V2X, Inc. 10-Q

ITEM 1A. RISK FACTORS This section supplements and updates certain of the information found under Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021 and under Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarterly period ended July 1, 2022, based on information currently known to us and recent developments since the date of the filing of the Annual Report on Form 10-K. However, the risks and uncertainties that we face are not limited to those described below and those set forth in the Annual Report on Form 10-K for the year ended December 31, 2021 and in the Quarterly Report on Form 10-Q for the quarterly period ended July 1, 2022. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business, financial condition or future results. The majority of Vertex’s contracts that now form part of our combined company are fixed-price, which subjects us to losses in the event of cost overruns or a significant increase in inflation. For the nine months ended September 30, 2022, approximately 40% of our U.S. government contract revenue following the Merger was derived from fixed-price and time and materials contracts, which subject us to risks of potential cost overruns, including from greater than anticipated inflation or unexpected delays. Because many fixed-price contracts are long-term and may also involve new technologies, unforeseen events, such as technological difficulties, cost fluctuations, significant inflation, problems with suppliers, and cost overruns can result in the contractual price becoming less favorable or even unprofitable to us. Furthermore, if we do not meet contract deadlines or specifications, we may need to renegotiate fixed-price contracts on less favorable terms, pay penalties or liquidated damages or suffer major losses. Cost overruns would also adversely impact our results of operations, which are dependent on our ability to maximize earnings from our contracts, and the potential risk and reward to our revenues and profitability would be greater if our contract mix shifted toward a greater percentage of fixed-price contracts. In addition, changes in contract financing policy for fixed-price contracts, such as changes in performance and progress payments policies, including any modification of the DoD’s applicable progress payment rate, could significantly affect the timing of our cash flows. U.S. government contracts can expose us to potentially large losses because the U.S. government can hold us responsible for completing a project regardless of the size or foreseability of any cost overruns, price increases or labor shortages that occur. Given the current pace of inflation and other geopolitical factors, we are monitoring the impact of rising costs on our active and future government contracts. To date, we have not experienced broad-based increases due to inflation in the costs of our fixed-price contracts that are material to the business as a whole; however, if we begin to experience greater than expected inflation in our supply chain and labor costs, our profit margins, and in particular, our profit margin from fixed-price contracts, which represent a substantial portion of our contracts, could be adversely affected. 38 Table of Contents ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. MINE SAFETY DISCLOSURES None.