What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-11-06 compared with 2023-08-08 · 155 added, 111 removed, 496 unchanged (35% of the section changed)

FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

Three Months Ended Six Months Ended

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

CONDENSED CONSOLIDATED STATEMENTS OF LOSS (UNAUDITED)

Three Months Ended Nine Months Ended

September 29, September 30, September 29, September 30,

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

6 unchanged sentences

Other expense, net ( 2,024 ) — ( 2,335 ) —

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

Loss from operations before income taxes ( 11,237 ) ( 22,778 ) ( 32,445 ) ( 6,164 )

Income tax benefit ( 4,837 ) ( 5,739 ) ( 10,364 ) ( 2,453 )

Net loss $ ( 6,400 ) $ ( 17,039 ) $ ( 22,081 ) $ ( 3,711 )

Loss per share

Basic $ ( 0.21 ) $ ( 0.57 ) $ ( 0.71 ) $ ( 0.21 )

3 unchanged sentences

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

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

Three Months Ended Six Months Ended

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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)

Three Months Ended Nine Months Ended

September 29, September 30, September 29, September 30,

(In thousands) 2023 2022 2023 2022

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

Net loss $ ( 6,400 ) $ ( 17,039 ) $ ( 22,081 ) $ ( 3,711 )

Other comprehensive income (loss), net of tax

6 unchanged sentences

Other comprehensive income (loss), net of tax 87 ( 2,136 ) 6,182 ( 5,421 )

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

Total comprehensive loss $ ( 6,313 ) $ ( 19,175 ) $ ( 15,899 ) $ ( 9,132 )

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

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

June 30, December 31,

(In thousands) 2023 2022

September 29, December 31,

(In thousands, except per share data) 2023 2022

Current assets

Cash and cash equivalents $ 70,314 $ 116,067

Cash, cash equivalents and restricted cash $ 78,259 $ 116,067

Receivables 715,381 728,582

31 unchanged sentences

100,000,000 shares authorized;

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

31,186,590 and 30,470,475 shares issued and outstanding as of September 29, 2023 and December 31, 2022, respectively

Additional paid in capital 756,781 748,877

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended

June 30, July 1,

Nine Months Ended

September 29, September 30,

(In thousands) 2023 2022

Operating activities

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

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

Net loss $ ( 22,081 ) $ ( 3,711 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation expense 16,532 8,663

Amortization of intangible assets 67,818 28,597

Loss (gain) on disposal of property, plant, and equipment 522 ( 15 )

Loss on disposal of property, plant, and equipment 625 59

Stock-based compensation 26,809 18,800

13 unchanged sentences

Proceeds from the disposition of assets 16 20

Contribution to joint venture — ( 2,113 )

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

Acquisition of business, net of cash acquired — 194,431

Distribution from joint venture 834 —

Net cash (used in) provided by investing activities ( 15,709 ) 186,220

Financing activities

9 unchanged sentences

Exchange rate effect on cash ( 1,540 ) ( 3,668 )

Net change in cash and cash equivalents ( 45,753 ) ( 3,442 )

Net change in cash, cash equivalents and restricted cash ( 37,808 ) 108,860

Cash and cash equivalents - beginning of period 116,067 38,513

Cash and cash equivalents - end of period $ 70,314 $ 35,071

Cash, cash equivalents and restricted cash - end of period $ 78,259 $ 147,373

Supplemental disclosure of cash flow information:

2 unchanged sentences

Purchase of capital assets on account $ 2,882 $ 438

Common stock issued for business acquisition $ — $ 630,636

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

17 unchanged sentences

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

Net income — — — ( 17,039 ) — ( 17,039 )

Foreign currency translation adjustments — — — — ( 2,136 ) ( 2,136 )

Employee stock awards and stock options 22 — — — — —

Issuance of common stock in connection with a business combination 18,592 187 630,449 — — 630,636

Taxes withheld on restricted stock unit compensation awards — — ( 237 ) — — ( 237 )

Stock-based compensation — — 13,681 — — 13,681

Balance at September 30, 2022 30,460 $ 305 $ 735,357 $ 264,042 $ ( 11,321 ) $ 988,383

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

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

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

(In thousands) Shares Amount Retained Earnings

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

13 unchanged sentences

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

Net loss — — — ( 6,400 ) — ( 6,400 )

Foreign currency translation adjustments — — — — ( 2,176 ) ( 2,176 )

Unrealized loss on cash flow hedge — — — — 2,263 2,263

Employee stock awards and stock options 106 1 — — — 1

Taxes withheld on stock compensation awards — — ( 3,254 ) — — ( 3,254 )

Stock-based compensation — — 5,939 — — 5,939

Balance at September 29, 2023 31,187 $ 312 $ 756,781 $ 231,343 $ 655 $ 989,091

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

19 unchanged sentences

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.

2 unchanged sentences

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 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.

As of September 29, 2023 and December 31, 2022, the Company's joint venture investment balance was $ 4.4 million and $ 7.0 million, respectively.

The Company's proportionate share of income (loss) from the HDSS, J&J, and ServCore joint ventures was a loss of $ 1.5 million and income of $ 2.3 million for the three and nine months ended September 29, 2023 , respectively, and not material and $ 1.4 million for the three and nine months ended September 30, 2022, respectively.

Basis of Presentation

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.

The Company's quarterly financial periods end on the Friday closest to the last day of the calendar quarter (September 29, 2023 for the third quarter of 2023 and September 30, 2022 for the third 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.

6 unchanged sentences

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

Certain prior year amounts have been reclassified to conform to the current year presentation.

These reclassifications had no material impact on the results of operations, financial position, or changes in shareholders’ equity.

Restricted Cash

As of September 29, 2023, the Company had total cash, cash equivalents, and restricted cash of $ 78.3 million which included $ 2.0 million of restricted cash.

The Company's restricted cash was not material as of December 31, 2022.

RECENT AC COUNTING STANDARDS UPDATE

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.

There have been no accounting standards issued or adopted during the first three 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.

2 unchanged sentences

The excess purchase price over the estimated fair value of the net assets acquired was recorded as goodwill.

On the Closing Date, Vectrus completed its previously announced Merger with Vertex, forming V2X by acquiring all of the outstanding shares of Vertex.

On the Closing Date, Vectrus completed its previously announced Merger with Vertex, forming V2X by acquiring all the outstanding shares of Vertex.

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

34 unchanged sentences

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.

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.

For the three and nine months ended September 29, 2023, the Company recorded $ 0.7 million and $ 2.1 million of income related to the TSA with Crestview, respectively, which was recorded as a reduction in cost of revenue.

AIP indirectly held approximately 59.3 % of V 2X common stock through Vertex Aerospace Holdco LLC as of September 29, 2023.

The following unaudited information shows the combined actual results of operations for the three and nine months ended September 29, 2023 and pro forma results for the three and nine months ended September 30, 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.

4 unchanged sentences

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 Six Months Ended

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

Three Months Ended Nine Months Ended

September 29, September 30, September 29, September 30,

2023 2022 2023 2022

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

Revenue $ 1,001,507 $ 961,281 $ 2,922,819 $ 2,691,399

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

Net (loss) income $ ( 6,400 ) $ 9,576 $ ( 22,081 ) $ 5,583

Performance Obligations

12 unchanged sentences

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 progress towards completion of performance obligations is tracked in order to measure and recognize revenue.

This continuous transfer of control requires that progress towards completion of performance obligations is tracked 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.

5 unchanged sentences

government or the prime contractor may cancel any contract at any time through a termination for convenience or for cause.

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,

Substantially all 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 are presented in the following table:

September 29, December 31,

(In millions) 2023 2022

Performance Obligations $ 3,463 $ 2,997

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.

As of September 29, 2023, the Company expects to recognize approximately 10 % and 90 % of these performance obligations as revenue in 2023 and 2024, respectively.

Contract Estimates

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.

Cumulative catch-up adjustments for the three and nine months ended September 29, 2023 increased operating income by $ 5.0 million and $ 27.2 million, respectively.

For the three and nine months ended September 30, 2022, the adjustments decreased operating income by $ 1.5 million and increased operating income by $ 5.9 million, respectively.

For the three and nine months ended September 29, 2023, the cumulative catch-up adjustments to operating income increased revenue by $ 10.3 million and $ 33.8 million, respectively.

For the three and nine months ended September 30, 2022, the cumulative catch-up adjustments to operating income decreased revenue by $ 1.7 million and increased revenue by $ 6.1 million, respectively.

Revenue by Category

16 unchanged sentences

Revenue by contract type is as follows:

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

September 29, September 30, % September 29, September 30, %

(In thousands) 2023 2022 Change 2023 2022 Change

4 unchanged sentences

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, %

Three Months Ended Nine Months Ended

September 29, September 30, % September 29, September 30, %

(In thousands) 2023 2022 Change 2023 2022 Change

5 unchanged sentences

Revenue by contract relationship is as follows:

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

September 29, September 30, % September 29, September 30, %

(In thousands) 2023 2022 Change 2023 2022 Change

3 unchanged sentences

Revenue by customer is as follows:

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

September 29, September 30, % September 29, September 30, %

(In thousands) 2023 2022 Change 2023 2022 Change

11 unchanged sentences

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 June 30, 2023 and December 31, 2022, the Company had contract assets of $ 570.8 million and $ 487.8 million, respectively.

As of September 29, 2023 and December 31, 2022, the Company had contract assets of $ 570.9 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.

4 unchanged sentences

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.

As of September 29, 2023 and December 31, 2022, contract liabilities, included in other accrued liabilities in the Condensed Consolidated Balance Sheets, were $ 62.0 million and $ 76.4 million, respectively.

Receivables were comprised of the following:

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

September 29, December 31,

(In thousands) 2023 2022

Billed receivables $ 137,008 $ 227,718

2 unchanged sentences

Total receivables $ 715,381 $ 728,582

As of June 30, 2023 and December 31, 2022, substantially all billed receivables are due from the U.S.

As of September 29, 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.

3 unchanged sentences

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

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

The Company expects to bill customers for most of the September 29, 2023 contract assets during 2023.

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

21 unchanged sentences

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 June 30, 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 September 29, 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.

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 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.

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 %.

As of September 29, 2023, the effective interest rate for the First Lien Initial Term Tranche was 9.69 %.

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

2 unchanged sentences

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 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.

As of September 29, 2023, the carrying value of the First Lien Credit Agreement was $ 911.1 million, excluding deferred discount and unamortized deferred financing costs of $ 37.2 million.

The estimated fair value of the First Lien Credit Agreement as of September 29, 2023 was $ 910.0 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).

17 unchanged sentences

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 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.

As of September 29, 2023, the effective interest rates for the 2023 Revolver and Term Loan portion of the 2023 Credit Agreement were 8.18 % and 8.37 %, 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.

5 unchanged sentences

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 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.

As of September 29, 2023, there were $ 50.0 million of outstanding borrowings and $ 15.9 million of outstanding letters of credit under the 2023 Revolver.

Availability under the 2023 Revolver was $ 434.1 million as of September 29, 2023.

Unamortized deferred financing costs related to the 2023 Revolver of $ 4.4 million are included in other non-current assets in the Condensed Consolidated Balance Sheets.

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.

As of September 29, 2023, the fair value of the 2023 Revolver approximated the carrying value because the debt bears a floating interest rate.

As of September 29, 2023, the carrying value of the Term Loan portion of the 2023 Credit Agreement was $ 246.9 million, excluding unamortized deferred financing costs of $ 2.2 million.

The estimated fair value of the Term Loan portion of the 2023 Credit Agreement as of September 29, 2023 was $ 246.9 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 June 30, 2023 are as follows:

The aggregate scheduled maturities of the First Lien Credit Agreement and 2023 Credit Agreement as of September 29, 2023 are as follows:

(In thousands) Payments due

2 unchanged sentences

Total $ 1,208,000

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 .

As of September 29, 2023, the Company was in compliance with all covenants related to the First Lien Credit Agreement and the 2023 Credit Agreement .

DERIVATIVE INSTRUMENTS

4 unchanged sentences

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 had a notional value of $ 346.9 million as of September 29, 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 for interest rate hedges in the Condensed Consolidated Balance Sheets as of June 30, 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 September 29, 2023:

(In thousands) Fair Value (level 2)

2 unchanged sentences

Interest rate swap designated as cash flow hedge Other non-current assets $ 4,241

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 $ 9,481

1 unchanged sentence

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.

As of September 29, 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.

Net interest rate derivative gains of $ 1.4 million and $ 2.6 million were recognized in interest expense, net, in the Condensed Consolidated Statements of Loss during the three and nine months ended September 29, 2023, respectively.

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

The Company expects $ 5.6 million of existing interest rate swap gains reported in accumulated other comprehensive income as of September 29, 2023 to be recognized in earnings within the next 12 months.

COMMITMENTS AND CONTINGENCIES

8 unchanged sentences

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.

The Company estimated and accrued $ 19.4 million and $ 27.6 million as of September 29, 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.

34 unchanged sentences

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 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

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

Three Months Ended Nine Months Ended

September 29, September 30, September 29, September 30,

(In thousands) 2023 2022 2023 2022

Compensation costs for equity-based awards $ 5,939 $ 13,681 $ 25,775 $ 18,357

2 unchanged sentences

Future tax benefit $ 1,688 $ 3,029 $ 7,112 $ 4,046

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.

Compensation costs for equity-based awards for the nine months ended September 29, 2023 , included $ 13.3 million related to RSUs issued in connection with the Merger.

As of September 29, 2023, total unrecognized compensation costs related to equity-based awards and liability-based awards were $ 22.1 million and $ 1.0 million, respectively, which are expected to be recognized ratably over a weighted average period of 1.57 years and 1.17 years, respectively.

Total unrecognized compensation costs included $ 7.8 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 six months ended June 30, 2023:

The following table provides a summary of the activities for NQOs, RSUs and PSUs for the nine months ended September 29, 2023:

NQOs RSUs PSUs

5 unchanged sentences

Forfeited or expired — $ — ( 9 ) $ 42.35 ( 12 ) $ 28.98

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

Outstanding at September 29, 2023 41 $ 22.90 792 $ 37.56 253 $ 40.03

Restricted Stock Units

7 unchanged sentences

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

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

As of September 29, 2023, there was $ 16.8 million of unrecognized RSU related compensation expense.

Total Shareholder Return Awards

3 unchanged sentences

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.

As of September 29, 2023, there was $ 1.0 million of unrecognized TSR related compensation expense.

Performance Share Units

5 unchanged sentences

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

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

As of September 29, 2023, there was $ 5.3 million of unrecognized PSU related compensation expense.

Effective Tax Rate

1 unchanged sentence

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 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.

For the three months ended September 29, 2023 and September 30, 2022, the Company recorded income tax benefits of $ 4.8 million and $ 5.7 million, respectively, representing effective income tax rates of 43.0 % and 25.2 %, respectively.

For the nine months ended September 29, 2023 and September 30, 2022, the Company recorded income tax benefits of $ 10.4 million and $ 2.5 million, respectively, representing effective income tax rates of 31.9 % and 39.8 %, 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), offset by available deductions not reflected in book income and income tax credits.

Uncertain Tax Positions

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.

As of September 29, 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.

EARNINGS (LOSS) PER SHARE

(LOSS) EARNINGS 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.

1 unchanged sentence

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

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

September 29, September 30, September 29, September 30,

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

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

Net loss $ ( 6,400 ) $ ( 17,039 ) $ ( 22,081 ) $ ( 3,711 )

Weighted average common shares outstanding 31,179 29,830 31,048 17,806

2 unchanged sentences

Diluted weighted average common shares outstanding 31,179 29,830 31,048 17,806

Earnings (loss) per share

Loss per share

Basic $ ( 0.21 ) $ ( 0.57 ) $ ( 0.71 ) $ ( 0.21 )

Diluted $ ( 0.21 ) $ ( 0.57 ) $ ( 0.71 ) $ ( 0.21 )

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

Three Months Ended Six Months Ended

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

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

Three Months Ended Nine Months Ended

September 29, September 30, September 29, September 30,

(In thousands) 2023 2022 2023 2022

Anti-dilutive stock options — — — —

Anti-dilutive restricted stock units — 14 1 17

Total — 14 1 17

POST-EMPLOYMENT BENEFIT PLANS

4 unchanged sentences

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.

The plans assets and liabilities were $ 2.7 million and $ 1.5 million as of September 29, 2023 and December 31, 2022, respectively.

Multi-Employer Pension Plans

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.

Company expenses related to these plans were $ 2.9 million and $ 11.1 million for the three and nine months ended September 29, 2023, respectively, and $ 2.3 million and $ 2.8 million for the three and nine months ended September 30, 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.

(MUFG) for the sale of certain designated eligible receivables up to a maximum amount of $ 150.0 million with the U.S.

The maximum amount was increased to $ 200.0 million effective September 28, 2023.

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

2 unchanged sentences

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

As of and for the

Nine Months Ended

September 29,

(In thousands) 2023

Beginning balance:

Sale of receivables 705,205

Cash collections ( 617,340 )

Outstanding balance sold to MUFG (1)

Cash collected, not remitted to MUFG (2)

Remaining sold receivables $ 20,866

(1) For the nine months ended September 29, 2023, the Company recorded a net cash inflow from sale of receivables of $ 87.9 million from operating activities.

(2) Includes the cash collected on behalf of, but not yet remitted to, MUFG as of September 29, 2023.

This balance is included in other accrued liabilities as of the balance sheet date.

During the three and nine months ended September 29, 2023, the Company incurred purchase discount fees, net of servicing fees, of $ 2.0 million and $ 2.1 million, respectively, which are presented in other expense, net on the Condensed Consolidated Statements of Loss and are reflected as cash flows from operating activities on the Condensed Consolidated Statements of Cash Flows.

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.

The Company estimated that its servicing fee was at fair value and therefore has not recognized a servicing asset or liability as of September 29, 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).

SUBSEQUENT EVENTS

First Lien Credit Agreement

On October 3, 2023, Vertex Aerospace Intermediate LLC, a Delaware limited liability company, and Vertex Aerospace Services Corp., a Delaware corporation and an indirect, wholly owned subsidiary of V2X, Inc., entered into Amendment No.

3 to the First Lien Initial Term Tranche, dated as of October 3, 2023 (the “Amendment”), with Royal Bank of Canada.

The Amendment provides for a new tranche of term loans under the First Lien Initial Term Tranche in an aggregate original principal amount of $ 911.1 million (the “New Term Loans”), in which the New Term Loans replace or refinance in full all the existing term loans outstanding under the First Lien Initial Term Tranche and these loans mature on December 6, 2028.

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