Constellis MDA FY16 Q1
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CONSTELLIS HOLDINGS, LLC (“CONSTELLIS” OR THE “COMPANY”) UNAUDITED 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. Company Overview Constellis Holdings, LLC and subsidiaries (the “Company”) (previously Academi Holdings, LLC and subsidiaries) provides vertically integrated risk management solutions and complex program management support solutions to governments and commercial customers worldwide. Its primary services include integrated security and technical operations, domestic and international training (to law enforcement, military, and civilian customers), security assessment and analysis, risk mitigation, and technology solutions. By integrating analysis, planning, program management and training with fundamentals such as security, logistics, information, medical and life support services, the Company creates and sustains a secure operational environment and provides analytical services for its customers. Primary customers include the U.S. Department of State, U.S. Department of Defense, U.S. Intelligence Community, U.S. Department of Energy, foreign governments, and multinational commercial oil & gas customers. The Company is headquartered in Reston, Virginia. Basis of Presentation The consolidated financial statements and the notes thereto included elsewhere in this reporting package comprise the financial statements of Constellis and its wholly-owned subsidiaries, prepared in accordance with U.S. GAAP. Pro Forma consolidated results presented on page 8 and thereafter reflect the combined performance of all entities as though all acquisitions occurred prior to January 1, 2015. Recent Acquisitions On May 11, 2015, the Company acquired all of the outstanding shares of Olive Group Holdings Ltd. for a total purchase price of $215,565, which included $50,000 of Class A Units of the company at fair value. The acquisition was financed through the initial borrowings under a $125,000 asset-based revolving credit facility (“ABL facility”) and the issuance of $450,000 in senior secured notes, which also refinanced our existing senior credit facility, line of credit, and subordinated notes. The acquisition of Olive Group provides strategic expansion of our existing service lines into a high-growth commercial customer base. Key Components of our Results of Operations Revenues Revenues represent amounts billed on long-term contracts under cost reimbursement, time and material and fixed-price arrangements. Revenues from cost reimbursement contracts are recognized to the extent of costs incurred, plus a proportionate amount of fee earned. Revenues from time and material contracts are based on contractually defined billing rates applied to services performed and material delivered. Revenues from fixed-price contracts are recognized
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ratably over the period of contractual performance based on a ratio of costs incurred to date and total costs at completion. Cost of Revenues Cost of revenue includes all direct costs consisting of labor, travel, materials, equipment, subcontract, and other costs related to contract performance. All costs, both direct and indirect, are charged to expense as incurred. Other Operating Expenses Other operating expenses include all overhead costs and fringe costs, exclusive of depreciation and amortization, allocable to contracts. Selling, General and Administrative Expenses (“SG&A”) Our selling expenses consist primarily of salaries and other related expenses for our sales and marketing functions. Our general and administrative expenses consist primarily of salaries related to administration, finance, information technology, human resources, legal and compliance functions, as well as other related expenses, such as property costs, communication expenses and utility charges. Depreciation and Amortization Expense Depreciation and amortization expense represents the charge to earnings in respect of property and equipment, and other definite-lived intangible assets we hold. Depreciation expense is charged mainly on a straight-line basis over the useful lives of the respective assets. Amortization expense relates primarily to intangibles assets and goodwill and is amortized using a term based on historical customer attrition rates. Other Income Other income represents income from ancillary services provided at our training and lodging facilities during normal course of operations. Interest Income (Expense) Interest income (expense) represents the interest charge related to borrowings under our prior and existing credit facilities, as well as debt financing and other finance charges related to such borrowings. Results of Operations The following information should be read in conjunction with the information contained in our audited consolidated financial statements and the notes thereto.
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Operating Results for the Quarter Ended March 31, 2016 Compared to the Quarter Ended March 31, 2015 The following table set forth amounts from our consolidated financial statements for the quarter ended March 31, 2016 compared to the quarter ended March 31, 2015: Constellis Holdings, LLC & Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (AMOUNTS IN MILLIONS)
Quarter Ended March 31, 2016 Revenues
2015 $ 195.2
$ 40.8
20.9%
174.7
146.4
28.3
19.3%
61.3
48.8
12.5
25.7%
17.6 13.6 16.3
17.1 8.8 6.4
0.4 4.8 9.8
2.6% 54.1% 153.5%
13.9
16.4
(2.5)
(15.4%)
Gross profit Other operating expenses Selling, general and administrative expenses Depreciation and amortization Operating income Other (income) Expense Interest income Interest expense Other income, net Total other (income) expense
12.8 (0.3) 12.5
Net income before taxes Income tax provision $
Net Loss (Income) attributed to noncontrolling interest
(0.1) 5.3 (0.2) 5.0
$
0.1 7.5 (0.2) 7.4
(100.0%) 140.0% 89.2% 147.6%
1.4
11.4
(10.0)
(87.4%)
1.2
3.6
(2.4)
(67.4%)
7.8
$ (7.6)
(96.4%)
0.3
$
0.1
Net Income attributed to Constellis Holding, LLC
% Change
$ 236.0
Cost of revenue
Net Income
$ Change
0.2
(0.1) $
7.9
0.2 $ (7.8)
(249.8%) (97.9%)
Revenue. Our total revenues increased $40.8 million, or 20.9%, to $236.0 million for the quarter ended March 31, 2016, as compared to the same period in 2015. This increase was primarily driven by the acquisition of Olive Group on May 11, 2015. In addition to the acquisition, revenue increased due to new task order win under the WPS contract as well new contract wins under the domestic security business unit. Cost of revenues. Our cost of revenues increased $28.3 million, or 19.3%, for the quarter ended March 31, 2016, from cost of revenues of $146.4 million for the same period in 2015. The increase is primarily driven by the acquisition of Olive Group. Other factors include costs for new contracts wins as mentioned above.
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Gross profit. Gross profit for the quarter ended March 31, 2016 increased by $12.5 million from gross profit of $48.8 million in 2015, an increase of 25.7%. The increase was primarily driven by the acquisition of Olive Group and new contract wins. Other operating expenses. Other operating expenses increased 2.6% or $.4 million for the quarter ended March 31, 2016 compared to the same period in 2015. The increase is primarily related to the acquisition of Olive Group in May 2015. Selling, general and administrative expenses. SG&A expenses increased $4.8 million, or 54.1%, for the quarter ended March 31, 2016, from SG&A expenses of $8.8 million for 2015. The increase is primarily related to the acquisition of Olive Group in May 2015. Depreciation and amortization expense. Depreciation and amortization expense increased $9.8 million, or 153.5%, for the quarter ended March 31, 2016, from depreciation and amortization of $6.4 million in 2015. These increases are primarily the result of adoption of private company council accounting alternative to amortize goodwill over 10 years and other definite-lived intangible assets due to the addition of such assets from the acquisition of Triple Canopy and Olive Group. Interest expense, net. Interest expense increased $7.5 million, or 140.0%, for the quarter ended March 31, 2016, from interest expense of $5.3 million for 2015. This increase is due to an increase in borrowings during 2015, primarily in relation to the financing of the acquisition of Olive Group. Income tax provision. Income tax provision decreased by $2.4 million for the quarter ended March 31, 2016 from income tax expense of $3.6 million for 2015. The primary drivers of our effective tax rate decrease relates to the income tax benefits available to the Members of Constellis Holdings LLC resulting from the book losses in the partnership structure and the foreign tax credit generated from foreign taxes accrued by the partnership. The income tax benefits for these amounts are not recorded in the financial statements due to the flow through nature of the partnership structure. Net income (Loss). Net income (Loss) decreased ($7.6) million from $7.8 million for the quarter ended March 31, 2015 to $0.3 million for the same period in 2015. These decreases were primarily due to higher interest expense and increased amortization expense resulting from the previously mentioned adoption of private company council accounting alternative to amortize goodwill over 10 years. Liquidity and Capital Resources Sources and Uses of Liquidity Our primary uses of cash have been to finance our operating cash requirements, service indebtedness and fund capital expenditures. Our primary operating cash requirements are personnel costs, other direct costs, insurance, administrative costs, taxes and capital expenditures. We fund our liquidity needs primarily with cash flow from operations and borrowings under credit facilities. Based on management’s assessment of our business and prospects of future and current economic conditions, we believe that our cash and cash equivalents, cash flows from operations and borrowing base availability under our credit facilities will be adequate to fund our
4
liquidity needs for the next twelve months and beyond. Certain sources and uses of cash, such as the level of discretionary capital expenditures, borrowings and repayment of indebtedness, are generally within our control and are adjusted as necessary based on market conditions. However, our ability to meet our operating cash requirements and service our indebtedness are impacted by many factors outside of our control, including general economic conditions and the level capital expenditures we require in order to support the growth new contract wins from government and commercial customers. ABL Credit Facility Concurrent with the consummation of the Olive Group acquisition in May 2015, we entered an ABL Credit Facility to provide for borrowings and letters of credit of up to the lesser of (a) $125 million and (b) a borrowing base equal to billed receivables plus 60% of eligible unbilled receivables plus 50% of the fair market value of mortgaged property. All obligations under the ABL Credit Facility will be unconditionally guaranteed by our existing and future domestic subsidiaries, subject to certain exceptions. In addition, ERSM (International) Limited and Olive Group, each a business company registered and incorporated in the British Virgin Islands, may borrow up to $40 million of the ABL Credit Facility. Any such borrowings will benefit from the guarantees and the collateral under the ABL Credit Facility. Obligations under the ABL Credit Facility and the related guarantees are secured, subject to certain exceptions, by substantially all of our material owned assets. The ABL Credit Facility contains customary provisions relating to mandatory prepayments, voluntary prepayments, affirmative and negative covenants, including a minimum consolidated interest coverage ratio, and events of default. On August 10, 2015, in accordance with our existing debt agreements, we amended our ABL credit facility by increasing the size of the facility from $125 million to $137.5 million. All other terms of the ABL credit facility were unchanged. Senior Secured Notes due 2020 To fund the Olive Group acquisition and re-finance our existing senior and subordinated indebtedness, we also issued senior secured Notes with an aggregate principal amount of $450.0 million (the “Notes”). The Notes are fully and unconditionally guaranteed on a senior basis by each of our existing and future domestic restricted subsidiaries (other than immaterial subsidiaries), and bear interest at 9.75%. Obligations under the Notes are secured, subject to certain exceptions, by substantially all of our material owned assets. The liens securing the Notes are contractually subordinated to the liens securing the ABL Credit Facility pursuant to an intercreditor agreement. The Notes limit our ability and the ability of our restricted subsidiaries to, among other things: pay dividends, redeem subordinated indebtedness or make other restricted payments; incur or guarantee additional indebtedness or issue preferred stock; create or incur liens; incur dividend or other payment restrictions affecting our restricted subsidiaries; consummate a merger, consolidation or sale of all or substantially all of our or our subsidiaries’ assets; enter into transactions with affiliates; transfer or sell assets; engage in businesses other than our current business and reasonably related extensions thereof; designate subsidiaries as unrestricted subsidiaries; or take or omit to take any actions that would adversely affect or impair in any material respect the collateral securing the Notes.
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Cash Flows The following table shows our sources and uses of cash for the three months ended March 31, 2016 and 2015, respectively:
Quarter Ended March 31, 2016 2015 Net cash provided by (used in) Operating activities…………………………………………………………… 45.9 Investing activities……………………………………………………………………………. (0.8) Financing activities…………………………………………………………………………… (42.5) Total……………………………………………………………………………………………… 2.5
4.7 (0.3) (0.4) 4.0
Operating activities. Net cash used in operating activities increased for the three months ended March 31, 2016 compared to 2015. Various changes in working capital resulted in more cash used in operating activities in 2016 than 2015. Investing activities. Net cash used in investing activities increased for the three months ended March 31, 2016 as compared to 2015. Financing activities. Net cash from financing activities decreased for the three months ended March 31, 2016 as compared to 2015. This decrease was due primarily to the net payments made to ABL credit facility. Capital Expenditures Capital expenditures for three months ended March 31, 2016 and 2015 were $1.0 million and $0.3 million, respectively. These ongoing capital expenditures related primarily to the following uses in operating our business:
Growth capital expenditures (capital expenditures to purchase equipment associated with new contracts and projects that expand our operating capacity); and Maintenance capital expenditures (major capital expenditures for maintaining the usefulness of assets used in supporting our operations, capitalized expenditures on IT systems and software, and leasehold improvements).
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PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION FOR CONSTELLIS HOLDINGS, LLC The following unaudited pro forma combined consolidated financial information is intended to reflect how the acquisitions of Olive Group and Triple Canopy might have impacted our financial statements. Select Operating Data for the Quarter Ended March 31, 2016 Compared to Quarter Ended March 31, 2015 (Pro Forma)
Constellis Holdings, LLC & Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (AMOUNTS IN MILLIONS) Quarter Ended March 31, 2016 Revenues
$
Cost of Revenue
236.0
2015 $
$ Change
243.8
$
% Change
(7.8)
(3.2%) 3.2%
174.7
169.3
5.4
61.3
74.5
(13.2)
(17.7%)
17.6 13.6 16.3
22.8 21.5 8.9
(5.2) (7.9) 7.4
(22.9%) (36.8%) 83.0%
Operating Income
13.9
21.4
(7.5)
(34.9%)
Other (Income) Expense Interest income Interest expense Other income, net Total other income (expense)
0.0 12.8 (0.4) 12.5
(0.1) 5.7 (0.2) 5.5
0.1 7.1 (0.2) 7.0
(128.6%) 123.8% 76.3% 128.2%
1.4
15.9
(14.5)
(90.9%)
1.2
3.7
(2.6)
(69.1%)
Net Income
0.3
12.1
(11.9)
(97.7%)
Net Loss Attributed to Noncontrolling Interest
0.1
0.0
0.1
190.4%
Net Income Attributed to Constellis Holdings, LLC
0.2
12.1
(11.9)
(98.6%)
30.4
30.4
(0.1)
(0.2%)
0.8 2.4 3.4 0.0 0.0 2.8
0.4 6.4 1.3 (3.0) 1.9 0.9 -
0.3 (3.9) 2.1 3.0 (1.9) (0.9) 2.8
74.7% (62.1%) 155.1% (100.5%) (100.0%) (96.5%) NM
Gross Profit Other Operating Expenses Selling, general and administrative expenses Depreciation and amortization
Net Income Before Taxes Income Tax Provision
EBITDA Adjustments: Management Fees Headcount, Facilities and Other Cost Rationalization Non-recurring Contract Expenses Prior Period Items and Reserves Other Non-recurring Costs Other Indirect Cost Savings Optimization Cost Savings Pro Forma Adjusted EBITDA
$
7
39.8
$
38.3
$
1.5
3.8%
The tables below represent Constellis’ revenues by service line during the quarter ended March 31, 2016 and 2015:
REVENUE BY SERVICE QUARTER ENDED MAR 31, 2016 Security Services
$
2015
208.5 $
PERCENTAGE OF TOTAL 2016
2015
206.4
88.3%
84.6%
Program Management
11.5
25.4
4.9%
10.4%
Specialized Training
15.1
11.9
6.4%
4.9%
Other Total
1.0 $
236.0 $
0.2
0.4%
0.1%
243.8
100.0%
100.0%
Revenues from security services accounted for $208.5 million, or 88.3%, of revenues for the quarter ended March, 2016, as compared to $206.4 million, or 84.6%, of revenues for the same period in 2015. Revenues from program management, specialized training, and other support services accounted for $27.5 million, or 11.7%, of revenue for the quarter ended March 31, 2016, as compared to $37.5 million, or 15.4%, of revenue for the same period in 2015. These changes are due to a change in service mix resulting from a shift in requirements on current contracts. In addition, legacy Academi saw some organic growth from its existing contracts with DoD, DoS, and the intelligence community during 2016 as compared to the same period for 2015. Information Relating to Non-Guarantors In accordance with the Indenture, not all of our subsidiaries guarantee the senior secured notes. On a pro forma combined consolidated basis, non-guarantor subsidiaries (i) generated revenues for the quarter ended March 31, 2016 in an aggregate amount equal to $41.9million, respectively, which was 17.8% our pro forma combined consolidated revenues for such period; (ii) held assets with an aggregate book value of $85.1 million as of March 31, 2016, which was 10.0% of the aggregate book value of the Company’s pro forma combined consolidated assets as of such date.
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ratably over the period of contractual performance based on a ratio of costs incurred to date and total costs at completion. Cost of Revenues Cost of revenue includes all direct costs consisting of labor, travel, materials, equipment, subcontract, and other costs related to contract performance. All costs, both direct and indirect, are charged to expense as incurred. Other Operating Expenses Other operating expenses include all overhead costs and fringe costs, exclusive of depreciation and amortization, allocable to contracts. Selling, General and Administrative Expenses (“SG&A”) Our selling expenses consist primarily of salaries and other related expenses for our sales and marketing functions. Our general and administrative expenses consist primarily of salaries related to administration, finance, information technology, human resources, legal and compliance functions, as well as other related expenses, such as property costs, communication expenses and utility charges. Depreciation and Amortization Expense Depreciation and amortization expense represents the charge to earnings in respect of property and equipment, and other definite-lived intangible assets we hold. Depreciation expense is charged mainly on a straight-line basis over the useful lives of the respective assets. Amortization expense relates primarily to intangibles assets and goodwill and is amortized using a term based on historical customer attrition rates. Other Income Other income represents income from ancillary services provided at our training and lodging facilities during normal course of operations. Interest Income (Expense) Interest income (expense) represents the interest charge related to borrowings under our prior and existing credit facilities, as well as debt financing and other finance charges related to such borrowings. Results of Operations The following information should be read in conjunction with the information contained in our audited consolidated financial statements and the notes thereto.
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Operating Results for the Quarter Ended March 31, 2016 Compared to the Quarter Ended March 31, 2015 The following table set forth amounts from our consolidated financial statements for the quarter ended March 31, 2016 compared to the quarter ended March 31, 2015: Constellis Holdings, LLC & Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (AMOUNTS IN MILLIONS)
Quarter Ended March 31, 2016 Revenues
2015 $ 195.2
$ 40.8
20.9%
174.7
146.4
28.3
19.3%
61.3
48.8
12.5
25.7%
17.6 13.6 16.3
17.1 8.8 6.4
0.4 4.8 9.8
2.6% 54.1% 153.5%
13.9
16.4
(2.5)
(15.4%)
Gross profit Other operating expenses Selling, general and administrative expenses Depreciation and amortization Operating income Other (income) Expense Interest income Interest expense Other income, net Total other (income) expense
12.8 (0.3) 12.5
Net income before taxes Income tax provision $
Net Loss (Income) attributed to noncontrolling interest
(0.1) 5.3 (0.2) 5.0
$
0.1 7.5 (0.2) 7.4
(100.0%) 140.0% 89.2% 147.6%
1.4
11.4
(10.0)
(87.4%)
1.2
3.6
(2.4)
(67.4%)
7.8
$ (7.6)
(96.4%)
0.3
$
0.1
Net Income attributed to Constellis Holding, LLC
% Change
$ 236.0
Cost of revenue
Net Income
$ Change
0.2
(0.1) $
7.9
0.2 $ (7.8)
(249.8%) (97.9%)
Revenue. Our total revenues increased $40.8 million, or 20.9%, to $236.0 million for the quarter ended March 31, 2016, as compared to the same period in 2015. This increase was primarily driven by the acquisition of Olive Group on May 11, 2015. In addition to the acquisition, revenue increased due to new task order win under the WPS contract as well new contract wins under the domestic security business unit. Cost of revenues. Our cost of revenues increased $28.3 million, or 19.3%, for the quarter ended March 31, 2016, from cost of revenues of $146.4 million for the same period in 2015. The increase is primarily driven by the acquisition of Olive Group. Other factors include costs for new contracts wins as mentioned above.
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Gross profit. Gross profit for the quarter ended March 31, 2016 increased by $12.5 million from gross profit of $48.8 million in 2015, an increase of 25.7%. The increase was primarily driven by the acquisition of Olive Group and new contract wins. Other operating expenses. Other operating expenses increased 2.6% or $.4 million for the quarter ended March 31, 2016 compared to the same period in 2015. The increase is primarily related to the acquisition of Olive Group in May 2015. Selling, general and administrative expenses. SG&A expenses increased $4.8 million, or 54.1%, for the quarter ended March 31, 2016, from SG&A expenses of $8.8 million for 2015. The increase is primarily related to the acquisition of Olive Group in May 2015. Depreciation and amortization expense. Depreciation and amortization expense increased $9.8 million, or 153.5%, for the quarter ended March 31, 2016, from depreciation and amortization of $6.4 million in 2015. These increases are primarily the result of adoption of private company council accounting alternative to amortize goodwill over 10 years and other definite-lived intangible assets due to the addition of such assets from the acquisition of Triple Canopy and Olive Group. Interest expense, net. Interest expense increased $7.5 million, or 140.0%, for the quarter ended March 31, 2016, from interest expense of $5.3 million for 2015. This increase is due to an increase in borrowings during 2015, primarily in relation to the financing of the acquisition of Olive Group. Income tax provision. Income tax provision decreased by $2.4 million for the quarter ended March 31, 2016 from income tax expense of $3.6 million for 2015. The primary drivers of our effective tax rate decrease relates to the income tax benefits available to the Members of Constellis Holdings LLC resulting from the book losses in the partnership structure and the foreign tax credit generated from foreign taxes accrued by the partnership. The income tax benefits for these amounts are not recorded in the financial statements due to the flow through nature of the partnership structure. Net income (Loss). Net income (Loss) decreased ($7.6) million from $7.8 million for the quarter ended March 31, 2015 to $0.3 million for the same period in 2015. These decreases were primarily due to higher interest expense and increased amortization expense resulting from the previously mentioned adoption of private company council accounting alternative to amortize goodwill over 10 years. Liquidity and Capital Resources Sources and Uses of Liquidity Our primary uses of cash have been to finance our operating cash requirements, service indebtedness and fund capital expenditures. Our primary operating cash requirements are personnel costs, other direct costs, insurance, administrative costs, taxes and capital expenditures. We fund our liquidity needs primarily with cash flow from operations and borrowings under credit facilities. Based on management’s assessment of our business and prospects of future and current economic conditions, we believe that our cash and cash equivalents, cash flows from operations and borrowing base availability under our credit facilities will be adequate to fund our
4
liquidity needs for the next twelve months and beyond. Certain sources and uses of cash, such as the level of discretionary capital expenditures, borrowings and repayment of indebtedness, are generally within our control and are adjusted as necessary based on market conditions. However, our ability to meet our operating cash requirements and service our indebtedness are impacted by many factors outside of our control, including general economic conditions and the level capital expenditures we require in order to support the growth new contract wins from government and commercial customers. ABL Credit Facility Concurrent with the consummation of the Olive Group acquisition in May 2015, we entered an ABL Credit Facility to provide for borrowings and letters of credit of up to the lesser of (a) $125 million and (b) a borrowing base equal to billed receivables plus 60% of eligible unbilled receivables plus 50% of the fair market value of mortgaged property. All obligations under the ABL Credit Facility will be unconditionally guaranteed by our existing and future domestic subsidiaries, subject to certain exceptions. In addition, ERSM (International) Limited and Olive Group, each a business company registered and incorporated in the British Virgin Islands, may borrow up to $40 million of the ABL Credit Facility. Any such borrowings will benefit from the guarantees and the collateral under the ABL Credit Facility. Obligations under the ABL Credit Facility and the related guarantees are secured, subject to certain exceptions, by substantially all of our material owned assets. The ABL Credit Facility contains customary provisions relating to mandatory prepayments, voluntary prepayments, affirmative and negative covenants, including a minimum consolidated interest coverage ratio, and events of default. On August 10, 2015, in accordance with our existing debt agreements, we amended our ABL credit facility by increasing the size of the facility from $125 million to $137.5 million. All other terms of the ABL credit facility were unchanged. Senior Secured Notes due 2020 To fund the Olive Group acquisition and re-finance our existing senior and subordinated indebtedness, we also issued senior secured Notes with an aggregate principal amount of $450.0 million (the “Notes”). The Notes are fully and unconditionally guaranteed on a senior basis by each of our existing and future domestic restricted subsidiaries (other than immaterial subsidiaries), and bear interest at 9.75%. Obligations under the Notes are secured, subject to certain exceptions, by substantially all of our material owned assets. The liens securing the Notes are contractually subordinated to the liens securing the ABL Credit Facility pursuant to an intercreditor agreement. The Notes limit our ability and the ability of our restricted subsidiaries to, among other things: pay dividends, redeem subordinated indebtedness or make other restricted payments; incur or guarantee additional indebtedness or issue preferred stock; create or incur liens; incur dividend or other payment restrictions affecting our restricted subsidiaries; consummate a merger, consolidation or sale of all or substantially all of our or our subsidiaries’ assets; enter into transactions with affiliates; transfer or sell assets; engage in businesses other than our current business and reasonably related extensions thereof; designate subsidiaries as unrestricted subsidiaries; or take or omit to take any actions that would adversely affect or impair in any material respect the collateral securing the Notes.
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Cash Flows The following table shows our sources and uses of cash for the three months ended March 31, 2016 and 2015, respectively:
Quarter Ended March 31, 2016 2015 Net cash provided by (used in) Operating activities…………………………………………………………… 45.9 Investing activities……………………………………………………………………………. (0.8) Financing activities…………………………………………………………………………… (42.5) Total……………………………………………………………………………………………… 2.5
4.7 (0.3) (0.4) 4.0
Operating activities. Net cash used in operating activities increased for the three months ended March 31, 2016 compared to 2015. Various changes in working capital resulted in more cash used in operating activities in 2016 than 2015. Investing activities. Net cash used in investing activities increased for the three months ended March 31, 2016 as compared to 2015. Financing activities. Net cash from financing activities decreased for the three months ended March 31, 2016 as compared to 2015. This decrease was due primarily to the net payments made to ABL credit facility. Capital Expenditures Capital expenditures for three months ended March 31, 2016 and 2015 were $1.0 million and $0.3 million, respectively. These ongoing capital expenditures related primarily to the following uses in operating our business:
Growth capital expenditures (capital expenditures to purchase equipment associated with new contracts and projects that expand our operating capacity); and Maintenance capital expenditures (major capital expenditures for maintaining the usefulness of assets used in supporting our operations, capitalized expenditures on IT systems and software, and leasehold improvements).
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PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION FOR CONSTELLIS HOLDINGS, LLC The following unaudited pro forma combined consolidated financial information is intended to reflect how the acquisitions of Olive Group and Triple Canopy might have impacted our financial statements. Select Operating Data for the Quarter Ended March 31, 2016 Compared to Quarter Ended March 31, 2015 (Pro Forma)
Constellis Holdings, LLC & Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (AMOUNTS IN MILLIONS) Quarter Ended March 31, 2016 Revenues
$
Cost of Revenue
236.0
2015 $
$ Change
243.8
$
% Change
(7.8)
(3.2%) 3.2%
174.7
169.3
5.4
61.3
74.5
(13.2)
(17.7%)
17.6 13.6 16.3
22.8 21.5 8.9
(5.2) (7.9) 7.4
(22.9%) (36.8%) 83.0%
Operating Income
13.9
21.4
(7.5)
(34.9%)
Other (Income) Expense Interest income Interest expense Other income, net Total other income (expense)
0.0 12.8 (0.4) 12.5
(0.1) 5.7 (0.2) 5.5
0.1 7.1 (0.2) 7.0
(128.6%) 123.8% 76.3% 128.2%
1.4
15.9
(14.5)
(90.9%)
1.2
3.7
(2.6)
(69.1%)
Net Income
0.3
12.1
(11.9)
(97.7%)
Net Loss Attributed to Noncontrolling Interest
0.1
0.0
0.1
190.4%
Net Income Attributed to Constellis Holdings, LLC
0.2
12.1
(11.9)
(98.6%)
30.4
30.4
(0.1)
(0.2%)
0.8 2.4 3.4 0.0 0.0 2.8
0.4 6.4 1.3 (3.0) 1.9 0.9 -
0.3 (3.9) 2.1 3.0 (1.9) (0.9) 2.8
74.7% (62.1%) 155.1% (100.5%) (100.0%) (96.5%) NM
Gross Profit Other Operating Expenses Selling, general and administrative expenses Depreciation and amortization
Net Income Before Taxes Income Tax Provision
EBITDA Adjustments: Management Fees Headcount, Facilities and Other Cost Rationalization Non-recurring Contract Expenses Prior Period Items and Reserves Other Non-recurring Costs Other Indirect Cost Savings Optimization Cost Savings Pro Forma Adjusted EBITDA
$
7
39.8
$
38.3
$
1.5
3.8%
The tables below represent Constellis’ revenues by service line during the quarter ended March 31, 2016 and 2015:
REVENUE BY SERVICE QUARTER ENDED MAR 31, 2016 Security Services
$
2015
208.5 $
PERCENTAGE OF TOTAL 2016
2015
206.4
88.3%
84.6%
Program Management
11.5
25.4
4.9%
10.4%
Specialized Training
15.1
11.9
6.4%
4.9%
Other Total
1.0 $
236.0 $
0.2
0.4%
0.1%
243.8
100.0%
100.0%
Revenues from security services accounted for $208.5 million, or 88.3%, of revenues for the quarter ended March, 2016, as compared to $206.4 million, or 84.6%, of revenues for the same period in 2015. Revenues from program management, specialized training, and other support services accounted for $27.5 million, or 11.7%, of revenue for the quarter ended March 31, 2016, as compared to $37.5 million, or 15.4%, of revenue for the same period in 2015. These changes are due to a change in service mix resulting from a shift in requirements on current contracts. In addition, legacy Academi saw some organic growth from its existing contracts with DoD, DoS, and the intelligence community during 2016 as compared to the same period for 2015. Information Relating to Non-Guarantors In accordance with the Indenture, not all of our subsidiaries guarantee the senior secured notes. On a pro forma combined consolidated basis, non-guarantor subsidiaries (i) generated revenues for the quarter ended March 31, 2016 in an aggregate amount equal to $41.9million, respectively, which was 17.8% our pro forma combined consolidated revenues for such period; (ii) held assets with an aggregate book value of $85.1 million as of March 31, 2016, which was 10.0% of the aggregate book value of the Company’s pro forma combined consolidated assets as of such date.
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