Hello, and welcome to Vectrus, Inc. Third Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. Please note today’s event is being recorded. I now will like to turn the conference over to Mike Smith, Director of Investor Relations and Corporate Development. Mr. Smith, please go ahead.

Thank you. Good afternoon, everyone. Welcome to the Vectrus third 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 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 and press release. 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. Before we get started, I would like to thank all of our employees for their dedication and remarkable contributions in supporting the recent evacuation of thousands of Afghan refugees, third country nationals and Americans from Afghanistan. This undertaking was the largest non-combatant evacuation in U.S. history and our team’s commitment to the mission and performance was exceptional. I recently visited our overseas locations in CENTCOM and met with our teams and clients that directly supported this major humanitarian effort. The accomplishments, stories and the feedback I received from clients regarding the contributions of our employees was outstanding. I'll discuss some noteworthy highlights shortly. Please turn to Slide 3. Our third quarter results were strong, driven by a 30% year-over-year increase in revenue. Organic growth was also strong increasing 13% year-over-year, reflecting expansion and our core business, new wins and phase-ins. The ability to generate substantial cash from operations remains an important characteristic of our business and during the quarter we delivered $39 million of operating cashflow. Adjusted EBITDA margin in the quarter was 4.5%. And adjusted diluted earnings per share increased 19% year-over-year to $1.15. We are continuing to grow and expand our presence in the Pacific or INDOPACOM. For example, just last month, we were awarded a task order with an eight-year performance period to provide logistics and support in the Philippines. In addition, we recently completed the pre-transition site survey for a LOGCAP V quadrant task order, and we anticipate the phase in to start by the end of the year and to reach full operational capability and revenue run rate by mid-2022. Importantly, our revenue INDOPACOM now makes up approximately 5% of our total revenue versus 1% in the same period…

Thanks, Chuck. And good afternoon, everyone. Please turn with me to Slide 9. Third quarter 2021 revenue grew 30% or approximately $107 million year-on-year to $459 million. Exploiting the contribution from our 2020 acquisitions, organic revenue grew 13%. Organic revenue was driven by expansion INDOPACOM ramped to full operational capability on LOGCAP V Iraq and expansion in our core business, including support of the humanitarian refugee mission. Adjusted EBITDA for the third quarter of 2021 was $20.5 million or 4.5% margin compared to 4.8% in a prior year's quarter. Margin in the third quarter was influenced by the timing and phase in of new awards, program completions and increasing volume of material and passthrough content, which carries a lower fee. Third quarter 2021 interest expense was $2 million approximately $1 million a year-on-year to the company's two acquisitions. Diluted earnings per share for the third quarter of 2021 was $0.87. Adjusted, diluted EPS, adding back amortization from acquisitions, M&A and integration costs and removing the benefit associated with prior year's tax credits was a $1.15. Relative to last year, adjusted diluted EPS increased at 19% due to the company's organic revenue growth, income from our two acquisitions, a lower tax rate offset by higher M&A related interest expense. Operating cash flows were $39.4 million for the quarter compared to $3.3 million in the same period last year, an impressive result that was driven by our teams to focus on cash collections and process improvement. Operating cash flows were $53.4 million for the nine-month period compared to $37.7 million in the prior year's period. Excluding the prior year benefit of the CARES Act payroll tax deferrals, year-to-date cash flow from operations improved 92% over last year. Please turn to Slide 10. We continue to focus on diversifying our portfolio through organic…

Yes, thank you. We will now begin the question-and-answer session. And the first question comes from Joe Gomes with NOBLE Capital.

Good evening, Chuck and Susan. Thanks for taking the questions.

You bet.

Hey Joe.

Great. Another really nice quarter. Just seem to be putting them – stringing them together here. On INDOPACOM, awesome job there. Is any kind of way to size the potential opportunity there. I know a lot of these things come about based on the contracts, everything. But I don't know where if you can give us any kind of more detail our color of what the potential for INDOPACOM could actually mean to Vectrus?

Hi, Joe this is Chuck. How are you? A great question. INDOPACOM is an increasing portion of our overall pipeline. We don't really talk about the composition of the pipeline per se, but it is rapidly increasing, point one. Point two, as you know, Kwajalein was one of the tasks that we were awarded during LOGCAP. And Kwajalein is currently, as we stated in the prepared remarks, currently beginning to phase in and should be fairly phased in, fairly well phased in, excuse me, by the middle of next year. We do expect that contract to be more than 10% of our revenue. So, we will begin to report that as that comes online. In the last part, as you hear from a geopolitical perspective, quite often that this pivot to Asia is real from both a military and foreign policy perspective and our results both in this quarter as well as the prior quarter were favorably impacted by the Pacific Defender activity. And that activity was a contingency operation to support an exercise. And we expect to see that type of activity continue and in fact, increase over the coming years. The last part point on Pacific Defender is that as a real example of how the contingency operations portion of the LOGCAP contract will increasingly affect our financial, making our financials that in many cases, a bit more lumpy, because that kind of revenue really doesn't show up in backlog. In the case of Pacific Defender, the opportunity was identified, it was book and it was billed in less than two quarters. So, it’s a great question. And to your point we will consider, and we are considering, I should say, providing a bit more color to our pipeline in the future so we can demonstrate where we think we have emerging demand.

Okay. Thank you for that. Much appreciated. And one of the recurring themes here on a lot of the companies, at least that I follow is the very difficult labor market and difficulty in finding staffing and combined with the vaccine mandates that have been issued by the Biden administration, especially for federal contractors, was just wondering how you guys are dealing with, or are finding staffing ability – or availability, excuse me here? And where do you guys, I guess, on the spectrum of being, getting the workforce vaccinated? Are you having issues with that? Is that something that's moving smoothly here? Just curious as if it could be a potential hiccup down the road here.

So, a lot of questions in your one question. So, let me kind of break them down piece by piece. Like other companies we continue to face challenges in terms of identifying and deploying resources. As you know, a big part of our business model is the use of foreign national and local labor. So, in terms of keeping our programs staffed COVID has been difficult, but as you can see by our results, we've been able to find the right types of people in the right location to continue to drive revenue. With regard to the vaccine mandate. First of all, we take very seriously. We've been tracking both COVID effects and COVID mandates from the beginning. We and most of our other businesses have been affected by COVID and we look to get our staffs vaccinated per the order as quickly as possible. It's important to note, however, that as you know, 80% of our business approximately comes outside the continental United States. And the current executive order is really focused on U.S.-based employees. So, we have while the need exists, they get people mandated as quickly as possible to keep our people and our clients safe, the mandate effect itself really affects our corporate office and our U.S.-based contracts more directly.

Okay, thanks for that insight. And one more, if I may again really nice quarter here but you did raise the guidance that you kept it the same one would have thought that showing such a nice quarter, maybe you would have increased a little bit, or was just kind of the thought process as to are we just being a little more conservative here? I know that we're operating under a continuing resolution, does that have a play in your thought process of maintaining guidance where you had it at the end of the second quarter? Thank you.

It's really a three full answer to your question. First of all, we're going to have a very solid year this year at the mid-point well over 25% growth, total growth, I should say. We are, I wouldn't call it being conservative, but we are being mindful of three things. Thing one is like everyone else we did have – not everyone, like many other companies in our industry, we did have some effects from Afghanistan that were not overall material as we talked about in our last call, but there were some effects from Afghanistan, point one. Point two, is we do have a number of contracts in transition and close out between prior contract structures and new contract structures such as LOGCAP. And the final point is, is that we were greatly benefited in quarter two and quarter three from the contingency work that I described earlier. And so, one of the areas that we need to continue to work with you and your colleagues and our investors that with the blessing of LOGCAP comes a bit of reeducation in terms of how our revenue can be a bit lumpy if you will quarter-to-quarter. Having said all of that, we are not prepared and we're not going to give 2022 guidance yet. But I do see, as I look into 2022 at organic business base that will lead again to growth in growth in 2022.

Great. Thanks for that Chuck. And much appreciated again, really nice quarter.

Thank you, Joe. Good talking to you.

Thanks, Joe.

Thank you. And this concludes the question-and-answer session. I would like to return the floor to Chuck Prow for any closing comments.

Thank you. And thanks for everyone for joining the call today. We look forward to catching you up on our full year performance the next time we get together. Thanks a lot, and have a good day.

Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.