EX-99.1 2 ex991earningsrelease15q3.htm EXHIBIT 99.1 Exhibit
Exhibit 99.1

___________________________________________________________________

Engility Reports Third Quarter 2015 Results

•
Third quarter 2015 revenue of $570 million and adjusted diluted EPS of $0.61
•
Adjusted operating margin of 9.1% and adjusted EBITDA margin of 10.3%
•
Third quarter 2015 GAAP cash flow from operations of $91 million
•
Increasing cash flow guidance range and narrowing revenue and profitability ranges

CHANTILLY, VA - November 5, 2015, Engility Holdings, Inc. (NYSE: EGL) today announced financial results for the third quarter ended September 30, 2015.
Third Quarter 2015 Results
For the third quarter of 2015, the Company reported total revenue of $570 million. GAAP operating income was $34 million and GAAP operating margin was 6.0%. GAAP net income attributable to Engility was $4 million, or $0.10 per diluted share. Cash flow from operating activities was $91 million, which reflects a tax refund of $19 million.
Adjusted operating income was $52 million and adjusted operating margin was 9.1%. Adjusted net income attributable to Engility was $23 million, or $0.61 per diluted share. Adjusted EBITDA was $59 million and adjusted EBITDA margin was 10.3%.
Engility's adjusted results for net income, operating margin and EBITDA exclude $5 million of acquisition and integration costs, and $2 million in legal and settlement costs. Adjusted operating margin and adjusted net income also exclude $11 million of amortization of intangible asset expenses associated with the TASC and DRC acquisitions. Adjusted net income also includes a cash tax benefit of $3 million as a result of Engility’s third quarter 2015 $19 million cash tax refund. Information about the Company's use of non-GAAP financial information is provided below under "Non-GAAP Measures."
“Third quarter cash flow from operations was strong as we achieved record low DSOs and realized a tax benefit resulting from our TASC acquisition," said Tony Smeraglinolo, President and CEO of Engility. “While our third quarter revenue and profitability results were impacted by contract award and start delays, we continue to expect to be within our 2015 full-year guidance ranges given the ramp-up of recent contract wins and ongoing profit initiatives. We are raising our 2015 cash flow guidance to reflect the success of our systems and process integration efforts and the tax refund we received in the third quarter. We remain encouraged by our future growth prospects given our position in the market, the significant amount of submitted proposals we have awaiting adjudication and our business model, which combines our technical expertise and cost efficiencies.”
Key Performance Indicators for the Third Quarter of 2015
•
Book-to-bill ratio was 1.0x on contract awards of $565 million.
•
Book-to-bill ratio was 0.8x on funded orders of $465 million; funded backlog was $804 million.
•
Days sales outstanding (DSO), net of advanced payments, was 55 days.
•
Decreased outstanding debt by $35 million.
Significant Third Quarter 2015 Awards
•
Awarded a $74 million contract by the U.S. Agency for International Development (USAID) to implement the Growth, Enterprise, Employment and Livelihood (GEEL) project in Somalia. GEEL will expand small-and-medium-sized enterprise access to investment opportunities, increase the availability of key business services, and support improved business policy and regulation. This project, which represents new work for Engility, also will stimulate private investment in high growth industries such as agriculture, fisheries and renewable energy, and will boost employment potential for youth and women in regions previously inaccessible due to security concerns.
•
Awarded a $49 million contract to provide and support advanced technical communications systems for the U.S. Northern Command (USNORTHCOM), serving the Department of Defense, civil first responders, homeland defense operations and disaster relief activities. Under this follow-on contract win, Engility will provide full system lifecycle support, including capability design, solutions development, engineering, systems modifications, technical refresh, training and repair.



•
Awarded a contract with a potential value of $35 million to provide technical and administrative support to the Latin America and Caribbean Regional Office of USAID’s Office of Foreign Disaster Assistance (OFDA). Under this recompete contract, in the event of emergencies, such as natural disasters, Engility teams will deploy to disaster sites, perform damage assessments, and provide guidance on disaster response efforts to host country governments and local stakeholders. When not responding to a disaster, Engility provides year-round technical assistance for disaster preparedness and mitigation activities in the region, overseeing instruction in disaster management concepts, training methodologies and related technical disciplines.
•
Awarded a $31 million contract extension to help enhance the effectiveness of psychological health (PH) and Traumatic Brain Injury (TBI) programs that provide care to service members, veterans and their families. This contract was awarded by the U.S. Army Medical Research Acquisition Activity for the Defense Centers of Excellence for PH and TBI.
•
Awarded a $14 million contract to provide technical, policy and program management support for the Army's Product Director Automated Movement and Identification Solutions (PD AMIS) program. PD AMIS, a part of the Army's Program Executive Office (PEO) Enterprise Information Systems (EIS), controls all aspects of Automated Identification Technology (AIT), which allows the Army to track assets and manage key elements of logistics, including the procurement, expertise, training, customer support and the introduction of new technologies into all logistical operations. All U.S. Army organizations and several other Department of Defense organizations procure AIT products and services through PD AMIS.
•
Awarded a prime position on a $900 million indefinite delivery/indefinite quantity (IDIQ) contract to provide professional and technical services supporting medical product research and development (MPRD) for the U.S. Army and other Department of Defense entities. The MPRD program provides a mechanism for all aspects of medical product research and development and life cycle support to sustain our nation's warfighters. This contract, which represents new work, was awarded by the U.S. Army Medical Research and Material Command.
Fiscal Year 2015 Guidance
We are updating the fiscal year 2015 financial guidance we issued on August 6, 2015 based on our financial results for the first nine months of 2015 and our outlook for the remainder of the year. We are increasing our fiscal year 2015 operating cash flow guidance and narrowing the guidance ranges for revenue, GAAP diluted EPS, adjusted diluted EPS and adjusted EBITDA. The table below summarizes our fiscal year 2015 guidance and includes approximately 10 months of TASC's expected financial results since the acquisition closed on February 26, 2015.
 
Current Outlook for Fiscal Year 2015
Prior Outlook for Fiscal Year 2015
Revenue
$2.05 billion - $2.1 billion
$2.0 billion - $2.2 billion
GAAP Diluted EPS (1)
$0.15 - $0.35
$0.15 - $0.50
Adjusted Diluted EPS (1)
$2.05 - $2.35
$2.05 - $2.50
Adjusted EBITDA (1)
$205 million - $215 million
$205 million - $220 million
GAAP operating cash flow
$65 million - $75 million
$50 million - $60 million

(1) 2015 GAAP and adjusted diluted EPS guidance assumes weighted average outstanding shares of approximately 34 million. GAAP diluted EPS assumes a 2015 full year tax benefit of approximately $12 million to $14 million. Adjusted diluted EPS assumes 2015 net cash tax payments of approximately $1 million. Our adjusted diluted EPS and adjusted EBITDA guidance excludes approximately $70 million to $75 million of amortization of acquired intangible assets, and deal and integration costs associated with the TASC and DRC acquisitions.
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 Income before Income Tax, 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.
CONFERENCE CALL INFORMATION
Engility will host a conference call at 8 A.M. ET on November 5, 2015, to discuss the financial results for our third quarter 2015.
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 our 2015 third quarter results and our fiscal year 2015 guidance. 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 (866) 300-6036 (domestic) or (412) 455-6216 (international) and entering pass code 58341254.
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 November 12, 2015 at (855) 859-2056 (domestic) or (404) 537-3406 (international) and entering pass code 58341254.
ABOUT ENGILITY
Engility is a pure-play government services provider that delivers highly skilled personnel wherever, whenever they are needed in a cost-efficient manner. The Company proudly serves customers that span the federal services market including the Department of Defense, the Intelligence community, Space and Federal Civilian agencies. 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, 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, 2014, 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.
Media:                                Investor Relations:
Eric Ruff                            Dave Spille
Engility Holdings, Inc.                        Engility Holdings, Inc.
(703) 375-6463                            (703) 375-4221
eric.ruff@engilitycorp.com                     dave.spille@engilitycorp.com






ENGILITY HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

 
Three Months Ended
 
Nine Months Ended
 
September 30, 2015
 
September 30, 2014
 
Change
 
September 30, 2015
 
September 30, 2014
 
Change
Revenue
$
570,459

 
$
345,061

 
$
225,398

 
$
1,548,601

 
$
1,047,575

 
$
501,026

Costs and expenses
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue
486,382

 
293,039

 
193,343

 
1,316,482

 
897,114

 
419,368

Selling, general and administrative expenses
49,578

 
25,255

 
24,323

 
159,493

 
80,897

 
78,596

Total costs and expenses
535,960

 
318,294

 
217,666

 
1,475,975

 
978,011

 
497,964

Operating income
34,499

 
26,767

 
7,732

 
72,626

 
69,564

 
3,062

Interest expense, net
31,261

 
3,342

 
27,919

 
80,589

 
9,538

 
71,051

Other income (expenses), net
15

 
(67
)
 
82

 
44

 
(20
)
 
64

Income (loss) before income taxes
3,253

 
23,358

 
(20,105
)
 
(7,919
)
 
60,006

 
(67,925
)
Provision (benefit) for income taxes
(1,661
)

9,115

 
(10,776
)
 
(15,662
)

23,454

 
(39,116
)
Net income
4,914

 
14,243

 
(9,329
)
 
7,743

 
36,552

 
(28,809
)
Less: Net income attributable to non-controlling interest
1,264


1,082

 
182

 
4,364


3,615

 
749

Net income attributable to Engility
$
3,650


$
13,161

 
$
(9,511
)
 
$
3,379


$
32,937

 
$
(29,558
)
 
 
 
 
 
 
 
 
 
 
 
 
Earnings per share attributable to Engility
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.10

 
$
0.77

 
$
(0.67
)
 
$
0.10

 
$
1.93

 
$
(1.83
)
Diluted
$
0.10

 
$
0.73

 
$
(0.63
)
 
$
0.10

 
$
1.83

 
$
(1.73
)
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average number of shares outstanding
 
 
 
 
 
 
 
 
 
 
 
Basic
36,623

 
17,151

 
 
 
32,527

 
17,080

 
 
Diluted
37,136


18,065

 
 
 
33,065


17,994

 
 





ENGILITY HOLDINGS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands)

 
As of
 
September 30, 2015
 
December 31, 2014
Assets:
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
75,898

 
$
7,123

Receivables, net
389,410

 
286,403

Prepaid and deferred income taxes, current, net
21,570

 
296

Other current assets
31,664

 
27,488

Total current assets
518,542

 
321,310

Property, plant and equipment, net
40,523

 
19,839

Goodwill
1,382,140

 
644,554

Identifiable intangible assets, net
451,497

 
123,549

Deferred tax assets
171,337

 
4,793

Other assets
24,574

 
8,591

Total assets
$
2,588,613

 
$
1,122,636

Liabilities and Equity:
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt
$
8,447

 
$
13,750

Accounts payable, trade
62,691

 
49,121

Accrued employment costs
105,810

 
47,824

Accrued expenses
103,207

 
71,582

Advance payments and billings in excess of costs incurred
43,962

 
22,300

Deferred income taxes, current and income tax liabilities
458

 
9,810

Other current liabilities
39,774

 
21,098

Total current liabilities
364,349

 
235,485

Long-term debt
1,140,571

 
279,500

Income tax liabilities
69,250

 
79,713

Other liabilities
71,878

 
51,185

Total liabilities
1,646,048

 
645,883

Equity:
 
 
 
Preferred stock, par value $0.01 per share, 25,000 shares authorized, none issued or outstanding as of September 30, 2015 and December 31, 2014
—

 
—

Common stock, par value $0.01 per share, 175,000 shares authorized, 36,735 and 17,592 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively
368

 
176

Additional paid-in capital
1,231,173

 
770,764

Accumulated deficit
(292,164
)
 
(295,543
)
Accumulated other comprehensive income
(8,457
)
 
(9,018
)
Non-controlling interest
11,645

 
10,374

Total equity
942,565

 
476,753

Total liabilities and equity
$
2,588,613

 
$
1,122,636







ENGILITY HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

 
Nine Months Ended
 
September 30, 2015
 
September 30, 2014
Operating activities:
 
 
 
Net income
$
7,743

 
$
36,552

Share-based compensation
9,351

 
7,283

Depreciation and amortization
42,918

 
15,840

Amortization of bank debt fees
10,858

 
1,218

Deferred income taxes
12,198

 
(1,631
)
Changes in operating assets and liabilities, excluding acquired amounts:
 
 
 
Receivables
46,034

 
40,555

Other assets
19,890

 
5,807

Accounts payable, trade
(22,113
)
 
(12,049
)
Accrued employment costs
(34,369
)
 
5,349

Accrued expenses
(1,762
)
 
(6,673
)
Advance payments and billings in excess of costs incurred
3,658

 
2,339

Other liabilities
(33,870
)
 
(14,105
)
Net cash provided by operating activities
60,536

 
80,485

Investing activities:
 
 
 
Acquisitions, net of cash acquired
25,478

 
(207,250
)
Capital expenditures
(12,600
)
 
(2,765
)
Net cash provided by (used in) investing activities
12,878

 
(210,015
)
Financing activities:
 
 
 
Gross borrowings from issuance of long-term debt
585,000

 
75,000

Repayment of long-term debt
(376,553
)
 
(10,313
)
Gross borrowings from revolving credit facility
157,000

 
383,000

Repayments of revolving credit facility
(115,000
)
 
(323,000
)
Debt issuance costs
(42,425
)
 
(1,131
)
Equity issuance costs
(2,590
)

—

Proceeds from share-based payment arrangements
279

 
1,481

Payment of employee withholding taxes on share-based compensation
(8,017
)
 
(2,430
)
Excess tax deduction on share-based compensation
5,061

 
1,642

Dividends paid
(204,300
)
 
—

Distributions to non-controlling interest member
(3,094
)
 
(4,990
)
Net cash (used in) provided by financing activities
(4,639
)
 
119,259

Net change in cash and cash equivalents
68,775

 
(10,271
)
Cash and cash equivalents, beginning of period
7,123

 
29,003

Cash and cash equivalents, end of period
$
75,898

 
$
18,732







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.
Adjusted Operating Income and Adjusted Operating Margin
(dollars in thousands)
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2015
 
September 30, 2014
 
September 30, 2015
 
September 30, 2014
Operating income
$
34,499

 
$
26,767

 
$
72,626

 
$
69,564

 
 
 
 
 
 
 
 
Adjustments
 
 
 
 
 
 
 
Acquisition and integration-related expenses excluding amortization
5,177

 
2,227

 
32,770

 
8,850

Acquisition-related intangible amortization
10,796

 
1,683

 
25,968

 
4,488

Legal and settlement costs
1,586

 
—

 
1,740

 
230

 
17,559

 
3,910

 
60,478

 
13,568

 
 
 
 
 
 
 
 
Adjusted operating income
$
52,058

 
$
30,677

 
$
133,104

 
$
83,132

 
 
 
 
 
 
 
 
Operating margin
6.0
%
 
7.8
%
 
4.7
%
 
6.6
%
Adjusted operating margin
9.1
%
 
8.9
%
 
8.6
%
 
7.9
%






ENGILITY HOLDINGS, INC.
Adjusted Earnings Per Share
(in thousands, except per share data)
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2015
 
September 30, 2014
 
September 30, 2015
 
September 30, 2014
GAAP net income attributable to Engility
$
3,650

 
$
13,161

 
$
3,379

 
$
32,937

Net income attributable to non-controlling interest
1,264

 
1,082

 
4,364

 
3,615

 
 
 
 
 
 
 
 
GAAP net income
4,914

 
14,243

 
7,743

 
36,552

Provision (benefit) for income taxes
(1,661
)
 
9,115

 
(15,662
)
 
23,454

Income tax rate
(51.1
)%
 
39.0
%
 
197.8
%
 
39.1
%
 
 
 
 
 
 
 
 
GAAP income (loss) before taxes
3,253

 
23,358

 
(7,919
)
 
60,006

 
 
 
 
 
 
 
 
Adjustments
 
 
 
 
 
 
 
Acquisition and integration-related expenses excluding amortization
5,177

 
2,227

 
32,770

 
8,850

Acquisition-related intangible amortization
10,796

 
1,683

 
25,968

 
4,488

Legal and settlement costs
1,586

 
—

 
1,740

 
230

Bank fees previously capitalized and included in interest expense
—

 
—

 
4,602

 
—

Total adjustments
17,559

 
3,910

 
65,080

 
13,568

 
 
 
 
 
 
 
 
Adjusted income before income tax
20,812

 
27,268

 
57,161

 
73,574

Adjusted provision for income taxes
—

 
10,641

 
—

 
28,687

Cash paid (received) for income taxes
(3,173
)
 
—

 
1,075

 
—

Adjusted income tax rate
(15.2
)%
 
39.0
%
 
1.9
%
 
39.0
%
 
 
 
 
 
 
 
 
Adjusted net income
23,985

 
16,627

 
56,086

 
44,887

Less: Net income attributable to non-controlling interest
1,264

 
1,082

 
4,364

 
3,615

 
 
 
 
 
 
 
 
Adjusted net income attributable to Engility
$
22,721

 
$
15,545

 
$
51,722

 
$
41,272

 
 
 
 
 
 
 
 
Adjusted diluted earnings per share attributable to Engility
$
0.61

 
$
0.86

 
$
1.56

 
$
2.29

 
 
 
 
 
 
 
 
GAAP diluted earnings per share attributable to Engility
$
0.10

 
$
0.73

 
$
0.10

 
$
1.83

 
 
 
 
 
 
 
 
Diluted weighted average number of shares outstanding - Adjusted
37,136

 
18,065

 
33,065

 
17,994

Diluted weighted average number of shares outstanding - GAAP
37,136

 
18,065

 
33,065

 
17,994







ENGILITY HOLDINGS, INC.
Earnings before interest, taxes, depreciation, and amortization (EBITDA) and Adjusted EBITDA
(dollars in thousands)
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2015
 
September 30, 2014
 
September 30, 2015
 
September 30, 2014
Net income
$
4,914

 
$
14,243

 
$
7,743

 
$
36,552

 
 
 
 
 
 
 
 
Interest, taxes, and depreciation and amortization
 
 
 
 
 
 
 
Interest expense
31,261

 
3,342

 
80,589

 
9,538

Provision (benefit) for income taxes
(1,661
)
 
9,115

 
(15,662
)
 
23,454

Depreciation and amortization
17,425

 
5,843

 
42,918

 
15,840

EBITDA
51,939

 
32,543

 
115,588

 
85,384

 
 
 
 
 
 
 
 
Adjustments to EBITDA
 
 
 
 
 
 
 
Acquisition and integration-related expenses excluding amortization
5,177

 
2,227

 
32,770

 
8,850

Legal and settlement costs
1,586

 
—

 
1,740

 
230

 
6,763

 
2,227

 
34,510

 
9,080

 
 
 
 
 
 
 
 
Adjusted EBITDA
$
58,702

 
$
34,770

 
$
150,098

 
$
94,464

 
 
 
 
 
 
 
 
EBITDA margin
9.1
%
 
9.4
%
 
7.5
%
 
8.2
%
Adjusted EBITDA margin
10.3
%
 
10.1
%
 
9.7
%
 
9.0
%