Mike Smith - Director of IR and Corporate Development Chuck Prow - President and CEO Matt Klein - SVP and CFO.

Brian Ruttenbur - Drexel Hamilton Ben Klieve - NOBLE Capital Markets.

Thank you for joining us for the Vectrus Fourth Quarter and Full Year 2017 Earnings Conference Call and webcast. Today's call is being recorded. My name I Omar and I'll be the operator for today's call. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation.

[Operator Instructions] And now I'll pass the call over to your Mike Smith, Director of Investor Relations and Corporate Development at Vectrus..

Thank you. Good afternoon, everyone. Welcome to the Vectrus Fourth Quarter and Full Year 2017 Earnings Conference Call. Joining us today are Chuck Prow, President and Chief Executive Officer; and Matt Klein, 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 statement 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. We assume no obligation to update our forward-looking statements.

At this time, I'd like to turn the call over to Chuck Prow..

Thank you, Mike. Good afternoon, everyone. Thank you for joining us on the call today. Please turn to Slide 3. I am pleased to announce that we completed 2017 with strong fourth quarter results. We reported 3% year-over-year organic revenue growth, 51 basis point improvement in operating margin and a 43% increase in adjusted diluted earnings per share.

Additionally for the full year, we reported revenue, diluted earnings per share and net cash from operations that were all ahead of guidance. We have made progress in every aspect of our business during 2017.

The execution of our strategy is providing demonstrable results and we recognize record quarterly operating margins, backlog and contract awards. Additionally, we want all of our schedule recompete and successfully phased in $1.4 billion of contracts.

I'd like to thank our almost 7,000, employees for their amazing contributions and helping us reach several important milestones during the year.

Turning to 2018, with the backlog of $2.9 billion, additional talent at all levels of the organization, an expanded credit facility, enhanced capabilities via SENTEL, an acquisition we announced in January and robust new business opportunities. We have a solid foundation from which to grow.

Furthermore, the passage of the Tax Cuts and Jobs Act also known as tax reform will allow us to continue investing in the business to drive growth, enhance our talent base and improve the foundational infrastructure of our business. Now I'd like to discuss our fourth quarter and full year 2017 financial highlights.

Revenue for the fourth quarter was $296 million, up $ 8 million year-over-year and $26 million sequentially from the third quarter of 2017. Our year-over-year growth is particularly notable when considering the F5 Kuwait contract contributed $47 million of revenue in the fourth quarter of 2016, which did not reoccur this quarter.

Operating margin increased 51 basis points year-over-year to 3.5 % from 3% last year. Adjusted diluted earnings per share excluding the benefit associated with the tax reform act increased $0.17 to $0.57. Revenue for the full year was $1.115 billion dollars, down $76 million year-over-year.

Our team did a remarkable job partially offsetting $121 million year-over-year decrease associated with F5 Kuwait contract and a $33 million reduction associated with Afghanistan programs.

In 2017, we phased in more than $1.4 billion dollars of new contract wins and successful recompete to continue to implement and invest in our strategic imperatives, all of which could have generally resulted in margin pressure.

However, the hard work and ongoing commitment of team to improving our operating margin profile resulted in 10 basis points year-over-year improvement and operating margin to 3.7%. I view this as the first milestone and a path to margin expansion I expect from the execution of our strategy.

Adjusted diluted earnings per share for the year increased $0.01 to $2.17 excluding the benefit associated with tax reform.

In 2017, net cash provided by operating activity were strong at $35 million, exceeding our $24 million to $30 million guidance; our business continues to generate strong cash flow which will be further enhanced by the recent tax reform legislation. In 2017, we established our new strategy to become a leader in the converged infrastructure market.

We added several key leaders and strengthened our talent at all level of the organization. I'll talk more in detail with regard to our strategy later in the presentation. During the fourth quarter, we successfully closed on a new and expanded credit facility which allows for a significant flexibility and support of our growth plan.

If new facility increased the amount of funding available under our revolver to $120 million from $75 million. A leading indicator of our future revenue is backlog and in 2017 we secured several awards that propel our backlog $2.9 billion, which is up 24% year-over-year and represents 2.4x our 2018 revenue midpoint.

Our backlog is not currently including any contribution from the recent acquisition of SENTEL or the Kuwait DFAC 3.0 contract win. During the year we successfully phased a multiple long term contract located in several country across the globe valued at approximately $1.4 billion.

This is a testament of Vectrus' ability of seamlessly transition and operate large and complex contract anywhere in the world in support of our client's mission. Please turn to Slide 4. Our recent contract momentum and wins help secure our base and provide significant revenue visibility over the next several years.

We highlight some of these recent wins on Slide 4. At the top of the page, you can see the great progress we've made with the air force. The Range Support Services II or RSS II, Thule, Maxwell, Keesler and AFCAP award in total represent $1.3 billion of potential air force revenue that spans over several years.

I am pleased that our team has been able to expand market share with this client by offering differentiated and value added solutions in support of their mission. Vectrus is now a trusted provided of facility and logistics support to the air force in eight countries.

Additionally, we continue to make great stride with our army client and successfully retained our operations, maintenance and supply - Europe or OPMAS-E contract we compete. The Firm-Fixed Price contract has a total value of $115 million and a period of performance including option for extend through January of 2022.

OPMAS-E provides a full range of IT services to the US army Europe, the US European Command and the US after command areas of responsibility. Importantly, through our continue portfolio of contracts, Vectrus provide IT and network communication services throughout the US and in 17 countries spanning Western Europe to Southwest Asia.

I am pleased to announce that subsequent to the fourth quarter, we were awarded two new contracts with our army clients that are representative of how we are growing in and around base.

The first award was $108 million five year Kuwait dining facilities or Kuwait DFAC 3.0 contract, which further position Vectrus as the leading provider of facilities and logistics services to the DoD and in the same com area of responsibility.

The second win is the Integrated Electronic Surveillance System Maintenance or IESS contract in Qatar, which while smaller in value, is a perfect example of how the physical and digital aspect of our client facility and logistics missions are converging.

In total, all of these recent awards equate to $1.5 billion of long-term revenue stream for Vectrus. Please turn to Slide 5. As you can see, at the top left side of the page, these wins are starting to diversify our portfolio. Our percentage of revenue with the air force increased to 16% in 2017, up from 14% in 2016.

For 2018, we expect that air force will increase to about 21% of revenue at the midpoint due to the full year contribution from RRS II, Thule, Keesler and AFCAP. Additionally, SENTEL will further improve our client diversification in 2018.

One component of our ability to improve margins over time is a shift to more fixed price contracts from cost plus type contracts. While the rest to a contract is low, on cost plus type contracts so is margin. Margins under cost plus contracts are defined and governed by our clients.

However, under fixed priced contracts, the risk to performance shift from the government to the contractor and also allow for the potential of higher margins depending on the level of performance that can be achieved. In essence, under fixed priced contract, we apply technology and continuous improvement principles and techniques.

They are the potential generate better outcome for our clients and higher operating margins for Vectrus. In 2017, our fixed price contract mix increased two percentage point year-over-year to 27%.

We are seeing more and more contract migrating to fixed price structure, as a matter of fact of the $1.5 billion on recent contract wins I just described, approximately 60% of their value is fixed price. Finally, in 2017 we performed with a prime contract to 97% of revenue.

We have a favorable prime sub contractor mix which allow for a significant interaction and engagement with our clients. As a trusted partner, this direct interaction allows us to better predict and respond to all aspects of our clients' missions. Please turn to Slide 6.

We've recently closed of new and expanded credit facility which provides flexibility to pursue organic and inorganic growth opportunities that aligned with our strategy. Looking forward, we anticipate leveraging our strong financial position and will flex to meet our five year goal which I’ll discuss in a moment. Turning to new business.

Our prospect continues to trend favorably with almost $7 billion of identified opportunities which we plan to pursue. And potentially submit over the next 12 months. This number is up from $6 billion we reported last quarter and is expected to fluctuate as our pipeline evolves.

We also have approximately $1 billion submitted pending award which is up from $400 million last quarter due to increased proposal activity. It is important to understand that the $1 billion does not include any value associated with LOGCAP V or SENTEL. And we move the recent Kuwait DFAC 3.0 contract win.

I'd like now to provide an update on our Kuwait base operations and security support services contract known as K-BOSSS, and the logistics civil augmentation program 5 LOGCAP V competitions. As it relates to K-BOSSS, our client has incorporated our current K-BOSSS contract as a task order into the LOGCAP V competition.

In 2017, the K-BOSSS contract contributed $476 million, or 43% of our revenue. Currently, K-BOSSS is operating under an extension which has a base period of performance through March of 28. Additionally, the extension includes two option periods.

The first period being nine months and the second period being three months which if exercised by the client would extend performance through March of 29. We anticipate receiving the first nine months option award soon. In terms of LOGCAP V competition, we submitted our proposal this week.

They are expected to be up to six in definite delivery and definite quantity or IDIQ contract awards and the government intents to make an award in the four quarter of 2018.

We believe our proposal offers a client a unique and differentiated solution that supported by over seven years of extensive experience, providing a responsive and flexible mission support of our client's multi demand operations. Our capability strongly aligned our client's requirements in the emerging operational environment.

Vectrus is well known for its ability to rapidly respond anywhere across the world in challenging and steer environment to meet our client's contingency mission requirements.

It is also worth noting that Vectrus is extremely familiar with the LOGCAP V mission requirement and we are generating revenue in excess of $1 billion performing at a significant sub contractor under the current [COGLAG] LOGCAP IV program.

US army published acquisition plan has indicated a LOGCAP V will be awarded to support army service combined command or ASCC aligned to each of the DoD combat and command or DoDCOM. This includes [UCOM, PAYCOM, SENDCOM, NORTHCOM, AFTERCOM, and SOUTHCOM] and separately supports the ongoing operations in Afghanistan.

Each award under the LOGCAP V contract will consist of two elements. The first will be a 10 year task order for [shut the theatre]. This contract is for logistic planning support for the ASCC and DoDCOM. The second award will be a five year performance task order of which K-BOSSS has won several.

The company that is awarded the [shut the theatre] 10 year task order will also receive the five year task orders in the ASCC. For example, the K-BOSSS task order is expected to be awarded to the company that wins the SENDCOM, [shut the theatre] award.

At the end of initial five year period, all awarded performance task orders will be competed among all to LOGCAP V contractor. In order for Vectrus to retain the K-BOSSS contract, we would initially have to win the SENDCOM, ASCC.

As the incumbent and the largest SENDCOM task order, we believe Vectrus is well positioned for both LOGCAP V in general and to win the SENDCOM task order.

Additionally, our recent Kuwait DFAC 3.0 win to operate all the US army and US airport starting facilities in Kuwait, further enhances our position as the leading provider of facility and logistics services to the US army in the SENDCOM area of responsibility.

However, if Vectrus going to win LOGCAP V award other than SENDCOM, the associated task order would assist and partially offsetting any revenue reduction associated with K-BOSSS. Our outlook is promising and we continue to see significant opportunities for growth in our business.

As a result, we are issuing 2018 guidance which calls for 11% growth in revenue at the midpoint of our range. While SENTEL is helping to contribute to growth, we also find to grow organically, it is also important to note that 97% our revenue at the midpoint is expected to come from existing contracts.

Our operating margins are expected to further expand and excluding transaction cost associated with SENTEL are anticipated to be in 3.8% to 4.2% range. This represents a 30 basis points year-over-year improvement at the midpoint. Finally, we expect diluted earnings per share to increase 36% at the midpoint $2.96. Please turn to Slide 7.

I'd like to spend a few minutes to discuss the acquisition of SENTEL which closed on January 23, 2018. SENTEL is founded 1986 and had the unique mission focused business with experience in logistics and supply chain management, engineering and advanced technology solutions and the intelligent mission support.

The acquisition marks the major milestone in our evolution and serves as strategic accelerator for our business. SENTEL currently derive 100% of its revenue from the central government and has clients that include the army, navy, intelligence community, federal aviation administration and the internal revenue service.

SENTEL operates in three core areas. The logistics component of SENTEL is a largest contributor of revenue and it's complementary to what Vectrus does.

In February of 2016, SENTEL won the largest task order in his history which is to provide logistics support services including maintenance, supply and transportation to the logistic readiness SENTEL airport --, the contract was valued at approximately $200 million and extends into June of 2021.

SENTEL brings a significant tone its presence with our army client and augment our current facilities and logistics services while providing additional capabilities and fast performance. The next major component of SENTEL business is the intelligence mission support.

This business line is focuses on logistics and other support services for the highly coveted intelligence community clients. In late 2016, the company won its largest intelligence contract as a prime contractor to provide worldwide logistics management support services.

We see tremendous opportunity to engage and support this new client with our rapid deployment capabilities, IT and facilities solution and global footprint. SENTEL third service area is engineering and IT. They provide system integration, engineering, software engineering and secured network solutions among other things.

They have a legacy in developing solutions design for spectrum management system, center network and various detection systems. They have IT contracted at the FA, IRS and with the Navy, were their focus is ensuring that communications equipment on ships and aircrafts can be operated without interfering from external transmission sources.

SENTEL bring performance and talented developer and engineers that will assist the combined company as we mature our IT capabilities and develop solutions. We expect to see accelerating convergence of our client's digital and physical infrastructure and supply chains.

With SENTEL’s strong technical background and legacy in spectrum management systems, sensor networks and varied protection systems, we believe there is great opportunity to be a leader in this convergence.

I’d also like to note that SENTEL provides access to the army’s tenure, responsive strategic sourcing for services or RS3IDIQ which was awarded in May of 2017. The IDIQ has a $37 billion feeling and provide knowledge based professional engineering support services for program with C4 ISR mission requirements.

We believe there are several opportunities to leverage our global footprint to offer client a combined solution that incorporate SENTEL’s strong engineering capabilities with our last tactical mile IT and network communication services. Please turn to Slide 8; in 2017 we created a new strategic plan.

And over the past year it has made great progress in advancing our three core strategies. Enhance the foundation, expand the portfolio and add more value, as well as executing our strategic imperative. In 2018 and beyond, we’ll continue to execute our strategy to become a leader in the converged infrastructure market within government services.

We will aggressively explore new and adjacent markets. Enhanced capabilities and additional channel to drive growth and increase shareholder value. Specifically, we have established a five year plan and goal to grow revenue to $2.5 billion and expand EBITDA margins to 7%.

This is clearly an aggressive goal, but we see a path forward to achieve this plan to the combination of strategic, organic and purposeful inorganic growth activities.

We plan to drive organic revenue growth and margin expansion to repeatable strategies that include using technology under our current facilities and logistics offerings, creating into point of repeatable solutions.

Growing our existing footprint in current markets, while expanding into new markets and fully deploying the Vectrus management system to core us enterprise wide, performance improvement initiatives known as Enterprise Vectrus. Matt will talk more about Enterprise Vectrus momentarily.

We also plan to further engage in purposeful and prudent inorganic activities that will serve as a force multiplier for Vectrus and help us differentiate to become innovator and leader and the convergence of our client's physical and digital infrastructure and supply chain.

And we look forward to providing further detail on our roadmap over the coming quarters. Now I’d like to turn the call over to Matt, he will go through our financial results and discuss 2018 guidance. Then we’ll open the call for questions..

Thank you, Chuck. Good afternoon, everyone. Please turn to Slide 9. Today, I’ll be discussing our financial results for the three months and year ended December 31, 2017. In the fourth quarter of 2017, revenue was $295.8 million, up $7.6 million or 2.6% as compared to the fourth quarter of 2016.

And up $26.2 million sequentially from the third quarter of 2017. For the fourth quarter of 2017, revenue increased $20.2 million from US programs, $15.5 million from European programs. And $3.9 million from Afghanistan programs, offset partially by a decrease of $32 million from Middle East programs.

Namely F5 Kuwait, F5 Kuwait contributed $47 million in the fourth quarter of 2016. Operating income for the fourth quarter of 2017 was $10.3 million, an increase of $1.7 million or 20.1% compared to the fourth quarter of 2016, primarily due to the decrease in SG&A cost.

Operating margin for the fourth quarter of 2017 was 3.5% compared to 3% operating margin in the fourth quarter of 2016. During the fourth quarter of 2017, we recorded net favorable cumulative adjustments to operating income of $3 million compared to $3.3 million in the same period of 2016.

There are many factors that drive contract performance, including successful contract modifications and extensions of current contracts. Cumulative catch up adjustments can be positive or negative are normal part of this business. And our guidance contemplates this reality.

Interest expense for the fourth quarter of 2017 was $1.4 million or approximately $100,000 higher than the same period of 2016. The increase in interest expense was due to the expense of unamortized differed financing fees related to the prior credit agreement, partially offset by decreased interest expense on a lower debt balance.

Net income for the quarter ended December 31, 2017 was $41.6 million compared to $4.4 million in the fourth quarter of 2016. Net income for the fourth quarter was favorably impacted by the change in tax legislation by $35.1 million.

The favorable impact is a direct result of revaluating our differed tax liabilities from the previous 35% rate to the new 21% tax rate. Adjusted net income excluding the impact of tax reform was $6.4 million compared to $4.4 million in the fourth quarter of 2016.

The increase is primarily due to higher operating income of $1.7 million and lower adjusted income tax expense. Diluted earnings per share for the fourth quarter of 2017 were $3.70 compared to diluted earnings per share of $0.40 in the fourth quarter of 2016. Adjusted diluted earnings per share excluding the impact of tax reform were $0.57.

The increase in adjusted diluted earnings per share was due to an increase in adjusted net income in the fourth quarter of 2017 compared to the same period in 2016. Now I’d like to discuss the financial results for the year ended December 31, 2017 reflected on the right hand side of slide 9.

Revenue was $1,115 million, a decrease of $75.7 million or 6.4% as compared to 2016. The decrease in revenue was primarily driven by Middle East programs of $70 million. F5 Kuwait decreased a $121 million year-over-year.

Additionally, we witnessed slower activity from our Afghanistan programs of $32.6 million, which was partially offset by an increase in our US programs of $10.2 million. And European programs of $16.7 million. Full year 2017 operating income was $41.2 million, down $1.6 million or 3.7% when compared to the same period in 2016.

This change is due to the impact of lower revenue, partially offset by a decrease in SG&A costs. Net favorable cumulative adjustments to operating income for the year ended December 31, 2017 and 2016 were $11.6 million and $7.5 million respectively. Operating income as a percentage of revenue was 3.7% for 2017 compared to 3.6% for 2016.

Net income for the year ended December 31, 2017 was $59.5 million compared to $23.7 million for the same period of 2016. Net income for the full year was favorably impacted by $35.1 million due to tax reform. Adjusted net income excluding the tax reform benefit was $24.4 million compared to $23.7 million in 2016.

The increase of $0.7 million was due to a lower adjusted effective tax rate, lower interest expense of $1 million partially offset by lower operating income of $1.6 million. Diluted earnings per share were $5.31 compared to diluted earnings per share of $2.16 for the same period in 2016.

Adjusted diluted earnings per share excluding the benefit associated with tax reform were $2.17. Year-to-date, 2017 net cash provided by operating activities was $35.4 million which is $1.2 million lower compared to the same period in 2016. The cash conversion compared to net income was a 145% and is in line with historical performance.

Our business continued to generate significant cash flow which is strengthened even more due to tax reform. Day sales outstanding as of 2017, was 54 days compared to 57 days in 2016. We continue to focus aggressive on cash collections and our performance in 2017 is representative of this effort.

I like to thank our teams for their extraordinary performance in 2017. We ended 2017 with zero net debt and debt to EBITDA ratio of 1.64x. The acquisition of SENTEL occurred after the year end, and is therefore not captured in these numbers. The $36 million acquisition prize was funded with cash on hand, and with our new expanded credit facility.

Please turn to Slide 10, for the fourth quarter of 2017, total backlog was $2.9 billion and funded backlog was approximately $700 million. Total backlog excludes the newly awarded Kuwait DFAC 3.0 contract which was awarded subsequent to the fourth quarter of 2017. And the SENTEL acquisition which closed January 2018.

Total backlog includes both funded and unfunded backlog and represents firm orders and potential options of multi-year contracts. Out contracts or multi-year contracts and the right to exercise in option period is at the sold discretion under US government, we’re the prime contractor when we are sub contractor.

Total backlog excludes potential orders under indefinite delivery and indefinite quantity contracts and contracts under protest. Please turn to Slide 11, where I will discuss 2018 guidance assumptions. Our 2018 guidance includes estimates related to the recent purchase of SENTEL and associated transaction cost.

For 2018, we expect revenue to be in the range of $1.205 billion to $1.275 billion, with a midpoint of $1.24 billion, this includes revenue from the acquisition of $150 million at the midpoint. Excluding SENTEL, full year organic growth is expected to be approximately 1% at the midpoint of our guidance.

At the midpoint of our revenue guidance 97% of our revenue is expected to come from existing contracts. And 3% is expected to come from new business and recompete. 2018 revenue guidance of $1.24 billion at the midpoint compared to 2017 includes the acquisition of SENTEL for $150 million.

Recent contract wins contribute another $86 million incrementally and new business is expected to contribute $32 million.

This $233 million growth in revenue is partially offset by $108 million decline related to F5, anticipated declines related to recompete pricing changes, contract closures and a one-time change related to the new revenue recognition standard. Operating margin is expected to be in the range of 3.6% to 4%, with a midpoint of 3.8%.

Importantly, our 2018 midpoint includes approximately $3 million of estimated transaction costs associated with SENTEL acquisition. Excluding the one-time cost, our operating margin range is 3.8% to 4.2%.

Part of our 2018 margin improvement is expected to come from the advancement of the Vectrus management system and our enterprise performance improvement imperative known as Enterprise Vectrus. We’re well on our way to operationalizing our transformation to collaborative and empowered enterprise support teams.

The new organization structure supports share responsible and accountability to innovate standard processes and measurements across the organization in a more efficient way. We will also see a slight margin benefit from the relocation of our Colorado Springs Headquarters which is expected to be completed in August.

The relocation will yield an annual cost savings of $1 million, which will be partially realized in 2018. The new facility will transition our headquarters to a modern, high tech location which offers many employees friendly amenities. The location is immediately adjacent to the garden of the God’s parking Colorado Springs.

The new facility allows us to offer what today’s top talents seeks in a workplace. We are extremely excited for the significant upgrade and refresh. Net income would be in the range of $30.5 million to $36.4 million. Diluted earnings per share will be in the range of $2.70 to $3.22.

The midpoint of diluted earnings per share is $2.96, the range for diluted EPS, assumes an estimated $11.3 million weighted average diluted shares outstanding. 2018 net cash provided by operating activities is expected to be in the range of $35 million to $39 million, inclusive of the benefit associated with tax reform.

With strong organization performance, additional incremental income expected from the new tax regulation and aggressive growth plans in our future, we have decided to invest in our organization infrastructure.

Capital expenditures for 2018 are expected to be approximately $9 million which includes $3 million to $4 million of normal contract requirements, including further build out to support intelligence mission support and truly equipped in investments.

First infrastructure required for the headquarters relocation and investments in our Enterprise supply chain and advisory service software infrastructure. Depreciation and amortization is expected to be $4.2 million in 2018, which includes an estimate percentile that may change upon completion of our purchase price allocation.

2018 mandatory debt payments are expected to be $4 million. Interest expense is forecasted at $4.3 million. And we currently estimate a 22% tax rate for the full year of 2018. Now I’d like to turn the call over for questions..

[Operator Instructions] Our first question comes from Brian Ruttenbur, Drexel Hamilton LLC. Please proceed with your question..

Yes and so a couple of quick questions, very good year.

Congratulations, but book-to-bill, it looks like it was down in the fourth quarter was that due to just large wins in the third period, was there anything just seasonal because it looked like book-to-bill was less than 1, is that correct?.

Hi Brian, it’s Matt, how you’re doing? You’re correct our bookings for the fourth quarter was $171 million which was down, but you remember in the third quarter we had a pretty significant book-to-bill, annual book-to-bill we were at $1.6 billion. So all of the wins that Chuck discussed in his prepared remarks contributed at $1.6 billion.

So 1.4 was new wins and then another $200 million of contract add-ons. So, overall, I think we had an outstanding year our bookings. Some of that kind of plays out differently over the course of the year in different quarters..

Okay. And then in terms of use of cash, you’re investing a little bit more in the company but is there, should we expect more acquisition, what else should we be looking for here in the near term..

Thank you, Brian. We, we are going to focus on integrating SENTEL here early in the year. As you mentioned, we are going to invest in hardening our infrastructure, but we fully expect to continue to invest in advancing our strategy. So I wouldn’t expect to see any acquisitive sorts of activities in the first half of this year.

We are aggressively monitoring our pipeline of potential acquisition for the future. And continue to make prudent decisions with regard to how we utilize cash to grow..

Okay.

So the plan then Matt is to have assuming no more acquisitions this year in 2018, what would the plan be in terms of cash and debt by the end of 2018?.

The end of -- we believe related to the SENTEL acquisition; we believe that the whole acquisition would be paid for by the third quarter. If you read the K which I know we just posted, we ended the year at $77 million of cash on hand. So we use cash on hand in a slight different to the revolver, so that will all be behind us this year.

So then we’re just talking about mandatory payments on the $80 million facility we just find in the fourth quarter. Mandatory payments will be about $4 million in 2018. We ended the year at $79 million of debt less $4 million at the end of this year we had $75 million of debt..

And just one clarification too, I didn’t indicate that we wouldn’t expect any additional acquisitive source of activities for 2018 but just probably not for the first half of this year..

Okay so assuming that there are no more acquisitions in 2018, I’m just going to make that assumption because it’s hard for me to model out acquisitions.

You should end the year with roughly no cash and $75 million of debt or something in that ballpark is that correct Matt?.

No we should have plenty of cash, we’ll have our normal cash balance for the $60 million and no debt, yes; I think it had that reversed..

Yes, sorry about that multi-tasking with another company, so perfect, those are my -- and then final question was on LOGCAP V, you expect with K-BOSSS an extension of nine months, what is the update of the actual re-bid of LOGCAP V or it’s not a re-bid but the LOGCAP V with K-BOSSS rolling into that, is it still going to be the fall that we’re going to see all that come out, an award in the fall or do you expect it to get pushed out..

So right now the current plan, we submitted the bid this week actually. The current plan is to have an award in the fall; we don’t know anything to the contrary. I would be highly confident however that the second to three year option that we had, second three month option that we had discussed which would take us January through March of next year.

I would anticipate that as well. Now other than that it’s really depending on the timing of the acquisition process..

We should have more clarity as we move through this year as well. And so we’ll report as the quarters transpire in 2018..

Our next question comes from Ben Klieve, NOBLE Financial. Please proceed with your question. .

Thank you. So first congrats on solid end for 2017 and a pretty exciting start at 2018 here. Few questions for you guys, first question regarding the tax law changed, curious with how this has impacted the status of differed tax liability beyond one-time, one-time adjustments.

And specifically how can we look at cash taxes for this year relative to your 22% tax rate that you guided to?.

Sure, sure. So really our differed tax liability is made up of two large components, one had to do with the goodwill that's on the books from the spin. And then the other large chunk had to do with the unbilled receivables that we’re allowed to differ historically.

So that whole balance has been re-valued at 21% and it kind of reflected in the $35 million benefit we received in net income of tax in the fourth quarter and full year. What has changed on a differed tax liability is we’ll no longer be able to differed unbilled receivables.

There is a phase out of that plans, so we’ll do that over the next five or so years. And so our cash tax impact changes very little. So we paid a little bit more in cash taxes the last couple of years, we managed that very effectively.

I really don’t expect that to change in the next two or three years until we actually get to this, the change in the unbilled portion of the tax law..

Okay, perfect.

Then couple of questions regarding the SENTEL acquisition, you talked about the [Fort Bragg], running through 2021, outside of this what does the portfolio look like from a recompete standpoint?.

They have one contract that was on for recompete this year versus several, we just got news that they won the IRS tips contract. There was a three year award, so we’re pleased with that, real pleased with that. Their exposure of the rest of the year or the exposure for the SENTEL contract is minimal in 2018 so--.

Okay.

And can you talk a bit about SENTEL’s business development efforts, pre-acquisitions? They, you know, did they kind of take their foot off the gasoline up to the acquisition or have they been pretty aggressive in their business development efforts? I guess what I am trying to understand is, are you going be able to, it’s a really juice up there, you know, their business development or have they been doing a solid job before you acquired them?.

I’ve been very pleased with the intensity, if you will the go-to-market activities in SENTEL. As with most small businesses of activities, they are very opportunistic. And I really look forward to leveraging our more robust infrastructure and process around go-to-market activities.

With SENTEL’s relationships, and so I’m very pleased with how I see the go-to-market activities with regard to the SENTEL client shaping up..

Okay, very good, thank you.

And one other just minor question here, the $3 million of acquisition expenses that you’re expecting in 2018, was there any acquisition related expenses that fell into the fourth quarter?.

There were few couple of $100,000 in the fourth quarter but most of those would be incurred in 2018. And quite honestly the $3 million might in conservative; I think we can manage that very appropriately. And we should see that come down as we can kind of move to the next couple of quarters..

Our next question comes from Joe DeNardi with Stifel. Please proceed with your question..

Hey guys, this is John [Larkin] for Joe. Great quarter and full year. First question I have is your thoughts on the impact of tax reform on margins.

Do you guys seek peers kind of competing away the gains from the lower tax rate, especially given the more commoditized nature of this type of work at your end?.

Hey, John how you doing? It’s Matt; no I don’t expect that to really change a whole lot, we are a low margin business. I would expect very similar to what we’re doing as a company reinvestment into the business fundamentals. That can be either in rewarding employees, buying back stock potentially or reinvesting in their businesses.

So I think that's the way you’ve got to see tax perform play out in the government services space. But as far as margins are potentially pricing at discount into the bid, we’re already talking pretty thin margins. So it is not much room there..

Okay. Then just kind of looking at your customer base, it’s been a fundamental change in the past few weeks given the balanced-budget agreement that came out. And I am just curious to hear what you are hearing from your customers in terms of how extra dollars that they kind of incrementally see coming their way.

Is that changing how they are going to bring work to market? And in terms of RFP’s, are they going back to--and kind of maybe tweaking a few things.

Or are they kind of staying with their plans? And I’m probably really looking at LOGCAP V, will that get extra dollar that they could easily get, change the way that they’re approaching that work?.

Hey, given where we have been as an industry over the last several years, although we’ve had budget stability, our clients really hasn't had a vision of how their budgets were going to materialize in the future.

That is much more certain now, so we’re actually hearing our clients talking about looking into the future and making investments to improve their long -term operations and their long term mission.

So I see this as a really positive step toward in our case having our clients move to their next level of operational efficiencies which we believe will be the converging of the physical and digital infrastructures..

Just lastly, is the Air Force Range support service contract is that now a full run rate?.

It is. It’s a full run rate in this quarter. As you know that we’re a subcontractor on that particular engagement.

And again the point that we made in the prepared remarks that the fact that we are now very scaled type provider, providing support to the air force in eight countries is really a positive change for our business model both in 2018 and beyond..

Ladies and gentlemen, we have reached the end of the question and answer session. Now I would like to turn the call back to Chuck Prow for closing remarks..

I want to thank you very much for your support today. Thank you all who attended the call. And we look forward to updating you on our progress as the year proceeds. Thanks very much..

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