Thank you for joining us for the Vectrus Third 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 Q&A session. [Operator Instructions] Please note, this conference is being recorded. And now, I’ll pass the call over to your host, Mike Smith, Vice President of Treasury, Investor Relations and Corporate Development at Vectrus.

Thank you. Good afternoon, everyone. Welcome to the Vectrus third 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 non-GAAP metrics, including adjusted operating income and margin, EBITDA and EBITDA 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. Tomorrow, November 11 is Veterans Day. So before I begin, I would like to take a moment to recognize all at our veterans for their service to our nation, particularly those who are part of the Vectrus team and support many of client's critical missions, often times in remote and austere environments. We thank you for all you do for our nation and for our company. Please turn to Slide 3. Our performance in the third quarter was solid with our financial results reflecting strong revenue and profit. As expected, COVID-19 related host nation and access restrictions across contract portfolio impacted our results. Third quarter revenue increased 4.9% sequentially, but declined 2.1% over the prior year including COVID-19 impact of $12.9 million or 3.7%. Adjusted EBITDA margin up 4.8% was one the highest on record for Vectrus and was impressive considering the estimated 40 basis point impact from COVID-19. Adjusted EPS was $0.89 and absorbed an estimated $0.14 impact from the COVID-19 deferrals. During the quarter we continued to execute well on our growth strategy, both with respect to our client growth campaigns and our expanded capabilities as a converted infrastructure provider. The Vectrus team recently achieved a strategic milestone and was awarded a prime contract for the Navy Smart Warehouse Prototype 5G Applications. This contract relates to the DoD's 5G experimentation and testing at five U.S. military test sites. This is strategically significant for several reasons. First, while we have received awards for our technology capabilities, this is a testament to our client's migration towards their converted infrastructure market. Second, it represents the largest full-scale 5G test for dual use applications in the world. And third, it puts us into an additional competitive…

Thanks, Chuck and good afternoon everyone. Turn with me now to Slide 7 to discuss our third quarter results. Revenue was $352.4 million for the quarter, down 2.1% year-on-year or $7.5 million, a result of the revenue delays of approximately $12.9 million due to the COVID-19 pandemic. Most of the revenue impact was high-margin work that customers delayed due to limited base access and social distancing restrictions. Revenue increased sequentially $16.4 million or 4.9%, as several bases eased access restrictions and developed return to work plans. Adjusted EBITDA was $17 million, a margin of 4.8%, representing the second highest margin rate in the past 10 quarters. This is an impressive accomplishment as EBITDA margin includes an estimated 40 basis points of COVID-19 impact. Our margin reflects the strength of our underlying business and continued execution on our enterprise wide performance improvement initiatives. Third quarter interest expense was approximately $900,000 roughly half of the amount in the same period last year due to continued favorable operating cash flows, resulting in higher cash balances, lower usage of the company's revolving credit agreement and increased cash flows as a result of the CARES Act of approximately $10 million. Adjusted diluted EPS was $0.89, $0.18 higher than the same period last year. EPS and adjusted EPS were adversely impacted by the deferral of high margin work due to the COVID-19 pandemic, which is estimated at $0.14 of EPS for the quarter. Turn with me now to Slide 8 to discuss our backlog. Total backlog is $3.7 billion, which represents a trailing 12-month book-to-bill ratio of 1.5 times. Including the Naval Station Guantanamo Bay award, which is currently under protest, our pro forma total backlog was $3.9 billion. Our OMDAC program contributed $158 million of revenue during the first nine months of the year, and…

Thank you, Susan. In closing, we delivered a solid third quarter performance, considering the impact of the pandemic. We did this by focusing on consistent execution and our commitment to our client's mission. We achieved a strategic milestone in our converged infrastructure market award putting Vectrus on the shortlist of capable providers, as this market takes shape. Our talented growth team continues to run our organic growth engine smoothly, aggressively driving our client tailored campaigns. The LOGCAP contract and presence in INDOPACOM AOR already adds to our organic growth opportunities. We have a strong backlog that represents more than 2.5 times the midpoint of our 2020 revenue guidance. The high free cash flow characteristics of our business and strong balance sheet with essentially zero net debt, provides the ability to make acquisitions that align with our strategy. I want to take a moment to thank our entire workforce for their continued dedication, fortitude and resourcefulness every day as we face the ongoing global pandemic. Our teams remained determined yet flexible regardless of remote and austere operating environments, maintaining a high level of operational readiness for our clients. Navigating host nations, and base specific requirements and restrictions has been complex and fluid and our people continue to deliver. Now, I'd like to turn the call back over to the operator.

[Operator Instructions] Thank you and our first question is from the line of Joe Gomes with Noble Capital. Please proceed with your questions.

Thank you. Nice quarter.

Thank you.

Thank you.

Real quick on OMDAC, that kind of supposed to be the part awarded here, four, six weeks ago and this seems to be going on, the award, any thoughts or why that might be taking longer for them to come to the award or announce the award?

No, it's a large award as you know and we don't read anything into specific timing. So we do expect to hear on the OMDAC recompete sometime this year. So we continue to receive extensions in the field and operate very well. So again, we would expect to have something here before the end of the year.

Okay, and real quick on the new business pipeline. If I look and compare that to what your numbers were for the second quarter, the second quarter you had a total of $10.6 billion now we're at $10 billion. The bid submitted went from 1.1 to 1.7, but and then the plans to submit went down a little bit. I'm just trying to figure out what is going on there that would drive the number, the overall number down sequentially?

As we mentioned last quarter, the volume of bids being submitted was very high, it's high today. So I don't read anything into that other than the fact that the pipeline is robust. Our new business teams are working very hard. So I think we have plenty of pipeline to yield the types of yield that we need for 2021 and beyond. So short answer to your question, I don't read anything into it. The temporal stays very high, and quite frankly I like a lot, the types of things that we're bidding, they're more aligned with the converged infrastructure opportunities that we have been anticipating, and that we now see emerging in our pipeline.

Okay, one last one from me. You mentioned in your prepared remarks that you've been seeing some demand from clients outside the army to use LOGCAP. I was just wondering if you can provide just a little more color or detail on that?

Sure, in the INDOPACOM area of operation in particular, the Navy is the predominant service. And we're working with our Navy client to understand the contract vehicle, building some bridges between the Navy and the Army. And we really like the shape of the emerging Navy opportunities that could potentially use the LOGCAP contract as well. We have other contracts that we recently won in INDOPACOM as well, which are not LOGCAP, and I mentioned that in the prepared remarks that are 100% because we now have presence in the theater, whereas in the past, we did not have that type of presence.

Great, thank you much.

Thanks for calling in and thanks for the compliment.

Thank you. [Operator Instructions] The next question comes from the line of Joe DeNardi with Stifel. Please proceed with your questions.

Good evening. Hi, this is John on for Joe. Good quarter, everyone.

Thank you.

Chuck, I think the first question I just want to ask is around margins and how you're thinking about next year. Is this level kind of just a COVID one off with SG&A or does this have legs beyond 2020, and we can see SG&A kind of come down over the next year to two years? If you guys could just give us some puts and takes around how you're thinking about margins going forward in the age of COVID, I'd appreciate it?

Yes, so this is Susan. I'll actually jump in there and check and fill in, where I missed. As we've mentioned in prior quarters we have enterprise Vectrus which focuses the company and our internal resources on a variety of six sigma and lean projects. We've worked hard to automate not only internal manual processes, but processes that are customer facing like work order management. And so, and we've even done things like working capital, improving our DSOs, et cetera, and I think that is a large factor of what is driving the margin improvement. And we hope that that is sustainable. It's certainly our goal to be sustainable going forward into the out years that we have this goal of achieving $2.5 billion dollars in revenue by 2023 and 7% in EBITDA margin. And so that has always been one of the tools in our tool chest was you know enterprise Vectrus. The second thing is, the reason why we've shifted and tried to shift some of our portfolio into fixed price programs is, as we get better in delivering those programs, there is a higher margin available to the company and I think you're seeing all of that come together. We are just constantly as we sit back and take a look at the quarter, a 4.8% adjusted EBITDA margin when we had such a large impact in some of this add on work that is completely variable, and that our customers will that that we weren't able to actually include that in our results. It is still an amazing margin that we have for the quarter. Chuck?

Well done, and from the time that we announced our path to two and a half and seven. I've always said that, getting the seven in would be a little bit trickier. And it's going to take a while for the performance improvement initiatives that we have been implementing to take hold and I'd like to think that's what we're beginning to see. So more to come, and we'll track this obviously every quarter, but I would like to thank our team for all their hard work that allowed us to generate this result, and thanks for the question.

Thank you. At this time, we've reached the end of our question-and-answer session, and I'll now turn the call over to Chuck Prow for closing remarks.

Very good, thank you very much and thanks for attending today's call. We're pleased with our results and we look forward to updating you further in our next call. Have a nice day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.