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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): May 8, 2018

VECTRUS, INC.

(Exact name of Registrant as specified in its charter)

Indiana
0001-36341
38-3924636
(State or other jurisdiction of incorporation of 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))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨





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 May 8, 2018 that includes financial information for the Company for the first quarter of 2018 and updated guidance for fiscal 2018. 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 first quarter of 2018 and updated guidance for fiscal 2018 on May 8, 2018. 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
 
 





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.

Date: May 8, 2018
VECTRUS, INC.
 
By:
/s/ Kathryn S. Lamping
 
Its:
Assistant Secretary



(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 Solid First Quarter 2018 Results

First quarter revenue of $320.5 million, up 10.5% year-over-year
Operating margin 2.7% and diluted earnings per share (EPS) $0.54
Non-GAAP operating margin1 of 3.7% under former ASC 605 revenue guidance
Non-GAAP operating margin1 of 4.0% under former ASC 605 revenue guidance and excluding non-recurring transaction fees
SENTEL acquisition accelerates Vectrus strategic transformation
Awarded over $120 million of new business during the quarter and increased backlog to $3.3 billion
Increased 2018 guidance for revenue, net income, and diluted EPS

COLORADO SPRINGS, Colo., May 8, 2018 — Vectrus, Inc. (NYSE:VEC) announced first quarter 2018 financial results. For the first quarter, revenue was $320.5 million, operating income was $8.7 million, and diluted earnings per share were $0.54. Net cash used in operating activities was $11.6 million in the first quarter 2018. Additionally, the company increased full-year 2018 guidance for revenue, net income, and diluted EPS.

During the quarter, the company adopted the required new revenue recognition accounting standard, Accounting Standards Codification Topic (ASC 606), Revenue from Contracts with Customers, which impacted operating results. The former ASC 605 guidance would have resulted in revenue 1 of $320.6 million, operating income 1 of $11.8 million, and diluted earnings per share of $0.76. There is no change for the quarter to net cash used in operating activities as a result of the adoption of ASC 606.

"We reported solid first quarter results, which were driven by strong program performance, execution of our strategic imperatives, and disciplined cost management," said Chuck Prow, president and chief executive officer of Vectrus. "During the quarter, revenue improved 10.5% year-over-year, while our growth related activities continue to experience positive momentum, winning over $120 million of new business as well as receiving several contract modifications and extensions. These awards further enhance our 2018 revenue visibility."


1



Exhibit 99.1 

"The slight delay of an invoice weighed on our cash performance in the first quarter," said Prow. "We still expect to meet our guidance for 2018 net cash provided by operating activities."

"With total backlog growing to $3.3 billion, we have a significant opportunity to continue applying innovation and enterprise wide improvement initiatives to drive performance improvement through 2018 and beyond," explained Prow. "Our long-term strategy, facilitated by the SENTEL acquisition, is yielding top-and-bottom line improvements and we look forward to delivering further value as we work to achieve our five-year goal by 2023."

"It is important to reinforce that the recently adopted ASC 606 standard impacted the timing of operating income recognition in the quarter and is solely reflective of the required accounting change and does not represent a change in the fundamentals of our business or guidance," said Matt Klein, chief financial officer of Vectrus. "We expect the entire first quarter operating income impact will be positively offset by future profitability recognition over the remaining quarters of 2018."

First quarter 2018, net cash used in operating activities was $11.6 million, a decrease of $21.5 million compared to 2017. Days sales outstanding (DSO) was 68 days in the first quarter of 2018 compared to 54 days in the first quarter of 2017.

The Company ended the first quarter 2018 with a total debt balance of $78.0 million, which was down from $79.0 million at the end of 2017. As of March 30, 2018, the Company had total consolidated indebtedness to consolidated EBITDA (total leverage ratio) of 1.48x to 1.00x.

"Our financial position remains strong, and as such, we were able to pay off the debt associated with the SENTEL acquisition in the first quarter," explained Klein.

The Company ended the first quarter 2018 with total backlog of $3.3 billion and funded backlog of $723.3 million.

2018 Guidance
"We are increasing our full-year 2018 revenue, net income and diluted EPS guidance. We expect annual revenue to be in the range of $1,215 million to $1,285 million with a mid-point of $1,250 million. Full-year operating margin is unchanged at 3.6 percent to 4.0 percent and net income is expected to be in the range of $30.9 million to $36.9 million. We expect to see diluted EPS in the range of $2.71 to $3.23 per share and net cash provided by operating activities is unchanged at $35.0 million to $39.0 million," said Klein. “Our 2018 guidance assumes interest expense of approximately $4.3 million, depreciation and amortization expense of $4.2 million, non-recurring transaction related expenses of $3.0 million, mandatory debt payments of $4.0 million, a tax rate of 22 percent and weighted average diluted shares outstanding of 11.4 million at December 31, 2018.”

2



Exhibit 99.1 

2018 guidance details include:
$ millions, except for operating margin and per share amounts
(Prior) 2018 Guidance
(Updated) 2018 Guidance
Revenue
$1,205
to
$1,275
$1,215
to
$1,285
Operating Margin (unchanged)
3.6
%
to
4.0
%
3.6
%
to
4.0
%
Net Income
$30.5
to
$36.4
$30.9
to
$36.9
Diluted EPS2
$2.70
to
$3.22
$2.71
to
$3.23
Net Cash Provided by Operating Activities (unchanged)
$35.0
to
$39.0
$35.0
to
$39.0


The Company notes that forward-looking statements of future performance made in this release, including 2018 guidance and five-year goals, 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 4:30 p.m. ET on Tuesday, May 8, 2018.

U.S.-based participants may dial into the conference call at 877-407-0792, while international participants may dial 201-689-8263. 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 May 22, 2018, at 844-512-2921 (domestic) or 412-317-6671 (international) with pass code 13679122

Footnotes:
1 Non-GAAP measures. See Appendix for reconciliation.
2 Updated 2018 diluted EPS guidance is calculated using estimated weighted average diluted common shares outstanding for the year ending December 31, 2018 of 11.4 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

3



Exhibit 99.1 

6,700 employees spanning 177 locations in 21 countries. In 2017, Vectrus generated sales of $1.1 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 2018 Guidance above about our revenue, operating margin, net income, diluted EPS and net cash provided by operating activities for 2018 and other assumptions contained therein for purposes of such guidance, other statements about revenue and DSO, our credit facility, 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," "goal" 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 dependence on the U.S. government and the importance of our maintaining a good relationship with the U.S. government, 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; any acquisitions, investments or joint ventures, including the integration of SENTEL Corporation into our business; 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; 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; 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, including under the Tax Cuts and Jobs Act, or exposure to additional income tax liabilities; changes in U.S. generally accepted accounting principles, including changes related to ASC 606; accounting estimates made in connection with our contracts; our exposure to interest rate risk; our compliance with public company accounting and financial reporting requirements;

4



Exhibit 99.1 

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 2017 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.



































5



Exhibit 99.1 

VECTRUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 
 
Three months ended
 
 
March 30,
 
March 31,
(In thousands, except per share data)
 
2018
 
2017
Revenue
 
$
320,516

 
$
290,063

Cost of revenue
 
294,050

 
264,701

Selling, general and administrative expenses
 
17,795

 
13,713

Operating income
 
8,671

 
11,649

Interest (expense) income, net
 
(1,164
)
 
(1,134
)
Income from operations before income taxes
 
7,507

 
10,515

Income tax expense
 
1,396

 
3,847

Net income
 
$
6,111

 
$
6,668

 
 
 
 
 
Earnings per share
 
 
 
 
Basic
 
$
0.55

 
$
0.61

Diluted
 
$
0.54

 
$
0.60

Weighted average common shares outstanding - basic
 
11,146

 
10,909

Weighted average common shares outstanding - diluted
 
11,338

 
11,075



6



Exhibit 99.1 

VECTRUS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
March 30,
 
December 31,
(In thousands, except share information)
 
2018
 
2017
Assets
 
(unaudited)
 
 
Current assets
 
 
 
 
Cash
 
$
28,747

 
$
77,453

Receivables
 
246,052

 
174,995

Costs incurred in excess of billings
 

 
12,751

Other current assets
 
7,890

 
6,747

Total current assets
 
282,689

 
271,946

Property, plant, and equipment, net
 
4,236

 
3,733

Goodwill
 
231,236

 
216,930

Intangible assets, net
 
10,218

 
121

Other non-current assets
 
7,820

 
2,821

Total non-current assets
 
253,510

 
223,605

Total Assets
 
$
536,199

 
$
495,551

Liabilities and Shareholders' Equity
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable
 
$
135,641

 
$
115,899

Billings in excess of costs
 

 
3,766

Compensation and other employee benefits
 
47,963

 
39,304

Short-term debt
 
4,000

 
4,000

Other accrued liabilities
 
28,573

 
19,209

Total current liabilities
 
216,177

 
182,178

Long-term debt, net
 
72,317

 
73,211

Deferred tax liability
 
54,636

 
55,329

Other non-current liabilities
 
1,383

 
1,461

Total non-current liabilities
 
128,336

 
130,001

Total liabilities
 
344,513

 
312,179

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; 11,222,424 and 11,120,528 shares issued and outstanding
 
112

 
111

Additional paid in capital
 
68,915

 
67,526

Retained earnings
 
123,449

 
117,415

Accumulated other comprehensive loss
 
(790
)
 
(1,680
)
Total shareholders' equity
 
191,686

 
183,372

Total Liabilities and Shareholders' Equity
 
$
536,199

 
$
495,551


7



Exhibit 99.1 

VECTRUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 
Three Months Ended
 
 
March 30,
 
March 31,
(In thousands)
 
2018
 
2017
Operating activities
 
 
 
 
Net income
 
$
6,111

 
$
6,668

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
 
 
Depreciation and amortization
 
809

 
407

Loss on disposal of property, plant, and equipment
 
40

 

Stock-based compensation
 
1,415

 
1,086

Amortization of debt issuance costs
 
106

 
194

Changes in assets and liabilities:
 
 
 
 
Receivables
 
(37,042
)
 
7,441

Other assets
 
(1,164
)
 
4,202

Accounts payable
 
9,497

 
(22,599
)
Billings in excess of costs
 

 
2,415

Deferred taxes
 
(827
)
 
(2,506
)
Compensation and other employee benefits
 
5,788

 
12,059

Other liabilities
 
3,630

 
547

Net cash (used in) provided by operating activities
 
$
(11,637
)
 
$
9,914

Investing activities
 
 
 
 
Purchases of capital assets
 
(73
)
 
(24
)
Acquisition of business, net of cash acquired
 
(37,210
)
 

Net cash used in investing activities
 
$
(37,283
)
 
$
(24
)
Financing activities
 
 
 
 
Repayments of long-term debt
 
(1,000
)
 
(3,500
)
Proceeds from revolver
 
31,000

 
18,000

Repayments of revolver
 
(31,000
)
 
(18,000
)
Proceeds from exercise of stock options
 
1,309

 
50

Payments of employee withholding taxes on share-based compensation
 
(785
)
 
(577
)
Net cash used in financing activities
 
$
(476
)
 
$
(4,027
)
Exchange rate effect on cash
 
690

 
175

Net change in cash
 
(48,706
)
 
6,038

Cash-beginning of year
 
77,453

 
47,651

Cash-end of period
 
$
28,747

 
$
53,689

Supplemental Disclosure of Cash Flow Information:
 
 
 
 
Interest paid
 
$
991

 
$
1,036

Income taxes paid
 
$
198

 
$
161

Purchase of capital assets on account
 
$

 
$





8



Exhibit 99.1 

Key Performance Indicators and Non-GAAP Financial Measures
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 ASC 605 results, adjusted operating income, adjusted operating margin, EBITDA, EBITDA %, adjusted EBITDA, adjusted EBITDA %, 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.

ASC 605 results, adjusted operating income, adjusted operating margin, EBITDA, EBITDA %, adjusted EBITDA, adjusted EBITDA %, net income, 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 net income and diluted earnings per share as determined in accordance with GAAP. Reconciliations of these items are provided below.

"ASC 605" is defined as the current results adjusted for prior revenue recognition standard.

"Adjusted operating income" is defined as operating income, adjusted to exclude items that may include, but are not limited to, transaction and non-recurring integration costs that impact current results but are not related to our ongoing operations.

"Adjusted operating margin" is defined as adjusted operating income divided by revenue.

"EBITDA" is defined as operating income, adjusted to exclude depreciation and amortization.

"EBITDA %" is defined as EBITDA divided by revenue.

"Adjusted EBITDA" is defined as EBITDA adjusted to exclude items that may include, but are not limited to, transaction and non-recurring integration costs that impact current results but are not related to our ongoing operations.

"Adjusted EBITDA %" is defined as adjusted EBITDA 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 revaluation of our deferred tax liability as a result of the Tax Cuts and Jobs Act, and net settlement of uncertain tax positions.


9



Exhibit 99.1 

"Adjusted diluted earnings per share" is defined as adjusted net income divided by the weighted average diluted common shares outstanding.
 
Impact of ASC606 vs. ASC605
 
 
In thousands, except for % and diluted EPS
 
Three Months Ended March 30, 2018
 
 
 
 
 
 
 
 
 
ASC 606 vs. ASC 605 (Non-GAAP Measure)
 
ASC 606
 
ASC 605
 
Change
 
Revenue
 
$
320,516

 
$
320,614

 
$
(98
)
 
Cost of revenue
 
294,050

 
291,019

 
3,031

 
SG&A
 
17,795

 
17,795

 

 
Operating income
 
8,671

 
11,800

 
(3,129
)
 
Operating margin
 
2.7
%
 
3.7
%
 
 
 
Interest (expense) income
 
(1,164
)
 
(1,164
)
 

 
Income before income taxes
 
7,507

 
10,636

 
(3,129
)
 
Income tax expense
 
1,396

 
1,978

 
(582
)
 
Net income
 
$
6,111

 
$
8,658

 
$
(2,547
)
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - diluted
 
11,338

 
11,338

 

 
Earnings per share - diluted
 
$
0.54

 
$
0.76

 
$
(0.22
)



10



Exhibit 99.1 

Impact of ASC606 vs ASC606 and non-recurring acquisition and transition costs
In thousands, except for %
 
Three Months Ended March 30, 2018
 
 
 
 
 
 
 
Adjusted Operating Income and Adjusted Operating Margin (Non-GAAP Measure)
 
ASC 606
 
ASC 605
 
Change
Revenue
 
$
320,516

 
$
320,614

 
$
(98
)
Cost of revenue
 
294,050

 
291,019

 
3,031

SG&A
 
17,795

 
17,795

 

Operating income
 
$
8,671

 
$
11,800

 
$
(3,129
)
Operating margin
 
2.7
%
 
3.7
%
 
 
Transaction and non-recurring integration cost
 
1,177

 
1,177

 

Adjusted operating income
 
$
9,848

 
$
12,977

 
$
(3,129
)
Adjusted operating margin
 
3.1
%
 
4.0
%
 
 


Adjusted Net Income and Adjusted Diluted Earnings Per Share (Non-GAAP Measure)
 
ASC 606
 
ASC 605
 
Change
In thousands, except for diluted EPS
 
Three Months Ended March 30, 2018
Net income
 
$
6,111

 
$
8,658

 
$
(2,547
)
Transaction and non-recurring integration costs
 
1,177

 
1,177

 

Tax impact of adjustments
 
(219
)
 
(219
)
 

Adjusted net income
 
$
7,069

 
$
9,616

 
$
(2,547
)
GAAP EPS - diluted
 
$
0.54

 
$
0.76

 
$
(0.22
)
Adjusted EPS - diluted
 
$
0.62

 
$
0.85

 
$
(0.23
)
Weighted average common shares outstanding - diluted
 
11,338

 
11,338

 
 



11



Exhibit 99.1 


EBITDA and adjusted EBITDA (Non-GAAP Measure)
 
ASC 606
 
ASC 605
 
Change
In thousands, except for %
 
Three Months Ended March 30, 2018
Operating income
 
$
8,671

 
$
11,800

 
$
(3,129
)
Depreciation and amortization
 
809

 
809

 

EBITDA
 
$
9,480

 
$
12,609

 
$
(3,129
)
EBITDA %
 
2.96
%
 
3.93
%
 
 
 
 
 
 
 
 
 
Transaction and non-recurring integration costs
 
1,177

 
1,177

 

Adjusted EBITDA
 
$
10,657

 
$
13,786

 
$
(3,129
)
Adjusted EBITDA %
 
3.3
%
 
4.3
%
 
 
















12



Exhibit 99.1 

Supplemental Information
Revenue by client branch, contract type, contract relationship, and geographic region for the periods presented below was as follows:
 
 
Three Months Ended
 
 
March 30,
 
March 31,
(In thousands)
 
2018
 
2017
Client branch
 
Revenue
 
% of Total
 
Revenue
 
% of Total
Army
 
$
237,847

 
74
%
 
$
252,161

 
87
%
Navy
 
8,357

 
3
%
 
4,933

 
2
%
Air Force
 
65,255

 
20
%
 
32,969

 
11
%
Other
 
9,057

 
3
%
 

 
%
Total Revenue
 
$
320,516

 
 
 
$
290,063

 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
March 30,
 
March 31,
(in thousands)
 
2018
 
2017
Contract type
 
Revenue
 
% of Total
 
Revenue
 
% of Total
Firm-Fixed-Price
 
$
90,308

 
28
%
 
$
71,806

 
25
%
Cost-Plus and Cost Reimbursable ¹
 
230,208

 
72
%
 
218,257

 
75
%
Total Revenue
 
$
320,516

 
 
 
$
290,063

 
 
 
 
 
 
 
 
 
 
 
¹ Includes time and material contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
March 30,
 
March 31,
(In thousands)
 
2018
 
2017
Contract relationship
 
Revenue
 
% of Total
 
Revenue
 
% of Total
Prime Contractor
 
$
301,028

 
94
%
 
$
285,033

 
98
%
Sub Contractor
 
19,488

 
6
%
 
5,030

 
2
%
Total Revenue
 
$
320,516

 
 
 
$
290,063

 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
March 30,
 
March 31,
(In thousands)
 
2018
 
2017
Geographic region
 
Revenue
 
% of Total
 
Revenue

 
% of Total
Middle East
 
$
219,880

 
69
%
 
$
233,907

 
81
%
United States
 
73,788

 
23
%
 
40,010

 
14
%
Europe
 
26,848

 
8
%
 
16,146

 
5
%
Total Revenue
 
$
320,516

 
 
 
$
290,063

 
 


13



Exhibit 99.1 



Source: Vectrus, Inc.

14

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Section 3: EX-99.2 (EXHIBIT 99.2)

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VECTRUS FIRST QUARTER 2018 RESULTS CHUCK PROW PRESIDENT AND CHIEF EXECUTIVE OFFICER MATT KLEIN SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER MAY 8, 2018


 
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 2018 GUIDANCE ABOUT OUR REVENUE, OPERATING MARGIN, NET INCOME, EPS AND NET CASH PROVIDED BY OPERATING ACTIVITIES FOR 2018 AND OTHER ASSUMPTIONS CONTAINED THEREIN FOR PURPOSES OF SUCH GUIDANCE, OTHER STATEMENTS ABOUT REVENUE AND DAYS SALES OUTSTANDING (DSO), OUR CREDIT FACILITY, 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," “GOAL” 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 DEPENDENCE ON THE U.S. GOVERNMENT AND THE IMPORTANCE OF OUR MAINTAINING A GOOD RELATIONSHIP WITH THE U.S. GOVERNMENT; 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; ANY ACQUISITIONS, INVESTMENTS OR JOINT VENTURES, INCLUDING THE INTEGRATION OF SENTEL CORPORATION INTO OUR BUSINESS; 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; 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; 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 INCLUDING UNDER THE TAX CUTS AND JOBS ACT, OR EXPOSURE TO ADDITIONAL INCOME TAX LIABILITIES; CHANGES IN U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES; INCLUDING CHANGES RELATED TO ACCOUNTING STANDARDS CODIFICATION TOPIC 606, REVENUE FROM CONTRACTS WITH CUSTOMERS (ASC 606); 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 2017 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. Page 2


 
BUSINESS UPDATE • Solid Q1 results driven by operational improvements and enhanced sales efforts o Q1 results combined with contract wins and extensions increase revenue visibility o Modestly increasing 2018 guidance for revenue, net income and diluted earnings per share • Won over $120 million of new business in Q1, while continuing to expand our base o Awarded $108 million Army Contract for Kuwait Dining Facilities (DFAC 3.0) o Awarded a $16 million AFCAP task order at Al Dhafra Air Base in the United Arab Emirates (UAE) o Awarded $385 million nine-month K-BOSSS extension o Subsequent to Q1, awarded a $106 million extension to continue providing enterprise network services in Southwest Asia o Backlog increased 13% year-over-year to $3.3 billion • New business pipeline remains favorable o Approx. $1.4 billion of proposals submitted and pending potential award o $8 billion in potential new business opportunities identified over the next 12 months • Integration of SENTEL on schedule and almost complete • LOGCAP V update Page 3


 
STRATEGIC PROGRESS How We Are Doing It What We Plan To Do Enhance Foundation Executing continuous sales cycle to increase organic growth Strengthened methods and approaches to grow in and around our base Vectrus will be an innovator and (Keesler, AFCAP, DFAC 3.0, RSS II wins) leader in the convergence of our Vectrus Air Force footprint has doubled year-over-year clients' physical and digital infrastructure and supply chains Expand Portfolio Introducing new technology and capabilities into existing programs and new business Enhance Expand Foundation Portfolio Broadened our client set to new federal clients, such as the intelligence community Geographically expanding our contract base e.g., U.S. +84% and Europe +67% year-over-year Add More Value Add More Value Executing Enterprise Vectrus to improve performance Established regional service centers to enhance client support and lower costs Standardizing, improving, and automating core operational capabilities Page 4


 
FIVE YEAR PLAN, TARGETED OUTCOMES Vectrus will be an innovator and leader in the convergence of our clients' physical and digital infrastructure and supply chains, targeting $2.5 billion in revenue and 7% EBITDA margins by 2023 HOW: Transform the way in which ACTION: Transform Vectrus into a Logistics and Facilities services are higher value, technology-enabled and delivered; become a full lifecycle provider differentiated platform in the converged infrastructure market; create partnerships with leading solutions providers DIFFERENTIATE THROUGH HIGHER-VALUE ACTION: Grow revenue through OFFERINGS ACTION: Improve business deliberate organic activities and positioning to yield 7% EBITDA purposeful and prudent acquisitions margins GROW ATTAIN 7% REVENUE TO EBITDA $2.5B MARGINS HOW: Organic expansion of HOW: Grow Top line; execution programs and contracts; Business of Enterprise Vectrus; infuse development/sales enhancement; higher value capabilities into our inorganic opportunities programs Page 5


 
Q1 FINANCIAL HIGHLIGHTS • ASC 606, revenue recognition accounting standard adopted January 1, 2018 • Solid financial results o Revenue $320.5 million o Operating margin 2.7%; diluted earnings per share $0.54 1 o Adjusted operating margin 3.7% under former ASC 605 revenue guidance 1 o Adjusted operating margin 4.0% under former ASC 605 revenue guidance and excluding non-recurring acquisition and transition costs • Acquired SENTEL on January 23, 2018 for $36 million o Paid off debt associated with the transaction during Q1 o Expected to be accretive to 2018 diluted EPS • Total leverage ratio of 1.48x o Total debt $78 million 1 Non-GAAP financial information. See appendix for reconciliation. Page 6


 
Q1 2018 FINANCIAL RESULTS First Quarter 2018 Q1 Q1 (In millions, except Operating Margin and Diluted Earnings Per Share) 2018 2017 vs. 2017 Revenue $ 320.5 $ 290.0 $ 30.5 Operating income $ 8.7 $ 11.7 $ (3.0) Operating margin 2.7 % 4.0 % (1.3)% Net income $ 6.1 $ 6.7 $ (0.6) Diluted earnings per share $ 0.54 $ 0.60 $ (0.06) Net Cash (used in) provided by operating activities $ (11.6) $ 10.0 $ (21.6) Q1 Q1 1 Q1-2018 results under ASC 605 and excluding transaction and non-recurring costs: 2018 2017 vs 2017 Adjusted revenue $ 320.6 $ 290.0 $ 30.6 Adjusted operating income $ 13.0 $ 11.7 $ 1.3 Adjusted operating margin 4.0 % 4.0 % 0.0 % Adjusted EBITDA $ 13.8 $ 12.1 $ 1.7 Adjusted EBITDA % 4.3 % 4.2 % 0.1 % Adjusted diluted EPS $ 0.85 $ 0.60 $ 0.25 1 Non-GAAP financial information. See appendix for reconciliation. Page 7


 
BACKLOG(1) ($B) $3.5 $3.1 $3.3 $3.0 $2.9 $2.8 $2.9 $2.5 (2) 2.6 $2.0 $2.3 $2.0 $1.9 $2.2 $1.5 $1.0 $0.9 $0.8 $0.5 $0.9 $0.7 0.7 $- 1Q17 2Q17 3Q17 4Q17 1Q18 Funded Unfunded • Total backlog $3,306 million as of March 30, 2018 o Funded backlog $723 million o Unfunded backlog $2,583 million • SENTEL contributed total backlog $281 million in 1Q18 (1) Total backlog represents firm orders and potential options on multi-year contracts, excluding potential orders under IDIQ contracts. Backlog also excludes contracts awarded to Vectrus but currently in protest with the GAO or the Federal Claims Court. Page 8


 
2018 GUIDANCE SUMMARY (Prior) (Updated) (Prior) (Updated) 2018 2018 Var to $ millions, except for operating margin and per share amounts 2018 Guidance 2018 Guidance Mid-Point Mid-Point 2017 Mid %Var Revenue $ 1,205 to $ 1,275 $ 1,215 to $ 1,285 $ 1,240 $ 1,250 $ 1,115 $ 135 12.1 % Operating Margin (unchanged) 3.6 % to 4.0 % 3.6 % to 4.0 % 3.8 % 3.8 % 3.7 % 10 bps Net Income $ 30.5 to $ 36.4 $ 30.9 to $ 36.9 $ 33.5 $ 33.8 $ 59.5 $(25.7) (43.1)% Adjusted Net Income 1 $ 24.4 Diluted EPS $ 2.70 to $ 3.22 $ 2.71 to $ 3.23 $ 2.96 $ 2.97 $ 5.31 $(2.34) (44.1)% Adjusted Diluted Earnings Per Share 1 $ 2.17 Net Cash Provided by Operating Activities (unchanged) $ 35.0 to $ 39.0 $ 35.0 to $ 39.0 $ 37.0 $ 37.0 $ 35.4 $ 1.6 4.5 % 2018 guidance assumptions: • Non-recurring transaction related expenses related to acquisition of SENTEL of $3.0 million • Capital expenditures approximately $9.0 million • Depreciation and amortization approximately $4.2 million • 2018 mandatory debt payments $4.0 million • Interest expense approximately $4.3 million • Estimated tax rate of 22% • Diluted EPS assumes 11.4 million weighted average diluted shares outstanding at December 31, 2018 (1) See appendix for reconciliation of non-GAAP measure. Change in deferred tax liability related to Tax Cuts and Jobs Act. Page 9


 
VECTRUS FIRST QUARTER 2018 RESULTS CHUCK PROW PRESIDENT AND CHIEF EXECUTIVE OFFICER MATT KLEIN SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER


 
RECONCILIATION OF NON-GAAP MEASURES 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 ASC 605 results, adjusted operating income, adjusted operating margin, EBITDA, EBITDA %, adjusted EBITDA, adjusted EBITDA %, 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. ASC 605 results, adjusted operating income, adjusted operating margin, EBITDA, EBITDA %, adjusted EBITDA, adjusted EBITDA %, net income, 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 net income and diluted earnings per share as determined in accordance with GAAP. Reconciliations of these items are provided below. "ASC 605" is defined as the current results adjusted for prior revenue recognition standard. "Adjusted operating income" is defined as operating income, adjusted to exclude items that may include, but are not limited to, transaction and non-recurring integration costs that impact current results but are not related to our ongoing operations. "Adjusted operating margin" is defined as adjusted operating income divided by revenue. "EBITDA" is defined as operating income, adjusted to exclude depreciation and amortization. "EBITDA %" is defined as EBITDA divided by revenue. "Adjusted EBITDA" is defined as EBITDA adjusted to exclude items that may include, but are not limited to, transaction and non-recurring integration costs that impact current results but are not related to our ongoing operations. "Adjusted EBITDA %" is defined as adjusted EBITDA 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 revaluation of our deferred tax liability as a result of the Tax Cuts and Jobs Act, 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. Page 11


 
RECONCILIATION OF NON-GAAP MEASURES Year Ended (In thousands, except per share data) December 31, Adjusted Net Income and Adjusted Diluted Earnings Per Share (Non-GAAP Measure) 2017 Net income $ 59,497 Revaluation of deferred tax liability 1 (35,139) Adjusted net income $ 24,358 GAAP EPS, diluted $5.31 Adjusted EPS, diluted $2.17 Weighted average common shares outstanding, diluted 11,209 1 Change in deferred tax liability related to change in federal tax rate under Tax Cuts and Jobs Act. Page 12


 
RECONCILIATION OF NON-GAAP MEASURES (CONT.) Impact of ASC606 vs. ASC605 In thousands, except for % and diluted EPS Three Months Ended March 30, 2018 EBITDA and adjusted EBITDA (Non-GAAP Measure) ASC 606 ASC 605 Change ASC 606 vs. ASC 605 (Non-GAAP Measure) ASC 606 ASC 605 Change In thousands, except for % Three Months Ended March 30, 2018 Revenue $ 320,516 $ 320,614 $ (98) Cost of revenue 294,050 291,019 3,031 Operating income $ 8,671 $ 11,800 $ (3,129) SG&A 17,795 17,795 — Depreciation and amortization 809 809 — Operating income 8,671 11,800 (3,129) Operating margin 2.7 % 3.7 % EBITDA $ 9,480 $ 12,609 $ (3,129) Interest (expense) income (1,164) (1,164) — EBITDA % 2.96 % 3.93 % Income before income taxes 7,507 10,636 (3,129) Income tax expense 1,396 1,978 (582) Net income $ 6,111 $ 8,658 $ (2,547) Transaction and non-recurring integration costs 1,177 1,177 — Adjusted EBITDA $ 10,657 $ 13,786 $ (3,129) Weighted average common shares outstanding - Adjusted EBITDA % 3.3 % 4.3 % diluted 11,338 11,338 — Earnings per share - diluted $ 0.54 $ 0.76 $ (0.22) Impact of ASC606 vs ASC606 and non-recurring acquisition and transition costs Adjusted Net Income and Adjusted Diluted In thousands, except for % Three Months Ended March 30, 2018 Earnings Per Share (Non-GAAP Measure) ASC 606 ASC 605 Change Adjusted Operating Income and Adjusted In thousands, except for diluted EPS Three Months Ended March 30, 2018 Operating Margin (Non-GAAP Measure) ASC 606 ASC 605 Change Net income $ 6,111 $ 8,658 $ (2,547) Revenue $ 320,516 $ 320,614 $ (98) Cost of revenue 294,050 291,019 3,031 Transaction and non-recurring integration costs 1,177 1,177 — SG&A 17,795 17,795 — Tax impact of adjustments (219) (219) — Operating income $ 8,671 $ 11,800 $ (3,129) Adjusted net income $ 7,069 $ 9,616 $ (2,547) Operating margin 2.7 % 3.7 % GAAP EPS - diluted $ 0.54 $ 0.76 $ (0.22) Transaction and non-recurring integration cost 1,177 1,177 — Adjusted EPS - diluted $ 0.62 $ 0.85 $ (0.23) Adjusted operating income $ 9,848 $ 12,977 $ (3,129) Weighted average common shares outstanding - diluted 11,338 11,338 Adjusted operating margin 3.1 % 4.0 % Page 13


 
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