SOURCE: Vangent

August 11, 2009 16:33 ET

Vangent, Inc. Announces Second Quarter 2009 Results

Total Second Quarter Revenue Increases 14% Year Over Year

ARLINGTON, VA--(Marketwire - August 11, 2009) - Vangent, Inc., a leading global provider of information management and strategic business process outsourcing services, today announced its second quarter 2009 results.

Quarter-to-Quarter Comparison

Vangent reported revenue of $141.0 million for the quarter ended June 27, 2009, an increase of $17.1 million or 14% compared to $123.9 million in the year ago period.

The increase in total revenue reflected a $19.8 million increase in revenue for the Government Group, primarily attributable to contracts with the Department of Defense, including the Traumatic Brain Injury contract with the Military Health System; the Department of State, specifically our work on the National Passport Information Center, as well as increased revenue with our contract with the Centers for Medicare and Medicaid Services (CMS). A $3.2 million increase in Human Capital Group revenue also contributed to the higher revenue in the second quarter, driven by strong growth from Vangent's contract with the United States Air Force to modernize the Royal Saudi Air Force's learning infrastructure. Partially offsetting these increases was a $4.6 million, or 22%, decline in International Group revenue due primarily to changes in foreign currency exchange rates.

Operating income totaled $3.6 million in the second quarter of 2009, an increase of $2.1 million compared to $1.5 million in the prior year period. The increase in operating income was primarily attributable to increases in Government Group revenue and reduced general and administrative costs compared with the 2008 period.

Vangent reported a net loss of $6.1 million for the three months ended June 27, 2009, an improvement from a net loss of $8.6 million for the comparable year ago period. Adjusted EBITDA increased 9% to $13.2 million for the second quarter of 2009, compared with $12.1 million for the quarter ended June 28, 2008.

Contract Awards and Backlog

New business awards during the second quarter of 2009, which totaled $40 million, included a five-year, $15 million contract from the U.S. Office of Personnel Management to provide Open Season Services as part of the Federal Employee Health Benefits program, extending Vangent's 24-year partnership with the agency.

Vangent won its first contract funded by the American Recovery and Reinvestment Act of 2009 as a subcontractor to Sallie Mae to provide operations, project management, software integration and testing services in support of the U.S. Department of Education's Federal Student Aid Title IV Student Loan Management Servicing program.

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, increased to $2.3 billion at June 27, 2009, representing an $800 million increase from March 28, 2009. The increase in total contract backlog was primarily attributable to the four-year extension of the Company's contract with CMS to May 2013.

In addition, Vangent was awarded a $10 million, two-year extension on our E-RATE contract with the Schools and Libraries Division of the Universal Service Administrative Company which supports the Federal Communications Commission (FCC) to assist schools and libraries across the U.S. obtain affordable telecommunications and Internet access.

Vangent's funded backlog, which is the portion for which funding has been authorized, was $434.2 million at June 27, 2009, an increase of $26.7 million from March 28, 2009.

"Our business delivered a strong performance this quarter with significant year over year gains in Total Revenue, Operating Income and Adjusted EBITDA," said Mac Curtis, President and Chief Executive Officer of Vangent. "These accomplishments reflect our continued focus on cost management and our ability to capitalize on our experience and expertise to further diversify our operations through key new business wins and extensions. In the midst of this challenging economy, Vangent has continued to prove its value proposition to its customers while continuing to generate strong operational momentum, positioning the Company for a strong second half of 2009."

Liquidity, Cash Flow and Balance Sheet Information

Total long-term debt at June 27, 2009 was $420.4 million and cash and cash equivalents were $21.8 million. Net cash provided by operating activities was $7.1 million for the six months ended June 27, 2009, compared to cash provided by operating activities of $21.2 million in the year ago period. Vangent's total liquidity, which included $50.0 million available under its revolving credit facility, was $71.8 million.

Q2 2009 Financial Results Conference Call: Will take place on Wednesday, August 12, 2009 at 11:00 am ET. Interested parties may call (877) 857-6173 and request the "Vangent Second Quarter 2009 Financial Results Conference Call," conference ID # 3032418.

Audio Replay: A replay of the earnings call can be heard after 2:00 p.m. on August 12, 2009 until August 24, 2009. To hear the replay, dial (888) 203-1112 and enter the same conference ID # 3032418. For interested parties outside the U.S. and Canada, dial (719) 457-0820 and enter the same conference ID #.

Vangent's second 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 Q2 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 Outsourcing 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       Six Months Ended
                            ---------------------   ---------------------
                             June 27,    June 28,    June 27,    June 28,
                               2009        2008        2009        2008
                            ---------   ---------   ---------   ---------
Revenue                     $ 141,010   $ 123,934   $ 278,482   $ 267,409
Cost of revenue               122,271     105,934     234,175     223,100
                            ---------   ---------   ---------   ---------
Gross profit                   18,739      18,000      44,307      44,309
General and administrative
 expenses                      10,544      12,473      20,835      26,257
Selling and marketing
 expenses                       4,565       4,075       8,882       8,206
                            ---------   ---------   ---------   ---------
Operating income                3,630       1,452      14,590       9,846
Interest expense, net           8,495       8,777      16,866      17,727
                            ---------   ---------   ---------   ---------
Loss before income taxes       (4,865)     (7,325)     (2,276)     (7,881)
Provision for income taxes      1,247       1,228       2,872       3,096
                            ---------   ---------   ---------   ---------
Net loss                    $  (6,112)  $  (8,553)  $  (5,148)  $ (10,977)
                            =========   =========   =========   =========


Statement of Operation Data
 as a Percent of Revenue
Revenue                           100%        100%        100%        100%
Cost of revenue                  86.7        85.5        84.1        83.4
                            ---------   ---------   ---------   ---------
Gross profit margin              13.3        14.5        15.9        16.6
General and administrative
 expenses                         7.5        10.0         7.5         9.8
Selling and marketing
 expenses                         3.2         3.3         3.2         3.1
                            ---------   ---------   ---------   ---------
Operating income margin           2.6         1.2         5.2         3.7
Interest expense, net             6.0         7.1         6.1         6.6
                            ---------   ---------   ---------   ---------
Loss before income taxes         (3.4)       (5.9)       (0.9)       (2.9)
Provision for income taxes        0.9         1.0         0.9         1.2
                            ---------   ---------   ---------   ---------
Net loss                         (4.3)%      (6.9)%      (1.8)%      (4.1)%




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

                                                   June 27,    December 31,
                                                     2009          2008
                                                ------------- -------------
Assets
Current assets:
  Cash and cash equivalents                     $      21,765 $      21,134
  Trade receivables, net                              124,755       129,859
  Prepaid and other assets                             20,000        12,413
                                                ------------- -------------
   Total current assets                               166,520       163,406

Property and equipment, net                            29,390        27,152
Goodwill and intangible assets, net                   454,202       464,865
Deferred debt financing costs and other                10,187        10,851
                                                ------------- -------------
   Total assets                                 $     660,299 $     666,274
                                                ============= =============

Liabilities and Stockholder's Equity
Current liabilities:
  Accounts payable and accrued expenses         $      67,369 $      73,172
  Accrued interest payable                              7,896         8,304
  Other current liabilities                             6,003         6,657
                                                ------------- -------------
   Total current liabilities                           81,268        88,133

Long-term debt, net of current portion                420,366       420,366
Other liabilities                                      16,510        13,138
                                                ------------- -------------
   Total liabilities                                  518,144       521,637
                                                ------------- -------------
Stockholder's equity                                  142,155       144,637
                                                ------------- -------------
   Total liabilities and stockholder's equity   $     660,299 $     666,274
                                                ============= =============




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

                                                        Six Months Ended
                                                      --------------------
                                                       June 27,   June 28,
                                                         2009       2008
                                                      ---------  ---------
Cash flows from operating activities
Net loss                                              $  (5,148) $ (10,977)
Depreciation and amortization                            16,779     17,365
Equity-based compensation expense                           511        592
Deferred income taxes                                     3,030      2,913
Net changes in operating assets and liabilities:
   Trade receivables                                      6,480     13,493
   Prepaid and other assets                              (6,617)    (3,856)
   Accounts payable and other liabilities                (7,960)     1,646
                                                      ---------  ---------
Net cash provided by operating activities                 7,075     21,176
                                                      ---------  ---------

Cash flows from investing activities
Acquisition, net of cash acquired                             -     (3,936)
Capital expenditures                                     (6,539)    (5,041)
                                                      ---------  ---------
Net cash used in investing activities                    (6,539)    (8,977)
                                                      ---------  ---------

Cash flows from financing activities
Repayment of senior secured term loan                         -     (7,834)
Capital lease payments                                     (163)      (138)
                                                      ---------  ---------
Net cash used in financing activities                      (163)    (7,972)
Effect of exchange rate changes on cash and cash
 equivalents                                                258        106
                                                      ---------  ---------
Net increase in cash and cash equivalents                   631      4,333
Cash and cash equivalents, beginning of period           21,134     26,093
                                                      ---------  ---------
Cash and cash equivalents, end of period              $  21,765  $  30,426
                                                      =========  =========




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

                                                                   Twelve
                            Three Months Ended  Six Months Ended   Months
                             ----------------  -----------------   Ended
                             June 27, June 28, June 27, June 28,  June 27,
                               2009     2008     2009     2008      2009
                             -------  -------  -------  --------  --------
Net loss                     $(6,112) $(8,553) $(5,148) $(10,977) $(20,679)
Provision for income taxes     1,247    1,228    2,872     3,096     5,330
Interest expense, net          8,495    8,777   16,866    17,727    34,351
Depreciation and
 amortization                  8,433    8,946   16,779    17,365    34,013
                             -------  -------  -------  --------  --------
EBITDA (a)                    12,063   10,398   31,369    27,211    53,015

Goodwill impairment charge   $     -  $     -  $     -  $      -  $ 16,751
Equity-based compensation
 expense                         257      345      511       592       971
TSA adjustment                     -       16        -        36       (84)
Net transition and contract
 settlement costs                543      888      608     3,303     2,241
Management fee and expenses      290      306      658       587     1,235
Other                              -      123      106       123       265
                             -------  -------  -------  --------  --------
Adjusted EBITDA (b)          $13,153  $12,076  $33,252  $ 31,852  $ 74,394
                             =======  =======  =======  ========  ========

(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, (ii) non-recurring contract settlement costs, and
(iii) certain costs resulting from our separation from Pearson plc net of
certain overhead and infrastructure costs.

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