Vectrus, Inc.

Greetings, ladies and gentlemen. Thank you for joining us for the Vectris second quarter 2021 earnings conference call and webcast. Today's call is being recorded. My name is Jen, and I will be your operator for today's call. At this time, all participants have been placed in a listen-only mode. Following management's presentation, I will open up the call for a Q&A session. You may press star 1 on your telephone keypad if you'd like to ask a question. If anyone should require operator assistance, you may press star 0. And now I'll pass the call over to your host, Mike Smith, Vice President of Treasury, Corporate Development, and Investor Relations at Vectris.

Thank you. Good afternoon, everyone. Welcome to the Vectris Second Quarter 2021 Earnings Conference Call. Joining us today are Chuck Pro, President and Chief Executive Officer, and Susan Lynch, Senior Vice President and Chief Financial Officer. Slides for today's presentation are available on our investor relations website, investors.vectris.com. Please turn to slide two. During today's presentation, management will be making forward-looking statements pursuant to the safe harbor provisions of the federal securities laws. Please review our safe harbor statements in our press release and presentation materials for a description of some of the factors that may cause actual results to differ materially from the results contemplated by these forward-looking statements. the company assumes no obligation to update its forward-looking statements. Additionally, I would like to point out that we will be discussing and reporting adjusted non-GAAP metrics, including adjusted EBITDA and margins, adjusted net income, and adjusted diluted earnings per share. The definition of these non-GAAP measures can be found in our presentation materials, press release, and Form 10-Q. At this time, I would like to turn the call over to Chuck Pro,

Thank you, Mike, and good afternoon, everyone. Thank you for joining us on the call today. Please turn to slide three. I am pleased to announce that our business continues to advance on all fronts, resulting in a very solid second quarter. This success wouldn't be possible without the innovation and dedication of our employees who stand with our clients across the globe in support of their most critical missions. We continue to build on our first quarter momentum with revenue increasing 40% year-over-year to $471 million, an all-time high for Vectris. We grew organically 21%, driven by new business, base expansion, and phasings. Our top-line strength was matched by a significant increase in EBITDA margin to 5.6%. The combination of increased revenue and strong margin performance in the quarter yielded adjusted diluted earnings per share of $1.52. In the second quarter, we were issued a Log Cap 5 task order to support a major client exercise in Indopaycom, known as Defender Pacific 21. This exercise is illustrative of the rapid response and quick turnaround requirements that we expect to see over the next decade under the Log Cap 5 contract. We expect our momentum in the Pacific to continue to grow as we phase in Quadulin task order and become fully operational in mid-2022. Additionally, we achieved two major milestones during the second quarter, successfully transitioning both Iraq and Kuwait task orders and reaching full operational capability. I'd like to thank our team for their significant contributions in challenging environments to ensure client success. We look forward to serving as the Army's preferred source for logistics and base operations support and sustainment services in CENTCOM over the next several years. We ended the quarter with total backlog of approximately $5 billion and pro forma backlog of $5.3 billion. With regard to our on-deck SWAC or re-compete win, our client has lifted the stop work order and we have started performing on the new contract. The OMDEC SWACA award is included in our total backlog. One protest in the Court of Federal Claims remains on OMDEC SWACA. Because of our strong year-to-date results and backlog, we are increasing our 2021 revenue and EPS guidance. Please turn to slide four. Vectris continues to execute a strategic framework, which is driving improved performance and growth across the business and positioning us to lead in the converged market. Our momentum is being advanced by our growth and capital allocation model, which is focused on investing in organic growth, targeted M&A and developing and inserting operational technologies aligned with our strategy. The growth generated from this dimension of our model leverages our enterprise vector performance improvement initiatives, which are increasing value by automating our core program and support processes, cost efficiencies, supply chain, and technical enhancements to modernize our programs and support functions. The foundational aspect of this framework that catalyzes and connects all of our efforts together is our team and cultural development initiatives. The people of Vectris have been and continue to be pivotal to our success. We utilize our leadership development framework to grow this talent base, additionally, Vectris' value-based culture is tightly coupled with our demonstrated focus on corporate social responsibility, diversity, equity, and inclusion. Vectris is a majority minority company with approximately 60% of our workforce representing people of color. Vectris Diversity, Equity, and Inclusion Council, employee resource groups, and DE&I town halls and leadership summits for our employees are essential to our culture, and management system. These components of our value system and strategic framework are enabling Vectris to deliver on our strategy three core elements, enhance the foundation, expand the portfolio, and add more value, which are transforming Vectris into a larger scale, higher value, and differentiated platform. Please turn to slide five. Our second quarter results are demonstrative of Vectris' increasing position and significant opportunity in the Pacific region. During the quarter, our INDOPACOM revenue grew meaningfully as we increased our operations and supported mission requirements in the region. Our revenue in INDOPACOM now comprises 6% of our total revenues. Additionally, we believe the longer-term opportunity for Vectris to expand and grow in the region remains strong as our prime position under Log Cap 5 enables us to support the Army throughout the full range of operations in the region over the next 10 years. Furthermore, we have strategically invested to bolster and increase our core set of capabilities in INDO-PACOM since 2018. Today, VECRIC provides several key solutions that are aligned to support the growing requirements of our clients. One of these solutions is the integrated electronic security and protection of critical assets and installations. Vectris is the exclusive provider of C3 integrated network security systems for the US bases across Korea. Vectris is also the exclusive provider of security design and C3 network solutions supporting and protecting the foreign military sales F-35 program in Japan. Additionally, Under our Fleet Systems Engineering Team F-SET program, Vectris provides specialized IT systems engineering and communications support to forward-deployed naval forces in Japan and throughout the region. Our F-SET teams help ensure the readiness of U.S. naval ships and continuity of Navy C4I systems in the event of systems malfunction, attack, cyber attack, and other system-impacting incidents. Through our engineering and digital integration solutions, today Vectors is integrating CBRN sensors, force protection assets, and other data sources as part of an IoT solution at certain IndoPaycom installations that will provide early warning and enhance situational awareness of potential threats. Vectors has a legacy providing multifunctional logistics and statement-level maintenance of vehicles and preposition stocks. We also provide full-spectrum MRO services for legacy and next-generation aircraft. Currently, in INDOPACOM, we are providing maintenance of the C-130 aircraft in Japan, in addition to maintenance and readiness support services for ground vehicles in the region. We believe the requirement for these services will expand, and Vectris remains positioned to support our client requirements. Vectris' facility and operations and maintenance services are critical to the expected future growth in Indopaycom. Our converged infrastructure solutions support all DoD clients and today are providing operations support services at several locations in the Pacific. This aspect of our business will increase as we complete the transition and ramp up of enduring operations at the Kwajalein Atoll, which is currently planned to reach full operational capability in mid 2022. In summary, Vectris is well positioned in the Pacific to support our clients' requirements as well as the DoD's intent to improve posture in the region. Please turn to slide six. We continue to deliver our strategy to diversify our client portfolio, win new business, and improve operational performance by aggressively leveraging technology. Our Navy growth campaign continues to expand as we combine our capabilities to deliver innovative technology-based solutions while improving mission effectiveness. The results of this campaign are seen in our financial results, with Navy revenue increasing 288% year-over-year, driven by organic wins and M&A. The Navy now comprises 12% of our total revenue versus 4% last year. During the second quarter, we were awarded a position on the Navy's Worldwide Expeditionary Multiple Award IDIQ Contract, or WEXMAC. The contract provides worldwide expeditionary supplies and services to support humanitarian and disaster relief, military exercises, and contingencies in 22 geographic regions. This award builds on our position under the Navy Global Contingency Services Contract, which has been an instrumental part of our Navy campaign. While the contract is currently under protest, we plan to utilize this vehicle as another route to access this important client. In aggregate, based on the demand from our client and opportunities in our pipeline, we expect our work with the Navy to expand over the next several years. Please turn to slide seven. Our acquisitions of Zenetics and HHB remain on track and have resulted in a more capable and diverse company. Our combined pipeline of future opportunities continues to expand as our teams are leveraging joint capabilities, path performance, and client intimacy. We are building on Zenetics' foreign military sales capabilities and continue to see future growth in this area, especially as the company was just awarded a contract to provide support services to the state of Kuwait. We believe that over time, the higher margin FMS market will increase as an overall percentage of VectraSouth total revenue. As you can see on this slide, our acquisition strategy has resulted in a significantly enhanced company from a capability and client perspective. In 2018, we materially expanded our sensor integration, Internet of Things, and perimeter security solutions. In 2019, we acquired a leading provider of integrated electronic security systems. In late 2020, we introduced Synetics and HHB, allowing us to deliver a more integrated and comprehensive suite of solutions to our clients globally. Our balance sheet remains strong, and we continue to pursue inorganic activities that will increase the diversity of our portfolio, expand margins, and make Vectris a premier provider of converged solutions. Please turn to slide eight. In terms of our new business pipeline, Vectris remains well positioned to grow organically and win its fair share of over $11 billion in new opportunities we have in our pipeline. It's important to note that re-competes are not included in this amount. I'd like to point out that given the velocity of the log cap five task, our pipeline does not reflect these potential opportunities. As an example, the pipeline does not reflect recent activity in support of the emerging Afghan refugee situation, but we are actively engaged in discussions requiring potential roles in support of the situation. Now, I would like to turn the call over to our Chief Financial Officer, Susan Lynch, for a review of the financials.