Thank you for joining us for the Vectrus First Quarter 2019 Earnings Conference Call and Webcast. Today’s call is being recorded. My name is Sarvis and I’ll be the operator for today’s call. [Operator Instructions] And now I’ll pass the call over to your host, Mike Smith, Vice President of Investor Relations and Corporate Development at Vectrus. Please go ahead.

Thank you. Good afternoon, everyone. Welcome to the Vectrus First Quarter 2019 Earnings Conference Call. Joining us today are Chuck Prow, President and Chief Executive Officer; and Bill Noon, Acting Chief Financial Officer. Slides for today’s presentation are available on our Investor Relations website: investors.vectrus.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. We assume no obligation to update our forward-looking statements. At this time, I would 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 three. Before we discuss quarterly results, I would like to congratulate our team on the recent LOGCAP V contract award. On April 12, Vectrus was awarded a seat on the $82 billion LOGCAP V contract and was awarded two of the seven areas of responsibility, the U.S. Central Command or CENTCOM and the U.S. Inter-Pacific Command or INDOPACOM. Both the awards are central to the evolving U.S. and allied security requirements. We appreciate the Army’s confidence in our business and look forward to expanding support of our clients’ most critical missions across the globe. This LOGCAP V award significantly improves our long-term financial visibility and positioning to include retaining our largest contract K-BOSSS, which is currently operating under a previously announced extension through March of 2020. As such, we continue to remain confident in our strategy and five-year growth plan of $2.5 billion in revenue and 7% EBITDA margins. Finally, it should be noted that subsequent to the award, protests were filed with the GAO which we expect to be adjudicated by mid-August. Turning to the quarterly results, we had a solid start to the year with year-over-year improvements in revenue, EBITDA margins and earnings per share. Revenue increased to $326 million, EBITDA margin expanded 60 basis points while EPS grew 15% to $0.62. It is important to note that we achieved this growth while incurring acquisition-related cost and while continuing to phase-in and invest in our 2018 contract awards. Adjusting for the expenses of approximately $1 million associated with our M&A activities, including the acquisition of certain IT mission support contracts, EPS were $0.69. As Bill will discuss later in the call, while we expect these phase-ins will put pressure on our first half 2019 profit, we remain confident in our full-year 2019 guidance. Our growth related activities are producing positive momentum and drove approximately $646 million of bookings in the first quarter yielding both year-over-year and sequential improvements in backlog. We expect our bookings for the full year to remain strong based on recent awarded contracts, but could be impacted by the timing and outcome of protest. Our financial position remains strong and we will continue to drive future organic and inorganic growth through the utilization of our strong predictable cash flow and healthy balance sheet. With approximately $26 million in net debt, we remain well-positioned to pursue inorganic opportunities that align with our strategy. As you can see, 2019 is off to a solid start as we continue our transformation to a higher value differentiated platform with the goal of becoming the leading converged infrastructure provider in the market. Now I will introduce Bill Noon, who will take you through the first quarter results. Bill is our Chief Accounting Officer and was named Acting Chief Financial Officer in April having joined Vectrus in 2016 after serving as an advisor since 2014.

Thanks, Chuck, and good afternoon, everyone. I am excited to serve in this capacity and look forward to getting to know you all better. Let’s move to Slide four to discuss our first quarter results. Financial results for the quarter were solid with year-over-year improvements in revenue, margins and diluted earnings per share. First quarter 2019 revenue was $325.9 million, up $5.4 million or 2% as compared to the first quarter of 2018. The increase in revenue was due to increases of $6.5 million from Middle East programs, $1.3 million from European programs offset partially by a decrease of $2.4 million from U.S. programs. Our K-BOSSS contributed $121.4 million to revenue or 37% of total revenue. Importantly, our growth related activities, targeted campaigns and diversification strategy are becoming increasingly visible in our revenue streams. During the first quarter, we grew our revenue with the Navy by 80% year-over-year and increased our Air Force revenue by 4%. Finally, we are seeing expansion within our intelligence and IRS clients. Operating income for the first quarter of 2019 was $10.4 million or 3.2% margin, an increase of $1.7 million or 50 basis points compared to the first quarter of 2018. This growth is primarily due to our Middle East programs partially offset by investments in our recently won programs and higher SG&A including approximately $1 million of transaction costs associated with M&A activities. Operating margin, adding back the $1 million in transaction costs would have been 3.5%. During the first quarter of 2019, we recorded net unfavorable cumulative adjustments to operating income of $1.1 million compared to the net favorable adjustments of $2.8 million for the first quarter of 2018. There are many factors that drive contract performance including program execution, contract modifications and scope changes. Cumulative catch-up adjustments can be positive or…

Thanks, Bill. Let’s move to Slide six. Vectrus has made significant investments in growth related talent and capability, which have resulted in higher win rates across the board and helped us to achieve approximately $2.2 billion in awards so far this year. The chart on the top of Slide six summarizes our strong award activity to-date in 2019. As mentioned, subsequent to the first quarter, we were awarded a position on the LOGCAP V contract. The value of our initial task orders under LOGCAP V are approximately $1.4 billion. I’ll discuss the potential opportunity associated with LOGCAP momentarily. Notably, during the first quarter, we were awarded a new five-year $117 million cost-plus fixed fee award to provide defensive cyber operations and operational and maintenance IT to a government client. This was an important win for Vectrus assisted by the acquisition of SENTEL and representative of revenue synergy and action. It is important to note that this award is currently under protest and will be adjudicated in early August. Our ability to provide complex mission critical IT services in austere and challenging environments is a differentiator for Vectrus and an important reason behind this win. We leveraged our strong IT capabilities, which includes operating the largest overseas Army cyber center and historical performance on our OMDAC-SWACA contract to provide our client with a value-added and differentiated solution. We are honored to be a part of such an important mission and look forward to supporting our client with exceptional performance. During the first quarter, we were successful in winning the Navy Fleet Systems Engineering team or FSET recompete, which we have supported since the program’s inception in 1999. This is a $151 million task order under which we will continue to provide end-to-end engineering support for C4I systems to the U.S. Navy’s…

Thanks, Chuck. Let's move to Slide 10. For 2019, we continue to expect revenue to be in the range of $1.3 billion to $1.33 billion with revenue building through the year as we phase-in recent new business wins and execute contract projects. Given the current performance we're seeing on our programs, we see a potential upward bias to our revenue outlook and we will update you on this during our second quarter 2019 call. The strategic levers Chuck discussed with respect to volume and contract mix, Enterprise Vectrus and solutions and client mix are expected to contribute to margin expansion this year. As such, our operating margin outlook remains in the range of 3.8% to 4.2% with EBITDA margin expected to be in the range of 4.1% to 4.5%. Factoring in our first quarter results and the pace at which we expect to realize performance from the investments made into our recently won programs, we expect margin expansion to build sequentially throughout the year with the second half of 2019 being greater than the first. Interest expense currently remains unchanged at $4.7 million, but could be a touch higher based on our first-quarter results and working capital required to support new contracts. However, we believe any increase in interest expense would be more than offset by operating income. Depreciation and amortization guidance is unchanged at $4.1 million. We continue to estimate a 21% tax rate for the year. Net income guidance remains in the range of $35.3 million to $40.4 million with diluted earnings per share in the range of $3.07 to $3.51. As I noted earlier, with respect to operating and EBITDA margin, we expect EPS to build sequentially throughout the year with the second half of 2019 being greater than the first. We continue to assume 11.5 million weighted average diluted shares outstanding. Our 2019 net cash provided by operating activities remains unchanged in the range of $40 million to $46 million. Capital expenditure guidance remains approximately $8.5 million, including our application modernization project of $4 million, with the remainder coming from project requirements. As a reminder, program-related capital expenditures are considered in contract pricing and will be recouped all or in part over the performance of the contract. Finally, 2019 mandatory debt payments are $4.5 million. Chuck?

Thanks, Bill. Now let's turn to Slide 11. Since 2016, Vectrus has greatly enhanced our client engagement and business development approach. We are prosecuting targeted client campaigns to diversify our revenue base and support future growth. We have a passionate management team in place that continues to focus on process and cost improvement throughout the organization to drive high quality service delivery for our clients and enhance returns to all of our stakeholders. We are honored by the LOGCAP V award, which affirms that this strategy is working and we are committed to accelerating the momentum and executing along these lines. Our path to our five-year goal is now solidified and we are expecting that LOGCAP V and other significant contract wins will drive double-digit growth in 2020. Vectrus' transformation into a higher value platform and innovator in the converged infrastructure market is taking place. We could not be more excited about our future. Now I'd like to turn the call open for questions.

Certainly. We would not begin the question and answer session. [Operator instructions] Our first question is from Jon Ladewig with Stifel.

Hey, guys. Good evening. And congrats on winning LOGCAP V's CENTCOM task order. First question I guess is in regards to LOGCAP V. You talked about next year seeing a double-digit growth in sales related to that recent award. Can you just give us a little bit more color on how we should think about that ramp-up given the information that the customer has provided to you? Should we think of it as both task orders ramping up at the same time or what's kind of the cadence that's currently being communicated to you that you can share with us?

Sure. Well, thanks a lot for joining the call today. The client as you -- as we know, the contract is currently under protest. We would assume that protest cycle to be a normal protest cycle. And given that, we would expect to see all task orders begin to wrap up at a similar pace following the completion of the protest cycle. As you know, we were awarded both the CENTCOM AOR and the PACOM AOR and at this point in time the information we have is that both AORs will undergo a very similar ramp-up.

Thanks. In regards to your other large contract OMDAC-SWACA, I was hoping you guys could maybe provide us an update on the status of that contract and now with the LOGCAP V contract in the rear view, any other large items that may be up for re-compete in 2019?

The major contract up for recompete in 2019 is OMDAC-SWACA. We are submitting our proposal in May and we would expect the contract to be awarded in November. We continue to perform very very well on that program. We additionally announced another win -- an IT win in that geography as well earlier in the call today. So, again we really -- we feel good about our chances and we really feel good about our ongoing performance.

Okay. In regards to the recent work that you guys went out and acquired, how does it fit in regards to the larger smart base concept that was -- you talked about in the past and the work that you have not just providing supply and logistics, but also on the -- more of the IT work that you have. Is this a change in strategy or is this kind of more along the lines of moving into less commoditized work?

These contracts advance our strategy pure and simple. We -- the scope of the contracts is very additive to our goal to be a converged infrastructure provider. And again while the contracts are not large on a dollar perspective, they are quite strategic and we're pleased to have been able to acquire those contracts.

Excellent. I’ll let somebody else to jump in, but again good job guys. Thank you.

Thank you.

[Operator instructions] Our next question is from Joe Gomes with Noble Capital.

Good afternoon and let me add my congratulations too on the wins and the operating results. First question, I was just wondering if you might just delve a little bit more into your navy campaign and what is driving your wins here, it seems to be going extremely well?

I would say in short it's client intimacy. We've spent a lot of time with our clients. We've attracted new talent that is deeply involved in the various navy missions. And as I said in my remarks, too, it's largely on the back of really outstanding client delivery. So again it's one of focus, it's one of client intimacy and it's one of building on our client -- on our excellent performance.

Okay. And if I'm looking at kind of the consensus numbers here on the EPS basis. Consensus was around $0.75, I think. And even if I make the adjustment for the million, you guys are still a little bit short there. Is that more of just a reflection of some of these other costs that you talked about in ramping up some of these new contracts?

This is Bill. The costs that we incurred were more in the investments. As we started these new programs, we feel these investments will put us in a good position going forward. And as I said the -- we anticipate that we'll see sequential growth over the balance of the year with it being much stronger in the second half.

This is Chuck. You may remember in 2018 we had $1.1 billion of bookings, $350 million of that was net new. So, I'm actually quite pleased with the team's ability to move into those new missions. And as Bill indicated, the cost in terms of those transitions are a bit front end loaded in the year. But we'll continue to see, as Bill has indicated, a sequential growth throughout the year.

Okay, great. And then on the M&A front, I know you talked a little bit about that and obviously you mentioned some of these IT mission contracts that you've got. When you're looking at that, some of the recent acquisitions that are ongoing in this space, the multiples seem to be going higher and higher. Is that kind of caused you guys to take a step back, are you still seeing attractive reasonably priced opportunities out there on the M&A market?

We continue to assess opportunities as we've talked for several calls now. We will continue to mature that pipeline based upon our stated strategy and where we find assets that we believe to be at the right price i.e. affordable, we'll have the ability given our balance sheet to make the appropriate move. But right now again, we're still in the assessment phase and we look forward to advance that pipeline as the opportunities -- as the opportunities present themselves.

Okay, great. Thanks again and congrats again.

Thank you. Good to talk to you.

Our next question is from Jon Ladewig with Stifel. Please go ahead.

Hey, guys, I’m back again. First thing, how did this commercial opportunity come about? Could you guys kind of give us some color on how this situation arose and what's the potential long term for Vectrus in the commercial market and how should we think about it going forward for the company?

I think that’s true [ph], because the opportunity essentially came a combination of word of mouth and good sales technique on the part of our teams quite frankly. While we do not expect to see in the short term standalone solution sale to be a material part of our revenue stream, we are seeing an emerging pipeline that we're very very pleased with and we intend to progress that business here over the coming quarters. Again what I -- when I think of the sales, I think of the market really telling us that there is a demand for the converged infrastructure capability we've been talking about for a while. Our clients have realized that there need to be more automated ways to drive efficiencies in cost reduction and many of the solutions that we have been inserting into our existing contract base also have applicability on a stand-alone basis.

Okay. And then you guys have now a year into the SENTEL acquisition, it seems to be going well. I guess the question in some minds is how is this -- how have you been able to leverage the capabilities that SENTEL has brought to Vectrus to expand your markets? Is there anything that you can point to that's been kind of a definitive example of where that SENTEL capability has differentiated yourself in the marketplace compared to your peers?

It's come in two areas. First of all, we now have an emerging intelligence community contract base. We did not have that before the SENTEL acquisition and you saw just recently another IDIQ that was awarded with a focus on the intelligence community. That's point one. Point two is as we think about the technology insertion into our existing clients and in fact new clients, the SENTEL engineering capabilities that came along with that acquisition have been central to our ability to deliver. So, it's both delivery of converged infrastructure solutions and the inclusion of the intelligence community into our client mix.

Okay. And then lastly, can you just talk about fixed price? It looks like its down compared to last year on a relative basis, it was 28% versus 23% this year first quarter. What should be that -- how should we think of the cadence going forward for fixed firm price work? Should it increase or is it just going to modulate for the next few quarters?

It's a good observation because on a revenue basis, we are down and that's largely because of contracts who came to their natural end and repricing of recompeted contracts. We continue to see our clients issuing fixed price contracts. As you can see from the first quarter award, we also see quite a bit of cost type contracts. So I'm not sure I'd use the word modulate, I would say that the move to fixed price contracting will be gradual and we continue to advocate for that with our clients at every possible chance.

All right. Thank you very much guys.

Thank you.

Appreciate it.

This concludes the question and answer session. I would like to turn the conference back over to Chuck Prow for any closing remarks.

Thank you. And thank you all for your attendance today. We've enjoyed the discussion and look forward to talking to you again next quarter.

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