Welcome to the Vectrus, Inc. Third Quarter 2017 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Michael Smith, Director of Investor Relations and Corporate Development. Please go ahead.

Thank you. Good afternoon, everyone. Welcome to the Vectrus Third Quarter 2017 Earnings Conference Call. Joining us today are Chuck Prow, President and Chief Executive Officer; and Matt Klein, Senior Vice President and Chief Financial Officer. Slides for today's presentation are available on our Investor Relations website investors.vectrus.com. Please turn to Slide 2. 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 statement in our press release and presentation material 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. We assume no obligation to update our forward-looking statements. At this time, I'd like to turn the call over to Chuck Prow.

Thank you, Mike. Good afternoon, everyone. Thank you for joining us on the call today. Please turn to Slide 3. I'm pleased to announce that our momentum has continued into the second half of 2017 and has contributed to our solid third quarter financial results. In terms of new business, I'm excited to report that during the quarter, we were awarded a significant, almost $400 million, 16 years subcontract in support of the Air Force Range Support Services II, or RSS II program. This was our largest new business contract win over the past 12 months. Additionally, we have made great progress in negotiating commitment letters and a term sheet for our new credit agreement, which will allow for greater flexibility regarding capital allocation decisions that align with our corporate strategy. Now, I'd like to discuss our third quarter 2017 financial results and highlights. Revenue for the third quarter was $270 million, down $14 million year-over-year, but up $10 million, sequentially. As a reminder, the year-over-year decline was primarily due to the closure of the APS-5 program, which contributed $49 million in the third quarter of 2016. Operating margin was 3.7% compared with 3.9% last year and was also up 20 basis points sequentially. During the third quarter, we phased a new contract wins, transitioned successful recompetes to new structures and continued the implementation of our strategic imperatives. All of which would generally result in margin pressure. However, we believe the margin level achieved in the third quarter in light of these activities is a testament to our team and lays the foundation for future margin expansion. Diluted earnings per share were $0.51 down from $0.60 in the third quarter of 2016. Year-to-date net cash provided by operating activities were $22 million with a DSO of 57 days, which is…

Thank you, Chuck. Good afternoon, everyone. Please turn to Slide 5. Today, I'll be discussing our financial results for the 3 and 9 months ended September 29, 2017. In the third quarter of 2017, revenue was $270 million, down $14 million or 5% as compared to the third quarter of 2016, but up $10 million sequentially. Of note, the APS-5 programs contributed approximately $49 million in the third quarter of 2016. Importantly, $35 million of growth in our new and existing programs partially offset the negative comparison. For the third quarter, Middle East programs declined $14.1 million and U.S. programs declined $2.9 million. This was partially offset by increases from our European programs up $2.3 million, and from our Afghanistan programs up $0.5 million. Operating income for the third quarter of 2017 was $10.1 million, down $1.1 million or 9.6% compared to the third quarter of 2016, and up 20 basis points sequentially. Operating margin for the third quarter of 2017 was 3.7% compared to 3.9% operating margin in the third quarter of 2016. I'd like to recognize our teams for effectively phasing in over $500 million of new programs and for successfully transitioning our recompete wins to new contract structures. Our enterprise Vectrus approach on these phase ins proved valuable and positions us for solid performance and margin expansion in the future. Operating income for the third quarter of 2017 was lower when compared to the same period of 2016, primarily due to the reduction in revenue, partially offset by a decrease in SG&A cost. During the third quarter of 2017, we recorded net favorable cumulative adjustments to operating income of $3.7 million compared to $1.2 million in the same period of 2016. There are many factors that drive contract performance, including successful contract modifications and extension of current…

[Operator Instructions] Our first question comes from Brian Ruttenbur of Drexel Hamilton. Please go ahead.

So, very strong. Couple of quick questions. On book-to-bill in the quarter, I didn't hear that number. And then I've got a couple of other follow-on if you just answer that one first.

Brian, it's Matt. So our quarterly bookings is over $500 million. Most of that comes as a result of the RSS II contract that we talked about in the prepared remarks. And then we did see additional contract extension and contract add-ons in the quarter to get us to our total bookings.

So what was the total book-to-bill or total bookings in the quarter, you said over $500 million, I just got to do the calculation then.

Book-to-bill was close to 2x. And it was over $500 million, it was about $560 million and a quarter.

$560 million. Okay. And then you're sitting on a lot of cash. And I know you're looking at doing a refi. What kind of cash do you need going forward to operate the business? Do you need $10 million, $20 million. Help me out with trying to understand your cash needs moving forward?

So when we spun in 2014, we had about $25 million of starting cash. That was a little tight for this kind of business at about $1 billion, all over. I would say a more comfortable range would be in the $35 million to $40 million as a normal run rate. Now as the business grows, which we expect to grow in the future, that number would proportionately go up. But for where we are today, $40 million -- $35 million to $40 million is about right.

Okay. So you're sitting on extra $20 million, $25 million right now?

We ended the quarter at $63 million of cash in the bank and -- as we talked about in the last quarter, we were focused -- are focused on adjusting our current credit facility to give us more flexibility in our capital allocation options going forward.

And so with this new credit facility, do you anticipate using some of that cash to pay down some of your debt? And post the credit facility will only be sitting on roughly $40 million of cash?

We still need to close out the credit facility. So we have some work to do there. We'll decide what the right cash levels are. And based on the opportunities in front of us, that will determine the cash balance that we'll have in any given quarter. Right now, it's a little bit too early to make that determination until we get through this final stage.

And then the last question is on K-BOSSS LOGCAP. Do we have any update on timing? I know you mentioned it during the prepared remarks, but it sounds like nothing has really changed. It still sounds like it's going to be mid-to-late 2018 when the decision is made. Is that kind of the correct timing in what I heard?

Brian, it's Chuck. That is correct. We are currently expecting proposals -- delivery in early 2018 and an award in mid-2018.

And you still feel extremely well positioned on that one?

Tell you what, Brian, our team is doing a great job; our performance continues to be very strong, kind of the op tempo in the way we are supporting the op tempo and the programs that we do support, where we support the programs has been very, very good. So I can't feel any better right now than how we're positioned.

[Operator Instructions] Our next question comes from Ben Klieve of NOBLE Capital Markets. Please go ahead.

So first apologies, I got on a few minutes late. So Chuck I'm going to ask you questions that I'm sure you discussed here at the beginning. But did I hear you say that the RSS contract is going to be at a full run rate during the fourth quarter. Did I hear that correctly?

Yes, Ben, this is Matt. That's correct.

Congratulations on really a solid quarter overall, particularly on the bookings front. We've seen a pretty weak quarter in bookings with a lot of other IT service providers reporting a lot of delays and even excluding the RSS order, it looks like you guys had a pretty decent quarter. So I'm guessing -- I'm wondering if you can comment a bit on the current bidding proposal environment? And kind of how it's evolved over the past couple of quarters? And then also are you noting any kind of meaningful difference in the environment on awards that are kind of more purely IT versus heavier on the facilities and logistic side?

What I will say, as we all know the government contracting cycle is a bit episodic. Where we see our greatest strength is in the aspect of our missions that we support, that are most, I'll call it, forward-deployed. So as the op tempo in the Middle East increases, as an example, we see opportunities to expand our business base. So the short answer to your question is that, the cycles continue to be episodic. But the areas of our business that we feel best about are those aspects that are most tied -- closely tied to our clients' missions.

And then one question, Matt, on your commentary on the quarterly revenue comparison. You noted that Afghanistan activity was up $0.5 million this quarter. Did you give that same number for the first 9 months? I don't think I caught it if you did?

For Afghanistan revenue?

Yes.

Yes, I can give you the quarterly numbers, let me see...

I think it was up $0.5 million during the quarter, but I didn't hear it during -- for the 9 months period.

Yes, the nine months, Afghanistan revenue is $39.5 million.

And where does that stand on a year-over-year comparison?

Year-over-year comparison is down $36.6 million. And it's principally due to -- we were on the LOGCAP IV contract last year and for half the year. So that decline is basically driven by that, that change in 2017.

And the last question from me, and I'll jump back in queue here. Do you guys have any opportunities that are sitting in protest right now?

We do not. At this point in time, we are not awaiting any protest decisions.

[Operator Instructions] This concludes the question and answer session. I would like to turn the conference back over to Chuck Prow, Vectrus Incorporated President and Chief Executive Officer for any closing remarks.

Thank you, Kyle, and thank you, Brian and Ben, for your questions. This concludes our call for today, and I look forward to updating you next quarter as we close the year in the fourth quarter of 2017. Thank you very much.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.