Vectrus (VEC) Q1 2019 Earnings Call Transcript

Vectrus (VEC -0.46%)
Q1 2019 Earnings Call
May. 07, 2019, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for joining us for the Vectrus first-quarter 2019 earnings conference call and webcast. Today's call is being recorded. My name is Sarvis, and I'll be the operator for today's call. [Operator instructions] And now I'll pass the call over to your host, Mike Smith, vice president of investor relations and corporate development at Vectrus.

Please go ahead.

Mike Smith -- Vice President of Investor Relations and Corporate Development

Thank you. Good afternoon, everyone. Welcome to the Vectrus first-quarter 2019 earnings conference call. Joining us today are Chuck Prow, president and chief executive officer; and Bill Noon, acting chief financial officer.

Slides for today's presentation are available on our Investor Relations website, investors.vectrus.com. Please turn to Slide 2. During today's presentation, management will be making forward-looking statements pursuant to the safe harbor provisions of the federal securities laws. Please review our safe harbor statements in our press release and presentation materials for a description of some of the factors that may cause actual results to differ materially from the results contemplated by these forward-looking statements.

We assume no obligation to update our forward-looking statements. At this time, I would like to turn the call over to Chuck Prow.

Chuck Prow -- President and Chief Executive Officer

Thank you, Mike. Good afternoon, everyone. Thank you for joining us on the call today. Please turn to Slide 3.

Before we discuss quarterly results, I would like to congratulate our team on the recent LOGCAP V contract award. On April 12, Vectrus was awarded a seat on the $82 billion LOGCAP V contract and was awarded two of the seven areas of responsibility, the U.S. Central Command or CENTCOM and the U.S. Inter-Pacific Command or INDOPACOM.

Both the awards are central to the evolving U.S. and allied security requirements. We appreciate the army's confidence in our business and look forward to expanding support of our clients' most critical missions across the globe. This LOGCAP V award significantly improves our long-term financial visibility and positioning to include retaining our largest contract K-BOSSS, which is currently operating under a previously announced extension through March of 2020.

As such, we continue to remain confident in our strategy and five-year growth plan of $2.5 billion in revenue and 7% EBITDA margins. Finally, it should be noted that subsequent to the award, protests were filed with the GAO which we expect to be adjudicated by mid-August. Turning to the quarterly results. We had a solid start to the year with year-over-year improvements in revenue, EBITDA margins and earnings per share.

Revenue increased to $326 million, EBITDA margin expanded 60 basis points, while EPA grew 15% to $0.62. It is important to note that we achieved this growth while incurring acquisition-related cost and while continuing to phase-in and invest in our 2018 contract awards. Adjusting for the expenses of approximately $1 million associated with our M&A activities, including the acquisition of certain IT mission support contracts, EPS were $0.69. As Bill will discuss later in the call, while we expect these phase-ins will put pressure on our first-half 2019 profit, we remain confident in our full-year 2019 guidance.

Our growth-related activities are producing positive momentum and drove approximately $646 million of bookings in the first quarter, yielding both year over year and sequential improvements in backlog. We expect our bookings for the full year to remain strong based on recent awarded contracts, but could be impacted by the timing and outcome of protest. Our financial position remains strong and we will continue to drive future organic and inorganic growth through the utilization of our strong predictable cash flow and healthy balance sheet. With approximately $26 million in net debt, we remain well-positioned to pursue inorganic opportunities that align with our strategy.

As you can see, 2019 is off to a solid start as we continue our transformation to a higher value differentiated platform with the goal of becoming the leading converged infrastructure provider in the market. Now I will introduce Bill Noon, who will take you through the first-quarter results. Bill is our chief accounting officer and was named acting chief financial officer in April having joined Vectrus in 2016 after serving as an advisor since 2014.

Bill Noon -- Acting Chief Financial Officer

Thanks, Chuck, and good afternoon, everyone. I am excited to serve in this capacity and look forward to getting to know you all better. Let's move to Slide 4 to discuss our first-quarter results. Financial results for the quarter were solid with year-over-year improvements in revenue, margins and diluted earnings per share.

First-quarter 2019 revenue was $325.9 million, up $5.4 million or 2% as compared to the first quarter of 2018. The increase in revenue was due to increases of $6.5 million from Middle East programs, $1.3 million from European programs offset partially by a decrease of $2.4 million from U.S. programs. Our K-BOSSS contributed $121.4 million to revenue or 37% of total revenue.

Importantly, our growth-related activities, targeted campaigns and diversification strategy are becoming increasingly visible in our revenue streams. During the first quarter, we grew our revenue with the navy by 80% year over year and increased our air force revenue by 4%. Finally, we are seeing expansion within our intelligence and IRS clients. Operating income for the first quarter of 2019 was $10.4 million or 3.2% margin, an increase of $1.7 million or 50 basis points compared to the first quarter of 2018.

This growth is primarily due to our Middle East programs, partially offset by investments in our recently won programs and higher SG&A, including approximately $1 million of transaction costs associated with M&A activities. Operating margin, adding back the $1 million in transaction costs, would have been 3.5%. During the first quarter of 2019, we recorded net unfavorable cumulative adjustments to operating income of $1.1 million, compared to the net favorable adjustments of $2.8 million for the first quarter of 2018. There are many factors that drive contract performance, including program execution, contract modifications and scope changes.

Cumulative catch-up adjustments can be positive or negative are a normal part of this business and our guidance contemplates this reality. First-quarter 2019 interest expense was $1.6 million, $400,000 higher than the first quarter of 2018, reflecting borrowing against our revolver to meet short-term working capital requirements, which were subsequently repaid. EBITDA for the first quarter of 2019 was $11.8 million or 3.6% margin, an increase of $2.3 million or 24% from the first quarter of 2018. EBITDA margin expanded 60 basis points and adding back the $1 million in transaction costs would have been 3.9%.

Net income for the first quarter of 2019 was $7.1 million, compared to $6.1 million in the first quarter of 2018. The effective tax rate in the first quarter was 19.8%, compared to 18.6% in the first quarter of 2018. Diluted earnings per share for the first quarter of 2019 increased 15% to $0.62 from $0.54 in the first quarter of 2018. Transaction costs associated with M&A activities impacted EPS by $0.07 in the first quarter of 2019.

Now moving to our balance sheet and cash flow. Consistent with our recent trends, the first quarter resulted in net cash used in operating activities of $6.4 million, which was an improvement of $5.3 million compared to the first quarter of 2018. Days sales outstanding for the first quarter of 2019 was 66 days, compared to 68 days in the first quarter of 2018 reflecting differences in the timing of payments from customers. Our ability to generate strong cash flow is an important characteristic of our business and we continue to expect to generate over 100% cash conversion compared to net income in 2019 and beyond.

Total debt at the end of the quarter was $74 million, down from $78 million in the first quarter of 2018. Our leverage ratio of 1.2 times in the first quarter remains well below our covenant level of threes. Cash at quarter end was approximately $48 million for a net debt of $26 million. We have $110 million of available borrowing capacity under our revolver with the possibility to expand borrowings by an additional $100 million.

As Chuck mentioned, our strong balance sheet positions us well to deploy capital to support the execution of our growth strategy. Let's now move to Slide 5 to update you on our backlog. first-quarter 2019 total backlog was $3.4 billion, of which $1.1 billion was funded. Funded backlog increased 60% from year-end and 52% from the first quarter of 2018 through successful recompete awards, contract modifications and extensions which Chuck will detail more in a moment.

Book-to-bill for first quarter of 2019 was strong at two times and trailing 12 months book to bill was one times. Total backlog includes both funded and unfunded backlog and represents firm orders and potential options on multiyear contracts. Our contracts are multiyear contracts and the right to exercise an option period is at the sole discretion of the U.S. government or the prime contractor when we are a subcontractor.

Total backlog excludes potential orders under indefinite delivery and indefinite quantity contracts and new contract awards that are under protest. Our award momentum has continued into the second quarter with year-to-date wins totaling $2.2 billion, including contracts under protest. If we include the programs awarded in the second quarter and programs under protest, our pro forma total backlog would rise significantly and approximate $4.9 million. Our progress in new business wins, successful recompetes, modifications and expansions of scope through performance on existing client contracts and partnerships continues to grow our backlog and improve our visibility on future revenue.

Furthermore, our current pipeline for new business remains solid with approximately $1.7 billion in bids submitted awaiting award, which includes protested contracts. Additionally, with identified opportunities of over $7 billion that we plan to bid over the next 12 months, we are optimistic on our ability to win additional new work in support of our growth objectives. Chuck?

Chuck Prow -- President and Chief Executive Officer

Thanks, Bill. Let's move to Slide 6. Vectrus has made significant investments in growth-related talent and capability, which have resulted in higher win rates across the board and helped us to achieve approximately $2.2 billion in awards so far this year. The chart on the top of Slide 6 summarizes our strong award activity to-date in 2019.

As mentioned, subsequent to the first quarter, we were awarded a position on the LOGCAP V contract. The value of our initial task orders under LOGCAP V are approximately $1.4 billion. I'll discuss the potential opportunity associated with LOGCAP momentarily. Notably, during the first quarter, we were awarded a new five-year $117 million cost-plus fixed fee award to provide defensive cyber operations and operational and maintenance IT to a government client.

This was an important win for Vectrus assisted by the acquisition of SENTEL and representative of revenue synergy and action. It is important to note that this award is currently under protest and will be adjudicated in early August. Our ability to provide complex mission critical IT services in austere and challenging environments is a differentiator for Vectrus and an important reason behind this win. We leveraged our strong IT capabilities, which includes operating the largest overseas army cyber center and historical performance on our OMDAC-SWACA contract to provide our client with a value-added and differentiated solution.

We are honored to be a part of such an important mission and look forward to supporting our client with exceptional performance. During the first quarter, we were successful in winning the Navy Fleet Systems Engineering team or FSET recompete, which we have supported since the program's inception in 1999. This is a $151 million task order under which we will continue to provide end-to-end engineering support for C4I systems to the U.S. navy's afloat force.

Through our asset program, spectrum management next generation contract and Naval Station Guantanamo Bay win, Vectrus has been successful in expanding its navy footprint which is one of our growth campaigns. Within the navy, our efforts are starting to show progress as our revenue within this important client have increased 80% year over year in the first quarter. We continue to build on our air force campaign, which as a reminder, resulted in almost 50% revenue growth in 2018. I'm pleased to report that in the first quarter we were successfully awarded another task order under the AFCAP IV program.

This new task is a two-year $9 million firm fixed price effort to support the U.S. Air Force in the Middle East. We are also making great progress advancing our growth through partnerships and alliances, specifically Vectrus is actively partnering with other prime and federal contractors to team for larger opportunities across the federal marketplace. Our unique capabilities, broad geographic footprint and ability to operate in various environments are compelling to other federal contractors and ultimately allow each partner to focus on their comparative advantage.

This was demonstrated through a new five-year $32 million cost-plus contract to provide readiness support in Europe. This award which occurred in the second quarter is our second notable subcontract win to a major federal contractor. Additionally, we were awarded a subcontract position to provide mission support services to an intelligence community client under a multiple year IDIQ contract. We believe there are additional opportunities for partner expansion and key subcontractor awards in the future.

In addition to the aforementioned contract wins in the first quarter, we had several noteworthy achievements, including our first commercial contract for converged solutions, specifically thermal coating and solar lighting, a strategic win that surpasses its small financial contribution. We continue to advance our solutions business and are working closely with an industry partner to install an energy sustainability platform at an important military base. This market leading platform would improve power quality and energy resiliency at this particular base. Additionally, we are continuing our dialog with clients about their installations of the future.

More and more our clients are asking for input and assistance in thinking through how smart technologies and converged infrastructure can play a role in their installations of the future. This includes capabilities, which allow facility operators to view trends, monitor and control building energy consumption and detect equipment falls before they occur, as well as autonomous assessment of the DoD's infrastructure and of course how to advance cyber for operational technologies. Our intimate involvement in these areas is representative of how Vectrus is adding more value and positioning to be a leader in the converged infrastructure market. We have also expanded our solutions pipeline for new business and inserting technology into our current program base.

For example, I recently returned from visiting our new operations center in the Middle East where we have automated control of the work order management process and it is operating at scale. On a daily basis, the center provides enhanced management control of approximately 5,000 in-process work orders on a near real-time basis. In addition to significant enhancements in productivity, this new -- this new highly automated process improves client outcomes in terms of quality and service. Finally, we continue to focus on inorganic growth activity that aligns with our strategy and during the quarter, we made a small acquisition of certain mission IT contracts that further enhance our capability in cyber operations and software and technology deployment.

While the revenue contribution and cost are not material to our operations, the acquisition will strengthen our growth potential and also provide new client access and talent. Let's move to Slide 7 to discuss LOGCAP V in more detail. LOGCAP V is the army's $82 billion 10-year multiple award, indefinite delivery, indefinite quantity contract to provide supply operations, transportation services, engineering services, base camp services and other logistics sustainment and continuously support services. On April 12, the army issued LOGCAP V awards to Vectrus and three other competitors.

Vectrus was awarded the CENTCOM and INDOPACOM awards. The initial value of all task orders awarded under the contract were $3.5 billion with Vectrus receiving approximately 40% of the awarded value. As we have discussed with you for more than a year, LOGCAP V was a significant focus of our entire organization. The award of CENTCOM AOR enables us to retain work from our largest contract K-BOSSS and strengthens our incumbency in the award.

The INDOPACOM AOR award significantly expands our footprint in the vast Indo-Pacific region and provides a 10-year platform for growth. Furthermore, LOGCAP V provides Vectrus access to all additional non-urgent and compelling opportunities in all commands for the contract's 10-year duration. With LOGCAP V encompassing more normalized and enduring operations, maintenance and logistical activities; we see significant opportunity for future growth beyond our awarded tasks. This award is a testament of our ability to provide unique and differentiated solutions that are backed by exceptional performance in over 70 years of experience providing rapid response capabilities anywhere across the globe.

We believe that assuming normal protest timelines given the complexity and timing of various program transitions associated with LOGCAP V awards, the revenue resulting from these task orders would begin in 2020. Importantly, we believe that based on our current new business awards, pipeline and the aforementioned timing of LOGCAP V revenue; we can achieve double-digit revenue growth in 2020. Please turn to Slide 8 to look at our near-term priorities and execution. Vectrus has made great strides in executing its strategy and three core elements; enhance the foundation, expand the portfolio and add more value; positioning us to lead, grow and innovate further in the emerging converged infrastructure market.

The strength of our key capabilities combined with the emerging converged addressable market represents a significant opportunity for growth and continued transformation of Vectrus into a more diverse, more capable and higher value platform. Within the strategic framework, our near-term execution priorities are very clear and we are hard at work on each of them. Our growth teams are working hard to continue our organic growth momentum. We are driving focused action to continue to protect our base in recompetes.

We are driving new business campaigns to continue to grow and diversify our client portfolio. We are continuing to innovate, grow and mature products and solutions to respond to client demand for technology insertion into its existing and new converged infrastructures. We are continuing to assess adjacent international market opportunities. And with LOGCAP V award, we have a 10-year platform to expand our presence in the Middle East and to seize new opportunities in the Indo-Pacific region.

Finally, given our improved near and mid-term revenue visibility and our strong balance sheet, we will continue to assess acquisition opportunities that align with our strategic requirements. Our growth-related activities in 2018 resulted in $1.4 billion of contract awards with significant new business and as we have discussed, we are off to a solid start in 2019. Central to our overall strategy is the execution of Enterprise Vectrus, which we initiated in 2018. Enterprise Vectrus is a business wide management system focused on the performance improvement of our programs and program support functions.

Having initiated Enterprise Vectrus in 2018, we are taking the next steps and have identified specific program and support function initiatives to be executed and measured. The initiatives are championed by my senior leadership team and have been cascaded through the business. These initiatives address critical aspects of the company from program delivery excellence to financial management to our global talent chain to supply chain and to leadership development. The Enterprise Vectrus initiative with the greatest focus for 2019 include delivery excellence to include program phase-in, evolving our global talent chain, establishing supply chain as a core competency, completing the implementation of our modernized IT platform announced in 2018 and to quicken the pace of technology insertion into our current program base and as stand-alone offerings.

I provided an example of the automated work order process in the Middle East program earlier in the call, but technology insertion is pervasive across the business and includes the energy management and operational technology solutions we introduced in 2018 and that can be seen on the Vectrus website. It is this combination of operational and technology initiatives that will drive our performance improvement, establish Vectrus as a premier converged infrastructure company in the market and enable the drive toward our five-year goal of $2.5 billion in revenue and 7% EBITDA margins. Finally, I will remiss if I did not state the obvious. Our growth momentum and performance improvements are a function of the Vectrus culture of dedication to mission and client service.

It is this culture that is foundational to our success. I would like to thank the people of Vectrus often operating in remote and austere environments for their dedication to our business and to the mission we support. Let's move to Slide 9 to look more deeply at how we are measuring our five-year EBITDA margin goal. This quarter we are providing additional insight into progress to our goal of $2.5 billion in revenue and 7% EBITDA margins.

Growth to our revenue goal is measured by the conventional and currently disclosed measures of pipeline, backlog and revenue. This chart shows the three previously disclosed components of our long-term margin expansion plan; volume and contract mix, Enterprise Vectrus and client mix and solutions. Additionally, however, the chart depicts the strategic levers that correspond to each component and the current state of each lever. This will be the scorecard against which we will report in future quarters.

Our goal for the first dimension, volume and contract mix, is to drive 80 basis points of margin improvement over the next four years. From a volume or scale perspective, our organic growth strategy combined with our inorganic opportunities will generate significant volume and higher degrees of operating leverage given our flexible and scalable infrastructure. Our 2018 contract wins showed measurable progress in creating volume while shifting the fixed price structures wherever possible. There are industry client and taxpayer benefits associated with this migration to fixed price contracts and we will continue to advocate with our client for greater fixed price contracts in our market segment.

Through Enterprise Vectrus, we aim to deliver another 80 basis points of margin improvement through increased process discipline, cost efficiency, supply chain leverage and technology enhancements in both programs and support functions. Key levers for Enterprise Vectrus include enhancing our program processes and performance, leveraging our global supply chain, streamlining operational processes and enhancing our global talent chain. While in 2019 Enterprise Vectrus will be assessed qualitatively, our objective is to disclose a quantitative assessment during the 2020 fiscal year. Solution client mix component of our margin expansion plan is targeted for a contribution of 130 basis points.

Through our targeted client campaigns, we have expanded our penetration of the navy and air force and will continue to pursue these strategies to further diversify our client base. Our acquisition of SENTEL last year gave us an entry into the intelligence community and we are successfully building on that presence. Our current client diversification is depicted in the pie chart on the bottom right hand side of the slide. The introduction and acquisition of technology enabled solution allows Vectrus to provide greater value and thus have a higher margin profile.

Initially we will assess progress to this lever by our solution pipeline, which will begin to break out and report separately in Q2. We will evolve this lever to the big-solution-related revenue as we mature this business. Finally, it is important to note that the basis point targets for each component of the plan are just that, targets. As time progresses, we will assess our experience with organic growth, operational execution and the implication of future potential inorganic activity.

We may adjust component targets. Regardless, we believe that if we continue our transformation to a higher value differentiated business designed to be a leader in the converged infrastructure market, we can achieve our margin expansion goal. Now Bill will discuss our 2019 guidance on Slide 10.

Bill Noon -- Acting Chief Financial Officer

Thanks, Chuck. Let's move to Slide 10. For 2019, we continue to expect revenue to be in the range of $1.3 billion to $1.33 billion with revenue building through the year as we phase-in recent new business wins and execute contract projects. Given the current performance we're seeing on our programs, we see a potential upward bias to our revenue outlook and we will update you on this during our second-quarter 2019 call.

The strategic levers Chuck discussed with respect to volume and contract mix, Enterprise Vectrus and solutions and client mix are expected to contribute to margin expansion this year. As such, our operating margin outlook remains in the range of 3.8% to 4.2% with EBITDA margin expected to be in the range of 4.1% to 4.5%. Factoring in our first-quarter results and the pace at which we expect to realize performance from the investments made into our recently won programs, we expect margin expansion to build sequentially throughout the year with the second half of 2019 being greater than the first. Interest expense currently remains unchanged at $4.7 million, but could be a touch higher based on our first-quarter results and working capital required to support new contracts.

However, we believe any increase in interest expense would be more than offset by operating income. Depreciation and amortization guidance is unchanged at $4.1 million. We continue to estimate a 21% tax rate for the year. Net income guidance remains in the range of $35.3 million to $40.4 million with diluted earnings per share in the range of $3.07 to $3.51.

As I noted earlier, with respect to operating and EBITDA margin, we expect EPS to build sequentially throughout the year with the second half of 2019 being greater than the first. We continue to assume 11.5 million weighted average deluded shares outstanding. Our 2019 net cash provided by operating activities remains unchanged in the range of $40 million to $46 million. Capital expenditure guidance remains approximately $8.5 million, including our application modernization project of $4 million, with the remainder coming from project requirements.

As a reminder, program-related capital expenditures are considered in contract pricing and will be recouped all or in part over the performance of the contract. Finally, 2019 mandatory debt payments are $4.5 million. Chuck?

Chuck Prow -- President and Chief Executive Officer

Thanks, Bill. Now let's turn to Slide 11. Since 2016, Vectrus has greatly enhanced our client engagement and business development approach. We are prosecuting targeted client campaigns to diversify our revenue base and support future growth.

We have a passionate management team in place that continues to focus on process and cost improvement throughout the organization to drive high quality service delivery for our clients and enhance returns to all of our stakeholders. We are honored by the LOGCAP V award, which affirms that this strategy is working and we are committed to accelerating the momentum and executing along these lines. Our path to our five-year goal is now solidified and we are expecting that LOGCAP V and other significant contract wins will drive double-digit growth in 2020. Vectrus' transformation into a higher value platform and innovator in the converged infrastructure market is taking place.

We could not be more excited about our future. Now I'd like to turn the call open for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question is from Jon Ladewig with Stifel.

Jon Ladewig -- Stifel Financial Corp. -- Analyst

And congrats on winning LOGCAP V's CENTCOM task order. First question I guess is in regards to LOGCAP V. You talked about next year seeing a double-digit growth in sales related to that recent award. Can you just give us a little bit more color on how we should think about that ramp-up given the information that the customer has provided to you? Should we think of it as both task orders ramping up at the same time or what's kind of the cadence that's currently being communicated to you that you can share with us?

Chuck Prow -- President and Chief Executive Officer

Sure. Well, thanks a lot for joining the call today. The client as you -- as we know, the contract is currently under protest. We would assume that protest cycle to be a normal protest cycle and given that, we would expect to see all task orders begin to wrap up at a similar pace following the completion of the protest cycle.

As you know, we were awarded both the CENTCOM AOR and the PACOM AOR and at this point in time the information we have is that both AORs will undergo a very similar ramp-up.

Jon Ladewig -- Stifel Financial Corp. -- Analyst

Thanks. In regards to your other large contract OMDAC-SWACA, I was hoping you guys could maybe provide us an update on the status of that contract and now with the LOGCAP V contract in the rear view, any other large items that may be up for recompete in '19?

Chuck Prow -- President and Chief Executive Officer

The major contract up for recompete in '19 is OMDAC-SWACA. We are submitting our proposal in May and we would expect the contract to be awarded in November. We continue to perform very very well on that program. We additionally announced another win -- an IT win in that geography as well earlier in the call today.

So, again we really -- we feel good about our chances and we really feel good about our ongoing performance.

Jon Ladewig -- Stifel Financial Corp. -- Analyst

OK. In regards to the recent work that you guys went out and acquired, how does it fit in in regards to the larger smart base concept that was -- you talked about in the past and the work that you have not just providing supply and logistics, but also on the -- more of the IT work that you have. Is this a change in strategy or is this kind of more along the lines of moving into less commoditized work?

Chuck Prow -- President and Chief Executive Officer

These contracts advance our strategy pure and simple. We -- the scope of the contracts is very additive to our goal to be a converged infrastructure provider. And again while the contracts are not large on a dollar perspective, they are quite strategic and we're pleased to have been able to acquire those contracts.

Operator

[Operator instructions] Our next question is from Joe Gomes with NOBLE Capital.

Joe Gomes -- NOBLE Capital -- Analyst

And let me add my congratulations too on the wins and the operating results. First question, I was just wondering if you might just delve a little bit more into your navy campaign and what -- what is driving your wins here, it seems to be going extremely well.

Chuck Prow -- President and Chief Executive Officer

I would say in short it's client intimacy. We've spent a lot of time with our clients. We've attracted new talent that is deeply involved in the various navy missions. And as I said in my remarks, too, it's largely on the back of really outstanding client delivery.

So again it's one of focus, it's one of client intimacy and it's one of building on our client -- on our excellent performance.

Joe Gomes -- NOBLE Capital -- Analyst

OK. And if I'm looking at kind of the consensus numbers here on the EPS basis. Consensus was around $0.75, I think. And even if I make the adjustment for the million, you guys are still a little bit short there.

Is that more of just a reflection of some of these other costs that you talked about in ramping up some of these new contracts?

Bill Noon -- Acting Chief Financial Officer

This is Bill. The costs that we incurred were more in the investments. As we started these new programs, we feel these investments will put us in a good position going forward. And as I said the -- we anticipate that we'll see sequential growth over the balance of the year with it being much stronger in the second half.

Chuck Prow -- President and Chief Executive Officer

This is Chuck. You may remember in 2018 we had $1.1 billion of bookings, $350 million of that was net new. So, I'm actually quite pleased with the team's ability to move into those new missions. And as Bill indicated, the cost in terms of those transitions are a bit front end loaded in the year.

But we'll continue to see, as Bill has indicated, a sequential growth throughout the year.

Joe Gomes -- NOBLE Capital -- Analyst

OK, great. And then on the M&A front, I know you talked a little bit about that and obviously you mentioned some of these IT mission contracts that you've got. When you're looking at that, some of the recent acquisitions that are ongoing in this space, the multiples seem to be going higher and higher. Is that kind of caused you guys to take a step back, are you still seeing attractive reasonably priced opportunities out there on the M&A market?

Chuck Prow -- President and Chief Executive Officer

We continue to assess opportunities as we've talked for several calls now. We will continue to mature that pipeline based upon our stated strategy and where we find assets that we believe to be at the right price i.e. affordable, we'll have the ability given our balance sheet to make the appropriate move. But right now again, we're still in the assessment phase and we look forward to advance that pipeline as the opportunities -- as the opportunities present themselves.

Operator

Our next question is from Jon Ladewig with Stifel.

Jon Ladewig -- Stifel Financial Corp. -- Analyst

First thing, how did this commercial opportunity come about? Could you guys kind of give us some color on how this situation arose and what's the potential long term for Vectrus in the commercial market and how should we think about it going forward for the company?

Chuck Prow -- President and Chief Executive Officer

I think that story because the opportunity essentially came a combination of word of mouth and good sales technique on the part of our teams quite frankly. While we do not expect to see in the short term stand-alone solution sale to be a material part of our revenue stream, we are seeing an emerging pipeline that we're very very pleased with and we intend to progress that business here over the coming quarters. Again what I -- when I think of the sales, I think of the market really telling us that there is a demand for the converged infrastructure capability we've been talking about for a while. Our clients have realized that there need to be more automated ways to drive efficiencies in cost reduction and many of the solutions that we have been inserting into our existing contract base also have applicability on a stand-alone basis.

Jon Ladewig -- Stifel Financial Corp. -- Analyst

OK. And then you guys have now what a year into the SENTEL acquisition, it seems to be going well. I guess the question in some minds is how is this -- how have you been able to leverage the capabilities that SENTEL has brought to Vectrus to expand your markets? Is there anything that you can point to that's been kind of a definitive example of where that SENTEL capability has differentiated yourself in the marketplace compared to your peers?

Chuck Prow -- President and Chief Executive Officer

It's come in two areas. First of all, we now have an emerging intelligence community contract base. We did not have that before the SENTEL acquisition and you saw just recently another IDIQ that was awarded with a focus on the intelligence community. That's point one.

Point two is as we think about the technology insertion into our existing clients and in fact new clients, the SENTEL engineering capabilities that came along with that acquisition have been central to our ability to deliver. So, it's both delivery of converged infrastructure solutions and the inclusion of the intelligence community into our client mix.

Jon Ladewig -- Stifel Financial Corp. -- Analyst

OK. And then lastly, can you just talk about fixed price? It looks like it's down compared to last year on a relative basis, it was 28% versus 23% this year first quarter. What should be that -- how should we think of the cadence going forward for fixed firm price work? Should it increase or is it just going to modulate for the next few quarters?

Chuck Prow -- President and Chief Executive Officer

It's a good observation because on a revenue basis, we are down and that's largely because of contracts who came to their natural end and repricing of recompeted contracts. We continue to see our clients issuing fixed price contracts. We -- as you can see from the first-quarter award, we also see quite a bit of cost type contracts. So I'm not sure I'd use the word modulate, I would say that the move to fixed price contracting will be gradual and we continue to advocate for that with our clients at every possible chance.

Operator

This concludes the question-and-answer session. I would like to turn the conference back over to Chuck Prow for any closing remarks.

Chuck Prow -- President and Chief Executive Officer

Thank you. And thank you all for your attendance today. We've enjoyed the discussion and look forward to talking to you again next quarter.

Operator

[Operator signoff]

Duration: 45 minutes

Call participants:

Mike Smith -- Vice President of Investor Relations and Corporate Development

Chuck Prow -- President and Chief Executive Officer

Bill Noon -- Acting Chief Financial Officer

Jon Ladewig -- Stifel Financial Corp. -- Analyst

Joe Gomes -- NOBLE Capital -- Analyst

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