Thank you for joining us for the Vectrus Second 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 a question-and-answer session. Instructions will be given at that time. 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 second 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. We reported a solid quarter as it relates to revenue, new business and cash flow. EBITDA and earnings were adversely impacted by factors that I’ll explain shortly. However, Vectrus remains stronger than ever and is expected to achieve meaningful EPS growth in the second half of the year, despite the backdrop of COVID-19. Please turn to slide 3 to discuss our financial results. Revenue in the second quarter increased slightly from last year. We estimate the COVID-19 impacted revenue by $22 million that we expect to be deferred into future periods due to host nation and base access restrictions across the contract portfolio. Operating cash flow in the quarter was up over 50% from last year, yielding nearly zero net debt today, and our strong cash flow profile of a characteristic of our resilient business and client base. While our revenue and operating cash flow performances were solid in the quarter, our adjusted margins and EPS were affected by a contract adjustment to a European program, one-time closeout and COVID-19 impacts. I will discuss the contract and contract closeout adjustments in greater detail in a moment. Our adjusted EBITDA margin in the second quarter was 2%. The previously mentioned adjustments adversely impacted margin by 240 basis points. Regarding COVID-19, the deferral of higher margin revenue had a disproportionate 30 basis-point impact on margin. Adjusted EPS of $0.24 was adversely impacted by $0.54 due to the previously mentioned adjustments. In addition, we estimate that COVID-19 had a $0.14 impact on adjusted EPS. Our GAAP EPS was also affected by M&A cost and LOGCAP V pre-operation legal costs of $0.14. While these challenges affected the quarter’s profitability, our growth engine continued to execute well and we…

Thanks, Chuck. And good afternoon, everyone. Turn with me now to slide 9 to discuss our second quarter results. Revenue increased $4.5 million in the quarter, a growth rate of 1.3% year-on-year. The Company experienced revenue delays of approximately $22 million due to the COVID-19 pandemic. Most of the revenue impact was high-margin work that customers delayed due to limited base access issues. In addition, the Company had onetime adjustments to revenue due to contract closeouts and as Chuck mentioned, one specific European program. These adjustments reduced revenue by $4.2 million in the aggregate. Our K-BOSSS contract contributed $109 million of total revenue in the second quarter. Adjusted EBITDA was $6.7 million or 2% margin. Adjusted EBITDA was adversely impacted by COVID-19 by $2.1 million and the contract adjustment and one-time closeout of $8.4 million. Second quarter 2020 interest expense was $1.3 million, flat to last year. Adjusted diluted EPS with $0.24 as compared to $0.74 last year. EPS was adversely impacted by $0.14 due to COVID-19 and $0.54 related to the previously mentioned adjustments. Turn now to slide 10 to discuss our liquidity. Year-to-date cash provided by operating activities was $34.4 million and included a $13 million benefit from the CARES Act. Cash ended at $62.7 million, as compared to the end of the second quarter of 2019 of $70.3 million. Net debt was $4.8 million in line with prior year. The Company’s leverage ratio was 1.08 times. And liquidity including cash on hand and the undrawn revolver was $180 million. Let’s move to slide 11 to cover second half guidance. Our second half guidance reflects the delays in transition of LOGCAP V and newly awarded programs which have slowed due to DoD COVID-19-related guidance and travel restrictions. Additionally, delays and protests on new business are limiting our ability…

Thank you, Susan. And before we turn to questions, I would like to thank our people and summarize the prospects for our future. I would like to acknowledge the dedication and innovation that our entire workforce has demonstrated throughout the ongoing global pandemic. Our workforce, many times operating in remote and austere environments, has gone above and beyond to keep the mission we operate at a higher level of readiness for our clients. The myriad of host nation and base specific requirements and restrictions has been enormously complex, and the response of our people has been impressive. Amidst the backdrop of the pandemic, our organic growth engine powered by our growth team and client tailored campaigns continue to perform very well. Our backlog is strong and represents 2.7 times the midpoint of our 2020 revenue guidance. The LOGCAP contract affords Vectrus access to the INDOPACOM AOR and as evidenced by our growing pipeline, bodes well for the future. Cash performance remains strong and our clean balance sheet, essentially zero net debt provides us the opportunity to act on acquisition opportunities, as they are in line with our strategy. Susan did a nice job of describing our revised guidance. The impact of the pandemic on the timing of revenue is real, but so is the critical nature of the mission we operate on behalf of our clients. We in conjunction with our clients will utilize the remainder of the year to assess the timing of program transitions, considering the timing of potential COVID treatments and vaccines. As I mentioned previously, our pipeline and backlog continue to grow during this period, and our balance sheet remains very strong. We remain well-positioned for growth. This is a transformational time for our Company, and I look forward to updating you on our progress. Now, I’d like to open the call to questions. Operator?

[Operator Instructions] Our first question comes from Joseph DeNardi with Stifel. Please proceed with your question.

Chuck, can you just talk a little bit more about the contract charge? Just kind of what contributed to it? What, if any, lessons learned? And then, does it influence ‘21, ‘22 earnings power at all? What’s the margin impact going forward? Thanks.

Yes, sure. The European contract that we discussed was an outcome-based contract, where we really had a disconnect between both volume and cost. The charge that we’ve taken this quarter in compliance with all the accounting regulations really takes us through the loss associated to the midpoint of next year. We are aggressively working with our clients on this topic, and we expect to have the contract issues resolved going into the following option year, which would begin midpoint of next year. So, the bottom line is, we expect it to be the final charge with regard to the European contract.

And then, you talked about interest from other customers on I guess to use LOGCAP. Can you talk a little bit about that kind of the magnitude of the opportunity? And then, now that you’re, I guess, into that contract a little bit, I recognize that it’s getting pushed to the right, but can you talk with any more specificity around kind of what the revenue opportunity from LOGCAP could be once you’re fully ramped on that?

We’re going to talk more here later in the year in terms of guiding for 2021. But, I will say that we have received and we have responded to a number of task orders, predominantly in the INDOPACOM AOR, ranging from Thailand to Korea to other places. So, at this point in time, those tasks are not material, if you will, to 2020. But, they do provide a really nice demand signal and what we would expect to see as LOGCAP V continues to mature.

Okay. And then, maybe a question for Sue. When you look at the green bar on slide 7, is there a point in the next couple of quarters when a greater portion of that becomes green? And there are larger contracts in the near-term that you plan to submit, or does that stay relatively steady going forward?

To make sure, you’re on the pipeline chart, correct?

That’s correct. Yes. Just trying to understand if there are any larger pursuits that are in the pipeline that you’ll submit bids for in the near term, so kind of more of the pipeline is kind of pending award rather than not?

What we have seen, because it’s about a year out, we have seen the bids pending evaluation by our clients to be somewhere between the $1 billion and $2 billion range. There could be a situation, I don’t anticipate it in the short-term, where that could increase. But, that’s a good rule of thumb. And quite frankly, that at this point in time has provided a good cadence for contract awards, which again, we are very, very pleased and satisfied with our win rates, and we believe that those win rates are at least industry average, if not quite a bit more.

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

Just real quick, with the whole COVID in here, you obviously talked about some of the contracts that you won being pushed to the right. Are you seeing any slowed down in RFPs from key customers also being pushed further and further to the right, all due to COVID?

It’s interesting as it relates to the other Joe’s question a minute ago. The rate and pace of RFPs that we are responding to continues to be breakneck, it really has been quite significant. We are however, and I mentioned that in our prepared remarks, seeing some of the awards slipping to the right. And presumably that has COVID-19 reasons for that occurring. I will tell you that during the height of the pandemic, and this was not in our prepared remarks, we did successfully transition into Deveselu which is a win from a few quarters ago which we had talked about a few quarters ago. So, there is progress. But, by and large, the ability to access host nations and the ability to access individual basis have seen an impact in COVID. And we really expect to see those impacts until we have either a treatment and/or vaccine.

Okay. And you mentioned here some charges -- charge for M&A related. Just wondered, you might give a little more color detail on that and maybe a little update on how the M&A pipeline is looking these days?

So, Joe, this is Susan. So, we actually -- when the COVID pandemic came out, there was pretty much a drying up of the M&A pipeline. I think a lot of deals were pulled just because the valuations were going to be dropped accordingly. We did pursue a target acquisition during the quarter that was strategic. Not all acquisitions you pursue come to fruition. And this one we actually decide against. And so, the M&A pipeline has refilled itself. There’s actually a number of targets that we’re looking at. And we’ll be looking at a number of them very closely. And hopefully, there’ll be one that’ll be a match for us at the right price.

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 for closing comments.

Very good. Thank you very much, Robert. I appreciate everybody’s time and attention today, and look forward to updating you on our progress in the next quarter. Thank you very much.

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