SOURCE: Vangent, Inc.

Vangent, Inc.

November 10, 2009 08:00 ET

Vangent, Inc. Announces Third Quarter 2009 Financial Results

Government Group Drives Quarter-Over-Quarter Revenue Growth of 12%

ARLINGTON, VA--(Marketwire - November 10, 2009) - Vangent, Inc., a leading global provider of information management and strategic business process services, today announced its third quarter 2009 financial results.

Quarter-to-Quarter Comparison

Vangent reported revenue of $149.4 million for the quarter ended September 26, 2009, an increase of $16.0 million or 12.0% compared to $133.4 million in the year ago period.

The increase in total revenue reflects a $17.8 million or 16% increase in revenue for the Government Group, primarily attributable to new contract awards with the U.S. Department of Defense's Military Health System, a new contract with the U.S. Department of Transportation and a new contract to support the U.S. Department of Education's National Student Aid Data System.

Offsetting the increase in Government Group revenue was a 7% decline in International Group revenue to $17.0 million in the third quarter ending September 26, 2009 due to continuing fluctuations in foreign currency exchange rates, a contract termination in Venezuela and lower volume with contracts in Canada.

Human Capital Group revenue grew 8% to $7.7 million for the quarter ended September 26, 2009. The increase in revenue is due to the ongoing success of Vangent's contract with the U.S. Air Force to modernize the Royal Saudi Air Force's learning infrastructure in the Kingdom of Saudi Arabia, offset by lower volumes of the Group's assessment products and training services.

Operating income was $5.1 million for the quarter ended September 26, 2009 compared to $10.7 million for the quarter ended September 27, 2008. The decrease in operating income was primarily due to start-up costs and lower than expected volume on a contract with Mexico's Social Security agency as well as higher costs on various fixed price contracts in the Government Group. In addition, operating losses in the Human Capital Group reflect the adverse impact of lower revenue from higher margin assessment products and training services due to reductions in customer hiring patterns as a result of the continuing economic downturn.

Vangent reported a net loss of $5.3 million for the three months ended September 26, 2009 compared with a net loss of $0.4 million in the prior year quarter. Adjusted EBITDA was $13.8 million for the third quarter of 2009, compared with $20.3 million for the prior year quarter. The reduction in Adjusted EBITDA was primarily attributable to the decrease in operating income.

Contract Awards and Backlog

New business awards during the third calendar quarter of 2009, which totaled $111.6 million, included:

--  Data management contract with the U.S. Department of Transportation in
    support of the Car Allowance Rebate System (CARS), a key initiative of the
    Obama Administration's stimulus package, valued at $8.8 million.  In less
    than a month, Vangent processed over 400,000 "Cash for Clunkers" vouchers
    from car dealerships across the country which represented over half of the
    national processing volume;
    
--  Operations and Project Management contract for the U.S. Department of
    Education's Federal Student Aid division to support the National Student
    Aid Data System as a subcontractor to BriefCase Systems Development valued
    at $19 million;
    
--  Single Sign-On and Context Management contract with the Military
    Health System valued at $20 million;
    
--  New Contract Management System for Tricare Management Activity valued
    at $6.9 million; and
    
--  Additional business related to Vangent's work on the Traumatic Brain
    Injury & Behavioral Health contract valued at $6.4 million.
    

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 $2.2 billion at September 26, 2009, representing a 32% increase from December 31, 2008. The increase in total contract backlog is attributable to new business wins in Vangent's Government Group.

"Vangent delivered strong revenue performance this quarter with solid overall growth in the Government Group," said Mac Curtis, President and Chief Executive Officer of Vangent. "We were particularly pleased with the continuing growth of our Military Health business which has grown to over $165 million in two years. Our solid performance with our important CMS customer led to a key win this quarter with the Department of Transportation to support the Cash for Clunkers program. The Government Group's strong revenue performance was dampened by lower than expected volume on our contract in Mexico, as well as the impact of the continuing economic downturn on the Human Capital Group. We are focused on efforts to turn around our contract with Mexico's Social Security agency and strategies to continue the diversification of our Human Capital portfolio."

Liquidity, Cash Flow and Balance Sheet Information

Total long-term debt at September 26, 2009 was $420.4 and cash and cash equivalents were $32.1 million. Net cash provided by operating activities was $23.0 million for the nine months ended September 26, 2009, compared to cash provided by operating activities of $10.9 million in the year ago period. Vangent's total liquidity, which includes $50.0 million available under its revolving credit facility, was $82.1 million.

Q3 2009 Financial Results Conference Call: Will take place on Tuesday, November 10, 2009 at 11:00 am ET. Interested parties may call (877) 874-1568 and request the "Vangent Third Quarter 2009 Financial Results Conference Call," conference ID #1337498.

Audio Replay: A replay of the earnings call can be heard after 2:00 p.m. on November 10, 2009 until November 24, 2009. To hear the replay, dial (888) 203-1112 and enter the same conference ID #1337498. For interested parties outside the U.S. and Canada, dial (719) 457-0820 and enter the same conference ID #.

Vangent's third quarter 2009 financial statements including the Management Discussion and Analysis will be made available on the company's website at www.vangent.com in connection with Vangent Q3 2009 Financial Results Conference Call.

About Vangent, Inc.

With over 7,000 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, Justice, Labor, State and the U.S. Office of Personnel Management, as well as Fortune 500 companies. Headquartered in Arlington, Virginia, the company has offices throughout the U.S. and in the U.K., Canada, Mexico, Venezuela and Argentina.

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
(in thousands)
(unaudited)

                              Three Months Ended      Nine Months Ended
                            ---------------------   ---------------------
                            September   September   September   September
                             26, 2009   27, 2008    26, 2009     27, 2008
                            ---------   ---------   ---------   ---------
Revenue                     $ 149,393   $ 133,391   $ 427,875   $ 400,800
Cost of revenue               128,567     106,470     362,742     329,570
                            ---------   ---------   ---------   ---------
Gross profit                   20,826      26,921      65,133      71,230
General and administrative
 expenses                      10,803      12,445      31,638      38,702
Selling and marketing
 expenses                       4,967       3,757      13,849      11,963
                            ---------   ---------   ---------   ---------
Operating income                5,056      10,719      19,646      20,565
Interest expense and other,
 net                            8,676       8,534      25,542      26,261
                            ---------   ---------   ---------   ---------
Income (loss) before income
 taxes                         (3,620)      2,185      (5,896)     (5,696)
Provision for income taxes      1,647       2,632       4,519       5,728
                            ---------   ---------   ---------   ---------
Net loss                    $  (5,267)  $    (447)  $ (10,415)  $ (11,424)
                            =========   =========   =========   =========



Statements of Operations
 Data as a Percent of
 Revenue
Revenue                         100.0%      100.0%      100.0%      100.0%
Cost of revenue                  86.1        79.8        84.8        82.2
                            ---------   ---------   ---------   ---------
Gross profit margin              13.9        20.2        15.2        17.8
General and administrative
 expenses                         7.2         9.4         7.4         9.7
Selling and marketing
 expenses                         3.3         2.8         3.2         3.0
                            ---------   ---------   ---------   ---------
Operating income margin           3.4         8.0         4.6         5.1
Interest expense and other,
 net                              5.8         6.4         6.0         6.5
                            ---------   ---------   ---------   ---------
Income (loss) before income
 taxes                           (2.4)        1.6        (1.4)       (1.4)
Provision for income taxes        1.1         1.9         1.0         1.5
                            ---------   ---------   ---------   ---------
Net loss                         (3.5)%      (0.3)%      (2.4)%      (2.9)%
                            =========   =========   =========   =========





Vangent, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)


                                                 September 26, December 31,
                                                      2009         2008
                                                  ------------ ------------
Assets
Current assets:
   Cash and cash equivalents                      $     32,078 $     21,134
   Trade receivables, net                              122,267      129,859
   Prepaid expenses and other assets                    19,848       12,413
                                                  ------------ ------------
      Total current assets                             174,193      163,406

Property and equipment, net                             29,959       27,152
Goodwill and intangible assets, net                    448,870      464,865
Deferred debt financing costs and other                  8,997       10,851
                                                  ------------ ------------
      Total assets                                $    662,019 $    666,274
                                                  ============ ============

Liabilities and Stockholder's Equity
Current liabilities:
   Current portion of long-term debt              $        594 $          -
   Accounts payable and accrued liabilities             75,993       73,172
   Accrued interest payable                              2,510        8,304
   Other current liabilities                             7,711        6,657
                                                  ------------ ------------
      Total current liabilities                         86,808       88,133

Long-term debt, net of current portion                 419,772      420,366
Other liabilities                                       17,229       13,138
                                                  ------------ ------------
      Total liabilities                                523,809      521,637
                                                  ------------ ------------

Stockholder's equity                                   138,210      144,637
                                                  ------------ ------------
      Total liabilities and stockholder's equity  $    662,019 $    666,274
                                                  ============ ============






Vangent, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)


                                                      Nine Months Ended
                                                  ------------------------
                                                   September    September
                                                   26, 2009     27, 2008
                                                  -----------  -----------
Cash flows from operating activities
Net loss                                          $   (10,415) $   (11,424)
Depreciation and amortization                          24,955       26,326
Equity-based compensation expense                         776          839
Deferred income taxes                                   5,054        4,889
Net changes in operating assets and liabilities:
   Trade receivables                                    8,238          574
   Prepaid expenses and other assets                   (4,053)       3,011
   Accounts payable and other liabilities              (1,519)     (13,273)
                                                  -----------  -----------
Net cash provided by operating activities              23,036       10,942
                                                  -----------  -----------

Cash flows from investing activities
Acquisition, net of cash acquired                           -       (3,892)
Capital expenditures                                  (12,193)      (6,796)
                                                  -----------  -----------
Net cash used in investing activities                 (12,193)     (10,688)
                                                  -----------  -----------

Cash flows from financing activities
Repayment of senior secured term loan                       -       (7,834)
Capital lease payments                                   (264)        (205)
                                                  -----------  -----------
Net cash used in financing activities                    (264)      (8,039)
Effect of exchange rate changes on cash and cash
 equivalents                                              365         (217)
                                                  -----------  -----------
Net increase (decrease) in cash and cash
 equivalents                                           10,944       (8,002)
Cash and cash equivalents, beginning of period         21,134       26,093
                                                  -----------  -----------
Cash and cash equivalents, end of period          $    32,078  $    18,091
                                                  ===========  ===========






Vangent, Inc.
Reconciliation of GAAP to Non-GAAP Measures
(in thousands)
(unaudited)


                                                                   Twelve
                      Three Months Ended     Nine Months Ended     Months
                     --------------------  --------------------    Ended
                     September  September  September  September  September
                     26, 2009   27, 2008    26, 2009  27, 2008    26, 2009
                     ---------  ---------  ---------  ---------  ---------
Net loss             $  (5,267) $    (447) $ (10,415) $ (11,424) $ (25,498)
Provision for income
 taxes                   1,647      2,632      4,519      5,728      4,345
Interest expense,
 net                     8,476      8,534     25,342     26,261     34,293
Depreciation and
 amortization            8,176      8,960     24,955     26,326     33,228
                     ---------  ---------  ---------  ---------  ---------
EBITDA (a)              13,032     19,679     44,401     46,891     46,368

Goodwill impairment
 charge              $       -  $       -  $       -  $       -  $  16,751
Equity-based
 compensation
 expense                   266        248        776        839        990
Net transition and
 contract settlement
 costs                     132         87        392      3,419      1,529
Management fee and
 expenses                  316        285        974        872      1,266
Other                       33          -        487        131        971
                     ---------  ---------  ---------  ---------  ---------
Adjusted EBITDA (b)  $  13,779  $  20,299  $  47,030  $  52,152  $  67,875
                     =========  =========  =========  =========  =========


(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 leverage
    ratio, a financial covenant under the Company's senior secured credit
    facility. Adjusted EBITDA is adjusted to exclude unusual and
    non-recurring items including (i) noncash goodwill impairment charge,
    (ii) equity-based compensation expense, (iii) non-recurring contract
    settlement costs, and (iv) certain costs resulting from our separation
    from Pearson plc net of certain overhead and infrastructure costs.

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