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Item 2. Management’s Discussion and Analysis

2021-08-10 compared with 2021-05-11 · 129 added, 82 removed, 227 unchanged (48% of the section changed)

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The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto included in this Quarterly Report on Form 10-Q as well as the audited Consolidated Financial Statements and notes thereto and the information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year ended December 31, 2020.

This Quarterly Report provides additional information regarding the Company, our services, industry outlook and forward-looking statements that involve risks and uncertainties, including those related to the potential impact of the novel coronavirus pandemic (COVID-19) and its impact on us, our operations, or our future financial or operational results.

This Quarterly Report provides additional information regarding the Company, our services, industry outlook and forward-looking statements that involve risks and uncertainties, including those related to the potential impact of the coronavirus pandemic (COVID-19) and its impact on us, our operations, or our future financial or operational results.

The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results.

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information technology mission support;

and engineering and digital technology services primarily to U.S.

and engineering and digital technology services, including integration, security, maintenance, repair and overhaul, primarily to U.S.

government customers around the world.

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

For the six months ended July 2, 2021 and July 3, 2020, we had total revenue of $904.8 million and $687.8 million, respectively, substantially all of which was derived from U.S.

government customers.

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.

For the six months ended July 2, 2021 and July 3, 2020, we generated approximately 63% and 69% of our total revenue from the U.S.

Army, respectively.

Executive Summary

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.

Our revenue increased $134.8 million, or 40.1%, for the three months ended July 2, 2021 compared to the three months ended July 3, 2020.

The increase in revenue was attributable to a $70.4 million expansion on our existing contracts and $64.4 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.

Revenue from our U.S., Europe, Asia and Middle East programs increased by $63.9 million, $0.6 million, $27.8 million and $42.5 million, respectively.

Operating income for the three months ended July 2, 2021, was $22.6 million, an increase of $20.2 million, or 829.2%, compared to the three months ended July 3, 2020.

The increase was due to improved operating performance and the impact of the acquisitions of Zenetex and HHB.

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 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 due to aggregate changes in contract estimates decreased operating income by $1.7 million and $1.5 million for the three months ended July 2, 2021 and July 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 months ended April 2, 2021, compared to the three months ended April 3, 2020, are contained in the "Discussion of Financial Results" section.

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

Recent Developments

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COVID-19 Impact

The global outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the U.S.

government in March 2020 and has negatively affected the U.S.

and global economy, disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures and orders to “shelter-in-place,” and created significant disruption of the financial markets.

We have taken measures to protect the health and safety of our employees, to work with our customers to minimize ultimate potential disruptions, and to support our community in addressing the challenges posed by this global pandemic.

The extent of the ultimate impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our programs in the expected timeframe, will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S.

The COVID-19 pandemic continues to present significant business challenges in 2021.

During the first six months of 2021, we continued to experience impacts related to COVID-19, including continued increased coronavirus-related costs, global supply chain disruptions, delays in supplier deliveries, impacts of travel restrictions, site access and quarantine restrictions, and the impacts of remote work and adjusted work schedules.

We continue to take measures to protect the health and safety of our employees, including measures to facilitate the provision of vaccines to our employees in line with state and

local guidelines, to work with our customers to minimize ultimate potential disruptions, and to support our community in addressing the challenges posed by this global pandemic.

The extent of the ultimate impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our programs in the expected timeframe, will depend on future developments, including any potential subsequent waves of COVID-19 infection, the effectiveness, distribution and acceptance of COVID-19 vaccines, and related actions taken by the U.S.

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

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

For the three months ended July 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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We continue to assess possible implications to our business, supply chain and customers and to take actions in an effort to mitigate adverse consequences in order to support our customers' mission critical business and national security.

For additional risks to the company related to the COVID-19 pandemic, see Item 1A, Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2020.

Significant Contracts

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:

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

% of Total Revenue

Three Months Ended

Contract Name April 2, 2021 April 3, 2020

Six Months Ended

Contract Name July 2, 2021 July 3, 2020

Kuwait Base Operations and Security Support Services (K-BOSSS) 25.7% 33.9%

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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.

Components of the K-BOSSS contract were re-competed as a task order under the LOGCAP V contract vehicle, which was awarded to us on April 12, 2019.

The K-BOSSS contract contributed $233 million of revenue for both six month periods ended July 2, 2021 and July 3, 2020.

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.

On March 8, 2021, the U.S.

government received a protest from a competitor, which was filed at the Government Accountability Office (GAO).

The GAO decided the case and denied the protest on June 1, 2021.

Subsequently, on July 13, 2021, the unsuccessful competitor filed a protest at the U.S.

Court of Federal Claims (COFC).

Performance is however ongoing on the awarded contract to Vectrus, as there is no "stay" of performance due to the filing of the protest.

A hearing at the COFC is likely in the fall of 2021.

The estimated completion date of this contract is December 26, 2025.

The OMDAC-SWACA contract contributed $81 million and $109 million of revenue for the six months ended July 2, 2021 and July 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).

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Total backlog is converted into revenue as work is performed.

The level of order activity related to programs can be affected by the timing of government funding authorizations and their project evaluation cycles.

The level of order activity related to programs can be affected by the timing of U.S.

government funding authorizations and their project evaluation cycles.

Year-over-year comparisons could, at times, be impacted by these factors, among others.

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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 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,

For the six months ended July 2, 2021, total backlog was $199 million less than at 2020 year end.

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

July 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 $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.

We received funded orders of $1,265.9 million during the six months ended July 2, 2021, which was an increase of $125.4 million compared to the six months ended July 3, 2020.

Economic Opportunities, Challenges and Risks

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DISCUSSION OF FINANCIAL RESULTS

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

Operating Income (Expense)

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

Selected financial highlights are presented in the following table:

Three Months Ended Change

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

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

Revenue $ 470,845 $ 336,063 $ 134,782 40.1 %

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Net Income $ 15,934 $ 1,111 $ 14,823 1,334.2 %

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.

Revenue for the three months ended July 2, 2021 was $470.8 million, an increase of $134.8 million, or 40.1%, as compared to the three months ended July 3, 2020.

The increase in revenue was attributable to a $70.4 million expansion on our existing contracts and $64.4 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.

Revenue from our U.S., Europe, Asia and Middle East programs increased by $63.9 million, $0.6 million, $27.8 million, and $42.5 million, respectively.

Cost of 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.

Cost of revenue as a percentage of revenue was 89.8% compared to 92.8% for the three months ended July 2, 2021 and July 3, 2020, respectively.

The increase in cost of revenue of $110.8 million, or 35.5%, for the three months ended July 2, 2021, as compared to the three months ended July 3, 2020, was primarily due to the volume fluctuations described for revenue.

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

For the three months ended July 2, 2021, SG&A expenses of $25.6 million increased by $3.8 million, or 17.4%, as compared to the July 3, 2020.

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

Operating Income

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).

Operating income for the three months ended July 2, 2021 increased by $20.2 million, or 829.2%, as compared to the three months ended July 3, 2020.

The increase was due to improved operating performance and the impact of the acquisitions of Zenetex and HHB.

Operating income as a percentage of revenue was 4.8% for the three months ended July 2, 2021, compared to 0.7% for the three months ended July 3, 2020.

Aggregate cumulative catch-up adjustments decreased operating income by $1.7 million and $1.5 million for the three months ended July 2, 2021 and July 3, 2020, respectively.

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

Six months ended July 2, 2021, compared to six months ended July 3, 2020

Selected financial highlights are presented in the following table:

Six Months Ended Change

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

Revenue $ 904,849 $ 687,797 $ 217,052 31.6 %

Cost of revenue 816,308 631,510 184,798 29.3 %

% of revenue 90.2 % 91.8 %

Selling, general, and administrative expenses 49,427 41,374 8,053 19.5 %

% of revenue 5.5 % 6.0 %

Operating income 39,114 14,913 24,201 162.3 %

Operating margin 4.3 % 2.2 %

Interest expense, net (4,186) (3,048) (1,138) 37.3 %

Income from operations before income taxes 34,928 11,865 23,063 194.4 %

% of revenue 3.9 % 1.7 %

Income tax expense 6,946 2,086 4,860 233.0 %

Effective income tax rate 19.9 % 17.6 %

Net Income $ 27,982 $ 9,779 $ 18,203 186.1 %

Revenue for the six months ended July 2, 2021 was $904.8 million, an increase of $217.1 million, or 31.6%, as compared to the six months ended July 3, 2020.

The increase in revenue was attributable to a $83.8 million expansion on our existing contracts and $133.3 million from our acquisitions of Zenetex and HHB.

Revenue from our U.S., Europe, Asia and Middle East programs increased by $133.5 million, $8.6 million, $30.4 million, and $44.6 million, respectively.

Cost of Revenue

Cost of revenue as a percentage of revenue was 90.2% compared to 91.8% for the six months ended July 2, 2021 and July 3, 2020, respectively.

The increase in cost of revenue of $184.8 million, or 29.3%, for the six months ended July 2, 2021, as compared to the six months ended July 3, 2020, was primarily due to the volume fluctuations described for revenue.

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

For the six months ended July 2, 2021, SG&A expenses of $49.4 million increased by $8.1 million, or 19.5%, as compared to the July 3, 2020.

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

Operating Income

Operating income for the six months ended July 2, 2021 increased by $24.2 million, or 162.3%, as compared to the six months ended July 3, 2020.

The increase was due to improved operating performance and the impact of the acquisitions of Zenetex and HHB.

Operating income as a percentage of revenue was 4.3% for the six months ended July 2, 2021, compared to 2.2% for the six months ended July 3, 2020.

Aggregate cumulative catch-up adjustments decreased operating income by $3.0 million and $3.8 million for the six months ended July 2, 2021 and July 3, 2020, respectively.

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

Interest (Expense) Income, Net

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

Three Months Ended Change Six Months Ended Change

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

Interest income $ 8 $ 51 $ (43) (84.1) % $ 33 $ 82 $ (49) (59.8) %

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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 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.

The increase in interest expense of $1.1 million for the six months ended July 2, 2021 compared to the six months ended July 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 $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.

We recorded income tax expense of $4.4 million and an income tax benefit of less than $0.1 million, for the three months ended July 2, 2021 and July 3, 2020, respectively, representing effective income tax rates of 21.6% and (2.5)%, respectively.

For the six months ended July 2, 2021 and July 3, 2020, we recorded income tax expense of $6.9 million and $2.1 million, respectively, representing effective income tax rates of 19.9% and 17.6%, respectively.

LIQUIDITY AND CAPITAL RESOURCES

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We cannot provide assurance that such financing will be available to us on acceptable terms or that such financing will be available at all.

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).

To date, COVID-19 has not had a significant impact on our liquidity, cash flows or capital resources.

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

The CARES Act also contains numerous other provisions which may benefit Vectrus and we continue to review ongoing government guidance on both the CARES Act and COVID-19 to assess potential impacts on our liquidity and capital resources.

Vectrus had net debt of $105.2 million as of July 2, 2021 and $112.1 million as of December 31, 2020.

At July 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.

The CARES Act provides a deferral of payroll tax payments from which we have benefited by deferring cash outlays of $16.8 million in 2020.

This will have the effect of increasing cash outlays for payroll taxes during the first quarter of 2022 and 2023.

On March 11, 2021, the President signed the American Rescue Plan Act of 2021 into law.

The legislation provides additional relief to address the continued impact of COVID-19 on the economy, public health, state and local governments, individuals, and businesses.

It extends Section 3610 of the CARES Act through September 2021, which gives DoD and federal agencies discretion to reimburse contractors for paid leave, including sick leave, a contractor provides during the pandemic to keep its employees in a ready state.

We continue to refine the effect of the CARES Act and ongoing government guidance related to COVID-19 that may be issued and assess the potential impacts on our liquidity and capital resources.

The cash presented on our Condensed Consolidated Balance Sheets consists of U.S.

and international cash from wholly owned subsidiaries.

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.

Approximately $21.9 million of our total $69.8 million in cash and cash equivalents at July 2, 2021 is held by our foreign subsidiaries and is not available to fund U.S.

operations unless repatriated.

We do not currently expect that we will be required to repatriate undistributed earnings of foreign subsidiaries.

We do not currently expect

that we will be required to repatriate undistributed earnings of foreign subsidiaries.

We expect our U.S.

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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.

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.

At July 2, 2021, there were two letters of credit outstanding in the aggregate amount of $2.7 million, which reduced our borrowing availability under the Amended Revolver to $152.3 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 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.

Our DSO was 66 days as of July 2, 2021 and December 31, 2020.

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

Three Months Ended

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

Six Months Ended

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

Operating activities $ 14,026 $ 34,406

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Foreign exchange 1

(191) (1,080)

Net change in cash, cash equivalents and restricted cash $ 1,076 $ 27,401

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

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.

Net cash provided by operating activities for the six months ended July 2, 2021 consisted of cash inflows from net income of $28.0 million increased by non-cash items of $13.4 million and partially offset by outflows for net working capital requirements of $20.2 million and other long-term assets and liabilities of $7.2 million.

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

Net cash provided by operating activities during the six months ended July 3, 2020 consisted of net income of $9.8 million, favorable net changes to working capital of $11.7 million and a favorable increase in non-cash items of $9.6 million.

The net change in working capital was primarily due to increased collections of accounts receivable and the timing of payments for accrued compensation and other current liabilities, partially offset by increased payments for accounts payable and prepaid expense.

Favorable net changes in other long-term liabilities and assets contributed an additional $3.3 million to operating cash inflows.

Tax deferrals related to the CARES Act contributed $13.3 million to our cash flows from operating activities.

Net cash used in investing activities for the six months ended July 2, 2021 consisted of $4.8 million of capital expenditures for the purchase of software and hardware, and vehicles and equipment related to ongoing operations and $1.8 million for a joint venture contribution.

These outflows were partially offset by inflows from a business acquisition purchase price adjustment.

During the six months ended July 3, 2020 $2.2 million was used for the purchase of software and hardware, and vehicles and equipment.

Net cash used in financing activities during the six months ended July 2, 2021 consisted of repayments of long-term debt of $4.0 million and payments of $2.3 million for employee withholding taxes on share-based compensation.

This was partially offset by $0.1 million received from the exercise of stock options.

During the six months ended July 2, 2021, we borrowed and repaid $215.0 million on the Amended Revolver.

Net cash used in financing activities during the six months ended July 3, 2020 consisted of repayments of long-term debt of $3.0 million and payments related to employee withholding taxes on share-based compensation in the amount of $1.9 million.

This was partially offset by $0.1 million received from the exercise of stock options.

During the six months ended July 3, 2020, we borrowed and repaid $144.0 on the Amended Revolver.

Capital Resources

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.

At July 2, 2021, we held cash and cash equivalents of $69.8 million, which included $21.9 million held by foreign subsidiaries, and had $152.3 million of available borrowing capacity under the Amended Revolver, which expires on November 15, 2022.

We believe that our cash at July 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 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.

During the six months ended July 2, 2021, we paid $4.0 million in quarterly installment payments on the Amended Term Loan.

See Note 9, " Leases " in the notes to our unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional contractual obligation information.

Off-Balance Sheet Arrangements

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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.

At July 2, 2021, there were two letters of credit outstanding in the aggregate amount of $2.7 million, which reduced our borrowing availability under the Amended Revolver to $152.3 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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We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company's historical experience and our present expectations or projections.

In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company's historical experience and our present

expectations or projections.

These risks and uncertainties include, but are not limited to:

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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