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Section 1: 8-K (8-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 9, 2016

VECTRUS, INC.
(Exact name of Registrant as specified in its charter)
Indiana
0001-36341
38-3924636
(State or other jurisdiction of incorporation or organization)
(Commission File Number)
(I.R.S. Employer Identification No.)
 

655 Space Center Drive
Colorado Springs, CO 80915
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (719) 591-3600

Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ]    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ]    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ]    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ]    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))





Item 2.02 Results of Operations and Financial Condition.

Attached hereto as Exhibit 99.1 and incorporated by reference herein is a press release issued by Vectrus, Inc. (the "Company") on August 9, 2016 that includes financial information for the Company for the second quarter of 2016 and updated guidance for fiscal 2016. This information shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") or incorporated by reference into any filing under the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 7.01 Regulation FD Disclosure.

Mr. Kenneth Hunzeker, Chief Executive Officer and President, and Mr. Matthew Klein, Senior Vice President, Chief Financial Officer and Principal Accounting Officer, will present the financial information for the Company for the second quarter of 2016 and updated guidance for fiscal 2016 on August 10, 2016. A copy of the presentation is attached hereto and incorporated by reference herein as Exhibit 99.2. This information is furnished pursuant to Item 7.01 Regulation FD Disclosure and shall not be deemed filed for purposes of Section 18 of the Exchange Act or incorporated by reference into any filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.





Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit No.
 
Description
99.1
 
Press Release of Vectrus, Inc. dated August 9, 2016
99.2
 
Presentation slides issued by Vectrus, Inc. on August 9, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 






SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: August 9, 2016
VECTRUS, INC.
 
By:
/s/ Kathryn S. Lamping
 
Its:
Assistant Secretary






EXHIBIT INDEX

Exhibit No.
 
Description
 
 
99.1
 
Press Release dated August 9, 2016, issued by Vectrus, Inc.
99.2
 
Presentation slides issued by Vectrus, Inc. on August 9, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



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Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit

Exhibit 99.1 

PRESS RELEASE

 

CONTACT:

Investors
Mike Smith
719-637-5773
michael.smith@vectrus.com
 
Media
George Rhynedance
719-637-4182
george.rhynedance@vectrus.com
 


Vectrus reports second quarter 2016 financial results

Revenue $307.9 million, operating margin 3.7 percent
Strong year-to-date free cash flow1 of $19.0 million
Days Sales Outstanding was 52 days for the quarter
Voluntary debt payment of $2 million


COLORADO SPRINGS, Colo., Aug. 9, 2016 — Vectrus, Inc. (NYSE:VEC) announced second quarter 2016 results, which included revenue of $307.9 million, operating income of $11.3 million and diluted earnings per share of $0.55. As of July 1, 2016, year-to-date net cash provided by operating activities was $19.3 million and free cash flow1 improved $19.9 million year-over-year. Funded orders were $303.7 million in the second quarter of 2016, representing a funded book-to-bill2 ratio of 1.0x.
“In the second quarter, our revenue excluding Afghanistan programs continued to show growth, increasing 5 percent or $13.5 million year-over-year,” said Ken Hunzeker, chief executive officer and president of Vectrus. “Our solid second quarter results combined with improved visibility for the remainder of 2016 allows us to raise our 2016 revenue, diluted EPS and free cash flow1 guidance.”

Second Quarter 2016 Results
Revenue of $307.9 million
Operating income of $11.3 million
Operating margin of 3.7 percent

1



Exhibit 99.1 

Diluted earnings per share of $0.55

Second quarter 2016 revenue of $307.9 million decreased $1.6 million, or 0.5 percent, compared to the second quarter 2015. This change was primarily driven by a $30.5 million decrease in revenue from our Afghanistan, U.S. and European programs. This was partially offset by an increase in our Middle East programs of $28.9 million for the second quarter 2016 as compared to the same period in 2015. Programs based in Afghanistan contributed $30.9 million of revenue in the second quarter 2016.
Operating income was $11.3 million, or 3.7 percent of operating margin, in the second quarter 2016, compared to $10.8 million, or 3.5 percent operating margin, in the second quarter 2015, an increase of $0.5 million. Programs based in Afghanistan contributed $0.7 million of operating income in the second quarter 2016.
Second quarter 2016 diluted earnings per share were $0.55 compared to $0.56 in the second quarter 2015.
Year-to-date July 1, 2016, net cash provided by operating activities was $19.3 million compared to net cash used in operating activities of $0.2 million during the same period in 2015. Free cash flow1 was $19.0 million year-to-date July 1, 2016, compared to negative free cash flow1 of $0.9 million during the same period in 2015.
“Year-to-date free cash flow1 improved by $19.9 million, driven by strong cash collections in 2016,” said Matt Klein, chief financial officer at Vectrus. “We continue to see improvement in collections, achieving a Vectrus record 52 days sales outstanding during the quarter.”
For the quarter ended July 1, 2016, the Company ended with total backlog of $2.3 billion and funded backlog of $975 million.

2016 Guidance
"As a result of our improved visibility and outlook for the remainder of the year, we are increasing the previously communicated ranges for revenue, diluted EPS and free cash flow1. Our strong cash collections in the quarter enabled a $2 million voluntary payment of our term loan. Based on our updated financial guidance, we now anticipate 2016 voluntary debt payments to range from $8 million to $10 million," said Klein. "We are pleased with our financial performance to date in 2016 and look forward to a strong second half of the year."
 

(in millions, except operating margin and diluted EPS)
(Prior) 2016 Guidance
 
(Updated) 2016 Guidance
Revenue
$1,150
to
$1,190
 
$1,180
to
$1,200
Operating Margin (unchanged)
3.60%
to
3.90%
 
3.60%
to
3.90%
Diluted EPS3
$2.02
to
$2.31
 
$2.07
to
$2.32
Free Cash Flow4
$22
to
$30
 
$28
to
$32

The Company notes that forward-looking statements of future performance made in this release are based upon current expectations and are subject to factors that could cause actual results to differ

2



Exhibit 99.1 

materially from those suggested here, including those factors set forth in the Safe Harbor Statement below.

Investor Call
Management representatives will conduct an investor briefing and conference call at 8 a.m. Eastern time on Wednesday, August 10, 2016.

U.S.-based participants may dial in to the conference call at 888-427-9414, while international participants may dial 719-325-2174. Passcode for both is 4660856. For all other listeners, a live webcast of the briefing and conference call will be available on the Vectrus Investor Relations website at http://investors.vectrus.com.

A replay of the briefing will be posted on the Vectrus website shortly after completion of the call, and will remain available for one year. A telephonic replay will also be available through August 28, 2016, at 877-870-5176 (domestic) or 858-384-5517 (international) with passcode 4660856.

###
Footnotes:
1 See “Key Performance Indicators and Non-GAAP Financial Measures” (below).
2 Book-to-bill ratio is the amount of funded orders divided by revenue for the period.
3 2016 EPS guidance is calculated using the estimated weighted average diluted common shares outstanding of 11.2 million for the year ending December 31, 2016.
4 2016 free cash flow guidance is calculated as estimated GAAP net cash provided by operating activities less 2016 estimated capital expenditures of $2.1 million.

About Vectrus
Vectrus is a leading, global government services company with a history in the services market that dates back more than 70 years. The company provides infrastructure asset management, information technology and network communication services, and logistics and supply chain management services to U.S. government customers around the world. Vectrus is differentiated by operational excellence, superior program performance, a history of long-term customer relationships, and a strong commitment to their mission success. Vectrus is headquartered in Colorado Springs, Colo., and includes about 6,000 employees spanning 132 locations in 18 countries. In 2015, Vectrus generated sales of $1.2 billion. For more information, visit our website at www.vectrus.com or connect with us on Facebook, Twitter, LinkedIn, and YouTube.

Safe Harbor Statement
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 (the "Act"): Certain material presented herein includes forward-looking statements intended to qualify for the safe harbor from liability established by the Act. These forward-looking statements include, but are not limited to, statements about our revenue, operating margin, EPS and free cash flow guidance for 2016, debt payments, contract opportunities and awards, business strategy, outlook, objectives, plans, intentions or goals, and any discussion of future operating or financial performance.

3



Exhibit 99.1 

Whenever used, words such as "may," "will," "likely," "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "target," "could," "potential," "continue," or similar terminology are forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements, our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to: risks and uncertainties relating to the spin-off from our former parent, including whether the spin-off and the related transactions will result in any tax liability; economic, political and social conditions in the countries in which we conduct our businesses; changes in U.S. government military operations, including its operations in Afghanistan; competition in our industry; changes in, or delays in the completion of, U.S. or international government budgets; government regulations and compliance therewith, including changes to the Department of Defense procurement process; changes in technology; protests of new awards; our ability to submit proposals for and/or win potential opportunities in our pipeline; intellectual property matters; governmental investigations, reviews, audits and cost adjustments; contingencies related to actual or alleged environmental contamination, claims and concerns; our success in expanding our geographic footprint or broadening our customer base, markets and capabilities; our ability to realize the full amounts reflected in our backlog and to retain and renew our existing contracts; our maintaining our good relationship with the U.S. government; impairment of goodwill; our performance of our contracts and our ability to control costs; our level of indebtedness; our compliance with the terms of our credit agreement; subcontractor and employee performance and conduct; our teaming arrangements with other contractors; economic and capital markets conditions; any future acquisitions, investments or joint ventures; our ability to retain and recruit qualified personnel; our maintenance of safe work sites and equipment; any disputes with labor unions; costs of outcome of any legal proceedings; security breaches and other disruptions to our information technology and operations; changes in our tax provisions or exposure to additional income tax liabilities; changes in U.S. generally accepted accounting principles; our compliance with public company accounting and financial reporting requirements; timing of payments by the U.S. government; and other factors set forth in Part I, Item 1A, – “Risk Factors,” and elsewhere in our 2015 Annual Report on Form 10-K and described from time to time in our future reports filed with the Securities and Exchange Commission. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

4



Exhibit 99.1 

VECTRUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
 
Three Months Ended
 
Six Months Ended
 
 
July 1,
 
June 26,
 
July 1,
 
June 26,
(In thousands, except per share data)
 
2016
 
2015
 
2016
 
2015
Revenue
 
$
307,895

 
$
309,509

 
$
618,577

 
$
570,429

Cost of revenue
 
280,644

 
282,563

 
564,354

 
518,945

Selling, general and administrative expenses
 
15,953

 
16,101

 
31,113

 
31,284

Operating income
 
11,298

 
10,845

 
23,110

 
20,200

Interest (expense) income, net
 
(1,736
)
 
(1,437
)
 
(3,048
)
 
(3,033
)
Income from operations before income taxes
 
9,562

 
9,408

 
20,062

 
17,167

Income tax expense
 
3,512

 
3,388

 
7,422

 
6,182

Net income
 
$
6,050

 
$
6,020

 
$
12,640

 
$
10,985

 
 
 
 
 
 
 
 
 
Earnings per share
 
 
 
 
 
 
 
 
Basic
 
$0.57
 
$0.57
 
$1.19
 
$1.04
Diluted
 
$0.55
 
$0.56
 
$1.16
 
$1.02
Weighted average common shares outstanding - basic
 
10,702

 
10,548

 
10,665

 
10,520

Weighted average common shares outstanding - diluted
 
10,958

 
10,804

 
10,913

 
10,789

 
 
 
 
 
 
 
 
 



5



Exhibit 99.1 

VECTRUS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

 
 
July 1,
 
December 31,
(In thousands, except share information)
 
2016
 
2015
Assets
 
(unaudited)
 
 
Current assets
 
 
 
 
Cash
 
$
49,989

 
$
39,995

Receivables
 
177,683

 
210,561

Costs incurred in excess of billings
 
322

 
1,243

Other current assets
 
10,549

 
9,708

Total current assets
 
238,543

 
261,507

Property, plant, and equipment, net
 
3,566

 
4,762

Goodwill
 
216,930

 
216,930

Other non-current assets
 
1,472

 
1,197

Total non-current assets
 
221,968

 
222,889

Total Assets
 
$
460,511

 
$
484,396

Liabilities and Shareholders' Equity
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable
 
$
97,191

 
$
122,442

Billings in excess of costs
 
6,371

 
6,025

Compensation and other employee benefits
 
39,973

 
36,783

Short-term debt
 
20,000

 
22,000

Other accrued liabilities
 
21,011

 
25,268

Total current liabilities
 
184,546

 
212,518

Long-term debt, net
 
82,972

 
89,615

Deferred tax liability
 
86,891

 
91,343

Other non-current liabilities
 
2,549

 
1,610

Total non-current liabilities
 
172,412

 
182,568

Total liabilities
 
356,958

 
395,086

Shareholders' Equity
 
 
 
 
Preferred stock; $0.01 par value; 10,000,000 shares authorized; No shares issued and outstanding
 

 

Common stock; $0.01 par value; 100,000,000 shares authorized; 10,729,892 and 10,612,246 shares issued and outstanding
 
107

 
106

Additional paid in capital
 
60,782

 
58,640

Retained earnings
 
46,943

 
34,304

Accumulated other comprehensive loss
 
(4,279
)
 
(3,740
)
Total shareholders' equity
 
103,553

 
89,310

Total Liabilities and Shareholders' Equity
 
$
460,511

 
$
484,396

                    




6



Exhibit 99.1 

VECTRUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 
Six Months Ended
(In thousands)
 
July 1, 2016
 
June 26, 2015
Operating activities
 
 
 
 
Net income
 
$
12,640

 
$
10,985

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization expense
 
1,012

 
1,753

Loss on disposal of property, plant, and equipment
 
389

 
328

Stock-based compensation
 
3,268

 
3,852

Amortization of debt issuance costs
 
578

 
370

Changes in assets and liabilities:
 
 
 
 
Receivables
 
33,458

 
(9,922
)
Other assets
 
1

 
(6,586
)
Accounts payable
 
(25,459
)
 
(12,062
)
Billings in excess of costs
 
346

 
9,321

Deferred taxes
 
(5,265
)
 
(3,504
)
Compensation and other employee benefits
 
3,134

 
9,637

Other liabilities
 
(4,820
)
 
(4,353
)
Net cash provided by (used in) operating activities
 
19,282

 
(181
)
Investing activities
 
 
 
 
Purchases of capital assets
 
(317
)
 
(734
)
Proceeds from the disposition of assets
 
111

 

Distribution from equity investment
 
89

 

Net cash (used in) investing activities
 
(117
)
 
(734
)
Financing activities
 
 
 
 
Repayments of long-term debt
 
(9,000
)
 
(11,250
)
Proceeds from revolver
 
69,000

 
132,500

Repayments of revolver
 
(69,000
)
 
(132,500
)
Proceeds from exercise of stock options
 
431

 
107

Proceeds from insurance financing
 

 
14,857

Repayments of insurance financing
 

 
(4,018
)
Payments of employee withholding taxes on share-based compensation
 
(651
)
 
(752
)
Payment of debt issuance costs
 
(221
)
 

Net cash (used in) financing activities
 
(9,441
)
 
(1,056
)
Exchange rate effect on cash
 
270

 
(849
)
Net change in cash
 
9,994

 
(2,820
)
Cash-beginning of year
 
39,995

 
42,823

Cash-end of period
 
$
49,989

 
$
40,003

Supplemental Disclosure of Cash Flow Information:
 
 
 
 
Interest paid
 
$
3,060

 
$
2,393

Income taxes paid
 
$
13,494

 
$
6,234

Non-cash investing activities:
 
 
 
 
Purchase of capital assets on account
 
$

 
$
35


7



Exhibit 99.1 

Key Performance Indicators and Non-GAAP Financial Measures
The primary financial performance measures Vectrus uses to manage its business and monitor results of operations are revenue trends and operating income trends. In addition, we consider free cash flow to be useful to management and investors in evaluating our operating performance for the periods presented, and to provide a tool for evaluating our ongoing operations. Free cash flow is a non-GAAP financial measure. We believe this information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives.
“Free cash flow” is defined as GAAP net cash provided by or used in operating activities less capital expenditures. A reconciliation of free cash flow to net cash provided by or used in operating activities is in the table below.



(in thousands)
 
Six Months Ended
Free Cash Flow (Non-GAAP Measure)
 
July 1, 2016
 
June 26, 2015
Net cash provided by (used in) operating activities
 
$
19,282

 
$
(181
)
Less:
 
 
 
 
Capital expenditures
 
(317
)
 
(734
)
Free cash flow
 
$
18,965

 
$
(915
)



8



Exhibit 99.1 

SUPPLEMENTAL INFORMATION

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
(In thousands)
 
July 1, 2016
 
June 26, 2015
 
July 1, 2016
 
June 26, 2015
Military branch
 
Revenue
 
% of Total
 
Revenue
 
% of Total
 
Revenue
 
% of Total
 
Revenue
 
% of Total
Army
 
$
258,193

 
84
%
 
$
282,414

 
91
%
 
$
521,220

 
84
%
 
$
518,676

 
91
%
Navy/Marines
 
4,697

 
1
%
 
6,764

 
2
%
 
9,496

 
2
%
 
13,531

 
2
%
Air Force
 
45,005

 
15
%
 
20,331

 
7
%
 
87,861

 
14
%
 
38,222

 
7
%
Total Revenue
 
$
307,895

 

 
$
309,509

 

 
$
618,577

 

 
$
570,429

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
(in thousands)
 
July 1, 2016
 
June 26, 2015
 
July 1, 2016
 
June 26, 2015
Contract type
 
Revenue
 
% of Total
 
Revenue
 
% of Total
 
Revenue
 
% of Total
 
Revenue
 
% of Total
Firm-Fixed-Price
 
$
77,233

 
25
%
 
$
118,071

 
38
%
 
$
157,626

 
25
%
 
$
203,744

 
36
%
Cost-Plus and Cost Reimbursable ¹
 
230,662

 
75
%
 
191,438

 
62
%
 
460,951

 
75
%
 
366,685

 
64
%
Total Revenue
 
$
307,895

 

 
$
309,509

 

 
$
618,577

 

 
$
570,429

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
¹ Includes time and material contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
(In thousands)
 
July 1, 2016
 
June 26, 2015
 
July 1, 2016
 
June 26, 2015
Contract Relationship
 
Revenue
 
% of Total
 
Revenue
 
% of Total
 
Revenue
 
% of Total
 
Revenue
 
% of Total
Prime Contractor
 
$
285,156

 
93
%
 
$
281,278

 
91
%
 
$
570,820

 
92
%
 
$
512,884

 
90
%
Sub Contractor
 
22,739

 
7
%
 
28,231

 
9
%
 
47,757

 
8
%
 
57,545

 
10
%
Total Revenue
 
$
307,895

 

 
$
309,509

 

 
$
618,577

 

 
$
570,429

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Source: Vectrus, Inc.

9

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Section 3: EX-99.2 (EXHIBIT 99.2)

q22016earningscallpptfin
VECTRUS SECOND QUARTER 2016 RESULTS KEN HUNZEKER CHIEF EXECUTIVE OFFICER AND PRESIDENT MATT KLEIN SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER AUGUST 10, 2016


 
SAFE HARBOR STATEMENT Page 2 SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (THE "ACT"): CERTAIN MATERIAL PRESENTED HEREIN INCLUDES FORWARD-LOOKING STATEMENTS INTENDED TO QUALIFY FOR THE SAFE HARBOR FROM LIABILITY ESTABLISHED BY THE ACT. THESE FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, STATEMENTS ABOUT OUR REVENUE, OPERATING MARGIN, EPS AND FREE CASH FLOW GUIDANCE FOR 2016, DEBT PAYMENTS, CONTRACT OPPORTUNITIES AND AWARDS, BUSINESS STRATEGY, OUTLOOK, OBJECTIVES, PLANS, INTENTIONS OR GOALS, AND ANY DISCUSSION OF FUTURE OPERATING OR FINANCIAL PERFORMANCE. WHENEVER USED, WORDS SUCH AS "MAY," "WILL," "LIKELY," "ANTICIPATE," "ESTIMATE," "EXPECT," "PROJECT," "INTEND," "PLAN," "BELIEVE," "TARGET," "COULD," "POTENTIAL," "CONTINUE," OR SIMILAR TERMINOLOGY ARE FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE BASED ON THE BELIEFS AND ASSUMPTIONS OF OUR MANAGEMENT BASED ON INFORMATION CURRENTLY AVAILABLE TO MANAGEMENT. FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE RESULTS CONTEMPLATED BY THE FORWARD-LOOKING STATEMENTS, OUR HISTORICAL EXPERIENCE AND OUR PRESENT EXPECTATIONS OR PROJECTIONS. THESE RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO: RISKS AND UNCERTAINTIES RELATING TO THE SPIN-OFF FROM OUR FORMER PARENT, INCLUDING WHETHER THE SPIN-OFF AND THE RELATED TRANSACTIONS WILL RESULT IN ANY TAX LIABILITY; ECONOMIC, POLITICAL AND SOCIAL CONDITIONS IN THE COUNTRIES IN WHICH WE CONDUCT OUR BUSINESSES; CHANGES IN U.S. GOVERNMENT MILITARY OPERATIONS, INCLUDING ITS OPERATIONS IN AFGHANISTAN; COMPETITION IN OUR INDUSTRY; CHANGES IN, OR DELAYS IN THE COMPLETION OF, U.S. OR INTERNATIONAL GOVERNMENT BUDGETS; GOVERNMENT REGULATIONS AND COMPLIANCE THEREWITH, INCLUDING CHANGES TO THE DEPARTMENT OF DEFENSE PROCUREMENT PROCESS; CHANGES IN TECHNOLOGY; PROTESTS OF NEW AWARDS; OUR ABILITY TO SUBMIT PROPOSALS FOR AND/OR WIN POTENTIAL OPPORTUNITIES IN OUR PIPELINE; INTELLECTUAL PROPERTY MATTERS; GOVERNMENTAL INVESTIGATIONS, REVIEWS, AUDITS AND COST ADJUSTMENTS; CONTINGENCIES RELATED TO ACTUAL OR ALLEGED ENVIRONMENTAL CONTAMINATION, CLAIMS AND CONCERNS; OUR SUCCESS IN EXPANDING OUR GEOGRAPHIC FOOTPRINT OR BROADENING OUR CUSTOMER BASE, MARKETS AND CAPABILITIES; OUR ABILITY TO REALIZE THE FULL AMOUNTS REFLECTED IN OUR BACKLOG AND TO RETAIN AND RENEW OUR EXISTING CONTRACTS; OUR MAINTAINING OUR GOOD RELATIONSHIP WITH THE U.S. GOVERNMENT; IMPAIRMENT OF GOODWILL; OUR PERFORMANCE OF OUR CONTRACTS AND OUR ABILITY TO CONTROL COSTS; OUR LEVEL OF INDEBTEDNESS; OUR COMPLIANCE WITH THE TERMS OF OUR CREDIT AGREEMENT; SUBCONTRACTOR AND EMPLOYEE PERFORMANCE AND CONDUCT; OUR TEAMING ARRANGEMENTS WITH OTHER CONTRACTORS; ECONOMIC AND CAPITAL MARKETS CONDITIONS; ANY FUTURE ACQUISITIONS, INVESTMENTS OR JOINT VENTURES; OUR ABILITY TO RETAIN AND RECRUIT QUALIFIED PERSONNEL; OUR MAINTENANCE OF SAFE WORK SITES AND EQUIPMENT; ANY DISPUTES WITH LABOR UNIONS; COSTS OF OUTCOME OF ANY LEGAL PROCEEDINGS; SECURITY BREACHES AND OTHER DISRUPTIONS TO OUR INFORMATION TECHNOLOGY AND OPERATIONS; CHANGES IN OUR TAX PROVISIONS OR EXPOSURE TO ADDITIONAL INCOME TAX LIABILITIES; CHANGES IN U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES; OUR COMPLIANCE WITH PUBLIC COMPANY ACCOUNTING AND FINANCIAL REPORTING REQUIREMENTS; TIMING OF PAYMENTS BY THE U.S. GOVERNMENT; AND OTHER FACTORS SET FORTH IN PART I, ITEM 1A, – “RISK FACTORS,” AND ELSEWHERE IN OUR 2015 ANNUAL REPORT ON FORM 10-K AND DESCRIBED FROM TIME TO TIME IN OUR FUTURE REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. WE UNDERTAKE NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE, EXCEPT AS REQUIRED BY LAW.


 
Q2 2016 HIGHLIGHTS Page 3 • Second quarter results o Revenue $307.9 million o Operating margin of 3.7% o Diluted EPS of $0.55 o Year-to-date 2016 net cash provided by operating activities $19.3 million  Year-to-date 2016 free cash flow1 $19.0 million • Achieved a Vectrus record of 52 days sales outstanding • Voluntary term loan payment of $2 million in the quarter • ISO 20000-1:2011 surveillance assessment re-certification • Successfully completed the Standard Capability Maturity Model Integration (CMMI®) Appraisal Method for Process Improvement, Class A Appraisal for Development at Maturity Level 3 (CMMI®-DEV V1.3 ML3) (1) Non-GAAP financial measure. See appendix for reconciliation.


 
VECTRUS UPDATE Page 4 • Recent events in Turkey • Re-compete update o K-BOSSS o APS-5 Kuwait/Qatar o Maxwell BOS • IT Networks update • New Business o Approx. $1 billion of proposals submitted and pending potential award1, 100% for new business; almost $7 billion in potential new business opportunities identified over the next 12 months • Thule Base Maintenance Contract update (1) Indefinite Delivery Indefinite Quantity (IDIQ) contracts carry no value in the pipeline of potential proposals to be submitted until a specific task order is identified.


 
FINANCIAL RESULTS Page 5 (in millions, except operating margin and diluted EPS) Q2 2016 Q2 2015 vs. 2015 Funded Orders 303.7$ 332.4$ (28.7)$ Revenue 307.9$ 309.5$ (1.6)$ Operating Income 11.3$ 10.8$ 0.5$ Operating Margin 3.7 % 3.5 % 0.2 % Diluted EPS 0.55$ 0.56$ (0.01)$ Second Quarter 2016 (in millions, except operating margin and diluted EPS) 2016 2015 vs. 2015 Funded Orders 908.9$ 476.0$ 432.9$ Revenue 618.6$ 570.4$ 48.2$ r ti I c 23.1 2 .2 2.9 Net cash provided by or (used) in operating activities 19.3$ (0.2)$ 19.5$ Free Cash Flow1 19.0$ (0.9)$ 19.9$ Diluted EPS 1.16$ 1.02$ 0.14$ Year-to-date July 1, 2016 (1) Non-GAAP financial measure. See appendix for reconciliation.


 
BACKLOG(1)(2) Page 6 (2) (1) Total backlog represents firm orders and potential options on multi-year contracts, excluding potential orders under IDIQ contracts. (2) Total backlog does not include the Thule Base Maintenance Contract. • Total backlog $2,332 million as of July 1, 2016 o Funded backlog $975 million o Unfunded backlog $1,357 million $0.7 $0.9 $0.7 $1.0 $1.0 $1.8 $1.5 $1.7 $1.5 $1.3 $- $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Funded Unfunded $2.5 $2.4 $2.5 $2.3 $2.4 ($B)


 
UPDATED 2016 GUIDANCE SUMMARY Page 7 (1) See Appendix for reconciliation. (2) 2016 diluted EPS is calculated using the estimated weighted average diluted common shares outstanding of 11.2 million for the year ending December 31, 2016. (3) 2016 free cash flow is calculated as estimated GAAP net cash provided by operating activities less 2016 estimated capital expenditures of $2.1 million. (in millions, except operating margin and diluted EPS) (Prior) 2016 Mid-point (Updated) 2016 Mid-point Adjusted 20151 (Updated) 2016 Mid Variance to 2015 %Var Revenue 1,150$ to 1,190$ 1,180$ to 1,200$ 1,170$ 1,190$ 1,181$ 9$ 0.8 % Operating Margin (unchanged) 3.60 % to 3.90 % 3.60 % to 3.90 % 3.75 % 3.75 % 3.68 % 7 BPS 1.9 % Diluted EPS2 2.02$ to 2.31$ 2.07$ to 2.32$ 2.16$ 2.20$ 2.23$ (0.03)$ (1.3)% Free Cash Flow3 22$ to 30$ 28$ to 32$ 26$ 30$ 18$ 12$ 66.7 % (Prior) 2016 Guidance (Updated) 2016 Guidance • 2016 mandatory debt payments $14 million; plus voluntary $8-$10 million • Interest expense approximately $5.8 million • Estimated tax rate of 36.7%


 
KEN HUNZEKER CHIEF EXECUTIVE OFFICER AND PRESIDENT MATT KLEIN SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER VECTRUS SECOND QUARTER 2016 RESULTS


 
APPENDIX


 
RECONCILIATION OF NON-GAAP MEASURES Page 10 The primary financial performance measures we use to manage our business and monitor results of operations are revenue trends and operating income trends. In addition, we consider adjusted operating income, adjusted operating margin, adjusted net income, adjusted diluted earnings per share, and free cash flow to be useful to management and investors in evaluating our operating performance for the periods presented, and to provide a tool for evaluating our ongoing operations. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives. Adjusted operating income, adjusted operating margin, adjusted net income, adjusted diluted earnings per share, and free cash flow, however, are not measures of financial performance under generally accepted accounting principles in the United States of America (GAAP) and should not be considered a substitute for operating income, net income, diluted earnings per share, or net cash provided by operating activities as determined in accordance with GAAP. Reconciliations of these items are provided below. “Adjusted operating income” is defined as operating income, adjusted to exclude items that may include, but are not limited to, other income; significant charges or credits that impact current results but are not related to our ongoing operations and unusual and infrequent non-operating items and non-operating tax settlements or adjustments, such as separation costs incurred to become a stand-alone public company. “Adjusted operating margin” is defined as adjusted operating income divided by revenue. "Adjusted net income" is defined as net income, adjusted to exclude items that may include, but are not limited to, other income; significant charges or credits that impact current results that are related to our ongoing operations and unusual and infrequent items an non-operating tax settlements or adjustments, such as separation costs incurred to become a stand-alone public company. "Adjusted diluted earnings per share" is defined as adjusted net income divided by the weighted average diluted common shares outstanding. “Free cash flow” is defined as GAAP net cash provided by or used in operating activities less capital expenditures. (in thousands) Free Cash Flow (Non-GAAP Measure) July 1, 2016 June 26, 2015 N t cash provided by (used in) operating activities 19,282$ (181)$ Less: Capital expenditures (317) (734) Free cash flow 18,965$ (915)$ Six Months Ended


 
Page 11 RECONCILIATION OF NON-GAAP MEASURES (CONT.) (In thousands) 2015 Revenue 1,180,684$ (In thousands) Adjusted Operating Income (Non-GAAP Measure) 2015 Operating income 39,962$ Operating margin 3.4 % Separation costs 1 (pretax) 177 Tax indemnifications 2 3,300 Adjusted operating income 43,439$ Adjusted operating margin 3.68 % Year Ended December 31, Year Ended December 31, 1 Costs incurred to become a stand-alone public company. 2 Tax indemnifications in connection with the spin-off (see "Tax Indemnifications" in Note 3 to the financial statements in our 2015 Annual Report on Form 10-K). (In thousands, except for share and per share data) Adjusted Net Income and Adjusted Diluted Earnings Per Share (Non-GAAP Measure) 2015 Net income 30,973$ Separation costs 1 (pretax) 177 Tax impact of adjustments (13) Net settlement of uncertain tax positions 2 (6,949) Adjusted net income 24,188$ GAAP EPS - diluted $2.86 Adjusted EPS - diluted $2.23 Weighted average common shares outstanding - diluted 10,825 (In thousands) Free Cash Flow (Non-GAAP Measure) 2015 Net cash provided by operating activities $ 18,880 Less: Capital expenditures (793) Free cash flow $ 18,087 Year Ended December 31, Year Ended December 31, 1 Costs incurred to become a stand-alone public company. 2 Net settlement of uncertain tax positions due to resolution of examinations of tax returns of our former parent ("Uncertain Tax Positions" in Note 3 to the financial statements in our 2015 Annual Report on Form 10-K).


 
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