Constellis FY15 Q3 Update
2015 Q3 Investor’s Call November 18, 2015
Constellis Proprietary Information
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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. For more information, please see the reconciliation attached as an appendix and our first quarter financial report. We believe these adjusted results, in addition to our GAAP results, provide a good basis to assess the operating and financial results.
Constellis Proprietary Information
November 18, 2015 - Business Confidential
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Agenda Executive Summary
Constellis Group – Consolidated Pro Forma Earnings
Opening Comments Changes to Executive Management Financial Performance Operational Performance
Q3 2015 Earnings Results 2015 EAC Business Update Normalized SG&A Q3 & 2015 EAC Liquidity Summary
Constellis Group – Government Earnings (not including Olive Group and EI) Business Update Q3 2015 Earnings Results 2015 EAC
Constellis Group – Commercial Earnings (Olive Group and EI) Business Update Q3 Earnings Results 2015 EAC
Questions Constellis Proprietary Information
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Executive Summary Financial Performance •
While revenue will continue to grow modestly in FY15 Q4, Constellis will enter FY16 positioned for growth, driven by recent new business wins and new contract opportunities
•
FY15 Q3 profitability was impacted by one-time cost items – primarily adjustments associated with prior quarters relating to operational shortcomings of prior management: • •
• •
Helmand (2015 impact $6M; 2014 impact $3.3M); Amman training (2015 impact $5.8M) We expect the impact of these items to be minimal in FY15 Q4 and going forward
Despite relatively flat revenue, year-over-year profitability and EBITDA were enhanced due to operational initiatives and contract mix Government business cost-cutting initiative conducted in FY15 Q3 will produce ~$10M in annual savings •
~$2.5M of these savings will be realized in actual results in FY15 Q4; remainder reflected as pro forma adjustments
•
60-day integration plan associated with Olive Group’s combination with Edinburgh International completed in FY15 Q3 will yield ~$16M on an annualized basis
•
Capital expenditures are expected to be $22M for FY15 •
CapEx spend supports recent contract wins in our Commercial business
Operational Performance •
Government: Forecasted uplifts and new work to replace cancelled contracts have been delayed into 2016 •
WPS recompete award has been further delayed due to pre-award protest – delay provides advantages to Constellis as the incumbent with largest share of contract (allows extension of period of performance at existing rates)
•
Commercial: New contract awards have been secured but will not begin to be realized until 2016, as timing of awards has slipped
•
Recent enhancements to leadership team include new CEO, President, CFO, CGO and SVP, Training and Mission Support
• •
Ongoing operational initiatives related to Training and other operations will yield additional cost savings in 2016 August 2015 reorganization and stream-lining of government business will produce ~$10M in annual cost savings and leaner management structure
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Constellis Group – Consolidated Pro Forma Earnings
Constellis Proprietary Information
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FY 2015 Q3 Financial Results Constellis Group – Consolidated Pro Forma Earnings Q3 2014 Revenue: Government Commercial Total Revenue
Q3 2015
Variance to PY $ %
$188.0 66.0 $254.0
$194.2 61.4 $255.7
$6.2 (4.6) $1.6
3.3% (6.9%) 0.6%
Gross Profit: Government Commercial Total Gross Profit
$30.6 21.0 $51.6
$32.3 16.6 $48.9
$1.7 (4.4) ($2.8)
5.5% (21.2%) (5.4% )
Gross Margin: Government Commercial Total Gross Margin
16.3% 31.8% 20.3%
16.6% 27.0% 19.1%
SG&A Depreciation and Amortization Total Indirect Expense
$36.6 $5.2 $41.8
$33.1 $8.4 $41.5
($3.5) $3.1 ($0.3)
(9.5%) 60.1% (0.8% )
Operating Income
$9.8
$7.4
($2.4)
(24.7% )
Interest Expense Extinguishment of Debt Income Tax Expense Other (income) expense Net Income (Loss)
2.8 0.0 3.9 0.2 $2.9
13.4 0.4 4.1 0.1 ($10.5)
10.6 0.4 0.2 (0.1) ($13.5)
375.1% NM 6.1% (47.0%) (460.0% )
EBITDA % Margin
$17.6 6.9%
$18.1 7.1%
$0.5 0.2%
2.9% 2.2%
Total Adjustments Pro Forma Adjusted EBITDA % Margin
13.4 $31.0 12.2%
26.7 $44.8 17.5%
13.3 $13.8 5.3%
99.3% 44.6% 43.6%
0.3% (4.9%) (1.2% )
Note: OG/EI allocates its Overhead as a part of its SG&A. In addition, OG/EI allocates Depreciation associated with Direct projects in its Cost of Goods Sold. Constellis Proprietary Information
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FY 2015 Q3 Financial Results Constellis Group – Consolidated Pro Forma Earnings 2014 Pro Forma Revenue: Government Commercial Total Revenue
Q1 2015 Actual
Q2 2015 Actual
Q3 2015 Actual
Q4 2015 EAC
LTM Q3 2015
2015 EAC
$755.8 270.5 $1,026.3
$184.8 59.0 $243.8
$197.4 57.9 $255.3
$194.2 61.4 $255.7
$205.8 59.9 $265.7
$774.1 242.1 $1,016.2
$782.2 238.3 $1,020.5
$148.8 83.1 $231.9
$42.1 17.5 $59.6
$37.7 16.7 $54.4
$32.3 16.6 $48.9
$39.7 16.3 $56.1
$155.7 71.5 $227.2
$151.8 67.1 $218.9
22.8% 29.7% 24.5%
19.1% 28.8% 21.3%
16.6% 27.0% 19.1%
19.3% 27.3% 21.1%
$143.5 37.3 $180.8
$32.0 6.2 $38.3
$30.0 6.9 $37.0
$33.1 8.4 $41.5
$21.7 6.9 $28.5
$131.1 30.8 $161.9
$116.9 28.4 $145.3
Operating Income
$51.1
$21.4
$17.4
$7.4
$27.5
$65.3
$73.7
Interest Expense Loss on Extinguishment of Debt Income Tax Expense Other (income) expense Net Income (Loss)
50.3 0.0 3.1 (0.4) ($1.9)
5.7 0.0 3.7 (0.2) $12.1
10.6 7.1 4.1 (0.7) ($3.7)
13.4 0.4 4.1 0.1 ($10.5)
13.0 0.0 4.2 (0.5) $10.8
42.2 7.5 12.7 (0.8) $3.7
42.7 7.5 16.1 (1.2) $8.6
EBITDA % Margin
$88.8 8.7%
$30.4 12.5%
$20.5 8.0%
$18.1 7.1%
$37.6 14.2%
$89.4 8.8%
$106.6 10.4%
80.4 $169.2 16.5%
7.9 $38.3 15.7%
15.6 $36.1 14.1%
26.7 $44.8 17.5%
4.5 $42.2 15.9%
70.3 $159.8 15.7%
54.8 $161.4 15.8%
Gross Profit: Government Commercial Total Gross Profit Gross Margin: Government Commercial Total Gross Margin SG&A Depreciation and Amortization Total Indirect Expense
Total Adjustments Pro Forma Adjusted EBITDA % Margin
19.7% 30.7% 22.6%
20.1% 29.6% 22.4%
19.4% 28.2% 21.5%
Note: OG/EI allocates its Overhead as a part of its SG&A. In addition, OG/EI allocates Depreciation associated with Direct projects in its Cost of Goods Sold. Constellis Proprietary Information
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FY 2015 Q3 Financial Results Constellis Group – Consolidated 9/30/15 (12/31/14 Excludes Olive Group) Assets Cash A/R Net Inventory Prepaids & Other Current Total Current Assets PPE, Net Intangibles Goodwill Deposits & Other Long-Term Total Assets
9/30/15 $69.3 224.4 9.5 63.8 $367.0
12/31/14 $7.1 207.1 5.9 39.2 $259.3
111.1 181.0 245.6 13.2 $917.9
74.3 95.7 176.7 12.8 $618.8
Liabilities & Equity AP & Other Accrueds Accrued Compensation Current Portion Long-Term Debt Other Current Liabilities Total Current Liabilities Long-Term Debt Other Long-Term Liabilities Total Liabilities Total Equity Total Liabilities & Equity
9/30/15 $161.8 29.4 0.3 3.1 $194.5
12/31/14 $108.5 34.8 17.8 2.8 $163.9
618.6 17.2 $830.3 87.6 $917.9
282.5 25.2 $471.6 147.2 $618.8
Note: 12/31/14 figures exclude Olive Group
Assets •
Cash balance was positively impacted by ongoing efforts to improve invoicing and collections, as well as the positive impact of the DoS fiscal year closeout initiatives
•
Accounts receivable increased due to contributions from Olive Group; however, on a pro forma basis, A/R decreased significantly due to accelerated DoS collections and ongoing efforts related to unbilled receivables •
•
Adjusted DSOs were 67 days in September 30, 2015, versus 80 days in June 30, 2015
Increases in other balances primarily reflect acquisition of Olive Group in May 2015
Liabilities & Equity •
Increase in debt related to new capital structure implemented in conjunction with acquisition of Olive Group in May 2015
Constellis Proprietary Information
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FY 2015 Q3 Financial Results – Normalized SG&A Constellis Group – Consolidated Pro Forma Earnings Q3 2014 Revenue: Government Commercial Total Revenue
Q3 2015
Variance to PY $ %
$188.0 66.0 $254.0
$194.2 61.4 $255.7
$6.2 (4.6) $1.6
3.3% (6.9%) 0.6%
Gross Profit: Government Commercial Total Gross Profit
$30.6 21.0 $51.6
$32.3 16.6 $48.9
$1.7 (4.4) ($2.8)
5.5% (21.2%) (5.4% )
Gross Margin: Government Commercial Total Gross Margin
16.3% 31.8% 20.3%
16.6% 27.0% 19.1%
SG&A Depreciation and Amortization Total Indirect Expense
$21.1 $5.2 $26.3
$21.3 $8.4 $29.7
$0.3 $3.1 $3.4
Operating Income
$25.3
$19.2
($6.2)
(24.3% )
Interest Expense Extinguishment of Debt Income Tax Expense Other (income) expense Net Income (Loss)
2.8 0.0 3.9 0.2 $18.4
13.4 0.4 4.1 0.1 $1.2
10.6 0.4 0.2 (0.1) ($17.3)
375.1% NM 6.1% (47.0%) (93.7% )
EBITDA % Margin
$33.1 13.0%
$29.9 11.7%
($3.2) (1.3%)
(9.8% ) (10.3%)
Total Adjustments Pro Forma Adjusted EBITDA % Margin
(2.1) $31.0 12.2%
15.0 $44.8 17.5%
17.1 $13.8 5.3%
(812.3%) 44.6% 43.6%
0.3% (4.9%) (1.2% ) 1.2% 60.1% 12.9%
SG&A (Not Normalized)
November 18, 2015 - Business Confidential
$33.1
FY14 Q3 FY15 Q3 Transaction Expense $8.0 $6.0 Other non-recurring costs 0.0 0.2 Temporary Staffing 0.0 0.5 Severence Costs 0.0 1.0 CIC Bonus 0.0 (1.4) Headcount and compensation rationalization 5.0 0.0 Rationalization of employee benefit, insurance, 0.0 and facilities 0.0 Pro Forma Olive Group Synergies 2.5 3.0 Pro Forma Gov't Group Synergies 0.0 2.4 Total 2015 SG&A Expenses $15.5 $11.8 Normalized SG&A
$21.1
$21.3
Implied SG&A Annual Run Rate
$84.4
$85.4
YoY % Change
Constellis Proprietary Information
$36.6
1.2%
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FY 2015 EAC Financial Results – Normalized SG&A Constellis Group – Consolidated Pro Forma Earnings 2014 Pro Forma Revenue: Government Commercial Total Revenue Gross Profit: Government Commercial Total Gross Profit Gross Margin: Government Commercial Total Gross Margin
Q1 2015 Actual
Q2 2015 Actual
Q3 2015 Actual
Q4 2015 EAC
LTM Q3 2015
2015 EAC
$755.8 270.5 $1,026.3
$184.8 59.0 $243.8
$197.4 57.9 $255.3
$194.2 61.4 $255.7
$205.8 59.9 $265.7
$774.1 242.1 $1,016.2
$782.2 238.3 $1,020.5
$148.8 83.1 $231.9
$42.1 17.5 $59.6
$37.7 16.7 $54.4
$32.3 16.6 $48.9
$39.7 16.3 $56.1
$155.7 71.5 $227.2
$151.8 67.1 $218.9
22.8% 29.7% 24.5%
19.1% 28.8% 21.3%
16.6% 27.0% 19.1%
19.3% 27.3% 21.1%
19.7% 30.7% 22.6%
20.1% 29.6% 22.4%
19.4% 28.2% 21.5%
SG&A Depreciation and Amortization Total Indirect Expense
$83.7 37.3 $121.0
$24.6 6.2 $30.8
$21.3 6.9 $28.2
$21.3 8.4 $29.7
$19.0 6.9 $25.9
$88.2 30.8 $119.0
$86.2 28.4 $114.6
Operating Income
$110.9
$28.8
$26.2
$19.2
$30.2
$108.2
$104.3
Interest Expense Loss on Extinguishment of Debt Income Tax Expense Other (income) expense Net Income (Loss)
50.3 0.0 3.1 (0.4) $57.9
5.7 0.0 3.7 (0.2) $19.5
10.6 7.1 4.1 (0.7) $5.1
13.4 0.4 4.1 0.1 $1.2
13.0 0.0 4.2 (0.5) $13.5
42.2 7.5 12.7 (0.8) $46.5
42.7 7.5 16.1 (1.2) $39.2
EBITDA % Margin
$148.6 14.5%
$37.8 15.5%
$29.2 11.4%
$29.9 11.7%
$40.3 15.2%
$132.3 13.0%
$137.3 13.5%
Total Adjustments Pro Forma Adjusted EBITDA % Margin
20.6 $169.2 16.5%
0.5 $38.3 15.7%
6.9 $36.1 14.1%
15.0 $44.8 17.5%
1.8 $42.2 15.9%
27.4 $159.8 15.7%
24.1 $161.4 15.8%
Constellis Proprietary Information
2014 $ 143.5
Q1 $ 32.0
Q2 $ 30.0
2015 Q3 $ 33.1
Q4 $ 21.7
Total $ 116.9
Transaction Expenses Other non-recurring costs Temporary Staffing Severance Costs CIC Bonus Headcount and compensation rationalization Rationalization of employee benefit, insurance, and facilities Pro Forma Olive Group Synergies Pro Forma Gov't Group Synergies Total SG&A Expenses
19.7 0.0 0.0 0.0 0.0 25.6 4.5 10.0 0.0 $59.8
0.0 0.1 0.3 0.0 0.7 0.0 0.0 4.0 2.4 $7.4
1.3 0.0 0.2 0.0 0.7 0.0 0.0 4.0 2.4 $8.7
6.0 0.2 0.5 1.0 (1.4) 0.0 0.0 3.0 2.4 $11.8
0.5 0.2 0.5 0.5 0.0 0.0 0.0 0.5 0.5 $2.7
7.9 0.6 1.4 1.5 0.0 0.0 0.0 11.5 7.7 $30.6
SG&A (Normalized)
$83.7
$24.6
$21.3
$21.3
$19.0
$86.2
2015 Q4 SG&A Annualized Run Rate
$83.7
$98.4
$85.2
$85.4
$76.0
SG&A (Not Normalized)
2015 Q4 vs 2014 % Change
-9%
FY15 normalized SG&A expenses of $86.2M are 30% lower than FY14 incurred SG&A expenses (excluding FY14 transaction expenses) of $123.8M
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Liquidity Outlook Next Twelve Months
Key Drivers •
DoS billing / payment office shutdown created a significant pull-forward in cash in late September 2015 •
However, this event also prevented Constellis from invoicing on all DoS contracts for approximately one month, creating a gap in cash flow
•
Major DBA installment payments were completed in midSeptember 2015
•
Notes interest payment of $22.5M and implementation of new DBA / insurance policies, although at lower rates, created liquidity reduction in Q4
•
Ongoing headcount reductions and operational improvement initiatives are expected to positively impact 2016 cash flow
•
Significant improvement in DSOs expected in 2016
Updates Regarding Notable Cash Items •
Tax refund ($14.7M) expected to be collected in December 2015 / early 2016
•
Unbilled collection efforts of new finance team continue to produce additional cash flow for the Company:
•
Constellis Proprietary Information
•
Conservatively, we expect to collect at least $10M of additional items in 2016
•
Identified areas where we can invoice for material cost recoveries, which will enhance 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
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Constellis Group – Government Earnings
Constellis Proprietary Information
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Business Update – Government Key wins in Q3 • • • • • •
CNTPO (5 TORPs): Book value of $14.3M // PoP: Sep 2015 – Sep 2016 (CCIR) DHS Fusion Center Support Services: Book value of $2.2M // PoP: June 2015 – Dec 2015 (Domestic Security) DHS FPS Oklahoma: Book value of $48M // PoP: Nov 2015-Nov 2019 (Domestic Security) DIA IPMT FACT: Book value of $7.3M // PoP: 60 months (Training) IC: Book value of $6.8M // PoP: 12 months (Mission Support) WPS Construction Mod: $7.7M // PoP: 9 months (Mission Support)
Key Opportunities • • •
•
64 proposals under evaluation with a book value of $1.1B WPS II recompete award has been further delayed due to pre-award protest – delay provides advantages to Constellis as the incumbent with largest share of contract (allows extension of period of performance at existing rates) KBOSSS recompete – the current contract was extended through March 2016 with a 90 day transition period through June 2016. We believe the contract could be extended into late 2016, but we are also focused on competing for the new contract and are competing on multiple teams IDIQ’s (AFRICAP DoS Africa Support $1.5B)
Business Environment •
Clear indications of continued presence in Afghanistan. On October 15, 2015, President Obama announced continued U.S. presence through at least 2017. Increased requirements in Iraq have been slow to develop but show potential in 2016 and 2017
Liquidity • •
Business has sufficient liquidity to fund future growth requirements Based off current run rates we expect to have > $80M in liquidity in 6 months and > $110M in 12 months
Management • •
Recent enhancements to leadership team include new CEO, President, CFO, CGO and SVP, Training and Mission Support August 2015 reorganization and stream-lining of government business will produce ~$10M in cost savings and leaner management structure
Constellis Proprietary Information
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FY 2015 Q3 Financial Results Constellis Group – Government Earnings (Excluding OG and EI) Q3 2014 $188.0
Q3 2015 $194.2
Gross Profit Gross Margin
$30.6 16.3%
$32.3 16.6%
$1.7 0.3%
5.5% 2.1%
SG&A Depreciation and Amortization Total Indirect Expense
$22.8 $4.6 $27.4
$24.0 $8.1 $32.1
$1.2 $3.4 $4.7
5.3% 74.4% 17.0%
$3.2
$0.2
($3.0)
(92.8% )
Interest Expense Extinguishment of Debt Income Tax Expense Other (income) expense Net Income (Loss)
2.4 0.0 2.7 0.2 ($2.1)
13.5 0.4 1.1 0.1 ($14.9)
11.1 0.4 (1.6) (0.1) ($12.8)
459.3% NM (59.0%) (41.4%) 623.7%
EBITDA % Margin
$7.6 4.1%
$7.8 4.0%
$0.1 (0.1%)
1.6% (1.6%)
9.9 $17.5 9.3%
23.0 $30.7 15.8%
13.1 $13.2 6.5%
131.9% 75.2% 69.7%
Revenue
Operating Income
Total Adjustments Pro Forma Adjusted EBITDA % Margin
Variance to PY $ % $6.2 3.3%
Prior Year •
Q3 revenue and profit positively impacted by plus-ups on existing contracts
•
Increases to indirect costs were partially offset by realized synergies resulting from the consolidation of support services during the integration of Triple Canopy
Current Year •
Q3 2015 revenue was 2% below forecast due to Government rescinding a modification that impacted contract profitability
•
Indirect expenses increased due to the transaction and depreciation expenses related to the acquisition of Olive Group
•
Interest expense increased related to new $450M senior secured notes and ABL credit facility in 2015
Constellis Proprietary Information
November 18, 2015 - Business Confidential
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FY 2015 Q3 Financial Results Constellis Group – Government Earnings (Excluding OG and EI) 2014 Pro Forma $755.8
Q1 2015 Actual $184.8
Q2 2015 Actual $197.4
Q3 2015 Actual $194.2
Q4 2015 EAC $205.8
LTM Q3 2015 $774.1
2015 EAC $782.2
Gross Profit Gross Margin
$148.8 19.7%
$42.1 22.8%
$37.7 19.1%
$32.3 16.6%
$39.7 19.3%
$155.7 20.1%
$151.8 19.4%
SG&A Depreciation and Amortization Total Indirect Expense
98.1 25.3 $123.4
17.7 5.6 $23.4
17.1 6.3 $23.5
24.0 8.1 $32.1
13.5 6.6 $20.0
83.4 26.3 $109.8
72.4 26.6 $99.0
$25.4
$18.7
$14.3
$0.2
$19.7
$45.9
$52.9
47.2 0.0 2.3 (0.4) ($23.6)
5.3 0.0 3.3 (0.3) $10.4
9.9 7.1 3.5 (0.6) ($5.6)
13.5 0.4 1.1 0.1 ($14.9)
13.0 0.0 2.8 (0.4) $4.3
40.5 7.5 8.4 (0.8) ($9.7)
41.7 7.5 10.6 (1.1) ($5.8)
$51.1 6.8%
$24.6 13.3%
$14.1 7.1%
$7.8 4.0%
$26.6 12.9%
$65.5 8.5%
$73.1 9.3%
60.4 $111.5 14.8%
2.0 $26.6 14.4%
10.5 $24.5 12.4%
23.0 $30.7 15.8%
3.2 $29.9 14.5%
50.5 $116.0 15.0%
38.6 $111.7 14.3%
Revenue
Operating Income Interest Expense Loss on Extinguishment of Debt Income Tax Expense Other (income) expense Net Income (Loss) EBITDA % Margin Total Adjustments Pro Forma Adjusted EBITDA % Margin •
Q4 forecasted revenue is based almost entirely upon current contracts and secured uplifts – no “go-get” included
•
EAC reflects revised timing of WPS uplift and associated training/life support/infrastructure projects. Additional pipeline was shifted to 2016 due to award delays
•
One year review of TC integration combined with reduced forecast has resulted in reorganization to streamline the USG line of business and materially reduce indirect costs. We expect a reduction of approximately $10M annualized with a portion – $2M – realized in Q4 2015
•
Additional opportunities for synergy across the USG and commercial lines of business will be identified in Q4 2015
Constellis Proprietary Information
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Constellis Group – Commercial Earnings
Constellis Proprietary Information
November 18, 2015 - Business Confidential
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Business Update – Commercial (Olive Group & EI) Key wins in Q3 •
Total contract value awarded in Q3 of $79M – five wins from blue-chip oil and gas and infrastructure clients for work to be performed in Iraq and other areas in the Middle East
Key Opportunities •
$6B in proposals under evaluation of which approximately $400M down selected for award eminent with existing new customers.
Business Environment •
Although there continues to be downward pressure on capex and opex budgets in the Oil & Gas sector, resulting in some projects being delayed or cancelled, significant demand remains for our services in our core markets. However, clients are becoming increasingly sensitive to price. We are confident that due to efficiencies gained through integration, a cost base that is constantly being reviewed and through scale we will continue to be able to provide flexible solutions for clients at a highly competitive price
•
There was one significant event to report in Q3 from an HSE perspective during 3.2M man hours worked and 2.6M km driven
•
Awarded certificate for 10 million safe man hours of operation without a recordable incident by the Exxon Operational Concession in Iraq
Constellis Proprietary Information
November 18, 2015 - Business Confidential
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FY 2015 Q3 Financial Results Constellis Group – Commercial Earnings (Olive Group & EI) Q3 2014 $66.0
Q3 2015 $61.4
Gross Profit Gross Margin
$21.0 31.8%
$16.6 27.0%
($4.4) (4.9%)
(21.2% ) (15.3%)
SG&A Depreciation and Amortization Total Indirect Expense
$13.8 0.6 $14.4
$9.1 0.3 $9.4
($4.7) (0.3) ($5.0)
(34.1%) (50.0%) (34.7% )
Operating Income
$6.6
$7.2
$0.6
Interest Expense Loss on Extinguishment of Debt Income Tax Expense Other (income) expense Net Income (Loss)
0.4 0.0 1.2 0.0 $5.0
(0.1) 0.0 3.0 0.0 $4.3
(0.5) 0.0 1.8 (0.0) ($0.7)
(124.7%) NM 150.0% (100.0%) (14.4% )
EBITDA % Margin
$10.0 15.1%
$10.4 16.9%
$0.3 1.7%
3.8% 11.5%
Total Adjustments Pro Forma Adjusted EBITDA % Margin
3.5 $13.5 20.4%
3.7 $14.1 23.0%
0.2 $0.6 2.5%
6.9% 4.6% 12.4%
Revenue
Current Year • •
Prior Year • • •
Variance to PY $ % ($4.6) (6.9%)
8.5%
Actual Q3 revenue was 2% lower than plan, with margins being reduced below plan due to the use of subcontractors. This was due to delays in importation and registration of armored vehicles. These vehicles are now available for use Indirect costs are 8% lower than the Q2 plan and 30% lower than Q2. This is as a result of both integration activities and targeted cost reduction program implemented due to revenue being below plan
The YoY decrease in revenue in Q3 was as a result of a reduction in revenues from USG and EPC clients in Iraq Indirect costs in Q3 include those related to expanded operating footprint in Africa. Excluding these costs, Q3 reported indirect costs are 37% lower than the prior year The significant reduction in overheads mean that profitability has improved even though YoY revenue has fallen
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FY 2015 Q3 Financial Results Constellis Group – Commercial Earnings (Olive Group & EI) 2014 Pro Forma $270.5
Q1 2015 Actual $59.0
Q2 2015 Actual $57.9
Q3 2015 Actual $61.4
Q4 2015 EAC $59.9
LTM Q3 2015 $242.1
2015 EAC $238.3
Gross Profit Gross Margin
$83.1 30.7%
$17.5 29.7%
$16.7 28.8%
$16.6 27.0%
$16.3 27.3%
$71.5 29.6%
$67.1 28.2%
SG&A Depreciation and Amortization Total Indirect Expense
$45.4 12.0 $57.4
$14.3 0.6 $14.9
$12.9 0.6 $13.5
$9.1 0.3 $9.4
$8.2 0.3 $8.5
$47.7 4.5 $52.2
$44.5 1.8 $46.3
Operating Income
$25.7
$2.6
$3.2
$7.2
$7.8
$19.4
$20.8
Interest Expense Loss on Extinguishment of Debt Income Tax Expense Other (income) expense Net Income (Loss)
3.1 0.0 0.8 0.0 $21.8
0.4 0.0 0.5 0.1 $1.7
0.7 0.0 0.6 (0.1) $1.9
(0.1) 0.0 3.0 0.0 $4.3
0.0 0.0 1.4 (0.1) $6.5
1.8 0.0 4.3 0.0 $13.3
1.0 0.0 5.5 (0.1) $14.4
EBITDA % Margin
$37.7 13.9%
$5.8 9.8%
$6.4 11.1%
$10.4 16.9%
$11.0 18.3%
$23.9 9.9%
$33.6 14.1%
Total Adjustments Pro Forma Adjusted EBITDA % Margin
20.0 $57.7 21.3%
6.0 $11.8 19.9%
5.1 $11.5 19.9%
3.7 $14.1 23.0%
1.3 $12.3 20.5%
19.8 $43.7 18.1%
16.1 $49.7 20.8%
Revenue
Note: OG/EI allocates its Overhead as apart of its SG&A. In addition, OG/EI allocates Depreciation associated with Direct projects in its Cost of Goods Sold. • The full year revenue EAC is lower than Q2 by $25.6m (10%). This is mainly due to the delay in the award of several material contracts which are now expected to be awarded in Q4 / Q1 2016. The bridge from the Q2 EAC to the Q3 EAC can be found on the following page • Current backlog covers 99% of full year forecast • •
Exit order book is expected to be strong at $200m+, with over $250m of total contract value, for which we are well positioned, due for award prior to 31 December The impact of the efficiencies resulting from the integration exercise are now starting to be reflected in the reported financials, which can be seen by a 30% reduction in overheads between Q2 and Q3
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November 18, 2015 - Business Confidential
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FY 2015 EAC Revision Bridge Constellis Group – Commercial Earnings (Olive Group & EI) Previous Guidance vs Updated Forecast 46.0
44.0
Projects which have been lost
(2.2)
42.0
US$ m's
(1.4) (0.4)
0.8
40.0
(1.7)
45.0
Project awards which have been delayed
(1.0) (0.5)
38.0
(0.5)
38.2
36.0
34.0 Q2 Forecast AEBITDA
Contract 1
Contract 2
Contract 3
Indirects - upside
Contract 4
Contract 5
Contract 6
•
The FY15 AEBITDA EAC has reduced by 14% from the Q2 forecast. This is mainly as a result of lower than expected revenues in FY 15
•
Of the reduction in AEBITDA, 57% relates to revenue from contracts that have not yet been awarded
Contract 7
Q3 Forecast AEBITDA
Olive / EI are still well positioned to be awarded this work, and would expect the benefits to flow through in the financials in FY16 Q1/Q2. •
The overhead reduction program is running ahead of forecast, with an upside of $0.8M compared to the FY15 Q2 EAC
Constellis Proprietary Information
November 18, 2015 - Business Confidential
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Integration & Follow–on Optimization •
The 60 day plan which integrated Edinburgh International with Olive Group ended in FY15 Q3, with expected savings of ~$16M on an annualized basis. The realization of these savings can be seen both in the reported financials for FY15 Q3 and the EAC for FY15 Q4.
•
Although integration has been formally been completed, there are two additional areas of focus to identify and deliver further cost savings across the group. These are:
•
–
The upward integration of Olive into the wider Constellis, including leveraging economies of scale from common suppliers, identification and removal of duplication and sharing of best practice
–
Optimization of existing resources within Olive / Edinburgh International to ensure that delivery across all aspects of the business is as efficient as possible
It is expected that additional annualized savings of $1M+ will be identified in FY15 Q4 and realized in FY15 Q4 and FY16 Q1.
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Questions
Constellis Proprietary Information
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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. For more information, please see the reconciliation attached as an appendix and our first quarter financial report. We believe these adjusted results, in addition to our GAAP results, provide a good basis to assess the operating and financial results.
Constellis Proprietary Information
November 18, 2015 - Business Confidential
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Agenda Executive Summary
Constellis Group – Consolidated Pro Forma Earnings
Opening Comments Changes to Executive Management Financial Performance Operational Performance
Q3 2015 Earnings Results 2015 EAC Business Update Normalized SG&A Q3 & 2015 EAC Liquidity Summary
Constellis Group – Government Earnings (not including Olive Group and EI) Business Update Q3 2015 Earnings Results 2015 EAC
Constellis Group – Commercial Earnings (Olive Group and EI) Business Update Q3 Earnings Results 2015 EAC
Questions Constellis Proprietary Information
November 18, 2015 - Business Confidential
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Executive Summary Financial Performance •
While revenue will continue to grow modestly in FY15 Q4, Constellis will enter FY16 positioned for growth, driven by recent new business wins and new contract opportunities
•
FY15 Q3 profitability was impacted by one-time cost items – primarily adjustments associated with prior quarters relating to operational shortcomings of prior management: • •
• •
Helmand (2015 impact $6M; 2014 impact $3.3M); Amman training (2015 impact $5.8M) We expect the impact of these items to be minimal in FY15 Q4 and going forward
Despite relatively flat revenue, year-over-year profitability and EBITDA were enhanced due to operational initiatives and contract mix Government business cost-cutting initiative conducted in FY15 Q3 will produce ~$10M in annual savings •
~$2.5M of these savings will be realized in actual results in FY15 Q4; remainder reflected as pro forma adjustments
•
60-day integration plan associated with Olive Group’s combination with Edinburgh International completed in FY15 Q3 will yield ~$16M on an annualized basis
•
Capital expenditures are expected to be $22M for FY15 •
CapEx spend supports recent contract wins in our Commercial business
Operational Performance •
Government: Forecasted uplifts and new work to replace cancelled contracts have been delayed into 2016 •
WPS recompete award has been further delayed due to pre-award protest – delay provides advantages to Constellis as the incumbent with largest share of contract (allows extension of period of performance at existing rates)
•
Commercial: New contract awards have been secured but will not begin to be realized until 2016, as timing of awards has slipped
•
Recent enhancements to leadership team include new CEO, President, CFO, CGO and SVP, Training and Mission Support
• •
Ongoing operational initiatives related to Training and other operations will yield additional cost savings in 2016 August 2015 reorganization and stream-lining of government business will produce ~$10M in annual cost savings and leaner management structure
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November 18, 2015 - Business Confidential
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Constellis Group – Consolidated Pro Forma Earnings
Constellis Proprietary Information
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FY 2015 Q3 Financial Results Constellis Group – Consolidated Pro Forma Earnings Q3 2014 Revenue: Government Commercial Total Revenue
Q3 2015
Variance to PY $ %
$188.0 66.0 $254.0
$194.2 61.4 $255.7
$6.2 (4.6) $1.6
3.3% (6.9%) 0.6%
Gross Profit: Government Commercial Total Gross Profit
$30.6 21.0 $51.6
$32.3 16.6 $48.9
$1.7 (4.4) ($2.8)
5.5% (21.2%) (5.4% )
Gross Margin: Government Commercial Total Gross Margin
16.3% 31.8% 20.3%
16.6% 27.0% 19.1%
SG&A Depreciation and Amortization Total Indirect Expense
$36.6 $5.2 $41.8
$33.1 $8.4 $41.5
($3.5) $3.1 ($0.3)
(9.5%) 60.1% (0.8% )
Operating Income
$9.8
$7.4
($2.4)
(24.7% )
Interest Expense Extinguishment of Debt Income Tax Expense Other (income) expense Net Income (Loss)
2.8 0.0 3.9 0.2 $2.9
13.4 0.4 4.1 0.1 ($10.5)
10.6 0.4 0.2 (0.1) ($13.5)
375.1% NM 6.1% (47.0%) (460.0% )
EBITDA % Margin
$17.6 6.9%
$18.1 7.1%
$0.5 0.2%
2.9% 2.2%
Total Adjustments Pro Forma Adjusted EBITDA % Margin
13.4 $31.0 12.2%
26.7 $44.8 17.5%
13.3 $13.8 5.3%
99.3% 44.6% 43.6%
0.3% (4.9%) (1.2% )
Note: OG/EI allocates its Overhead as a part of its SG&A. In addition, OG/EI allocates Depreciation associated with Direct projects in its Cost of Goods Sold. Constellis Proprietary Information
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FY 2015 Q3 Financial Results Constellis Group – Consolidated Pro Forma Earnings 2014 Pro Forma Revenue: Government Commercial Total Revenue
Q1 2015 Actual
Q2 2015 Actual
Q3 2015 Actual
Q4 2015 EAC
LTM Q3 2015
2015 EAC
$755.8 270.5 $1,026.3
$184.8 59.0 $243.8
$197.4 57.9 $255.3
$194.2 61.4 $255.7
$205.8 59.9 $265.7
$774.1 242.1 $1,016.2
$782.2 238.3 $1,020.5
$148.8 83.1 $231.9
$42.1 17.5 $59.6
$37.7 16.7 $54.4
$32.3 16.6 $48.9
$39.7 16.3 $56.1
$155.7 71.5 $227.2
$151.8 67.1 $218.9
22.8% 29.7% 24.5%
19.1% 28.8% 21.3%
16.6% 27.0% 19.1%
19.3% 27.3% 21.1%
$143.5 37.3 $180.8
$32.0 6.2 $38.3
$30.0 6.9 $37.0
$33.1 8.4 $41.5
$21.7 6.9 $28.5
$131.1 30.8 $161.9
$116.9 28.4 $145.3
Operating Income
$51.1
$21.4
$17.4
$7.4
$27.5
$65.3
$73.7
Interest Expense Loss on Extinguishment of Debt Income Tax Expense Other (income) expense Net Income (Loss)
50.3 0.0 3.1 (0.4) ($1.9)
5.7 0.0 3.7 (0.2) $12.1
10.6 7.1 4.1 (0.7) ($3.7)
13.4 0.4 4.1 0.1 ($10.5)
13.0 0.0 4.2 (0.5) $10.8
42.2 7.5 12.7 (0.8) $3.7
42.7 7.5 16.1 (1.2) $8.6
EBITDA % Margin
$88.8 8.7%
$30.4 12.5%
$20.5 8.0%
$18.1 7.1%
$37.6 14.2%
$89.4 8.8%
$106.6 10.4%
80.4 $169.2 16.5%
7.9 $38.3 15.7%
15.6 $36.1 14.1%
26.7 $44.8 17.5%
4.5 $42.2 15.9%
70.3 $159.8 15.7%
54.8 $161.4 15.8%
Gross Profit: Government Commercial Total Gross Profit Gross Margin: Government Commercial Total Gross Margin SG&A Depreciation and Amortization Total Indirect Expense
Total Adjustments Pro Forma Adjusted EBITDA % Margin
19.7% 30.7% 22.6%
20.1% 29.6% 22.4%
19.4% 28.2% 21.5%
Note: OG/EI allocates its Overhead as a part of its SG&A. In addition, OG/EI allocates Depreciation associated with Direct projects in its Cost of Goods Sold. Constellis Proprietary Information
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FY 2015 Q3 Financial Results Constellis Group – Consolidated 9/30/15 (12/31/14 Excludes Olive Group) Assets Cash A/R Net Inventory Prepaids & Other Current Total Current Assets PPE, Net Intangibles Goodwill Deposits & Other Long-Term Total Assets
9/30/15 $69.3 224.4 9.5 63.8 $367.0
12/31/14 $7.1 207.1 5.9 39.2 $259.3
111.1 181.0 245.6 13.2 $917.9
74.3 95.7 176.7 12.8 $618.8
Liabilities & Equity AP & Other Accrueds Accrued Compensation Current Portion Long-Term Debt Other Current Liabilities Total Current Liabilities Long-Term Debt Other Long-Term Liabilities Total Liabilities Total Equity Total Liabilities & Equity
9/30/15 $161.8 29.4 0.3 3.1 $194.5
12/31/14 $108.5 34.8 17.8 2.8 $163.9
618.6 17.2 $830.3 87.6 $917.9
282.5 25.2 $471.6 147.2 $618.8
Note: 12/31/14 figures exclude Olive Group
Assets •
Cash balance was positively impacted by ongoing efforts to improve invoicing and collections, as well as the positive impact of the DoS fiscal year closeout initiatives
•
Accounts receivable increased due to contributions from Olive Group; however, on a pro forma basis, A/R decreased significantly due to accelerated DoS collections and ongoing efforts related to unbilled receivables •
•
Adjusted DSOs were 67 days in September 30, 2015, versus 80 days in June 30, 2015
Increases in other balances primarily reflect acquisition of Olive Group in May 2015
Liabilities & Equity •
Increase in debt related to new capital structure implemented in conjunction with acquisition of Olive Group in May 2015
Constellis Proprietary Information
November 18, 2015 - Business Confidential
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FY 2015 Q3 Financial Results – Normalized SG&A Constellis Group – Consolidated Pro Forma Earnings Q3 2014 Revenue: Government Commercial Total Revenue
Q3 2015
Variance to PY $ %
$188.0 66.0 $254.0
$194.2 61.4 $255.7
$6.2 (4.6) $1.6
3.3% (6.9%) 0.6%
Gross Profit: Government Commercial Total Gross Profit
$30.6 21.0 $51.6
$32.3 16.6 $48.9
$1.7 (4.4) ($2.8)
5.5% (21.2%) (5.4% )
Gross Margin: Government Commercial Total Gross Margin
16.3% 31.8% 20.3%
16.6% 27.0% 19.1%
SG&A Depreciation and Amortization Total Indirect Expense
$21.1 $5.2 $26.3
$21.3 $8.4 $29.7
$0.3 $3.1 $3.4
Operating Income
$25.3
$19.2
($6.2)
(24.3% )
Interest Expense Extinguishment of Debt Income Tax Expense Other (income) expense Net Income (Loss)
2.8 0.0 3.9 0.2 $18.4
13.4 0.4 4.1 0.1 $1.2
10.6 0.4 0.2 (0.1) ($17.3)
375.1% NM 6.1% (47.0%) (93.7% )
EBITDA % Margin
$33.1 13.0%
$29.9 11.7%
($3.2) (1.3%)
(9.8% ) (10.3%)
Total Adjustments Pro Forma Adjusted EBITDA % Margin
(2.1) $31.0 12.2%
15.0 $44.8 17.5%
17.1 $13.8 5.3%
(812.3%) 44.6% 43.6%
0.3% (4.9%) (1.2% ) 1.2% 60.1% 12.9%
SG&A (Not Normalized)
November 18, 2015 - Business Confidential
$33.1
FY14 Q3 FY15 Q3 Transaction Expense $8.0 $6.0 Other non-recurring costs 0.0 0.2 Temporary Staffing 0.0 0.5 Severence Costs 0.0 1.0 CIC Bonus 0.0 (1.4) Headcount and compensation rationalization 5.0 0.0 Rationalization of employee benefit, insurance, 0.0 and facilities 0.0 Pro Forma Olive Group Synergies 2.5 3.0 Pro Forma Gov't Group Synergies 0.0 2.4 Total 2015 SG&A Expenses $15.5 $11.8 Normalized SG&A
$21.1
$21.3
Implied SG&A Annual Run Rate
$84.4
$85.4
YoY % Change
Constellis Proprietary Information
$36.6
1.2%
9
FY 2015 EAC Financial Results – Normalized SG&A Constellis Group – Consolidated Pro Forma Earnings 2014 Pro Forma Revenue: Government Commercial Total Revenue Gross Profit: Government Commercial Total Gross Profit Gross Margin: Government Commercial Total Gross Margin
Q1 2015 Actual
Q2 2015 Actual
Q3 2015 Actual
Q4 2015 EAC
LTM Q3 2015
2015 EAC
$755.8 270.5 $1,026.3
$184.8 59.0 $243.8
$197.4 57.9 $255.3
$194.2 61.4 $255.7
$205.8 59.9 $265.7
$774.1 242.1 $1,016.2
$782.2 238.3 $1,020.5
$148.8 83.1 $231.9
$42.1 17.5 $59.6
$37.7 16.7 $54.4
$32.3 16.6 $48.9
$39.7 16.3 $56.1
$155.7 71.5 $227.2
$151.8 67.1 $218.9
22.8% 29.7% 24.5%
19.1% 28.8% 21.3%
16.6% 27.0% 19.1%
19.3% 27.3% 21.1%
19.7% 30.7% 22.6%
20.1% 29.6% 22.4%
19.4% 28.2% 21.5%
SG&A Depreciation and Amortization Total Indirect Expense
$83.7 37.3 $121.0
$24.6 6.2 $30.8
$21.3 6.9 $28.2
$21.3 8.4 $29.7
$19.0 6.9 $25.9
$88.2 30.8 $119.0
$86.2 28.4 $114.6
Operating Income
$110.9
$28.8
$26.2
$19.2
$30.2
$108.2
$104.3
Interest Expense Loss on Extinguishment of Debt Income Tax Expense Other (income) expense Net Income (Loss)
50.3 0.0 3.1 (0.4) $57.9
5.7 0.0 3.7 (0.2) $19.5
10.6 7.1 4.1 (0.7) $5.1
13.4 0.4 4.1 0.1 $1.2
13.0 0.0 4.2 (0.5) $13.5
42.2 7.5 12.7 (0.8) $46.5
42.7 7.5 16.1 (1.2) $39.2
EBITDA % Margin
$148.6 14.5%
$37.8 15.5%
$29.2 11.4%
$29.9 11.7%
$40.3 15.2%
$132.3 13.0%
$137.3 13.5%
Total Adjustments Pro Forma Adjusted EBITDA % Margin
20.6 $169.2 16.5%
0.5 $38.3 15.7%
6.9 $36.1 14.1%
15.0 $44.8 17.5%
1.8 $42.2 15.9%
27.4 $159.8 15.7%
24.1 $161.4 15.8%
Constellis Proprietary Information
2014 $ 143.5
Q1 $ 32.0
Q2 $ 30.0
2015 Q3 $ 33.1
Q4 $ 21.7
Total $ 116.9
Transaction Expenses Other non-recurring costs Temporary Staffing Severance Costs CIC Bonus Headcount and compensation rationalization Rationalization of employee benefit, insurance, and facilities Pro Forma Olive Group Synergies Pro Forma Gov't Group Synergies Total SG&A Expenses
19.7 0.0 0.0 0.0 0.0 25.6 4.5 10.0 0.0 $59.8
0.0 0.1 0.3 0.0 0.7 0.0 0.0 4.0 2.4 $7.4
1.3 0.0 0.2 0.0 0.7 0.0 0.0 4.0 2.4 $8.7
6.0 0.2 0.5 1.0 (1.4) 0.0 0.0 3.0 2.4 $11.8
0.5 0.2 0.5 0.5 0.0 0.0 0.0 0.5 0.5 $2.7
7.9 0.6 1.4 1.5 0.0 0.0 0.0 11.5 7.7 $30.6
SG&A (Normalized)
$83.7
$24.6
$21.3
$21.3
$19.0
$86.2
2015 Q4 SG&A Annualized Run Rate
$83.7
$98.4
$85.2
$85.4
$76.0
SG&A (Not Normalized)
2015 Q4 vs 2014 % Change
-9%
FY15 normalized SG&A expenses of $86.2M are 30% lower than FY14 incurred SG&A expenses (excluding FY14 transaction expenses) of $123.8M
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Liquidity Outlook Next Twelve Months
Key Drivers •
DoS billing / payment office shutdown created a significant pull-forward in cash in late September 2015 •
However, this event also prevented Constellis from invoicing on all DoS contracts for approximately one month, creating a gap in cash flow
•
Major DBA installment payments were completed in midSeptember 2015
•
Notes interest payment of $22.5M and implementation of new DBA / insurance policies, although at lower rates, created liquidity reduction in Q4
•
Ongoing headcount reductions and operational improvement initiatives are expected to positively impact 2016 cash flow
•
Significant improvement in DSOs expected in 2016
Updates Regarding Notable Cash Items •
Tax refund ($14.7M) expected to be collected in December 2015 / early 2016
•
Unbilled collection efforts of new finance team continue to produce additional cash flow for the Company:
•
Constellis Proprietary Information
•
Conservatively, we expect to collect at least $10M of additional items in 2016
•
Identified areas where we can invoice for material cost recoveries, which will enhance 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
November 18, 2015 - Business Confidential
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Constellis Group – Government Earnings
Constellis Proprietary Information
November 18, 2015 - Business Confidential
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Business Update – Government Key wins in Q3 • • • • • •
CNTPO (5 TORPs): Book value of $14.3M // PoP: Sep 2015 – Sep 2016 (CCIR) DHS Fusion Center Support Services: Book value of $2.2M // PoP: June 2015 – Dec 2015 (Domestic Security) DHS FPS Oklahoma: Book value of $48M // PoP: Nov 2015-Nov 2019 (Domestic Security) DIA IPMT FACT: Book value of $7.3M // PoP: 60 months (Training) IC: Book value of $6.8M // PoP: 12 months (Mission Support) WPS Construction Mod: $7.7M // PoP: 9 months (Mission Support)
Key Opportunities • • •
•
64 proposals under evaluation with a book value of $1.1B WPS II recompete award has been further delayed due to pre-award protest – delay provides advantages to Constellis as the incumbent with largest share of contract (allows extension of period of performance at existing rates) KBOSSS recompete – the current contract was extended through March 2016 with a 90 day transition period through June 2016. We believe the contract could be extended into late 2016, but we are also focused on competing for the new contract and are competing on multiple teams IDIQ’s (AFRICAP DoS Africa Support $1.5B)
Business Environment •
Clear indications of continued presence in Afghanistan. On October 15, 2015, President Obama announced continued U.S. presence through at least 2017. Increased requirements in Iraq have been slow to develop but show potential in 2016 and 2017
Liquidity • •
Business has sufficient liquidity to fund future growth requirements Based off current run rates we expect to have > $80M in liquidity in 6 months and > $110M in 12 months
Management • •
Recent enhancements to leadership team include new CEO, President, CFO, CGO and SVP, Training and Mission Support August 2015 reorganization and stream-lining of government business will produce ~$10M in cost savings and leaner management structure
Constellis Proprietary Information
November 18, 2015 - Business Confidential
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FY 2015 Q3 Financial Results Constellis Group – Government Earnings (Excluding OG and EI) Q3 2014 $188.0
Q3 2015 $194.2
Gross Profit Gross Margin
$30.6 16.3%
$32.3 16.6%
$1.7 0.3%
5.5% 2.1%
SG&A Depreciation and Amortization Total Indirect Expense
$22.8 $4.6 $27.4
$24.0 $8.1 $32.1
$1.2 $3.4 $4.7
5.3% 74.4% 17.0%
$3.2
$0.2
($3.0)
(92.8% )
Interest Expense Extinguishment of Debt Income Tax Expense Other (income) expense Net Income (Loss)
2.4 0.0 2.7 0.2 ($2.1)
13.5 0.4 1.1 0.1 ($14.9)
11.1 0.4 (1.6) (0.1) ($12.8)
459.3% NM (59.0%) (41.4%) 623.7%
EBITDA % Margin
$7.6 4.1%
$7.8 4.0%
$0.1 (0.1%)
1.6% (1.6%)
9.9 $17.5 9.3%
23.0 $30.7 15.8%
13.1 $13.2 6.5%
131.9% 75.2% 69.7%
Revenue
Operating Income
Total Adjustments Pro Forma Adjusted EBITDA % Margin
Variance to PY $ % $6.2 3.3%
Prior Year •
Q3 revenue and profit positively impacted by plus-ups on existing contracts
•
Increases to indirect costs were partially offset by realized synergies resulting from the consolidation of support services during the integration of Triple Canopy
Current Year •
Q3 2015 revenue was 2% below forecast due to Government rescinding a modification that impacted contract profitability
•
Indirect expenses increased due to the transaction and depreciation expenses related to the acquisition of Olive Group
•
Interest expense increased related to new $450M senior secured notes and ABL credit facility in 2015
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FY 2015 Q3 Financial Results Constellis Group – Government Earnings (Excluding OG and EI) 2014 Pro Forma $755.8
Q1 2015 Actual $184.8
Q2 2015 Actual $197.4
Q3 2015 Actual $194.2
Q4 2015 EAC $205.8
LTM Q3 2015 $774.1
2015 EAC $782.2
Gross Profit Gross Margin
$148.8 19.7%
$42.1 22.8%
$37.7 19.1%
$32.3 16.6%
$39.7 19.3%
$155.7 20.1%
$151.8 19.4%
SG&A Depreciation and Amortization Total Indirect Expense
98.1 25.3 $123.4
17.7 5.6 $23.4
17.1 6.3 $23.5
24.0 8.1 $32.1
13.5 6.6 $20.0
83.4 26.3 $109.8
72.4 26.6 $99.0
$25.4
$18.7
$14.3
$0.2
$19.7
$45.9
$52.9
47.2 0.0 2.3 (0.4) ($23.6)
5.3 0.0 3.3 (0.3) $10.4
9.9 7.1 3.5 (0.6) ($5.6)
13.5 0.4 1.1 0.1 ($14.9)
13.0 0.0 2.8 (0.4) $4.3
40.5 7.5 8.4 (0.8) ($9.7)
41.7 7.5 10.6 (1.1) ($5.8)
$51.1 6.8%
$24.6 13.3%
$14.1 7.1%
$7.8 4.0%
$26.6 12.9%
$65.5 8.5%
$73.1 9.3%
60.4 $111.5 14.8%
2.0 $26.6 14.4%
10.5 $24.5 12.4%
23.0 $30.7 15.8%
3.2 $29.9 14.5%
50.5 $116.0 15.0%
38.6 $111.7 14.3%
Revenue
Operating Income Interest Expense Loss on Extinguishment of Debt Income Tax Expense Other (income) expense Net Income (Loss) EBITDA % Margin Total Adjustments Pro Forma Adjusted EBITDA % Margin •
Q4 forecasted revenue is based almost entirely upon current contracts and secured uplifts – no “go-get” included
•
EAC reflects revised timing of WPS uplift and associated training/life support/infrastructure projects. Additional pipeline was shifted to 2016 due to award delays
•
One year review of TC integration combined with reduced forecast has resulted in reorganization to streamline the USG line of business and materially reduce indirect costs. We expect a reduction of approximately $10M annualized with a portion – $2M – realized in Q4 2015
•
Additional opportunities for synergy across the USG and commercial lines of business will be identified in Q4 2015
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Constellis Group – Commercial Earnings
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Business Update – Commercial (Olive Group & EI) Key wins in Q3 •
Total contract value awarded in Q3 of $79M – five wins from blue-chip oil and gas and infrastructure clients for work to be performed in Iraq and other areas in the Middle East
Key Opportunities •
$6B in proposals under evaluation of which approximately $400M down selected for award eminent with existing new customers.
Business Environment •
Although there continues to be downward pressure on capex and opex budgets in the Oil & Gas sector, resulting in some projects being delayed or cancelled, significant demand remains for our services in our core markets. However, clients are becoming increasingly sensitive to price. We are confident that due to efficiencies gained through integration, a cost base that is constantly being reviewed and through scale we will continue to be able to provide flexible solutions for clients at a highly competitive price
•
There was one significant event to report in Q3 from an HSE perspective during 3.2M man hours worked and 2.6M km driven
•
Awarded certificate for 10 million safe man hours of operation without a recordable incident by the Exxon Operational Concession in Iraq
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FY 2015 Q3 Financial Results Constellis Group – Commercial Earnings (Olive Group & EI) Q3 2014 $66.0
Q3 2015 $61.4
Gross Profit Gross Margin
$21.0 31.8%
$16.6 27.0%
($4.4) (4.9%)
(21.2% ) (15.3%)
SG&A Depreciation and Amortization Total Indirect Expense
$13.8 0.6 $14.4
$9.1 0.3 $9.4
($4.7) (0.3) ($5.0)
(34.1%) (50.0%) (34.7% )
Operating Income
$6.6
$7.2
$0.6
Interest Expense Loss on Extinguishment of Debt Income Tax Expense Other (income) expense Net Income (Loss)
0.4 0.0 1.2 0.0 $5.0
(0.1) 0.0 3.0 0.0 $4.3
(0.5) 0.0 1.8 (0.0) ($0.7)
(124.7%) NM 150.0% (100.0%) (14.4% )
EBITDA % Margin
$10.0 15.1%
$10.4 16.9%
$0.3 1.7%
3.8% 11.5%
Total Adjustments Pro Forma Adjusted EBITDA % Margin
3.5 $13.5 20.4%
3.7 $14.1 23.0%
0.2 $0.6 2.5%
6.9% 4.6% 12.4%
Revenue
Current Year • •
Prior Year • • •
Variance to PY $ % ($4.6) (6.9%)
8.5%
Actual Q3 revenue was 2% lower than plan, with margins being reduced below plan due to the use of subcontractors. This was due to delays in importation and registration of armored vehicles. These vehicles are now available for use Indirect costs are 8% lower than the Q2 plan and 30% lower than Q2. This is as a result of both integration activities and targeted cost reduction program implemented due to revenue being below plan
The YoY decrease in revenue in Q3 was as a result of a reduction in revenues from USG and EPC clients in Iraq Indirect costs in Q3 include those related to expanded operating footprint in Africa. Excluding these costs, Q3 reported indirect costs are 37% lower than the prior year The significant reduction in overheads mean that profitability has improved even though YoY revenue has fallen
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FY 2015 Q3 Financial Results Constellis Group – Commercial Earnings (Olive Group & EI) 2014 Pro Forma $270.5
Q1 2015 Actual $59.0
Q2 2015 Actual $57.9
Q3 2015 Actual $61.4
Q4 2015 EAC $59.9
LTM Q3 2015 $242.1
2015 EAC $238.3
Gross Profit Gross Margin
$83.1 30.7%
$17.5 29.7%
$16.7 28.8%
$16.6 27.0%
$16.3 27.3%
$71.5 29.6%
$67.1 28.2%
SG&A Depreciation and Amortization Total Indirect Expense
$45.4 12.0 $57.4
$14.3 0.6 $14.9
$12.9 0.6 $13.5
$9.1 0.3 $9.4
$8.2 0.3 $8.5
$47.7 4.5 $52.2
$44.5 1.8 $46.3
Operating Income
$25.7
$2.6
$3.2
$7.2
$7.8
$19.4
$20.8
Interest Expense Loss on Extinguishment of Debt Income Tax Expense Other (income) expense Net Income (Loss)
3.1 0.0 0.8 0.0 $21.8
0.4 0.0 0.5 0.1 $1.7
0.7 0.0 0.6 (0.1) $1.9
(0.1) 0.0 3.0 0.0 $4.3
0.0 0.0 1.4 (0.1) $6.5
1.8 0.0 4.3 0.0 $13.3
1.0 0.0 5.5 (0.1) $14.4
EBITDA % Margin
$37.7 13.9%
$5.8 9.8%
$6.4 11.1%
$10.4 16.9%
$11.0 18.3%
$23.9 9.9%
$33.6 14.1%
Total Adjustments Pro Forma Adjusted EBITDA % Margin
20.0 $57.7 21.3%
6.0 $11.8 19.9%
5.1 $11.5 19.9%
3.7 $14.1 23.0%
1.3 $12.3 20.5%
19.8 $43.7 18.1%
16.1 $49.7 20.8%
Revenue
Note: OG/EI allocates its Overhead as apart of its SG&A. In addition, OG/EI allocates Depreciation associated with Direct projects in its Cost of Goods Sold. • The full year revenue EAC is lower than Q2 by $25.6m (10%). This is mainly due to the delay in the award of several material contracts which are now expected to be awarded in Q4 / Q1 2016. The bridge from the Q2 EAC to the Q3 EAC can be found on the following page • Current backlog covers 99% of full year forecast • •
Exit order book is expected to be strong at $200m+, with over $250m of total contract value, for which we are well positioned, due for award prior to 31 December The impact of the efficiencies resulting from the integration exercise are now starting to be reflected in the reported financials, which can be seen by a 30% reduction in overheads between Q2 and Q3
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FY 2015 EAC Revision Bridge Constellis Group – Commercial Earnings (Olive Group & EI) Previous Guidance vs Updated Forecast 46.0
44.0
Projects which have been lost
(2.2)
42.0
US$ m's
(1.4) (0.4)
0.8
40.0
(1.7)
45.0
Project awards which have been delayed
(1.0) (0.5)
38.0
(0.5)
38.2
36.0
34.0 Q2 Forecast AEBITDA
Contract 1
Contract 2
Contract 3
Indirects - upside
Contract 4
Contract 5
Contract 6
•
The FY15 AEBITDA EAC has reduced by 14% from the Q2 forecast. This is mainly as a result of lower than expected revenues in FY 15
•
Of the reduction in AEBITDA, 57% relates to revenue from contracts that have not yet been awarded
Contract 7
Q3 Forecast AEBITDA
Olive / EI are still well positioned to be awarded this work, and would expect the benefits to flow through in the financials in FY16 Q1/Q2. •
The overhead reduction program is running ahead of forecast, with an upside of $0.8M compared to the FY15 Q2 EAC
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Integration & Follow–on Optimization •
The 60 day plan which integrated Edinburgh International with Olive Group ended in FY15 Q3, with expected savings of ~$16M on an annualized basis. The realization of these savings can be seen both in the reported financials for FY15 Q3 and the EAC for FY15 Q4.
•
Although integration has been formally been completed, there are two additional areas of focus to identify and deliver further cost savings across the group. These are:
•
–
The upward integration of Olive into the wider Constellis, including leveraging economies of scale from common suppliers, identification and removal of duplication and sharing of best practice
–
Optimization of existing resources within Olive / Edinburgh International to ensure that delivery across all aspects of the business is as efficient as possible
It is expected that additional annualized savings of $1M+ will be identified in FY15 Q4 and realized in FY15 Q4 and FY16 Q1.
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Questions
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