Thank you for joining us today for the Vectrus First Quarter 2020 Earnings Conference Call and Webcast. Today’s call is being recorded. My name is Robert, and I’ll be the 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 the question-and-answer session. [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. You may begin.

Thank you. Good afternoon, everyone. Welcome to the Vectrus first quarter 2020 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 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. 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’d like to turn the call over to Chuck Prow.

Thank you, Mike, and good afternoon everyone. Thank you for joining us on the call today. This quarter, we, in every business around the globe, have been adjusting to the COVID-19 pandemic and keeping our employees, clients and partners safe. Vectrus provides critical infrastructure support services globally, for a variety of national security missions. This core competency combined with our backlog of long-term contract with the U.S. government, creates operating and financial resiliency with predictable free cash flow. This is foundational to our business model. We are proud of the contributions our teams are making to support our men and women on the frontlines as such a difficult time. At the same time, we are not distracted from our opportunity to transform Vectrus and do a leader in the emerging converged infrastructure market and as such, our strategic priorities remain unchanged and achievable.Please turn to Slide 3 and let’s touch on our first quarter results. We began the year as expected with continued top-line growth. Revenue grew 8% in Q1, which is supported by a solid organic growth of 4% and a minimal impact from COVID-19. This growth came from a $14.6 million expansion on our existing programs, as well as an $11.2 million contribution from our acquisition of Advantor.Our client portfolio and revenue base continue to diversify, and we expand our market share with the Army, the Navy, and the Air Force. We also improved our profitability in the quarter through continued focus on program delivery excellence. Adjusted EBITDA margin expanded 30 basis points to 4.2% in the first quarter and we grew adjusted EPS by 9% despite a $0.02 per share headwind from COVID-19. We achieved improved results even while continuing to invest in our business including starting LOGCAP V.Through our growth related efforts, we continue to win…

Thanks, Chuck and good afternoon everyone. Turn with me now to slide 5 to discuss our first quarter results. First quarter 2020 revenue was $351.7, million up $25.8 million or 8% year-on-year. Organic revenue growth was 4% year-on-year excluding the contribution from Advantor, which was acquired early in the third quarter of 2019. I’m pleased to report that we saw revenue growth in all geographic regions, driven by an increase of $11.5 million from our middle East programs, an increase of $10.1 million from U.S. programs and an increase of $4.2 million from European programs.Our revenue with the Army grew 9%, Air Force grew 8% and Navy revenue grew 1%. Our K-BOSSS contract contributed $124 million or a 35% of total revenue in the quarter. Operating income for the first quarter of 2020 was $12.5 million or 3.5% margin compared to 3.2% margin in the first quarter of 2019.adjusted operating income for the first quarter of 2020 was $12.6 million or 3.6% margin compared to 3.5% in the first quarter of 2019. adjusted operating income increased $1.2 million year-on-year due to an increase in revenue and improved operating performance.First quarter 2020 interest expense was $1.7 million, up $128,000 a year-on-year due to the preemptive draw on the company’s revolver as a result of concerns around the COVID 19 pandemic. adjusted EBITDA for the first quarter of 2020 was $14.6 million, up 14% from last year. Adjusted EBITDA margin was 4.2%, up 30 basis points from 3.9% in the first quarter of 2019.net income for the first quarter of 2020 was $8.7 million as compared to $7.1 million for the first quarter of 2019. the effective tax rate in the first quarters of 2020 and 2019 was 19.6% and 19.8% respectively. Adjusted net income was $8.8 million, up 11% compared to…

Thank you, Susan. Now, let’s move to slide 9 to touch on LOGCAP V. on March 3, we received a notice to proceed from our client and began to transition the Set-the-Theater planning in earnest to CENTCOM and INDOPACOM AOR task orders that Vectrus was awarded as part of our position on LOGCAP V. As you know, the initial value of these task orders of approximately $1.4 billion or 40% of the $33.5 billion total initial value of task orders awarded to all seats.to increase safety during the pandemic, the DoD restricted non-mission essential travel and then issued a conditions based transition plan that sets key condition, under which LOGCAP V awardees may travel for site assessments. Some physical site visits are necessary to transition, particularly Kwajalein Atoll in the Marshall Islands and some activity, we’ll wait until conditions are satisfied. We expect to have a better understanding of transition timelines in the next 45 to 60 days.With respect to the protest process, three or four protests have been adjudicated with the Army’s decision being upheld. All other legal remedies have been exhausted for these protests. Only one protest remains active. We believe the protest is winding down and should be settled in the near-term. We are working diligently to deliver flawlessly on their critical missions to the Army.Let’s move to Slide 10 to discuss our new business pipeline. As mentioned in my earlier remarks, our award activity remained solid with first quarter wins across all DoD clients. Additionally, we believe our pipeline of new business opportunities support continued growth and backlog and revenue. We currently have approximately $1.4 billion in bids submitted for new business awaiting award, which from a client mix perspective, represents our focused growth campaigns.Our bids submitted awaiting award is down from last quarter due primarily…

Thank you. [Operator Instructions] Our first question comes from Chris Van Horn with B. Riley. please proceed with your question.

Good afternoon everyone. Thanks for taking my call and hope everyone’s doing well.

Doing fine, Chris. how are you?

Great, thank you. So, I just wondered if you could comment on the contract activity. I know you mentioned $20 million to $25 million impact to revenues. Is that due to deferrals of programs, is there any cancellations that you’re hearing and how the kind of real-time process for work is going.

Now, we’re not seeing cancellations at all. In fact, the demand base is strong, the activities on the bases are continuing to mount, but the realities are that there is limited access to the various bases. We do anticipate when we begin to move back to more normal crewing that we’ll have an opportunity to claw that revenue back.

Okay. Got it. from a competitive standpoint, are you seeing any change in the competitive landscape due to this, the small disruption? Is there the smaller competitors; are they not showing up and anything from a competitive perspective?

Not really. We continue to see strong demand in the marketplace. Our clients are continuing to issue proposals. We continue to respond and as you saw from the prepared remarks, we are continuing to receive our fair share of awards.

Got it. And then you’ve been able to keep your costs under control, especially in the SG&A line. As you have – as you increase these bids plan to submit, do you need to invest further in SG&A [ph] or do you think your you know, your right sized where you are now?

As we talked quite a bit last year, we’ve made and continued to make investments in our business. As our business continues to grow, we’re creating more operating leverage and providing us additional opportunities to invest. So, at this point in time, I really like where we are. We’re in the middle of implementing our new enterprise systems that we talked about for the last couple of years. And again, we’re just continuing to work with our clients to get LOGCAP transitioned and continue to expand our revenue base and capabilities accordingly.

Okay. Got it. I’ll pass it along. Thank you so much for the time, and stay safe and healthy.

Thank you. Same to you. Thanks for the questions.

Our next question comes from Joe Gomes with NOBLE Capital. Please proceed with your question.

Good afternoon, congrats on the quarter and thanks for taking my questions.

Thank you, Joe.

Just real quick on the LOGCAP protest, my thought last time we spoke with the expectation was that that was going to be wound up in April. Is this delay kind of COVID-related or is there something else that’s come up that has pushed this date out?

That’s a good question. So, three of the four protests have been adjudicated and the timeframe for those three protests to appeal has passed. The fourth protest is tied up and what I’ll call administratively. the judge assigned to the case has been required to focus on other non-protest related activities and so as soon as he can get back to his docket, we would assume that protest would proceed. And again, as I indicated in my prepared remarks, I do believe that we are in the kind of the end stages of the process.

Okay, great. on deck, any timing as to when that will be awarded?

It continues to push a bit to the right. I don’t know that I would say that it’s COVID related or not. So, we do not have a timeframe. We are continuing as you saw in the prepared remarks to process project extensions, which we always like, obviously, but I would assume that it would be in the 2021 at this point in time. But again, I don’t want to – I don’t want to project anything that’s not official.

Okay. And COVID, you see what you’ve discussed in the second quarter probably having a $20 million, $25 million impact on revenue, in the first quarter specifically and then I guess, somewhat into the second, I mean, if you had to assume additional expenses COVID related, and if so, how has that impacted margins, if at all?

We’ve worked very closely with our clients and as I’ve indicated in our prepared remarks that our clients are doing a phenomenal job working with us and the entire industrial base to make sure that we can keep contracts aligned to operating realities and costs aligned to revenue. So at this point in time that reduction in revenue is predominantly related to base access. The workload is continuing to grow and we fully expect once we get back to a more normal crewing on our particular contracts that we’re going to work with our clients to claw as much of that workload back as possible, because again, it is existing demand that demand is currently funded and the work is still required.

Okay. And one last one from me, in the fourth quarter you guy at fourth quarter call, you’d talked about there had been some delays in cash collections, but that had been resolved in Q1. Given what’s going on here now any particular negative impact on cash collections as you see it in the first quarter so far here into the second quarter?

Again, I mean, there are complexities out there. So, I don’t want to minimize the complexities. But our clients are very actively working with ourselves and for that matter, everybody in the industrial base, and so Susan, unless you’ve seen something I haven’t, I think we should still continue to see the pace of invoice of the collection that we’ve historically seen.

Yes, I agree. Our customers have been basically bending over backwards to work with us and to make sure that, that they’re working with the industrial base to make sure that we’re there to support them.

That’s good news. Thanks for taking the questions and congrats, again.

Appreciate it. Thank you for the call.

Our next question comes from Joe DeNardi with Stifel. Please proceed with your question.

Hey, Chuck, Susan, this is John on for Joe. Good evening.

How are you?

Doing well. First question, Chuck, I want you to kind of put on your prognostication and just kind of talk to us about how you see the outbreak changing the customer’s approach to the converge infrastructure. Is this going to accelerate demand for this? Is this going to maybe, be a limit? How are you guys approaching the outbreak relative to your converge infrastructure outlook?

Well, first of all, the safety of our employees, of our contractors, of our clients remain paramount. I do see that as we continue to move forward with the operating procedures that have been put in place over the last several months, we may actually see an opportunity to provide additional ways to insert technology and keep people, if you will off of frontline, where they may not need to be. So, it’s an insightful question. Its questions that we continue to pose to our clients and as you know, is any industry transformed that converges over time. There are certain events that may at time cause the activity to be to move along a bit quicker. So, I don’t want to project that to happen, but there certainly is an opportunity for us to work in new and different ways to keep not only our people safe, but our clients safe as well.

Okay. Your competitors have had different color on the awards environment. Is there anything you can share about what you’re seeing with some of your key customers? For instance, how the Army has been awarding work versus the Navy or the Air Force?

We actually see a very consistent OPTEMPO if you will, across our clients set. As you know, we are very purpose built to do what we do. We operate military facilities, networks and IT networks and that business is quite stable and in demand. So we see, again, a good OPTEMPO on the part of our clients. I think that the Deveselu example, the recent award is a really good example that the client worked very hard with us to find innovative ways to safely, I’ll stress safely get our people to where they needed to be to conduct site surveys and so forth. So again, I think their response has been even, I think our clients are prudently working with the industrial base to make sure that we can continue to advance the various missions that we’ve either been awarded and/or currently operating.

Perfect. And then just one last question, Chuck, when you guys look out at the current M&A environment, I presume you guys aren’t necessarily getting ready to go out there and make any acquisitions, but is this providing you an opportunity to maybe, reassess the marketplace and pursue things that perhaps you weren’t considering as maybe, three months ago?

Well, we have and we continue to actively to assess M&A opportunities. And again, as I’ve indicated on multiple occasions, we’re not in the M&A business for scale. We’re in the M&A business to both expand our client and capabilities. So as opportunities arise, as opportunities arise that we believe are going to create economic value for Vectrus, we’re always assessing those opportunities, and when the right things are presented to us, we move. So again, obviously, we have a different backdrop and we understand that backdrop. But we also – as I’ve mentioned in my prepared remarks, we main very focused, focused on the execution of our strategy.

All right. Thank you very much and great quarter.

Thank you. We appreciate it.

We have reached the end of the question-and-answer session. At this time, I’d like to turn the call back over to Chuck Prow, Vectrus’ President and Chief Executive Officer for closing comments.

Thank you very much and thank you for joining the call today. We’ve enjoyed it. It’s an interesting environment out there. So, please stay safe and we look forward to talking to you at the end of the next quarter. Thank you.

This concludes today’s conference. You may disconnect your lines at this time and we thank you for your participation.