Constellis FY16 Q1 Investor Deck FINAL
2016 Q1 Investor’s Call May 19, 2016
Constellis Proprietary Information
1
Introduction The following discussion and analysis of the Company’s financial condition and results of operations contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. We caution that assumptions, expectations, projections, intentions, or beliefs about future events may, and often do, vary from actual results and the differences can be material. In addition, the following discussion includes references to non-GAAP measures.
Constellis Proprietary Information
2
Agenda Executive Summary Financial Performance Operational Performance
Constellis – Consolidated Pro Forma Earnings Q1 2016 Pro Forma Earnings Results Liquidity Summary
Constellis – Business Updates Government Commercial
Questions Constellis Proprietary Information
3
Executive Summary Financial Performance • • • • • •
Financial results as presented for Q1 2016 are unaudited FY16 Q1 revenue was $7.8M (3.0%) below FY15 Q1, primarily due to headwinds in the Commercial business line offset by growth in our Government business unit from contracts such as WPS and FPS. FY16 Q1 profitability was impacted by the delays in contracts for Commercial, as well as one-time cost overruns from contract close-outs and retention bonuses required to maintain full manning on WPS task orders in Iraq. Though revenue was lower, year-over-year profitability and EBITDA were improved due to integration and costcutting initiatives originated in Q3 FY15 that continued in FY16. In spite of negative impacts in Q1, in 2016 Constellis is positioned for growth, driven by a stable contract base, recent new business wins and material new revenue opportunities. Reduced capital expenditures as compared to FY15 are on track in FY16 ($23.0M in FY 15 and projected $5.0M in FY16). • •
Positive developments with recently launched refurbished vehicle program will significantly reduce CAPEX in FY16. CAPEX spend supports contract wins in our Commercial business and Government optimizations.
Operational Performance • •
• •
Government: Significant new contract wins in FY15 Q4 & FY16 Q1 will provide growth in the coming year and beyond. Commercial: New contract awards have been secured but will not begin to be realized until 2nd half of 2016; bid and proposal volumes remain strong despite depressed oil & gas markets; significant activity in non-oil & gas customers is driving new awards. Next phase of business optimization planning is underway; significant cost-reduction and efficiency programs will yield additional material cost savings in FY16. Training operations are back to historical margin levels after management change-out and cost containment strategies have been implemented.
Constellis Proprietary Information
4
Consolidated Pro Forma Earnings - UNAUDITED
Constellis Proprietary Information
5
FY 2016 Q1 Financial Results Consolidated Pro Forma Earnings - UNAUDITED Q1 FY2015 Q1 FY2016 Actual Pro Forma
Variance $
•
%
Revenue: $184.8
$194.2
Commerical Total Revenue
59.0
41.9
(17.1)
(29.0%)
243.8
236.0
(7.8)
(3.2%)
169.3
174.7
$5.4
Gross Profit
74.5
61.3
(13.2)
(17.7%)
% Profit / (Loss)
30.6%
26.0%
22.8 21.5 8.9
17.6 13.6 16.3
(5.2) (7.9) 7.4
(22.9%)
21.4
13.9
(7.5)
(34.9%)
Cost of Revenue
Other Operating Expenses SG&A Depreciation & Amortization Operating Income / (Loss) % Income / (Loss)
Interest Income Interest Expense Income Tax Expense Other (Income) / Expense Net Income / (Loss) Non Controlling Interest
$9.4
5.1%
Government
3.2%
Low oil prices translate into continued downward pressure on commercial revenues, resulting in new projects being delayed or cancelled, and some existing projects de-scoping or demobilizing earlier than planned
•
SG&A shows a significant cost reduction due to efficiency initiatives implemented by new leadership in Q3/Q4 2015 and synergies realized from the Olive Group acquisition/integration
•
Depreciation and Amortization increased YoY primarily as a result of the company adopting the GAAP private company council accounting alternative to amortize goodwill
5.9%
(0.1) 5.7 3.7 (0.2)
0.0 12.8 1.2 (0.4)
12.1
0.3
(11.9)
0.0
0.1
0.1
190.4%
(0.1)
(0.2%)
•
Interest Expense increased YoY due to new capital structure implemented in May 2015
•
YoY Q1 EBITDA remained flat despite the decrease in revenue due to continued efforts to reduce and control cost spending
0.1 (128.6%) 123.8% 7.1 (2.6) (69.1%) 76.3% (0.2) (97.7%)
30.4
30.4 12.9%
7.9
9.4
1.5
18.9%
$ 38.3
$ 39.8
$1.5
3.8%
Constellis Proprietary Information
–
8.8%
12.5%
% AEBITDA
Government positive revenue variance is due to the ramp up of domestic security awards as well as WPS and DoD contract awards and uplifts
Gross Profit YoY Q1 negative variance is primarily due to reduction in commercial revenue as well as retention bonuses still required to sustain full manning on WPS TO’s in Iraq
83.0%
% EBITDA
Adjusted EBITDA
–
•
(36.8%)
EBITDA Total Adjustments
YoY Q1 negative revenue variance is primarily driven by earlier than expected commercial contract terminations, price reductions and delay of new contract awards
15.7%
16.9%
6
FY 2016 Q1 Financial Results Consolidated Balance Sheet - UNAUDITED: March 31, 2016 Unaudited ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable, net Inventory Prepaid expenses and other current Total current assets
$
LONG-TERM ASSETS: Property and equipment, net Intangible assets, net Goodwill Deposits and other long-term assets Total long-term assets TOTAL ASSETS
$
December 31, 2015 Audited
48.9 $ 265.2 9.1 45.2 368.5
46.6 279.9 8.7 47.3 382.4
104.9 99.1 256.1 18.4 478.5
109.0 103.2 263.2 15.1 490.5
847.1
$
872.9
March 31, 2016 Unaudited
December 31, 2015 Audited
LIABILITIES AND EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ Accrued compensation and benefits Deferred revenue Current portion of long-term debt Total current liabilities
144.3 33.3 9.9 0.2 187.7
LONG-TERM LIABILITIES: Long-term debt, net of current portion Other long-term liabilities Total long-term liabilities
583.3 23.9 607.1
625.7 23.0 648.7
52.2
51.8
EQUITY TOTAL LIABILITIES AND EQUITY
$
847.1
$
$
134.3 28.2 9.7 0.2 172.3
872.9
Assets •
Cash balance continues to be positively impacted by ongoing efforts to improve invoicing and collections
•
A/R decreased vs. prior quarter due to efforts to accelerate the billing process, reduced customer rejections, progress with legacy unbilled items, and improved DSOs on current billings
•
Changes in Non-Current Assets primarily represent increases in accumulated depreciation of PPE and the continued amortization of Intangibles and Goodwill
Liabilities & Equity •
Focus on increasing DPO to reflect pay-when-paid terms for vendors in order to improve timing of cash flows
•
Decrease in long-term debt resulting from pay down of the ABL facility in Q1 FY16
Constellis Proprietary Information
7
Liquidity as of 3/31/2016
Cash & Cash Equivalents ABL Availability Total Liquidity
March 31, December 31, 2016 2015 Unaudited Audited $ 48.9 $ 46.6 44.2 1.7 $
93.1 $
48.3
•
FY16 Q1 liquidity increased 93% over prior quarter, and is on track for >$100M liquidity by year end
•
Billed accounts receivable showed a 17% reduction over FY15 resulting from faster processing of invoices and improved collection efforts
•
Efforts to invoice and collect unbilled balances continues
•
Ongoing integration, synergies and operational improvement initiatives are positively impacting 2016 cash flow
•
DBA payments will continue to require monitoring; however, rapid collection practices have been implemented across Constellis to ensure quick return of cash
•
Business has sufficient liquidity to fund our ongoing business needs as well as future growth requirements
•
Tax refund of $14.8M (includes interest) was received on May 13; therefore, Q1 liquidity results achieved without the benefit of the expected tax refund
Constellis Proprietary Information
8
Business Updates
Constellis Proprietary Information
9
Business Update – Government Key Wins • • • • • •
Total value of contracts awarded in Q1: ~$100M Mission Support: Camp Seitz Medical Facility (DoS) UAS: Insitu Site Subsystem Requirements and Sustainment International Security: PSS Kabul International Airport & FOB – Oqab (DoD) National Security: Silent Eagle – received extension Training: Various commercial & USG awards
Key Opportunities • •
WPS2-Jerusalem (currently TO2) and WPS2-Baghdad (currently TO5) have been released; proposals will be submitted over the next 60 days on these recompetes. Federal Protective Services – multiple proposals under final review by customer > $225M of potential value
Business Environment • • •
Contracting volumes on new and existing government platforms remains strong Some delays on new platforms but RFPs continue to be released as expected Positive trends from DoD and DoS in our core geographies, including new contract vehicles that will support our future growth
Constellis Proprietary Information
10
Business Update – Commercial Key wins in Q1 •
Business awarded YTD totals $105M, which is in line with budget –
•
This includes wins from blue-chip oil and gas, infrastructure clients, and FMS primes: the split between Protective Services and Risk management is $56M / $49M
Current orderbook of $206M which represents revenue from contracts in place and extensions to existing customers & contracts
Key Opportunities •
YTD 217 bids have been submitted with a total value of $267M
•
We have award decisions pending on $489M of bids which are currently in post submittal phase
•
We have been awarded 2 new Master Service Agreements with 2 IOCs allowing them to call off services from us in multiple countries directly without need for tender processes. We have 3 more similar agreements in negotiation. The scale of the combined Constellis Group is allowing multinational companies to see us as a go to provider in multiple countries in a way which was not possible before.
•
We are tracking a significantly increased level of opportunity supporting outbound investment from China
•
We have had success and see more opportunities to support foreign governments directly, especially outside the O&G sector – a very positive trend that will drive growth
•
We have continued to develop commercial partnerships to enable us to do business in new markets
Business Environment •
Low oil prices are continuing to affect the commercial sector, resulting in early de-scoping and/or demobilizing of some projects, which in turn is affecting our revenue
•
Very large opportunities remain in Iraq, although a dispute between the Government of Iraq and large IOCs has resulted in project slowdowns. We see growing opportunities in Afghanistan and other countries in the Middle East
•
We are seeing an increase in some government aid budgets; as an example have just won a contract to support UK Aid efforts in 23 African countries
•
Clients continue to seek more efficient solutions, but continue to be drawn into evaluating new markets and so we have seen a significant increase in new clients seeking risk management advisory services (27 new clients YTD). Typically these will to lead to opportunities to deliver higher value security solutions. Constellis Proprietary Information
11
Integration & Follow–on Optimization “Optimization 2.0” •
Optimization 2.0 has been launched (and largely completed as of May 1st); this is the global integration phase which has been run across both Government and Commercial parts of Constellis simultaneously. The aim has been both to reduce cost and to increase the effectiveness of the company. During a 60 day process, we have identified & executed efficiencies in the following areas: –
Operational in-country basing
–
Operational in-country staffing and management
–
Overhead management structures
–
Financial support
–
Legal support
–
Partners
–
Global staffing, procurement & supply
•
Structural reviews of all operational teams have resulted in consolidated country management teams in common locations for Iraq and Afghanistan among other material changes to the organization
•
Total identified savings from optimization is now in excess of $22M (annualized) of which $13M was not previously budgeted
•
Optimization 2.0 will result in material profitability enhancement in remaining quarters of 2016 and beyond
Constellis Proprietary Information
12
Questions
Constellis Proprietary Information
13
Constellis Proprietary Information
1
Introduction The following discussion and analysis of the Company’s financial condition and results of operations contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. We caution that assumptions, expectations, projections, intentions, or beliefs about future events may, and often do, vary from actual results and the differences can be material. In addition, the following discussion includes references to non-GAAP measures.
Constellis Proprietary Information
2
Agenda Executive Summary Financial Performance Operational Performance
Constellis – Consolidated Pro Forma Earnings Q1 2016 Pro Forma Earnings Results Liquidity Summary
Constellis – Business Updates Government Commercial
Questions Constellis Proprietary Information
3
Executive Summary Financial Performance • • • • • •
Financial results as presented for Q1 2016 are unaudited FY16 Q1 revenue was $7.8M (3.0%) below FY15 Q1, primarily due to headwinds in the Commercial business line offset by growth in our Government business unit from contracts such as WPS and FPS. FY16 Q1 profitability was impacted by the delays in contracts for Commercial, as well as one-time cost overruns from contract close-outs and retention bonuses required to maintain full manning on WPS task orders in Iraq. Though revenue was lower, year-over-year profitability and EBITDA were improved due to integration and costcutting initiatives originated in Q3 FY15 that continued in FY16. In spite of negative impacts in Q1, in 2016 Constellis is positioned for growth, driven by a stable contract base, recent new business wins and material new revenue opportunities. Reduced capital expenditures as compared to FY15 are on track in FY16 ($23.0M in FY 15 and projected $5.0M in FY16). • •
Positive developments with recently launched refurbished vehicle program will significantly reduce CAPEX in FY16. CAPEX spend supports contract wins in our Commercial business and Government optimizations.
Operational Performance • •
• •
Government: Significant new contract wins in FY15 Q4 & FY16 Q1 will provide growth in the coming year and beyond. Commercial: New contract awards have been secured but will not begin to be realized until 2nd half of 2016; bid and proposal volumes remain strong despite depressed oil & gas markets; significant activity in non-oil & gas customers is driving new awards. Next phase of business optimization planning is underway; significant cost-reduction and efficiency programs will yield additional material cost savings in FY16. Training operations are back to historical margin levels after management change-out and cost containment strategies have been implemented.
Constellis Proprietary Information
4
Consolidated Pro Forma Earnings - UNAUDITED
Constellis Proprietary Information
5
FY 2016 Q1 Financial Results Consolidated Pro Forma Earnings - UNAUDITED Q1 FY2015 Q1 FY2016 Actual Pro Forma
Variance $
•
%
Revenue: $184.8
$194.2
Commerical Total Revenue
59.0
41.9
(17.1)
(29.0%)
243.8
236.0
(7.8)
(3.2%)
169.3
174.7
$5.4
Gross Profit
74.5
61.3
(13.2)
(17.7%)
% Profit / (Loss)
30.6%
26.0%
22.8 21.5 8.9
17.6 13.6 16.3
(5.2) (7.9) 7.4
(22.9%)
21.4
13.9
(7.5)
(34.9%)
Cost of Revenue
Other Operating Expenses SG&A Depreciation & Amortization Operating Income / (Loss) % Income / (Loss)
Interest Income Interest Expense Income Tax Expense Other (Income) / Expense Net Income / (Loss) Non Controlling Interest
$9.4
5.1%
Government
3.2%
Low oil prices translate into continued downward pressure on commercial revenues, resulting in new projects being delayed or cancelled, and some existing projects de-scoping or demobilizing earlier than planned
•
SG&A shows a significant cost reduction due to efficiency initiatives implemented by new leadership in Q3/Q4 2015 and synergies realized from the Olive Group acquisition/integration
•
Depreciation and Amortization increased YoY primarily as a result of the company adopting the GAAP private company council accounting alternative to amortize goodwill
5.9%
(0.1) 5.7 3.7 (0.2)
0.0 12.8 1.2 (0.4)
12.1
0.3
(11.9)
0.0
0.1
0.1
190.4%
(0.1)
(0.2%)
•
Interest Expense increased YoY due to new capital structure implemented in May 2015
•
YoY Q1 EBITDA remained flat despite the decrease in revenue due to continued efforts to reduce and control cost spending
0.1 (128.6%) 123.8% 7.1 (2.6) (69.1%) 76.3% (0.2) (97.7%)
30.4
30.4 12.9%
7.9
9.4
1.5
18.9%
$ 38.3
$ 39.8
$1.5
3.8%
Constellis Proprietary Information
–
8.8%
12.5%
% AEBITDA
Government positive revenue variance is due to the ramp up of domestic security awards as well as WPS and DoD contract awards and uplifts
Gross Profit YoY Q1 negative variance is primarily due to reduction in commercial revenue as well as retention bonuses still required to sustain full manning on WPS TO’s in Iraq
83.0%
% EBITDA
Adjusted EBITDA
–
•
(36.8%)
EBITDA Total Adjustments
YoY Q1 negative revenue variance is primarily driven by earlier than expected commercial contract terminations, price reductions and delay of new contract awards
15.7%
16.9%
6
FY 2016 Q1 Financial Results Consolidated Balance Sheet - UNAUDITED: March 31, 2016 Unaudited ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable, net Inventory Prepaid expenses and other current Total current assets
$
LONG-TERM ASSETS: Property and equipment, net Intangible assets, net Goodwill Deposits and other long-term assets Total long-term assets TOTAL ASSETS
$
December 31, 2015 Audited
48.9 $ 265.2 9.1 45.2 368.5
46.6 279.9 8.7 47.3 382.4
104.9 99.1 256.1 18.4 478.5
109.0 103.2 263.2 15.1 490.5
847.1
$
872.9
March 31, 2016 Unaudited
December 31, 2015 Audited
LIABILITIES AND EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ Accrued compensation and benefits Deferred revenue Current portion of long-term debt Total current liabilities
144.3 33.3 9.9 0.2 187.7
LONG-TERM LIABILITIES: Long-term debt, net of current portion Other long-term liabilities Total long-term liabilities
583.3 23.9 607.1
625.7 23.0 648.7
52.2
51.8
EQUITY TOTAL LIABILITIES AND EQUITY
$
847.1
$
$
134.3 28.2 9.7 0.2 172.3
872.9
Assets •
Cash balance continues to be positively impacted by ongoing efforts to improve invoicing and collections
•
A/R decreased vs. prior quarter due to efforts to accelerate the billing process, reduced customer rejections, progress with legacy unbilled items, and improved DSOs on current billings
•
Changes in Non-Current Assets primarily represent increases in accumulated depreciation of PPE and the continued amortization of Intangibles and Goodwill
Liabilities & Equity •
Focus on increasing DPO to reflect pay-when-paid terms for vendors in order to improve timing of cash flows
•
Decrease in long-term debt resulting from pay down of the ABL facility in Q1 FY16
Constellis Proprietary Information
7
Liquidity as of 3/31/2016
Cash & Cash Equivalents ABL Availability Total Liquidity
March 31, December 31, 2016 2015 Unaudited Audited $ 48.9 $ 46.6 44.2 1.7 $
93.1 $
48.3
•
FY16 Q1 liquidity increased 93% over prior quarter, and is on track for >$100M liquidity by year end
•
Billed accounts receivable showed a 17% reduction over FY15 resulting from faster processing of invoices and improved collection efforts
•
Efforts to invoice and collect unbilled balances continues
•
Ongoing integration, synergies and operational improvement initiatives are positively impacting 2016 cash flow
•
DBA payments will continue to require monitoring; however, rapid collection practices have been implemented across Constellis to ensure quick return of cash
•
Business has sufficient liquidity to fund our ongoing business needs as well as future growth requirements
•
Tax refund of $14.8M (includes interest) was received on May 13; therefore, Q1 liquidity results achieved without the benefit of the expected tax refund
Constellis Proprietary Information
8
Business Updates
Constellis Proprietary Information
9
Business Update – Government Key Wins • • • • • •
Total value of contracts awarded in Q1: ~$100M Mission Support: Camp Seitz Medical Facility (DoS) UAS: Insitu Site Subsystem Requirements and Sustainment International Security: PSS Kabul International Airport & FOB – Oqab (DoD) National Security: Silent Eagle – received extension Training: Various commercial & USG awards
Key Opportunities • •
WPS2-Jerusalem (currently TO2) and WPS2-Baghdad (currently TO5) have been released; proposals will be submitted over the next 60 days on these recompetes. Federal Protective Services – multiple proposals under final review by customer > $225M of potential value
Business Environment • • •
Contracting volumes on new and existing government platforms remains strong Some delays on new platforms but RFPs continue to be released as expected Positive trends from DoD and DoS in our core geographies, including new contract vehicles that will support our future growth
Constellis Proprietary Information
10
Business Update – Commercial Key wins in Q1 •
Business awarded YTD totals $105M, which is in line with budget –
•
This includes wins from blue-chip oil and gas, infrastructure clients, and FMS primes: the split between Protective Services and Risk management is $56M / $49M
Current orderbook of $206M which represents revenue from contracts in place and extensions to existing customers & contracts
Key Opportunities •
YTD 217 bids have been submitted with a total value of $267M
•
We have award decisions pending on $489M of bids which are currently in post submittal phase
•
We have been awarded 2 new Master Service Agreements with 2 IOCs allowing them to call off services from us in multiple countries directly without need for tender processes. We have 3 more similar agreements in negotiation. The scale of the combined Constellis Group is allowing multinational companies to see us as a go to provider in multiple countries in a way which was not possible before.
•
We are tracking a significantly increased level of opportunity supporting outbound investment from China
•
We have had success and see more opportunities to support foreign governments directly, especially outside the O&G sector – a very positive trend that will drive growth
•
We have continued to develop commercial partnerships to enable us to do business in new markets
Business Environment •
Low oil prices are continuing to affect the commercial sector, resulting in early de-scoping and/or demobilizing of some projects, which in turn is affecting our revenue
•
Very large opportunities remain in Iraq, although a dispute between the Government of Iraq and large IOCs has resulted in project slowdowns. We see growing opportunities in Afghanistan and other countries in the Middle East
•
We are seeing an increase in some government aid budgets; as an example have just won a contract to support UK Aid efforts in 23 African countries
•
Clients continue to seek more efficient solutions, but continue to be drawn into evaluating new markets and so we have seen a significant increase in new clients seeking risk management advisory services (27 new clients YTD). Typically these will to lead to opportunities to deliver higher value security solutions. Constellis Proprietary Information
11
Integration & Follow–on Optimization “Optimization 2.0” •
Optimization 2.0 has been launched (and largely completed as of May 1st); this is the global integration phase which has been run across both Government and Commercial parts of Constellis simultaneously. The aim has been both to reduce cost and to increase the effectiveness of the company. During a 60 day process, we have identified & executed efficiencies in the following areas: –
Operational in-country basing
–
Operational in-country staffing and management
–
Overhead management structures
–
Financial support
–
Legal support
–
Partners
–
Global staffing, procurement & supply
•
Structural reviews of all operational teams have resulted in consolidated country management teams in common locations for Iraq and Afghanistan among other material changes to the organization
•
Total identified savings from optimization is now in excess of $22M (annualized) of which $13M was not previously budgeted
•
Optimization 2.0 will result in material profitability enhancement in remaining quarters of 2016 and beyond
Constellis Proprietary Information
12
Questions
Constellis Proprietary Information
13
