What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-11 compared with 2020-11-10 · 98 added, 161 removed, 211 unchanged (55% of the section changed)

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Department of Defense (DoD), with a high concentration in the U.S.

For the nine months ended October 2, 2020 and September 27, 2019, we had total revenue of $1,040.2 million and $1,017.4 million, respectively, substantially all of which was derived from U.S.

For the three months ended April 2, 2021 and April 3, 2020, we had total revenue of $434.0 million and $351.7 million, respectively, substantially all of which was derived from U.S.

government customers.

For the nine months ended October 2, 2020 and September 27, 2019, we generated approximately 68% and 69% of our total revenue from the U.S.

For the three months ended April 2, 2021 and April 3, 2020, we generated approximately 59% and 70% of our total revenue from the U.S.

Army, respectively.

Executive Summary

Our revenue decreased $7.5 million, or 2.1%, for the three months ended October 2, 2020 compared to the three months ended September 27, 2019.

The decrease in revenue is due to a temporary decrease in revenue from our existing contracts due to the COVID-19 pandemic .

Revenue from our Middle East and European programs decreased by $19.2 million, and $0.4 million, respectively.

This was partially offset by an increase in revenue from our U.S.

programs of $12.1 million.

Operating income for the three months ended October 2, 2020, was $14.8 million, an increase of $2.4 million, or 19.5%, compared to the three months ended September 27, 2019.

This increase was due to an increase of $3.5 million from our European programs and $3.1 million from our U.S.

programs, partially offset by a decrease of $4.2 million from our Middle East programs.

Our revenue increased $82.3 million, or 23.4%, for the three months ended April 2, 2021 compared to the three months ended April 3, 2020.

The increase in revenue was attributable to a $13.4 million expansion on our existing contracts and $68.9 million from our acquisitions of Zenetex and HHB.

Revenue from our U.S., Europe and Middle East programs increased by $70.1 million, $8.3 million, and $3.9 million, respectively.

Operating income for the three months ended April 2, 2021, was $16.5 million, an increase of $4.1 million, or 32.4%, compared to the three months ended April 3, 2020.

The increase was due to $2.7 million of operating income from the Zenetex acquisition and improved operating performance.

During the performance of our contracts, we periodically review estimated final contract prices and costs and make revisions as required, which are recorded as changes in revenue and cost of revenue in the periods in which they are determined.

Additionally, the fees under certain contracts may be increased or decreased in accordance with cost or performance incentive provisions which measure actual performance against established targets or other criteria.

Additionally, the fees under certain contracts may be increased or decreased in accordance with cost or

performance incentive provisions which measure actual performance against established targets or other criteria.

Such incentive fee awards or penalties are included in revenue when there is sufficient information to reasonably assess anticipated contract performance.

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Changes in estimated revenue, cost of revenue and the related effect to operating income are recognized using cumulative catch-up adjustments, which recognize in the current period the cumulative effect of the changes on current and prior periods based on a contract's percentage of completion.

Cumulative catch-up adjustments due to aggregate changes in contract estimates increased operating income by less than $0.1 million and $0.7 million for the three months ended October 2, 2020 and September 27, 2019, respectively.

Cumulative catch-up adjustments due to aggregate changes in contract estimates decreased operating income by $1.3 million and $2.3 million for the three months ended April 2, 2021 and April 3, 2020, respectively.

Cumulative catch-up adjustments are driven by changes in contract terms, program performance, customer scope changes and changes to estimates in the reported period.

These changes can increase or decrease operating income depending on the dynamics of each contract.

Further details related to our financial results for the three and nine months ended October 2, 2020, compared to the three and nine months ended September 27, 2019, are contained in the "Discussion of Financial Results" section.

Further details related to our financial results for the three months ended April 2, 2021, compared to the three months ended April 3, 2020, are contained in the "Discussion of Financial Results" section.

Recent Developments

On April 12, 2019, the U.S.

Army Contracting Command-Rock Island (ACC-RI) awarded four IDIQ, Multiple Award Task Order Contracts (MATOC), for the Logistics Civil Augmentation Program (LOGCAP) V support services in support of the

military worldwide.

The services are to support the Geographical Combatant Commands (GCCs) and Army Service Component Commands (ASCCs) throughout the full range of military operations.

Each basic IDIQ contract ordering period will be an initial five-year ordering period and options for five additional one-year ordering periods.

Vectrus is one of four award recipients of the basic IDIQ contract and received the following task orders:

INDOPACOM Setting the Theater Task Order and associated Performance Task Order;

and CENTCOM Setting the Theater Task Order and associated Performance Task Order.

Each task order has its own period of performance.

Four of the LOGCAP V offerors filed protests of the awards with the U.S.

Government Accountability Office (GAO) and, after the GAO denied two of the protests, those four offerors filed protests at the U.S.

Court of Federal Claims (the Court of Federal Claims).

As of March 2, 2020, the Court of Federal Claims had dismissed all offerors' protests.

Vectrus received a notice to proceed with transition activities related to LOGCAP V on March 3, 2020.

One of the protestors filed an appeal with the U.S.

Court of Appeals for the Federal Circuit (the Federal Circuit) and all parties have filed their briefs with the court as of November 9, 2020.

A second protestor had filed a notice of appeal, but subsequently withdrew its notice.

No other protestors filed an appeal, and the deadline for filing such appeal has passed.

We continue to monitor the status of the appeal, but the pending appeal has not impacted our transition or performance activities under LOGCAP V.

Information regarding certain other significant contracts is discussed in "Significant Contracts" below.

Information regarding certain significant contracts is discussed in "Significant Contracts" below.

COVID-19 Impact

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government, state and local government officials, and international governments to prevent disease spread, all of which remain uncertain and cannot be predicted.

During the third quarter of 2020, it is estimated that COVID-19 caused a $12.9 million reduction in our revenue and a $0.14 reduction in our diluted earnings per share.

For the nine months ended October 2, 2020, the estimated impact was a $37.3 million reduction in revenue and a $0.30 reduction in earnings per share.

This impact was primarily due to certain government actions to restrict access to certain bases by Vectrus personnel and delays in supplier deliveries.

For the three months ended April 2, 2021, the impact of COVID-19 was immaterial to our financial results.

In accordance with the DoD guidance issued in March 2020 designating the Defense Industrial Base as a critical infrastructure workforce, our U.S.

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Significant Contracts

The following table reflects contracts that accounted for more than 10% of our total revenue for the nine months ended October 2, 2020 and September 27, 2019:

The following table reflects contracts that accounted for more than 10% of our total revenue for the three months ended April 2, 2021 and April 3, 2020:

% of Total Revenue

Nine Months Ended

Contract Name October 2, 2020 September 27, 2019

Three Months Ended

Contract Name April 2, 2021 April 3, 2020

Kuwait Base Operations and Security Support Services (K-BOSSS) 27.0% 35.1%

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The K-BOSSS contract currently is exercised through September 28, 2021.

K-BOSSS supports geographically-dispersed locations within the State of Kuwait, including several camps and a range training complex.

The K-BOSSS contract was re-competed as a task order under the LOGCAP V contract vehicle, which was awarded April 12, 2019 (see "Recent

Developments" above).

The K-BOSSS contract contributed $347 million and $368 million of revenue for the nine months ended October 2, 2020 and September 27, 2019, respectively.

The OMDAC-SWACA contract is currently exercised through February 28, 2021.

The contract provides for enterprise network capabilities and services support of the U.S.

Central Command.

Work is based in Kuwait with additional locations throughout Southwest Asia.

Vectrus has been the incumbent on OMDAC-SWACA since May 2013.

The OMDAC-SWACA contract contributed $158 million and $161 million of revenue for the nine months ended October 2, 2020 and September 27, 2019 , respectively.

Total backlog includes remaining performance obligations, consisting of funded backlog (firm orders for which funding is contractually obligated by the customer) and unfunded backlog (firm orders for which funding is not currently contractually obligated by the customer, and unexercised contract options).

Total backlog excludes potential orders under IDIQ contracts and contracts awarded to us that are being protested by competitors with the GAO or in the Court of Federal Claims.

K-BOSSS, our largest base operations support services contract, supports geographically-dispersed locations within the State of Kuwait, including several camps and a range training complex.

The K-BOSSS contract was re-competed as a task order under the LOGCAP V contract vehicle, which was awarded April 12, 2019.

The K-BOSSS contract contributed $117 million and $124 million of revenue for the three months ended April 2, 2021 and April 3, 2020, respectively.

On December 29, 2020, the US Army announced that Vectrus Systems Corporation (VSC), our wholly-owned subsidiary was awarded an $882.5 million cost-plus-fixed-fee contract to continue Operations, Maintenance, and Defense of Army Communications in Southwest Asia and Central Asia (OMDAC-SWACA).

Work will be based in Kuwait with additional locations throughout Southeast Asia.

On March 8, 2021, the Government received a protest from a competitor, which was filed at the Government Accountability Office (GAO).

The GAO decision is due by June 16, 2021.

Vectrus is performing services under an extension contract to the predecessor OMDAC contract pending the GAO decision.

The estimated completion date is December 26, 2025.

The OMDAC-SWACA contract contributed $47 million and $55 million of revenue for the three months ended April 2, 2021 and April 3, 2020 , respectively.

Total backlog includes remaining performance obligations, consisting of both funded backlog (firm orders for which funding is contractually authorized and appropriated by the customer) and unfunded backlog (firm orders for which funding is not currently contractually obligated by the customer and unexercised contract options).

Total backlog excludes potential orders under IDIQ contracts and contracts awarded to us that are being protested by competitors with the GAO or in the U.S.

Court of Federal Claims.

The value of the backlog is based on anticipated revenue levels over the anticipated life of the contract.

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Most of our contracts have terms that would permit us to recover all or a portion of our incurred costs and fees for work performed in the event of a termination for convenience.

For the nine months ended October 2, 2020, total backlog increased by $991 million.

As of October 2, 2020, total backlog (funded and unfunded) was $3.7 billion which is set forth in the following table:

October 2, December 31,

For the three months ended April 2, 2021, total backlog decreased by $513 million due to the OMDAC protest which was partially offset by an increase in the K-BOSSS backlog.

The following is a summary of our backlog as of April 2, 2021 and December 31, 2020:

April 2, December 31,

(In millions) 2021 2020

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Funded orders (different from funded backlog) represent orders for which funding was received during the period.

We received funded orders of $1,587.6 million during the nine months ended October 2, 2020, which was an increase of $576.0 million compared to the nine months ended September 27, 2019.

We received funded orders of $427.5 million during the three months ended April 2, 2021, which was an decrease of $529.6 million compared to the three months ended April 3, 2020.

Economic Opportunities, Challenges and Risks

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Further, the DoD budget remains the largest in the world and management believes our addressable portion of the DoD budget offers substantial opportunity for growth.

On February 10, 2020, the President submitted the FY 2021 budget request, which requests $741 billion in discretionary funding for national defense and includes $672 billion in base funding and $69 billion in overseas contingency operations funding.

The Government Fiscal Year begins on October 1 and ends on September 30.

The FY 2021 budget has not yet been passed by Congress and on September 30, 2020, a continuing resolution (CR) was signed into law, providing funding for federal agencies at FY 2020 spending levels through December 11, 2020.

Additionally, under the CR, Section 3610 of the CARES Act, which provides authorization for federal contractors to continue to support government initiatives despite COVID-19 disruption, was also extended through December 11, 2020.

If new appropriations are not passed prior to the expiration of the current CR, U.S.

Government agencies may be subject to a government shutdown.

government's FY begins on October 1 and ends on September 30.

On February 10, 2020 the Administration submitted the FY 2021 budget, which provides $741 billion in discretionary funding for national defense and includes $672 billion in base funding and $69 billion in overseas contingency operations funding.

The approved funding is in accordance with the Bipartisan Budget Act of 2019.

On January 1, 2021, the $741 billion National Defense Authorization Act became law.

On April 9, 2021, the Biden Administration introduced the initial FY 2022 discretionary budget plan.

The proposal requests $753 billion in discretionary funding for national defense and includes $715 billion for the DoD.

The $715 billion DoD request compares to the FY 2021 enacted amount of $704 billion.

While a proposal has been introduced, risks remain to FY 2022 as the budget has not yet been passed.

There are risks associated with the timing and amount of future appropriations.

If annual appropriations bills are not enacted, the U.S.

government may operate under a CR, restricting new contract or program starts and additional government shutdowns, which might involve all government agencies, including the DoD, could arise.

Future CR’s and government shutdowns may lead to delays in procurement of services due to lack of funding, and those delays may adversely affect our revenue, results of operations and cash flow.

Finally, there remains uncertainty surrounding future discretionary defense funding levels and priorities of the Administration and Congress, which could adversely impact demand for our services.

We believe spending on operation and maintenance of defense assets, as well as civilian agency infrastructure and equipment, will continue to be a U.S.

government priority.

Our focus is on sustaining facilities, equipment, and IT networks,

while utilizing operational technologies and converged solutions to improve efficiency and the outcomes of our clients' missions.

We believe this focus aligns with our customers' intent to utilize existing equipment and infrastructure rather than executing new purchases.

Our focus is on sustaining facilities, equipment, and IT networks, while utilizing operational technologies and converged solutions to improve efficiency and the outcomes of our clients' missions.

We believe this aligns with our customers' intent to utilize existing equipment and infrastructure rather than executing new purchases.

Many of the core functions we perform are mission-essential.

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While customers may reduce the level of services required from us, we do not currently anticipate the complete elimination of these services.

Currently, the ongoing COVID-19 pandemic has caused disruptions to national and global economies and a significant impact on societies, governments, markets, businesses and social norms.

As an essential business and operator of critical infrastructures primarily for the DoD and the intelligence communities, we have continued to conduct our operations to support client missions while implementing measures to protect the health and safety of our employees.

However, the recent COVID-19 or other outbreaks have negatively impacted our business, results of operations and financial condition in the first nine months of 2020.

The continued impact to our business is currently unknown due to the uncertainty around the duration of the pandemic and its broader impact on the global economy, our clients, and employees.

Potential impacts could arise from our employee’s inability to access our facilities or the facilities of our clients as well as any change in performance or cost on our contracts that might not be fully recoverable.

Additionally, travel restrictions and the availability of our employee population could impact our ability to support existing and new contracts.

The information provided above does not represent a complete list of trends and uncertainties that could impact our business in either the near or long-term and should be considered along with the risk factors identified under the caption “Risk Factors” identified in Part 1, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2019 and the matters identified under the caption “Forward-Looking Information" and Part II, Item 1A, “Risk Factors” herein.

The information provided above does not represent a complete list of trends and uncertainties that could impact our business in either the near or long-term and should be considered along with the risk factors identified under the caption “Risk Factors” identified in Part 1, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2020 and the matters identified under the caption “Forward-Looking Statement Information" herein.

DISCUSSION OF FINANCIAL RESULTS

Operating Income (Expense)

Three months ended October 2, 2020, compared to three months ended September 27, 2019

Three months ended April 2, 2021, compared to three months ended April 3, 2020

Selected financial highlights are presented in the following table:

Three Months Ended Change

(In thousands, except for percentages) October 2, 2020 September 27, 2019 $ %

Revenue $ 352,415 $ 359,873 $ (7,458) (2.1) %

Cost of revenue 320,234 327,523 (7,289) (2.2) %

% of revenue 90.9 % 91.0 %

Selling, general, and administrative expenses 17,344 19,934 (2,590) (13.0) %

% of revenue 4.9 % 5.5 %

Operating income 14,837 12,416 2,421 19.5 %

Operating margin 4.2 % 3.5 %

Interest expense, net (939) (1,907) (968) (50.8) %

Income from operations before income taxes 13,898 10,509 3,389 32.2 %

% of revenue 3.9 % 2.9 %

Income tax expense 3,507 2,668 839 31.4 %

Effective income tax rate 25.2 % 25.4 %

Net Income $ 10,391 $ 7,841 $ 2,550 32.5 %

Revenue for the three months ended October 2, 2020 was $352.4 million, a decrease of $7.5 million, or 2.1%, as compared to the three months ended September 27, 2019.

The decrease in revenue was attributable to a temporary decrease in revenue from our existing contracts due to the COVID-19 pandemic.

Revenue from our Middle East and European programs decreased by $19.2 million, and $0.4 million, respectively.

This was partially offset by an increase in revenue from our U.S.

programs of $12.1 million.

Cost of Revenue

Cost of revenue as a percentage of revenue was 90.9% compared to 91.0% for the three months ended October 2, 2020 and September 27, 2019, respectively.

The decrease in cost of revenue of $7.3 million, or 2.2%, for the three months ended October 2, 2020, as compared to the three months ended September 27, 2019, was primarily due to the volume fluctuations described for revenue.

Selling, General, & Administrative (SG&A) Expenses

For the three months ended October 2, 2020, SG&A expenses of $17.3 million decreased by $2.6 million, or 13.0%, as compared to the three months ended September 27, 2019.

The decrease was due primarily to a decrease in business acquisition expense of $0.3 million and a decrease in various miscellaneous expenses of $2.3 million.

Operating Income

Operating income for the three months ended October 2, 2020 increased by $2.4 million, or 19.5%, as compared to the three months ended September 27, 2019.

This increase was primarily due to increased operating income of $3.5 million and $3.1 million for our European and U.S programs, respectively, partially offset by a $4.2 million decrease in operating income from our Middle East programs.

Operating income as a percentage of revenue was 4.2% for the three months ended October 2, 2020, compared to 3.5% for the three months ended September 27, 2019.

Aggregate cumulative catch-up adjustments increased operating income by less than $0.1 million and $0.7 million for the three months ended October 2, 2020 and September 27, 2019, respectively.

The aggregate cumulative catch-up adjustments for the three months ended October 2, 2020 related to lower margins associated with contract staffing and increased Other Direct Costs (ODCs) offset be a contract closeout adjustment.

The aggregate cumulative catch-up adjustments for the three months ended September 27, 2019 related to higher margins associated with operational efficiencies related to labor and management of contract staffing and contract close-out activities.

Nine months ended October 2, 2020, compared to nine months ended September 27, 2019

Selected financial highlights are presented in the following table:

Nine Months Ended Change

(In thousands, except for percentages) October 2, 2020 September 27, 2019 $ %

(In thousands, except for percentages) April 2, 2021 April 3, 2020 $ %

Revenue $ 434,004 $ 351,734 $ 82,270 23.4 %

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Net Income $ 12,048 $ 8,668 $ 3,380 39.0 %

Revenue for the nine months ended October 2, 2020 was $1,040.2 million, an increase of $22.8 million, or 2.2%, as compared to the nine months ended September 27, 2019.

The increase in revenue was attributable to the expansion of our existing contracts.

Revenue increased by $35.1 million from our U.S.

programs and $3.7 million from our European programs, partially offset by a decrease of $16.0 million from our Middle East programs.

Revenue for the three months ended April 2, 2021 was $434.0 million, an increase of $82.3 million, or 23.4%, as compared to the three months ended April 3, 2020.

The increase in revenue was attributable to a $13.4 million expansion on our existing contracts and $68.9 million from our acquisitions of Zenetex and HHB.

Revenue from our U.S., Europe and Middle East programs increased by $70.1 million, $8.3 million, and $3.9 million, respectively.

Cost of Revenue

Cost of revenue as a percentage of revenue was 91.5% compared to 90.8% for the nine months ended October 2, 2020 and September 27, 2019, respectively.

The increase in cost of revenue of $28.1 million, or 3.0%, for the nine months ended October 2, 2020, as compared to the nine months ended September 27, 2019, was primarily due to the volume fluctuations described for revenue.

Cost of revenue as a percentage of revenue was 90.7% compared to 90.9% for the three months ended April 2, 2021 and April 3, 2020, respectively.

The increase in cost of revenue of $74.0 million, or 23.1%, for the three months ended April 2, 2021, as compared to the three months ended April 3, 2020, was primarily due to the volume fluctuations described for revenue.

Selling, General, & Administrative (SG&A) Expenses

For the nine months ended October 2, 2020, SG&A expenses of $58.7 million decreased by $1.0 million, or 1.6%, as compared to the September 27, 2019 due primarily to a decrease in various miscellaneous expenses.

For the three months ended April 2, 2021, SG&A expenses of $23.8 million increased by $4.3 million, or 21.8%, as compared to the April 3, 2020.

The increase was primarily due to the addition of SG&A expenses from Zenetex and HHB.

Operating Income

Operating income for the nine months ended October 2, 2020 decreased by $4.2 million, or 12.5%, as compared to the nine months ended September 27, 2019.

This decrease was primarily due to lower operating income of $4.4 million from our Middle East programs and $1.5 million from our European programs, partially offset by an increase to operating income of $1.7 million from our U.S.

Operating income as a percentage of revenue was 2.9% for the nine months ended October 2, 2020, compared to 3.3% for the nine months ended September 27, 2019.

Aggregate cumulative catch-up adjustments decreased operating income by $3.8 million and increased operating income $1.5 million for the nine months ended October 2, 2020 and September 27, 2019, respectively.

The aggregate cumulative catch-up adjustments for the nine months ended October 2, 2020 related to lower margins associated with contract staffing and increased Other Direct Costs (ODCs).

The aggregate cumulative catch-up adjustments for the nine months ended September 27, 2019 related to higher margins associated with operational efficiencies related to labor and management of contract staffing and contract close-out activities.

Non-operating Income (Expense)

Operating income for the three months ended April 2, 2021 increased by $4.1 million, or 32.4%, as compared to the three months ended April 3, 2020.

The increase was due to $2.7 million of operating income from the Zenetex acquisition and improved operating performance.

Operating income as a percentage of revenue was 3.8% for the three months ended April 2, 2021, compared to 3.5% for the three months ended April 3, 2020.

Aggregate cumulative catch-up adjustments decreased operating income by $1.3 million and $2.3 million for the three months ended April 2, 2021 and April 3, 2020, respectively.

The aggregate cumulative catch-up adjustments for the three months ended April 2, 2021 and April 3, 2020 related to lower margins associated with contract staffing and increased Other Direct Costs (ODCs).

Interest (Expense) Income, Net

Interest (expense) income, net for the three and nine months ended October 2, 2020 and September 27, 2019 was as follows:

Three Months Ended Change Nine Months Ended Change

(In thousands, except for percentages) October 2, 2020 September 27, 2019 $ % October 2, 2020 September 27, 2019 $ %

Interest (expense) income, net for the three months ended April 2, 2021 and April 3, 2020 was as follows:

Three Months Ended Change

(In thousands, except for percentages) April 2, 2021 April 3, 2020 $ %

Interest income $ 25 $ 31 $ (6) (19.3) %

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Interest expense is directly related to borrowings under our senior secured credit facilities, with the amortization of debt issuance costs, and derivative instruments used to hedge a portion of our exposure to interest rate risk.

The decrease in interest expense of $0.8 million for the nine months ended October 2, 2020 compared to the nine months ended September 27, 2019 was due to greater use of our revolving credit facility in 2019 to finance short-term working capital requirements and the acquisition of Advantor.

The increase in interest expense of $0.2 million for the three months ended April 2, 2021 compared to the three months ended April 3, 2020 was due to the use of our revolving credit facility in 2021 for the December 31, 2020 acquisitions of Zenetex and HHB.

Income Tax Expense

We recorded income tax expense of $3.5 million and $2.7 million for the three months ended October 2, 2020 and September 27, 2019, respectively, representing effective income tax rates of 25.2% and 25.4%.

For the nine months ended October 2, 2020 and September 27, 2019, respectively, we recorded income tax expense of $5.6 million and $6.7 million, respectively, representing effective income tax rates of 21.7% and 22.8%, respectively.

We recorded income tax expense of $2.6 million and $2.1 million, for the three months ended April 2, 2021 and April 3, 2020, respectively, representing effective income tax rates of 17.5% and 19.6%, respectively.

LIQUIDITY AND CAPITAL RESOURCES

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This amount was repaid in full during the second quarter of 2020.

Vectrus had net debt of $35.2 million as of December 31, 2019 and $2.3 million as of October 2, 2020.

Vectrus had net debt of $138.7 million as of April 2, 2021 and $112.1 million as of December 31, 2020.

At April 2, 2021, there were $115.0 million of outstanding borrowings under the Amended Revolver that were used for the December 31, 2020 acquisitions of Zenetex and HHB.

In addition, on March 27, 2020, in response to the COVID-19 pandemic, President Trump signed into law the CARES Act, which provides for the deferral of certain tax payments.

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and international cash from wholly owned subsidiaries.

Approximately $17.6 million of our total $63.7 million in cash at October 2, 2020 is held by our foreign subsidiaries and is not available to fund U.S.

Approximately $18.0 million of our total $38.3 million in unrestricted cash at April 2, 2021 is held by our foreign subsidiaries and is not available to fund U.S.

operations unless repatriated.

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operating activities and cash commitments for financing activities.

In September 2014, we and our wholly-owned subsidiary, VSC, entered into a credit agreement with a group of lenders, including JPMorgan Chase Bank, N.A.

as administrative agent.

The credit agreement was subsequently amended in November 2017 by the Amendment and Restatement Agreement (the Amendment Agreement) with a group of lenders, including JPMorgan Chase Bank, N.A., as administrative agent.

The Amendment Agreement provides for $200.0 million in senior secured financing, consisting of a $80.0 million five-year term loan facility (the Amended Term Loan) and a $120.0 million five-year senior secured revolving credit facility (the Amended Revolver, and together with the Amended Term Loan, the Amended Credit Facilities).

There were no outstanding borrowings under the Amended Revolver at October 2, 2020.

At October 2, 2020, there were two letters of credit outstanding in the aggregate amount of $2.4 million, which reduced our borrowing availability under the Amended Revolver to $117.6 million.

In September 2014, we and our wholly-owned subsidiary, VSC, entered into a credit agreement.

The credit agreement was subsequently amended, with the most recent amendment occurring December 24,2020 and is collectively referred to as the Amended Agreement.

The Amended Agreement consists of a term loan (Amended Term Loan) and a $270.0 million revolving credit facility (Amended Revolver).

At April 2, 2021, there were two letters of credit outstanding in the aggregate amount of $2.4 million, which reduced our borrowing availability under the Amended Revolver to $152.6 million.

We do not currently plan to pay a regular dividend on our common stock.

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The Company determines its DSO by calculating the number of days necessary to exhaust its ending accounts receivable balance based on its most recent historical revenue.

Our DSO was 67 and 66 days as of October 2, 2020 and December 31, 2019, respectively.

Our DSO was 73 and 66 days as of April 2, 2021 and December 31, 2020, respectively.

Strong collections in the fourth quarter of 2020 impacted the DSO performance in the first quarter of 2021.

The following table sets forth net cash used in operating activities, investing activities and financing activities:

Nine Months Ended

(In thousands) October 2, 2020 September 27, 2019

Three Months Ended

(In thousands) April 2, 2021 April 3, 2020

Operating activities $ (21,729) $ 1,137

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Foreign exchange 1

Net change in cash $ 28,416 $ (25,095)

(191) (1,080)

Net change in cash, cash equivalents and restricted cash $ (28,602) $ 110,854

1 Impact on cash balances due to changes in foreign exchange rates.

Trends in our operating cash flows tend to follow trends in operating income, excluding non-cash charges.

Net cash provided by operating activities for the nine months ended October 2, 2020 consisted of net income of $20.2 million, the favorable impact of non-cash items of $12.9 million and favorable net changes in other long-term assets and liabilities of $9.3 million partially offset by an increase in net working capital requirements of $4.7 million.

Tax deferrals related to the CARES Act contributed $9.9 million to our cash flows from operating activities

Net cash provided by operating activities during the nine months ended September 27, 2019 consisted of net income of $22.5 million, increased by non-cash items of $10.7 million and favorable net changes in other long-term assets and liabilities of $2.5 million, offset by unfavorable net changes working capital of $7.3 million.

Net cash used in investing activities for the nine months ended October 2, 2020 consisted of $3.3 million of capital expenditures for the purchase of software and hardware, and vehicles and equipment related to ongoing operations.

Net cash used in investing activities during the nine months ended September 27, 2019 consisted of $44.0 million for the acquisition of Advantor and $14.4 million of capital expenditures for the purchase of intangible assets, software and hardware, leasehold improvements, and vehicles and equipment related to ongoing operations.

During the third quarter of 2019, $5.4 million was received from the seller of a contract acquired by the Company in the first quarter of 2019 due to the inability to have the contract novated to the Company.

Net cash used in financing activities during the nine months ended October 2, 2020 consisted of repayments of long-term debt of $4.5 million and payments related to employee withholding taxes on share-based compensation of $1.9 million.

During the nine months ended October 2, 2020, we borrowed and repaid $151.0 million on the Amended Revolver.

Net cash provided by financing activities during the nine months ended September 27, 2019 consisted of $3.5 million in cash received from the exercise of stock options offset by repayments of long-term debt of $2.0 million and payments related to employee withholding taxes on share-based compensation in the amount of $0.8 million.

During the nine months ended September 27, 2019, we borrowed and repaid a total of $226.0 million from the Amended Revolver to meet short-term working capital requirements.

Net cash used in operating activities for the three months ended April 2, 2021 consisted of outflows for net working capital requirements of $35.7 million and other long-term assets and liabilities of $4.9 million, partially offset by cash inflows from net income of $12.0 million and non-cash items of $6.9 million.

The net working capital outflows were largely from increases in accounts receivable partially offset by increases in accounts payable and accrued compensation.

Net cash provided by operating activities during the three months ended April 3, 2020 consisted of net income of $8.7 million and non-cash items of $4.5 million.

Net cash used in operating activities consisted of net increases to working capital of $9.7 million, primarily due to the timing of payments of compensation and other employee benefits and prepaid expenses partially offset by increased collections of accounts receivable.

Net decreases in other long-term liabilities and assets resulted in an additional $2.4 million of operating cash outflows.

Net cash used in investing activities for the three months ended April 2, 2021 and April 3, 2020 consisted of $2.6 million and $0.9 million, respectively, of capital expenditures for the purchase of software and hardware, and vehicles and equipment related to ongoing operations.

Net cash used in financing activities during the three months ended April 2, 2021 consisted of payments related to employee withholding taxes on share-based compensation of $2.2 million and repayments of long-term debt of $2.0 million offset by $0.1 million received from the exercise of stock options.

During the three months ended April 2, 2021, we borrowed and repaid $110.0 million on the Amended Revolver.

Net cash used in financing activities during the three months ended April 3, 2020 consisted of net draw downs of $115.0 million from our revolver, partially offset by repayments of long-term debt of $1.5 million and payments related to employee withholding taxes on share-based compensation in the amount of $1.8 million.

During the three months ended April 3, 2020, we borrowed $144.0 million and repaid $29.0 million on the Amended Revolver to meet current and potential short-term working capital requirements and strengthen the Company's cash position in response to COVID-19 uncertainties.

Capital Resources

At October 2, 2020, we held cash of $63.7 million, which included $17.6 million held by foreign subsidiaries, and had $117.6 million of available borrowing capacity under the Amended Revolver, which expires on November 15, 2022.

We believe that our cash at October 2, 2020, as supplemented by cash flows from operations and the Amended Revolver, will be sufficient to fund our anticipated operating costs, capital expenditures, and current debt repayment obligations for at least the next 12 months.

At April 2, 2021, we held unrestricted cash of $38.3 million, which included $18.0 million held by foreign subsidiaries, and had $152.6 million of available borrowing capacity under the Amended Revolver, which expires on November 15, 2022.

We believe that our cash at April 2, 2021, as supplemented by cash flows from operations and the Amended Revolver, will be sufficient to fund our anticipated operating costs, capital expenditures, and current debt repayment obligations for at least the next 12 months.

We have a shelf registration statement with the SEC that became effective in January 2020 under which we may issue, from time to time, up to $250 million of common stock, preferred stock, depository shares, warrants, rights and debt securities.

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Contractual Obligations

During the nine months ended October 2, 2020, we paid $4.5 million in quarterly installment payments on the Amended Term Loan.

During the three months ended April 2, 2021, we paid $2.0 million in quarterly installment payments on the Amended Term Loan.

See Note 9, " Leases " for additional contractual obligation information.

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We have obligations relating to operating leases and letters of credit outstanding.

Our Amended Revolver is available for working capital, capital expenditures, and other general corporate purposes.

Up to $25.0 million of the Amended Revolver is available for the issuance of letters of credit.

As of October 2, 2020, there were no outstanding borrowings under the Amended Revolver and two letters of credit outstanding in the aggregate amount of $2.4 million.

Both reduced our borrowing availability to $117.6 million under the Amended Revolver.

These arrangements have not had, and management does not believe it is likely that they will in the future have, a material effect on our liquidity, capital resources, operations or financial condition.

Our Amended Revolver permits borrowings up to $270.0 million, of which $25.0 million is available for the issuance of letters of credit.

At December 31, 2020, there were two letters of credit outstanding in the aggregate amount of $2.4 million, which reduced our borrowing availability under the Amended Revolver to $152.6 million.

The aforementioned arrangements have not had, and management does not believe it is likely that they will in the future, have a material effect on our liquidity, capital resources, operations or financial condition.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS

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however, actual results in these areas could differ from management's estimates under different assumptions or conditions.

We believe that the assumptions and estimates associated with revenue recognition, goodwill impairment assessments, intangible assets, and income taxes have the greatest potential impact on our financial statements.

We believe that the assumptions and estimates associated with revenue recognition, business combinations, goodwill and other intangible assets, and income taxes have the greatest potential impact on our financial statements.

Therefore, we consider these to be our critical accounting policies and estimates.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis