Fourth Quarter 2015 Earnings Conference Call. March 3, 2016

Transcription

1 Fourth Quarter 2015 Earnings Conference Call March 3, 2016

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, business plans, as well as the TASC transaction and its expected 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 ( 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 Leadership Update Experienced Leadership Lynn is an accomplished leader with more than 30 years of experience in defense, intelligence and telecommunications, including as a member of the Boards of Engility and TASC Lynn Dugle Chief Executive Officer Effective March 21 She spent more than a decade in senior management positions at Raytheon, including the position of President of Raytheon Intelligence, Information and Services (IIS) Lynn s decades of operational experience in our industry combined with her in-depth knowledge of our business will enable her to make immediate contributions to the company John Hynes President and Chief Operating Officer Effective February 29 John promoted to President and COO. The Board is confident that Lynn and John will lead Engility forward into its next chapter focused on achieving sustainable growth and strengthening of its balance sheet, to include debt repayment 3

4 2015 Accomplishments 2015 was a successful year on many fronts Created a solid foundation for future growth by repositioning the company with a more attractive business mix in a larger addressable market Improved competitive position by adding high-end capabilities to the portfolio and enhancing cost efficiency Continued to provide customers with outstanding quality and affordability Successfully acquired and integrated TASC on schedule and with synergy cost savings above expectations 4

5 Fourth Quarter 2015 Awards U.S. Air Force $5 billion IDIQ ceiling value Prime on U.S. Air Force s $5 billion cyber security and information systems support contract. To provide research, development, and test and evaluation within the areas of cyber security, software analysis, information assurance, knowledge management and information sharing, and modeling and simulation. NAVSEA $14 million contract extension Supporting the Joint and Expeditionary Command and Control family of systems at the Naval Surface Warfare Center, Panama City Division Engility investigates and proves potential technology upgrades and delivers lifecycle support to the Joint Command and Control systems Engility Proprietary 5

6 First Quarter 2016 Awards U.S. Department of Defense (DoD) $82 million sole source renewal contract To provide classified systems engineering, intelligence analysis and program management support to the U.S. Department of Defense Additional work includes records management support, logistical expertise, security administration support, financial and technical analysis The Joint Program Executive Office $900 million IDIQ ceiling value Prime position on the Joint Enterprise- Contracted Logistics and Services Support (JE-CLaSS) contract. To provide logistics, supply chain management, and maintenance support services for the Joint Program Executive Office for Chemical and Biological Defense Engility Proprietary 6

7 Positioning for Growth Intense focus on sustainable growth and strengthening our balance sheet, to include debt repayment Dedicating a greater percentage of our overall expense dollars, resources and energy towards the contract opportunities that provide the highest probability of success Hiring additional subject matter experts and business development resources Pursuing larger bids that are aligned with our competitive advantages and expanded capabilities Business development investments and higher end capabilities improving our competitive position 7

8 Positioning for Growth (continued) See Intelligence, Space and civil portfolios as growth drivers to our business These markets are better funded and will benefit from our competitive contract bid rates Improving market conditions and improvements to our business development processes allow us to pursue larger contracts In process of submitting a handful of targeted bids that total nearly $1.5 billion This is a direct result of the TASC merger Demonstrates power and benefit of the combined businesses 8

9 Fourth Quarter Financial Highlights Total Revenue Adjusted Operating Income * Adjusted Operating Margin * Adjusted Diluted EPS * $537 million $54 million 10% $0.66 Adjusted SG&A costs were $20 million, a sequential decrease of $14 million Driven by year-end events: reversal of foreign tax liability, indirect rate adjustments and a partial stock compensation expense reversal Quarterly adjusted SG&A costs expected to be in low $30 million range in 2016 DSO of 56 days 18 days better than last year s fourth quarter Made voluntary debt prepayment of $25 million (fiscal year 2015 debt prepayment totaled $60 million) Net debt to trailing 12-month adjusted EBITDA bank leverage ratio of approximately 4.6 times well below bank covenant ratio of 6.5 times (pro forma to include 12 months of TASC s adjusted EBITDA) Book-to-bill ratio of 0.5x on contract awards of $272 million Funded order book-to-bill of 1.0x on funded orders of $518 million * Adjusted results for net income, operating margin and EBITDA exclude a non-cash goodwill impairment charge of $292 million, $12 million of acquisition and integration costs, and $2 million in legal and settlement costs. Adjusted operating margin and adjusted net income also exclude $10 million of amortization of intangible asset expenses associated with the TASC and DRC acquisitions. 9

10 Reiterating FY16 Guidance Total Revenue GAAP Diluted EPS 1 Adjusted Diluted EPS 1 Adjusted EBITDA 1 GAAP Cash Flow from Operations $2.0 billion to $2.15 billion $0.03 to $0.18 $1.00 to $1.15 $180 million to $190 million $105 million to $115 million GAAP and adjusted diluted EPS guidance assumes weighted-average outstanding shares of approximately 37 million. GAAP diluted EPS assumes a full-year effective tax rate of 25 percent. Adjusted diluted EPS assumes a total cash tax payments of approximately $1 million. Our adjusted diluted EPS and adjusted EBITDA guidance excludes approximately $33 million of amortization of acquired intangible assets, and deal and integration costs associated with the TASC acquisition. 10

11 2016 Assumptions 2016 guidance assumptions: Adjusted operating margin of 7% to 8% Net interest expense of ~$115 million Diluted share count of ~37 million shares Capital expenditures of ~$15 million Depreciation and amortization of ~$55 million GAAP effective tax rate of ~25% Cash taxes of ~$1 million We also continue to expect to make voluntary debt prepayments of $70 to $80 million in

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13 Fourth Quarter Non-Cash Charge $292 million non-cash goodwill impairment charge Charge was higher than original estimate The Company initially evaluated the fair value of Engility, as determined by a third party valuation firm, against carrying value and considering market capitalization on November 30, 2015 Following January 2016 guidance call, the share price decreased more than expected Disparity between initial fair value estimate and the subsequent market capitalization led Engility to reevaluate its assumptions, to bring the fair value of the Company more in-line with the market cap value No change in current business plan or future outlook The non-cash impairment is not related to the TASC acquisition 13

14 GAAP to Non-GAAP Reconciliation Adjusted Operating Income and Adjusted Operating Margin ($ in thousands) Three Months Ended Twelve Months Ended Dec. 31, 2015 Dec. 31, 2014 Dec. 31, 2015 Dec. 31, 2014 Operating income (loss) $(262,074) $13,356 $(189,448) $82,920 Adjustments Goodwill impairment charge 292, ,100 Acquisition and integration-related expenses excluding amortization Acquisition-related intangible amortization 11,983 9,014 44,753 17,864 10,238 1,683 36,206 6,171 Legal and settlement costs 1,605 3, Total adjustments 315,926 10, ,404 24,265 Adjusted operating income $53,852 $24,053 $186,956 $107,185 Operating margin (48.8)% 4.2% (9.1)% 6.1% Adjusted operating margin 10.0% 7.5% 9.0% 7.8% 14

15 GAAP to Non-GAAP Reconciliation Adjusted Earnings Per Share Three Months Ended Twelve Months Ended ($ in thousands, except per share data) Dec. 31, 2015 Dec. 31, 2014 Dec. 31, 2015 Dec. 31, 2014 GAAP Net income (loss) attributable to Engility $ (238,731) $ 2,486 $ (235,352) $ 35,423 Net income attributable to non-controlling interest ,113 4,587 GAAP Net income (237,982) 3,458 (230,239) 40,010 Provision (benefit) for income taxes (52,405) 7,183 (68,067) 30,637 Income tax rate 18.0% 67.5% 22.8% 43.4% GAAP income (loss) before taxes $ (290,387) $ 10,641 $ (298,306) $ 70,647 Adjustments Goodwill impairment charge 292, ,100 Acquisition and integration-related expenses excluding amortization 11,983 9,014 44,753 17,864 Acquisition-related intangible amortization 10,238 1,683 36,206 6,171 Legal and settlement costs 1,605 3, Bank fees previously capitalized and included in interest expense 4,602 Total adjustments 315,926 10, ,006 24,265 Adjusted income before income tax 25,539 21,338 82,700 94,912 Adjusted provision for income taxes 8,322 37,043 Cash paid (received) for income taxes 94 1,169 Adjusted income tax rate 0.4% 39.0% 1.4% 39.0% Adjusted net income 25,445 13,016 81,531 57,869 Less: Net income attributable to non-controlling interest ,113 4,587 Adjusted net income attributable to Engility $24,696 $12,044 $76,418 $53,282 Adjusted diluted earnings per share attributable to Engility $0.66 $0.67 $2.24 $2.96 GAAP diluted earnings (loss) per share attributable to Engility $ (6.53) $0.14 $ (7.02) $1.97 Diluted weighted average number of shares outstanding adjusted 37,230 18,090 34,106 18,018 Diluted weighted average number of shares outstanding - GAAP 36,565 18,090 33,536 18,018 15

16 GAAP to Non-GAAP Reconciliation Earnings before interest, taxes, depreciation, and amortization (EBITDA) and Adjusted EBITDA ($ in thousands) Three Months Ended Twelve Months Ended Dec. 31, 2015 Dec. 31, 2014 Dec. 31, 2015 Dec. 31, 2014 Net income (loss) $ (237,982) $ 3,458 $ (230,239) $ 40,010 Interest, taxes, depreciation, and amortization Interest expense Provision (benefit) for income taxes 29,554 3, ,143 12,799 (52,405) 7,183 (68,067) 30,637 Depreciation and amortization 16,191 5,113 58,435 20,953 Loss on disposal of property, plant and equipment 2,739 3,413 EBITDA Adjustments to EBITDA (241,903) 19,015 (126,315) 104,399 Goodwill impairment charge 292, ,100 Acquisition and integration-related expenses excluding amortization 9,593 9,014 42,363 17,864 Legal and settlement costs Total adjustments Adjusted EBITDA EBITDA Margin Adjusted EBITDA Margin 1,605 3, ,298 9, ,808 18,094 $ 61,395 $ 28,029 $ 211,493 $ 122,493 (45.0)% 6.0% (6.1)% 7.6% 11.4% 8.8% 10.1% 9.0% 16

17 Fourth Quarter 2015 Earnings Conference Call 17