Constellis FY16 Q2 Investor Deck
2016 Q2 Investor’s Call August 17, 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 Q2 2016 Pro Forma Earnings Results Liquidity Summary
Constellis – Business Updates Government Commercial
Questions Constellis Proprietary Information
3
Executive Summary Financial Performance • Financial results presented for the six months ended June 30, 2016 are unaudited • Six months ended June 30, 2016 revenue was $475 million, which was 4.8% below the six months ended June 30, 2015, due to headwinds in the Commercial business line offset by growth in the Company’s Government business unit • Six months ended June 30, 2016 Adj. EBITDA was $79.8 million, representing an 11.4% increase compared to the six months ended June 30, 2015, due to synergies derived from the Olive Group acquisition and management cost cutting efforts
• Constellis is positioned for growth, driven by a stable and diversified base of 175 contracts, recent new business wins and material new revenue opportunities • Reduced capital expenditures as compared to FY15 are still on track in FY16 as Constellis is seeing significant YoY CapEx reductions largely due to success with the refurbished vehicle program ─ Six months ended June 30, 2015 CapEx of $13.0 million vs $1.7 million for six months ended June 30, 2016
Operational Performance • Government: Significant contract wins in FY15 Q4 and FY16 will provide growth in coming year and beyond • Commercial: Additional contract awards have been secured in FY16 Q2, but will not begin to be realized until 2nd half of 2016; bid and proposal volumes remain strong despite depressed oil & gas markets; significant new business with non-oil & gas customers (over 25 new customers in FY16) is driving new awards • Optimization 2.0 launched at the beginning of FY16 has been completed and the Company is on track to achieve $22.0 million of annualized cost savings • Results from training operations are exceeding historical margin levels after management change-out and cost containment strategies have successfully been implemented Constellis Proprietary Information
4
Consolidated Pro Forma Earnings - UNAUDITED
Constellis Proprietary Information
5
FY 2016 Q2 Financial Results Consolidated Pro Forma Earnings - UNAUDITED Q2 FY2015 Q2 FY2016 Actual Pro Forma
Variance $
•
Government revenue higher compared to Q2 15 due to contract starts, WPS uplifts, national security ramp ups, infrastructure awards, and procurement projects
•
Commercial revenue decrease is primarily driven unexpected contract de-scoping and delay of new contract awards
•
Gross Profit decreased due to contract terminations and price reductions; offset by higher Government Gross Profit due to the above mentioned revenue increases, direct project synergies, and extensions / uplifts at higher rates
•
Reduction in Other Operating Expenses due to synergies related to the management of overhead
•
SG&A lower compared to Q2 FY15 due to the effect of efficiency initiatives implemented by new leadership in Q3 / Q4 of FY15
•
Depreciation & Amortization higher in Q2 FY16 due to private company election of intangibles and goodwill
•
Interest Expense in Q2 FY16 higher due to bond interest (acquisition of OG)
•
Income tax expense is preliminary and will be reviewed and adjusted quarterly
•
Q2 FY16 EBITDA increased due to the synergies derived from acquisitions and management efforts to reduce overhead costs
%
Revenue: $197.4
$204.4
Commerical Total Revenue
57.9
34.5
(23.4)
(40.4%)
255.3
238.9
(16.4)
(6.4%)
184.4
177.2 $ (7.2)
(3.9%)
Cost of Revenue
(9.2)
(13.0%)
19.4 10.3 15.2
(5.7) (8.6) 5.8
(22.6%)
16.7
(.8)
(4.5%)
Gross Profit
70.9
61.7
% Profit / (Loss)
27.8%
25.8%
25.1 18.9 9.5 17.5
Other Operating Expenses SG&A Depreciation & Amortization Operating Income / (Loss) % Income / (Loss)
$7.0
3.5%
Government
(45.3%) 60.8%
6.8%
7.0%
10.6 7.1 4.0 (0.3)
13.1 1.0 (0.4)
2.5 (7.1) (3.0) (0.2)
(3.9)
3.1
7.0
0.0
0.1
0.1 12,494.2%
EBITDA
27.2
32.0
% EBITDA
10.7%
13.4%
7.5 $ 34.7
Interest Expense Loss on Extinguishment of Debt Income Tax Expense Other (Income) / Expense Net Income / (Loss) Non Controlling Interest
Total Adjustments Adjusted EBITDA % AEBITDA
Constellis Proprietary Information
13.6%
23.6% (100.0%) (75.5%) 54.6% (178.5%)
4.8
17.6%
7.5
.0
0.6%
$ 39.5
$4.8
13.9%
16.5%
6
FY 2016 June YTD Financial Results Consolidated Pro Forma Earnings - UNAUDITED June 2015 June 2016 YTD YTD Pro Forma
Actual
$
$392.6
$399.2
Commerical Total Revenue
106.5
75.7
(30.8)
(28.9%)
499.1
474.9
(24.2)
(4.8%)
354.7
352.4 $ (2.2)
(0.6%)
144.5
122.5
% Profit / (Loss)
Other Operating Expenses SG&A Depreciation & Amortization Operating Income / (Loss) % Income / (Loss)
$6.6
1.7%
Government
Gross Profit
(22.0)
(15.2%)
28.9%
25.8%
52.3 35.1 18.2
38.9 20.8 32.2
(13.4) (14.4) 14.0
(25.6%)
38.8
30.6
(8.2)
(21.1%)
(40.9%)
6.4%
16.2 7.1 7.8 (0.5)
25.9 2.1 (0.8)
9.7 (7.1) (5.6) (0.3)
8.2
3.3
(4.9)
(59.5%)
(0.1)
0.2
0.3
(365.3%)
EBITDA
57.6
63.0
5.4
9.4%
% EBITDA
11.5%
13.3%
14.1
16.9
2.8
19.5%
$ 71.7
$ 79.8
$8.2
11.4%
Net Income / (Loss) Non Controlling Interest
Total Adjustments Adjusted EBITDA % AEBITDA Constellis Proprietary Information
14.4%
16.8%
•
Commercial revenue decrease is primarily driven unexpected contract de-scoping and delay of new contract awards
•
Gross Profit decreased due to contract terminations and price reductions; offset by higher Government Gross Profit due to the above mentioned revenue increases, direct project synergies, and extensions / uplifts at higher rates
•
Reduction in Other Operating Expenses due to synergies related to the management of overhead
•
SG&A lower compared to FY15 due to the effect of efficiency initiatives implemented by new leadership in Q3 / Q4 of FY15
•
Depreciation & Amortization higher in FY16 due to private company election of intangibles and goodwill
•
Interest Expense in FY16 higher due to bond interest (acquisition of OG)
•
Income tax expense is preliminary and will be reviewed and adjusted quarterly
•
FY16 YTD EBITDA increased due to the synergies derived from acquisitions and management efforts to reduce overhead costs
76.5%
7.8%
Interest Expense Loss on Extinguishment of Debt Income Tax Expense Other (Income) / Expense
Government revenue higher compared to FY15 due to contract starts, WPS uplifts, national security ramp ups, infrastructure awards, and procurement projects
%
Revenue:
Cost of Revenue
•
Variance
60.0% (100.0%) (72.4%) 68.3%
7
FY 2016 Q2 Financial Results Consolidated Balance Sheet as of June 30, 2016 June 30, 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
31.3 $ 260.3 9.0 37.2 337.9
46.6 279.9 8.7 47.3 382.4
106.8 94.9 248.9 15.3 465.9
109.0 103.2 263.2 15.1 490.5
803.8
$
872.9
June 30, 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
117.5 31.9 8.1 0.1 157.7
LONG-TERM LIABILITIES: Long-term debt, net of current portion Other long-term liabilities Total long-term liabilities
569.3 22.0 591.3
625.7 23.0 648.7
54.8
51.8
EQUITY TOTAL LIABILITIES AND EQUITY
$
803.8
$
$
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
•
Accounts Receivable decreased vs. 2015 due to a decline in Olive Group revenues. Additionally, efforts continue to accelerate the billing process, reduce customer rejections and improve billed DSOs by approximately 10% this year
•
Changes in Non-Current Assets primarily represent increases in accumulated depreciation of PP&E and the continued private company amortization election of Intangibles and Goodwill
Liabilities & Equity •
Focus on extending DPO in line with DSO to maximize cash retention in line with pay-when-paid
•
Decrease in debt related to payment of ABL line
Constellis Proprietary Information
8
Liquidity as of 6/30/2016 Liquidity Position & Forecast:
Cash & Cash Equivalents ABL Availability Total Liquidity
June 30, 2016 Unaudited $ 31.3 58.0
December 31, 2015 Audited $ 46.6 1.7
$
$
89.3
48.3
• June 2016 YTD liquidity is on plan to achieve ~ $100 million of cash generation in FY16 • 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 and negotiated payment terms have been implemented across Constellis to ensure quick return of cash • Business has sufficient liquidity to fund our ongoing business needs, new contract wins, and future expected growth
Constellis Proprietary Information
9
Business Updates
Constellis Proprietary Information
10
Business Update – Government Key Wins & Opportunities • Total value of contracts awarded exceeds $300.0 million for the six months ended June 30, 2016 • In addition, in YTD 2016 the company has secured prime positions on 2 new IDIQ platforms with total contract values in excess of $1.2 billion • Bid & proposal volumes have increased in 2016 and will remain strong across all Constellis government services lines for the remainder of 2016 and beyond:
─ The company is awaiting decisions on over $3 billion of pending awards, representing 35 new contracts and task orders ─ An additional $1.4 billion of proposals will be submitted in Q3 2016 • Government 5-year backlog consists of $2.2 billion of base business and an additional $2.9 billion of recompetes
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 DoS and DoD in the Company’s core geographies, including new contract vehicles that will support future growth as well as manning plus-ups on existing contracts
Constellis Proprietary Information
11
Business Update – Commercial Key Wins & Opportunities • Current orderbook of $262 million, which represents revenue from contracts in place and extensions to existing customers & contracts • New business awarded YTD totals $199 million, which is ahead of plan ─ This includes wins from blue-chip oil & gas, infrastructure clients, and FMS primes: the split between Protective Services (i.e. Oil & Gas) and Risk Management (non-Oil & Gas) is $83 million / $116 million • Prior year Risk Management new business comp is $2 million, indicating current year success with securing new business outside traditional oil & gas customers • Significant new business wins in 2016 include new contracts for airport training & security services in Iraq and Egypt • Bid volumes in 2016 exceed 2015 levels by over 40% given strategy to expand geographic, customer, and industry targets ─ 74% win rate in 2016 indicates new sales and pricing strategies have been effective ─ Award decisions pending on $654 million of bids which are currently in post submittal phase ─ Substantial volumes of new and pending awards positions Constellis well for increased commercial sales in 2H 2016 and in to 2017 • Commercial 5-year backlog consists of over $462 million of base business, an additional $498 million of recompetes, and $982 million of strong prospects from our top 15 opportunities. The total commercial pipeline is strong with $3.6 billion of opportunities in capture phase. • Constellis has been awarded 3 new Master Service Agreements with 3 separate IOCs, allowing them to call on services from multiple countries directly without need for tender processes ─ These MSAs are a direct byproduct of the combination of Constellis government & commercial scale and diversified services • Constellis is continuing to develop commercial partnerships that will enable the Company to do business in new markets, including significantly increased level of opportunities supporting outbound investment from China Constellis Proprietary Information
12
Business Update – Commercial (cont.) Business Environment • Historically depressed oil prices are continuing to affect the commercial sector, resulting in delays to planned projects and, in some cases, de-scoping. These have led to the declines in 2016 commercial revenue • Oil & gas clients have continued to delay award decisions as they wait for the oil price to recover, and this presents some risk to H2 • Very large opportunities remain in Iraq, although payment disputes between the Government of Iraq (GOI) and large IOCs resulted in project delays and de-scoping as the GOI struggled with budgetary issues • In Africa, very large projects (e.g. LNG in Mozambique) are moving slowly but they are moving, with a final investment decision expected in Q4 2016, over 12 months late. We are seeing an increase in some government aid budgets; as an example we have recently won a contract to support UK Aid efforts in 23 African countries, and are supporting other government diplomatic missions • Exploratory project work remains shut-down; IOC’s are eyeing $55-60/bbl oil price to re-engage in exploration activities, which would result in immediate and significant revenue uplifts for Constellis • Smaller competitors are failing which will benefit Constellis when the market turns
Constellis Proprietary Information
13
Business Update – Optimization 2.0 Overview • As of June 2016, Management has completed the second wave of integration (“Optimization 2.0”) following the combinations of Constellis and Olive Group • Optimization 2.0 is exclusively focused on the integration of the government & commercial direct costs, infrastructure, and overheads, with highly measurable financial impacts • 60-Day process completed June 1, 2016 • Management has identified and actioned realized cost savings that will result in ~$22 million of annualized profit uplift, with the main savings being classified as: ─ Direct Labor ~$6 million: base rates reduced and normalized across staff ─ Support functions ~$5 million: HR / Recruitment / Legal / Governance / Finance / Procurement ─ In-country operational basing ~$5 million: Camp Integrity / Baghdad Villas / Erbil facilities ─ In-country management ~$4 million: rationalize operational support ─ Other ~$2 million: other savings from procurement, supply, ICT, etc.
Results • Lower cost, lower price and improved sales rates with stable margins • Strongly integrated management: more effective communication, decision making and support • Improved utilization of assets, especially offices and maintenance facilities • A more agile and integrated approach from management
Constellis Proprietary Information
14
Questions
Constellis Proprietary Information
15
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 Q2 2016 Pro Forma Earnings Results Liquidity Summary
Constellis – Business Updates Government Commercial
Questions Constellis Proprietary Information
3
Executive Summary Financial Performance • Financial results presented for the six months ended June 30, 2016 are unaudited • Six months ended June 30, 2016 revenue was $475 million, which was 4.8% below the six months ended June 30, 2015, due to headwinds in the Commercial business line offset by growth in the Company’s Government business unit • Six months ended June 30, 2016 Adj. EBITDA was $79.8 million, representing an 11.4% increase compared to the six months ended June 30, 2015, due to synergies derived from the Olive Group acquisition and management cost cutting efforts
• Constellis is positioned for growth, driven by a stable and diversified base of 175 contracts, recent new business wins and material new revenue opportunities • Reduced capital expenditures as compared to FY15 are still on track in FY16 as Constellis is seeing significant YoY CapEx reductions largely due to success with the refurbished vehicle program ─ Six months ended June 30, 2015 CapEx of $13.0 million vs $1.7 million for six months ended June 30, 2016
Operational Performance • Government: Significant contract wins in FY15 Q4 and FY16 will provide growth in coming year and beyond • Commercial: Additional contract awards have been secured in FY16 Q2, but will not begin to be realized until 2nd half of 2016; bid and proposal volumes remain strong despite depressed oil & gas markets; significant new business with non-oil & gas customers (over 25 new customers in FY16) is driving new awards • Optimization 2.0 launched at the beginning of FY16 has been completed and the Company is on track to achieve $22.0 million of annualized cost savings • Results from training operations are exceeding historical margin levels after management change-out and cost containment strategies have successfully been implemented Constellis Proprietary Information
4
Consolidated Pro Forma Earnings - UNAUDITED
Constellis Proprietary Information
5
FY 2016 Q2 Financial Results Consolidated Pro Forma Earnings - UNAUDITED Q2 FY2015 Q2 FY2016 Actual Pro Forma
Variance $
•
Government revenue higher compared to Q2 15 due to contract starts, WPS uplifts, national security ramp ups, infrastructure awards, and procurement projects
•
Commercial revenue decrease is primarily driven unexpected contract de-scoping and delay of new contract awards
•
Gross Profit decreased due to contract terminations and price reductions; offset by higher Government Gross Profit due to the above mentioned revenue increases, direct project synergies, and extensions / uplifts at higher rates
•
Reduction in Other Operating Expenses due to synergies related to the management of overhead
•
SG&A lower compared to Q2 FY15 due to the effect of efficiency initiatives implemented by new leadership in Q3 / Q4 of FY15
•
Depreciation & Amortization higher in Q2 FY16 due to private company election of intangibles and goodwill
•
Interest Expense in Q2 FY16 higher due to bond interest (acquisition of OG)
•
Income tax expense is preliminary and will be reviewed and adjusted quarterly
•
Q2 FY16 EBITDA increased due to the synergies derived from acquisitions and management efforts to reduce overhead costs
%
Revenue: $197.4
$204.4
Commerical Total Revenue
57.9
34.5
(23.4)
(40.4%)
255.3
238.9
(16.4)
(6.4%)
184.4
177.2 $ (7.2)
(3.9%)
Cost of Revenue
(9.2)
(13.0%)
19.4 10.3 15.2
(5.7) (8.6) 5.8
(22.6%)
16.7
(.8)
(4.5%)
Gross Profit
70.9
61.7
% Profit / (Loss)
27.8%
25.8%
25.1 18.9 9.5 17.5
Other Operating Expenses SG&A Depreciation & Amortization Operating Income / (Loss) % Income / (Loss)
$7.0
3.5%
Government
(45.3%) 60.8%
6.8%
7.0%
10.6 7.1 4.0 (0.3)
13.1 1.0 (0.4)
2.5 (7.1) (3.0) (0.2)
(3.9)
3.1
7.0
0.0
0.1
0.1 12,494.2%
EBITDA
27.2
32.0
% EBITDA
10.7%
13.4%
7.5 $ 34.7
Interest Expense Loss on Extinguishment of Debt Income Tax Expense Other (Income) / Expense Net Income / (Loss) Non Controlling Interest
Total Adjustments Adjusted EBITDA % AEBITDA
Constellis Proprietary Information
13.6%
23.6% (100.0%) (75.5%) 54.6% (178.5%)
4.8
17.6%
7.5
.0
0.6%
$ 39.5
$4.8
13.9%
16.5%
6
FY 2016 June YTD Financial Results Consolidated Pro Forma Earnings - UNAUDITED June 2015 June 2016 YTD YTD Pro Forma
Actual
$
$392.6
$399.2
Commerical Total Revenue
106.5
75.7
(30.8)
(28.9%)
499.1
474.9
(24.2)
(4.8%)
354.7
352.4 $ (2.2)
(0.6%)
144.5
122.5
% Profit / (Loss)
Other Operating Expenses SG&A Depreciation & Amortization Operating Income / (Loss) % Income / (Loss)
$6.6
1.7%
Government
Gross Profit
(22.0)
(15.2%)
28.9%
25.8%
52.3 35.1 18.2
38.9 20.8 32.2
(13.4) (14.4) 14.0
(25.6%)
38.8
30.6
(8.2)
(21.1%)
(40.9%)
6.4%
16.2 7.1 7.8 (0.5)
25.9 2.1 (0.8)
9.7 (7.1) (5.6) (0.3)
8.2
3.3
(4.9)
(59.5%)
(0.1)
0.2
0.3
(365.3%)
EBITDA
57.6
63.0
5.4
9.4%
% EBITDA
11.5%
13.3%
14.1
16.9
2.8
19.5%
$ 71.7
$ 79.8
$8.2
11.4%
Net Income / (Loss) Non Controlling Interest
Total Adjustments Adjusted EBITDA % AEBITDA Constellis Proprietary Information
14.4%
16.8%
•
Commercial revenue decrease is primarily driven unexpected contract de-scoping and delay of new contract awards
•
Gross Profit decreased due to contract terminations and price reductions; offset by higher Government Gross Profit due to the above mentioned revenue increases, direct project synergies, and extensions / uplifts at higher rates
•
Reduction in Other Operating Expenses due to synergies related to the management of overhead
•
SG&A lower compared to FY15 due to the effect of efficiency initiatives implemented by new leadership in Q3 / Q4 of FY15
•
Depreciation & Amortization higher in FY16 due to private company election of intangibles and goodwill
•
Interest Expense in FY16 higher due to bond interest (acquisition of OG)
•
Income tax expense is preliminary and will be reviewed and adjusted quarterly
•
FY16 YTD EBITDA increased due to the synergies derived from acquisitions and management efforts to reduce overhead costs
76.5%
7.8%
Interest Expense Loss on Extinguishment of Debt Income Tax Expense Other (Income) / Expense
Government revenue higher compared to FY15 due to contract starts, WPS uplifts, national security ramp ups, infrastructure awards, and procurement projects
%
Revenue:
Cost of Revenue
•
Variance
60.0% (100.0%) (72.4%) 68.3%
7
FY 2016 Q2 Financial Results Consolidated Balance Sheet as of June 30, 2016 June 30, 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
31.3 $ 260.3 9.0 37.2 337.9
46.6 279.9 8.7 47.3 382.4
106.8 94.9 248.9 15.3 465.9
109.0 103.2 263.2 15.1 490.5
803.8
$
872.9
June 30, 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
117.5 31.9 8.1 0.1 157.7
LONG-TERM LIABILITIES: Long-term debt, net of current portion Other long-term liabilities Total long-term liabilities
569.3 22.0 591.3
625.7 23.0 648.7
54.8
51.8
EQUITY TOTAL LIABILITIES AND EQUITY
$
803.8
$
$
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
•
Accounts Receivable decreased vs. 2015 due to a decline in Olive Group revenues. Additionally, efforts continue to accelerate the billing process, reduce customer rejections and improve billed DSOs by approximately 10% this year
•
Changes in Non-Current Assets primarily represent increases in accumulated depreciation of PP&E and the continued private company amortization election of Intangibles and Goodwill
Liabilities & Equity •
Focus on extending DPO in line with DSO to maximize cash retention in line with pay-when-paid
•
Decrease in debt related to payment of ABL line
Constellis Proprietary Information
8
Liquidity as of 6/30/2016 Liquidity Position & Forecast:
Cash & Cash Equivalents ABL Availability Total Liquidity
June 30, 2016 Unaudited $ 31.3 58.0
December 31, 2015 Audited $ 46.6 1.7
$
$
89.3
48.3
• June 2016 YTD liquidity is on plan to achieve ~ $100 million of cash generation in FY16 • 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 and negotiated payment terms have been implemented across Constellis to ensure quick return of cash • Business has sufficient liquidity to fund our ongoing business needs, new contract wins, and future expected growth
Constellis Proprietary Information
9
Business Updates
Constellis Proprietary Information
10
Business Update – Government Key Wins & Opportunities • Total value of contracts awarded exceeds $300.0 million for the six months ended June 30, 2016 • In addition, in YTD 2016 the company has secured prime positions on 2 new IDIQ platforms with total contract values in excess of $1.2 billion • Bid & proposal volumes have increased in 2016 and will remain strong across all Constellis government services lines for the remainder of 2016 and beyond:
─ The company is awaiting decisions on over $3 billion of pending awards, representing 35 new contracts and task orders ─ An additional $1.4 billion of proposals will be submitted in Q3 2016 • Government 5-year backlog consists of $2.2 billion of base business and an additional $2.9 billion of recompetes
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 DoS and DoD in the Company’s core geographies, including new contract vehicles that will support future growth as well as manning plus-ups on existing contracts
Constellis Proprietary Information
11
Business Update – Commercial Key Wins & Opportunities • Current orderbook of $262 million, which represents revenue from contracts in place and extensions to existing customers & contracts • New business awarded YTD totals $199 million, which is ahead of plan ─ This includes wins from blue-chip oil & gas, infrastructure clients, and FMS primes: the split between Protective Services (i.e. Oil & Gas) and Risk Management (non-Oil & Gas) is $83 million / $116 million • Prior year Risk Management new business comp is $2 million, indicating current year success with securing new business outside traditional oil & gas customers • Significant new business wins in 2016 include new contracts for airport training & security services in Iraq and Egypt • Bid volumes in 2016 exceed 2015 levels by over 40% given strategy to expand geographic, customer, and industry targets ─ 74% win rate in 2016 indicates new sales and pricing strategies have been effective ─ Award decisions pending on $654 million of bids which are currently in post submittal phase ─ Substantial volumes of new and pending awards positions Constellis well for increased commercial sales in 2H 2016 and in to 2017 • Commercial 5-year backlog consists of over $462 million of base business, an additional $498 million of recompetes, and $982 million of strong prospects from our top 15 opportunities. The total commercial pipeline is strong with $3.6 billion of opportunities in capture phase. • Constellis has been awarded 3 new Master Service Agreements with 3 separate IOCs, allowing them to call on services from multiple countries directly without need for tender processes ─ These MSAs are a direct byproduct of the combination of Constellis government & commercial scale and diversified services • Constellis is continuing to develop commercial partnerships that will enable the Company to do business in new markets, including significantly increased level of opportunities supporting outbound investment from China Constellis Proprietary Information
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Business Update – Commercial (cont.) Business Environment • Historically depressed oil prices are continuing to affect the commercial sector, resulting in delays to planned projects and, in some cases, de-scoping. These have led to the declines in 2016 commercial revenue • Oil & gas clients have continued to delay award decisions as they wait for the oil price to recover, and this presents some risk to H2 • Very large opportunities remain in Iraq, although payment disputes between the Government of Iraq (GOI) and large IOCs resulted in project delays and de-scoping as the GOI struggled with budgetary issues • In Africa, very large projects (e.g. LNG in Mozambique) are moving slowly but they are moving, with a final investment decision expected in Q4 2016, over 12 months late. We are seeing an increase in some government aid budgets; as an example we have recently won a contract to support UK Aid efforts in 23 African countries, and are supporting other government diplomatic missions • Exploratory project work remains shut-down; IOC’s are eyeing $55-60/bbl oil price to re-engage in exploration activities, which would result in immediate and significant revenue uplifts for Constellis • Smaller competitors are failing which will benefit Constellis when the market turns
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Business Update – Optimization 2.0 Overview • As of June 2016, Management has completed the second wave of integration (“Optimization 2.0”) following the combinations of Constellis and Olive Group • Optimization 2.0 is exclusively focused on the integration of the government & commercial direct costs, infrastructure, and overheads, with highly measurable financial impacts • 60-Day process completed June 1, 2016 • Management has identified and actioned realized cost savings that will result in ~$22 million of annualized profit uplift, with the main savings being classified as: ─ Direct Labor ~$6 million: base rates reduced and normalized across staff ─ Support functions ~$5 million: HR / Recruitment / Legal / Governance / Finance / Procurement ─ In-country operational basing ~$5 million: Camp Integrity / Baghdad Villas / Erbil facilities ─ In-country management ~$4 million: rationalize operational support ─ Other ~$2 million: other savings from procurement, supply, ICT, etc.
Results • Lower cost, lower price and improved sales rates with stable margins • Strongly integrated management: more effective communication, decision making and support • Improved utilization of assets, especially offices and maintenance facilities • A more agile and integrated approach from management
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Questions
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