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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): March 1, 2017

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 March 1, 2017 that includes financial information for the Company for the fourth quarter and full year ending December 31, 2016 and fiscal 2017 guidance. 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. Charles Prow, President and Chief Executive Officer, and Mr. Matthew Klein, Senior Vice President and Chief Financial Officer, will present the financial information for the Company for the fourth quarter and full year ending December 31, 2016 and fiscal 2017 guidance on March 1, 2017. 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 March 1, 2017
99.2    Presentation slides issued by Vectrus, Inc. on March 1, 2017







SIGNATURES

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.

 
 
 
 
March 1, 2017
 
VECTRUS, INC.
 
 
By:
/s/ Kathryn Lamping
 
 
 
Assistant Secretary
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


                








EXHIBIT INDEX

No.    Description
99.1    Press Release of Vectrus, Inc. dated March 1, 2017
99.2    Presentation slides issued by Vectrus, Inc. on March 1, 2017



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit

Exhibit 99.1 

PRESS RELEASE

CONTACT:

Mike Smith, CFA
719-637-5773
michael.smith@vectrus.com


Vectrus Announces Fourth Quarter and Full-Year 2016 Results; Issues 2017 Guidance

Full-year revenue $1,191 million; up $10 million year-over-year
Paid $29 million of debt in 2016, $15 million of which was voluntary
Chuck Prow joined as President and Chief Executive Officer in December 2016
K-BOSSS re-compete proposal under evaluation
New contract phase-ins commence on Thule and AFCAP Al Udeid
Strategic focus on physical and digital infrastructure convergence


COLORADO SPRINGS, Colo., March 1, 2017 — Vectrus, Inc. (NYSE:VEC) announced fourth quarter and full-year 2016 financial results. For the fourth quarter, revenue was $288.2 million, operating income was $8.6 million, and diluted earnings per share were $0.40. For the full year, revenue was $1,190.5 million, operating income was $42.8 million, and diluted earnings per share were $2.16. Cash provided by operating activities for the full-year 2016 was $36.6 million.

“I am impressed with what the Vectrus team accomplished in 2016, especially in light of challenges experienced throughout the year,” said Chuck Prow, president and chief executive officer of Vectrus. “Our team did an excellent job of focusing on the business which was demonstrated through a reduced leverage profile, significant improvement in days sales outstanding, and a more streamlined and effective organizational structure. Additionally, performance on the Kuwait Base Operations and Security Support Services contract continued to be strong and our most recent performance rating issued by the client was excellent. The K-BOSSS re-compete proposal is under evaluation and we look forward to delivering a robust and differentiated solution, while continuing the excellent performance our client has consistently received on this contract.”

“Since joining Vectrus in December," Prow continued, "I've had the opportunity to visit a number of our clients and program teams around the world to see first-hand the missions we serve and our employees' dedication and commitment to those missions."


1



Exhibit 99.1 

"The federal facilities and logistics markets are under significant pressure to transform and deliver much better outcomes at dramatically lower costs. Vectrus has an opportunity, with our clients, to be a leader in this transformation through innovation," explained Prow. "To capture this opportunity, I have initiated a strategic process that will leverage our core facilities and logistics capabilities with our technology business. The convergence of our clients' physical and digital infrastructure including supply chains represent an opportunity to improve the outcomes of their missions while creating a higher value, growth oriented platform. Overall, I believe the long-term outlook for Vectrus is promising and will lead to enhanced shareholder value.”

Fourth Quarter 2016 Results

Revenue $288.2 million
Operating income $8.6 million
Operating margin 3.0%
Diluted earnings per share $0.40

Fourth quarter 2016 revenue of $288.2 million decreased $23.0 million or 7.4 percent compared to the fourth quarter of 2015. The decrease is due to lower revenue of $27.7 million from Afghanistan programs and $18.2 million from U.S. and European programs, partially offset by a $22.9 million increase in Middle East programs.

Operating income was $8.6 million or 3.0 percent operating margin in the fourth quarter of 2016, compared to $11.3 million or 3.6 percent operating margin in the fourth quarter of 2015.

Fourth quarter 2016 diluted earnings per share were $0.40 compared to $0.55 in the fourth quarter of 2015.

“It is important to note that we incurred one-time expenses in the amount of $1.5 million associated with actions taken in the fourth quarter, which adversely impacted our operating income," said Matt Klein, chief financial officer of Vectrus.

Full-Year 2016 Results

Revenue $1,190.5 million
Operating income $42.8 million
Operating margin 3.6 percent
Diluted earnings per share $2.16
Cash provided by operating activities $36.6 million

Full-year 2016 revenue of $1,190.5 million increased $9.8 million or 0.8 percent compared to 2015. The increase is due to a $130.9 million increase in revenue from Middle East programs, partially offset by decreases in Afghanistan programs of $80.1 million and U.S. and European programs of $41.0 million.


2



Exhibit 99.1 

Operating income was $42.8 million or 3.6 percent operating margin for the full-year 2016, compared to $40.0 million or 3.4 percent operating margin in 2015. For the year ended December 31, 2015, adjusted operating income1 was $43.4 million or 3.7 percent adjusted operating margin1.

Full-year 2016 diluted earnings per share were $2.16 compared to $2.86 in 2015 and adjusted diluted earnings per share1 of $2.23 in 2015.

Cash provided by operating activities for the year ended December 31, 2016 was $36.6 million; an increase of $17.7 million compared to 2015.

“Our team did a phenomenal job of improving cash collections in 2016. Day’s sales outstanding improved significantly to 57 days, an 11 day improvement year-over-year,” said Klein.

The Company ended 2016 with total debt of $85.0 million, which was down $29.0 million from $114.0 million at the end of 2015. This included $15 million of voluntary prepayments in 2016. As of December 31, 2016, the Company had a total consolidated indebtedness to consolidated EBITDA (total leverage ratio) of 1.63x to 1.00x.

“We have prudently managed our debt profile to ensure we remain below our covenants, especially given the recent dynamics involving our business,” said Klein. “As of year-end, we were tracking well below our 2016 debt-to-EBITDA covenant level of 3.25 times. In 2017, this covenant steps down to 3.0 times. We will continue to methodically manage our leverage profile and capital structure as we move through 2017.”

The Company ended 2016 with total backlog of $2.4 billion and funded backlog of $665 million.

2017 Guidance
"In 2017, we expect annual revenue to be in the range of $910 million to $1,010 million including an anticipated extension of our existing K-BOSSS contract while the re-compete proposal is under evaluation. Full-year operating margin is expected to be in the range of 3.40 percent to 3.60 percent and net income to be in the range of $17.0 million to $20.5 million. We expect to see diluted EPS in the range of $1.53 to $1.83 per share, and cash provided by operating activities from $20 million to $26 million," said Klein. “Our 2017 guidance assumes interest expense of approximately $4 million, depreciation and amortization of $2 million, mandatory debt payments of $16 million, a tax rate of 36.4 percent and weighted average diluted shares outstanding of 11.1 million at December 31, 2017.”


3



Exhibit 99.1 

2017 guidance details include:
$ millions, except for operating margin and per share amounts
2017 Guidance
2017 Mid
Revenue
$910
to
$1,010
$960
Operating Margin
3.40
%
to
3.60
%
3.5
%
Net Income
$17.0
to
$20.5
$18.8
Diluted EPS 2
$1.53
to
$1.83
$1.68
Cash Provided by Operating Activities
$20
to
$26
$23

The Company notes that forward-looking statements of future performance made in this release, including 2017 guidance are based upon current expectations and are subject to factors that could cause actual results to differ 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 5 p.m. Eastern Standard Time on Wednesday, Mar. 1, 2017.

U.S.-based participants may dial into the conference call at 877-407-0792, while international participants may dial 201-689-8263. Pass code for both is 13655384. 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 Mar. 15, 2017, at 844-512-2921 (domestic) or 412-317-6671 (international) with pass code 13655384.

Footnotes:
1 See “Key Performance Indicators and Non-GAAP Financial Measures” (below).
2 2017 EPS guidance is calculated using the estimated weighted average diluted common shares outstanding for the year ending December 31, 2017 of 11.2 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 facility and logistics services, and information technology and network communication 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 5,600 employees spanning 143 locations in 18 countries. In 2016, Vectrus generated sales of

4



Exhibit 99.1 

$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 in 2017 Guidance above about our revenue, operating margin, net income, EPS and net cash provided by operating activities for 2017 and other assumptions contained therein for purposes of such guidance, debt payments, expense savings, contract opportunities, bids and awards, collections, business strategy, outlook, objectives, plans, intentions or goals, and any discussion of future operating or financial performance. Whenever used, words such as "may," "are considering," "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: our dependence on a few large contracts for a significant portion of our revenue; competition in our industry; our ability to submit proposals for and/or win potential opportunities in our pipeline; our ability to retain ad renew our existing contracts; protests of new awards; our international operations, including the 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; 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; 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; 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; our compliance with applicable environmental health and safety regulations; our ability to maintain required security clearances; 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

5



Exhibit 99.1 

provisions or exposure to additional income tax liabilities; changes in U.S. generally accepted accounting principles; accounting estimates made in connection with our contracts; our exposure to interest rate risk; our compliance with public company accounting and financial reporting requirements; timing of payments by the U.S. government; risks and uncertainties relating to the spin-off from our former parent; and other factors set forth in Part I, Item 1A, – “Risk Factors,” and elsewhere in our 2016 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.



















6



Exhibit 99.1 

VECTRUS, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
 
 
Year Ended December 31,
(In thousands, except per share data)
 
2016
 
2015
 
2014
Revenue
 
$
1,190,519

 
$
1,180,684

 
$
1,203,269

Cost of revenue
 
1,083,607

 
1,075,035

 
1,084,512

Selling, general and administrative expenses
 
64,086

 
65,687

 
80,340

Operating income
 
42,826

 
39,962

 
38,417

Interest (expense) income, net
 
(5,639
)
 
(6,531
)
 
(1,526
)
Income from continuing operations before income taxes
 
37,187

 
33,431

 
36,891

Income tax expense
 
13,532

 
2,458

 
14,079

Net income
 
$
23,655

 
$
30,973

 
$
22,812

 
 
 
 
 
 
 
Earnings per share
 
 
 
 
 
 
Basic
 
$2.21
 
$2.94
 
$2.18
Diluted
 
$2.16
 
$2.86
 
$2.13
Weighted average common shares outstanding - basic
 
10,714

 
10,551

 
10,476

Weighted average common shares outstanding - diluted
 
10,974

 
10,825

 
10,692

 
 
 
 
 
 
 
 


7



Exhibit 99.1 

VECTRUS, INC.
CONSOLIDATED BALANCE SHEETS
 
 
December 31,
(In thousands, except share information)
 
2016
 
2015
Assets
 
 
 
 
Current assets
 
 
 
 
Cash
 
$
47,651

 
$
39,995

Receivables
 
172,072

 
210,561

Costs incurred in excess of billings
 
11,002

 
1,243

Other current assets
 
13,412

 
9,708

Total current assets
 
244,137

 
261,507

Property, plant, and equipment, net
 
3,061

 
4,762

Goodwill
 
216,930

 
216,930

Other non-current assets
 
1,177

 
1,197

Total non-current assets
 
221,168

 
222,889

Total Assets
 
$
465,305

 
$
484,396

Liabilities and Shareholders' Equity
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable
 
118,055

 
122,442

Billings in excess of costs
 
1,421

 
6,025

Compensation and other employee benefits
 
34,917

 
36,783

Short-term debt
 
15,750

 
22,000

Other accrued liabilities
 
17,693

 
25,268

Total current liabilities
 
187,836

 
212,518

Long-term debt, net
 
67,842

 
89,615

Deferred tax liability
 
89,667

 
91,343

Other non-current liabilities
 
2,559

 
1,610

Total non-current liabilities
 
160,068

 
182,568

Total liabilities
 
347,904

 
395,086

Commitments and contingencies
 
 
 
 
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; 10,894,924 and 10,612,246 shares issued and outstanding
 
109

 
106

Additional paid in capital
 
63,910

 
58,640

Retained earnings
 
57,959

 
34,304

Accumulated other comprehensive loss
 
(4,577
)
 
(3,740
)
Total shareholders' equity
 
117,401

 
89,310

Total Liabilities and Shareholders' Equity
 
$
465,305

 
$
484,396



8



Exhibit 99.1 

VECTRUS, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

 
Year Ended December 31,
(In thousands)
 
2016
 
2015
 
2014
Operating activities
 
 
 
 
 
 
Net income
 
$
23,655

 
$
30,973

 
$
22,812

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
Depreciation and amortization expense
 
1,920

 
3,138

 
2,149

Loss on disposal of property, plant, and equipment
 
405

 
686

 
103

Stock-based compensation
 
4,649

 
6,658

 
2,324

Amortization of debt issuance costs
 
1,198

 
1,130

 
185

Changes in assets and liabilities:
 
 
 
 
 
 
Receivables
 
37,814

 
(9,886
)
 
21,608

Other assets
 
(13,903
)
 
12,005

 
(1,329
)
Accounts payable
 
(3,766
)
 
8,874

 
6,169

Billings in excess of costs
 
(4,605
)
 
219

 
(5,266
)
Deferred taxes
 
(2,163
)
 
(9,404
)
 
11,282

Compensation and other employee benefits
 
(1,808
)
 
275

 
(13,245
)
Other liabilities
 
(6,778
)
 
(25,788
)
 
(3,813
)
Net cash provided by operating activities
 
$
36,618

 
$
18,880

 
$
42,979

Investing activities
 
 
 
 
 
 
Purchases of capital assets
 
(741
)
 
(793
)
 
(3,847
)
Proceeds from the disposition of assets
 
116

 
387

 
497

Distributions from equity investment
 
573

 
524

 

Net cash (used in) provided by investing activities
 
$
(52
)
 
$
118

 
$
(3,350
)
Financing activities
 
 
 
 
 
 
Proceeds from issuance of long-term debt
 

 

 
140,000

Repayments of long-term debt
 
(29,000
)
 
(23,375
)
 
(2,625
)
Proceeds from revolver
 
74,000

 
324,000

 
23,000

Repayments of revolver
 
(74,000
)
 
(324,000
)
 
(23,000
)
Distribution to subsidiary of Exelis
 

 

 
(136,281
)
Proceeds from exercise of stock options
 
2,146

 
239

 

Payment of debt issuance costs
 
(221
)
 

 
(3,701
)
Proceeds from insurance financing
 

 
14,857

 

Repayments of insurance financing
 

 
(12,130
)
 

Payments of employee withholding taxes on share-based compensation
 
(987
)
 
(1,301
)
 
(229
)
Working capital adjustment payment from Exelis
 

 

 
2,600

Transfer to Former Parent, net
 

 

 
(6,371
)
Net cash used in financing activities
 
$
(28,062
)
 
$
(21,710
)
 
$
(6,607
)
Exchange rate effect on cash
 
(848
)
 
(116
)
 
(645
)
Net change in cash
 
7,656

 
(2,828
)
 
32,377

Cash-beginning of year
 
39,995

 
42,823

 
10,446

Cash-end of year
 
$
47,651

 
$
39,995

 
$
42,823

 
 
 
 
 
 
 

9



Exhibit 99.1 

Supplemental Disclosure of Cash Flow Information:
 
 
 
 
 
 
Interest paid
 
$
5,278

 
$
6,047

 
$
1,201

Income taxes paid
 
$
26,068

 
$
16,096

 
$
2,667

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

 
$

 
$
92


10



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 adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted earnings per share, to be useful to management and investors in evaluating the 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 and adjusted diluted earnings per share, 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 or diluted earnings per share 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 and tax indemnifications in connection with the spin-off from our former parent.
“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 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 diluted earnings per share" is defined as adjusted net income divided by the weighted average diluted common shares outstanding.




11



Exhibit 99.1 

(In thousands)
 
Three Months Ended December 31,
 
Year Ended December 31,
Adjusted Operating Income (Non-GAAP Measure)
 
2016
 
2015
 
2016
 
2015
Revenue
 
$
288,160

 
$
311,194

 
1,190,519

 
1,180,684

 
 
 
 
 
 
 
 
 
Operating income
 
$
8,555

 
$
11,291

 
$
42,826

 
$
39,962

Separation costs 1 (pretax)
 

 

 

 
177

Tax indemnifications 2
 

 

 

 
3,300

Adjusted operating income
 
$
8,555

 
$
11,291

 
$
42,826

 
$
43,439

 
 
 
 
 
 
 
 
 
GAAP operating margin
 
3.0
%
 
3.6
%
 
3.6
%
 
3.4
%
Adjusted operating margin
 
3.0
%
 
3.6
%
 
3.6
%
 
3.7
%
 
 
 
 
 
 
 
 
 
1 Costs incurred to become a stand-alone public company.
2 Tax indemnifications in connection with the spin-off from our former parent (see "Tax Indemnifications" in Note 3 to the financial statements in our 2016 Annual Report on Form 10-K).

(In thousands, except per share data)
 
Three Months Ended December 31,
 
Year Ended December 31,
Adjusted Net Income and Adjusted Diluted Earnings Per Share (Non-GAAP Measure)
 
2016
 
2015
 
2016
 
2015
Net income
 
$
4,409

 
$
5,960

 
$
23,655

 
$
30,973

Separation costs 1 (pretax)
 

 

 

 
177

Tax impact of adjustments
 

 
(20
)
 

 
(13
)
Net settlement of uncertain tax positions 2
 

 

 

 
(6,949
)
Adjusted net income
 
$
4,409

 
$
5,940

 
$
23,655

 
$
24,188

GAAP EPS - diluted
 
$
0.40

 
$
0.55

 
$
2.16

 
$
2.86

Adjusted EPS - diluted
 
$
0.40

 
$
0.55

 
$
2.16

 
$
2.23

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - diluted
 
10,988

 
10,869

 
10,974

 
10,825

 
 
 
 
 
 
 
 
 
1 Costs incurred to become a stand-alone public company.
2 Net settlement of uncertain tax positions due to the resolution of examinations of tax returns of our former parent ("Uncertain Tax Positions" in Note 3 to the financial statements in our 2016 Annual Report on Form 10-K).

12



Exhibit 99.1 



SUPPLEMENTAL INFORMATION
Revenue by military branch for the periods presented below was as follows:
 
 
Year Ended December 31,
(In thousands)
 
2016
 
2015
Military branch
 
Revenue
 
% of Total
 
Revenue
 
% of Total
Army
 
$
1,004,842

 
84
%
 
$
1,007,648

 
85
%
Navy
 
20,066

 
2
%
 
25,561

 
2
%
Air Force
 
165,611

 
14
%
 
145,854

 
13
%
Marines
 

 
%
 
1,621

 
%
Total Revenue
 
$
1,190,519

 
 
 
$
1,180,684

 
 
 
 
 
Year Ended December 31,
(in thousands)
 
2016
 
2015
Contract type
 
Revenue
 
% of Total
 
Revenue
 
% of Total
Firm-Fixed-Price
 
$
297,677

 
25
%
 
$
321,449

 
27
%
Cost-Plus and Cost Reimbursable ¹
 
892,842

 
75
%
 
859,235

 
73
%
Total Revenue
 
$
1,190,519

 
 
 
$
1,180,684

 
 
 
 
 
 
 
 
 
 
 
¹ Includes time and material contracts
 
 
Year Ended December 31,
(In thousands)
 
2016
 
2015
Contract Relationship
 
Revenue
 
% of Total
 
Revenue
 
% of Total
Prime Contractor
 
$
1,131,773

 
95
%
 
$
1,059,984

 
90
%
Sub Contractor
 
58,746

 
5
%
 
120,700

 
10
%
Total Revenue
 
$
1,190,519

 
 
 
$
1,180,684

 
 



13



Exhibit 99.1 


Source: Vectrus, Inc.

14

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Section 3: EX-99.2 (EXHIBIT 99.2)

revisedq42016earningscal
VECTRUS FOURTH QUARTER 2016 RESULTS CHUCK PROW PRESIDENT AND CHIEF EXECUTIVE OFFICER MATT KLEIN SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER MARCH 1, 2017


 
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 IN 2017 GUIDANCE, ABOUT OUR REVENUE, OPERATING MARGIN, NET INCOME, EPS AND NET CASH PROVIDED BY OPERATING ACTIVITIES FOR 2017 AND OTHER ASSUMPTIONS CONTAINED THEREIN FOR PURPOSES OF SUCH GUIDANCE, DEBT PAYMENTS, EXPENSE SAVINGS, CONTRACT OPPORTUNITIES, BIDS AND AWARDS, COLLECTIONS, 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,“ “ARE CONSIDERING,” "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: OUR DEPENDENCE ON A FEW LARGE CONTRACTS FOR A SIGNIFICANT PORTION OF OUR REVENUE; COMPETITION IN OUR INDUSTRY; OUR ABILITY TO SUBMIT PROPOSALS FOR AND/OR WIN POTENTIAL OPPORTUNITIES IN OUR PIPELINE; OUR ABILITY TO RETAIN AND RENEW OUR EXISTING CONTRACTS; PROTESTS OF NEW AWARDS; OUR INTERNATIONAL OPERATIONS, INCLUDING THE 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; 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; 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; 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; OUR COMPLIANCE WITH APPLICABLE ENVIRONMENTAL, HEALTH AND SAFETY REGULATIONS; OUR ABILITY TO MAINTAIN REQUIRED SECURITY CLEARANCES; 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; ACCOUNTING ESTIMATES MADE IN CONNECTION WITH OUR CONTRACTS; OUR EXPOSURE TO INTEREST RATE RISK; OUR COMPLIANCE WITH PUBLIC COMPANY ACCOUNTING AND FINANCIAL REPORTING REQUIREMENTS; TIMING OF PAYMENTS BY THE U.S. GOVERNMENT; RISKS AND UNCERTAINTIES RELATING TO THE SPIN-OFF FROM OUR FORMER PARENT; AND OTHER FACTORS SET FORTH IN PART I, ITEM 1A, – “RISK FACTORS,” AND ELSEWHERE IN OUR 2016 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.


 
FULL-YEAR 2016 HIGHLIGHTS Page 3 • Full-Year 2016 Results o Revenue of $1,190.5 million o Operating margin of 3.6% o Diluted EPS of $2.16 o Net cash provided by operating activities of $36.6 million o Paid down $29 million of debt; $15 million voluntary • Awarded and successfully phased in a $21 million dollar installation services task order in support of the U.S. Air Force at Al Udeid Air Base in Qatar • Awarded a position on the U.S. Navy’s Global Contingency Services Multiple Award Contract II (GCS MAC II) • Successful ELVIS contract win extends our ~20-year support of the program


 
BUSINESS UPDATE Page 4 • Contract Updates o K-BOSSS o APS-5 Kuwait/Qatar o Maxwell BOS • Thule Base Maintenance Contract Update • New Business o Approx. $1.5 billion of proposals submitted and pending potential award1, 100% for new business; almost $6 billion in potential new business opportunities identified over the next 12 months. Award decisions expected on roughly $1 billion of bids in the next six to nine months. • Favorable Financial Liquidity • Vectrus Improvement Project (VIP) Update • Strategy 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.


 
VECTRUS STRATEGY UPDATE Page 5 Vectrus will drive growth through strategic imperatives aligned to our three core strategies. ENHANCE PROGRAM EXECUTION AND EXPAND THE BASE EXPAND SERVICE OFFERING AND OPTIMIZE BUSINESS MODEL INFUSE TECHNOLOGY INTO CURRENT FACILITIES & LOGISTICS SERVICES (F&LS) BUSINESS Expand Portfolio Add More Value Enhance Foundation Vectrus will be an innovator and leader in the convergence of our clients' physical and digital infrastructure and supply chains Benefit: Strengthened methods and approaches, resulting in the delivery of higher value, high impact services to our clients, while growing in, and around, our base Benefit: Integrated solutions that improve efficiency, reduce downtime, and drive cost savings for clients while delivering higher margins to Vectrus Benefit: Stronger competitive position when going to market that drives revenue and margin growth EXPAND IT CAPABILITIES TO BECOME A FULL LIFECYCLE PROVIDER Benefit: Mature portfolio of capabilities available to sell across current and future client set


 
Q4 AND FULL-YEAR 2016 FINANCIAL RESULTS Page 6 (1) Non-GAAP financial measure. See appendix for reconciliation. There were no adjustments to 2016 financial results. (In millions, except Operating Margin and Diluted Earnings Per Share) Q4 2016 Q4 2015 vs 2015 2016 2015 vs. 2015 Revenue 288.2$ 311.2$ (23.0)$ 1,190.5$ 1,180.7$ 9.8$ Operating Income 8.6$ 11.3$ (2.7)$ 42.8$ 40.0$ 2.8$ Adjusted Operating Income 1 43.4$ (0.6)$ Operating Margin 3.0 % 3.6 % (0.6)% 3.6 % 3.4 % 0.2 % Adjusted Operating Margin 1 3.7 % (0.1)% Diluted Earnings Per Share 0.40$ 0.55$ (0.15)$ 2.16$ 2.86$ (0.70)$ Adjusted Diluted Earnings Per Share 1 2.23$ (0.07)$ Net Cash Provided by Operating Activities 36.6$ 18.9$ 17.7$ Three Months Ended December 31, Year Ended December 31,


 
$140.0 $137.4 $114.0 $85.0 12.0 15.0 2.6 11.4 14.0 $75 $85 $95 $105 $115 $125 $135 $145 9/30/14 Debt Balance 2014 12/31/14 Debt Balance 2015 2015 12/31/15 Debt Balance 2016 2016 12/31/16 Debt Balance Voluntary Payments Mandatory Payments DEBT PROFILE Page 7 ($M) Total Debt Payment History: Mandatory $28M Voluntary $27M Total $55M


 
BACKLOG(1)(2) Page 8 (2) (1) Total backlog represents firm orders and potential options on multi-year contracts, excluding potential orders under IDIQ contracts. (2) Q4 2016 total backlog includes the Thule Base Maintenance Contract. • Total backlog $2,356 million as of December 31, 2016 o Funded backlog $665 million o Unfunded backlog $1,691 million $0.7 $1.0 $1.0 $0.8 $0.7 $1.7 $1.5 $1.3 $1.3 $1.7 $- $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Funded Unfunded $2.4 $2.3 $2.1 $2.4 $2.5 ($B)


 
2017 GUIDANCE SUMMARY Page 9 2017 guidance assumptions: • Capital expenditures approximately $1.0 million • Depreciation and amortization approximately $2.3 million • Equity-based founder’s grants drive non-cash expense total $0.6 million • 2017 mandatory debt payments $15.8 million • Interest expense approximately $4.2 million • Estimated tax rate of 36.4% • Diluted EPS assumes 11.1 million weighted average diluted shares outstanding at December 31, 2017 $ millions, except for operating margin and per share amounts 2016 2017 Mid Var %Var Revenue 910$ to 1,010$ 1,191$ 960$ (231)$ (19.4)% Operating Margin 3.40 % to 3.60 % 3.60 % 3.50 % -10 BPS Net Income 17.0$ to 20.5$ 23.7$ 18.8$ (4.9)$ (20.7)% Diluted EPS 1.53$ to 1.83$ 2.16$ 1.68$ (0.48)$ (22.2)% Cash Provided by Operating Activities 20.0$ to 26.0$ 36.6$ 23.0$ (13.6)$ (37.2)% 2017 Guidance


 
CHUCK PROW PRESIDENT AND CHIEF EXECUTIVE OFFICER MATT KLEIN SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER VECTRUS FOURTH QUARTER 2016 RESULTS


 
APPENDIX


 
RECONCILIATION OF NON-GAAP MEASURES Page 12 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, and adjusted diluted earnings per share 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, and adjusted diluted earnings per share, 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 and tax indemnifications in connection with the spin-off. “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 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 and net settlement of uncertain tax positions. "Adjusted diluted earnings per share" is defined as adjusted net income divided by the weighted average diluted common shares outstanding.


 
RECONCILIATION OF NON-GAAP MEASURES (CONT.) Page 13 (In thousands) Adjusted Operating Income (Non-GAAP Measure) 2016 2015 2016 2015 Revenue 288,160$ 311,194$ 1,190,519 1,180,684 Operating income 8,555$ 11,291$ 42,826$ 39,962$ Separation costs 1 (pretax) — — — 177 Tax indemnifications 2 — — — 3,300 Adjusted operating income 8,555$ 11,291$ 42,826$ 43,439$ Operating margin 3.0 % 3.6 % 3.6 % 3.4 % Adjusted operating margin 3.0 % 3.6 % 3.6 % 3.7 % (In thousands, except for share and per share data) Adjusted Net Income and Adjusted Diluted Earnings Per Share (Non-GAAP Measure) 2016 2015 2016 2015 Net income 4,409$ 5,960$ 23,655$ 30,973$ Separation costs 1 (pretax) — — — 177 Tax impact of adjustments — (20) — (13) Net settlement of uncertain tax positions 2 — — — (6,949) Adjusted net income 4,409$ 5,940$ 23,655$ 24,188$ GAAP EPS - diluted $0.40 $0.55 $2.16 $2.86 Adjusted EPS - diluted $0.40 $0.55 $2.16 $2.23 Weighted average common shares outstanding - diluted 10,988 10,869 10,974 10,825 Three Months 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 from our former parent (see "Tax Indemnifications" in Note 3 to the financial statements in our 2016 Annual Report on Form 10-K). Three Months Ended December 31, Year Ended December 31,


 
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