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Item 1. Financial Statements

2022-08-09 compared with 2022-05-10 · 252 added, 172 removed, 418 unchanged (50% of the section changed)

FINANCIAL STATEMENTS

VECTRUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Three Months Ended

April 1, April 2,

Three Months Ended Six Months Ended

July 1, July 2, July 1, July 2,

(In thousands, except per share data) 2022 2021 2022 2021

13 unchanged sentences

The accompanying notes are an integral part of these financial statements.

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VECTRUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Three Months Ended

April 1, April 2,

Three Months Ended Six Months Ended

July 1, July 2, July 1, July 2,

(In thousands) 2022 2021 2022 2021

10 unchanged sentences

The accompanying notes are an integral part of these financial statements.

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VECTRUS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

April 1, December 31,

July 1, December 31,

(In thousands, except per share information) 2022 2021

1 unchanged sentence

Cash and cash equivalents $ 31,760 $ 38,513

Restricted cash 3,311 —

Receivables 374,980 348,605

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100,000 shares authorized;

11,805 and 11,738 shares issued and outstanding as of April 1, 2022 and December 31, 2021, respectively

11,846 and 11,738 shares issued and outstanding as of July 1, 2022 and December 31, 2021, respectively

Additional paid in capital 91,464 88,116

4 unchanged sentences

The accompanying notes are an integral part of these financial statements.

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VECTRUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended

April 1, April 2,

Six Months Ended

July 1, July 2,

(In thousands) 2022 2021

15 unchanged sentences

Other liabilities ( 11,989 ) ( 14,884 )

Net cash used in operating activities ( 26,381 ) ( 21,729 )

Net cash provided by operating activities 19,636 14,026

Investing activities

1 unchanged sentence

Proceeds from the disposition of assets 18 16

Business acquisition purchase price adjustment — 262

Contribution to joint venture ( 2,113 ) ( 1,846 )

Net cash used in investing activities ( 5,587 ) ( 6,401 )

6 unchanged sentences

Payments of employee withholding taxes on share-based compensation ( 1,696 ) ( 2,272 )

Net cash provided by (used in) financing activities 12,316 ( 4,071 )

Net cash used in financing activities ( 16,984 ) ( 6,176 )

Exchange rate effect on cash ( 507 ) ( 373 )

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Interest paid $ 3,409 $ 3,111

Income taxes paid (refunded) $ 66 $ ( 97 )

Income taxes paid $ 6,112 $ 5,747

Purchase of capital assets on account $ 13 $ 618

The accompanying notes are an integral part of these financial statements.

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VECTRUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES TO SHAREHOLDERS' EQUITY (UNAUDITED)

9 unchanged sentences

Balance at April 2, 2021 11,700 $ 117 $ 82,735 $ 234,074 $ ( 2,460 ) $ 314,466

Net income 15,934 15,934

Foreign currency translation adjustments 430 430

Unrealized gain on cash flow hedge 79 79

Employee stock awards and stock options 24 — — —

Taxes withheld on restricted stock unit compensation awards ( 88 ) ( 88 )

Stock-based compensation 2,003 2,003

Balance at July 2, 2021 11,724 $ 117 $ 84,650 $ 250,008 $ ( 1,951 ) $ 332,824

Balance at December 31, 2021 11,738 $ 117 $ 88,116 $ 267,754 $ ( 5,900 ) $ 350,087

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Balance at April 1, 2022 11,805 $ 118 $ 89,590 $ 270,609 $ ( 6,142 ) $ 354,175

Net income 10,472 10,472

Foreign currency translation adjustments ( 3,637 ) ( 3,637 )

Unrealized loss on cash flow hedge 594 594

Employee stock awards and stock options 41 — 369 369

Taxes withheld on restricted stock unit compensation awards ( 70 ) ( 70 )

Stock-based compensation 1,575 1,575

Balance at July 1, 2022 11,846 $ 118 $ 91,464 $ 281,081 $ ( 9,185 ) $ 363,478

The accompanying notes are an integral part of these financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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Description of Business and Basis of Presentation

Vectrus, Inc.

is a leading provider of services to the United States Government (U.S.

V2X, Inc., formerly known as Vectrus, Inc., (V2X or the Company) is a leading provider of services to the United States Government (U.S.

government) worldwide.

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facility and base operations, supply chain and logistics services, information technology mission support, and engineering and digital integration services.

Vectrus was incorporated in the State of Indiana in February 2014.

V2X was incorporated in the State of Indiana in February 2014.

On September 27, 2014, Exelis Inc.

(Exelis) completed the spin-off (the Spin-off) of Vectrus, and Vectrus became an independent, publicly traded company.

References in these notes to "Vectrus", "we," "us," "our," "the Company" and "our Company" refer to Vectrus, Inc.

References in these notes to "Exelis" or "Former Parent" refer to Exelis Inc., an Indiana corporation, and its consolidated subsidiaries (other than Vectrus).

completed the spin-off (the Spin-off) of Vectrus, Inc.

and Vectrus, Inc.

became an independent, publicly traded company.

References in these notes to "Exelis" or "Former Parent" refer to Exelis Inc., an Indiana corporation, and its consolidated subsidiaries (other than Vectrus, Inc.).

Exelis was acquired by a predecessor entity of L3Harris Technologies, Inc.

Unless the context otherwise requires or unless stated otherwise, references in these notes to "V2X", "we," "us," "our," "the Company" and "our Company" refer to V2X, Inc.

and all of its consolidated subsidiaries, taken together as a whole, and does not include Vertex Aerospace Services Holding Corp., a Delaware corporation (Vertex), and/or its consolidated subsidiaries as of July 1, 2022.

On July 5, 2022 (the Closing Date), the Company completed its previously announced business transaction with Vertex, Andor Merger Sub LLC, a Delaware limited liability company (Merger Sub LLC), and Andor Merger Sub Inc., a Delaware corporation (Merger Sub Inc.), thereby forming V2X, Inc.

(the Merger).

For a description of the Merger, see Note 15.

Su bsequent Event, in this Quarterly Report on Form 10-Q.

Equity Investments

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government contracts.

In 2020, we entered into a joint venture agreement with Kuwait Resources House for Human Resources Management a nd Services Company (KRH) .

In 2020, we entered into a joint venture agreement with Kuwait Resources House for Human Resources Management a nd Services Company .

Pursuant to the joint venture agreement, ServCore Resources and Services Solutions, LLC.

(ServCore) was established to operate and manage labor and life support services outside of the continental United States at designated locations serviced by Vectrus and others around the world.

We account for our investments in HDSS, J&J, and ServCore under the equity method as we have the ability to exercise significant influence, but do not hold a controlling interest.

We record our proportionate 40 %, 50 %, and 40 % shares, respectively, of income or losses from HDSS, J&J, and ServCore in selling, general and administrative expenses in the Condensed Consolidated Statements of Income.

(ServCore) was established to operate and manage labor and life support services outside of the continental United States at designated locations serviced by V2X and other contractors around the world.

We account for our investments in HDSS, J&J, and ServCore under the equity method as we have the ability to exercise significant influence, but do not hold a controlling interest in these entities.

We record our proportionate 40 %, 50 %, and 40 % shares, respectively, of income or losses from HDSS, J&J, and ServCore in selling, general and administrative (SG&A) expenses in the Condensed Consolidated Statements of Income.

Our investment in these joint ventures is recorded in other non-current assets in the Condensed Consolidated Balance Sheets.

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Any cash distributions in excess of cumulative earnings are recorded as a return of investment in investing cash flows within the Condensed Consolidated Statements of Cash Flows.

During the three months ended April 1, 2022, Vectrus received a $ 0.8 million distribution, representing a return on investment from our joint ventures.

As of April 1, 2022 and December 31, 2021 our joint venture investment balance was $ 4.6 million and $ 5.4 million, respectively.

Our proportionate share of income from the HDSS, J&J, an d ServCore joint ventures was immaterial for the first quarters of 2022 and 2021.

During the six months ended July 1, 2022, we made a cash contribution of $ 2.1 million to our joint ventures and received a $ 0.8 million cash distribution.

As of July 1, 2022 and December 31, 2021 our joint venture investment balance was $ 6.7 million and $ 5.4 million, respectively.

Our proportionate share of income from the HDSS, J&J, and ServCore joint ventures was immaterial for the first two quarters of both 2022 and 2021.

Basis of Presentation

Our quarterly financial periods end on the Friday closest to the last day of the calendar quarter (April 1, 2022 for the first quarter of 2022 and April 2, 2021 for the first quarter of 2021), except for the last quarter of the fiscal year, which ends on December 31.

Our quarterly financial periods end on the Friday closest to the last day of the calendar quarter (July 1, 2022 for the second quarter of 2022 and July 2, 2021 for the second quarter of 2021), except for the last quarter of the fiscal year, which ends on December 31.

For ease of presentation, the quarterly financial statements included herein are described as "three months ended."

The unaudited interim Condensed Consolidated Financial Statements of Vectrus have been prepared pursuant to the rules and regulations of the U.S.

The unaudited interim Condensed Consolidated Financial Statements of V2X have been prepared pursuant to the rules and regulations of the U.S.

Securities and Exchange Commission (SEC).

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have been omitted.

These unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021.

These unaudited interim Condensed Consolidated Financial Statements

should be read in conjunction with our audited Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021.

It is management’s opinion that these financial statements include all normal and recurring adjustments necessary for a fair presentation of the Company’s financial position and operating results.

Revenue and net income for any interim period are not necessarily indicative of future or annual results.

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Restricted Cash

The Company had restricted cash of $ 3.3 million related to collateral security for two outstanding letters of credit at July 1, 2022 and no restricted cash as of December 31, 2021.

Reconciliation of cash, cash equivalents and restricted cash as of July 1, 2022 is presented in the following table:

(In thousands) July 1, 2022

Cash and cash equivalents $ 31,760

Restricted cash 3,311

Total cash, cash equivalents and restricted cash $ 35,071

RECENT AC COUNTING STANDARDS UPDATE

6 unchanged sentences

2021-08 is effective for interim and annual periods beginning after December 15, 2022, on a prospective basis, with early adoption permitted.

The Company is currently evaluating the potential impact of ASU 2021-08 to its consolidated financial statements and expects to early adopt ASU 2021-08 during 2022 in conjunction with the proposed merger discussed below.

Subsequent Event, in this Quarterly Report on Form 10-Q).

Accounting Standards That Were Adopted

4 unchanged sentences

It did not have a material impact on the Company's financial statements.

PROPOSED MERGER WITH VERTEX AEROSPACE

On March 7, 2022, the Company, including its newly incorporated subsidiaries Andor M erger Sub LLC (Merger Sub LLC) and Andor Merger Sub Inc.

(Merger Sub Inc.), and Vertex Aerospace Services Holding Corp.

(Vertex), entered into an agreement and plan of merger (the Merger Agreement) proposing that Merger Sub Inc.

merge with and into Vertex (the First Merger), and immediately thereafter, Vertex, as the surviving company of the First Merger, merge with and into Merger Sub LLC (the Second Merger), with Merger Sub LLC surviving the Second Merger as a direct, wholly owned subsidiary of the Company (the Proposed Transaction).

The Proposed Transaction is structured so that the existing stockholders of Vertex will own approximately 62.25 % of the issued and outstanding Company common shares following the consummation of the Proposed Transaction, and the existing shareholders of the Company will own approximately 37.75 %.

The consummation of the Proposed Transaction is subject to the satisfaction of certain conditions, including, among others, the expiration or termination of antitrust waiting periods and receipt of certain other regulatory approvals, absence of injunctions or restraints prohibiting consummation of the Proposed Transaction, the Vectrus shareholder approval being obtained, the shares issued to Vertex being approved for listing on the New York Stock Exchange and the execution and delivery of a shareholder rights and registration rights agreements.

The obligation of each party to consummate the Proposed Transaction is also conditioned on the other party’s representations and warranties being true and correct, the other party having performed in all material respects its obligations under the Merger Agreement, and the absence of any material adverse effect after the date of the Merger Agreement.

The Merger Agreement provides certain termination rights for both the Company and Vertex, and further provides that a termination fee equal to $ 16.6 million will be payable by the Company to Vertex upon termination of the Merger Agreement under certain circumstances, including, among others, (i) as a result of the termination of the Merger Agreement by the Company to accept a Parent Superior Proposal (as defined in the Merger Agreement), (ii) the Company having Willfully Breached (as defined in the Merger Agreement) any of its obligations under the no solicitation provisions of the Merger Agreement, or (iii) the Board having changed its recommendation to shareholders.

Performance Obligations

5 unchanged sentences

The vast majority of our contracts have a single performance obligation.

Unexercised contract options and indefinite delivery and indefinite quantity (IDIQ) contracts are considered to be separate performance obligations when the option or IDIQ task

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order is exercised or awarded.

Unexercised contract options and indefinite delivery and indefinite quantity (IDIQ) contracts are considered to be separate performance obligations when the option or IDIQ task order is exercised or awarded.

Contracts are often modified to account for changes in contract specifications and requirements.

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For most U.S.

government contracts, this continuous transfer of control to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process.

government contracts, this continuous

transfer of control to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process.

This continuous transfer of control requires that we track progress towards completion of performance obligations in order to measure and recognize revenue.

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Substantially all 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.

Remaining performance obligations as of April 1, 2022 and December 31, 2021 are presented in the following table:

April 1, December 31,

Remaining performance obligations as of July 1, 2022 and December 31, 2021 are presented in the following table:

July 1, December 31,

(In millions) 2022 2021

Performance Obligations $ 1,599 $ 1,398

We expect to recognize approximately 64 % of the remaining performance obligations as of April 1, 2022 as revenue in 2022 and the remaining 36 % during 2023.

As of July 1, 2022, we expect to recognize approximately 57 % of the remaining performance obligations as revenue in 2022 and the remaining 43 % d uring 2023.

Contract Estimates

2 unchanged sentences

Contract estimates are based on various assumptions to project the outcome of future events.

These assumptions include labor productivity and availability;

These assumptions include:

labor productivity and availability;

the complexity of the services being performed;

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The impact of adjustments in contract estimates on our operating income can be reflected in either revenue or cost of revenue.

Cumulative catch-up adjustments for the three months ended April 1, 2022 and April 2, 2021 increased operating income by $ 0.6 million and decreased operating income by $ 1.3 million, respectively.

For the three months ended April 1, 2022 and April 2, 2021, the cumulative catch-up adjustments to operating income increased revenue by $ 0.6 million and decreased revenue by $ 1.9 million, respectively.

Cumulative catch-up adjustments for the three and six months ended July 1, 2022 increased operating income by $ 6.8 million and $ 7.4 million , respectively.

For the three and six months ended July 2, 2021, the adjustments decreased operating income by $ 1.7 million and $ 3.0 million, respectively.

For the three and six months ended July 1, 2022 the cumulative catch-up adjustments to operating income increased revenue by $ 6.8 million and $ 7.4 million , respectively.

For the three and six months ended July 2, 2021, the cumulative catch-up adjustments to operating income decreased revenue by $ 1.7 million and $ 3.6 million, respectively.

Revenue by Category

9 unchanged sentences

Typically, these costs do not bear fees.

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On a firm-fixed-price type contract, we agree to perform the contractual statement of work for a predetermined contract price.

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Although the overall scope of work required under the contract may not change, profit may be adjusted as experience is gained and as efficiencies are realized or costs are incurred.

On a time-and-materials type contract, we are reimbursed for labor at fixed hourly rates and generally reimbursed separately for allowable materials, costs, and expenses at cost.

For this contract type, we bear the risk when our labor costs and allocable indirect expenses exceed the fixed hourly rate specified within the contract.

The following tables present our revenue disaggregated by several categories.

Revenue by contract type for the three months ended April 1, 2022 and April 2, 2021 is as follows:

Three Months Ended

April 1, April 2, %

(In thousands) 2022 2021 Change

Revenue by contract type for the three and six months ended July 1, 2022 and July 2, 2021 is as follows:

Three Months Ended Six Months Ended

July 1, July 2, % July 1, July 2, %

(In thousands) 2022 2021 Change 2022 2021 Change

Cost-plus and cost-reimbursable $ 355,559 $ 344,189 3.3 % $ 666,653 $ 634,420 5.1 %

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Total revenue $ 498,066 $ 470,845 $ 954,537 $ 904,849

Revenue by geographic region in which the contract is performed for the three months ended April 1, 2022 and April 2, 2021 is as follows:

Three Months Ended

April 1, April 2, %

(In thousands) 2022 2021 Change

Revenue by geographic region in which the contract is performed for the three and six months ended July 1, 2022 and July 2, 2021 is as follows:

Three Months Ended Six Months Ended

July 1, July 2, % July 1, July 2, %

(In thousands) 2022 2021 Change 2022 2021 Change

Middle East $ 250,222 $ 258,488 ( 3.2 ) % $ 485,313 $ 498,500 ( 2.6 ) %

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Total revenue $ 498,066 $ 470,845 $ 954,537 $ 904,849

Revenue by contract relationship for the three months ended April 1, 2022 and April 2, 2021 is as follows:

Three Months Ended

April 1, April 2, %

(In thousands) 2022 2021 Change

Revenue by contract relationship for the three and six months ended July 1, 2022 and July 2, 2021 is as follows:

Three Months Ended Six Months Ended

July 1, July 2, % July 1, July 2, %

(In thousands) 2022 2021 Change 2022 2021 Change

Prime contractor $ 468,453 $ 440,040 6.5 % $ 895,546 $ 843,303 6.2 %

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Total revenue $ 498,066 $ 470,845 $ 954,537 $ 904,849

Revenue by customer for the three months ended April 1, 2022 and April 2, 2021 is as follows:

Three Months Ended

April 1, April 2, %

(In thousands) 2022 2021 Change

Revenue by customer for the three and six months ended July 1, 2022 and July 2, 2021 is as follows:

Three Months Ended Six Months Ended

July 1, July 2, % July 1, July 2, %

(In thousands) 2022 2021 Change 2022 2021 Change

Army $ 326,756 $ 310,638 5.2 % $ 606,869 $ 567,987 6.8 %

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Generally, billing occurs subsequent to revenue recognition, resulting in contract assets.

However, we may

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receive advances or deposits from our customers, before revenue is recognized, resulting in contract liabilities.

However, we may receive advances or deposits from our customers, before revenue is recognized, resulting in contract liabilities.

These advance billings and payments are not considered significant financing components because they are frequently intended to fund current operating expenses under the contract.

These assets and liabilities are reported on the Condensed Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period.

As of April 1, 2022 and December 31, 2021, we had contract assets of $ 235.3 million and $ 240.0 million, respectively.

As of July 1, 2022 and December 31, 2021, we had contract assets of $ 277.6 million and $ 240.0 million, respectively.

Contract assets primarily consist of unbilled receivables which represent rights to consideration for work completed but not billed as of the reporting date.

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or (iii) billable upon other specified events, such as the resolution of a request for equitable adjustment.

Refer to Note 5, "Receivables" for additional information regarding the composition of our receivable balances.

As of both April 1, 2022 and December 31, 2021, our contract liabilities were insignificant.

Refer to Note 4.

"Receivables" for additional information regarding the composition of our receivable balances.

As of both July 1, 2022 and December 31, 2021, our contract liabilities were insignificant.

Receivables were comprised of the following:

(In thousands) April 1, 2022 December 31, 2021

(In thousands) July 1, 2022 December 31, 2021

Billed receivables $ 91,985 $ 104,074

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Total receivables $ 374,980 $ 348,605

As of April 1, 2022 and December 31, 2021, substantially all billed receivables are due from the U.S.

As of July 1, 2022 and December 31, 2021, substantially all billed receivables are due from the U.S.

government, either directly as prime contractor to the U.S.

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Unbilled receivables are contract assets that represent revenue recognized on long-term contracts in excess of amounts billed as of the balance sheet date.

We expect to bill customers for the majority of the April 1, 2022 contract assets during 2022.

We expect to bill customers for the majority of the July 1, 2022 contract assets during 2022.

C hanges in the balance of receivables are primarily due to the timing differences between our performance and customers' payments.

GOODWILL AND INTANGIBLE ASSETS

As of April 1, 2022 and December 31, 2021 the carrying amount of goodwill was $ 321.7 million.

As of July 1, 2022 and December 31, 2021 the carrying amount of goodwill was $ 321.7 million.

The Company tests goodwill for impairment on the first day of the Company's fourth fiscal quarter each year, or more frequently should circumstances change or events occur that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

Identifiable intangible assets consist of the following:

April 1, 2022 December 31, 2021

July 1, 2022 December 31, 2021

(In thousands) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount

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Balance $ 85,749 $ ( 23,590 ) $ 62,159 $ 85,749 $ ( 19,167 ) $ 66,582

Identifiable intangible asset amortization expense was $ 2.3 million and $ 2.5 million for the three months ended April 1, 2022 and April 2, 2021, respectively.

As of April 1, 2022, the remaining average intangible asset amortization period was 9.2 years.

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Identifiable intangible asset amortization expense was $ 2.1 million and $ 4.4 million for the three and six months ended July 1, 2022, respectively.

Intangible asset amortization for the three and six months ended July 2, 2021 was $ 2.4 million and $ 4.9 million, respectively.

As of July 1, 2022, the remaining average intangible asset amortization period was 9.0 years .

Future estimated amortization expense is as follows (in thousands):

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The credit agreement was subsequently amended on December 24, 2020 and January 24, 2022 and is collectively referred to as the Amended Agreement.

The credit agreement consists of a term loan (Amended Term Loan) and a $ 270.0 million revolving credit facility (Amended Revolver) as of April 1, 2022.

The Amendment Agreement includes an accordion feature that allows the Company to draw up to an additional $ 100.0 million, subject to the lender's consent on the same terms and conditions as the existing commitments.

The Amendment Agreement also permits the Company to borrow up to $ 75.0 million in unsecured debt as long as the aggregated sum of both the unsecured debt and the accordion does not exceed $ 100.0 million.

The Amended Term Loan amortizes in an amount equal to $ 2.6 million for the fiscal quarters ending July 1, 2022 through September 30, 2023, with the balance of $ 37.2 million due on November 15, 2023.

The credit agreement consists of a term loan (Amended Term Loan) and a $ 270.0 million revolving credit facility (Amended Revolver) as of July 1, 2022.

The Amended Agreement includes an accordion feature that allows the Company to draw up to an additional $ 100.0 million, subject to the lender's consent on the same terms and conditions as the existing commitments.

The Amended Agreement also permits the Company to borrow up to $ 75.0 million in unsecured debt as long as the aggregated sum of both the unsecured debt and the accordion does not exceed $ 100.0 million.

The Amended Term Loan amortizes in an amount equal to $ 2.6 million for the fiscal quarters ending September 30, 2022 through September 30, 2023, with the balance of $ 37.2 million due on November 15, 2023.

Amounts borrowed under the Amended Term Loan that are repaid or prepaid may not be re-borrowed.

Any unpaid amounts must be repaid by the maturity dates.

As of April 1, 2022, the balance outstanding under the Amended Term Loan was $ 52.8 million.

As of July 1, 2022, the balance outstanding under the Amended Term Loan was $ 50.2 million .

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

There were $ 67.0 million of outstanding borrowings under the Amended Revolver at April 1, 2022.

There were $ 40.0 million of outstanding borrowings under the Amended Revolver at July 1, 2022.

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

As of April 1, 2022, 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 $ 200.3 million.

As of July 1, 2022, there were two letters of credit outstanding in the aggregate amount of $ 3.2 million, which reduced our borrowing availability under the Amended Revolver to $ 226.8 million.

At December 31, 2021, there were $ 50.0 million of outstanding borrowings under the Amended Revolver.

The Amended Revolver will mature and the commitments thereunder will terminate on November 15, 2023 .

The aggregate scheduled maturities of the Amended Term Loan and Amended Revolver as of April 1, 2022, are as follows:

The Amended R evolver will mature and the commitments thereunder will terminate on November 15, 2023 .

The aggregate scheduled maturities of the Amended Term Loan and Amended Revolver as of July 1, 2022, are as follows:

(In thousands) Payments due

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We may reduce commitments under the Amended Revolver in whole or in part at any time without premium or penalty.

The Amended Agreement contain customary covenants, including covenants that, under certain circumstances and subject to certain qualifications and exceptions:

The Amended Agreement contains customary covenants, including covenants that, under certain circumstances and subject to certain qualifications and exceptions:

limit or restrict our ability to incur additional indebtedness;

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and enter into certain restrictive agreements.

In addition, we are required to comply with (a) a maximum ratio of total consolidated indebtedness to consolidated earnings before interest, tax, depreciation and amortization (EBITDA) of 3.00 to 1.00 ( 3.50 to 1.00 for the 12 months following a qualified acquisition), and (b) a minimum ratio of consolidated EBITDA to consolidated interest expense (net of cash interest

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income) of 4.50 to 1.00.

As of April 1, 2022, we had a ratio of total consolidated indebtedness to EBITDA of 1.40 to 1.00 and a ratio of consolidated EBITDA to consolidated interest expense of 12.32 to 1.00.

We were in compliance with all covenants related to the Amended Credit Facilities as of April 1, 2022.

As of July 1, 2022, we had a ratio of total consolidated indebtedness to EBITDA of 1.09 to 1.00 and a ratio of consolidated EBITDA to consolidated interest expense of 12.41 to 1.00.

We were in compliance with all covenants related to the Amended Agreement as of July 1, 2022.

Interest Rates and Fees.

Outstanding borrowings under the Amended Agreement accrue interest, at our option, at a per annum rate of (i) SOFR p lus the applicable margin, which ranges from 1.85 % to 2.60 % depending on the leverage ratio, or (ii) a base rate plus the applicable margin, which ranges from 0.75 % to 1.50 % depending on the leverage ratio.

The interest rate under the Amended Credit Facilities at April 1, 2022 was 2.41 %.

The interest rate under the Amended Agreement at July 1, 2022 was 3.63 % .

We pay a commitment fee on the undrawn portion of the Amended Revolver ranging from 0.30 % to 0.45 %, depending on the leverage ratio.

Carrying Value and Fair Value.

As of April 1, 2022 and December 31, 2021, the fair value of the Amended Credit Facilities approximated the carrying value because the debt bears interest at a floating rate of interest.

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.

As of July 1, 2022 and December 31, 2021, the fair value of the Amended Agreement approximated the carrying value because the debt bears interest at a floating rate of interest.

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.

DERIVATIVE INSTRUMENTS

2 unchanged sentences

Interest Rate Derivative Instruments

Our interest rate swaps are designated and qualify as effective cash flow hedges.

The contracts, with expiration dates through November 2022 and notional amounts totaling $ 39.8 million at April 1, 2022, are recorded at fair value.

The following table summarizes the amount at fair value and location of the derivative instruments in our balance sheet for our interest rate hedges in the Condensed Consolidated Balance Sheets as of April 1, 2022:

(In thousands) Fair Value

Balance sheet caption Amount

Interest rate swap designated as cash flow hedge Other accrued liabilities $ 227

The following table summarizes the amount at fair value and location of the derivative instruments used for our interest rate hedges in the Condensed Consolidated Balance Sheets as of December 31, 2021:

On June 29, 2022, in conjunction with our planned extinguishment of the related hedged debt interest expense, we terminated our remaining interest rate swaps that were designated and qualified as effective cash flow hedges (See Note 15.

Subsequent Event in this Quarterly Report on Form 10-Q).

Interest rate swap losses in accumulated other comprehensive loss upon termination were immaterial.

The following table summarizes the amount at fair value and balance sheet caption of the derivative instruments used for our interest rate hedges in the Condensed Consolidated Balance Sheets as of December 31, 2021:

(In thousands) Fair Value

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Interest rate swap designated as cash flow hedge Other accrued liabilities $ 666

We regularly assess the creditworthiness of the counterparty.

As of April 1, 2022, the counterparty to the interest rate swaps had performed in accordance with its contractual obligations.

Both the counterparty credit risk and our credit risk were considered in the fair value determination.

Net interest rate derivative losses of $ 0.2 million and $ 0.3 million were recognized in interest expense, net, in our Condensed Consolidated Statements of Income during the first three months of 2022 and 2021, respectively.

We expect $ 0.2 million of existing interest rate swap losses reported in accumulated other comprehensive loss as of April 1, 2022 to be recognized in earnings within the next 12 months.

Net interest rate derivative losses of $ 0.4 million and $ 0.5 million were recognized in interest expense, net, in our Condensed Consolidated Statements of Income during the first six months of 2022 and 2021, respectively.

Foreign Currency Derivative Instruments

The Company had no outstanding foreign currency forward contracts at April 1, 2022 and outstanding forward contracts with a current liability value of less than $ 0.1 million at December 31, 2021.

Net foreign currency derivative gains and losses recognized in selling, general and administrative expenses during the first three months of 2022 and 2021 were immaterial.

The Company had no outstanding foreign currency forward contracts at July 1, 2022 and had outstanding forward contracts with a current liability value of less than $ 0.1 million at December 31, 2021.

Net foreign currency derivative gains and losses recognized in SG&A expenses during the first six months of 2022 and 2021 were immaterial.

We determine whether an arrangement contains a lease at inception.

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We do not separate lease components from non-lease components (e.g., common area maintenance, property taxes and insurance) but account for both components in a contract as a single lease component.

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The components of lease expense are as follows:

Three Months Ended

(In thousands) April 1, 2022 April 2, 2021

Three Months Ended Six Months Ended

(In thousands) July 1, 2022 July 2, 2021 July 1, 2022 July 2, 2021

Operating lease expense $ 3,608 $ 2,240 $ 7,281 $ 4,065

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Supplemental balance sheet information related to our operating leases is as follows:

(In thousands) April 1, 2022 December 31, 2021

(In thousands) July 1, 2022 December 31, 2021

Right-of-use assets $ 39,705 $ 43,651

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Total operating lease liabilities $ 43,053 $ 46,519

Additional right-of-use assets of $ 1.9 million were recognized as non-cash asset additions that resulted from new operating lease liabilities during the first three months of 2022 .

The weighted average remaining lease term and discount rate for our operating leases at April 1, 2022 was 5.2 years and 3.7 %, respectively.

Maturities of lease liabilities at April 1, 2022 were as follows:

Additional right-of-use assets of $ 2.6 million we re recognized as non-cash asset additions that resulted from new operating lease liabilities during the first six months of 2022 .

The weighted average remaining lease term and discount rate for our operating leases at July 1, 2022 was 5.1 years and 3.8 %, respectively.

Maturities of lease liabilities at July 1, 2022 were as follows:

(In thousands) Payments due

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Total operating lease liabilities $ 43,053

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COMMITMENTS AND CONTINGENCIES

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government customers periodically advise the Company of claims and penalties concerning certain potential disallowed costs.

When such findings are presented, Vectrus and the U.S.

government representatives engage in discussions to enable Vectrus to evaluate the merits of these claims as well as to assess the amounts being claimed.

When such findings are presented, V2X and the U.S.

government representatives engage in discussions to enable V2X to evaluate the merits of these claims as well as to assess the amounts being claimed.

Where appropriate, provisions are made to reflect probable losses related to the matters raised by the U.S.

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Such assessments, along with any assessments regarding provisions for legal proceedings, are reviewed on a quarterly basis for sufficiency based on the most recent information available to us.

We have estimated and accrued $ 9.8 million and $ 9.6 million as of April 1, 2022 and December 31, 2021, respectively, in "Other accrued liabilities" in the Condensed Consolidated Balance Sheets for legal proceedings and for claims with respect to our U.S.

We have estimated and accrued $ 9.8 million and $ 9.6 million as of July 1, 2022 and December 31, 2021, respectively, in "Other accrued liabilities" in the Condensed Consolidated Balance Sheets for legal proceedings and for claims with respect to our U.S.

government contracts as discussed below, including years where the U.S.

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As a result of final indirect rate negotiations between the U.S.

government and our Former Parent, we may be subject to adjustments to costs previously allocated by our Former Parent to our business, which was formerly Exelis’ Mission Systems Business, from 2007 through 2014.

We are in discussions with our Former Parent and the U.S.

government regarding these cost adjustments from 2007 through 2014 and believe that our potential cumulative liability for these years is insignificant.

Between June 2019 and March 2021, the U.S.

government provided us with three Contracting Officers Final Decisions (COFD) for the years from 2007 through 2014 related to Former Parent costs.

We filed appeals of the COFDs with the Armed Services Board of Contract Appeals (ASBCA), which have been consolidated.

The ASBCA has granted Vectrus’ and the U.S.

government’s joint requests to stay proceedings in the appeal, most recently through May 23, 2022, to enable ongoing discussions regarding the matter between the parties.

government subsequently offered a settlement to reduce the costs to an insignificant amount to address errors and costs related to contracts novated to our Former Parent, which we are currently reviewing.

We believe we are fully indemnified under our Distribution Agreement with our Former Parent and have notified our Former Parent of our appeal of the U.S.

government and our Former Parent, we were subject to adjustments to costs previously allocated by our Former Parent to our business from 2007 through 2014.

On July 7, 2022, we accepted an offer by the U.S.

government to settle this legal matter involving our payment of an insignificant amount, thereby bringing closure to the matter.

With respect to our Former Parent, we believe we are fully indemnified under our distribution agreement and have notified our Former Parent of the closure of our appeal of the U.S.

government's decision in this matter.

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Uncertainty with respect to the economic impacts of the pandemic has introduced significant volatility in the financial markets.

The Company has observed, and continues to experience, some

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disruptions on its operations due to government and supply chain delays related to the global pandemic.

The Company has observed, and continues to experience, some disruptions to its operations due to government and supply chain delays related to the global pandemic.

While the extent to which COVID-19 ultimately impacts the Company’s future results will depend on future developments, the pandemic and associated economic impacts, particularly with respect to newly issued vaccine mandates for government contractors and subcontractors, could result in a material impact to the Company’s future financial condition, results of operations and cash flows.

Contractual Commitment

On September 30, 2021, the Company signed a forward-starting agreement for warehouse space in support of its contractual obligations under a task order issued under the Logistics Civil Augmentation Program (LOGCAP) V support services contract in support of the U.S.

The agreement commencement date, which is anticipated in the second quarter 2022, is subject to the completion of certain documents and the receipt of related government regulatory and other third-party approvals.

The term of the agreement consists of eight one-year extension options and one additional six-month option period, consistent with our LOGCAP V contract with the U.S.

The annual obligations are $ 20 million per year, subject to a market adjustment beginning in the sixth year, and additional obligations for certain operating expenses.

For the three and six months ended July 1, 2022, the impact of COVID-19 was immaterial to our financial results.

STOCK-BASED COMPENSATION

The Company maintains an equity incentive plan, the 2014 Omnibus Incentive Plan, as amended and restated effective as of May 13, 2016 (the 2014 Omnibus Plan), to govern awards granted to Vectrus employees and directors, including nonqualified stock options (NQOs), restricted stock units (RSUs), total shareholder return (TSR) awards and other awards.

The Company maintains an equity incentive plan, the 2014 Omnibus Incentive Plan, as amended and restated effective as of May 13, 2016 (the 2014 Omnibus Plan), to govern awards granted to V2X employees and directors, including nonqualified stock options (NQOs), restricted stock units (RSUs), total shareholder return (TSR) awards and other awards.

We account for NQOs and stock-settled RSUs as equity-based compensation awards.

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Stock-based compensation expense and the associated tax benefits impacting our Condensed Consolidated Statements of Income were as follows:

Three Months Ended

(In thousands) April 1, 2022 April 2, 2021

Three Months Ended Six Months Ended

(In thousands) July 1, 2022 July 2, 2021 July 1, 2022 July 2, 2021

Compensation costs for equity-based awards $ 1,575 $ 2,003 $ 4,676 $ 3,986

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Liability-based awards are revalued at the end of each reporting period to reflect changes in fair value.

As of April 1, 2022, total unrecognized compensation costs related to equity-based awards and liability-based awards were $ 9.3 million and $ 2.6 million, respectively, which are expected to be recognized ratably over a weighted average period of 2.25 years and 2.36 years, respectively.

The following table provides a summary of the activities for NQOs and RSUs for the three months ended April 1, 2022:

As of July 1, 2022, total unrecognized compensation costs related to equity-based awards and liability-based awards were $ 8.3 million and $ 2.8 million, respectively, which are expected to be recognized ratably over a weighted average period of 2.00 years and 2.17 years, respe ctively.

The following table provides a summary of the activities for NQOs and RSUs for the six months ended July 1, 2022:

(In thousands, except per share data) Shares Weighted Average Exercise Price Per Share Shares Weighted Average Grant Date Fair Value Per Share

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Forfeited or expired — $ — ( 15 ) $ 40.24

Outstanding at April 1, 2022 59 $ 23.19 342 $ 43.44

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Outstanding at July 1, 2022 43 $ 22.76 331 $ 42.19

During the six months ended July 1, 2022, we granted long-term incentive awards to employees consisting of 208,397 RSUs with a weighted average grant date fair value per share of $ 36.09 and to our directors consisting of 22,309 RSUs with a weighted average grant date fair value per share of $ 34.07 .

For employee RSUs, one-third of the award vests on each of the three anniversary dates following the grant date.

Director RSUs are granted on the date of an annual meeting of shareholders and vest on the business day immediately prior to the next annual meeting.

The fair value of each RSU grant was determined based on the closing price of Vectrus common stock on the date of grant.

Director RSUs were granted on May 13, 2022 with 3,229 scheduled to vest on the Closing Date and the balance scheduled to vest on May 12, 2023.

The fair value of each RSU grant to employees and directors was determined based on the closing price of V2X common stock on the date of grant.

Stock compensation expense will be recognized ratably over the vesting period of the awards.

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Any payments earned are made in cash following completion of the performance period according to the achievement of specified performance goals.

During the three months ended April 1, 2022, we granted TSR awards with an outstanding aggregate target TSR value of $ 2.8 million.

During the six months ended July 1, 2022, we granted TSR awards with an outstanding aggregate target TSR value of $ 2.8 million.

The fair value of TSR awards is measured quarterly and is based on the Company’s performance relative to the performance of the Aerospace and Defense Companies in the S&P 1500 Index.

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The computation of the estimated effective income tax rate at each interim period requires certain estimates and judgment including, but not limited to, forecasted operating income for the year, projections of the income earned and taxed in various jurisdictions, newly enacted tax rate and legislative changes, permanent and temporary differences, and the likelihood of recovering deferred tax assets generated in the current year.

For the three months ended April 1, 2022 and April 2, 2021, we recorded an income tax provision of $ 0.7 million and $ 2.6 million, representing effective income tax rates of 19.7 % and 17.5 %, respectively.

For the three months ended July 1, 2022 and July 2, 2021, we recorded an income tax provision of $ 2.6 million and $ 4.4 million, representing effective income tax rates of 19.8 % and 21.6 %, respectively.

For the six months ended July 1, 2022 and July 2, 2021, we recorded income tax provisions of $ 3.3 and $ 6.9 million, representing effective income tax rates of 19.8 % and 19.9 %, respectively.

The effective income tax rates vary from the federal statutory rate of 21.0% due to state and foreign taxes, required tax income exclusions, nondeductible expenses, available deductions not reflected in book income, and income tax credits.

Uncertain Tax Provisions

As of April 1, 2022 and December 31, 2021, unrecognized tax benefits from uncertain tax positions were $ 9.5 million and $ 9.3 million, respectively.

As of July 1, 2022 and December 31, 2021, unrecognized tax benefits from uncertain tax positions were $ 10.1 million and $ 9.3 million, respectively.

The increase in the uncertain tax positions was principally the result of the additional Foreign Derived Intangible Income (FDII) deduction as the Company reserves a portion of the FDII benefit claimed or expected to be claimed on its income tax return filings.

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EARNINGS PER SHARE

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Diluted EPS includes the dilutive effect of stock-based compensation outstanding after application of the treasury stock method.

Three Months Ended

April 1, April 2,

Three Months Ended Six Months Ended

July 1, July 2, July 1, July 2,

(In thousands, except per share data) 2022 2021 2022 2021

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The following table summarizes the weighted average of anti-dilutive securities excluded from the diluted earnings per share calculation.

Three Months Ended

April 1, April 2,

Three Months Ended Six Months Ended

July 1, July 2, July 1, July 2,

(In thousands) 2022 2021 2022 2021

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The assets in the plan are held in a Rabbi trust.

Plan investments and obligations were recorded in other non-current assets and other non-current liabilities, respectively, in the consolidated balance sheets, representing the fair value related to the deferred compensation plan.

Adjustments to the fair value of the plan investments and obligations are recorded in selling, general, and administrative expenses.

The plan assets and liabilities were $ 0.8 million and $ 0.5 million as of April 1, 2022 and December 31, 2021, respectively.

Plan investments and obligations were recorded in other non-current assets and other non-current liabilities, respectively, in the Condensed Consolidated Balance Sheets, representing the fair value related to the deferred compensation plan.

Adjustments to the fair value of the plan investments and obligations are recorded in SG&A expenses.

The plan assets and liabilities were $ 0.9 million and $ 0.5 million as of July 1, 2022 and December 31, 2021, respectively.

MULTI-EMPLOYER PENSION PLAN

Certain Company employees who perform work on contracts within the continental United States participate in a multiemployer pension plan of which the Company is not the sponsor.

Expense recognized for this plan was $ 0.2 million for the three months ended April 1, 2022 and the three months ended April 2, 2021.

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Expense recognized for this plan was $ 0.3 million and $ 0.5 for the three and six months ended July 1, 2022, respectively, and $ 0.3 million and $ 0.5 million for the three and six months ended July 2, 2021, respectively.

SUBSEQUENT EVENT

On the Closing Date, Vectrus, Inc.

completed its previously announced Merger with Vertex, a global leader in aerospace and defense technologies, by acquiring all of the outstanding shares of Vertex .

O n the Closing Date, Vertex and its consolidated subsidiaries became a wholly-owned subsidiary of the Company.

We recognized $ 5.9 million an d $ 14.9 million of acquisition-related costs that were expensed as incurred during the three and six months ended July 1, 2022, respectively.

These costs are included in SG&A expense in the Condensed Consolidated Statements of Income .

Preliminary Purchase Price Allocation

The Merger will be accounted for as a purchase business combination.

As such, the Company will record the assets acquired and liabilities assumed at fair value, with the excess of the purchase price over the fair value of the net identifiable assets acquired and liabilities assumed recorded as goodwill.

None of the goodwill is expected to be deductible fo r tax purposes.

The Company expects to finalize its purchase price allocation in 2023 after we have further analyzed and assessed a number of the factors used in establishing the fair values of assets acquired and liabilities assumed as of the Closing Date including, but not limited to, contractual and operational factors underlying the customer-related intangible assets and property, plant and equipment;

details surrounding tax matters;

and assumptions underlying certain existing or potential reserves, such as those for legal and environmental matters.

The final fair value determination could result in material adjustments.

The Closing Date fair value of the consideration transferred totaled $ 634 million , w hich was comprised of the following:

($ in millions, except share and per share amounts) Purchase Price

Shares of V2X common stock issued 18,591,866

Market price per share of V2X as of Closing Date $ 33.92

Fair value of common shares issued $ 631

Fair value of cash consideration $ 3

Total consideration transferred $ 634

Outstanding debt from the Company’s Amended Agreement (See Note 6.

Debt, in this Quarterly Report on Form 10-Q) was repaid on the Merger Closing Date and related guarantees and liens were discharged and released.

Repayment was made using proceeds from the Vertex First Lien Credit Agreement described below.

Senior Secured Credit Facilities

Senior Secured Credit Facilities .

On the Closing Date, following the Merger and a series of certain intercompany contributions described in the Agreement and Plan of Merger, dated as of March 7, 2022, by and among Vertex, the Company, Merger Sub Inc., and Merger Sub LLC (the Merger Agreement), certain of our subsidiaries, including VSC (and together with VSC, the Company Guarantor Subsidiaries), that became direct or indirect subsidiaries of Vertex Aerospace Service Corp., a Delaware corporation and wholly-owned indirect subsidiary of Vertex (Vertex Borrower), have provided guarantees of the indebtedness under each of (i) the First Lien Credit Agreement, dated as of December 6, 2021 (as amended by the Amendment No.

1 to First Lien Credit Agreement, dated as of the Closing Date (the Vertex First Lien Amendment), and as further amended, restated, amended and restated, supplemented and otherwise modified from time to time, the Vertex First Lien Credit Agreement), by and among Vertex Borrower, as borrower, Vertex Aerospace Intermediate LLC, a Delaware limited liability company, direct parent entity of Vertex Borrower and wholly-owned indirect subsidiary of Vertex (Vertex Holdings), the lenders from time to time party thereto and Royal Bank of Canada, as administrative agent, (ii) the Second Lien Credit Agreement, dated as of December 6, 2021 (as amended, restated, amended and restated, supplemented and otherwise modified from time to time, the Vertex Second Lien Credit Agreement), Vertex Borrower, as borrower, Vertex Holdings, the lenders from time to time party thereto and Royal Bank of Canada, as administrative agent, and (iii) the ABL Credit Agreement, dated as of June 29, 2018 (as amended by the First Amendment to ABL Credit Agreement, dated as of May 17, 2019, as further amended by the Second Amendment to ABL Credit Agreement, dated as of May 17, 2021, and as further amended by the Third Amendment to ABL Credit Agreement, dated as of December 6, 2021, as further amended by the Fourth Amendment (the Vertex ABL Amendment) to ABL Credit Agreement, dated as of the Closing Date, and as further amended, restated, amended and restated, supplemented and otherwise modified from time to time, the Vertex ABL Credit Agreement), by and among Vertex Borrower, Vertex Holdings, certain other subsidiaries of Vertex Borrower from time to time party thereto as co-borrowers, the lenders from time to time party thereto and Ally Bank, as administrative agent (in such capacity, the ABL Agent).

Vertex First Lien Credit Agreement.

The Vertex First Lien Credit Agreement provides for senior secured first lien term loans in an aggregate principal amount of $ 1,185,000,000 , consisting of a $ 925,000,000 term loan “B” tranche (the First Lien Initial Term Tranche) and a $ 260,000,000 incremental term loan “B” tranche (the First Lien Incremental Term Tranche and, together with the First Lien Initial Term Tranche, collectively, the First Lien Term Facility).

The entire amount of the proceeds from the (i) First Lien Initial Term Tranche were previously used to finance the acquisition of certain subsidiaries of Raytheon Company, a Delaware corporation, and related transaction costs (the Sky Acquisition), and (ii) First Lien Incremental Term Tranche were used on the Closing Date to finance the repayment in full all outstanding indebtedness, terminate all commitments and release and

discharge all liens and guarantees under that certain Credit Agreement, dated as of September 17, 2014 (as amended, restated, amended and restated, supplemented and otherwise modified from time to time prior to the Closing Date), by and among us, VSC, as borrower, the lenders and issuing banks from time to time party thereto, and JPMorgan Chase Bank, N.A., as administrative agent.

The loans under the First Lien Term Facility will be payable in full on December 6, 2028.

Guarantees and Collateral.

The Vertex Borrower’s obligations under the First Lien Term Facility are guaranteed by Vertex Holdings and Vertex Borrower’s wholly-owned domestic subsidiaries (including the Company Guarantor Subsidiaries, collectively, the First Lien Guarantors), subject to customary exceptions and limitations.

The Vertex Borrower’s obligations under the First Lien Term Facility and the First Lien Guarantors’ obligations under the related guarantees are secured by (i) a first priority-lien on substantially all of the Vertex Borrower’s and the First Lien Guarantors’ assets other than the ABL Priority Collateral, as defined below (subject to customary exceptions and limitations), and (ii) a second-priority lien on substantially all of the Vertex Borrower’s and the First Lien Guarantors’ accounts receivable, inventory and certain other assets arising therefrom or related thereto (collectively, the ABL Priority Collateral) (subject to customary exceptions and limitations).

Interest Rates.

The borrowings under the First Lien Initial Term Tranche bear interest at rates that, at the Vertex Borrower’s option, can be either a base rate, determined by reference to the federal funds rate, plus a margin of 2.75 % to 3.00 % per annum, or a Eurodollar rate, determined by reference to LIBOR, plus a margin of 3.75 % to 4.00 % per annum, in each case, depending on the consolidated first lien net leverage ratio of the Vertex Borrower and its subsidiaries.

The borrowings under the First Lien Incremental Term Tranche bear interest at rates that, at the Vertex Borrower’s option, can be either a base rate, determined by reference to the federal funds rate, plus a margin of 3.00 % per annum, or a term benchmark rate, determined by reference to Term SOFR, plus a margin of 4.00 % per annum.

Representations and Warranties;

The Vertex First Lien Credit Agreement contains customary representations and warranties and affirmative covenants.

The Vertex First Lien Credit Agreement also includes negative covenants that limit, among other things, additional indebtedness, additional liens, sales of assets, dividends, investments and advances, prepayments of debt and mergers and acquisitions.

Events of Default.

The Vertex First Lien Credit Agreement contains customary events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the First Lien Term Facility to be in full force and effect, and a change of control.

If an event of default occurs and is continuing, the Vertex Borrower may be required immediately to repay all amounts outstanding under the Vertex First Lien Credit Agreement.

Vertex Second Lien Credit Agreement.

The Vertex Second Lien Credit Agreement provides for senior secured second lien term loans in an aggregate principal amount of $ 185,000,000 (the Second Lien Term Facility).

The entire amount of the proceeds from the Second Lien Term Facility were previously used to finance the Sky Acquisition.

The loans under the Second Lien Term Facility will be payable in full on December 6, 2029.

Guarantees and Collateral.

The Vertex Borrower’s obligations under the Second Lien Term Facility are guaranteed by Vertex Holdings and the Vertex Borrower’s wholly-owned domestic subsidiaries (including the Company Guarantor Subsidiaries, collectively, the Second Lien Guarantors), subject to customary exceptions and limitations.

The Vertex Borrower’s obligations under the Second Lien Term Facility and the Second Lien Guarantors’ obligations under the related guarantees are secured by (i) a second priority-lien on substantially all of the Vertex Borrower’s and Second Lien Guarantors’ assets other than the ABL Priority Collateral (subject to customary exceptions and limitations), and (b) a third-priority lien on substantially all of the Vertex Borrower’s and Second Lien Guarantors’ assets ABL Priority Collateral (subject to customary exceptions and limitations).

Interest Rates .

The borrowings under the Second Lien Term Facility bear interest at rates that, at the Vertex Borrower’s option, can be either a base rate, determined by reference to the federal funds rate, plus a margin of 6.50 % per annum, or a Eurodollar rate, determined by reference to LIBOR, plus a margin of 7.50 % per annum.

Representations and Warranties;

The Vertex Second Lien Credit Agreement contains customary representations and warranties and affirmative covenants.

The Vertex Second Lien Credit Agreement also includes negative covenants that limit, among other things, additional indebtedness, additional liens, sales of assets, dividends, investments and advances, prepayments of debt and mergers and acquisitions.

Events of Default.

The Vertex Second Lien Credit Agreement contains customary events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the First Lien Term Facility to be in full force and effect, and a change of control.

If an event of default occurs and is continuing, the Vertex Borrower may be required immediately to repay all amounts outstanding under the Vertex Second Lien Credit Agreement.

Vertex ABL Credit Agreement

ABL Facility .

The Vertex ABL Credit Agreement provides for a senior secured revolving loan facility (the ABL Facility) of up to an aggregate amount of $ 200,000,000 (the loans thereunder, the ABL Loans).

The Vertex ABL Credit Agreement also

provides for (i) a $ 15,000,000 sublimit of availability for letters of credit, and (ii) a $ 10,000,000 sublimit for short-term borrowings on a swingline basis.

The commitments under the ABL Facility expire on June 29, 2026, and any ABL Loans then outstanding will be payable in full at that time.

Availability.

Availability under the ABL Facility is subject to a borrowing base (the Borrowing Base), which is based on 85 % of eligible accounts receivable, eligible government account receivable and eligible government subcontract accounts receivable, plus 50 % of eligible unbilled accounts receivable, plus the lesser of (x) 65 % of the book value of eligible inventory, and (y) 85 % of the net orderly liquidation value of eligible inventory of the Vertex Borrower, Vertex Holdings and most of the Vertex Borrower’s wholly-owned domestic subsidiaries (including the Company Guarantor Subsidiaries, collectively, the ABL Guarantors), after adjusting for customary reserves that are subject to the ABL Agent’s discretion.

The aggregate amount of the ABL Loans made and letters of credit issued under the ABL Facility shall at no time exceed the lesser of the aggregate commitments under the ABL Facility (currently $ 200,000,000 or, if increased at the Vertex Borrower’s option as described above, up to $ 250,000,000 ) or the Borrowing Base.

To the extent that the Vertex Borrower’s and ABL Guarantors’ eligible accounts receivable, eligible government account receivable, eligible government subcontract accounts receivable, eligible unbilled accounts receivable, and eligible inventory, decline, the Borrowing Base will decrease, and the availability under the ABL Facility may decrease below $ 200,000,000 .

Any ABL Loans in requested are subject to a number of customary conditions, including accuracy of representations and warranties and no default.

The proceeds from the ABL Loans may be used to finance the working capital needs and general corporate purposes of the Vertex Borrower and its subsidiaries.

Guarantees and Collateral .

The Vertex Borrower’s obligations under the ABL Term Facility are guaranteed by the ABL Guarantors, subject to customary exceptions and limitations.

The Vertex Borrower’s obligations under the ABL Facility and the ABL Subsidiary Guarantors’ obligations under the related guarantees are secured by (a) a first priority-lien on substantially all of the Vertex Borrower’s and the ABL Guarantors’ ABL Priority Collateral (subject to customary exceptions and limitations), and (b) a third priority-lien on substantially all of the Vertex Borrower’s and the ABL Guarantors’ assets other than the ABL Priority Collateral (subject to customary exceptions and limitations).

Interest Rates and Fees.

The borrowings under the ABL Facility bear interest at rates that, at the Vertex Borrower’s option, can be either a base rate, determined by reference to the federal funds rate, plus a margin of 0.75 % to 1.25 % per annum, or a term benchmark rate, determined by reference to Term SOFR, plus a margin of 1.75 % to 2.25 % per annum, in each case, depending on the aggregate availability under the ABL Facility.

Unutilized commitments under the ABL Facility are subject to a per annum fee of (x) 0.375 % if the total outstandings were equal to or less than 50 % of the aggregate commitments, or (y) 0.25 % if such total outstandings were more than 50 % of the aggregate commitments.

The Vertex Borrower is also required to pay a letter of credit fronting fee to each letter of credit issuer equal to 0.125 % per annum of the amount available to be drawn under each such letter of credit (or such other amount as may be mutually agreed by the Vertex Borrowers and the applicable letter of credit issuer), as well as a fee to all lenders equal to the applicable margin for Term SOFR ABL Loans times the average daily amount available to be drawn under all outstanding letters of credit.

Representations and Warranties;

The Vertex ABL Credit Agreement contains customary representations and warranties, that must be accurate in order for the Vertex Borrower to borrow under the ABL Facility, and affirmative covenants.

The Vertex ABL Credit Agreement also includes negative covenants that limit, among other things, additional indebtedness, transactions with affiliates, additional liens, sales of assets, dividends, investments and advances, prepayments of debt, mergers and acquisitions.

The Vertex ABL Credit Agreement also includes a financial covenant that requires the fixed charge coverage ratio to be at least 1.00 to 1.00 as of the end of any period of four fiscal quarters while aggregate availability is less than the greater of (i) $ 10,000,000 and (ii) 10 % of the aggregate borrowing base.

Events of Default.

The Vertex ABL Credit Agreement contains customary events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the ABL Facility to be in full force and effect, and a change of control.

If an event of default occurs and is continuing, the Borrowers may be required immediately to repay all amounts outstanding under the Vertex ABL Credit Agreement.

Stock-based Compensation

Pursuant to and subject to the terms of the Merger Agreement, the Company agreed to issue up to 1,346,139 restricted stock units to certain employees of Vertex following the consummation of the Merger, which restricted stock units will be settled in shares of the Company's common stock upon satisfaction of the applicable vesting conditions.

The grant price of these awards was $ 33.92 per share.

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 1. Financial Statements