Form 8-K Vectrus, Inc. For: Nov 08

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November 8, 2016 4:19 PM EST


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 8, 2016

VECTRUS, INC.
(Exact name of Registrant as specified in its charter)
Indiana
0001-36341
38-3924636
(State or other jurisdiction of incorporation or organization)
(Commission File Number)
(I.R.S. Employer Identification No.)
 

655 Space Center Drive
Colorado Springs, CO 80915
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (719) 591-3600

Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ]    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ]    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ]    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ]    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))




Item 2.02 Results of Operations and Financial Condition.

Attached hereto as Exhibit 99.1 and incorporated by reference herein is a press release issued by Vectrus, Inc. (the "Company") on November 8, 2016 that includes financial information for the Company for the third quarter of 2016 and updated guidance for fiscal 2016. This information shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") or incorporated by reference into any filing under the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 7.01 Regulation FD Disclosure.

Mr. Kenneth Hunzeker, Chief Executive Officer and President, and Mr. Matthew Klein, Senior Vice President and Chief Financial Officer, will present the financial information for the Company for the third quarter of 2016 and updated guidance for fiscal 2016 on November 9, 2016. A copy of the presentation is attached hereto and incorporated by reference herein as Exhibit 99.2. This information is furnished pursuant to Item 7.01 Regulation FD Disclosure and shall not be deemed filed for purposes of Section 18 of the Exchange Act or incorporated by reference into any filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.




Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit No.
 
Description
99.1
 
Press Release of Vectrus, Inc. dated November 8, 2016
99.2
 
Presentation slides issued by Vectrus, Inc. on November 8, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: November 8, 2016
VECTRUS, INC.
 
By:
/s/ Kathryn S. Lamping
 
Its:
Assistant Secretary





EXHIBIT INDEX

Exhibit No.
 
Description
 
 
99.1
 
Press Release dated November 8, 2016, issued by Vectrus, Inc.
99.2
 
Presentation slides issued by Vectrus, Inc. on November 8, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Exhibit 99.1 

PRESS RELEASE

 

CONTACT:

Investors
Mike Smith
719-637-5773
 
Media
George Rhynedance
719-637-4182
 


Vectrus reports third quarter 2016 financial results

•
Diluted earnings per share of $0.60, driven by operating margin of 3.9 percent
•
Year-to-date net cash provided by operating activities of $33.5 million
•
Strong days sales outstanding of 55 days
•
Voluntary debt payment of $8 million in the quarter, $10 million year-to-date


COLORADO SPRINGS, Colo., Nov. 8, 2016 — Vectrus, Inc. (NYSE: VEC) announced third quarter 2016 results, which included revenue of $283.8 million, operating income of $11.2 million and diluted earnings per share of $0.60. As of Sept. 30, 2016, year-to-date net cash provided by operating activities was $33.5 million, an improvement of $23.5 million year-over-year. Funded orders were $76.8 million in the third quarter 2016.
“We are pleased with our financial performance in the quarter,” said Ken Hunzeker, chief executive officer and president of Vectrus. “Our business continues to generate consistent cash flow and we have capitalized on our strong cash collections in order to make additional voluntary debt payments during the quarter.”

K-BOSSS and APS-5 Contract Update
On Sept. 29, 2016, Vectrus announced that the company was not selected as the Army's provider for the Kuwait-Base Operations and Security Support Services contract re-compete (K-BOSSS 2.0). Subsequent to the end of the quarter, on Oct. 11, 2016, Vectrus submitted a post-award protest to the Government Accountability Office on the K-BOSSS 2.0 solicitation.


1


Exhibit 99.1 

On Nov. 7, 2016, Vectrus was notified by the Department of the Army that it was taking corrective action to resolve the K-BOSSS 2.0 protest. The Army stated in its notification, “As part of the corrective action, the Army will amend the solicitation to clarify its requirement, request revised proposals from the existing offerors based on the amended solicitation, conduct discussions if necessary, and issue a new award decision.”
  
Through Sept. 30, 2016, K-BOSSS contributed $323 million, or approximately 36 percent of Vectrus revenue. Additionally, the K-BOSSS contract currently runs through Dec. 28, 2016, with an option to extend through March 28, 2017.

On Sept. 1, 2016, Vectrus announced that the company was not selected for the renewal of the Army Pre-Positioned Stocks-5 Kuwait contract, which was combined with the APS-5 Qatar contract for the award. Vectrus filed a post-award protest with the GAO on the APS-5 Kuwait/Qatar solicitation on Sept. 13, 2016. The GAO has up to 100 days to issue a written decision. Accordingly, the company expects that decision no later than Dec. 22, 2016.

Through Sept. 30, 2016, the APS-5 Kuwait contract contributed $134 million, or approximately 15 percent of Vectrus revenue. On Oct. 26, 2016, Vectrus received a contract modification worth $46 million to extend the performance of the APS-5 Kuwait contract through Feb. 28, 2017.

Workforce Reduction and Realignment of Effort
On Oct. 18, 2016, Vectrus announced a corporate reduction in force and realignment of effort. The reduction resulted in the elimination of 64 positions at Vectrus headquarters. In addition, the company reported an additional 18 open or unfilled positions that had been eliminated throughout the year. The corporate realignment, building on organizational actions initiated earlier in the year, places critical business functions closer to customers and programs, to improve the ability to secure future contract awards.

The financial implications of these actions include an approximate $2 million severance expense in the fourth quarter of 2016, and an anticipated annual savings of $8 million related to the actions. The company expects to realize additional savings in 2017 through reductions in non-labor discretionary expenditures.

Balance Sheet and Liquidity
During the quarter, Vectrus paid $11.5 million in principal on its term loan, of which $8 million was voluntary. As of Sept. 30, 2016, Vectrus had a ratio of total consolidated indebtedness to consolidated EBITDA (total leverage ratio) of 1.76 to 1.00 and was in compliance with all covenants related to its senior secured credit facilities. Total debt now stands at $93.5 million.

“We have aggressively focused on reducing our leverage profile through both mandatory and voluntary debt payments,” said Hunzeker. "We reached the upper end of our previously communicated 2016 voluntary debt payment range of $8 to $10 million ahead of schedule.”

In April 2016, Vectrus amended its credit agreement, which resulted in more favorable covenants. Among other things, the amendment modified the total leverage ratio covenant, which requires the total leverage ratio during any consecutive four fiscal quarter periods from Jan. 1, 2017, through Dec. 2017, not be greater than 3.0 to 1 during any such period. The previous agreement required the total leverage ratio not to exceed 2.75 to 1 during any such period.

“Our business generates consistent cash flow and we remain confident in our ability to meet our financial obligations,” said Hunzeker.

2


Exhibit 99.1 


Pipeline and New Business
“We have approximately $1.5 billion of proposals submitted and pending potential award, and plan to submit bids on about $7 billion of new opportunities over the next twelve months and we expect to hear award decisions on roughly $1 billion of bids in the next six to nine months," said Hunzeker. “The actions taken earlier this year in conjunction with the efforts announced in October, complete our strategic realignment and positions us to improve our probability of success on new pursuits.”

Additionally, after protracted protest litigation, the Danish subsidiary owned by Vectrus is currently in discussions with the Air Force regarding commencement of the Thule Base Maintenance Contract next year. “We are looking forward to providing the Air Force with an affordable and robust solution while adding this new work to our backlog and recognizing the associated revenue,” said Hunzeker.

Third Quarter 2016 Results

•
Revenue of $283.8 million
•
Operating income of $11.2 million
•
Operating margin of 3.9 percent
•
Diluted earnings per share of $0.60

Third quarter 2016 revenue of $283.8 million decreased $15.3 million, or 5.1 percent, compared to the third quarter 2015. This change was primarily driven by a $25.8 million decrease in revenue from our Afghanistan programs and a $12.4 million decrease from U.S. and European programs. This was partially offset by an increase in our Middle East programs of $22.9 million for the third quarter 2016, as compared to the same period in 2015.
Operating income was $11.2 million, or 3.9 percent operating margin, in the third quarter 2016, compared to $8.5 million, or 2.8 percent operating margin, in the third quarter 2015. In the third quarter 2015, adjusted operating income1 was $11.8 million, or 3.9 percent adjusted operating margin1. There were no adjustments to operating income in 2016.
Third quarter 2016 diluted EPS were $0.60 compared to $1.29 in 2015, and adjusted diluted EPS1 were $0.65 in the third quarter 2015. There were no adjustments to diluted earnings per share in 2016.
Year-to-date Sept. 30, 2016, net cash provided by operating activities was $33.5 million compared to $10.0 million during the same period in 2015.
“Year-to-date net cash provided by operating activities improved by $23.5 million, driven by strong cash collections in 2016," said Matt Klein, chief financial officer at Vectrus. “We continue to see strong collections, achieving 55 days sales outstanding during the quarter. We do not expect DSO to remain at 55 days. As we grow our business and start up new contracts, we anticipate DSO in the low 60s.”
As of Sept. 30, 2016, Vectrus total backlog was $2.1 billion and funded backlog was $768 million.
During the first quarter 2016 conference call, the company announced that it would no longer report Afghanistan-related revenue and operating income separately from non-Afghanistan-related revenue or non-Afghanistan-related operating income on future conference calls as it has become a

3


Exhibit 99.1 

less material portion of the business unless required to explain overall company variances in the reported period.

2016 Guidance
The lower end of the revenue range increases to $1,190 million from $1,180 million. The upper end of operating margin decreases to 3.8 percent from 3.9 percent primarily due to severance expense expected in the fourth quarter. As a result, the diluted EPS range changes to $2.12 to $2.28 per share, from $2.07 to $2.32 per share.
 
“We expect net cash provided by operating activities to remain unchanged from prior guidance and down slightly from the third quarter results due to planned cash payments for taxes and other contract liabilities not incurred in prior quarters," said Klein.
(in millions, except operating margin and diluted EPS)
(Prior) 2016 Guidance
 
(Updated) 2016 Guidance
Revenue
$1,180
to
$1,200
 
$1,190
to
$1,200
Operating Margin
3.60%
to
3.90%
 
3.60%
to
3.80%
Diluted EPS 2
$2.07
to
$2.32
 
$2.12
to
$2.28
Net cash provided by operating activities
$30
to
$34
 
$30
to
$34

The Company notes that forward-looking statements of future performance made in this release are based upon current expectations and are subject to factors that could cause actual results to differ materially from those suggested here, including those factors set forth in the Safe Harbor Statement below.

Investor Call
Management representatives will conduct an investor briefing and conference call at 8 a.m. Eastern time on Wednesday, Nov. 9, 2016.

U.S.-based participants may dial in to the conference call at 877-419-6591, while international participants may dial 719-325-4748. Pass code for both is 8483543. For all other listeners, a live webcast of the briefing and conference call will be available on the Vectrus Investor Relations website at http://investors.vectrus.com.

A replay of the briefing will be posted on the Vectrus website shortly after completion of the call, and will remain available for one year. A telephonic replay will also be available through Nov. 23, 2016, at 844-512-2921 (domestic) or 412-317-6671 (international) with pass code 8483543.

###
Footnotes:
1 See “Key Performance Indicators and Non-GAAP Financial Measures” (below).
2 2016 EPS guidance is calculated using the estimated weighted average diluted common shares outstanding of 11.2 million for the year ending December 31, 2016.



4


Exhibit 99.1 

About Vectrus
Vectrus is a leading, global government services company with a history in the services market that dates back more than 70 years. The company provides facility and logistics services, and information technology and network communication services to U.S. government customers around the world. Vectrus is differentiated by operational excellence, superior program performance, a history of long-term customer relationships, and a strong commitment to their mission success. Vectrus is headquartered in Colorado Springs, Colo., and includes about 6,000 employees spanning 132 locations in 18 countries. In 2015, Vectrus generated sales of $1.2 billion. For more information, visit our website at www.vectrus.com or connect with us on Facebook, Twitter, LinkedIn, and YouTube.

Safe Harbor Statement
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 (the "Act"): Certain material presented herein includes forward-looking statements intended to qualify for the safe harbor from liability established by the Act. These forward-looking statements include, but are not limited to, statements about our revenue, operating margin, EPS and net cash provided by operating activities guidance for 2016, debt payments, expense savings, contract opportunities, bids and awards, collections, business strategy, outlook, objectives, plans, intentions or goals, and any discussion of future operating or financial performance. Whenever used, words such as "may," "are considering," "will," "likely," "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "target," "could," "potential," "are considering," "continue," or similar terminology are forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements, our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to: risks and uncertainties relating to the spin-off from our former parent, including whether the spin-off and the related transactions will result in any tax liability; economic, political and social conditions in the countries in which we conduct our businesses; changes in U.S. government military operations, including its operations in Afghanistan; competition in our industry; changes in, or delays in the completion of, U.S. or international government budgets; government regulations and compliance therewith, including changes to the Department of Defense procurement process; changes in technology; protests of new awards; our ability to submit proposals for and/or win potential opportunities in our pipeline; intellectual property matters; governmental investigations, reviews, audits and cost adjustments; contingencies related to actual or alleged environmental contamination, claims and concerns; our success in expanding our geographic footprint or broadening our customer base, markets and capabilities; our ability to realize the full amounts reflected in our backlog and to retain and renew our existing contracts; our maintaining our good relationship with the U.S. government; impairment of goodwill; our performance of our contracts and our ability to control costs; our level of indebtedness; our compliance with the terms of our credit agreement; subcontractor and employee performance and conduct; our teaming arrangements with other contractors; economic and capital markets conditions; any future acquisitions, investments or joint ventures; our ability to retain and recruit qualified personnel; our maintenance of safe work sites and equipment; any disputes with labor unions; costs of outcome of any legal proceedings; security breaches and other disruptions to our information technology and operations; changes in our tax provisions or exposure to additional income tax liabilities; changes in U.S. generally accepted accounting principles; our compliance with public company accounting and financial reporting requirements; timing of payments by the

5


Exhibit 99.1 

U.S. government; and other factors set forth in Part I, Item 1A, – “Risk Factors,” and elsewhere in our 2015 Annual Report on Form 10-K and described from time to time in our future reports filed with the Securities and Exchange Commission. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

6


Exhibit 99.1 

VECTRUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 25,
 
September 30,
 
September 25,
(In thousands, except per share data)
 
2016
 
2015
 
2016
 
2015
Revenue
 
$
283,782

 
$
299,061

 
$
902,359

 
$
869,490

Cost of revenue
 
257,687

 
272,224

 
822,042

 
791,170

Selling, general and administrative expenses
 
14,933

 
18,366

 
46,046

 
49,650

Operating income
 
11,162

 
8,471

 
34,271

 
28,670

Interest (expense) income, net
 
(1,348
)
 
(1,583
)
 
(4,396
)
 
(4,616
)
Income from operations before income taxes
 
9,814

 
6,888

 
29,875

 
24,054

Income tax expense (benefit)
 
3,207

 
(7,140
)
 
10,629

 
(958
)
Net income
 
$
6,607

 
$
14,028

 
$
19,246

 
$
25,012

 
 
 
 
 
 
 
 
 
Earnings per share
 
 
 
 
 
 
 
 
Basic
 
$0.62
 
$1.33
 
$1.80
 
$2.37
Diluted
 
$0.60
 
$1.29
 
$1.76
 
$2.31
Weighted average common shares outstanding - basic
 
10,733

 
10,560

 
10,688

 
10,533

Weighted average common shares outstanding - diluted
 
11,061

 
10,848

 
10,966

 
10,808

 
 
 
 
 
 
 
 
 



7


Exhibit 99.1 

VECTRUS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

 
 
September 30,
 
December 31,
(In thousands, except share information)
 
2016
 
2015
Assets
 
(unaudited)
 
 
Current assets
 
 
 
 
Cash
 
$
53,351

 
$
39,995

Receivables
 
164,035

 
210,561

Costs incurred in excess of billings
 
4,957

 
1,243

Other current assets
 
8,890

 
9,708

Total current assets
 
231,233

 
261,507

Property, plant, and equipment, net
 
3,191

 
4,762

Goodwill
 
216,930

 
216,930

Other non-current assets
 
1,194

 
1,197

Total non-current assets
 
221,315

 
222,889

Total Assets
 
$
452,548

 
$
484,396

Liabilities and Shareholders' Equity
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable
 
$
91,269

 
$
122,442

Billings in excess of costs
 
3,197

 
6,025

Compensation and other employee benefits
 
46,160

 
36,783

Short-term debt
 
14,000

 
22,000

Other accrued liabilities
 
21,675

 
25,268

Total current liabilities
 
176,301

 
212,518

Long-term debt, net
 
77,809

 
89,615

Deferred tax liability
 
85,002

 
91,343

Other non-current liabilities
 
1,452

 
1,610

Total non-current liabilities
 
164,263

 
182,568

Total liabilities
 
340,564

 
395,086

Shareholders' Equity
 
 
 
 
Preferred stock; $0.01 par value; 10,000,000 shares authorized; No shares issued and outstanding
 
—

 
—

Common stock; $0.01 par value; 100,000,000 shares authorized; 10,735,846 and 10,612,246 shares issued and outstanding
 
107

 
106

Additional paid in capital
 
61,925

 
58,640

Retained earnings
 
53,550

 
34,304

Accumulated other comprehensive loss
 
(3,598
)
 
(3,740
)
Total shareholders' equity
 
111,984

 
89,310

Total Liabilities and Shareholders' Equity
 
$
452,548

 
$
484,396

                    




8


Exhibit 99.1 

VECTRUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 
Nine Months Ended
(In thousands)
 
September 30,
 
September 25,
 
 
2016
 
2015
Operating activities
 
 
 
 
Net income
 
$
19,246

 
$
25,012

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization expense
 
1,453

 
2,500

Loss on disposal of property, plant, and equipment
 
402

 
328

Stock-based compensation
 
3,542

 
5,621

Amortization of debt issuance costs
 
915

 
555

Changes in assets and liabilities:
 
 
 
 
Receivables
 
47,501

 
(13,862
)
Other assets
 
(2,954
)
 
1,893

Accounts payable
 
(31,593
)
 
1,994

Billings in excess of costs
 
(2,828
)
 
7,498

Deferred taxes
 
(7,138
)
 
(5,306
)
Compensation and other employee benefits
 
9,252

 
700

Other liabilities
 
(4,314
)
 
(16,889
)
Net cash provided by operating activities
 
33,484

 
10,044

Investing activities
 
 
 
 
Purchases of capital assets
 
(400
)
 
(769
)
Proceeds from the disposition of assets
 
116

 
—

Distribution from equity investment
 
346

 
—

Net cash provided by (used in) investing activities
 
62

 
(769
)
Financing activities
 
 
 
 
Repayments of long-term debt
 
(20,500
)
 
(16,875
)
Proceeds from revolver
 
74,000

 
235,500

Repayments of revolver
 
(74,000
)
 
(235,500
)
Proceeds from exercise of stock options
 
568

 
107

Proceeds from insurance financing
 
—

 
14,857

Repayments of insurance financing
 
—

 
(8,061
)
Payments of employee withholding taxes on share-based compensation
 
(651
)
 
(759
)
Payment of debt issuance costs
 
(221
)
 
—

Net cash (used in) financing activities
 
(20,804
)
 
(10,731
)
Exchange rate effect on cash
 
614

 
(207
)
Net change in cash
 
13,356

 
(1,663
)
Cash-beginning of year
 
39,995

 
42,823

Cash-end of period
 
$
53,351

 
$
41,160

Supplemental Disclosure of Cash Flow Information:
 
 
 
 
Interest paid
 
$
4,224

 
$
4,381

Income taxes paid
 
$
20,598

 
$
11,129


9


Exhibit 99.1 

Key Performance Indicators and Non-GAAP Financial Measures
The primary financial performance measures Vectrus uses to manage its business and monitor results of operations are revenue trends and operating income trends. In addition, we consider adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted earnings per share, to be useful to management and investors in evaluating the operating performance for the periods presented, and to provide a tool for evaluating our ongoing operations. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives.
Adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted earnings per share, however, are not measures of financial performance under generally accepted accounting principles in the United States of America (GAAP) and should not be considered a substitute for operating income, net income or diluted earnings per share as determined in accordance with GAAP. Reconciliations of these items are provided below.
“Adjusted operating income” is defined as operating income, adjusted to exclude items that may include, but are not limited to, other income; significant charges or credits that impact current results but are not related to our ongoing operations and unusual and infrequent non-operating items and non-operating tax settlements or adjustments, such as separation costs incurred to become a stand-alone public company.
“Adjusted operating margin” is defined as adjusted operating income divided by revenue.
"Adjusted net income" is defined as net income, adjusted to exclude items that may include, but are not limited to, other income; significant charges or credits that impact current results that are related to our ongoing operations and unusual and infrequent non-operating items and non-operating tax settlements or adjustments, such as separation costs incurred to become a stand-alone public company.
"Adjusted diluted earnings per share" is defined as adjusted net income divided by the weighted average diluted common shares outstanding.

(in thousands, except operating margin and adjusted operating margin)
 
Three Months Ended
 
Nine Months Ended
Adjusted Operating Income (Non-GAAP Measure)
 
September 30, 2016
 
September 25, 2015
 
September 30, 2016
 
September 25, 2015
Operating income
 
$
11,162

 
$
8,471

 
$
34,271

 
$
28,670

Operating margin
 
3.9
%
 
2.8
%
 
3.8
%
 
3.3
%
Separation costs 1 (pretax)
 
—

 
—

 
—

 
177

Tax Indemnifications 2
 
—

 
3,300

 
—

 
3,300

Adjusted operating income
 
$
11,162

 
$
11,771

 
$
34,271

 
$
32,147

Adjusted operating margin
 
3.9
%
 
3.9
%
 
3.8
%
 
3.7
%
 
 
 
 
 
 
 
 
 
1 Costs incurred to become a stand-alone public company.
2 Tax Indemnifications in connection with spin-off (see Note 3 to the financial statements in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, "Tax Indemnifications").


10


Exhibit 99.1 

(in thousands, except per share data)
 
Three Months Ended
 
Nine Months Ended
Adjusted Diluted Earnings Per Share
 
September 30, 2016
 
September 25, 2015
 
September 30, 2016
 
September 25, 2015
Net income
 
$
6,607

 
$
14,028

 
$
19,246

 
$
25,012

Separation costs 1 (pretax)
 
—

 
—

 
—

 
177

Tax impact of adjustments
 
—

 
—

 
—

 
7

Net settlement of uncertain tax positions 2
 
—

 
(6,949
)
 
—

 
(6,949
)
Adjusted net income
 
$
6,607

 
$
7,079

 
$
19,246

 
$
18,247

GAAP EPS - diluted
 
$0.60
 
$1.29
 
$1.76
 
$2.31
Adjusted EPS - diluted
 
$0.60
 
$0.65
 
$1.76
 
$1.69

 

 

 

 

Weighted average common shares outstanding - diluted
 
11,061

 
10,848

 
10,966

 
10,808


 

 

 

 

1 Costs incurred to become a stand-alone public company.
2 Net settlement of uncertain tax positions due to resolution of examinations of tax returns of our former parent (see Note 3 to the financial statements in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, "Uncertain Tax Positions").



11


Exhibit 99.1 

SUPPLEMENTAL INFORMATION

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
(In thousands)
 
September 30, 2016
 
September 25, 2015
 
September 30, 2016
 
September 25, 2015
Military branch
 
Revenue
 
% of Total
 
Revenue
 
% of Total
 
Revenue
 
% of Total
 
Revenue
 
% of Total
Army
 
$
241,601

 
85
%
 
$
273,372

 
92
%
 
$
762,818

 
84
%
 
$
790,567

 
91
%
Navy/Marines
 
5,482

 
2
%
 
7,001

 
2
%
 
14,975

 
2
%
 
20,919

 
2
%
Air Force
 
36,699

 
13
%
 
18,688

 
6
%
 
124,566

 
14
%
 
58,004

 
7
%
Total Revenue
 
$
283,782

 

 
$
299,061

 

 
$
902,359

 

 
$
869,490

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
(in thousands)
 
September 30, 2016
 
September 25, 2015
 
September 30, 2016
 
September 25, 2015
Contract type
 
Revenue
 
% of Total
 
Revenue
 
% of Total
 
Revenue
 
% of Total
 
Revenue
 
% of Total
Firm-Fixed-Price
 
$
72,978

 
26
%
 
$
36,121

 
12
%
 
$
230,604

 
26
%
 
$
239,865

 
28
%
Cost-Plus and Cost Reimbursable ¹
 
210,804

 
74
%
 
262,940

 
88
%
 
671,755

 
74
%
 
629,625

 
72
%
Total Revenue
 
$
283,782

 

 
$
299,061

 

 
$
902,359

 

 
$
869,490

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
¹ Includes time and material contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
(In thousands)
 
September 30, 2016
 
September 25, 2015
 
September 30, 2016
 
September 25, 2015
Contract Relationship
 
Revenue
 
% of Total
 
Revenue
 
% of Total
 
Revenue
 
% of Total
 
Revenue
 
% of Total
Prime Contractor
 
$
277,787

 
98
%
 
$
275,795

 
92
%
 
$
848,582

 
94
%
 
$
787,032

 
91
%
Sub Contractor
 
5,995

 
2
%
 
23,266

 
8
%
 
53,777

 
6
%
 
82,458

 
9
%
Total Revenue
 
$
283,782

 

 
$
299,061

 

 
$
902,359

 

 
$
869,490

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Source: Vectrus, Inc.

12

VECTRUS THIRD QUARTER 2016 RESULTS KEN HUNZEKER CHIEF EXECUTIVE OFFICER AND PRESIDENT MATT KLEIN SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER NOVEMBER 9, 2016

 
SAFE HARBOR STATEMENT Page 2 SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (THE "ACT"): CERTAIN MATERIAL PRESENTED HEREIN INCLUDES FORWARD-LOOKING STATEMENTS INTENDED TO QUALIFY FOR THE SAFE HARBOR FROM LIABILITY ESTABLISHED BY THE ACT. THESE FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, STATEMENTS ABOUT OUR REVENUE, OPERATING MARGIN, EPS AND NET CASH PROVIDED BY OPERATING ACTIVITIES GUIDANCE FOR 2016, DEBT PAYMENTS, EXPENSE SAVINGS, CONTRACT OPPORTUNITIES, BID AND AWARDS, COLLECTIONS, BUSINESS STRATEGY, OUTLOOK, OBJECTIVES, PLANS, INTENTIONS OR GOALS, AND ANY DISCUSSION OF FUTURE OPERATING OR FINANCIAL PERFORMANCE. WHENEVER USED, WORDS SUCH AS "MAY," "WILL," "LIKELY," "ANTICIPATE," "ESTIMATE," "EXPECT," "PROJECT," "INTEND," "PLAN," "BELIEVE," "TARGET," "COULD," "POTENTIAL,“ “ARE CONSIDERING,” "CONTINUE," OR SIMILAR TERMINOLOGY ARE FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE BASED ON THE BELIEFS AND ASSUMPTIONS OF OUR MANAGEMENT BASED ON INFORMATION CURRENTLY AVAILABLE TO MANAGEMENT. FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE RESULTS CONTEMPLATED BY THE FORWARD-LOOKING STATEMENTS, OUR HISTORICAL EXPERIENCE AND OUR PRESENT EXPECTATIONS OR PROJECTIONS. THESE RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO: RISKS AND UNCERTAINTIES RELATING TO THE SPIN-OFF FROM OUR FORMER PARENT, INCLUDING WHETHER THE SPIN-OFF AND THE RELATED TRANSACTIONS WILL RESULT IN ANY TAX LIABILITY; ECONOMIC, POLITICAL AND SOCIAL CONDITIONS IN THE COUNTRIES IN WHICH WE CONDUCT OUR BUSINESSES; CHANGES IN U.S. GOVERNMENT MILITARY OPERATIONS, INCLUDING ITS OPERATIONS IN AFGHANISTAN; COMPETITION IN OUR INDUSTRY; CHANGES IN, OR DELAYS IN THE COMPLETION OF, U.S. OR INTERNATIONAL GOVERNMENT BUDGETS; GOVERNMENT REGULATIONS AND COMPLIANCE THEREWITH, INCLUDING CHANGES TO THE DEPARTMENT OF DEFENSE PROCUREMENT PROCESS; CHANGES IN TECHNOLOGY; PROTESTS OF NEW AWARDS; OUR ABILITY TO SUBMIT PROPOSALS FOR AND/OR WIN POTENTIAL OPPORTUNITIES IN OUR PIPELINE; INTELLECTUAL PROPERTY MATTERS; GOVERNMENTAL INVESTIGATIONS, REVIEWS, AUDITS AND COST ADJUSTMENTS; CONTINGENCIES RELATED TO ACTUAL OR ALLEGED ENVIRONMENTAL CONTAMINATION, CLAIMS AND CONCERNS; OUR SUCCESS IN EXPANDING OUR GEOGRAPHIC FOOTPRINT OR BROADENING OUR CUSTOMER BASE, MARKETS AND CAPABILITIES; OUR ABILITY TO REALIZE THE FULL AMOUNTS REFLECTED IN OUR BACKLOG AND TO RETAIN AND RENEW OUR EXISTING CONTRACTS; OUR MAINTAINING OUR GOOD RELATIONSHIP WITH THE U.S. GOVERNMENT; IMPAIRMENT OF GOODWILL; OUR PERFORMANCE OF OUR CONTRACTS AND OUR ABILITY TO CONTROL COSTS; OUR LEVEL OF INDEBTEDNESS; OUR COMPLIANCE WITH THE TERMS OF OUR CREDIT AGREEMENT; SUBCONTRACTOR AND EMPLOYEE PERFORMANCE AND CONDUCT; OUR TEAMING ARRANGEMENTS WITH OTHER CONTRACTORS; ECONOMIC AND CAPITAL MARKETS CONDITIONS; ANY FUTURE ACQUISITIONS, INVESTMENTS OR JOINT VENTURES; OUR ABILITY TO RETAIN AND RECRUIT QUALIFIED PERSONNEL; OUR MAINTENANCE OF SAFE WORK SITES AND EQUIPMENT; ANY DISPUTES WITH LABOR UNIONS; COSTS OF OUTCOME OF ANY LEGAL PROCEEDINGS; SECURITY BREACHES AND OTHER DISRUPTIONS TO OUR INFORMATION TECHNOLOGY AND OPERATIONS; CHANGES IN OUR TAX PROVISIONS OR EXPOSURE TO ADDITIONAL INCOME TAX LIABILITIES; CHANGES IN U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES; OUR COMPLIANCE WITH PUBLIC COMPANY ACCOUNTING AND FINANCIAL REPORTING REQUIREMENTS; TIMING OF PAYMENTS BY THE U.S. GOVERNMENT; AND OTHER FACTORS SET FORTH IN PART I, ITEM 1A, – “RISK FACTORS,” AND ELSEWHERE IN OUR 2015 ANNUAL REPORT ON FORM 10-K AND DESCRIBED FROM TIME TO TIME IN OUR FUTURE REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. WE UNDERTAKE NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE, EXCEPT AS REQUIRED BY LAW.

 
Q3 2016 HIGHLIGHTS Page 3 • Third Quarter Results o Revenue of $283.8 million compared to $299.1 million in Q3 2015 o Operating margin of 3.9% compared to 2.8% in Q3 2015 o Adjusted operating margin1 in Q3 2015 was 3.9% o Diluted EPS of $0.60 compared to $1.29 in Q3 2015 o Adjusted diluted earnings per share1 in Q3 2015 were $0.65 o Year-to-date 2016 net cash provided by operating activities of $33.5 million compared to $10.0 million year-to-date Q3 2015 • Achieved 55 Days Sales Outstanding • Voluntary Payments of $8 Million in the Quarter; $10 Million Year-to-Date (1) Non-GAAP financial measure. See appendix for reconciliation. There were no adjustments to the 2016 financial results.

 
VECTRUS UPDATE Page 4 • Contract Updates o K-BOSSS – Army taking corrective action on the K-BOSSS 2.0 solicitation. o APS-5 Kuwait/Qatar • Cost Reductions • New Business o Approx. $1.5 billion of proposals submitted and pending potential award1, 100% for new business; almost $7 billion in potential new business opportunities identified over the next 12 months. Award decisions expected on roughly $1 billion of bids in the next six to nine months. • Thule Base Maintenance Contract Update • Re-Compete o Maxwell BOS • Financial Liquidity (1) Indefinite Delivery Indefinite Quantity (IDIQ) contracts carry no value in the pipeline of potential proposals to be submitted until a specific task order is identified.

 
(in millions, except operating margin and diluted EPS) Q3 2016 Q3 2015 vs. 2015 Funded Orders 76.8$ 443.8$ (367.0)$ Revenue 283.8$ 299.1$ (15.3)$ Operating Income 11.2$ 8.5$ 2.7$ Operating Margin 3.9 % 2.8 % 1.1 % Diluted EPS 0.60$ 1.29$ (0.69)$ (in millions, except operating margin and diluted EPS) Q3 2016 Q3 2015 vs. 2015 Adjusted Operating Income 1 11.2$ 11.8$ (0.6)$ Adjusted Operating Margin 1 3.9 % 3.9 % (0.0)% Adjusted Diluted EPS 1 0.60$ 0.65$ (0.05)$ Third Quarter 2016 Third Quarter 2016 FINANCIAL RESULTS Page 5 (1) Non-GAAP financial measure. See appendix for reconciliation. There were no adjustments to Q3 2016 financial results. Adjusted Financial Results 1

 
(in millions, except operating margin and diluted EPS) 2016 2015 vs. 2015 Funded Orders 985.7$ 919.8$ 65.9$ Revenue 902.4$ 869.5$ 32.9$ Operating Income 34.3$ 28.7$ 5.6$ Operating Margin 3.8 % 3.3 % 0.5 % Net Cash Provided by Operating Activities 33.5$ 10.0$ 23.5$ Diluted EPS 1.76$ 2.31$ (0.55)$ (in millions, except operating margin and diluted EPS) 2016 2015 vs. 2015 Adjusted Operating Income 1 34.3$ 32.1$ 2.2$ Adjusted Operating Margin 1 3.8 % 3.7 % 0.1 % Adjusted Diluted EPS 1 1.76$ 1.69$ 0.07$ Year-to-date September 30, 2016 Year-to-date September 30, 2016 FINANCIAL RESULTS Page 6 (1) Non-GAAP financial measure. See appendix for reconciliation. There were no adjustments to year-to-date September 30, 2016 financial results. Adjusted YTD Financial Results 1

 
$140.0 $93.5 6.0 3.0 3.0 2.0 8.0 2.6 - 5.2 2.7 3.5 3.5 3.5 3.5 $90 $100 $110 $120 $130 $140 $150 Q3 2014 Debt Balance Q4 2014 Q1 2015 Q2 2015 Q2 2015 Q3 2015 Q3 2015 Q4 2015 Q4 2015 Q1 2016 Q2 2016 Q2 2016 Q3 2016 Q3 2016 Q3 2016 Debt Balance Voluntary Payments Mandatory Payments DEBT PROFILE Page 7 As of Sept. 30, 2016 ($M)

 
BACKLOG(1)(2) Page 8 (2) (1) Total backlog represents firm orders and potential options on multi-year contracts, excluding potential orders under IDIQ contracts. (2) Total backlog does not include the Thule Base Maintenance Contract. • Total Backlog $2,107 Million as of September 30, 2016 o Funded backlog $768 million o Unfunded backlog $1,339 million $0.9 $0.7 $1.0 $1.0 $0.8 $1.5 $1.7 $1.5 $1.3 $1.3 $- $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Funded Unfunded $2.4 $2.5 $2.3 $2.1 $2.4 ($B)

 
UPDATED 2016 GUIDANCE SUMMARY Page 9 (1) See Appendix for reconciliation. (2) 2016 diluted EPS is calculated using the estimated weighted average diluted common shares outstanding of 11.2 million for the year ending December 31, 2016. (in millions, except operating margin and diluted EPS) (Prior) 2016 Mid-point (Updated) 2016 Mid-point Adjusted 20151 (Updated) 2016 Mid Variance to 2015 %Var Revenue 1,180$ to 1,200$ 1,190$ to 1,200$ 1,190$ 1,195$ 1,181$ 14$ 1.2 % Operating Margin 3.60 % to 3.90 % 3.60 % to 3.80 % 3.75 % 3.70 % 3.68 % 2 BPS 0.5 % Diluted EPS 2 2.07$ to 2.32$ 2.12$ to 2.28$ 2.20$ 2.20$ 2.23$ (0.03)$ (1.3)% Net cash provided by operating activities 30$ to 34$ 30$ to 34$ 32$ 32$ 19$ 13$ 68.4 % (Prior) 2016 Guidance (Updated) 2016 Guidance • Depreciation and amortization approximately $2 million • 2016 mandatory debt payments $14 million; plus voluntary $10 million • Interest expense approximately $5.8 million • Estimated tax rate of 36.0%

 
KEN HUNZEKER CHIEF EXECUTIVE OFFICER AND PRESIDENT MATT KLEIN SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER VECTRUS THIRD QUARTER 2016 RESULTS

 
APPENDIX

 
RECONCILIATION OF NON-GAAP MEASURES Page 12 The primary financial performance measures we use to manage our business and monitor results of operations are revenue trends and operating income trends. In addition, we consider adjusted operating income, adjusted operating margin, adjusted net income, and adjusted diluted earnings per share be useful to management and investors in evaluating our operating performance for the periods presented, and to provide a tool for evaluating our ongoing operations. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives. Adjusted operating income, adjusted operating margin, adjusted net income, and adjusted diluted earnings per share, however, are not measures of financial performance under generally accepted accounting principles in the United States of America (GAAP) and should not be considered a substitute for operating income, net income, diluted earnings per share, or net cash provided by operating activities as determined in accordance with GAAP. Reconciliations of these items are provided below. “Adjusted operating income” is defined as operating income, adjusted to exclude items that may include, but are not limited to, other income; significant charges or credits that impact current results but are not related to our ongoing operations and unusual and infrequent non-operating items and non-operating tax settlements or adjustments, such as separation costs incurred to become a stand-alone public company. “Adjusted operating margin” is defined as adjusted operating income divided by revenue. "Adjusted net income" is defined as net income, adjusted to exclude items that may include, but are not limited to, other income; significant charges or credits that impact current results that are related to our ongoing operations and unusual and infrequent non-operating items and non-operating tax settlements or adjustments, such as separation costs incurred to become a stand-alone public company. "Adjusted diluted earnings per share" is defined as adjusted net income divided by the weighted average diluted common shares outstanding.

 
RECONCILIATION OF NON-GAAP MEASURES (CONT.) Page 13 (in thousands, except operating margin and adjusted operating margin) Adjusted Operating Income (Non-GAAP Measure) September 30, 2016 September 25, 2015 September 30, 2016 September 25, 2015 Operating income 11,162$ 8,471$ 34,271$ 28,670$ Operating margin 3.9 % 2.8 % 3.8 % 3.3 % Separation costs 1 (pretax) — — — 177 Tax Indemnifications 2 — 3,300 — 3,300 Adjusted operating income 11,162$ 11,771$ 34,271$ 32,147$ Adjusted operating margin 3.9 % 3.9 % 3.8 % 3.7 % Three Months Ended Nine Months Ended 1 Costs incurred to become a stand-alone public company. 2 Tax Indemnifications in connection with spin-off (see Note 3 to the financial statements in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, "Tax Indemnifications"). (in thousands, except per share data) justed Diluted Earni gs Per Share t r , t r , t r , t r , Net income 6,607 14,028 19, 46 5,012 Separation costs 1 (pretax) — — — 177 Tax impact of adjustments — — — 7 Net settlement of uncertain tax positions 2 — (6,949) — (6,949) Adjusted net income 6,607$ 7,079$ 19,246$ 18,247$ GAAP EPS - diluted $0.60 $1.29 $1.76 $2.31 Adjusted EPS - dilut d $0.60 $0.65 $1.76 $1.69 Weighted average common shares outstanding - diluted 11,061 10,848 10,966 10,808 Three onths Ended Nine onths Ended 1 Costs incurred to become a stand-alone public company. 2 Net settlement of uncertain tax positions due to resolution of examinations of tax returns of our former parent (see Note 3 to the financial statements in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, "Uncertain Tax Positions").

 
Page 14 RECONCILIATION OF NON-GAAP MEASURES (CONT.) (In thousands) 2015 Revenue 1,180,684$ (In thousands) Adjusted Operating Income (Non-GAAP Measure) 2015 Operating income 39,962$ Operating margin 3.4 % Separation costs 1 (pretax) 177 Tax indemnifications 2 3,300 Adjusted operating income 43,439$ Adjusted operating margin 3.68 % Year Ended December 31, Year Ended December 31, 1 Costs incurred to become a stand-alone public company. 2 Tax indemnifications in connection with the spin-off (see "Tax Indemnifications" in Note 3 to the financial statements in our 2015 Annual Report on Form 10-K). (In thousands, except for share and per share data) Adjusted Net Income and Adjusted Diluted Earnings Per Share (Non-GAAP Measure) 2015 Net income 30,973$ Separation costs1 (pretax) 177 Tax impact of adjustments (13) Net settlement of uncertain tax positions 2 (6,949) Adjusted net income 24,188$ GAAP EPS - diluted $2.86 Adjusted EPS - diluted $2.23 Weighted average common shares outstanding - diluted 10,825 Year Ended December 31, 1 Costs incurred to become a stand-alone public company. 2 Net settlement of uncertain tax positions due to resolution of examinations of tax returns of our former parent (see "Uncertain Tax Positions" in Note 3 to the financial statements in our 2015 Annual Report on Form 10-K).

 

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