Vectrus, Inc.

Hello and welcome to the Vectra Sync third quarter 2021 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note, today's event is being recorded. I now would like to send the conference over to Mike Smith, Director of Investor Relations and Corporate Development. Mr. Smith, please go ahead.

Thank you. Good afternoon, everyone. Welcome to the Vectra's third quarter 2021 earnings conference call. Joining us today are Chuck Proe, 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 operating income and margin, adjusted EBITDA and margin, 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. Before we get started, I would like to thank all of our employees for their dedication and remarkable contributions in supporting the recent evacuation of thousands of Afghan refugees, third country nationals, and Americans from Afghanistan. This undertaking was the largest noncombatant evacuation in U.S. history, and our team's commitment to the mission and performance was exceptional. I recently visited our overseas locations in CENTCOM and met with our teams and clients that directly supported this major humanitarian effort. The accomplishments, stories, and the feedback I received from clients regarding the contributions of our employees was outstanding. I'll discuss some noteworthy highlights shortly. Please turn to slide three. Our third quarter results were strong, driven by a 30% year-over-year increase in revenue. Organic growth was also strong, increasing 13% year-over-year, reflecting expansion in our core business, new wins, and phase-ins. The ability to generate substantial cash from operations remains an important characteristic of our business, and during the quarter we delivered $39 million of operating cash flow. Adjusted EBITDA margin in the quarter was 4.5%, and adjusted diluted earnings per share increased 19% year-over-year to $1.15. We are continuing to grow and expand our presence in the Pacific or Indo-Pacom. For example, just last month, we were awarded a task order with an eight-year performance period to provide logistics and support in the Philippines. In addition, we recently completed the pre-transition site survey for our LogCap 5 quadrillion task order, and we anticipate the phase-in to start by the end of the year and to reach full operational capability and revenue run rate by mid-2022. Importantly, our revenue in Indopaycom now makes up approximately 5% of our total revenue versus 1% in the same period last year. We believe Indopaycom will be a key long-term growth driver for Vectris, given the DOD's intent to improve posture in the region. Our prime position under Log Cap 5 enables us to support our clients throughout the full range of operations in the region over the next decade. Our client campaigns remain instrumental to our growth and diversification strategy. During the third quarter, we continued to build on our Navy campaign and recorded several notable technology-enabled wins that further our position as the premier converged infrastructure company. We also continue to advance our leadership in 5G and are supporting cutting-edge testing and experimentation for the DoD. For example, we recently supported the successful demonstration of a 5G network for Smart Warehouse and see significant applications for our clients' converged infrastructure operations. We ended the quarter with a total backlog of approximately $5 billion and pro forma total backlog of $5.1 billion. Given our solid year-to-year results, we are reiterating our 2021 guidance ranges. Please turn to slide four. Vectrix is well known for its ability to provide rapid response, convert solutions across all time zones and operating environments, which was demonstrated in full by our team during the recent mission to evacuate various populations from Afghanistan. Supporting our client's mission, this was a historical undertaking that our teams tackled with the highest level of skill, precision, and dedication. In one case, our team received a Log Cap 5 task to build out living space that could accommodate several thousand Afghan refugees in 45 days. Our team worked around the clock under extreme weather conditions to design, construct, and operate over 250,000 square feet of living space. This was a remarkable achievement, and while we have one example shown on this slide, several vectorist locations in CENTCOM, including Qatar and Bahrain, supported this important humanitarian effort. I'd like to commend our entire team for going above and beyond to support this critically important mission. Please turn to slide five. Our client campaigns remain instrumental to our growth and diversification of our business. The momentum associated with our Navy campaign continued in the third quarter with several noteworthy technology-based wins that further our position as the premier converged infrastructure company. First, Vectors was awarded a prime OTA contract to provide automation and the receipt and tracking of materials for the Naval Air Warfare Center Aircraft Division. Under this small but important contract, we will provide a solution that utilizes RFID technology to automate the receiving and distribution processes while providing readily available metrics and reporting indicating material delivery, location, and quantities. Secondly, Vectors was awarded a contract to further develop the real-time spectrum operation software for the Navy's fleet. RTSO is a capability integration effort responsible for providing spectrum planning, sensing, monitoring, prediction, and maneuvering capabilities to support electromagnetic spectrum operations. This award was based on our decades of experience providing leading-edge electromagnetic environmental effects engineering and spectrum operations. Vectus was awarded a position on the $93 million five-year multiple award IDIQ contract to provide R&D, engineering, integration, cybersecurity, upgrades, and sustainment for various tactical threat systems for the Navy. This award represents both a new client and an expansion in our capabilities. The result of our Navy campaigns are seen in our financial results, with Navy revenue increasing 180% year over year, driven by organic winds and M&A, and now comprises 11% of our total revenues versus 5% last year. We believe that based on the opportunities in our pipeline and client demand signals, our work with the Navy will continue to expand over the next several years. Please turn to slide six. We are continuing to build VECRS's position as a leader and innovator in 5G and converged infrastructure enablement by utilizing our operational expertise and solutions in support of the largest full-scale 5G test for dual-use applications in the world. You may recall that a year ago it was announced that Vectris was awarded two contracts as part of the DoD's 5G experimentation and testing at five U.S. military test sites, which was earmarked at $600 million. Recently, the DOD completed its first 5G project demonstration of a smart warehouse for Marine Corps Logistics Base, Albany. Vectra supported the successful demonstration and, as a subcontractor, assisted in the design, development, and installation of a radio area network testbed. The network will enable a broad set of smart warehouse use cases, such as warehouse robotics, and holographic augmentation and virtual reality applications as part of a modernizing Marine Corps operations. We also recently demonstrated the Vectris Converged Infrastructure 5G 3D Logistics Hologram at the Army's Annual Industry Conference, AUSA, last month. The Vectris use case is unique in that it shows a hologram guiding the user through a warehouse to find a specific item. After finding the item, the system can then scan a code to display a 3D image of the item's contents. The ability to be directed to a specific item and then visually confirm the item in real time adds incredible value to the warehouse operators. Our second 5G contract is a three-year prime contract for the Naval Base Coronado Smart Warehouse, under which we will provide industry-leading inventory management, network security, robotic material moving, and environmental sensing capabilities. We are currently working on phase one of that prototyping effort, and our team recently demonstrated how augmented reality and RFID location services can assist clients. We believe there is a significant long-term growth opportunity associated with the enablement of 5G and our clients' migration to converged infrastructure operations. Vectris is investing to capture the expected future growth as part of the 5G initiative. For example, we recently launched the Vectris 5G network for integration, connectivity, and experimentation, or the Vectris 5G Nice Lab that includes a mock-up warehouse to be used for development, testing, and demonstration purposes. Innovative technologies to be demonstrated include RFID tags and portals, small and large autonomous movers, smart shelving, smart lockers, and augmented reality mixed reality pick up and pull technologies. Please turn to slide seven. We are making great progress advancing our IoT, sensor integration, machine learning, and data analytics offerings, which are allowing us to deliver a more integrated and comprehensive suite of solutions. We are also extending our differentiated solutions to new clients and markets. For example, As part of the CBRN OTA contract, our team recently deployed nine newly designed integrated early warning dropbox sensor enclosures at the 2021 Indianapolis 500. The sensors were designed to detect and notify stakeholders of a potential bioweapon release. Security units utilized the newly developed IEW dropboxes that incorporated various bio-threat chemical and meteorological sensors with Vectris' sensor management system software. This unique combination of sensors and software allowed for the integration and processing of sensor data from multiple sources, as well as data analytics and visualization at the local command center. The Vectris software that was inside the sensor enclosure enabled fast data processing and a user-friendly interface, allowing local police, energy, and public health departments to view real-time data for the event. We are proud to have supported this important operation with a new client and a new market. Please turn to slide eight. Our new business pipeline is approximately $11 billion, with $2.1 billion of bids submitted awaiting award, and $8.7 billion that we plan to submit over the next 12 months. As you can see on the page, our new business pipeline reflects our continued focus on executing targeted growth campaigns to diversify our portfolio. There is also a greater concentration of higher margin solutions-based opportunities in our pipeline, which are driven by the organic and inorganic investments we've made in the business. I'd like to note that the withdrawal from Afghanistan resulted in a slight erosion of our pipeline, but we have since redeployed those business development resources to other pursuits. Lastly, our pipeline does not currently include any Log Cap 5 related opportunities and only an immaterial amount of international client opportunities, given the fluid timing associated with those efforts. Overall, we remain confident in our ability to successfully compete and win our fair share of new business. Now, I would like to turn the call over to our Chief Financial Officer, Susan Lynch, for a review of the financials.