Jefferies 2014 Global Industrials Conference. August 13, 2014

Transcription

1 Jefferies 2014 Global Industrials Conference August 13, 2014

2 Forward Looking Statements This presentation 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 forwardlooking 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, 2013, and 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 ( and on the SEC s website ( 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. 2

3 Company Overview Engility At A Glance Over 50 years of experience Revenue: $1.4 billion Headquarters: Chantilly, VA Ticker Symbol: NYSE (EGL) Service Offerings: Specialized Technical Consulting Program & Business Support Engineering & Technology Lifecycle Support IT Modernization & Sustainment Supply Chain & Logistics Management Training & Education Major Customers: Army, Navy, Marine Corps, Air Force, USAID, DOJ, State Department, FAA, DHS, FDIC, Treasury, VA, HHS, DHA/TRICARE, and state, local and international governments Employees: Approximately 7,500 employees partnering with our customers in over 50 countries Key Contracts: Access to over 50 contract vehicles including all major GSA schedules, numerous GWACs, and Agency-specific IDIQs with enduring core values Customer-Focused Differentiated Servant Leadership Earned Trust 3

4 Leveraging 50 Years of Success Large pure-play government service company Positioned for success in $150B market Stable and diverse base of customers Strong prime contract positions Over 1,400 active contracts and task orders; none more than 10% of revenue Strong program performance and reputation for customer success Ideal business model to address today s Government realities Enhanced competitiveness with streamlined cost structure Strategy is working Generating strong free cash flow Delivering on our commitments 4

5 Significant IDIQ Contract Vehicles Contract Customer Ceiling Period GSA ALLIANT GSA / Government Wide $50B 10 years FBI Information Technology Supplies & Support Services DOJ / FBI $30B 8 years Enterprise Acquisition Gateway for Leading Edge Solutions II (EAGLE II) FC 2: IT Program Support Services* DHS $22B 8 years Chief Information Officer Solutions & Partners 3 (CIO-SP3) NIH / Government Wide $20B 10 years SeaPort-e US Navy $12B 15 years Criminal Justice Program Support (CJPS) Department of State $10B 5 years SSES NexGen Army CECOM SEC $7B 5 years 5 SPAWAR Pillar Contracts SPAWAR Atlantic $4.5B 5 years each TIPSS-4 Department of Treasury $4B 10 years Combating WMD Research and Technology Development DTRA $4B 5 years SWIFT IV USAID $2.5B 5 years Marine Corps Logistics Support Services USMC Logistics Cmd. $0.9B 5 years SPAWAR C4ISR Support SPAWAR Atlantic $0.8B 5 years Clean Energy for Critical and Non-Critical Priority Countries USAID $0.8B 5 years Joint PEO for Chemical and Biological Defense Omnibus JPEO--CBD $0.5B 5 years NETCENTS 2 Enterprise Integration & Service Management (EISM) Air Force $0.5B 5 years SPAWAR Security Engineering in National Capital Region Systems SPAWAR Atlantic $0.2B 5 years Naval Air Warfare Center Aircraft Department, Aircraft Traffic Control and Landing Systems Division NAWCAD $0.2B 5 years TOTAL $170B *Under protest 5

6 Growing Our Portfolio of Offerings Technical Consulting Asymmetric Threat / CIED / CBRNE High Performance Computing Emergency Preparedness & Response Global Climate Change Health IT International Capacity Development Air Traffic Management Systems Financial and Regulatory Reform Program Support Strategic Planning Requirements Engineering Acquisition Support Program Management Configuration Management Financial Management & Economic Analysis Engineering & Tech Support Modeling & Simulation System Engineering & Integration Test & Evaluation Software Engineering & Sustainment Hardware Engineering & Sustainment Upgrade & Modernization Enhanced capabilities through the DRC acquisition Information Technology Network Engineering Software Development & Integration Hardware & Network Implementation Information Security System Hardening & Configuration Certification & Accreditation Supply Chain / Logistics Integrated Logistics Support Life Cycle Support Warehousing Asset Management Document Development/Maintenance Material Packaging, Handling, Shipping, & Transport Training & Education e-learning Knowledge Management Education & Leader Development Integrated Training & Exercise Support Platform & Technology Training Live, Virtual and Constructive, Gaming New capabilities through the DRC acquisition Engility core capabilities 6

7 Services Market Realities The Federal services market is contracting, but addressable market is still significant Austerity measures will continue pendulum has swung to L.P.T.A. (Lowest Price Technically Acceptable) model but past performance critical to success With fewer new platforms and systems in procurement, DoD will continue to extend the life, reset, and modernize existing platforms and technologies Contracting emphasis changing from user-centric to procurement-centric Long-term success in today s consolidating federal services market will depend on a mix of organic growth and strategic acquisitions to derive the benefits of scale and a broader customer and contract base High quality, experienced low-cost providers increasingly attractive Engility believes it is well positioned to compete and take market share amidst market contraction and the new normal, with an efficient business model, increased scale, deep domain expertise, and a large addressable market that continues to drive new business opportunities 7

8 Overview of DRC Company Overview Expands Engility s Customer Base Government services company founded in 1955 Approximately 1,100 employees with a significant footprint in the Washington, DC metro area Expanding presence in high-priority markets Broad portfolio of over 200 active contracts Prime contractor on approximately 80% of its work, with strong customer portfolio across DoD and Federal Civilian customers Highly skilled workforce focused on engineering, science, analysis, enterprise and IT modernization, program management, and software Accessing New IDIQ Vehicles Acquisition Value Proposition Complementary businesses expand market opportunity with new customers in high-priority markets Consistent with our growth strategy to further expand our addressable market, customer base and capabilities Acquisition further diversifies our revenue base as DRC generates more than 50% of its revenue from non-dod customers and 75% of its revenue from customers that will be new to Engility Increases scale spreads combined infrastructure cost over a larger revenue base Accretive to 2014 earnings and significantly accretive to 2015 earnings and beyond 8

9 Engility Financial Overview

10 Second Quarter 2014 Highlights Solid second quarter results Second quarter revenue was in-line with our internal expectations, adjusted bottom line results exceeded our plan Revenue of $364 million, GAAP diluted EPS of $0.61 Adjusted operating margin of 8.1%, adjusted diluted EPS of $0.83 Strong cash flow from operations of $32 million, driven by improved DSOs Book-to-bill ratio of 0.8x for the second quarter 2014 Experienced sequential and year-over-year increase in funded orders We continue to effectively manage what we can control Results for the first half of 2014 have played-out as we expected Updating FY14 revenue and EPS guidance Award activity remains slow but we are encouraged by the $1.2 billion in submitted proposals we have under evaluation by our customers 10

11 Second Quarter Financial Highlights Total Revenue Adjusted Operating Income * Adjusted Operating Margin * Adjusted Diluted EPS * $364 million $30 million 8.1% $0.83 Pleased with our second quarter results Strong profitability and cash flow; DSOs of 70 days were significantly lower than last quarter and last year Bottom line results exceeded our plan $32 million in cash flow from operations Funded backlog of $522 million; $304 million in funded orders Book-to-bill ratio of 0.8x compared to 0.6x last quarter and last year Trailing 12-month book-to-bill ratio of 0.8x Net debt to trailing 12-month adjusted EBITDA leverage ratio of 2.4x (pro forma to include 12 months of DRC s adjusted EBITDA) * Excludes $1 million of restructuring and legal and settlement costs, $4 million of integration costs and $2 million of additional amortization of intangible asset expenses associated with our DRC acquisition 11

12 Strong Free Cash Flow Free Cash Flow Yield ($ in thousands, except per share data) Q Q Q Q Trailing 12-Months Cash flow from operations $74,581 $41,324 $11,682 $31,751 $ 159,338 Capital expenditures (559) (1,866) (286) (1,351) (4,062) Free cash flow $74,022 $39,458 $11,396 $30,400 $155,276 Weighted average diluted shares 17,770 17,835 17,894 18,023 17,881 Free cash flow per share $8.68 Assumed share price $35.00 Free cash flow yield 24.8% 12

13 FY14 Guidance Total Revenue Adjusted Diluted EPS 1 Cash Flow from Operations Adjusted Operating Margin 1 $1.35 billion to $1.45 billion $2.70 to $2.90 $95 million to $105 million 7.3% to 7.8% 1 Adjusted diluted EPS guidance excludes an estimated $6.2 million, or $0.21 per share, of additional amortization of intangible asset expenses, and approximately $7.0 to $8.0 million, or $0.24 to $0.27 per share, of estimated integration costs associated with the DRC acquisition. The adjusted diluted EPS guidance also excludes an estimated $1.0 million, or $0.03 per share, of restructuring costs. Adjusted diluted EPS guidance also assumes a weighted-average share count of approximately 18.2 million shares and a full year effective tax rate of 39.0%. 13

14 Summary High Quality Earnings and Strong Cash Flow Profile Revenue Visibility from Stable Contract Base Experienced Management Team Strong Prime Contract Positions with Excellent Performance on Existing Contracts World-Wide Presence With Highly Specialized Employee Base Broad Portfolio of Service Capabilities Directed at Enduring Markets Enhanced Competitiveness from Streamlined Cost Structure Substantial Number of Incremental / New Business Opportunities Engility Well Positioned For The Future 14

15 Appendix 15

16 GAAP to Non-GAAP Reconciliation Adjusted Operating Income and Adjusted Operating Margin ($ in thousands) Three Months Ended June 30, 2014 June 28, 2013 Operating income $23,112 $29,293 Adjustments Acquisition and integration-related expenses excluding amortization 3,967 Year-one acquisition-related amortization 1,683 Restructuring costs 513 Legal and settlement costs 230 3,228 Adjusted operating income $29,505 $32,521 Operating margin 6.4% 7.8% Adjusted operating margin 8.1% 8.6% 16

17 GAAP to Non-GAAP Reconciliation Three Months Ended June 30, 2014 June 28, 2013 Adjusted operating income $29,505 $32,521 Other items Adjusted Earnings Per Share ($ in thousands, except per share data) Interest expense, net 3,139 5,757 Other income, net Adjusted income before income tax 26,413 26,808 Provision for income taxes (1) 9,932 10,564 Adjusted net income 16,481 16,244 Net income attributable to non-controlling interest 1,587 1,226 Adjusted net income attributable to Engility Holdings, Inc. $14,894 $15,018 Adjusted diluted earnings per share attributable to Engility $0.83 $0.85 GAAP net income attributable to Engility $10,905 $13,062 GAAP diluted earnings per share attributable to Engility $0.61 $0.74 Diluted weighted average number of shares outstanding 18,023 17,625 (1) Current quarter tax provision is calculated at the current quarter tax rate. 17

18 GAAP to Non-GAAP Reconciliation Earnings before interest, taxes, depreciation, and amortization (EBITDA) and Adjusted EBITDA ($ in thousands) Three Months Ended June 30, 2014 June28, 2013 Net income $12,492 $ 14,288 Interest, taxes, depreciation, and amortization Interest expense 3,139 5,757 Provision for income taxes 7,528 9,292 Depreciation and amortization 5,354 4,236 EBITDA $28,513 $33,573 Adjustments to EBITDA Acquisition and integration-related expenses excluding amortization 3,967 Restructuring costs 513 Legal and settlement costs 230 3,228 Adjusted EBITDA $33,223 $36,801 EBITDA Margin 7.8% 8.9% Adjusted EBITDA Margin 9.1% 9.8% 18

19 Jefferies 2014 Global Industrials Conference August 13,