SOURCE: Vangent, Inc.

November 12, 2008 08:00 ET

Vangent, Inc. Announces Third Quarter 2008 Results

ARLINGTON, VA--(Marketwire - November 12, 2008) - Vangent, Inc., a leading global provider of information management and strategic business process outsourcing services, today announced its third quarter 2008 results.

Vangent reported revenue of $133.4 million for the three months ended September 27, 2008, up $3.8 million, or 3% compared to the three months ended September 29, 2007. This improvement primarily reflects higher revenue from the Government Group, which increased 5% or $5.1 million largely due to new contract awards with the Department of Defense Military Health System. On a year-to-date basis, revenue grew 11% to $400.8 million compared to $362.5 million in the same period in 2007.

Vangent's net loss improved to $0.5 million for the three months ended September 27, 2008 compared to a loss of $1.4 million for the comparable period a year ago. Adjusted EBITDA was $20.3 million for the three months ended September 27, 2008, compared to $22.1 million in the comparable period a year ago. On a year-to-date basis, Adjusted EBITDA increased 11% to $52.2 million compared to $46.9 million in the same period in 2007.

"We are pleased with our third quarter results as we continued our growth in revenue and secured a significant amount of new business," said Mac Curtis, President and Chief Executive Officer of Vangent. "We were particularly pleased with the strength of our Health business where we added new Military Health System customers in the vital clinical area of the Department of Defense."

Contract Awards & Backlog

Vangent booked $66.5 million of new business in the third quarter, which includes $8.7 million in add-ons to existing contracts.

Year to date, Vangent booked $292.0 million in new business, including $90.7 million in add-on business to existing contracts. Vangent's current new business pipeline stands at $3.2 billion as of September 27, 2008, which includes over $100.0 million of potential fourth quarter 2008 awards.

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, was $1.6 billion at September 27, 2008. Vangent's firm contract backlog, which is the value of the base period plus all currently exercised options, was $518.1 million at September 27, 2008.

Vangent's contract performance with Centers for Medicare & Medicaid Services ("CMS") is at an all time high as preparation for the annual open enrollment period -- November 15th through December 31st -- is fully underway.

Mr. Curtis continued, "We gained solid momentum this quarter with important new business wins in each of our business segments. Beyond our success in the healthcare arena, we also won an important new contract with the Department of Education and made significant progress in our International business."

Liquidity, Cash Flow and Balance Sheet Information

Total debt decreased from $428.8 million at September 29, 2007 to $420.4 million at September 27, 2008.

Cash and cash equivalents were $18.1 million at September 27, 2008 compared to $15.0 million at September 29, 2007, an increase of $3.1 million or 21%. Vangent's total liquidity, which includes $49.6 million available under its revolving credit facility, was $67.7 million.

Q3 2008 Financial Results Conference Call: Will take place on Wednesday, November 12 at 11:00 am ET. Interested parties may call (888) 694-4702 and request the "Vangent Q3 2008 Financial Results Conference Call," conference ID # 71552401.

Audio Replay: A replay of the earnings call can be heard after 2 p.m. on November 12, 2008 until November 17, 2008. To hear the replay, dial (800) 642-1687 and enter the same conference ID # 7155240. For interested parties outside the U.S. and Canada, dial (706) 645-9291 and enter the same conference ID #.

Vangent's third quarter financials including the Management Discussion and Analysis will be made available on the company's website at www.vangent.com following the completion of the Vangent Q3 2008 Results Conference Call.

About Vangent, Inc.

With over 6,000 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, 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.

Financial Summary (unaudited)
(in millions)


                           Three Months Ended         Nine Months Ended
                        ------------------------  ------------------------
                         September    September    September    September
                            29,          27,          29,          27,
                            2007         2008         2007         2008
                        -----------  -----------  -----------  -----------

Revenue                 $     129.6  $     133.4  $     362.5  $     400.8

Net Loss                       (1.4)        (0.5)       (20.4)       (11.4)

Adjusted EBITDA                22.1         20.3         46.9         52.2



                                                   December     September
                                                      31,          27,
                                                      2007         2008
                                                  -----------  -----------

Cash and Cash Equivalents                         $      26.1  $      18.1

Long-Term Debt                                          428.2        420.4

Contract Backlog                                      1,769.9      1,630.1

Firm Contract Backlog                                   408.4        518.1

A reconciliation between certain non-GAAP financial measures and reported financial results is provided as an attachment to this press release. Revenue, Net Loss and Adjusted EBITDA for the nine months ended September 29, 2007 represents the mathematical addition of the Predecessor Entity for the period January 1 to February 14, 2007 and the Successor Entity for the period February 15, 2007 to September 29, 2007.

Vangent, Inc.  (formerly Pearson Government Solutions Business)
Condensed Consolidated Statements of Operations
(in thousands)
(unaudited)


                         Successor        Predecessor      Successor
                           Entity           Entity          Entity
                     --------------------  ---------  --------------------
                       Three      Three     Period     Period      Nine
                       Months     Months   January 1  February    Months
                       Ended      Ended        to       15 to      Ended
                     September  September  February   September  September
                        29,        27,        14,        29,        27,
                       2007       2008       2007       2007       2008
                     ---------  ---------  ---------  ---------  ---------

Revenue              $ 129,610  $ 133,391  $  58,833  $ 303,656  $ 400,800

Cost of revenue        103,983    106,470     48,187    254,096    329,570
                     ---------  ---------  ---------  ---------  ---------

Gross profit            25,627     26,921     10,646     49,560     71,230

General and
 administrative
 expenses               11,544     12,445      9,383     29,982     38,702

Selling and
 marketing expenses      4,190      3,757      1,940     11,039     11,963
                     ---------  ---------  ---------  ---------  ---------

Operating income
 (loss)                  9,893     10,719       (677)     8,539     20,565

Interest expense        10,091      8,719         34     24,651     26,895

Interest income           (360)      (185)       (44)      (561)      (634)
                     ---------  ---------  ---------  ---------  ---------

Income (loss) before
 income taxes              162      2,185       (667)   (15,551)    (5,696)

Provision (benefit)
 for income taxes        1,566      2,632       (292)     4,502      5,728
                     ---------  ---------  ---------  ---------  ---------

Net loss             $  (1,404) $    (447) $    (375) $ (20,053) $ (11,424)
                     =========  =========  =========  =========  =========





Vangent, Inc.  (formerly Pearson Government Solutions Business)
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)


                                                     December   September
                                                     31, 2007    27, 2008
                                                    ----------- -----------
Assets
Current assets:
  Cash and cash equivalents                         $    26,093 $    18,091
  Trade receivables, net                                112,292     111,718
  Other receivables and prepaid items                    15,470      14,958
                                                    ----------- -----------
Total current assets                                    153,855     144,767
Property and equipment, net                              27,579      30,023
Goodwill and intangible assets, net                     499,900     487,077
Deferred debt financing costs and other                  12,734      10,845
                                                    ----------- -----------
Total assets                                        $   694,068 $   672,712
                                                    =========== ===========

Liabilities and Stockholder's Equity
Current liabilities:
  Current portion of long-term debt                 $     7,325 $         -
  Accounts payable and accrued expenses                  63,248      59,888
  Accrued interest                                        8,547       3,395
  Other                                                   5,296       6,635
                                                    ----------- -----------
Total current liabilities                                84,416      69,918
Long-term debt, net of current portion                  420,875     420,366
Other liabilities                                         8,488      12,613
                                                    ----------- -----------
Total liabilities                                       513,779     502,897
Stockholder's equity                                    180,289     169,815
                                                    ----------- -----------
Total liabilities and stockholder's equity          $   694,068 $   672,712
                                                    =========== ===========





Vangent, Inc.  (formerly Pearson Government Solutions Business)
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)



                                          Predecessor      Successor
                                            Entity          Entity
                                           ---------  --------------------
                                            Period     Period      Nine
                                           January 1 February 15  Months
                                               to        to        Ended
                                           February   September  September
                                              14,        29,        27,
                                             2007       2007       2008
                                           ---------  ---------  ---------
Cash flows from operating activities
Net loss                                   $    (375) $ (20,053) $ (11,424)
Depreciation and amortization                  2,369     20,753     26,326
Equity-based compensation expense              1,477        475        839
Deferred income taxes                            (19)     3,749      4,889
Net change in operating assets and
 liabilities                                 (22,348)    11,069     (9,688)
                                           ---------  ---------  ---------
Net cash (used in) provided by operating
 activities                                  (18,896)    15,993     10,942
                                           ---------  ---------  ---------

Cash flows from investing activities
Acquisition, net of cash acquired                  -   (615,206)    (3,892)
Capital expenditures                          (3,727)    (4,412)    (6,796)
                                           ---------  ---------  ---------
Net cash used in investing activities         (3,727)  (619,618)   (10,688)
                                           ---------  ---------  ---------

Cash flows from financing activities
Proceeds from issuance of common stock             -    203,466          -
Proceeds from issuance of long-term debt           -    445,000          -
Repayment of long-term debt                        -    (16,200)    (7,834)
Debt financing costs                               -    (14,013)         -
Investment from parent and other              13,271       (131)      (205)
                                           ---------  ---------  ---------
Net cash provided by (used in) financing
 activities                                   13,271    618,122     (8,039)
Effect of exchange rate changes on cash
 and cash equivalents                           (166)       499       (217)
                                           ---------  ---------  ---------
Net (decrease) increase in cash and cash
 equivalents                                  (9,518)    14,996     (8,002)
Cash and cash equivalents, beginning of
 period                                       11,713          -     26,093
                                           ---------  ---------  ---------
Cash and cash equivalents, end of period   $   2,195  $  14,996  $  18,091
                                           =========  =========  =========





Vangent, Inc. (formerly Pearson Government Solutions Business)
Reconciliation of GAAP to Non-GAAP Measures
(in thousands)
(unaudited)



                                                                  Twelve
                      Three Months Ended     Nine Months Ended    Months
                     --------------------  --------------------    Ended
                     September  September  September  September  September
                        29,        27,        29,        27,        27,
                       2007       2008       2007       2008       2008
                     ---------  ---------  ---------  ---------  ---------
Net loss             $  (1,404) $    (447) $ (20,428) $ (11,424) $ (13,420)
Provision for income
 taxes                   1,566      2,632      4,210      5,728      7,723
Interest expense,
 net                     9,731      8,534     24,080     26,261     35,613
Depreciation and
 amortization            8,256      8,961     23,122     26,326     35,097
                     ---------  ---------  ---------  ---------  ---------
EBITDA                  18,149     19,680     30,984     46,891     65,013

Equity-based
 compensation
 expense                   475        248      1,952        839      1,273
TSA adjustment              94         21      1,244         57        141
Net transition and
 contract settlement
 costs                   3,131         66     11,896      3,493      9,096
Management fee             276        285        813        872        973
                     ---------  ---------  ---------  ---------  ---------
Adjusted EBITDA      $  22,125  $  20,300  $  46,889  $  52,152  $  76,496
                     =========  =========  =========  =========  =========

The net loss of $20.4 million for the nine months ended September 29, 2007, represents the mathematical addition of the net loss of $0.4 million for the Predecessor Entity for the period January 1 to February 14, 2007, and the net loss of $20.0 million for the Successor Entity for the period February 15 to September 29, 2007.

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.

Adjusted EBITDA is adjusted to exclude (i) equity-based compensation expense, (ii) non-recurring contract settlement costs, (iii) legal expenses payable by Pearson in connection with an investigation into a contract awarded to NCS Pearson, Inc. by the Transportation Security Administration (“TSA”) in 2002 and all potential reserves related to the potential settlement of such claim, and (iv) certain costs resulting from our separation from Pearson plc net of certain overhead and infrastructure costs.

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