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Item 1. Financial Statements

2023-08-08 compared with 2023-05-09 · 211 added, 189 removed, 396 unchanged (50% of the section changed)

FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME (UNAUDITED)

Three Months Ended

March 31, April 1,

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

Three Months Ended Six Months Ended

June 30, July 1, June 30, July 1,

(In thousands, except per share data) 2023 2022 2023 2022

5 unchanged sentences

Interest expense, net ( 31,950 ) ( 1,963 ) ( 63,694 ) ( 3,643 )

(Loss) income from operations before income taxes ( 23,217 ) 3,556

Income tax (benefit) expense ( 5,737 ) 701

Net (loss) income $ ( 17,480 ) $ 2,855

(Loss) earnings per share

Other expense, net ( 311 ) — ( 311 ) —

Income (loss) from operations before income taxes 2,009 13,058 ( 21,208 ) 16,614

Income tax expense (benefit) 210 2,586 ( 5,527 ) 3,287

Net income (loss) $ 1,799 $ 10,472 $ ( 15,681 ) $ 13,327

Earnings (loss) per share

Basic $ 0.06 $ 0.89 $ ( 0.51 ) $ 1.13

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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)

Three Months Ended

March 31, April 1,

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

Three Months Ended Six Months Ended

June 30, July 1, June 30, July 1,

(In thousands) 2023 2022 2023 2022

Net (loss) income $ ( 17,480 ) $ 2,855

Other comprehensive loss, net of tax

Net income (loss) $ 1,799 $ 10,472 $ ( 15,681 ) $ 13,327

Other comprehensive income (loss), net of tax

Changes in derivative instruments:

1 unchanged sentence

Net change in fair value of foreign currency forward contracts — — — 30

Tax expense 148 ( 95 )

Tax (expense) benefit ( 1,444 ) 367 ( 1,296 ) 272

Net change in derivative instruments 6,214 594 4,015 969

Foreign currency translation adjustments, net of tax 274 ( 3,637 ) 2,080 ( 4,254 )

Other comprehensive loss, net of tax ( 393 ) ( 242 )

Total comprehensive (loss) income $ ( 17,873 ) $ 2,613

Other comprehensive income (loss), net of tax 6,488 ( 3,043 ) 6,095 ( 3,285 )

Total comprehensive income (loss) $ 8,287 $ 7,429 $ ( 9,586 ) $ 10,042

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

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

March 31, December 31,

(In thousands, except per share information) 2023 2022

June 30, December 31,

(In thousands) 2023 2022

Current assets

33 unchanged sentences

100,000 shares authorized;

31,005 and 30,470 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

31,081 and 30,470 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

Additional paid in capital 754,096 748,877

Retained earnings 237,743 253,424

Accumulated other comprehensive loss ( 5,920 ) ( 5,527 )

Accumulated other comprehensive income (loss) 568 ( 5,527 )

Total shareholders' equity 992,718 997,079

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended

March 31, April 1,

Six Months Ended

June 30, July 1,

(In thousands) 2023 2022

1 unchanged sentence

Net (loss) income $ ( 15,681 ) $ 13,327

Adjustments to reconcile net (loss) income to net cash used in operating activities:

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation expense 11,326 3,238

12 unchanged sentences

Other liabilities 31,831 ( 11,989 )

Net cash used in operating activities ( 38,492 ) ( 26,381 )

Net cash provided by operating activities 78,140 19,636

Investing activities

1 unchanged sentence

Proceeds from the disposition of assets 5 18

Contribution to joint venture — ( 2,113 )

Net cash used in investing activities ( 11,538 ) ( 5,587 )

8 unchanged sentences

Payments of employee withholding taxes on share-based compensation ( 14,618 ) ( 1,696 )

Net cash (used in) provided by financing activities ( 7,921 ) 12,316

Net cash used in financing activities ( 113,607 ) ( 16,984 )

Exchange rate effect on cash 1,252 ( 507 )

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

Common Stock Issued Additional Paid-in Capital Accumulated Other Comprehensive Loss Total Shareholders' Equity

Common Stock Issued Additional Paid-in Capital Accumulated Other Comprehensive (Loss) Income Total Shareholders' Equity

(In thousands) Shares Amount Retained Earnings

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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 gain 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

Balance at December 31, 2022 30,470 $ 305 $ 748,877 $ 253,424 $ ( 5,527 ) $ 997,079

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Balance at March 31, 2023 31,005 $ 310 $ 748,137 $ 235,944 $ ( 5,920 ) $ 978,471

Net income — — — 1,799 — 1,799

Foreign currency translation adjustments — — — — 274 274

Unrealized gain on cash flow hedge — — — — 6,214 6,214

Employee stock awards and stock options 76 1 — — — 1

Taxes withheld on restricted stock unit compensation awards — — ( 1,812 ) — — ( 1,812 )

Stock-based compensation — — 7,771 — — 7,771

Balance at June 30, 2023 31,081 $ 311 $ 754,096 $ 237,743 $ 568 $ 992,718

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

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The Company operates as one segment and delivers a comprehensive suite of integrated solutions across the operations and logistics, aerospace, training and technology markets to national security, defense, civilian and international clients.

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

On September 27, 2014, Exelis Inc, an Indiana corporation, spun-off (the Spin-off) Vectrus and Vectrus became an independent, publicly traded company.

References in these notes to "Exelis" or "Former Parent" refer to Exelis Inc.

and its consolidated subsidiaries (other than Vectrus).

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

On March 7, 2022, Vectrus entered into an Agreement and Plan of Merger (the Merger Agreement) with Vertex Aerospace Services Holding Corp., a Delaware corporation (Vertex), Andor Merger Sub Inc., a Delaware corporation (Merger Sub Inc.) and Andor Merger Sub LLC, a Delaware limited liability company (Merger Sub LLC).

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Equity Investments

In 2011, we entered into a joint venture agreement with Shaw Environmental & Infrastructure, Inc., which is now APTIM Federal Services LLC.

In 2011, the Company entered into a joint venture agreement with Shaw Environmental & Infrastructure, Inc., which is now APTIM Federal Services LLC.

Pursuant to the joint venture agreement, High Desert Support Services, LLC (HDSS) was established to pursue and perform work on the Ft.

Irwin Installation Support Services Contract, which was awarded to HDSS in October 2012.

In 2018, we entered into a joint venture agreement with J&J Maintenance.

In 2018, the Company entered into a joint venture agreement with J&J Maintenance.

Pursuant to the joint venture agreement, J&J Facilities Support, LLC (J&J) was established to pursue and perform work on various U.S.

government contracts.

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

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 V2X 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 25 %, 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 (Loss) Income.

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

When we receive cash distributions from our equity method investments, the cash distribution is compared to cumulative earnings and cumulative cash distributions.

In 2020, the Company entered into a joint venture agreement with Kuwait Resources House for Human Resources Management and 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 V2X and others around the world.

The Company accounts for investments in HDSS, J&J, and ServCore under the equity method and has the ability to exercise significant influence but does not hold a controlling interest.

The Company's proportionate 25 %, 50 %, and 40 % shares, respectively, of income or losses from HDSS, J&J, and ServCore are recorded in selling, general and administrative expenses in the Condensed Consolidated Statements of Income (Loss).

The Company's investment in these joint ventures is recorded in other non-current assets in the Condensed Consolidated Balance Sheets.

When cash distributions are received by the Company from its equity method investments, the cash distribution is compared to cumulative earnings and cumulative cash distributions.

Cash distributions received are recorded as a return on investment in operating cash flows within the Condensed Consolidated Statements of Cash Flows to the extent cumulative cash distributions are less than cumulative earnings.

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.

As of March 31, 2023 and December 31, 2022 our joint venture investment balance was $ 6.5 million and $ 7.0 million, respectively.

Our proportionate share of income from the HDSS, J&J, and ServCore joint ventures was $ 1.8 million for the first quarter of 2023 and not material for the first quarter 2022.

As of June 30, 2023 and December 31, 2022 the Company's joint venture investment balance was $ 6.3 million and $ 7.0 million, respectively.

The Company's proportionate share of income from the HDSS, J&J, and ServCore joint ventures was $ 2.0 million and $ 3.8 million for the three and six months ended June 30, 2023 , respectively, and not material for the first and second quarters of 2022.

Basis of Presentation

Our quarterly financial periods end on the Friday closest to the last day of the calendar quarter (March 31, 2023 for the first quarter of 2023 and April 1, 2022 for the first quarter of 2022), except for the last quarter of the fiscal year, which ends on December 31.

The Company's quarterly financial periods end on the Friday closest to the last day of the calendar quarter (June 30, 2023 for the second quarter of 2023 and July 1, 2022 for the second quarter of 2022), 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.

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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, 2022.

These unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

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.

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RECENT AC COUNTING STANDARDS UPDATE

There have been no accounting standards issued or adopted during the first quarter of 2023 that are expected to have a material impact on the Company's financial statements.

In accordance with ASC Topic 805, Business Combinations , we accounted for the below transaction using the acquisition method.

We conducted valuations of certain acquired assets and liabilities for inclusion in our Condensed Consolidated Balance Sheets as of the date of the Merger.

There have been no accounting standards issued or adopted during the first or second quarters of 2023 that are expected to have a material impact on the Company's financial statements.

In accordance with Accounting Standards Codification (ASC) Topic 805, Business Combinations , the Company accounted for the below transaction using the acquisition method.

The Company conducted valuations of certain acquired assets and liabilities for inclusion in its Condensed Consolidated Balance Sheets as of the date of the Merger.

Assets that normally would not be recorded in ordinary operations, such as intangibles related to contractual relationships, were recorded at their estimated fair values.

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On the Closing Date, Vertex and its consolidated subsidiaries became wholly-owned subsidiaries of the Company.

The combined V2X entity from the Merger is a larger and more diversified Company with the ability to compete for more integrated business opportunities and generate revenue across geographies, clients, and contract types in supporting the mission of our customers.

Purchase Price Allocation

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Total consideration transferred $ 633,951

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed in the Merger as of the Closing Date.

The estimated fair value of Vertex’s assets acquired and liabilities assumed at the acquisition date are determined based on preliminary valuations and analyses.

As of March 31, 2023, we considered these amounts to be preliminary because we are still in the process of gathering and reviewing information to support the details surrounding tax matters and assumptions underlying certain existing or potential reserves.

The final determination could result in further adjustments.

(In thousands) Preliminary Fair Value

The following table summarizes the final fair values of the assets acquired and liabilities assumed in the Merger as of the Closing Date.

As of June 30, 2023, the Company considered these amounts to be final.

(In thousands) Fair Value

Cash and cash equivalents $ 196,993

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

In addition, we recognized two intangible assets related to backlog and customer contracts arising from the Merger.

Intangible assets related to backlog and customer contracts arising from the Merger were also recognized.

The fair value of backlog was $ 316.0 million, and the fair value of the customer contracts was $ 164.0 million with amortization periods of 4.5 years and 14.0 years, respectively.

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As part of the Merger, V2X acquired certain contracts, including a Transition Services Agreement (TSA) with Crestview Aerospace LLC (Crestview), which was previously divested to American Industrial Partners Capital Fund VI, L.P.

As of March 31, 2023, the Company recorded $ 0.7 million of income related to the TSA with Crestview, which was recorded as a reduction in cost of sales.

AIP held approximately 60.0 % of V2X common stock as of March 31, 2023.

The following unaudited information shows the combined actual results of our operations for the three months ended March 31, 2023 and pro forma results for the three months ended April 1, 2022 as if the Merger had occurred on January 1, 2021.

The unaudited pro forma information reflects the effects of applying our accounting policies and certain pro forma adjustments to the combined historical financial information of Vertex.

For the three and six months ended June 30, 2023, the Company recorded $ 0.7 million and $ 1.4 million of income related to the TSA with Crestview, respectively, which was recorded as a reduction in cost of revenue.

AIP indirectly held approximately 59.5 % of V 2X common stock through Vertex Aerospace Holdco LLC as of June 30, 2023.

The following unaudited information shows the combined actual results of operations for the three and six months ended June 30, 2023 and pro forma results for the three and six months ended July 1, 2022 as if the Merger had occurred on January 1, 2021.

The unaudited pro forma information reflects the effects of applying the Company's accounting policies and certain pro forma adjustments to the combined historical financial information of Vertex.

The pro forma adjustments include:

a) incremental amortization expense associated with identified intangible assets;

b) incremental interest expense resulting from fair value adjustments applied to the Vertex debt that we assumed;

b) incremental interest expense resulting from fair value adjustments applied to the Vertex debt that was assumed;

and c) a reduction of revenues and operating expenses associated with fair value adjustments made to acquire assets and assumed liabilities, such as contract assets and contract liabilities.

This unaudited pro forma information is presented for informational purposes only and may not necessarily reflect the actual results of operations that would have been achieved, nor are they necessarily indicative of future results of operations.

Three Months Ended

March 31, 2023 April 1, 2022

(Unaudited, in thousands) Actual Pro forma

Three Months Ended Six Months Ended

June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

(Unaudited, in thousands) Actual Pro forma Actual Pro forma

Revenue $ 977,852 $ 887,377 $ 1,921,312 $ 1,730,118

Net (loss) income $ ( 17,480 ) $ 11,953

Net income (loss) $ 1,799 $ 4,004 $ ( 15,681 ) $ 15,897

Performance Obligations

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If the modification either creates new enforceable rights and obligations or changes the existing enforceable rights and obligations, the modification will be treated as a separate contract.

Our contract modifications, except for those to exercise option years, have historically not been distinct from the existing contract and have been accounted for as if they were part of that existing contract.

Contract modifications, except for those to exercise option years, have historically not been distinct from the existing contract and have been accounted for as if they were part of that existing contract.

The Company's performance obligations are satisfied over time as services are provided throughout the contract term.

We recognize revenue over time using the input method (e.g., costs incurred to date relative to total estimated costs at completion) to measure progress.

Our over-time recognition is reinforced by the fact that our customers simultaneously receive and consume the benefits of our services as they are performed.

Revenue is recognized over time using the input method (e.g., costs incurred to date relative to total estimated costs at completion) to measure progress.

Over-time recognition is reinforced by the fact that the Company's customers simultaneously receive and consume the benefits of its services as they are performed.

For most U.S.

government contracts, this continuous transfer of control to the customer is supported by contract terms 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.

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

The Company's contracts are multi-year contracts and typically include an initial period of one year or less with annual one-year (or less) option periods.

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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.

We expect to recognize a substantial portion of our performance obligations as revenue within the next 12 months.

government when the Company is the prime contractor or of the prime contractor when the Company is a subcontractor.

The Company expects to recognize a substantial portion of its performance obligations 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 or for cause.

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.

Performance obligations as of March 31, 2023 and December 31, 2022 are presented in the following table:

March 31, December 31,

Substantially all of the Company's contracts have terms that would permit recovery of all or a portion of the Company's incurred costs and fees for work performed in the event of a termination for convenience.

Performance obligations as of June 30, 2023 and December 31, 2022 are presented in the following table:

June 30, December 31,

(In millions) 2023 2022

Performance Obligations $ 3,696 $ 2,997

We expect to recognize approximately 62 % of the performance obligations as of March 31, 2023 as revenue in 2023 and the remaining 38 % during 2024.

As of June 30, 2023, the Company expects to recognize approximately 43 % and 57 % of these performance obligations as revenue in 2023 and 2024, respectively.

Contract Estimates

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 March 31, 2023 and April 1, 2022 increased operating income by $ 13.1 million and $ 0.6 million, respectively.

For the three months ended March 31, 2023 and April 1, 2022, the cumulative catch-up adjustments to operating income increased revenue by $ 13.9 million and $ 0.6 million, respectively.

The impact of adjustments in contract estimates on the Company's operating income can be reflected in either revenue or cost of revenue.

Cumulative catch-up adjustments for the three and six months ended June 30, 2023 increased operating income by $ 9.1 million and $ 22.2 million, respectively.

For the three and six months ended July 1, 2022, the adjustments increased operating income by $ 6.8 million and $ 7.4 million, respectively.

For the three and six months ended June 30, 2023, the cumulative catch-up adjustments to operating income increased revenue by $ 9.6 million and $ 23.5 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.

Revenue by Category

Generally, the sales price elements for our contracts are cost-plus, cost-reimbursable or firm-fixed-price.

We commonly have elements of cost-plus, cost-reimbursable, time-and-materials and firm-fixed-price contracts on a single contract.

On a cost-plus contract, we are paid our allowable incurred costs plus a profit, which can be fixed or variable depending on the contract’s fee arrangement, up to funding levels predetermined by our customers.

On cost-plus contracts, we do not bear the risks of unexpected cost overruns, provided that we do not incur costs that exceed the predetermined funded amounts.

Most of our cost-plus contracts also contain a firm-fixed-price element.

Cost-plus contracts with award and incentive fee provisions are our primary variable contract fee arrangement.

Generally, the sales price elements for the Company's contracts are cost-plus, cost-reimbursable or firm-fixed-price, all of which are commonly identified with a single contract.

On a cost-plus contract, the Company is paid allowable incurred costs plus a profit, which can be fixed or variable depending on the contract’s fee arrangement, up to funding levels predetermined by the Company's customers.

On cost-plus contracts, the Company does not bear the risks of unexpected cost overruns, provided that incurred costs do not exceed the predetermined funded amounts.

Most of the Company's cost-plus contracts also contain a firm-fixed-price element.

Cost-plus contracts with award and incentive fee provisions are primary variable contract fee arrangements.

Award fees provide for a fee based on actual performance relative to contractually specified performance criteria.

Incentive fees provide for a fee based on the relationship between total allowable and target cost.

On most of our contracts, a cost-reimbursable element captures consumable materials required for the program.

Incentive fees are based on the relationship between total allowable and target cost.

Most of the Company's contracts include a cost-reimbursable element to capture costs of consumable materials required for the program.

Typically, these costs do not bear fees.

On a time-and-materials 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 that our labor costs and allocable indirect expenses are greater than the fixed hourly rate defined within the contract.

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

A firm-fixed-price contract typically offers higher profit margin potential than a cost-plus contract, which is commensurate with the greater levels of risk we assume on a firm-fixed-price contract.

Although a firm-fixed-price contract generally permits us to retain profits if the total actual contract costs are less than the estimated contract costs, we bear the risk that increased or unexpected costs may reduce our profit or cause us to sustain losses on the contract.

On a time-and-materials contract, the Company is reimbursed for labor at fixed hourly rates and generally reimbursed separately for allowable materials, costs and expenses at cost.

For this contract type, the Company bears the risk that labor costs and allocable indirect expenses are greater than the fixed hourly rate defined within the contract.

On a firm-fixed-price contract, the Company agrees to perform the contractual statement of work for a predetermined contract price.

A firm-fixed-price contract typically offers higher profit margin potential than a cost-plus contract, which is commensurate with the greater levels of risk assumed on a firm-fixed-price contract.

Although a firm-fixed-price contract generally permits retention of profits if the total actual contract costs are less than the estimated contract costs, the Company bears the risk that increased or unexpected costs may reduce profit or cause the Company to sustain losses on the contract.

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.

The following tables present various revenue disaggregations.

Revenue by contract type for the three months ended March 31, 2023 and April 1, 2022 is as follows:

Three Months Ended

March 31, April 1, %

(In thousands) 2023 2022 Change

Revenue by contract type is as follows:

Three Months Ended Six Months Ended

June 30, July 1, % June 30, July 1, %

(In thousands) 2023 2022 Change 2023 2022 Change

Cost-plus and cost-reimbursable $ 507,282 $ 355,559 42.7 % $ 1,019,217 $ 666,653 52.9 %

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Total revenue $ 977,852 $ 498,066 $ 1,921,312 $ 954,537

Revenue by geographic region in which the contract is performed for the three months ended March 31, 2023 and April 1, 2022 is as follows:

Three Months Ended

March 31, April 1, %

(In thousands) 2023 2022 Change

Revenue by geographic region in which the contract is performed is as follows:

Three Months Ended Six Months Ended

June 30, July 1, % June 30, July 1, %

(In thousands) 2023 2022 Change 2023 2022 Change

United States $ 578,514 $ 158,719 264.5 % $ 1,127,284 $ 325,454 246.4 %

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Total revenue $ 977,852 $ 498,066 $ 1,921,312 $ 954,537

Revenue by contract relationship for the three months ended March 31, 2023 and April 1, 2022 is as follows:

Three Months Ended

March 31, April 1, %

(In thousands) 2023 2022 Change

Revenue by contract relationship is as follows:

Three Months Ended Six Months Ended

June 30, July 1, % June 30, July 1, %

(In thousands) 2023 2022 Change 2023 2022 Change

Prime contractor $ 916,060 $ 468,453 95.5 % $ 1,795,239 $ 895,546 100.5 %

1 unchanged sentence

Total revenue $ 977,852 $ 498,066 $ 1,921,312 $ 954,537

Revenue by customer for the three months ended March 31, 2023 and April 1, 2022 is as follows:

Three Months Ended

March 31, April 1, %

(In thousands) 2023 2022 Change

Revenue by customer is as follows:

Three Months Ended Six Months Ended

June 30, July 1, % June 30, July 1, %

(In thousands) 2023 2022 Change 2023 2022 Change

Army $ 393,499 $ 326,756 20.4 % $ 784,002 $ 606,869 29.2 %

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

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

However, the Company may receive advances or deposits from its 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 ensure that both parties are in conformance with the primary contract terms.

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 March 31, 2023 and December 31, 2022, we had contract assets of $ 559.3 million and $ 487.8 million, respectively.

As of June 30, 2023 and December 31, 2022, the Company had contract assets of $ 570.8 million and $ 487.8 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 March 31, 2023 and December 31, 2022, our contract liabilities, included in other accrued liabilities in the Condensed Consolidated Balance Sheets, were $ 73.1 million and $ 76.4 million, respectively.

Refer to Note 5, Receivables for additional information regarding the composition of the Company's receivable balances.

As of June 30, 2023 and December 31, 2022, contract liabilities, included in other accrued liabilities in the Condensed Consolidated Balance Sheets, were $ 62.6 million and $ 76.4 million, respectively.

Receivables were comprised of the following:

(In thousands) March 31, 2023 December 31, 2022

(In thousands) June 30, 2023 December 31, 2022

Billed receivables $ 164,677 $ 227,718

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Total receivables $ 746,562 $ 728,582

As of March 31, 2023 and December 31, 2022, substantially all billed receivables are due from the U.S.

As of June 30, 2023 and December 31, 2022, 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 March 31, 2023 contract assets during 2023.

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

The Company expects to bill customers for the majority of the June 30, 2023 contract assets during 2023.

Changes in the balance of unbilled receivables are primarily due to the timing differences between performance and customers' payments.

Senior Secured Credit Facilities

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On the Closing Date, the outstanding debt from the Amended Term Loan and the Amended Revolver, $ 50.2 million and $ 40.0 million, respectively, was repaid and related guarantees and liens were discharged and released.

Repayment was made

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

As of December 31, 2021, the balance outstanding under the Amended Term Loan and the Amended Revolver, was $ 55.4 million and $ 50.0 million, respectively.

On the Closing Date, 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:

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

On the Closing Date, certain of the Company's 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:

the First Lien Credit Agreement, dated as of December 6, 2021 (as amended by the Amendment No.

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The balance of unamortized deferred financing costs related to the First Incremental Term Tranche of $ 11.9 million was recorded as a loss on extinguishment of debt in the Condensed Consolidated Statements of (Loss) Income for the three months ended March 31, 2023.

The remaining loans under the First Lien Term Facility (consisting solely of the Initial Term Loan Tranche) amortize in an amount equal to approximately $ 2.3 million per quarter for the fiscal quarters ending March 31, 2023, through September 30, 2028, with the balance of $ 864.9 million due on December 6, 2028.

The remaining loans under the First Lien Term Facility (consisting solely of the Initial Term Loan Tranche) amortize in an amount equal to approximately $ 2.3 million per quarter for the fiscal quarters ending June 30, 2023, through September 30, 2028, with the balance of $ 864.9 million due on December 6, 2028.

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

The Vertex Borrower’s obligations under the First Lien Term Facility and the Guarantors’ obligations under the related guarantees are secured by a first-lien on substantially all of the Vertex Borrower’s and the Guarantors’ assets which exists on a pari passu basis with the lien held by the 2023 Credit Agreement lenders.

rate, or (c) an adjusted Eurodollar rate plus 1.00 %, plus a margin of 2.50 % to 2.75 % per annum, or a Eurodollar rate, determined by reference to LIBOR, plus a margin of 3.50 % to 3.75 % per annum, in each case, depending on the consolidated first lien net leverage ratio of the Vertex Borrower and its subsidiaries.

As of March 31, 2023, the effective interest rate for the First Lien Initial Term Tranche was 9.11 %.

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 greater of (a) the federal funds rate plus 0.50 %, (b) the prime lending rate, or (c) an adjusted Eurodollar rate plus 1.00 %, plus a margin of 2.50 % to 2.75 % per annum, or a Eurodollar rate, determined by reference to SOFR, plus a margin of 3.50 % to 3.75 % per annum, in each case, depending on the consolidated first lien net leverage ratio of the Vertex Borrower and its subsidiaries.

As of June 30, 2023, the effective interest rate for the First Lien Initial Term Tranche was 9.73 %.

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

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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.

As of March 31, 2023, the carrying value of the First Lien Credit Agreement was $ 915.8 million, excluding deferred discount and unamortized deferred financing costs of $ 40.8 million.

The estimated fair value of the First Lien Credit Agreement as of March 31, 2023 was $ 910.0 million.

As of June 30, 2023, the carrying value of the First Lien Credit Agreement was $ 913.4 million, excluding deferred discount and unamortized deferred financing costs of $ 39.0 million.

The estimated fair value of the First Lien Credit Agreement as of June 30, 2023 was $ 914.6 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 (Level 2).

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On February 28, 2023, the outstanding ABL Facility borrowings of $ 67.5 million were repaid and related guarantees and liens were discharged and released.

The balance of unamortized deferred financing costs related to the Vertex ABL Credit Agreement of $ 1.5 million which was recorded as a loss on extinguishment of debt in the Condensed Consolidated Statements of (Loss) Income for the three months ended March 31, 2023.

The balance of unamortized deferred financing costs related to the Vertex ABL Credit Agreement of $ 1.5 million was recorded as a loss on extinguishment of debt in the Condensed Consolidated Statements of (Loss) Income for the three months ended March 31, 2023.

2023 Credit Agreement

The 2023 Credit Agreement provides for $ 750.0 million in senior secured financing, with a first lien on substantially all the Borrower’s assets and consists of (a) a $ 500.0 million five-year Revolving Credit Facility (which includes (i) a $ 50.0 million sublimit of availability for letters of credit, and (ii) a $ 50.0 million sublimit for short-term borrowings on a swingline basis) and (b) a five-year $ 250.0 million Term Loan.

The 2023 Credit Agreement provides for $ 750.0 million in senior secured financing, with a first lien on substantially all the Borrower’s assets and consists of (a) the 2023 Revolver (which includes (i) a $ 50.0 million sublimit of availability for letters of credit, and (ii) a $ 50.0 million sublimit for short-term borrowings on a swingline basis) and (b) a five-year $ 250.0 million Term Loan.

The Term Loan portion of the 2023 Credit Agreement amortizes at approximately $ 1.6 million per quarter for the fiscal quarters ending June 30, 2023 through March 31, 2025, increasing to $ 3.1 million per quarter for the fiscal quarters ending June 30, 2025 through December 31, 2027, with the balance of $ 203.1 million due on February 28, 2028.

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The borrowings under the 2023 Credit Agreement bear interest at rates that, at the Vertex Borrower’s option, can be either a base rate, determined by reference to the greater of (a) the federal funds rate plus 0.50 %, (b) the prime lending rate, or (c) an adjusted Eurodollar rate plus 1.00 %, plus a margin of 1.00 % to 2.25 % per annum, or a Eurodollar rate, determined by reference to SOFR, plus a margin of 2.00 % to 3.25 % per annum, in each case, depending on the consolidated total net leverage ratio of the Vertex Borrower and its subsidiaries.

As of March 31, 2023, the effective interest rates for the 2023 Revolver and Term Loan portion of the 2023 Credit Agreement were 8.15 % and 8.35 %, respectively.

As of June 30, 2023, the effective interest rates for the 2023 Revolver and Term Loan portion of the 2023 Credit Agreement were 8.47 % and 8.65 %, respectively.

Unutilized commitments under the 2023 Revolver are subject to a per annum fee ranging from 0.25 % to 0.50 % depending on the consolidated total net leverage ratio of the Vertex Borrower and its subsidiaries.

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If an event of default occurs and is continuing, the Borrowers may be required immediately to repay all amounts outstanding under the 2023 Credit Agreement.

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.

Availability under the 2023 Revolver was $ 300.1 million as of March 31, 2023.

As of June 30, 2023, there were $ 85.0 million of outstanding borrowings and $ 16.1 million of outstanding letters of credit under the 2023 Revolver.

Availability under the 2023 Revolver was $ 398.9 million as of June 30, 2023.

Unamortized deferred financing costs related to the 2023 Revolver of $ 4.7 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.

As of June 30, 2023, the fair value of the 2023 Revolver approximated the carrying value because the debt bears a floating interest rate.

As of June 30, 2023, the carrying value of the Term Loan portion of the 2023 Credit Agreement was $ 248.4 million, excluding unamortized deferred financing costs of $ 2.3 million.

The estimated fair value of the Term Loan portion of the 2023 Credit Agreement as of June 30, 2023 was $ 248.1 million.

The fair value is based on observable inputs of interest rates that are currently available to us for debt with similar terms and maturities for non-public debt (Level 2).

The aggregate scheduled maturities of the First Lien Credit Agreement and 2023 Credit Agreement as of March 31, 2023 are as follows:

The aggregate scheduled maturities of the First Lien Credit Agreement and 2023 Credit Agreement as of June 30, 2023 are as follows:

(In thousands) Payments due

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Total $ 1,246,875

As of March 31, 2023 we were in compliance with all covenants related to the First Lien Credit Agreement and the 2023 Credit Agreement.

As of June 30, 2023 the Company was in compliance with all covenants related to the First Lien Credit Agreement and the 2023 Credit Agreement .

DERIVATIVE INSTRUMENTS

During the periods covered by this report, we have made no changes to our policies or strategies for the use of derivative instruments and there has been no change in our related accounting methods.

For our derivative instruments, which are designated as cash flow hedges, gains and losses are initially reported as a component of accumulated other comprehensive loss and subsequently recognized in earnings with the corresponding hedged item.

During the periods covered by this report, the Company has made no changes to its policies or strategies for the use of derivative instruments and there has been no change in related accounting methods.

Derivative instruments, which are designated as cash flow hedges, gains and losses are initially reported as a component of accumulated other comprehensive income (loss) and subsequently recognized in earnings with the corresponding hedged item.

Interest Rate Derivative Instruments

The Company is exposed to the risk that the earnings and cash flows could be adversely impacted due to fluctuations in interest rates.

To mitigate this risk, the Company entered into interest rate swap contracts in the amount of $ 300 million in March 2023.

To mitigate this risk, the Company entered into $ 350.0 million of interest rate swap contracts during the first six months of 2023.

These contracts had a notional value of $ 348.4 million as of June 30, 2023.

These contracts are designated and qualify as effective cash flow hedges.

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 March 31, 2023:

The following table summarizes the amount at fair value and location of the derivative instruments for interest rate hedges in the Condensed Consolidated Balance Sheets as of June 30, 2023:

(In thousands) Fair Value (level 2)

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Interest rate swap designated as cash flow hedge Other current assets $ 5,381

Interest rate swap designated as cash flow hedge Other non-current assets $ 269

Interest rate swap designated as cash flow hedge Other non-current liabilities $ 339

Interest rate swap designated as cash flow hedge Accumulated other comprehensive income $ 5,311

There were no interest rate swaps designated as cash flow hedges for the period ended December 31, 2022.

We regularly assess the creditworthiness of the counterparty.

As of March 31, 2023, 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 gains and losses of a nominal amount and $ 0.2 million were recognized in interest expense, net, in our Condensed Consolidated Statements of (Loss) Income during the first three months of 2023 and 2022, respectively.

We expect $ 2.8 million of existing interest rate swap gains reported in accumulated other comprehensive loss as of March 31, 2023 to be recognized in earnings within the next 12 months.

The Company regularly assesses the creditworthiness of the counterparty.

As of June 30, 2023, the counterparty to the interest rate swaps had performed in accordance with its contractual obligations.

Both the counterparty credit risk and the Company's credit risk were considered in the fair value determination.

Net interest rate derivative gains of $ 1.2 million were recognized in interest expense, net, in the Condensed Consolidated Statements of Income (Loss) during the three and six months ended June 30, 2023.

Net interest rate derivative losses of $ 0.4 million were recognized in the Condensed Consolidated Statements of Income (Loss) during the first six months of 2022.

The Company expects $ 5.4 million of existing interest rate swap gains reported in accumulated other comprehensive income as of June 30, 2023 to be recognized in earnings within the next 12 months.

COMMITMENTS AND CONTINGENCIES

From time to time, we are involved in various investigations, lawsuits, arbitration, claims, enforcement actions and other legal proceedings, including government investigations and claims, which are incidental to the operation of our business.

Some of these proceedings seek remedies relating to employment matters, matters in connection with our contracts and matters arising under laws relating to the protection of the environment.

From time to time, the Company is involved in various investigations, lawsuits, arbitration, claims, enforcement actions and other legal proceedings, including government investigations and claims, which are incidental to the operation of its business.

Some of these proceedings seek remedies relating to employment matters, matters in connection with the Company's contracts and matters arising under laws relating to the protection of the environment.

Additionally, U.S.

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government representatives.

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.

The Company estimated and accrue d $ 27.6 million as of March 31, 2023 and December 31, 2022 in other accrued liabilities in the Condensed Consolidated Balance Sheets for legal proceedings and for claims with respect to our U.S.

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

The Company estimated and accrued $ 28.6 million and $ 27.6 million as of June 30, 2023 and December 31, 2022, respectively, in other accrued liabilities in the Condensed Consolidated Balance Sheets for legal proceedings and for claims with respect to its U.S.

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

government has not completed its incurred cost audits.

Although the ultimate outcome of any legal matter or claim cannot be predicted with certainty, based on present information, including our assessment of the merits of the particular claim, we do not expect that any asserted or unasserted legal or contractual claims or proceedings, individually or in the aggregate, including the lawsuit discussed below, will have a material adverse effect on our cash flows, results of operations or financial condition.

Although the ultimate outcome of any legal matter or claim cannot be predicted with certainty, based on present information, including the assessment of the merits of a particular claim, the Company does not expect that any asserted or unasserted legal or contractual claims or proceedings, individually or in the aggregate, including the lawsuit discussed below, will have a material adverse effect on its cash flows, results of operations or financial condition.

Government Contracts, Investigations and Claims

The Company has U.S.

government contracts that are funded incrementally on a year-to-year basis.

Changes in government policies, priorities or funding levels through agency or program budget reductions by the U.S.

Congress or executive agencies could have a material adverse effect on our financial condition or results of operations.

Furthermore, our contracts with the U.S.

Congress or executive agencies could have a material adverse effect on the Company's financial condition or results of operations.

Furthermore, contracts with the U.S.

government may be terminated or suspended by the U.S.

government at any time, with or without cause.

Such contract suspensions or terminations could result in non-reimbursable expenses or charges or otherwise adversely affect our financial condition and results of operations.

Such contract suspensions or terminations could result in non-reimbursable expenses or charges or otherwise adversely affecting the Company's financial condition and results of operations.

Departments and agencies of the U.S.

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government contracts.

government agencies, including the Defense Contract Audit Agency, the Defense Contract Management Agency and others, routinely audit and review our performance on government contracts, indirect rates and pricing practices, and compliance with applicable contracting and procurement laws, regulations and standards.

government agencies, including the Defense Contract Audit Agency, the Defense Contract Management Agency and others, routinely audit and review the Company's performance on government contracts, indirect rates and pricing practices, and compliance with applicable contracting and procurement laws, regulations and standards.

Accordingly, costs billed or billable to U.S.

government customers are subject to potential adjustment upon audit by such agencies.

government agencies also review the adequacy of our compliance with government standards for our business systems, including our accounting, earned value management, estimating, materials management and accounting, purchasing, and property management systems.

In the performance of our contracts, we routinely request contract modifications that require additional funding from U.S.

government agencies also review the adequacy of compliance with government standards for business systems, including accounting, earned value management, estimating, materials management and accounting, purchasing, and property management systems.

In the performance of its contracts, the Company routinely requests contract modifications that require additional funding from U.S.

government customers.

Most often, these requests are due to customer-directed changes in the scope of work.

While we are entitled to recovery of these costs under our contracts, the administrative process with our U.S.

While the Company is entitled to recovery of these costs under its contracts, the administrative process with the U.S.

government customer may be protracted.

Based on the circumstances, we periodically file requests for equitable adjustments (REAs) that are sometimes converted into claims.

In some cases, these requests are disputed by our U.S.

Based on the circumstances, the Company periodically files requests for equitable adjustments (REAs) that are sometimes converted into claims.

In some cases, these requests are disputed by the U.S.

government customer.

We believe our outstanding modifications, REAs and other claims will be resolved without material adverse impact to our results of operations, financial condition or cash flows.

As a result of final indirect rate negotiations between 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 recently reached a final settlement with them on this matter.

The Company believes its outstanding modifications, REAs and other claims will be resolved without material adverse impact to its results of operations, financial condition or cash flows.

STOCK-BASED COMPENSATION

The Company maintains an equity incentive plan, the 2014 Omnibus Incentive Plan, as amended and restated effective as of October 27, 2022 (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, performance share units (PSUs) and other awards.

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

The Company accounts for NQOs, stock-settled RSUs and PSUs as equity-based compensation awards.

TSR awards, described below, are accounted for as liability-based compensation awards.

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

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

Three Months Ended

(In thousands) March 31, 2023 April 1, 2022

Stock-based compensation expense and the associated tax benefits impacting the Company's Condensed Consolidated Statements of Income (Loss) were as follows:

Three Months Ended Six Months Ended

(In thousands) June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Compensation costs for equity-based awards $ 7,771 $ 1,575 $ 19,837 $ 4,676

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Future tax benefit $ 1,756 $ 466 $ 4,445 $ 1,017

Compensation costs for equity-based awards for the three months ended March 31, 2023, included $ 5.6 million related to RSUs issued in connection with the Merger.

As of March 31, 2023, total unrecognized compensation costs related to equity-based awards and liability-based awards were $ 34.4 million and $ 1.7 million, respectively, which are expected to be recognized ratably over a weighted average period of 1.85 years and 1.59 years, respectively.

Compensation costs for equity-based awards for the six months ended June 30, 2023 , included $ 10.8 million related to RSUs issued in connection with the Merger.

As of June 30, 2023, total unrecognized compensation costs related to equity-based awards and liability-based awards were $ 28.0 million and $ 1.4 million, respectively, which are expected to be recognized ratably over a weighted average period of 1.75 years and 1.37 years, respectively.

Total unrecognized compensation costs included $ 15.6 million of expense related to RSUs granted in connection with the Merger.

The following table provides a summary of the activities for NQOs, RSUs and PSUs for the three months ended March 31, 2023:

The following table provides a summary of the activities for NQOs, RSUs and PSUs for the six months ended June 30, 2023:

NQOs RSUs PSUs

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Forfeited or expired — $ — ( 6 ) $ 40.59 — $ —

Outstanding at March 31, 2023 42 $ 22.86 1,061 $ 36.41 254 $ 35.86

Outstanding at June 30, 2023 42 $ 22.86 966 $ 36.82 265 $ 35.66

Restricted Stock Units

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Stock compensation expense will be recognized ratably over the requisite service period of the RSU awards.

As of March 31, 2023, there was $ 27.8 million of unrecognized RSU related compensation expense.

As of June 30, 2023, there was $ 21.8 million of unrecognized RSU related compensation expense.

Total Shareholder Return Awards

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As a result of the Merger and pursuant to the terms of the TSR awards, performance achievement fair value was measured at July 4, 2022 at $ 4.6 million and the aggregate future award payouts were fixed at that value.

There were no cash-based TSR awards granted in the first quarter of 2023.

As of March 31, 2023, there was $ 1.7 million of unrecognized TSR related compensation expense.

There were no cash-based TSR awards granted in the first or second quarters of 2023.

As of June 30, 2023, there was $ 1.4 million of unrecognized TSR related compensation expense.

Performance Share Units

During the first quarter of 2023, the Company granted two types of performance-based awards with market conditions.

The first award will vest and the stock will be issued at the end of a three-year period based on the attainment of certain total shareholder return performance measures relative to Aerospace and Defense companies in the S&P 1500 Index and the employee's continued service through the vest date.

During the first and second quarters of 2023, the Company granted two types of performance-based awards with market conditions.

The number of shares ultimately awarded, if any, can range up to 200 % of the specified target awards.

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The numbers of shares ultimately awarded, if any, can range up to the specified target awards.

As of March 31, 2023, there was $ 6.5 million of unrecognized PSU related compensation expense.

As of June 30, 2023, there was $ 6.2 million of unrecognized PSU related compensation expense.

Effective Tax Rate

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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 March 31, 2023 and April 1, 2022, we recorded an income tax benefit of $ 5.7 million and a provision of $ 0.7 million, respectively, representing effective income tax rates of 24.7 % and 19.7 %, respectively.

For the three months ended June 30, 2023 and July 1, 2022, the Company recorded an income tax provision of $ 0.2 million and $ 2.6 million, respectively, representing effective income tax rates of 10.5 % and 19.8 %, respectively.

For the six months ended June 30, 2023 and July 1, 2022, the Company recorded an income tax benefit of $ 5.5 million and a provision of $ 3.3 million, respectively, representing effective income tax rates of 26.1 % and 19.8 %, 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.

Uncertain Tax Positions

As of March 31, 2023 and December 31, 2022, unrecognized tax benefits from uncertain tax positions were $ 8.4 million and $ 8.6 million, respectively.

As of June 30, 2023 and December 31, 2022, unrecognized tax benefits from uncertain tax positions were $ 8.4 million and $ 8.6 million, respectively.

The decrease in uncertain tax positions was principally the result of the release of a position for lapse of statute of limitation.

(LOSS) EARNINGS PER SHARE

EARNINGS (LOSS) PER SHARE

Basic earnings per share (EPS) is computed by dividing net income, or loss, by the weighted average number of common shares outstanding for the period.

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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

March 31, April 1,

Three Months Ended Six Months Ended

June 30, July 1, June 30, July 1,

(In thousands, except per share data) 2023 2022 2023 2022

Net (loss) income $ ( 17,480 ) $ 2,855

Net income (loss) $ 1,799 $ 10,472 $ ( 15,681 ) $ 13,327

Weighted average common shares outstanding 31,033 11,826 30,981 11,793

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Diluted weighted average common shares outstanding 31,605 11,954 30,981 11,917

(Loss) earnings per share

Earnings (loss) per share

Basic $ 0.06 $ 0.89 $ ( 0.51 ) $ 1.13

1 unchanged sentence

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

Three Months Ended

March 31, April 1,

Three Months Ended Six Months Ended

June 30, July 1, June 30, July 1,

(In thousands) 2023 2022 2023 2022

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Under these plans, participants are eligible to defer a portion of their compensation on a tax deferred basis.

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 operating expenses.

The plan assets and liabilities were $ 2.4 million and $ 1.5 million as of March 31, 2023 and December 31, 2022, respectively.

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

The plans assets and liabilities were $ 2.8 million and $ 1.5 million as of June 30, 2023 and December 31, 2022, respectively.

Multi-Employer Pension Plans

Certain Company employees who perform work on contracts within the continental United States participate in multi-employer pension plans of which the Company is not the sponsor.

Company expenses related to these plans were $ 3.3 million and $ 0.2 million for the three months ended March 31, 2023 and April 1, 2022, respectively.

C ertain Company employees who perform work on contracts within the continental United States participate in multi-employer pension plans of which the Company is not the sponsor.

Company expenses related to these plans were $ 4.9 million and $ 8.2 million for the three and six months ended June 30, 2023, respectively, and $ 0.3 million and $ 0.5 million for the three and six months ended July 1, 2022, respectively.

SALE OF RECEIVABLES

On June 27, 2023, the Company entered into a Master Accounts Receivable Purchase Agreement (MARPA Facility) with MUFG Bank, Ltd.

(MUFG) for the sale of certain designated eligible receivables with the U.S.

Under the MARPA Facility, the Company can sell eligible receivables up to a maximum amount of $ 150.0 million.

The receivables sold under the MARPA Facility are without recourse for any U.S.

government credit risk.

The Company accounts for these receivable transfers under the MARPA Facility as sales under ASC Topic 860, Transfers and Servicing , and removes the sold receivables from its balance sheet.

The fair value of the sold receivables approximated their book value due to their short-term nature.

The Company does not retain an ongoing financial interest in the transferred receivables other than cash collection and administrative services.

The Company estimated that its servicing fee was at fair value and therefore has not recognized a servicing asset or liability as of June 30, 2023.

Proceeds from the sale of receivables are reflected as cash flows from operating activities on the Condensed Consolidated Statements of Cash Flows.

MARPA Facility activity consisted of sales of $ 113.0 million of receivables representing an increase to cash flows provided by operating activities for the six months ended June 30, 2023.

Cash collected, but not remitted to MUFG, of $ 69.7 million is included in other accrued liabilities on the Condensed Consolidated Balance Sheets as of June 30, 2023.

As of June 30, 2023, remaining receivables sold were $ 43.3 million.

During the three months ended June 30, 2023, the Company incurred purchase discount fees, net of servicing fees, of $ 0.2 million, which are presented in other expense, net on the Condensed Consolidated Statements of Income (Loss).

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