V2X Inc

Previous wording

Our primary customer is the U.S. Department of Defense (DoD). For the three months ended March 29, 2024 and March 31, 2023, the Company had total revenue of $1.0 billion and $0.9 billion, respectively, the substantial majority of which was derived from U.S. government customers. For the three months ended March 29, 2024 and March 31, 2023, we generated approximately 43% and 41%, respectively, of our total revenue from the U.S. Army.

Current wording

Our primary customer is the U.S. Department of Defense (DoD). For the six months ended June 28, 2024 and June 30, 2023, the Company had total revenue of $2.1 billion and $1.9 billion, respectively, the substantial majority of which was derived from U.S. government customers. For the six months ended June 28, 2024 and June 30, 2023, we generated approximately 43% and 41%, respectively, of our total revenue from the U.S. Army.

Previous wording

Our revenue increased $67.1 million, or 7.1%, for the three months ended March 29, 2024 as compared to the three months ended March 31, 2023. Revenue increased primarily due to organic growth for legacy programs. Revenue from our programs in the Middle East, Europe and Asia increased by $62.1 million, $4.6 million, $4.5 million, respectively, partially offset by a decrease in revenue from our programs in the U.S. of $4.0 million.

Current wording

Our revenue increased $94.3 million, or 9.6%, for the three months ended June 28, 2024 as compared to the three months ended June 30, 2023. Revenue increased primarily due to organic growth for legacy programs. Revenue from our programs in the Middle East, Asia and the U.S. increased by $82.0 million, $19.1 million, and $0.4 million, respectively, partially offset by a decrease in revenue from our programs in Europe of $7.2 million, during the three months ended June 28, 2024 as compared to the three months ended June 30, 2023.

Previous wording

Further details related to consolidated financial results for the three months ended March 29, 2024, compared to the three months ended March 31, 2023, are contained in the "Discussion of Financial Results" section.

Current wording

Further details related to consolidated financial results for the three and six months ended June 28, 2024, compared to the three and six months ended June 30, 2023, are contained in the "Discussion of Financial Results" section.

Previous wording

The LOGCAP V - Kuwait Task Order is currently exercised through June 30, 2024, with two additional twelve-month options and one six-month option through December 31, 2026. The task order provides services to support the Geographical Combatant Commands and Army Service Component Commands throughout the full range of military operations in the Kuwait region. The LOGCAP V - Kuwait Task Order contributed $110.7 million and$127.9 million of revenue for thethree months ended March 29, 2024 and March 31, 2023, respectively.

Current wording

The LOGCAP V - Kuwait Task Order is currently exercised through June 30, 2025, with one additional twelve-month option and one six-month option through December 31, 2026. The task order provides services to support the Geographical Combatant Commands and Army Service Component Commands throughout the full range of military operations in the Kuwait region. The LOGCAP V - Kuwait Task Order contributed $218.5 million and$257.1 million of revenue for thesix months ended June 28, 2024 and June 30, 2023, respectively.

Previous wording

Funded orders (different from funded backlog) represent orders for which funding was received during the period. We received funded orders of $860.4 million during the three months ended March 29, 2024, which was a decrease of $121.6 million compared to the three months ended March 31, 2023.

Current wording

Funded orders (different from funded backlog) represent orders for which funding was received during the period. We received funded orders of $2.1 billion during the six months ended June 28, 2024, which was a decrease of $0.3 billion compared to the six months ended June 30, 2023.

Previous wording

The U.S. government's Fiscal Year (FY) begins on October 1 and ends on September 30. On March 23, 2024, the President signed into law the Further Consolidated Appropriations Act for FY 2024, which provides $825 billion in funding for the DoD, through September 30, 2024. The Fiscal 2025 budget request was submitted to the U.S. Congress on March 11, 2024, and requested $895 billion for National Defense, with $850 billion of the total allocated to the DoD.

Current wording

The U.S. government's Fiscal Year (FY) begins on October 1 and ends on September 30. On March 23, 2024, the President signed into law the Further Consolidated Appropriations Act for FY 2024, which provides $825 billion in funding for the DoD, through September 30, 2024. On April 24, 2024, the President signed a bill providing $95 billion in additional supplemental funding for Ukraine, Israel and the Indo-Pacific region.

Previous wording

In January 2023, the statutory debt ceiling limit of $31.4 trillion was reached and on June 3, 2023, the President signed “The Fiscal Responsibility Act” (FRA) into law, which suspends the debt ceiling until January 1, 2025. The FRA places caps on defense and non-defense discretionary spending in FY 2024 and FY 2025. The FRA cap on discretionary spending for National Defense in FY 2024 and FY 2025 is $886 billion and $895 billion, respectively.

Current wording

In January 2023, the statutory debt ceiling limit of $31.4 trillion was reached and on June 3, 2023, the President signed “The Fiscal Responsibility Act” (FRA) into law, which suspends the debt ceiling until January 1, 2025. The FRA places caps on defense and non-defense discretionary spending in FY 2024 and FY 2025. The FRA cap on discretionary spending for National Defense in FY 2024 and FY 2025 is $886 billion and $895 billion, respectively. The $95 billion in additional supplemental funding described above is not subject to the FRA caps.

Previous wording

Cost of revenue increased $75.7 million, or 8.8%, for the three months ended March 29, 2024 as compared to the three months ended March 31, 2023, primarily driven by increases in revenue and changes in contract mix.

Current wording

Cost of revenue increased $107.9 million, or 12.1%, for the three months ended June 28, 2024 as compared to the three months ended June 30, 2023, primarily driven by increases in revenue and changes in contract mix.

Previous wording

SG&A expenses decreased $8.3 million, or 17.2%, for the three months ended March 29, 2024 as compared to the three months ended March 31, 2023, primarily due to cost optimization and lower merger and integration-related costs.

Current wording

SG&A expenses decreased $6.7 million, or 12.7%, for the three months ended June 28, 2024 as compared to the three months ended June 30, 2023, primarily due to cost optimization and lower integration-related costs.

Previous wording

Operating income decreased $0.2 million, or 0.8%, for the three months ended March 29, 2024 as compared to the three months ended March 31, 2023. Operating income as a percentage of revenue was 3.0% for the three months ended March 29, 2024, compared to 3.2% for the three months ended March 31, 2023 primarily driven by changes in contract mix offset by decreased SG&A expenses.

Current wording

Operating income decreased $6.8 million, or 20.0%, for the three months ended June 28, 2024 as compared to the three months ended June 30, 2023. Operating income as a percentage of revenue was 2.6% for the three months ended June 28, 2024, compared to 3.5% for the three months ended June 30, 2023, primarily driven by changes in aggregate cumulative adjustments and contract mix, partially offset by decreased SG&A expenses.

Previous wording

Aggregate cumulative catch-up adjustments increased operating income by $0.5 million and $13.1 million for the three months ended March 29, 2024 and March 31, 2023, respectively. The aggregate cumulative catch-up adjustments for the three months ended March 29, 2024 and March 31, 2023 related to changes in contract terms, program performance, customer changes in scope of work and changes to estimates in the reported period.

Current wording

Aggregate cumulative adjustments increased operating income by $0.7 million and $9.1 million for the three months ended June 28, 2024 and June 30, 2023, respectively. The aggregate cumulative adjustments for the three months ended June 28, 2024 and June 30, 2023 related to changes in contract terms, program performance, customer changes in scope of work and changes to estimates in the reported period.

Previous wording

Loss on extinguishment of debt decreased $22.1 million for the three months ended March 29, 2024 as compared to the three months ended March 31, 2023 due to a $22.1 million loss on extinguishment of debt recorded for the three months ended March 31, 2023.

Current wording

A loss on extinguishment of debt of $2.0 million was recorded for the three months ended June 28, 2024 due to a refinancing of the First Lien Credit Agreement.

Previous wording

Interest (expense) income, net for the three months ended March 29, 2024 and March 31, 2023 was as follows:

Current wording

Interest (expense) income, net for the three and six months ended June 28, 2024 and June 30, 2023 was as follows:

Previous wording

Interest income is related to interest earned on cash and cash equivalents. Interest expense is 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 exposure to interest rate risk. Interest expense, net decreased $4.2 million for the three months ended March 29, 2024 compared to the three months ended March 31, 2023 due to both a decrease in our debt balance in the first quarter of 2024 compared to the first quarter of 2023, and our interest rate swap contracts, which we entered into at the end of the first quarter of 2023.

Current wording

Interest income is related to interest earned on cash and cash equivalents. Interest expense is 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 exposure to interest rate risk. Interest expense, net decreased $7.3 million for the six months ended June 28, 2024 compared to the six months ended June 30, 2023 due to both a decrease in our debt balance in the first half of 2024 compared to the first half of 2023, and our interest rate swap contracts, which we entered into at the end of the first quarter of 2023.

Previous wording

During the three months ended March 29, 2024, we incurred purchase discount fees and other expenses of $1.6 million, related to the sale of accounts receivable through the MARPA Facility.

Current wording

During the three and six months ended June 28, 2024, we incurred purchase discount fees and other expenses of $2.5 million and $4.2 million, respectively, related to the sale of accounts receivable through the MARPA Facility. In addition, during the three and six months ended June 28, 2024, we incurred a $2.2 million impairment charge on a non-operating, long-lived asset, primarily due to a decreased fair market value. During the three and six months ended June 30, 2023, we incurred purchase discount fees and other expenses of $0.2 million and $0.1 million, respectively, related to the sale of accounts receivable through the MARPA Facility.

Previous wording

We recorded income tax benefits which were not material and $5.7 million for the three months ended March 29, 2024 and March 31, 2023, respectively. Our effective income tax rates for the three months ended March 29, 2024 and March 31, 2023, were (1.8)% and 24.7%, respectively. The effective income tax rates vary from the federal statutory rate of 21.0% mainly due to state and foreign taxes, disallowed compensation deduction under Internal Revenue Code Section 162(m), offset by available deductions not reflected in book income, and income tax credits.

Current wording

We recorded income tax benefits of $1.6 million and an income tax provision of $0.2 million for the three months ended June 28, 2024 and June 30, 2023, respectively. Our effective income tax rates for the three months ended June 28, 2024 and June 30, 2023, were 19.3% and 10.5%, respectively. For the six months ended June 28, 2024 and June 30, 2023, the Company recorded income tax benefits of $1.6 million and $5.5 million, representing effective income tax rates of 22.7% and 26.1%, respectively. The effective income tax rates vary from the federal statutory rate of 21.0% mainly due to state and foreign taxes, disallowed compensation deduction under Internal Revenue Code Section 162(m), offset by available deductions not reflected in book income, and income tax credits.

Previous wording

As of March 29, 2024, there were $56.0 million of outstanding borrowings and $17.2 million of outstanding letters of credit under the 2023 Revolver. Unamortized deferred financing costs related to the 2023 Revolver of $3.9 million are included in other non-current assets in the Condensed Consolidated Balance Sheets. As of March 29, 2024, the fair value of the 2023 Revolver approximated the carrying value because the debt bears a floating interest rate.

Current wording

As of June 28, 2024, there were $46.0 million of outstanding borrowings and $17.8 million of outstanding letters of credit under the 2023 Revolver. Unamortized deferred financing costs related to the 2023 Revolver of $3.7 million are included in other non-current assets in the Condensed Consolidated Balance Sheets. As of June 28, 2024, the fair value of the 2023 Revolver approximated the carrying value because the debt bears a floating interest rate.

Previous wording

As of March 29, 2024, the carrying value of the 2023 Term Loan portion was $243.8 million, excluding unamortized deferred financing costs of $2.0 million. The estimated fair value of the 2023 Term Loan as of March 29, 2024 was $244.1 million. The fair value is based on observable inputs of interest rates that are currently available to us for debt with similar terms and maturities for non-public debt.

Current wording

As of June 28, 2024, the carrying value of the 2023 Term Loan portion was $242.2 million, excluding unamortized deferred financing costs of $1.8 million. The estimated fair value of the 2023 Term Loan as of June 28, 2024 was $242.5 million. The fair value is based on observable inputs of interest rates that are currently available to us for debt with similar terms and maturities for non-public debt.

Previous wording

The cash presented on the Condensed Consolidated Balance Sheets consists of U.S. and international cash from wholly owned subsidiaries. Approximately $34.4 million of our $35.7 million in cash, cash equivalents and restricted cash as of March 29, 2024 is held by foreign subsidiaries and is not available to fund U.S. operations unless repatriated. We do not currently expect to repatriate undistributed earnings of foreign subsidiaries. We expect our U.S. domestic cash resources will be sufficient to fund our U.S. operating activities and cash commitments for financing activities.

Current wording

The cash presented on the Condensed Consolidated Balance Sheets consists of U.S. and international cash from wholly owned subsidiaries. Approximately $36.6 million of our $44.8 million in cash, cash equivalents and restricted cash as of June 28, 2024 is held by foreign subsidiaries and is not available to fund U.S. operations unless repatriated. We do not currently expect to repatriate undistributed earnings of foreign subsidiaries. We expect our U.S. domestic cash resources will be sufficient to fund our U.S. operating activities and cash commitments for financing activities.

Previous wording

Accounts receivable balances can vary significantly over time and are impacted by revenue levels and the timing of payments received from customers. Days sales outstanding (DSO) is a metric used to monitor accounts receivable levels. We determine our DSO by calculating the number of days necessary to exhaust our ending accounts receivable balance based on our most recent historical revenue. DSO was 66 and 58 days as of March 29, 2024 and December 31, 2023, respectively.

Current wording

Accounts receivable balances can vary significantly over time and are impacted by revenue levels and the timing of payments received from customers. Days sales outstanding (DSO) is a metric used to monitor accounts receivable levels. We determine our DSO by calculating the number of days necessary to exhaust our ending accounts receivable balance based on our most recent historical revenue. DSO was 65 and 58 days as of June 28, 2024 and December 31, 2023, respectively.

Previous wording

Net cash used in operating activities for the three months ended March 29, 2024 primarily consisted of net cash outflows in working capital accounts of $119.8 million and net cash outflows in other long-term assets and liabilities of $8.0 million, partially offset by cash inflows from non-cash net income items of $35.8 million, cash inflows from the sale of receivables through the MARPA Facility of $33.7 million and net income of $1.1 million.

Current wording

Net cash used in operating activities for the six months ended June 28, 2024 primarily consisted of net cash outflows in working capital accounts of $198.9 million, net cash outflows in other long-term assets and liabilities of $26.6 million and net loss of $5.4 million, partially offset by cash inflows from the sale of receivables through the MARPA Facility of $121.9 million and cash inflows from non-cash net income items of $77.5 million.

Previous wording

Net cash used in operating activities for thethree months ended March 31, 2023 primarily consisted of net cash outflows in working capital accounts of $68.7 million, other long-term assets and liabilities of $17.8 million, and a net operating loss of $17.5 million, partially offset by cash inflows from non-cash net income items of $65.5 million.

Current wording

Net cash provided by operating activities for thesix months ended June 30, 2023, primarily consisted of cash inflows from non-cash net income items of $104.3 million and sales of accounts receivable through the MARPA Facility of $113.0 million, partially offset by net cash outflows in working capital accounts of $123.5 million and a net loss of $15.7 million.

Previous wording

Net cash used in investing activities for the three months ended March 29, 2024 consisted of $16.9 million for the acquisition of businesses and $7.8 million of capital expenditures for the purchase of software and hardware, vehicles and equipment related to ongoing operations.

Current wording

Net cash used in investing activities for the six months ended June 28, 2024 consisted of $16.9 million for the acquisition of businesses and$8.5 million of capital expenditures for the purchase of software and hardware, vehicles and equipment related to ongoing operations.

Previous wording

Net cash used in investing activities for thethree months ended March 31, 2023 consisted of $9.1 million of capital expenditures for the purchase of software and hardware, vehicles and equipment related to ongoing operations.

Current wording

Net cash used in investing activities for thesix months ended June 30, 2023 consisted of $11.5 million of capital expenditures for the purchase of software and hardware, vehicles and equipment related to ongoing operations.

Previous wording

Net cash provided by financing activities during the three months ended March 29, 2024 consisted of proceeds from the revolver of $375.3 million, partially offset by revolver repayments of $319.3 million, payments for employee withholding taxes on share-based compensation of $5.7 million, and repayments of long-term debt of $3.8 million.

Current wording

Net cash provided by financing activities during the six months ended June 28, 2024 consisted of proceeds from the revolver of$648.8 million, partially offset by revolver repayments of$602.8 million, payments for employee withholding taxes on share-based compensation of$5.8 million, repayments of long-term debt of$7.7 million, and payments for debt issuance costs of $1.2 million.

Previous wording

Net cash used in financing activities during thethree months ended March 31, 2023 consisted of repayments of long-term debt of $421.0 million, revolver repayments of $163.8 million, payments for employee withholding taxes on share-based compensation of $12.8 million, and payments for debt issuance costs of $7.5 million, partially offset by proceeds from long term debt and the revolver of $250.0 million and $348.7 million, respectively.

Current wording

Net cash used in financing activities during thesix months ended June 30, 2023 consisted of repayments of long-term debt of $424.9 million, revolver repayments of $467.8 million, payments for employee withholding taxes on share-based compensation of $14.6 million, and payments for debt issuance costs of $7.5 million, partially offset by proceeds from long term debt and the revolver of $250.0 million and $552.8 million, respectively.

Previous wording

As of March 29, 2024, we held cash, cash equivalents and restricted cash of $35.7 million, which included $34.4 million held by foreign subsidiaries, and had $426.8 million of available borrowing capacity under the 2023 Revolver, which expires on February 25, 2028. We believe that our cash, cash equivalents and restricted cash as of March 29, 2024, as supplemented by cash flows from operations, the 2023 Revolver, and the MARPA Facility will be sufficient to fund our anticipated operating costs, capital expenditures, and current debt repayment obligations for at least the next 12 months.

Current wording

As of June 28, 2024, we held cash, cash equivalents and restricted cash of $44.8 million, which included $36.6 million held by foreign subsidiaries, and had $436.2 million of available borrowing capacity under the 2023 Revolver, which expires on February 25, 2028. We believe that our cash, cash equivalents and restricted cash as of June 28, 2024, as supplemented by operating cash flows, the 2023 Revolver, and the MARPA Facility will be sufficient to fund our anticipated operating costs, capital expenditures, and current debt repayment obligations for at least the next 12 months.

Previous wording

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. There have been no material changes in the critical accounting policies and estimates from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

We believe that the assumptions and estimates associated with revenue recognition, business combinations, goodwill impairment, 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. There have been no material changes in the critical accounting policies and estimates from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2023.

Previous wording

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. These risks and uncertainties include, but are not limited to: our ability to submit proposals for and/or win all potential opportunities in our pipeline; our ability to retain and renew our existing contracts; our ability to compete with other companies in our market; security breaches, cyber-attacks or cyber intrusions, and other disruptions to our information technology and operation; our mix of cost-plus, cost-reimbursable, firm-fixed-price and time-and-materials contracts; maintaining the our reputation and relationship with the U.S. government; protests of new awards; economic, political and social conditions in the countries in which we conduct our business; changes in U.S. or international government defense budgets; government regulations and compliance therewith, including changes to the DoD procurement process; changes in technology; our ability to protect our intellectual property rights; governmental investigations, reviews, audits and cost adjustments; contingencies related to actual or alleged environmental contamination, claims and concerns; delays in completion of the U.S. government budget; our success in extending, deepening, and enhancing our technical capabilities; our success in expanding our geographic footprint or broadening our customer base; our ability to realize the full amounts reflected in our backlog; impairment of goodwill; misconduct of our employees, subcontractors, agents, prime contractors and business partners; our ability to control costs; our level of indebtedness; terms of our credit agreements; inflation and interest rate risk; geopolitical risk, including as a result of recent global hostilities; our subcontractors' performance; economic and capital markets conditions; our ability to maintain safe work sites and equipment; our ability to retain and recruit qualified personnel; our ability to maintain good relationships with our workforce; our teaming relationships with other contractors; changes in our accounting estimates; the adequacy of our insurance coverage; volatility in our stock price; changes in our tax provisions or exposure to additional income tax liabilities; risks and uncertainties relating to integrating and refining internal control systems post-merger; changes in GAAP; and other factors described in Part I, "Item 1A. Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2023 and described from time to time in our future reports filed with the SEC.

Current wording

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. These risks and uncertainties include, but are not limited to: our ability to submit proposals for and/or win all potential opportunities in our pipeline; our ability to retain and renew our existing contracts; our ability to compete with other companies in our market; security breaches, cyber-attacks or cyber intrusions, and other disruptions to our information technology and operation; our mix of cost-plus, cost-reimbursable, firm-fixed-price and time-and-materials contracts; maintaining our reputation and relationship with the U.S. government; protests of new awards; economic, political and social conditions in the countries in which we conduct our business; changes in U.S. or international government defense budgets; government regulations and compliance therewith, including changes to the DoD procurement process; changes in technology; our ability to protect our intellectual property rights; governmental investigations, reviews, audits and cost adjustments; contingencies related to actual or alleged environmental contamination, claims and concerns; delays in completion of the U.S. government budget; our success in extending, deepening, and enhancing our technical capabilities; our success in expanding our geographic footprint or broadening our customer base; our ability to realize the full amounts reflected in our backlog; impairment of goodwill; misconduct of our employees, subcontractors, agents, prime contractors and business partners; our ability to control costs; our level of indebtedness; terms of our credit agreements; inflation and interest rate risk; geopolitical risk, including as a result of recent global hostilities; our subcontractors' performance; economic and capital markets conditions; our ability to maintain safe work sites and equipment; our ability to retain and recruit qualified personnel; our ability to maintain good relationships with our workforce; our teaming relationships with other contractors; changes in our accounting estimates; the adequacy of our insurance coverage; volatility in our stock price; changes in our tax provisions or exposure to additional income tax liabilities; risks and uncertainties relating to integrating and refining internal control systems post-merger; changes in GAAP; and other factors described in Part I, "Item 1A. Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2023 and described from time to time in our future reports filed with the SEC.