three Months Ended						Six Months Ended
	July 1, 2016			June 30, 2015			July 1, 2016			June 30, 2015
Revenue	$	535,432		$	575,495		$	1,058,211		$	978,142
Costs and expenses
Cost of revenue		456,902			486,635			906,232			830,100
Selling, general and administrative expenses		43,467			51,036			90,443			109,915
Total costs and expenses		500,369			537,671			996,675			940,015
Operating income		35,063			37,824			61,536			38,127
Interest expense, net		29,064			30,734			58,503			49,328
Other income (expenses), net		(21	)		56			(82	)		29
Income (loss) before income taxes		5,978			7,146			2,951			(11,172	)
Provision (benefit) for income taxes		1,924			(8,324	)		1,022			(14,001	)
Net income		4,054			15,470			1,929			2,829
Less: Net income attributable to non-controlling interest		1,560			2,374			2,665			3,100
Net income (loss) attributable to Engility	$	2,494		$	13,096		$	(736	)	$	(271	)

Earnings (loss) per share attributable to Engility
Basic	$	0.07		$	0.36		$	(0.02	)	$	(0.01	)
Diluted	$	0.07		$	0.35		$	(0.02	)	$	(0.01	)

Weighted average number of shares outstanding
Basic		36,727			36,577			36,721			30,478
Diluted		37,350			37,009			36,721			30,478

	July 1, 2016			December 31, 2015
Assets:
Current assets:
Cash and cash equivalents	$	33,311		$	30,022
Receivables, net		367,750			381,760
Prepaid income taxes		4,868			5,003
Other current assets		27,789			24,655
Total current assets		433,718			441,440
Property, plant and equipment, net		51,334			44,120
Goodwill		1,093,178			1,093,178
Identifiable intangible assets, net		416,820			436,627
Deferred tax assets		231,859			235,397
Other assets		3,484			3,211
Total assets	$	2,230,393		$	2,253,973
Liabilities and Equity:
Current liabilities:
Current portion of long-term debt	$	8,447		$	8,447
Accounts payable, trade		62,251			54,345
Accrued employment costs		85,904			81,711
Accrued expenses		81,792			82,765
Advance payments and billings in excess of costs incurred		38,059			49,205
Deferred income taxes, current and income tax liabilities		486			695
Other current liabilities		36,224			36,293
Total current liabilities		313,163			313,461
Long-term debt		1,065,486			1,094,029
Income tax liabilities		66,802			68,000
Other liabilities		75,173			72,350
Total liabilities	$	1,520,624		$	1,547,840
Commitments and contingencies (see Note 11)
Equity:
Preferred stock, par value $0.01 per share, 25,000 shares authorized, none issued or outstanding as of July 1, 2016 or December 31, 2015		—			—
Common stock, par value $0.01 per share, 175,000 shares authorized, 36,773 and 36,735 shares issued and outstanding as of July 1, 2016 and December 31, 2015, respectively		368			368
Additional paid-in capital		1,234,351			1,231,584
Accumulated deficit		(531,631	)		(530,895	)
Accumulated other comprehensive loss		(5,421	)		(7,229	)
Non-controlling interest		12,102			12,305
Total equity		709,769			706,133
Total liabilities and equity	$	2,230,393		$	2,253,973

	Six Months Ended
	July 1, 2016			June 30, 2015
Operating activities:
Net income	$	1,929		$	2,829
Share-based compensation		4,828			7,679
Depreciation and amortization		24,642			25,493
Amortization of bank debt fees		4,865			8,136
Deferred income taxes		2,035			13,965
Changes in operating assets and liabilities, excluding acquired amounts:
Receivables		14,010			13,241
Other assets		(3,251	)		(3,977	)
Accounts payable, trade		5,597			(19,964	)
Accrued employment costs		4,192			(31,373	)
Accrued expenses		(903	)		(12,350	)
Advance payments and billings in excess of costs incurred		(11,146	)		(687	)
Other liabilities		5,863			(33,219	)
Net cash provided by (used in) operating activities		52,661			(30,227	)
Investing activities:
Acquisitions, net of cash acquired		—			25,478
Capital expenditures		(9,832	)		(2,550	)
Net cash (used in) provided by investing activities		(9,832	)		22,928
Financing activities:
Gross borrowings from issuance of long-term debt		—			585,000
Repayment of long-term debt		(33,408	)		(339,445	)
Gross borrowings from revolving credit facility		53,000			138,000
Repayments of revolving credit facility		(53,000	)		(96,000	)
Debt issuance costs		—			(42,425	)
Equity issuance costs		—			(2,430	)
Proceeds from share-based payment arrangements		214			279
Payment of employee withholding taxes on share-based compensation		(1,776	)		(6,861	)
Excess tax deduction on share-based compensation		—			5,103
Dividends paid		(1,702	)		(203,101	)
Distributions to non-controlling interest member		(2,868	)		(1,258	)
Net cash (used in) provided by financing activities		(39,540	)		36,862
Net change in cash and cash equivalents		3,289			29,563
Cash and cash equivalents, beginning of period		30,022			7,123
Cash and cash equivalents, end of period	$	33,311		$	36,686

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.

	Three Months Ended						Six Months Ended
	July 1, 2016			June 30, 2015			July 1, 2016			June 30, 2015
Operating income	$	35,063		$	37,824		$	61,536		$	38,127

Adjustments
Acquisition and restructuring-related expenses, excluding amortization		2,504			3,708			6,701			27,593
Acquisition-related intangible amortization		6,335			10,794			15,619			15,172
Legal and settlement costs		—			—			—			154
Total adjustments		8,839			14,502			22,320			42,919
Adjusted operating income	$	43,902		$	52,326		$	83,856		$	81,046

Operating margin		6.5	%		6.6	%		5.8	%		3.9	%
Adjusted operating margin		8.2	%		9.1	%		7.9	%		8.3	%

	Three Months Ended						Six Months Ended
	July 1, 2016			June 30, 2015			July 1, 2016			June 30, 2015
GAAP net income (loss) attributable to Engility	$	2,494		$	13,096		$	(736	)	$	(271	)
Net income attributable to non-controlling interest		1,560			2,374			2,665			3,100

GAAP net income (loss)		4,054			15,470			1,929			2,829
Provision (benefit) for income taxes		1,924			(8,324	)		1,022			(14,001	)
Income tax rate		32.2	%		(116.5	)%		34.6	%		125.3	%

GAAP income (loss) before taxes		5,978			7,146			2,951			(11,172	)

Adjustments
Acquisition and restructuring-related expenses, excluding amortization		2,504			3,708			6,701			27,593
Acquisition-related intangible amortization		6,335			10,794			15,619			15,172
Legal and settlement costs		-			-			-			154
Bank fees previously capitalized and included in interest expense		-			-			-			4,602
Total adjustments		8,839			14,502			22,320			47,521

Adjusted income before income tax		14,817			21,648			25,271			36,349
Cash paid for income taxes		477			358			884			4,248
Adjusted income tax rate		3.2	%		1.7	%		3.5	%		11.7	%

Adjusted net income		14,340			21,290			24,387			32,101
Less: Net income attributable to non-controlling interest		1,560			2,374			2,665			3,100
Adjusted net income attributable to Engility	$	12,780		$	18,916		$	21,722		$	29,001

Diluted earnings (loss) per share attributable to Engility
GAAP	$	0.07		$	0.35		$	(0.02	)	$	(0.01	)
Adjusted	$	0.34		$	0.51		$	0.58		$	0.93

Diluted weighted average number of shares outstanding
GAAP		37,350			37,009			36,721			30,478
Adjusted		37,350			37,009			37,347			31,030

Earnings before interest, taxes, depreciation, and amortization (EBITDA) and Adjusted EBITDA

	Three Months Ended						Six Months Ended
	July 1, 2016			June 30, 2015			July 1, 2016			June 30, 2015
Net income (loss)	$	4,054		$	15,470		$	1,929		$	2,829

Interest, taxes, and depreciation and amortization
Interest expense		29,064			30,734			58,503			49,328
Provision (benefit) for income taxes		1,924			(8,324	)		1,022			(14,001	)
Depreciation and amortization		10,827			17,036			24,642			25,493
EBITDA		45,869			54,916			86,096			63,649

Adjustments to EBITDA
Acquisition and restructuring-related expenses, excluding amortization		2,504			3,708			6,701			27,593
Legal and settlement costs		-			-			-			154
Adjusted EBITDA	$	48,373		$	58,624		$	92,797		$	91,396

EBITDA Margin		8.6	%		9.5	%		8.1	%		6.5	%
Adjusted EBITDA Margin		9.0	%		10.2	%		8.8	%		9.3	%


	Current Outlook for FY 2016	Prior Outlook FY 2016
Revenue	$2.05 billion - $2.15 billion	$2.0 billion - $2.15 billion
GAAP Diluted EPS ⁽¹⁾	$0.08 - $0.23	$0.03 - $0.18
Adjusted Diluted EPS ⁽¹⁾	$1.18 - $1.33	$1.00 - $1.15
Adjusted EBITDA ⁽¹⁾	$182 million - $190 million	$180 million - $190 million
GAAP operating cash flow	$105 million - $115 million	$105 million - $115 million