Greetings, ladies and gentlemen. Thank you for joining us for the Vectrus Second Quarter 2021 Earnings Conference Call and Webcast. Today's call is being recorded. My name is Jen, and I will be your 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 Q&A session. And now I'll pass the call over to your host, Mike Smith, Vice President of Treasury, Corporate Development and Investor Relations at Vectrus.

Thank you. Good afternoon, everyone. Welcome to the Vectrus second quarter 2021 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, I'd like to point out that we will be discussing and reporting adjusted non-GAAP metrics, including 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 would 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. Please turn to Slide 3. I am pleased to announce that our business continues to advance on all fronts, resulting in a very solid second quarter. This success wouldn't be possible without the innovation and dedication of our employees who stand with our clients across the globe in support of their most critical missions. We continue to build on our first quarter momentum with revenue increasing 40% year-over-year to $471 million, an all-time high for Vectrus. We grew organically 21% driven by new business, base expansion and phase-ins. Our topline strength was matched by a significant increase in EBITDA margin to 5.6%. The combination of increased revenue and strong margin performance in the quarter yielded adjusted diluted earnings per share of $1.52. In the second quarter, we were issued a LOGCAP V task order to support a major client exercise in INDOPACOM, known as Defender Pacific 21. This exercise is illustrative of the rapid response and quick turnaround requirements that we expect to see over the next decade under the LOGCAP V contract. We expect our momentum in the Pacific to continue to grow as we phase-in Kwajalein task order and become fully operational in mid-2022. Additionally, we achieved two major milestones during the second quarter, successfully transitioning both Iraq and Kuwait task orders and reaching full operational capability. I'd like to thank our team for their significant contributions and challenging environments to ensure client success. We look forward to serving as the Army's preferred source for logistics and base operations support and sustainment services in CENTCOM over the next several years. We ended the quarter with total backlog of approximately $5 billion, and pro forma backlog of $5.3 billion. With regard to our…

Thanks, Chuck and good afternoon, everyone. Please turn to Slide 9. Our financial and operational strength demonstrated in the second quarter is representative of Vectrus' ability to generate solid growth and earnings power. Second quarter 2021 revenue grew 40% or approximately $135 million year-on-year to $471 million. Excluding the contribution from our two recent acquisitions of $64.4 million, organic revenue grew $70.4 million or 21%. Organic revenue was driven by our support of the Defender Pacific 21 exercise in INDOPACOM, and ramp to full operational capability of LOGCAP V Iraq in the quarter. Adjusted EBITDA for the second quarter of 2021 was $26.6 million or 5.6% margin. Margin was driven by our acquisitions at the end of Q4 2020, our enterprise performance improvement initiatives, contract execution in the quarter, ability to convert cost plus components of contracts to fixed price and our continued efforts to transform Vectrus into a higher margin business. Second quarter 2021 interest expense was $2.3 million, up approximately $1 million year-on-year due to the company's two acquisitions late last year. Diluted earnings per share for the second quarter of 2021 was $1.35. Adjusted EPS adding back the amortization from acquired intangible assets was $1.52. Relative to last year, the increase in diluted EPS was driven by the company's improved operating performance, two recent acquisitions, both of which were partially offset by higher interest expense and a higher effective tax rate. Operating cash flows for the quarter were $35.7 million and for the half $14 million. This compares to operating cash flows in the prior year of $20 million in the same quarter last year and $21 million for the half excluding the benefit of the CARES federal and payroll tax deferrals. In summary, our second quarter results demonstrate our ability to grow organically and execute on…

Thank you. Our first question comes from the line of Joe Gomes with NOBLE Capital. Please proceed with your question.

Good afternoon, Chuck and Susan. Great quarter.

Thank you, Joe. How are you?

Thank you.

Doing well here. So I guess kind of the first question I just wanted to throw out there on the LOGCAP INDOPACOM, there had been some issues in the past, we're getting base access due to the COVID and now that we've got this Delta variant going around and making its name, are we seeing any additional increases in base access difficulties or are you that pretty much in the past?

We have -- so it's a good question. We do have people in the Marshall Islands and we've been through some of the preliminary transitional activities. At this point in time, the communications we have with our clients has us transitioning the full operational capability in mid-2022. So where we are right now, we've heard nothing to the contrary. But obviously with everything to do with COVID, we're tracking the situation closely on a daily basis.

Okay. And I know this has come up in some of the other calls that we've talked about, staffing in inflation cost of things. Are you guys having any difficulties in staffing up -- with some of all these wins that you recently got? Is inflation causing any issues for you guys? Thanks for that. Any insight on that one?

Yes. It is a competitive market, no doubt. And frankly in some of our business advisory functions that are more impacted by the U.S. -- the current U.S. staffing situation is something that we're monitoring on a daily basis as well. Again, one of the benefits of having cost-type contract portfolio being in the 70%-ish, we do have some protection in terms of labor costs. But at this point in time, predominantly for our iconic roles, while we are monitoring the situation very carefully we seem to be doing a good job making sure that open seats are full. But again, it's an environment like nothing we've had in the last handful of years, and that's something that we're watching closely. And by the way, I'd like to also add that we've deployed some new technology suites here over the last couple of quarters that are really making us I think a bit more agile which has helped the situation.

Yes. And Joe, I would just add even on some of our fixed price programs that are covered by a collective bargaining agreement, the majority of those cases were able to recoup from our customer when those CBA or those negotiations occur, we're able to get reimbursed, even under the fixed price.

Okay, that's good knowledge. You talked some on the pipeline and the backlog, but if I'm looking from the first quarter to the second quarter, the pipeline seems to have shrunk a little bit from $12 billion to $11.4 billion, and I think even the backlog has shrunk a little bit. I just wondered if you could kind of add some more detail or color there as to what was going on quarter-to-quarter?

So, we could -- it's normal contractual movement. Quite frankly, we've had some wins, as you know. I have to tell you, I couldn't be more pleased with the -- with not only the shape of our new business pipeline, but the diversity across our client sets. The acquisitions that we've done over the last couple of years has really broadened our capabilities that, that I'd like to think that we have a much more diverse new bids in pipeline now than we did just a few years ago. So it's -- there's a lot of -- there's almost $11 billion in our new business pipeline. It's very healthy and I continue to think that our win rates are at least at the market levels.

Okay. And one more for me and I'll jump back in queue. On the guidance, two quick questions. You didn't increase the adjusted EBITDA margin guidance and I think in the first quarter it was 4.8%. And I think in the second quarter, you said it was 5.6%. One, no increase on the adjusted EBITDA margin. And two, if I do my math real quick -- I'm looking at your mid-point guidance on the revenue side, it would suggest that the second half of the year revenues are going to be down from the first half of the year. It seem to recall that historically it's been switched, you guys have typically done stronger in the second half of the year than the first half of the year. So just again, looking for a little more detail or insight on that. Thank you.

Sure. And so this year for Vectrus 2021, we're really fortunate and blessed to have a significant number of new contracts phasing into the portfolio. We have really for the first time ever now the LOGCAP has moved in the full swing beginning to introduce kind of quick introduction, quick burn types of program. So how I would look at our 2021, we were very successful at moving some of that new revenue to the left. The reality is that we're phasing out of certain programs that is now being taken into the LOGCAP and other environments for that matter. So it's really just a timing issue. What you'll notice is that we're going to move from 4% full year margins in '20 to full year -- at the midpoint 4.9% in 2021. So our activities to increase the profitability of our business continue to make progress. And again at the midpoint of revenue, that's a 20 somewhat -- 26% revenue increase for the year and we'd like to think that our organic growth would be approaching the 10% within the 26%. So, while I agree that the timing is a little different than in prior years, it's really reflective of the success that we've had both winning in and now phasing in now that we're past COVID, new programs while phasing out of old vehicles. Susan, anything to add?

Just maybe two things. So I think, Chuck, in your prepared remarks, you mentioned something about the velocity of the task orders and that's kind of what we saw in the second quarter. So in some respects that pull forward some revenue out of Q3. We also have the drawdown in Afghanistan that we're covering in our outlook, and a number of program completions. And I think you are aware the OMDAC-SWACA recompete and the pricing reset that goes along with that. And so, as Chuck said, I think with our outlook, we're looking at 26.5% at the midpoint growth, which we're ecstatic about and the high single-digit growth rate on our organic is, I think, a really good new story for us, and then increasing by 90 basis points, our adjusted EBITDA margin is just, you know, we couldn't be more pleased.

Great. Thanks for that color. And just -- I got the answer to that. And it's very insightful. I appreciate that. And again, thanks for taking my questions. Great quarter and look forward to the second half of the year. Thank you.

Appreciate it. Thanks for the questions.

Thank you. Our next question comes from the line of Robert Conners with Stifel. Please proceed with your question.

Hey, guys. Rob here for Joe DeNardi at Stifel. Congrats on the quarter.

Thank you.

Just I guess qualitatively on INDOPACOM, it's still at relatively small levels. I believe the numbers were 6% of revenues, grew about $28 million year-over-year. Conceptually, when you sort of look at that is there anything that you give us color wise on the potential for INDOPACOM in the long-run or qualitatively where you're at right now. I believe in the press release, you'd point out you're ramped up on just pronunciation. But just one of the islands in the Marshall Islands like longer term, what are some of the potentials there?

Yes, sure. We devoted quite a bit of time to INDOPACOM in our prepared remarks. We couldn't be more pleased with our positioning both from a delivery perspective and a contract vehicle perspective. The Kwajalein base, which is the base that you referred to in the Marshall Islands, it's actually a nuclear mission and that task was a part of the original LOGCAP win unfortunately. Because of COVID, the transition has been delayed. But again, I had mentioned in my prepared remarks, we're on the island, we've been through transition planning, we're in constant dialog with our client. And to this day as we speak today, the transition to full operational capability should be scheduled for the May-ish timeframe, I think I said the mid-2022 timeframe. So again we are very pleased with our positioning. The exercise that we talked about in the prepared remarks is an exercise -- type of an exercise, I should say, that we should see on a regular basis in the areas of operations that we are responsible for which would include both CENTCOM and INDOPACOM. So a long-winded answer to your question. There are a lot of moving pieces, most of them very favorable in the INDOPACOM region and we'll continue to see that geography progressing as a percent of our total revenue over the next year or two.

Okay. All right, thanks. And then, just sort of -- I guess, two questions, somewhat related. Well, just two questions. One on the EBITDA margin guidance essentially going up 90 bps year-over-year. Can you talk qualitatively like how much was M&A, how much of the increases are organic and just any color around that?

Yes. We're not going to get into the specific profit profiles of individual acquisition, but I will say that the acquisitions that we did at the end of last year have been accretive and that is a model for our continued capital deployment strategy. We're going to continue to stay focused on acquisitions that will be technology-enabled acquisitions that will be accretive to our overall portfolio. I would say, a good piece of the increase in margin for 2021 is going to be attributable to both our Enterprise Vectrus activities where we are continuing to automate our business advisory functions in support of our projects. And yes, just outstanding performance on the part of our delivery teams year-over-year. The base operations business does have -- it is a margin sensitive business, but our teams are making very good progress in implementing new capabilities, new techniques, more highly automated ways to do things that used to be done in a more manual way. And that's what you're seeing in the margin expansion that we're projecting for the remainder of 2021.

Okay, great. Thanks for taking my questions and congrats on a good quarter.

Thank you very much. I appreciate it.

Thank you. Ladies and gentlemen, at this time, there are no further questions. I would like to turn the floor back to Chuck Prow for closing comments.

Thank you very much and thank you to everyone who joined the call today. Again we're pleased with the results of the second quarter and we look forward to updating you with the results of the third quarter in October. We'll talk to you soon. Thanks.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.