SOURCE: Vangent

Vangent

November 16, 2010 10:09 ET

Vangent, Inc. Announces Third Quarter 2010 Financial Results

ARLINGTON, VA--(Marketwire - November 16, 2010) -


--  Third Quarter Revenue Increased 23% Over Third Quarter 2009 to $176.4
    Million

--  Operating Income Grew 90% to $13.8 Million and Adjusted EBITDA Grew 45%
    to $22.7 Million in Third Quarter 2010

--  Closed Acquisition of Buccaneer Computer Systems and Service, Inc.

--  Completed Sale of Mexico and Argentina Businesses

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

Quarter-to-Quarter Comparison

Vangent reported revenue from continuing operations of $176.4 million for the quarter ended October 2, 2010, an increase of $32.9 million or 23% compared to $143.5 million in the year ago period.

The increase in total revenue from continuing operations reflects a $32.8 million or 26% increase in revenue from the Government Group, primarily attributable to $33.2 million in revenue from Vangent's 2010 U.S. Census contract.

Also contributing to higher revenue in the three months ended October 2, 2010 was a $1.7 million increase in International Group revenue primarily driven by the start-up of a new contract in the United Kingdom and the favorable impact of foreign currency exchange rates.

Offsetting the increase in Government and International Group revenue was a $2.3 million decline in Human Capital Group revenue for the quarter ended October 2, 2010 compared to the year ago period. The decline in revenue is due to the completion of work on the contract with the U.S. Air Force to modernize the learning infrastructure of the Royal Saudi Air Force.

Operating income increased 90% to $13.8 million for the quarter ended October 2, 2010 compared to $7.3 million for the quarter ended September 26, 2009. The increase in operating income was primarily due to an increase in revenues related to Vangent's U.S. Census contract.

Vangent reported net income of $4.0 million for the three months ended October 2, 2010 compared to a net loss of $5.3 million in the prior year quarter. Adjusted EBITDA increased $7.1 million to $22.7 million for the third quarter of 2010, compared to $15.7 million for the prior year quarter. The increase in Adjusted EBITDA was primarily attributable to the increase in Government Group operating income.

Contract Awards and Backlog

Vangent booked more than $91 million in new awards in the third quarter of 2010. Highlights included:

--  Office of the National Coordinator for Health Information
    Technology/Federal Health Architecture Program Management Office --
    $15.6 million contract to continue supporting the Office of the
    National Coordinator and the Federal Health Architecture with program
    management and health IT management consulting capabilities.

--  U.S. Department of Health and Human Services/Food and Drug
    Administration -- Through Vangent's acquisition of Buccaneer, won $15.1
    million contract to continue supporting the White Oak Data Center.

--  U.S. Department of Defense/Military Health System

     --  TRICARE -- $7 million contract to continue developing applications
         for the TRICARE Management Activity E-Commerce Operational System
         Support.

     --  Defense Health Information Management System -- $4.2 million
         contract to continue developing the electronic health record for
         the Traumatic Brain Injury and Behavioral Health program.

     --  Defense Health Services Systems -- $3.7 million to develop and
         sustain a Patient Movement Item Tracking System to track and keep
         inventory of critical medical equipment supporting the movement of
         military patients.

--  U.S. Department of Health and Human Services/Indian Health Service --
    $3.3 million contract to deploy the Nationwide Health Information
    Network (NHIN) to Indian Health Service facilities across the country.

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 $2.0 billion at October 2, 2010. Vangent's funded backlog, the portion for which funding has been authorized, totaled $570.1 million at October 2, 2010.

"We had a solid quarter with year over growth in revenue and Adjusted EBITDA, driven primarily by our successful performance on the 2010 U.S. Census," said Mac Curtis, President and CEO of Vangent. "Our acquisition of Buccaneer Computer Systems and Service has gone very well and we are extremely pleased with the integration of the business. We are strategically leveraging Buccaneer's IT infrastructure and data analytics capabilities to further strengthen our ability to serve our government customers. As we look ahead to the fourth quarter, we are excited for the opportunities ahead and believe we are well positioned to drive continued organic growth from our core customer base and adjacent opportunities in the civilian sector."

Buccaneer Transaction

On September 15, 2010, Vangent completed the purchase of Buccaneer, a leading provider of IT services, infrastructure, secure data hosting and data analytics for the government market. The financial position and results of operations of Buccaneer for the period September 15 to October 2, 2010, are included in the consolidated statements of operations and cash flows for the periods ended October 2, 2010.

Liquidity, Cash Flow and Balance Sheet Information

Total debt at October 2, 2010 was $422.8 million which includes $16 million in borrowings on the credit facility for the acquisition of Buccaneer. Cash and cash equivalents were $22.6 million. Net cash provided by operating activities for continuing operations was $48.9 million for the nine months ended October 2, 2010, an increase of $21.6 million compared to the prior year period primarily due to cash flows from the 2010 U.S. Census contract. Vangent's total liquidity, which includes $33.5 million available under its revolving credit facility, was $56.6 million.

Discontinued Operations

As previously reported, in the fourth quarter of 2009, Vangent completed an evaluation of its international business and committed to a plan to sell its business operations in Latin America. The consolidated financial statements have been revised for all periods presented to report Vangent's Latin American business as discontinued operations.

In the third quarter ended October 2, 2010, Vangent completed the sale of its operations in Argentina. On October 31, 2010, Vangent completed the sale of its operations in Mexico.

Q3 2010 Financial Results Conference Call

The conference call will take place on November 16, 2010 at 11:00 am ET. Interested parties may call (888) 572-7028 and request the "Vangent Third Quarter 2010 Financial Results Conference Call," conference ID # 3874902.

Audio Replay

A replay of the earnings call can be heard after 2:00 p.m. on November 16, 2010 until November 30, 2010. To hear the replay, dial (888) 203-1112 and enter the same conference ID # 3874902.

Vangent's third 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 Q3 2010 Financial Results Conference Call.

About Vangent, Inc.

With more than 8,500 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, Labor and Veterans Affairs; U.S. Census Bureau and the U.S. Office of Personnel Management, 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     Nine Months Ended
                                --------------------  --------------------
                                 October   September   October   September
                                    2,        26,         2,        26,
                                  2010       2009       2010       2009
                                ---------  ---------  ---------  ---------
Revenue                         $ 176,406  $ 143,454  $ 585,449  $ 411,442
Cost of revenue                   146,678    121,132    487,363    344,415
                                ---------  ---------  ---------  ---------
Gross profit                       29,728     22,322     98,086     67,027
General and administrative
 expenses                          11,208     10,275     34,892     29,513
Selling and marketing expenses      4,762      4,790     15,884     13,319
                                ---------  ---------  ---------  ---------
Operating income                   13,758      7,257     47,310     24,195
Interest expense and other, net     7,703      8,502     23,301     25,386
                                ---------  ---------  ---------  ---------
Income (loss) from continuing
 operations
 before income taxes                6,055     (1,245)    24,009     (1,191)
Provision for income taxes          1,913      1,629      5,598      5,067
                                ---------  ---------  ---------  ---------
Income (loss) from continuing
 operations                         4,142     (2,874)    18,411     (6,258)
Income (loss) from discontinued
 operations, net of tax              (171)    (2,393)   (16,956)    (4,157)
                                ---------  ---------  ---------  ---------
Net income (loss)                   3,971     (5,267)     1,455    (10,415)
Less: Net income attributed to
 noncontrolling interest                9          -          9          -
                                ---------  ---------  ---------  ---------
Net income (loss) attributable
 to Vangent                     $   3,962  $  (5,267) $   1,446  $ (10,415)
                                =========  =========  =========  =========

Statements of Operations Data
 as a Percent of Revenue
Revenue                             100.0%     100.0      100.0%     100.0
Cost of revenue                      83.1       84.4       83.2       83.7
                                ---------  ---------  ---------  ---------
Gross profit margin                  16.9       15.6       16.8       16.3
General and administrative
 expenses                             6.4        7.2        6.0        7.2
Selling and marketing expenses        2.8        3.3        2.7        3.2
                                ---------  ---------  ---------  ---------
Operating income margin               7.8        5.1        8.1        5.9
Interest expense and other, net       4.4        5.9        4.0        6.2
                                ---------  ---------  ---------  ---------
Income (loss) before income
 taxes                                3.4       (0.9)       4.1       (0.3)
Provision for income taxes            1.1        1.1        1.0        1.2
                                ---------  ---------  ---------  ---------
Income (loss) from continuing
 operations                           2.3       (2.0)       3.1       (1.5)
Income (loss) from discontinued
 operations, net of tax              (0.1)      (1.7)      (2.9)      (1.0)
                                ---------  ---------  ---------  ---------
Net income (loss)                     2.3       (3.7)       0.2       (2.5)
Less: Net income attributed to
 noncontrolling interest                -          -          -          -
                                ---------  ---------  ---------  ---------
Net income (loss) attributed to
 Vangent                              2.3%      (3.7)       0.2%      (2.5)
                                =========  =========  =========  =========






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

                                                 October 2,   December 31,
                                                    2010          2009
                                                ------------- -------------
Assets
Current assets:
  Cash and cash equivalents                     $      22,568 $      44,638
  Trade receivables, net                              124,858       109,846
  Prepaid expenses and other assets                    13,669        10,353
  Assets of discontinued operations                     7,794        15,036
                                                ------------- -------------
    Total current assets                              168,889       179,873

Property and equipment, net                            29,126        25,124
Intangible assets, net                                161,551       151,860
Goodwill                                              299,056       268,212
Deferred debt financing costs and other                 9,316         8,433
Assets of discontinued operations                           -         6,727
                                                ------------- -------------
  Total assets                                  $     667,938 $     640,229
                                                ============= =============

Liabilities and Stockholder's Equity
Current liabilities:
  Short-term borrowing and current portion of
   long-term debt                               $      16,000 $      13,534
  Accounts payable and accrued liabilities             79,348        64,849
  Accrued interest payable                              3,327         8,186
  Deferred tax liability                                4,180         5,628
  Deferred revenue                                      9,157         3,976
  Liabilities of discontinued operations                5,224         7,521
                                                ------------- -------------
    Total current liabilities                         117,236       103,694

Long-term debt, net of current portion                406,754       406,832
Other long-term liabilities                             7,185         7,194
Deferred tax liability                                 18,297        12,144
Liabilities of discontinued operations                  1,343           502
                                                ------------- -------------
    Total liabilities                                 550,815       530,366
                                                ------------- -------------

Total stockholder's equity                            117,123       109,863
                                                ------------- -------------
    Total liabilities and stockholder's equity  $     667,938 $     640,229
                                                ============= =============






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

                                                    Nine Months Ended
                                                --------------------------
                                                   October      September
                                                      2,           26,
                                                    2010          2009
                                                ------------  ------------
Cash flows from operating activities
Net income (loss)                               $      1,455  $    (10,415)
Less: Loss from discontinued operations, net
 of tax                                              (16,956)       (4,157)
                                                ------------  ------------
Income (loss) from continuing operations              18,411        (6,258)
Depreciation and amortization                         24,703        23,832
Deferred taxes and other non-cash charges              6,533         6,908
Net changes in operating assets and
 liabilities:
    Trade receivables                                  3,883         9,480
    Prepaid expenses and other assets                 (1,250)         (693)
    Accounts payable and other liabilities            (3,358)       (5,898)
                                                ------------  ------------
Continuing operations, net                            48,922        27,371
Discontinued operations, net                          (1,180)       (4,335)
                                                ------------  ------------
Net cash provided by operating activities             47,742        23,036
                                                ------------  ------------

Cash flows from investing activities
Acquisition, net of cash acquired, continuing
 operations                                          (59,102)            -
Capital expenditures, continuing operations           (9,377)       (8,453)
Discontinued operations, net                          (2,729)       (3,740)
                                                ------------  ------------
Net cash used in investing activities                (71,208)      (12,193)
                                                ------------  ------------

Cash flows from financing activities
Borrowing under revolving credit facility             16,000             -
Repayment of senior secured term loan                (13,612)            -
Other                                                 (2,011)         (264)
                                                ------------  ------------
Net cash used in financing activities,
 continuing operations                                   377          (264)
Effect of exchange rate changes on cash and
 cash equivalents                                         73           365
                                                ------------  ------------
Net increase (decrease) in cash and cash
 equivalents                                         (23,016)       10,944
Total cash and cash equivalents, beginning of
 period                                               45,584        21,134
                                                ------------  ------------
Total cash and cash equivalents, end of period        22,568        32,078
Less: Cash and cash equivalents, discontinued
 operations                                                -         2,451
                                                ------------  ------------
Cash and cash equivalents, continuing
 operations                                     $     22,568  $     29,627
                                                ============  ============






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

                       Three Months      Nine Months       Twelve Months
                          Ended             Ended             Ended
                     ---------------- ----------------- ------------------
                     October Septem-  October Septemb-  October   Septemb-
                       2,    ber 26,    2,     er 26,      2,      er 26,
                      2010     2009    2010     2009      2010      2009
                     ------- -------  ------- --------  --------  --------
Net income (loss)
 attributed to
 Vangent             $ 3,962 $(5,267) $ 1,446 $(10,415) $(22,146) $(25,498)
Provision for income
 taxes                 1,913   1,629    5,598    5,067     7,325     4,504
Interest expense,
 net of interest
 income                7,630   8,502   23,361   25,386    32,310    34,359
Depreciation and
 amortization          8,262   7,691   24,703   23,832    32,732    31,952
                     ------- -------  ------- --------  --------  --------
EBITDA                21,767  12,555   55,108   43,870    50,221    45,317
Loss from
 discontinued
 operations, net of
 tax                     171   2,393   16,956    4,157    29,592     6,842
Impairment charges
 for goodwill and
 intangibles               -       -        -        -    11,227    13,766
Equity-based
 compensation
 expense                 253     265      751      775     1,023       988
Management fee           419     316      980      974     1,295     1,266
Other                     47     129        4      894       (79)    2,391
                     ------- -------  ------- --------  --------  --------
Adjusted EBITDA,
 excluding pro
 forma results of
 acquisition          22,657  15,658   73,799   50,670    93,279    70,570
Pro forma
 pre-acquisition
 Buccaneer results       687   1,457    5,535    2,346     8,897     2,980
                     ------- -------  ------- --------  --------  --------
Adjusted EBITDA,
 including pro
 forma results of
 acquisition         $23,344 $17,115  $79,334 $ 53,016  $102,176  $ 73,550
                     ======= =======  ======= ========  ========  ========


(a) EBITDA is defined as net income (loss) attributable to Vangent 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 ("Credit
    Agreement"). Adjusted EBITDA, as defined in the Credit Agreement,
    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 (v) other
    items included in the debt agreement, including an adjustment which
    includes the EBITDA results of the acquired company for a full trailing
    twelve months.

(c) The EBITDA results reported for pro forma Buccaneer represent periods
    prior to the acquisition date.

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