V2X, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto included in this Quarterly Report on Form 10-Q as well as the audited Consolidated Financial Statements and notes thereto and the information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year ended December 31, 2022. This Quarterly Report provides additional information regarding the Company, our services, industry outlook and forward-looking statements that involve risks and uncertainties, including those related to economic conditions including inflation and rising interest rates, and the impact on us, our operations or our future financial or operational results. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results could differ materially from the results contemplated by these forward-looking statements. Refer to "Forward-Looking Information" for further information regarding forward-looking statements. Amounts presented in and throughout this Item 2 are rounded and, as such, any rounding differences could occur in period over period changes and percentages reported. Overview V2X, Inc. is a leading provider of critical mission solutions primarily to defense clients globally. The Company operates as one segment and provides a comprehensive suite of integrated solutions across the operations and logistics, aerospace, training and technology markets to national security, defense, civilian and international clients. Our primary customer is the U.S. Department of Defense (DoD). For the three months ended March 31, 2023 and April 1, 2022, we had total revenue of $943.5 million and $456.5 million, respectively, substantially all of which was derived from U.S. government customers. For the three months ended March 31, 2023 and April 1, 2022, we generated approximately 41% and 61%, respectively, of our total revenue from the U.S. Army. Executive Summary Our revenue increased $487.0 million, or 106.7%, for the three months ended March 31, 2023 compared to the three months ended April 1, 2022. Revenue increased $412.5 million due to the Merger and the remaining increase was from organic growth for legacy programs. Revenue from our U.S., Asia, Middle East and Europe programs increased by $380.8 million, $48.1 million, $45.4 million and $12.7 million, respectively. Operating income for the three months ended March 31, 2023, was $30.6 million, an increase of $25.3 million, or 483.9%, compared to the three months ended April 1, 2022. The increase was due to the Merger and improved performance of legacy programs. During the performance of our long-term contracts, we periodically review estimated final contract prices and costs and make revisions as required, which are recorded as changes in revenue and cost of revenue in the periods in which they are determined. Additionally, the fees under certain contracts may be increased or decreased in accordance with cost or performance incentive provisions which measure actual performance against established targets or other criteria. Such incentive fee awards or penalties are included in revenue when there is sufficient information to reasonably assess anticipated contract performance. Amounts representing contract change orders or limitations in funding on contracts are recorded only if it is probable the claim will result in additional contract revenue and the amounts can be reliably estimated. Changes in estimated revenue, cost of revenue and the related effect to operating income are recognized using cumulative adjustments, which recognize in the current period the cumulative effect of the changes on current and prior periods based on a contract's percentage of completion. Cumulative adjustments are driven by changes in contract terms, program performance, customer scope changes and changes to estimates in the reported period. These changes can increase or decrease operating income depending on the dynamics of each contract. 22 Table of Contents Further details related to our financial results for the three months ended March 31, 2023, compared to the three months ended April 1, 2022, are contained in the "Discussion of Financial Results" section. Merger with Vertex For a discussion of our Merger and related debt and stock-based compensation obligations, see Note 3, Merger , Note 6, Debt, and Note 9, Stock-Based Compensation, in the Notes to Condensed Consolidated Financial Statements. Significant Contracts The following table reflects contracts that accounted for more than 10% of our total revenue for the three months ended March 31, 2023 or April 1, 2022: % of Total Revenue Three Months Ended Contract Name March 31, 2023 April 1, 2022 Logistics Civil Augmentation Program (LOGCAP) V - Kuwait Task Order 13.6% 21.6% Logistics Civil Augmentation Program (LOGCAP) V - Iraq Task Order 8.1% 15.7% Revenue associated with a contract will fluctuate based on increases or decreases in the work being performed on the contract, award fee payment assumptions, and other contract modifications within the term of the contract resulting in changes to the total contract value. The LOGCAP V - Kuwait Task Order is currently exercised through June 30, 2023, with three 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 $127.9 million and $98.4 million of revenue for the three months ended March 31, 2023 and April 1, 2022 , respectively. The LOGCAP V - Iraq Task Order is currently exercised through June 21, 2023, with three additional twelve-month options and one six-month option through December 21, 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 Iraq region. The LOGCAP V - Iraq Task Order contributed $76.5 million and $71.5 million of revenue for the three months ended March 31, 2023 and April 1, 2022 , respectively. Backlog Total backlog includes remaining performance obligations, consisting of both funded backlog (firm orders for which funding is contractually authorized and appropriated by the customer) and unfunded backlog (firm orders for which funding is not currently contractually obligated by the customer and unexercised contract options). Total backlog excludes potential orders under IDIQ contracts and contracts awarded to us that are being protested by competitors with the GAO or in the COFC. The value of the backlog is based on anticipated revenue levels over the anticipated life of the contract. Actual values may be greater or less than anticipated. Total backlog is converted into revenue as work is performed. The level of order activity related to programs can be affected by the timing of U.S. government funding authorizations and their project evaluation cycles. Year-over-year comparisons could, at times, be impacted by these factors, among others. Our contracts are multi-year contracts and typically include an initial period of one year or less with annual one-year or less option periods for the remaining contract period. The number of option periods vary by contract, and there is no guarantee that an option period will be exercised. The right to exercise an option period is at the sole discretion of the U.S. government when we are the prime contractor or of the prime contractor when we are a subcontractor. The U.S. government may also extend the term of a program by issuing extensions or bridge contracts, typically for periods of one year or less. We expect to recognize a substantial portion of our funded backlog as revenue within the next 12 months. However, the U.S. government or the prime contractor may cancel any contract at any time through a termination for convenience. 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. For the three months ended March 31, 2023, total backlog was $11.8 billion as compared to $12.3 billion at December 31, 2022. The following is a summary of our backlog as of March 31, 2023 and December 31, 2022: March 31, December 31, (In millions) 2023 2022 Funded backlog $ 2,603 $ 2,567 Unfunded backlog 9,226 9,695 Total backlog $ 11,829 $ 12,262 23 Table of Contents Funded orders (different from funded backlog) represent orders for which funding was received during the period. We received funded orders of $982.0 million during the three months ended March 31, 2023, which was an increase of $732.1 million compared to the three months ended April 1, 2022. Economic Opportunities, Challenges and Risks The U.S. government’s investment in services and capabilities in response to changing security challenges creates a complex and fluid business environment for V2X and other firms in this market. However, the U.S. continues to face substantial fiscal and economic challenges in addition to a varying political environment which could affect funding. The pace and depth of U.S. government acquisition reform and cost savings initiatives, combined with increased industry competitiveness to win long-term positions on key programs, could add pressure to revenue levels and profit margins. However, we expect the U.S. government will continue to place a high priority on national security and will continue to invest in affordable solutions. We believe that our capabilities, particularly in operations and logistics, aerospace, training and technology, should help our clients increase efficiency, reduce costs, improve readiness, and strengthen national security and, as a result, continue to allow for long-term profitable growth in our business. Further, the DoD budget remains the largest in the world and manag ement believes our addressable portion of the DoD budget offers substantial opportunity for growth. The U.S. government's Fiscal Year (FY) begins on October 1 and ends on September 30. On December 29, 2022, the FY 2023 Omnibus Appropriations Act was signed into law by the President, providing $817 billion to the Defense Department. This reflects a $44 billion increase over the President’s FY 2023 budget request. The Fiscal 2024 budget request was submitted to the U.S. Congress on March 9, 2023, and requested $842 billion for the Department of Defense. Past congressional actions have suspended and increased the debt ceiling at various times but in January 2023, the current statutory debt ceiling limit of $31.4 trillion was reached. As a result, the Treasury Department began taking accounting measures to continue financing the U.S. government while avoiding a breach. However, it is expected the U.S. government will exhaust these measures and that statutory action will be needed to increase or suspend the debt ceiling. There could be a material disruption to discretionary budgets and programs if the debt ceiling is not raised as the U.S. government may not be able to satisfy its funding obligations. If this scenario materializes, the effect on individual programs or the Company cannot be predicted at this time. The debt ceiling as well as the overall federal budget are expected to remain major focus points for debate by the U.S. Congress. While it is difficult to predict the specific course of future defense budgets, we believe many of the core functions we perform are mission-essential and that spending to maintain readiness, improve performance, increase service life, lower cost, and modernize digital and physical environments will continue to be a U.S. government priority. Our focus is on providing integrated solutions across the mission lifecycle that encompass (i) high consequence training; (ii) readiness/logistics/deployment; (iii) mission and infrastructure support, including rapid response contingency efforts; (iv) battlefield connectivity and communications; (v) maintenance, modification, repair, and overhaul of assets and aircraft; (vi) and upgrades and modernization across digital and physical environments. We develop and insert operational technologies across our solutions to improve efficiency and the outcomes of our clients' missions. We believe this aligns with our clients' intent to utilize and harden existing equipment, infrastructure, and assets rather than executing new purchases. While customers may reduce the level of services required from us, we do not currently anticipate the complete elimination of these services. However, business conditions have become more challenging due to macroeconomic conditions, including inflation and rising interest rates. Given the current pace of inflation and other geopolitical factors, we are monitoring the impact of rising costs on our active and future contracts. To date, we have not experienced broad-based increases due to inflation in the costs of our fixed-price and time and materials 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 and time and materials contracts, which represent a substantial portion of our contracts, could be adversely affected. See Item 1A, "Risk Factors". On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022, which includes, among other provisions, changes to the U.S. corporate income tax system. While we do not currently anticipate any impact on our business, we are continuing to evaluate the Inflation Reduction Act of 2022 and its requirements, as well as any potential impact on our business in future. The information provided above does not represent a complete list of trends and unc ertainties that could impact our business in either the near or long-term and should be considered along with the risk factors identified under the caption “Risk Factors” identified in Part 1, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2022 and the matters identified under the caption “Forward-Looking Statement Information" herein. 24 Table of Contents DISCUSSION OF FINANCIAL RESULTS Three months ended March 31, 2023, compared to three months ended April 1, 2022 Selected financial highlights are presented in the following table: Three Months Ended Change (In thousands, except for percentages) March 31, 2023 April 1, 2022 $ % Revenue $ 943,460 $ 456,471 $ 486,989 106.7 % Cost of revenue 864,630 419,275 445,355 106.2 % % of revenue 91.6 % 91.9 % Selling, general, and administrative expenses 48,251 31,959 16,292 51.0 % % of revenue 5.1 % 7.0 % Operating income 30,579 5,237 25,342 483.9 % Operating margin 3.2 % 1.1 % Loss on extinguishment of debt (22,052) — (22,052) * Interest expense, net (31,744) (1,681) (30,063) 1,788.4 % (Loss) income from operations before income taxes (23,217) 3,556 (26,773) (752.9) % % of revenue (2.5) % 0.8 % Income tax (benefit) expense (5,737) 701 (6,438) (918.4) % Effective income tax rate 24.7 % 19.7 % Net (loss) income $ (17,480) $ 2,855 $ (20,335) (712.3) % *Percentage change is not meaningful. Revenue Revenue increased $487.0 million, or 106.7%, for the three months ended March 31, 2023 as compared to the three months ended April 1, 2022. Revenue increased $412.5 million due to the Merger and the remaining increase was from organic growth for legacy programs. Revenue from our U.S., Asia, Middle East and Europe programs increased by $380.8 million, $48.1 million, $45.4 million and $12.7 million, respectively. Cost of Revenue Cost of revenue increased $445.4 million, or 106.2%, for the three months ended March 31, 2023 as compared to the three months ended April 1, 2022, primarily due to the increased revenue from the Merger and increased amortization of intangible assets. Selling, General, & Administrative (SG&A) Expenses SG&A expenses increased $16.3 million, or 51.0%, for the three months ended March 31, 2023 as compared to the three months ended April 1, 2022, primarily due to the Merger. Operating Income Operating income increased $25.3 million, or 483.9%, for the three months ended March 31, 2023 as compared to the three months ended April 1, 2022. Operating income as a percentage of revenue was 3.2% for the three months ended March 31, 2023, compared to 1.1% for the three months ended April 1, 2022. The increase was due to the Merger and improved performance of legacy programs. Aggregate cumulative catch-up adjustments increased operating income by $13.1 million and $0.6 million for the three months ended March 31, 2023 and April 1, 2022, respectively. The aggregate cumulative catch-up adjustments for the three months ended March 31, 2023 and April 1, 2022 related to changes in contract terms, program performance, customer changes in scope of work and changes to estimates in the reported period. Operating income was also impacted by labor mix and the cost differential between internal resources and subcontractors as well as the volume of other direct cost purchases. Loss on Extinguishment of Debt The Company recorded a $22.1 million loss on extinguishment of debt for the three months ended March 31, 2023. For a discussion of the loss on extinguishment see Note 6, Debt, in the Notes to Condensed Consolidated Financial Statements. 25 Table of Contents Interest (Expense) Income, Net Interest (expense) income, net for the three months ended March 31, 2023 and April 1, 2022 was as follows: Three Months Ended Change (In thousands, except for percentages) March 31, 2023 April 1, 2022 $ % Interest income $ 208 $ 43 $ 165 383.7 % Interest expense (31,952) (1,724) (30,228) 1,753.4 % Interest expense, net $ (31,744) $ (1,681) $ (30,063) 1,788.4 % Interest income is directly related to interest earned on our cash and cash equivalents. Interest expense is directly related to borrowings under our senior secured credit facilities, with the amortization of debt issuance costs, and derivative instruments used to hedge a portion of our exposure to interest rate risk. Interest expense, net increased $30.1 million for the three months ended March 31, 2023 compared to the three months ended April 1, 2022 due to increased debt assumed with the Merger. Income Tax (Benefit) Provision We recorded income tax benefit of $5.7 million and provision of $0.7 million for the three months ended March 31, 2023 and April 1, 2022, respectively, representing effective income tax rates of 24.7% and 19.7%, 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), available deductions not reflected in book income, and income tax credits. LIQUIDITY AND CAPITAL RESOURCES Liquidity We have generated operating cash flows sufficient to fund our working capital, capital expenditures, and financing requirements. We expect to fund our ongoing working capital, capital expenditure and financing requirements and pursue additional growth through new business development and potential acquisition opportunities by using cash flows from operations, cash on hand, our credit facilities, and access to capital markets. When necessary, we will utilize our revolving credit facility to satisfy short-term working capital requirements. If our cash flows from operations are less than what we expect, we may need to access the long-term or short-term capital markets. Although we believe that our current financing arrangements will permit us to finance our operations on acceptable terms and conditions, our access to and the availability of financing on acceptable terms and conditions in the future will be impacted by many factors, including: (i) our credit ratings, (ii) the liquidity of the overall capital markets, and (iii) the current state of the economy. We cannot provide assurance that such financing will be available to us on acceptable terms or that such financing will be available at all. As of March 31, 2023, there were $185.0 million of outstanding borrowings and $14.9 million of outstanding letters of credit under the 2023 Revolver. Unamortized deferred financing costs related to the 2023 Revolver of $4.9 million are included in other non-current assets in the Condensed Consolidated Balance Sheets. As of March 31, 2023, the fair value of the 2023 Revolver approximated the carrying value because the debt bears a floating interest rate. As of March 31, 2023, the carrying value of the Term Loan portion of the 2023 Credit Agreement was $250.0 million, excluding unamortized deferred financing costs of $2.5 million. The estimated fair value of the Term Loan portion of the 2023 Credit Agreement as of March 31, 2023 was $246.3 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. The cash presented on our Condensed Consolidated Balance Sheets consists of U.S. and international cash from wholly owned subsidiaries. Approximately $25.4 million of our total $62.1 million in cash and cash equivalents at March 31, 2023 is held by our foreign subsidiaries and is not available to fund U.S. operations unless repatriated. We do not currently expect that we will be required to repatriate undistributed earnings of foreign subsidiaries. We expect our U.S. domestic cash resources will be sufficient to fund our U.S. operating activities and cash commitments for financing activities. Dividends We do not currently plan to pay a regular dividend on our common stock. The declaration of any future cash dividends and the amount of any such dividends, if declared, will depend upon our financial condition, earnings, capital requirements, financial covenants and other contractual restrictions and the discretion of our Board of Directors. In deciding whether to pay future dividends on our common stock, our Board of Directors may take into account such matters as general business conditions, industry practice, our financial condition and performance, our future prospects, our cash needs and capital investment plans, income tax consequences, applicable law and such other factors as our Board of Directors may deem relevant. 26 Table of Contents Sources and Uses of Liquidity Cash, accounts receivable, unbilled receivables, and accounts payable are the principal components of our working capital and are generally driven by our level of revenue with other short-term fluctuations related to payment practices by our customers and the timing of our billings. Our receivables reflect amounts billed to our customers, as well as the revenue that was recognized in the preceding month, which is normally billed the month following each balance sheet date. 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. The Company determines its DSO by calculating the number of days necessary to exhaust its ending accounts receivable balance based on its most recent historical revenue. Our DSO was 70 and 68 days as of March 31, 2023 and December 31, 2022, respectively. The following table sets forth net cash used in operating activities, investing activities and financing activities: Three Months Ended (In thousands) March 31, 2023 April 1, 2022 Operating activities $ (38,492) $ (26,381) Investing activities (9,076) (2,178) Financing activities (7,921) 12,316 Foreign exchange 1 1,567 729 Net change in cash and cash equivalents $ (53,922) $ (15,514) 1 Impact on cash balances due to changes in foreign exchange rates. Net cash used in operating activities increased for the three months ended March 31, 2023, as compared to the three months ended April 1, 2022, primarily due to 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. Net cash used in operating activities for the three months ended April 1, 2022 consisted of cash outflows for working capital requirements of $29.4 million and other long-term assets and liabilities of $6.5 million. This was partially offset by cash inflows from net income of $2.9 million and the favorable impact of non-cash net income items of $6.6 million. The net working capital outflows were largely from increases in accounts receivable and decreases in accrued compensation, which included an $8.1 million payment of deferred CARES Act payroll taxes, partially offset by increases in accounts payable. Net cash used in investing activities for the three months ended March 31, 2023 and April 1, 2022 consisted of $9.1 million and $2.2 million, respectively, of capital expenditures for the purchase of software and hardware, vehicles and equipment related to ongoing operations. Net cash used in financing activities during the three 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. Net cash provided by financing activities during the three months ended April 1, 2022 consisted of repayments of long-term debt of $2.6 million, payments of $1.6 million for employee withholding taxes on share-based compensation and payments $0.5 million for debt issuance costs. During the three months ended April 1, 2022, we also borrowed and repaid $217.0 million and $200.0 million, respectively, on the Amended Revolver. Capital Resources At March 31, 2023, we held cash and cash equivalents of $62.1 million, which included $25.4 million held by foreign subsidiaries, and had $300.1 million of available borrowing capacity under the 2023 Revolver, which expires on February 25, 2028. We believe that our cash and cash equivalents at March 31, 2023, as supplemented by cash flows from operations and the 2023 Revolver, will be sufficient to fund our anticipated operating costs, capital expenditures, and current debt repayment obligations for at least the next 12 months. 27 Table of Contents Contractual Obligations As of March 31, 2023, our commitments to make future payments under long-term contractual obligations were as follows: Payments Due by Period Less than 1 year More than 5 Years (In thousands) Total 1 - 3 Years 3 - 5 Years Operating leases $ 61,125 $ 18,431 $ 20,710 $ 12,930 $ 9,054 Principal payments on Vertex First Lien Credit Agreement¹ 915,750 9,250 18,500 18,500 869,500 Principal payments on 2023 Credit Agreement¹ 435,000 6,250 18,750 410,000 — Interest on Vertex First Lien and 2023 Credit Agreements 608,378 115,739 226,134 216,382 50,123 Total $ 2,020,253 $ 149,670 $ 284,094 $ 657,812 $ 928,677 ¹ Includes unused funds fee and is based on the March 31, 2023 interest rate and outstanding Credit Agreement balance CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Estimates are revised as additional information becomes available. Management believes that the accounting estimates employed and the resulting balances are reasonable; however, actual results in these areas could differ from management's estimates under different assumptions or conditions. We believe that the assumptions and estimates associated with revenue recognition, 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 our critical accounting policies and estimates from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2022. New Accounting Pronouncements Refer to Part I, Item 1, Note 2 , Recent Accounting Standards Update in the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for information regarding accounting pronouncements and accounting standards updates. FORWARD-LOOKING INFORMATION This Quarterly Report on Form 10-Q and certain information incorporated herein by reference contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 27A of the Securities Act of 1933, as amended (the Securities Act), and the Private Securities Litigation Reform Act of 1995 and, as such, may involve risks and uncertainties. All statements included or incorporated by reference in this report, other than statements that are purely historical, are forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “could,” “potential,” “continue” or similar terminology. These statements are based on the beliefs and assumptions of the management of the Company based on information currently available to management. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements. 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: the continued impact of COVID-19 and any variant strains thereof on the global economy; 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 and other disruptions to our information technology and operation; our mix of cost-plus, cost-reimbursable, and firm-fixed-price 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 businesses; changes in U.S. or international government defense budgets; government regulations and compliance therewith, including changes to the DoD procurement process; changes in technology; intellectual property matters; 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's 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 28 Table of Contents 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 agreement; inflation and interest rate risk; subcontractor 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 the Merger; risks and uncertainties relating to the Spin-off; changes in GAAP; and other factors described in Item 1A, “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2022 and described from time to time in our future reports filed with the SEC.