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Vangent, Inc. Announces Second Quarter 2010 Financial Results

(August 06, 2010)

ARLINGTON, VA -- (Marketwire) -- 08/06/10 --


-- Second Quarter Revenue Increased 59% to $214.8 Million over Second Quarter 2009 Driven by Government Group -- Operating Income Grew 193% to $15.4 Million and Adjusted EBITDA Grew 69% to $24.1 Million in Second Quarter 2010 -- Definitive Agreement Signed to Acquire Buccaneer Computer Systems and Service, Inc., a Leading Provider of Health IT and Data Analytics for Government Healthcare Market


Vangent, Inc., a leading global provider of information management and strategic business process services, today announced its second quarter 2010 financial results.

Quarter-to-Quarter Comparison

Vangent reported revenue from continuing operations of $214.8 million for the quarter ended July 3, 2010, an increase of $79.7 million or 59% compared to $135.1 million in the quarter ended June 27, 2009.

The increase in total revenue from continuing operations reflects an $83.0 million or 72% increase in revenue from the Government Group. The increase is primarily attributable to $85.9 million in revenue from Vangent's 2010 U.S. Census contract. Vangent also had growth with its core government customers, including $2.1 million in increased revenue from contracts with the Office of Federal Student Aid at the U.S. Department of Education and the U.S. State Department.

Offsetting the increase in Government Group revenue was a $4.5 million decline in Human Capital Group revenue for the quarter ended July 3, 2010. The decline in revenue is due to the first quarter 2010 completion of Vangent's contract with the U.S. Air Force to modernize the learning infrastructure of the Royal Saudi Air Force.

Operating income increased 193% to $15.4 million for the quarter ended July 3, 2010 compared to $5.3 million for the quarter ended June 27, 2009. The increase in operating income was primarily due to an increase in revenue related to Vangent's U.S. Census contract.

Net income from continuing operations improved to $8.0 million for the three months ending July 3, 2010 compared to a net loss of $3.2 million in the year ago period. Including the impact of discontinued operations, Vangent reported a net loss of $8.1 million for the three months ended July 3, 2010, an increase of $2 million compared to the prior year quarter. The increase in the Company's net loss reflects a $15.3 million non-cash charge to increase the provision for an expected loss on the disposal of the Latin America business.

Adjusted EBITDA grew to $24.1 million for the second quarter of 2010, compared with $14.3 million for the prior year quarter. The increase in Adjusted EBITDA was primarily attributable to the increase in Government Group operating income.

Vangent booked $59.3 million in new backlog in the second quarter of 2010. Vangent's total contract backlog, which is the amount of revenue the Company expects to realize over the remaining term of the contracts, including the base period and all option years, totaled $1.7 billion at July 3, 2010. Vangent's funded backlog, the portion for which funding has been authorized, totaled $386.7 million at July 3, 2010.

"We delivered solid revenue performance in the second quarter, capping off a strong first half of 2010 driven by our core Government Group business," said Mac Curtis, President and Chief Executive Officer of Vangent. "As our work winds down with the U.S. Census, we continued to grow our portfolio of business with the Military Health System and won new business with Veterans Affairs and the National Oceanographic and Atmospheric Administration. We are actively pursuing opportunities to drive continued growth and a significant number of new business opportunities are under evaluation. As we enter the busy government procurement season, we are well positioned to capture additional new business in strategic growth areas."

Liquidity, Cash Flow and Balance Sheet Information

Total long-term debt at July 3, 2010 was $406.8 and cash and cash equivalents were $37.5 million. Net cash provided by operating activities from continuing operations was $30.9 million for the three months ended July 3, 2010, an increase of $11.3 million compared to the prior year period primarily driven by earnings as well as a decrease in the Company's Days Sales Outstanding metric. Vangent's total liquidity, which includes $49.8 million available under its revolving credit facility, was $87.3 million.

Acquisition of Buccaneer Computer Systems and Service, Inc.

Vangent signed a definitive agreement on August 5, 2010 to acquire Buccaneer Computer Systems and Service, Inc., "Buccaneer," a leading provider of IT services, infrastructure, secure data hosting and data analytics for Federal and state government customers. Headquartered in Warrenton, Virginia, Buccaneer has over 450 employees.

Under the terms of the agreement, Vangent will purchase privately held Buccaneer for $65 million in cash, subject to post-closing adjustments. The acquisition is expected to be immediately accretive to Vangent earnings in fiscal year 2010, excluding acquisition-related charges, and a more significant contributor to earnings in fiscal year 2011. The transaction is expected to close during the third quarter of fiscal 2010.

"Acquiring Buccaneer deepens our IT infrastructure and data analytics capabilities, particularly in the growing government healthcare market," stated Curtis. "Buccaneer is a very successful company run by an experienced management team that shares our passion and commitment to providing exceptional customer service. The company is well-known and well-respected by its customers at CMS, FDA and the Department of Defense, agencies where Vangent has experience. The synergies between our companies will pave the way to a seamless transition and integration. We are excited about Buccaneer joining Vangent and the unique capabilities we will offer present and future customers."

Q2 2010 Financial Results Conference Call

The conference call will take place on August 6, 2010 at 11:00 am ET. Interested parties may call (888) 300-2343 and request the "Vangent Second Quarter 2010 Financial Results Conference Call," conference ID # 4263809.

Audio Replay

A replay of the earnings call can be heard after 2:00 p.m. on August 6, 2010 until August 20, 2010. To hear the replay, dial (888) 203-1112 and enter the same conference ID #4263809.

Vangent's second quarter 2010 financial statements including its Quarterly Report on Form 10-Q will be made available on the company's website at www.vangent.com in connection with Vangent Q2 2010 Financial Results Conference Call.

About Vangent, Inc.

With more than 8,000 employees worldwide, Vangent, Inc. is a global provider of consulting, systems integration, human capital management and strategic business process services to the U.S. federal and international governments, higher education institutions and corporations. Clients include the Centers for Medicare & Medicaid Services, the U.S. Departments of Defense, Education, Health and Human Services, State and Labor; U.S. Census Bureau, the U.S. Office of Personnel Management and Veterans Affairs, as well as Fortune 500 companies.

Forward-Looking Statements

This press release contains forward-looking statements. Forward-looking statements are those that do not relate solely to historical fact. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. Words such as, but not limited to, "believe," "expect," "anticipate," "estimate," "intend," "plan," "targets," "projects," "likely," "will," "would," "could" and similar expressions or phrases identify forward-looking statements. All forward-looking statements involve risks and uncertainties. The occurrence of the events described, and the achievement of the expected results, depend on many events, some or all of which are not predictable or within our control. In light of these risks and uncertainties, expected results or other anticipated events or circumstances discussed in this press release might not occur. We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Vangent, Inc. Condensed Consolidated Statements of Operations (Unaudited) (in thousands) Three Months Ended Six Months Ended --------------------- --------------------- July 3, June 27, July 3, June 27, 2010 2009 2010 2009 --------- ---------- --------- ---------- Revenue $ 214,846 $ 135,115 $ 409,043 $ 267,988 Cost of revenue 182,459 115,918 340,685 223,284 --------- ---------- --------- ---------- Gross profit 32,387 19,197 68,358 44,704 General and administrative expenses 11,494 9,547 23,684 19,237 Selling and marketing expenses 5,447 4,386 11,122 8,529 --------- ---------- --------- ---------- Operating income 15,446 5,264 33,552 16,938 Interest expense and other, net 7,362 8,533 15,598 16,884 --------- ---------- --------- ---------- Income (loss) from continuing operations before income taxes 8,084 (3,269) 17,954 54 Provision for income taxes 1,851 1,694 3,685 3,438 --------- ---------- --------- ---------- Income (loss) from continuing operations 6,233 (4,963) 14,269 (3,384) Loss from discontinued operations, net of tax (14,348) (1,149) (16,785) (1,764) --------- ---------- --------- ---------- Net loss $ (8,115) $ (6,112) $ (2,516) $ (5,148) ========= ========== ========= ========== Statements of Operations Data as a Percent of Revenue Revenue 100.0 % 100.0 100.0 % 100.0 Cost of revenue 84.9 85.8 83.3 83.3 --------- ---------- --------- ---------- Gross profit margin 15.1 14.2 16.7 16.7 General and administrative expenses 5.3 7.1 5.8 7.2 Selling and marketing expenses 2.6 3.2 2.7 3.2 --------- ---------- --------- ---------- Operating income margin 7.2 3.9 8.2 6.3 Interest expense, net 3.4 6.3 3.8 6.3 --------- ---------- --------- ---------- Income before income taxes 3.8 (2.4) 4.4 - Provision for income taxes 0.9 1.3 0.9 1.3 --------- ---------- --------- ---------- Income (loss) from continuing operations 2.9 (3.7) 3.5 (1.3) Loss from discontinued operations, net of tax (6.7) (0.9) (4.1) (0.7) --------- ---------- --------- ---------- Net loss (3.8)% (4.5) (0.6)% (1.9) ========= ========== ========= ========== Vangent, Inc. Condensed Consolidated Balance Sheets (Unaudited) (in thousands) July 3, December 31, 2010 2009 ------------ ------------ Assets Current assets: Cash and cash equivalents $ 37,533 $ 44,638 Trade receivables, net 140,212 109,846 Prepaid expenses and other assets 11,850 10,353 Assets of discontinued operations 6,718 15,036 ------------ ------------ Total current assets 196,313 179,873 Property and equipment, net 22,914 25,124 Intangible assets, net 140,948 151,860 Goodwill 267,401 268,212 Deferred debt financing costs and other 7,355 8,433 Assets of discontinued operations - 6,727 ------------ ------------ Total assets $ 634,931 $ 640,229 ============ ============ Liabilities and Stockholder's Equity Current liabilities: Current portion of long-term debt $ - $ 13,534 Accounts payable and accrued liabilities 75,422 64,849 Accrued interest payable 7,950 8,186 Deferred tax liability 4,412 5,628 Deferred revenue 4,288 3,976 Liabilities of discontinued operations 5,631 7,521 ------------ ------------ Total current liabilities 97,703 103,694 Long-term debt, net of current portion 406,754 406,832 Other long-term liabilities 5,009 7,194 Deferred tax liability 16,286 12,144 Liabilities of discontinued operations 199 502 ------------ ------------ Total liabilities 525,951 530,366 ------------ ------------ Stockholder's equity 108,980 109,863 ------------ ------------ Total liabilities and stockholder's equity $ 634,931 $ 640,229 ============ ============ Vangent, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) Six Months Ended ------------------------ July 3, June 27, 2010 2009 ----------- ----------- Cash flows from operating activities Net loss $ (2,516) $ (5,148) Less: Loss from discontinued operations, net of tax (16,785) (1,764) ----------- ----------- Income (loss) from continuing operations 14,269 (3,384) Depreciation and amortization 16,441 16,152 Deferred taxes and other non-cash charges 4,985 4,665 Net changes in operating assets and liabilities: Trade receivables (30,544) 6,400 Prepaid expenses and other assets (4,339) (4,682) Accounts payable and other liabilities 13,045 (9,502) ----------- ----------- Continuing operations, net 13,857 9,649 Discontinued operations, net (2,870) (2,574) ----------- ----------- Net cash provided by operating activities 10,987 7,075 ----------- ----------- Cash flows from investing activities Capital expenditures, continuing operations (3,526) (4,779) Discontinued operations, net (811) (1,760) ----------- ----------- Net cash used in investing activities (4,337) (6,539) ----------- ----------- Cash flows from financing activities Repayment of senior secured term loan (13,612) - Other (53) (163) ----------- ----------- Net cash used in financing activities, continuing operations (13,665) (163) Effect of exchange rate changes on cash and cash equivalents (170) 258 ----------- ----------- Net increase (decrease) in cash and cash equivalents (7,185) 631 Total cash and cash equivalents, beginning of period 45,584 21,134 ----------- ----------- Total cash and cash equivalents, end of period 38,399 21,765 Less: Cash and cash equivalents, discontinued operations 866 1,601 ----------- ----------- Cash and cash equivalents, continuing operations $ 37,533 $ 20,164 =========== =========== Vangent, Inc. Reconciliation of GAAP to Non-GAAP Measures (Unaudited) (in thousands) Three Months Ended Six Months Ended Twelve Months Ended ------------------ ------------------ ------------------ July 3, June 27, July 3, June 27, July 3, June 27, 2010 2009 2010 2009 2010 2009 -------- -------- -------- -------- -------- -------- Net loss $ (8,115) $ (6,112) $ (2,516) $ (5,148) $(31,375) $(20,677) Provision for income taxes 1,851 1,694 3,685 3,438 7,041 4,764 Interest expense, net of interest income 7,461 8,533 15,731 16,884 33,128 34,411 Depreciation and amortization 8,084 8,030 16,441 16,142 32,166 32,925 -------- -------- -------- -------- -------- -------- EBITDA 9,281 12,145 33,341 31,316 40,960 51,423 Loss from discontinued operations 14,348 1,149 16,785 1,764 31,816 4,927 Impairment charges for goodwill and intangibles - - - - 11,227 13,766 Equity-based compensation expense 237 264 499 511 1,037 971 Management fee 296 290 561 658 1,192 1,235 Other (32) 422 (43) 764 5 2,350 -------- -------- -------- -------- -------- -------- Adjusted EBITDA $ 24,130 $ 14,270 $ 51,143 $ 35,013 $ 86,237 $ 74,672 ======== ======== ======== ======== ======== ========

(a) EBITDA is defined as net income (loss) before interest, income taxes, and depreciation and amortization. Management uses this measure as an indicator of operating performance. EBITDA is not an indicator of financial performance under generally accepted accounting principles ("GAAP") or a measure of liquidity and may not be comparable to similarly captioned information reported by other companies. In addition, it should not be considered as an alternative to, or more meaningful than, income (loss) before income taxes, cash flows from operating activities, or other traditional indicators of operating performance.

(b) Adjusted EBITDA is a financial measure used to calculate the consolidated leverage ratio, one of the more restrictive financial covenants under the senior secured credit facility. Adjusted EBITDA, as defined, excludes (i) discontinued operations, (ii) impairment charges for goodwill and intangibles, (iii) equity-based compensation expense, (iv) management fee and expenses paid to Veritas Capital, and (vi) and other items included in the debt agreement.

Contact:
Eileen Cassidy Rivera
Email Contact
703-284-5674


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