Thank you for joining us for the Vectrus Third Quarter 2019 Earnings Conference Call and Webcast. Today's call is being recorded.My name is Omer 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.

Thank you. Good afternoon, everyone, welcome to the Vectrus third quarter 2019 earnings conference call. Joining us today are Chuck Prow, 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.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 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, we will be discussing and reporting non-GAAP financials and other metrics. Which we believe provide useful information for investors, but should not be considered an isolation or as a substitute for performance measures prepared in accordance with GAAP.At this time, I would like to turn the call over to Chuck Prow.

Thank you, Mike, and good afternoon, everyone, and thank you for joining us on the call today. Please turn to Slide 3. In the third quarter, we continue to make progress on our goal to make Vectrus the premier converged infrastructure company in our market driving incremental revenue and earnings momentum.Total revenue grew 17% in the quarter, driven by strong organic revenue growth rate of 13%. As expected, revenue growth is accelerating in the second half of the year given the continued phase in our programs won in 2018 and the programs won thus far in 2019. These wins have significantly diversified our portfolio and increased our market share with the Navy and the Air Force.In July, we acquired Advantor. Advantor, the leading provider of integrated electronic security systems that protects over 2,000 facilities and assets for defense, intelligence, Federal Civilian and international clients, including in the INDOPACOM AOR.In the quarter, Advantor contributed to our growth adding 3% to our overall revenue growth rate. As you may recall, Advantor is the only vertically integrated and accredited command control and communications network security technology platform in the industry today. The acquisition typifies the investments we plan to make in our business to reinforce Vectrus'of position as an innovator and the emerging converged infrastructure market.Our teams have already identified and engaged in several cross-selling opportunities. We expect Advantor continue to contribute to our financial results as well as increase our portfolio of operational technologies that will drive in power the converged infrastructure.Our profitability improved sequentially as anticipated with adjusted EBITDA margin reaching 4.6%, up 40 basis points from the second quarter. As we indicated in our last call, while year-over-year comparisons are more than norm, we are also highlighting our sequential improvement as reflective of our evolving operating model and the recent…

Thanks, Chuck, and good afternoon, everyone. It's a pleasure to join the Vectrus team, I have been here nearly three months and have gotten to know the management and finance team and I'm delighted to be working at a company that supports our military at home and overseas as well as our allies.I believe the company has a tremendous growth opportunity and the necessary capacity to achieve its revenue and profitability objectives. I look forward to meeting with you, our shareholders and analysts over the coming quarters.Turn with me now to Slide 4 to discuss our third quarter results. Third quarter 2019, revenue was $359.9 million, up $51.8 million or 17% year-on-year. Organic revenue growth was up 13% year-on-year, excluding the contribution from Advantor or which was acquired on July 8th.Total revenue growth resulted from increases of $22.9 million from our U.S. programs of which $10.2 million was from the acquisition of Advantor and an increase of $20.5 million from our Middle East programs and an increase of $8.4 million from our European programs.Our K-BOSSS contract contributed $127 million to revenue or 35% of total revenue in the third quarter. Our growth-related activities, targeted campaigns and diversification strategy continue to contribute increasingly to our revenue. During the third quarter, we grew revenue with the Navy by 56% year-on-year and increase our Air Force revenue by 35% year-on-year. Our expansion within our intelligence and other federal clients increased 26% year-on-year.Revenue was up sequentially $28.3 million or 9% with 3% from the acquisition of Advantor. Operating income for the third quarter of 2019 was $14.4 million or 4% margin compared to 4.5% in the third quarter of 2018. Operating income increased $0.4 million year-on-year due to an increase in revenue, partially offset by an increase in SG&A tied to internal investment in…

Thank you, Susan. Let's move to Slide 8 to discuss our organic growth. This table shows our quarterly update of contract wins in the year. To-date in 2019 Vectrus had won over $2.3 billion in awards to our commitment to delivering exceptional program performance to our clients. Our targeted campaigns and our significant investments in growth focus talent and capabilities. As you know we have placed significant emphasis on the Air Force campaign, which grew by 35% in the third quarter and remains highly effective.We continue to leverage our global rapid response and contingency capabilities to secure new business under the Air Force Contract Augmentation Program Four or Aircraft Four program. As a reminder, back to for the water to position on this $5 billion IDIQ contract for the first time in its history in June of 2015. We are one of eight company selected for our position on this contract. And since that time have executed a growth campaign that has resulted in Vectrus winning the greatest number of task orders issued to date under this contract.With aggregate over $136 million in total value, we look forward to continuing to grow our Air Force footprint, while expanding our campaign efforts in other clients such as the Navy and the Department of State. Regarding the Navy, Vectrus was recently awarded a small, but important $6 million task order to provide (inaudible) support services under the U.S. Navy's global contingency service multiple award contract. Additionally, during the quarter we were awarded a small subcontract to provide engineering for the U.S. Navy's real-time spectrum operation software application.This award was based on our decade of experience and providing engineering solutions associated with electromagnetic spectrum operations. We continue to expand our presence with the Navy in all of our core capability areas.We are seeing…

[Operator Instructions] Our first question is from Joe Gomes, Noble Capital.

I was wondering if you could drill down a little deeper provide some more color on these African contracts that you recently won in the quarter. Any additional detail would be appreciated.

I mean that we're really excited about the expansion of the geographic footprint. One of the contracts was for the Navy and the other for the Air Force, One in Djibouti and the other in Nigeria. So again, they are not large in scale, but as you know from our conversations over the last couple of years, our objective is to continue to expand our footprint, particularly in kind of emerging in environments where we really can differentiate ourselves.

Okay. Great. And can you provide any update on that OMDAC recompete I'm not sure where we stand on that right now. I think last time you were talking, but there might be Award in November.

Yes, that is still the current plan, although we're not going to be surprised to see that pushed to the right. A bit is submitted and we're awaiting the client's decision.

Our next question is from Joseph DeNardi, Stifel.

Nice results. Chuck, there seem to be some mixed data points over the past several months or mixed messages may be in terms of deployment levels, troop levels in the Middle East. I'm wondering if you could just talk about what you're seeing from your business there and what effect any of those changes have had.

Thank you. We see continuing op tempo throughout the places that we're deploying, predominantly in the Middle East and South West Asia in particular. We are seeing, we'll call it stable revenues from our perspective. And as you know from our discussions is that from an up-tempo perspective, it's the same type of logic whether true for deploying in a whether true for deploying out.So the short answer to your question is the up-tempo was high. Our teams are working very hard to support the up-tempo. But we're not seeing any new opportunities, if you will, that are specific to the new that the recent couple of months.

Okay. And then when you look into next year, you've reiterated the expectation for double-digit growth. It would seem like a primary driver of that will be the ramp-up on LOGCAP. So can you just talk about kind of expectations for the remainder of their portfolio. I mean the trailing 12 months book-to-bill one times realize that excludes LOGCAP, can you maybe help us understand why a book-to-bill below 1.2 times should support growth in kind of the remaining portfolio.

A couple of points. As you know our signings or sales in our business is quite cyclical. We are at least one times not lock out, notwithstanding on a trailing 12-month basis. As we've talked, and we prefer to look at book-to-bill on a trailing 12-month basis.I would point to two things in terms of my confidence in our continued growth outside of LOGCAP. One is our very strong pipeline, it's the largest pipeline that we've had since I've been at Vectrus 21 and 22, our win rates remain very strong. So I really like the momentum that our growth team under Sue Deagle have and in quite frankly, our ability to more effectively than ever phase in new opportunities from a profitability perspective.

Our next question is from Chris Van Horn, B. Riley FBR.

I wanted to ask about the SG&A, it seems like in the third quarter you became a little bit more efficient in terms of percent of sales relative to the first half. And I just wanted to -- just curious how we should think about that going forward. And I think you also mentioned additional investments. Are you thinking more of the SG&A side or is there something more on the COG side where you've been seeing the investments?

In our SG&A -- in our business is really quite closely aligned operating leverage, so as our revenue continues to trend in a positive direction which we foresee for this -- which we see for the foreseeable future, we are going to make very tactical and strategic decision both on how we reinvest that operating leverage.So from our perspective, it's all about how do we make sure we return the necessary amount of profit, more growth to meet our 7% commitment, while continuing to invest strategically in our business.

Okay. Got it. And then I know you mentioned that you've got these key levers to achieve your 7% adjusted EBITDA margin and it looks like customer mix is a component of that, how do you see that mix evolving? It looks like Navy has increased a little bit, whereas Air Force has increased a lot relative to 2016. How do you see those two customers kind of evolving over the next year or two years?

We have in the pipeline that we have discussed earlier, we really like the mix of clients we have within that pipeline. We can have this conversation without kind of continuing to re-express how good the SENTEL acquisition has been for us.Now of two years ago we continue to grow our intelligence community footprint as well, and I would hope that's going to give a size and scale here in the coming quarters that will begin to break that out individually as well. So there are different clients in our market, those different clients have different profit profiles and they also favor different contracting types.We continue to see, although I will tell you that LOGCAP will -- it's a cost-type contract and so that's going to continue to be the predominant contracting type that we deal with, but other clients are moving aggressively into both fixed price and as a service types of contract vehicles, which give us a bit more control of our margin profile.

Got it. Thank you so much for the time. And congrats on the quarter.

[Operator Instructions] Our next question is from Joseph DeNardi, Stifel.

Chuck, just kind of maybe focusing on the margin target, longer term, it seems like given out successful you guys or on LOGCAP that could make it harder to get there. So if we look at it as kind of the goal of $2.5 billion in sales in 7% margins equates to about $175 million in EBITDA, is your thinking that the LOGCAP win makes it easier to get there, maybe sales are a little higher and margins are a little lower, but you still can't get to the EBITDA target or I think about it the wrong way. I mean can you get there early?

I think that -- what you mean your point would be a logical conclusion. Although I will say that that amount of volume and the increasing size and scale of our supply chain to support LOGCAP we have a lot of levers, we can pull. So at this point in time, I would not be prepared doing the lease come off 7% margin objective. Although we're going to have to pull different types of levers I think under a cost type contracting scenario. Does that help?

Okay. Yes, that does. I mean does the pipeline itself, as you see it now support 7% margins in terms of customer mix and contract type or do you need that to kind of continue to shift further in your favor?

I will tell you, I said answer to the prior question, I am very, very pleased with the diversity in our pipeline. And within that pipeline, the diversity of contract types. We spend a lot of time pre-positioning with our clients in terms of the benefits to them of moving the fixed price type contracting and increasingly to as a service contracting.And the last point I'll make on that is with the Advantor acquisition and our continued move to harden our solution sets, we are seeing increased -- we are seeing very attractive margin profiles on our solution business. So we're going to continue to focus on solutions and as a service type offerings to help us drive to the 7%.

Okay. And then Susan, you mentioned maybe there being an opportunity to lower interest expense, a little bit more if you could talk about that in a little bit more detail. And then just more broadly, kind of just given kind of your current experience thus far at Vectrus where you see kind of the more attractive opportunities.

All right, thanks for the question. So we have a great balance sheet the current credit agreement was negotiated in 2014. We made some changes to it in 2017, I think there is opportunity to make some further changes to it. The interest rate market right now is advantageous to do an amendment and so we're taking a look at that to see what is possible -- we're a much different Company today than what we were even in 2017.And so I just want to make sure that we align our credit facility to the growth that we're experiencing and the goals we have for the corporation to grow to $2.5 billion in sales and a 7% margin business by 2023.In terms of my experience so far, Vectrus has been very, very positive. It's a great group of people that are highly knowledgeable. I think Chuck has hired a great team around him that are highly capable. I think there is opportunity to reduce the unbilled and to take -- get the balance sheet to actually work for us and give us some actually liquidity without borrowing it.I think we have processes that need to be automated and standardized, so that there is less friction and less touch points in the preparation of EACs in the forecast, etc. And all of that is coming from my Honeywell days we have operational efficiency, Six Sigma and continuous improvement. But that's kind of my focus and what I enjoy doing. And so I hope that answers your question.

This concludes the question-and-answer session, and I will now turn the floor back over to Chuck Prow for closing remarks.

Thank you very much. We enjoy the call today and we look forward to updating you further on the fourth quarter and the full year in February. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.