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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 7, 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 August 7, 2018 that includes financial information for the Company for the second quarter of 2018 and 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 second quarter of 2018 and guidance for fiscal 2018 on August 7, 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: August 7, 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 Second Quarter 2018 Results

Second quarter revenue of $321 million, up 24% year-over-year
GAAP operating margin 4.0% and GAAP diluted earnings per share (EPS) $0.81
Awarded two new firm-fixed-price base maintenance contracts in Europe and North America valued at over $125 million
Reaffirming 2018 guidance

COLORADO SPRINGS, Colo., August 7, 2018 — Vectrus, Inc. (NYSE:VEC) announced second quarter 2018 financial results. For the second quarter, revenue was $321 million, GAAP operating income was $13.0 million, and GAAP diluted earnings per share were $0.81. As of June 29, 2018, year-to-date net cash provided by operating activities was $4.2 million.

“I’m happy to report that our business momentum continued into the second quarter and resulted in strong financial results,” said Chuck Prow, president and chief executive officer of Vectrus. “Revenue increased 24% year-over-year, with 12% growth coming from the Vectrus base business and the remainder coming from the SENTEL acquisition. Our growth activities, strong program performance, as well as the continued execution of our strategic plan are showing tangible progress in the form of improved financial results and additional new business awards.”
 
“During the second quarter, Vectrus won new business contracts valued at over $125 million, which builds on our success in the first quarter and brings the total value of our year-to-date new business wins to over $250 million,” explained Prow. “Importantly, all of the new business won in the second quarter is firm-fixed price, which provides Vectrus an excellent opportunity, over time, to generate higher margins and better outcomes for our clients through the application of technology and continuous improvement principles and techniques.”

Year-to-date June 29, 2018, net cash provided by operating activities was $4.2 million, a decrease of $1.6 million compared to 2017. Days sales outstanding (DSO) was 60 days in the second quarter of 2018 compared to 59 days in the second quarter of 2017.


1



Exhibit 99.1 

The Company ended the second quarter 2018 with a total debt balance of $77.0 million, which was down from $79.0 million at the end of the 2017 period. As of June 29, 2018, the Company had total consolidated indebtedness to consolidated EBITDA (total leverage ratio) of 1.44x to 1.00x.

“Our financial profile is strong and Vectrus remains well positioned to capitalize on growth opportunities we see in our markets,” said Matt Klein, chief financial officer of Vectrus. “We are executing on enhancing our internal business operations through the application of our Enterprise-wide improvement program also known as Enterprise Vectrus. Overall, we have made solid year-to-date progress and believe the continued execution of our strategy will result in further top-and-bottom line improvements and increased shareholder value.”

The Company ended the second quarter 2018 with total backlog of $3.3 billion and funded backlog of $951.0 million.

“Our internal efforts and investments are generating returns, which have resulted in a robust backlog that spans several years,” said Klein. “At $3.3 billion, total backlog represents over 2.5 times our 2018 revenue guidance mid-point and we believe provides solid long-term visibility.”

2018 Guidance
"We are reaffirming our full-year 2018 guidance," said Klein. “Our 2018 guidance assumes interest expense of approximately $4.3 million, depreciation and amortization expense of $4.2 million, mandatory debt payments of $4.0 million, non-recurring transaction related expenses of $2.0 million, a tax rate of 22 percent and weighted average diluted shares outstanding of 11.4 million at December 31, 2018.”

2018 guidance details include:
$ millions, except for operating margin and EPS amounts
                             2018 Guidance
Revenue
$1,215
to
$1,285
Operating Margin
3.6
%
to
4.0
%
Net Income
$30.9
to
$36.9
Diluted EPS1
$2.71
to
$3.23
Net Cash Provided by Operating Activities
$35.0
to
$39.0


The Company notes that forward-looking statements of future performance made in this release, including 2018 guidance, are based upon current expectations and are subject to

2



Exhibit 99.1 

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, August 7, 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 August 21, 2018, at 844-512-2921 (domestic) or 412-317-6671 (international) with pass code 13681720.

Footnotes:
1 Diluted EPS guidance is calculated using estimated weighted average diluted common shares outstanding at 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 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,"

3



Exhibit 99.1 

"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 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.







4



Exhibit 99.1 



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

 
 
Three months ended
 
Six months ended
 
 
June 29,
 
June 30,
 
June 29,
 
June 30,
(In thousands, except per share data)
 
2018
 
2017
 
2018
 
2017
Revenue
 
$
321,132

 
$
259,318

 
$
641,649

 
$
549,380

Cost of revenue
 
292,064

 
233,583

 
586,114

 
498,283

Selling, general and administrative expenses
 
16,070

 
16,531

 
33,865

 
30,244

Operating income
 
12,998

 
9,204

 
21,670

 
20,853

Interest (expense) income, net
 
(1,140
)
 
(1,070
)
 
(2,305
)
 
(2,204
)
Income from operations before income taxes
 
11,858

 
8,134

 
19,365

 
18,649

Income tax expense
 
2,663

 
2,673

 
4,058

 
6,520

Net income
 
$
9,195

 
$
5,461

 
$
15,307

 
$
12,129

 
 
 
 
 
 
 
 
 
Earnings per share
 
 
 
 
 
 
 
 
Basic
 
$
0.82

 
$
0.50

 
$
1.37

 
$
1.11

Diluted
 
$
0.81

 
$
0.49

 
$
1.35

 
$
1.09

Weighted average common shares outstanding - basic
 
11,235

 
10,987

 
11,191

 
10,948

Weighted average common shares outstanding - diluted
 
11,383

 
11,191

 
11,351

 
11,132




5



Exhibit 99.1 

VECTRUS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
June 29,
 
December 31,
(In thousands, except share information)
 
2018
 
2017
Assets
 
(unaudited)
 
 
Current assets
 
 
 
 
Cash
 
$
40,958

 
$
77,453

Receivables
 
217,071

 
174,995

Costs incurred in excess of billings
 

 
12,751

Other current assets
 
10,489

 
6,747

Total current assets
 
268,518

 
271,946

Property, plant, and equipment, net
 
5,087

 
3,733

Goodwill
 
235,180

 
216,930

Intangible assets, net
 
9,687

 
121

Other non-current assets
 
4,493

 
2,821

Total non-current assets
 
254,447

 
223,605

Total Assets
 
$
522,965

 
$
495,551

Liabilities and Shareholders' Equity
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable
 
$
126,785

 
$
115,899

Billings in excess of costs
 

 
3,766

Compensation and other employee benefits
 
39,838

 
39,304

Short-term debt
 
4,000

 
4,000

Other accrued liabilities
 
24,837

 
19,209

Total current liabilities
 
195,460

 
182,178

Long-term debt, net
 
71,424

 
73,211

Deferred tax liability
 
54,088

 
55,329

Other non-current liabilities
 
1,433

 
1,461

Total non-current liabilities
 
126,945

 
130,001

Total liabilities
 
322,405

 
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; 11,247,722 and 11,120,528 shares issued and outstanding
 
112

 
111

Additional paid in capital
 
69,855

 
67,526

Retained earnings
 
132,644

 
117,415

Accumulated other comprehensive loss
 
(2,051
)
 
(1,680
)
Total shareholders' equity
 
200,560

 
183,372

Total Liabilities and Shareholders' Equity
 
$
522,965

 
$
495,551


6



Exhibit 99.1 

VECTRUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 
Six Months Ended
 
 
June 29,
 
June 30,
(In thousands)
 
2018
 
2017
Operating activities
 
 
 
 
Net income
 
$
15,307

 
$
12,129

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
1,624

 
794

Loss on disposal of property, plant, and equipment
 
51

 

Stock-based compensation
 
2,521

 
2,995

Amortization of debt issuance costs
 
213

 
381

Changes in assets and liabilities:
 
 
 
 
Receivables
 
(8,820
)
 
8,791

Other assets
 
(4,518
)
 
(640
)
Accounts payable
 
693

 
(14,793
)
Billings in excess of costs
 

 
1,286

Deferred taxes
 
(1,274
)
 
(4,553
)
Compensation and other employee benefits
 
(1,950
)
 
(1,411
)
Other liabilities
 
325

 
757

Net cash provided by operating activities
 
$
4,172

 
$
5,736

Investing activities
 
 
 
 
Purchases of capital assets
 
(764
)
 
(364
)
Acquisition of business, net of cash acquired
 
(37,210
)
 

Net cash used in investing activities
 
$
(37,974
)
 
$
(364
)
Financing activities
 
 
 
 
Repayments of long-term debt
 
(2,000
)
 
(7,000
)
Proceeds from revolver
 
55,000

 
18,000

Repayments of revolver
 
(55,000
)
 
(18,000
)
Proceeds from exercise of stock options
 
1,358

 
1,886

Payments of employee withholding taxes on share-based compensation
 
(803
)
 
(612
)
Net cash used in financing activities
 
$
(1,445
)
 
$
(5,726
)
Exchange rate effect on cash
 
(1,248
)
 
2,192

Net change in cash
 
(36,495
)
 
1,838

Cash-beginning of year
 
77,453

 
47,651

Cash-end of period
 
$
40,958

 
$
49,489

Supplemental disclosure of cash flow information:
 
 
 
 
Interest paid
 
$
2,119

 
$
2,021

Income taxes paid
 
$
7,891

 
$
2,629

Non-cash investing activities:
 
 
 
 
Purchase of capital assets on account
 
$
481

 
$
344


7



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 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.

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.

"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.

8



Exhibit 99.1 

(In thousands)
 
 
 
 
 
 
 
 
EBITDA and adjusted EBITDA (Non-GAAP Measures)
 
Three months ended
 
Six months ended
 
 
June 29,
 
June 30,
 
June 29,
 
June 30,
 
 
2018
 
2017
 
2018
 
2017
Revenue
 
$
321,132

 
$
259,318

 
$
641,649

 
$
549,380

Operating Income
 
12,998

 
9,204

 
21,670

 
20,853

Add:
 
 
 
 
 
 
 
 
  Depreciation and Amortization
 
815

 
387

 
1,624

 
794

EBITDA
 
$
13,813

 
$
9,591

 
$
23,294

 
$
21,647

EBITDA %
 
4.3
%
 
3.7
%
 
3.6
%
 
3.9
%
Transaction and non-recurring integration costs
 
492

 

 
1,669

 

Adjusted EBITDA
 
$
14,305

 
$
9,591

 
$
24,963

 
$
21,647

Adjusted EBITDA %
 
4.5
%
 
3.7
%
 
3.9
%
 
3.9
%

(In thousands)
 
 
 
 
 
 
 
 
Adjusted Operating Income and Adjusted Operating Margin (Non-GAAP Measures)
 
Three months ended
 
Six months ended
 
 
June 29,
 
June 30,
 
June 29,
 
June 30,
 
 
2018
 
2017
 
2018
 
2017
Revenue
 
$
321,132

 
$
259,318

 
$
641,649

 
$
549,380

Cost of revenue
 
292,064

 
233,583

 
586,114

 
498,283

SG&A
 
16,070

 
16,531

 
33,865

 
30,244

Operating income
 
$
12,998

 
$
9,204

 
$
21,670

 
$
20,853

Operating margin
 
4.0
%
 
3.5
%
 
3.4
%
 
3.8
%
Transaction and non-recurring integration costs
 
492

 

 
1,669

 

Adjusted operating income
 
$
13,490

 
$
9,204

 
$
23,339

 
$
20,853

Adjusted operating margin
 
4.2
%
 
3.5
%
 
3.6
%
 
3.8
%


9



Exhibit 99.1 

(In thousands)
 
 
 
 
 
 
 
 
Adjusted Net Income and Adjusted Diluted Earnings Per Share (Non-GAAP Measures)
 
Three months ended
 
Six months ended
 
 
June 29,
 
June 30,
 
June 29,
 
June 30,
 
 
2018
 
2017
 
2018
 
2017
Net Income
 
$
9,195

 
$
5,461

 
$
15,307

 
$
12,129

Transaction and non-recurring integration costs
 
492

 

 
1,669

 

Tax impact of adjustments
 
(111
)
 

 
(350
)
 

Adjusted net income
 
$
9,576

 
$
5,461

 
$
16,626

 
$
12,129

GAAP EPS - diluted
 
$
0.81

 
$
0.49

 
$
1.35

 
$
1.09

Adjusted EPS - diluted
 
$
0.84

 
$
0.49

 
$
1.46

 
$
1.09

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - diluted
 
11,383

 
11,191

 
11,351

 
11,132


















10



Exhibit 99.1 

Supplemental Information
Revenue by client branch, contract type, contract relationship, and geographic region for the periods presented below was as follows:
Revenue by Customer
 
Three Months Ended
 
Six Months Ended
 
 
June 29,
 
% of Total
 
June 30,
 
% of Total
 
June 29,
 
% of Total
 
June 30,
 
% of Total
(In thousands)
 
2018
 
 
2017
 
 
2018
 
 
2017
 
Army
 
$
238,381

 
74
%
 
$
216,554

 
84
%
 
$
476,228

 
74
%
 
$
468,693

 
85
%
Air Force
 
60,420

 
19
%
 
37,509

 
14
%
 
125,676

 
20
%
 
70,499

 
13
%
Navy
 
9,987

 
3
%
 
5,255

 
2
%
 
18,344

 
3
%
 
10,188

 
2
%
Other
 
12,344

 
4
%
 

 
%
 
21,401

 
3
%
 

 
%
Total revenue
 
$
321,132

 
 
 
$
259,318

 
 
 
$
641,649

 
 
 
$
549,380

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue by Contract Type
 
Three Months Ended
 
Six Months Ended
 
 
June 29,
 
% of Total
 
June 30,
 
% of Total
 
June 29,
 
% of Total
 
June 30,
 
% of Total
(In thousands)
 
2018
 
 
2017
 
 
2018
 
 
2017
 
Cost-plus and cost-reimbursable ¹
 
$
242,742

 
76
%
 
$
196,086

 
76
%
 
$
472,951

 
74
%
 
$
414,341

 
75
%
Firm-fixed-price
 
78,390

 
24
%
 
63,232

 
24
%
 
168,698

 
26
%
 
135,039

 
25
%
Total revenue
 
$
321,132

 
 
 
$
259,318

 
 
 
$
641,649

 
 
 
$
549,380

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
¹ Includes time and material contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue by Contract Relationship
 
Three Months Ended
 
Six Months Ended
 
 
June 29,
 
% of Total
 
June 30,
 
% of Total
 
June 29,
 
% of Total
 
June 30,
 
% of Total
(In thousands)
 
2018
 
 
2017
 
 
2018
 
 
2017
 
Prime contractor
 
$
301,088

 
94
%
 
$
251,990

 
97
%
 
$
602,116

 
94
%
 
$
537,040

 
98
%
Subcontractor
 
20,044

 
6
%
 
7,328

 
3
%
 
39,533

 
6
%
 
12,340

 
2
%
Total revenue
 
$
321,132

 
 
 
$
259,318

 
 
 
$
641,649

 
 
 
$
549,380

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue by Geographic Region
 
Three Months Ended
 
Six Months Ended
 
 
June 29,
 
% of Total
 
June 30,
 
% of Total
 
June 29,
 
% of Total
 
June 30,
 
% of Total
(In thousands)
 
2018
 
 
2017
 
 
2018
 
 
2017
 
Middle East
 
219,218

 
69
%
 
208,801

 
81
%
 
439,098

 
69
%
 
442,708

 
80
%
United States
 
74,847

 
23
%
 
36,324

 
14
%
 
148,636

 
23
%
 
76,334

 
14
%
Europe
 
27,067

 
8
%
 
14,193

 
5
%
 
53,915

 
8
%
 
30,338

 
6
%
Total revenue
 
321,132

 
 
 
259,318

 
 
 
641,649

 
 
 
549,380

 
 

11



Exhibit 99.1 


Source: Vectrus, Inc.

12

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Section 3: EX-99.2 (EXHIBIT 99.2)

vec062920188k992
VECTRUS SECOND QUARTER 2018 RESULTS CHUCK PROW PRESIDENT AND CHIEF EXECUTIVE OFFICER MATT KLEIN SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER AUGUST 7, 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 Q2’18 results with revenue increasing 24% year-over-year o Vectrus base business grew 12% year-over-year with the remainder coming from SENTEL o Experienced growth in Middle East, Europe, and U.S. programs • Won over $125 million of new business in Q2’18 o Awarded $84 million Air Force Contract for base maintenance support services at Sheppard Air Force Base  Vectrus has won $450 million worth of contracts with the Air Education Training Command over the past 18 months o Awarded $43 million Army Contract for Installation Maintenance Services at U.S. Army Garrison Stuttgart  Further positions Vectrus as a leading provider of facilities support services in Germany and builds on our almost 40 years of experience operating in the country • 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 • Well positioned for LOGCAP V o Received highest possible performance ratings on the Kuwait-Base Operations and Security Support Services (K-BOSSS) contract Page 3


 
2018 NEW BUSINESS WINS Contract Name Contract Type Contract Value Contract Duration U.S. Army Stuttgart Firm-Fixed-Price $43M Jun 2018 May 2023 Kuwait DFAC 3.0 Cost-Plus $108M Feb 2018 Feb 2023 IESS Firm-Fixed-Price $4.5M Jan 2018 Jan 2021 U.S. Air Force Sheppard Air Force Base Firm-Fixed-Price $84M Oct 2018 Aug 2025 Al Dhafra Air Base (AFCAP) Firm-Fixed-Price $16M May 2018 May 2021 Q2’18 Contract Type YTD New Business Firm-Fixed Over $250 million Price of new business Cost- Firm-Fixed 24% wins YTD with Plus Price Cost- almost 60% being 42% 58% Plus firm-fixed-price 76% Page 4


 
Q2 OPERATIONAL HIGHLIGHTS • Solid financial results o Revenue $321.1 million o Operating margin 4.0% o Diluted earnings per share $0.81 o Days sales outstanding (DSO): 60 • Backlog increased 17% year-over-year to $3.3 billion • SENTEL integration on schedule and below budget • Total leverage ratio of 1.44x o Total debt $77 million o Cash $41 million • Enterprise Vectrus regionalization initiative is fully operational Page 5


 
Q2 2018 FINANCIAL RESULTS Second Quarter 2018 Q2 Q2 (In millions, except Operating Margin and Diluted Earnings Per Share) 2018 2017 vs. 2017 Revenue $ 321.1 $ 259.3 $ 61.8 Operating income $ 13.0 $ 9.2 $ 3.8 Operating margin 4.0 % 3.5 % 0.5 % EBITDA $ 13.8 $ 9.6 $ 4.2 EBITDA margin 4.3 % 3.7 % 0.6 % Net income $ 9.2 $ 5.5 $ 3.7 Diluted earnings per share $ 0.81 $ 0.49 $ 0.32 Year-to-date Second Quarter 2018 Q2 Q2 (In millions, except Operating Margin and Diluted Earnings Per Share) 2018 2017 vs. 2017 Revenue $ 641.6 $ 549.4 $ 92.3 Operating income $ 21.7 $ 20.9 $ 0.8 Operating margin 3.4 % 3.8 % (0.4)% EBITDA $ 23.3 $ 21.6 $ 1.6 EBITDA margin 3.6 % 3.9 % (0.3)% Net income $ 15.3 $ 12.1 $ 3.2 Diluted earnings per share $ 1.35 $ 1.09 $ 0.26 Net cash provided by operating activities $ 4.2 $ 5.7 $ (1.6) Page 6


 
BACKLOG(1) ($B) $3.5 $3.3 $3.3 $3.1 $2.9 $3.0 $2.8 $2.5 2.3(2) $2.0 2.6 $2.3 $2.2 $1.5 $1.9 $1.0 $0.8 1 $0.5 $0.9 $0.7 0.7 $- 2Q17 3Q17 4Q17 1Q18 2Q18 Funded Unfunded • Total backlog $3,277 million as of June 29, 2018 o Funded backlog $951 million o Unfunded backlog $2,326 million (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 7


 
2018 GUIDANCE SUMMARY 2018 Var to $ millions, except for operating margin and per share amounts 2018 Guidance Mid-Point 2017 Mid % Var Revenue $ 1,215 to $ 1,285 $ 1,250 $ 1,115 $ 135 12.1 % Operating Margin 3.6 % to 4.0 % 3.8 % 3.7 % 10 bps Net Income $ 30.9 to $ 36.9 $ 33.8 $ 59.5 $ (25.6) (43.1)% Adjusted Net Income 1 $ 24.4 Diluted EPS $ 2.71 to $ 3.23 $ 2.97 $ 5.31 $ (2.34) (44.1)% Adjusted Diluted Earnings Per Share 1 $ 2.17 Net Cash Provided by Operating Activities $ 35.0 to $ 39.0 $ 37.0 $ 35.4 $ 1.6 4.5 % 2018 guidance assumptions: • Non-recurring transaction related expenses related to acquisition of SENTEL of $2.0 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 measures. Change in deferred tax liability related to Tax Cuts and Jobs Act. Page 8


 
VECTRUS SECOND 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 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. 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. "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 10


 
RECONCILIATION OF NON-GAAP MEASURES (CONT.) Year Ended (In thousands, except per share data) December 31, Adjusted Net Income and Adjusted Diluted Earnings Per Share (Non-GAAP Measures) 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. (In thousands) EBITDA and adjusted EBITDA (Non-GAAP Measures) Three months ended Six months ended June 29, June 30, June 29, June 30, 2018 2017 2018 2017 Revenue $ 321,132 $ 259,318 $ 641,649 $ 549,380 Operating Income $ 12,998 $ 9,204 $ 21,670 $ 20,853 Add: Depreciation and Amortization 815 $ 387 $ 1,624 $ 794 EBITDA $ 13,813 $ 9,591 $ 23,294 $ 21,647 EBITDA % 4.3 % 3.7 % 3.6 % 3.9 % Transaction and non-recurring integration costs $ 492 $ — $ 1,669 $ — Adjusted EBITDA $ 14,305 $ 9,591 $ 24,963 $ 21,647 Adjusted EBITDA % 4.5 % 3.7 % 3.9 % 3.9 % Page 11


 
RECONCILIATION OF NON-GAAP MEASURES (CONT.) (In thousands) Adjusted Operating Income and Adjusted Operating Margin (Non-GAAP Measures) Three months ended Six months ended June 29, June 30, June 29, June 30, 2018 2017 2018 2017 Revenue $ 321,132 $ 259,318 $ 641,649 $ 549,380 Cost of revenue 292,064 233,583 586,114 498,283 SG&A 16,070 16,531 33,865 30,244 Operating income $ 12,998 $ 9,204 $ 21,670 $ 20,853 Operating margin 4.0 % 3.5 % 3.4 % 3.8 % Transaction and non-recurring integration costs 492 — 1,669 — Adjusted operating income $ 13,490 $ 9,204 $ 23,339 $ 20,853 Adjusted operating margin 4.2 % 3.5 % 3.6 % 3.8 % (In thousands) Adjusted Net Income and Adjusted Diluted Earnings Per Share (Non-GAAP Measures) Three months ended Six months ended June 29, June 30, June 29, June 30, 2018 2017 2018 2017 Net Income $ 9,195 $ 5,461 $ 15,307 $ 12,129 Transaction and non-recurring integration costs 492 — 1,669 — Tax impact of adjustments (111) — (350) — Adjusted net income $ 9,576 $ 5,461 $ 16,626 $ 12,129 GAAP EPS - diluted $ 0.81 $ 0.49 $ 1.35 $ 1.09 Adjusted EPS - diluted $ 0.84 $ 0.49 $ 1.46 $ 1.09 Weighted average common shares outstanding - diluted 11,383 11,191 11,351 11,132 Page 12


 
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