What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-06 compared with 2023-08-08 · 116 added, 95 removed, 225 unchanged (48% of the section changed)

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The following discussion of the Company's financial condition and results of operations should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto included in this Quarterly Report on Form 10-Q as well as the audited Consolidated Financial Statements and notes thereto and the information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

This Quarterly Report provides additional information regarding the Company, its services, industry outlook and forward-looking statements that involve risks and uncertainties, including those related to economic conditions such as inflation and rising interest rates, and the impact on the Company, its operations or future financial or operational results.

This Quarterly Report provides additional information regarding the Company, its services, industry outlook and forward-looking statements that involve risks and uncertainties, including those related to economic conditions such as inflation and interest rates, and the impact on the Company, its operations or future financial or operational results.

The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about the Company's industry, business and future financial results.

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Amounts presented in and throughout this Item 2 are rounded and, as such, any rounding differences could occur in period over period changes and percentages reported.

is a leading provider of critical mission solutions primarily to defense clients globally.

V2X is a leading provider of critical mission solutions primarily to defense clients globally.

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

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Department of Defense (DoD).

For the six months ended June 30, 2023 and July 1, 2022, the Company had total revenue of $1,921.3 million and $954.5 million, respectively, substantially all of which was derived from U.S.

For the nine months ended September 29, 2023 and September 30, 2022, the Company had total revenue of $2,922.8 million and $1,912.7 million, respectively, substantially all of which was derived from U.S.

government customers.

For the six months ended June 30, 2023 and July 1, 2022, the Company generated approximately 41% and 64%, respectively, of its total revenue from the U.S.

For the nine months ended September 29, 2023 and September 30, 2022, the Company generated approximately 41% and 50%, respectively, of its total revenue from the U.S.

Executive Summary

Revenue increased $479.8 million, or 96.3%, for the three months ended June 30, 2023 compared to the three months ended July 1, 2022.

Revenue increased $442.6 million due to the Merger and the remaining increase was from organic growth for legacy programs.

Revenue from programs in the U.S., Middle East, Asia and Europe increased by $419.8 million, $28.9 million, $19.1 million and $12.0 million, respectively.

Operating income for the three months ended June 30, 2023, was $34.3 million, an increase of $19.2 million, or 128.1%, compared to the three months ended July 1, 2022.

The increase was due to the Merger and improved performance of legacy programs.

Revenue increased $43.4 million, or 4.5%, for the three months ended September 29, 2023 as compared to the three months ended September 30, 2022.

Revenue increased due to organic growth for legacy programs.

Revenue increased by $43.9 million from programs in the Middle East and $12.6 million from programs in Asia, partially offset by decreases of $11.4 million and $1.7 million in revenue from programs in the U.S.

and Europe, respectively.

Operating income for the three months ended September 29, 2023, was $21.0 million, an increase of $16.6 million, or 368.9%, compared to the three months ended September 30, 2022.

The increase was due to the improved performance of legacy programs.

During the performance of long-term contracts, estimated final contract prices and costs are reviewed periodically, and revisions are made as required, which are recorded as changes in revenue and cost of revenue in the periods in which they are determined.

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These changes can increase or decrease operating income depending on the dynamics of each contract.

Further details related to consolidated financial results for the three and six months ended June 30, 2023, compared to the three and six months ended July 1, 2022, are contained in the "Discussion of Financial Results" section.

Merger with Vertex

For a discussion of the Merger and related debt and stock-based compensation obligations, see Note 3, Merger , Note 6, Debt, and Note 9, Stock-Based Compensation, in the Notes to Condensed Consolidated Financial Statements.

Further details related to consolidated financial results for the three and nine months ended September 29, 2023, compared to the three and nine months ended September 30, 2022, are contained in the "Discussion of Financial Results" section.

Significant Contracts

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% of Total Revenue

Six Months Ended

Contract Name June 30, 2023 July 1, 2022

Nine Months Ended

September 29, September 30,

Contract Name 2023 2022

Logistics Civil Augmentation Program (LOGCAP) V - Kuwait Task Order 12.3% 17.5%

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The task ord er provides services to support the Geographical Combatant Commands and Army Service Component Commands throughout the full range of military operations in the Kuwait region.

The LOGCAP V - Kuwait Task Order contributed $257.1 million a nd $212.2 million of revenue for the six months ended June 30, 2023 and July 1, 2022 , respectively.

The LOGCAP V - Kuwait Task Order contributed $360.5 million a nd $334.0 million of revenue for the nine months ended September 29, 2023 and September 30, 2022 , respectively.

The LOGCAP V - Iraq Task Order is currently exercised through June 21, 2024, with two additional twelve-month options and one six-month option through December 21, 2026.

The task order provides services to support the Geographical Combatant Commands and Army Service Component Commands throughout the full range of military operations in the Iraq region.

The LOGCAP V - Iraq Task Order contributed $150.5 million and $144.9 million of revenue for the six months ended June 30, 2023 and July 1, 2022 , respectively.

The LOGCAP V - Iraq Task Order contributed $224.0 million and $209.6 million of revenue for the nine months ended September 29, 2023 and September 30, 2022 , respectively.

Total backlog includes remaining performance obligations, consisting of both funded backlog (firm orders for which funding is contractually authorized and appropriated by the customer) and unfunded backlog (firm orders for which funding is not currently contractually obligated by the customer and unexercised contract options).

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

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

As of June 30, 2023, total backlog was $13.0 billion as compared to $12.3 billion at December 31, 2022.

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

The following is a summary of funded and unfunded backlog:

June 30, December 31,

September 29, December 31,

(In millions) 2023 2022

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Funded orders (different from funded backlog) represent orders for which funding was received during the period.

The Company received funded orders of $2.4 billion during the six months ended June 30, 2023, which was an increase of $1.3 billion compared to the six months ended July 1, 2022.

The Company received funded orders of $3.5 billion during the nine months ended September 29, 2023, which was an increase of $1.5 billion compared to the nine months ended September 30, 2022.

Economic Opportunities, Challenges and Risks

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government's Fiscal Year (FY) begins on October 1 and ends on September 30.

On December 29, 2022, the FY 2023 Omnibus Appropriations Act was signed into law by the President, providing $817 billion to the Defense Department (and $886 billion for National Defense).

This reflects a $44 billion increase over the President’s FY 2023 budget request.

The Fiscal 2024 budget request was submitted to the U.S.

Congress on March 9, 2023, and requested $842 billion for the Department of Defense.

Congress on March 9, 2023, and requested $886 billion for National Defense, with $842 billion of the total allocated to the Department of Defense.

In January 2023, the statutory debt ceiling limit of $31.4 trillion was reached and on June 3, 2023, the President signed “The Fiscal Responsibility Act” (FRA) into law, which suspends the debt ceiling until January 1, 2025.

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The FRA cap on discretionary spending for National Defense in FY 2024 and FY 2025 is $886 billion and $895 billion, respectively.

Additionally, the FRA mandates cuts to discretionary spending by one percent below the current-year level if a continuing resolution is in place on January 1, 2024 or 2025.

Additionally, the FRA mandates cuts to discretionary spending by one percent below the current-year level if a continuing resolution (CR) is in place on January 1, 2024 or 2025.

On September 30, 2023, the President signed a CR which funds the U.S government at FY 2023 levels through November 17, 2023, or until FY 2024 appropriations bills are passed.

Under a CR, funding is generally consistent with FY 2023 appropriated levels, however, new program and contract starts are not authorized.

If FY 2024 appropriations or an additional CR is not passed before November 17, 2023, the U.S.

government is expected to enter a shutdown and cease certain non-essential operations.

Depending on the length and nature of a potential shutdown, companies that are reliant on U.S.

government funding, could be significantly impacted.

While it is difficult to predict the specific course of future defense budgets, V2X believes the core functions the Company performs are mission-essential and spending to maintain readiness, improve performance, increase service life, lower cost, and modernize digital and physical environments will continue to be a U.S.

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The Company believes this aligns with its clients' intent to utilize and harden existing equipment, infrastructure, and assets rather than executing new purchases.

While customers may reduce the level of services required from us, the Company does not currently anticipate the complete elimination of these services.

However, business conditions have become more challenging due to macroeconomic conditions, including inflation and rising interest rates.

Given the current pace of inflation and other geopolitical factors, the Company is monitoring the impact of rising costs on its active and future contracts.

To date, the Company has not experienced broad-based increases due to inflation in the costs of fixed-price and time and materials contracts that are material to the business as a whole;

however, if the Company begins to experience greater than expected inflation in its supply chain and labor costs, profit margins, and in particular, the profit margin from fixed-price and time and materials contracts, which represent a substantial portion of its contracts, the Company could be adversely affected.

See Item 1A, "Risk Factors".

While customers may reduce the level of services required from us, the Company does not currently anticipate the complete elimination of these services, and the Company continues to focus on contract expansion and capturing new business opportunities.

However, business conditions have become more challenging and uncertain due to macroeconomic conditions, including inflation and rising interest rates, as well as recent international events.

For example, global hostilities, including most recently in Israel and the Gaza Strip, could create additional demand for our products and services, however, any such demand, and the timing and extent of any incremental contract activity resulting from that demand, remains uncertain.

Further, given the current level of inflation and geopolitical factors, the Company is monitoring the impact of rising costs on its active and future contracts and its financial results, and actively evaluating opportunities for cost reductions and deleveraging.

For the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, our contract mix has changed with cost-plus and cost-reimbursable contracts increasing as a percentage of the total mix.

The Company’s earnings and profitability may vary materially depending on the total mix of contracts.

To date, the Company has not experienced broad-based increases from inflation or geopolitical hostilities in the costs of its fixed-price and time and materials contracts that are material to the business.

However, if the geopolitical conditions worsen or if the Company experiences greater than expected inflation in its supply chain and labor costs, then profit margins, and in particular, the profit margin from fixed-price and time and materials contracts, which represent a substantial portion of its contracts, could be adversely affected.

On August 16, 2022, the U.S.

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While the Company does not currently anticipate any impact on its business, evaluation of the Inflation Reduction Act of 2022 and its requirements continues, as well as any potential impact on its business in the future.

The information provided above does not represent a complete list of trends and unc ertainties that could impact the Company's business in either the near or long-term and should be considered along with the risk factors identified under the caption “Risk Factors” identified in Part 1, Item 1A in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 and the matters identified under the caption “Forward-Looking Statement Information" herein.

The information provided above does not represent a complete list of trends and unc ertainties that could impact the Company's business in either the near or long-term and should be considered along with the risk factors identified under the caption “Risk Factors” identified in Part 1, Item 1A in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, and updated, as necessary, on subsequent quarterly reports on Form 10-Q, and the matters identified under the caption “Forward-Looking Statement Information" herein.

DISCUSSION OF FINANCIAL RESULTS

Three months ended June 30, 2023, compared to three months ended July 1, 2022

Three months ended September 29, 2023, compared to three months ended September 30, 2022

Selected financial highlights are presented in the following table:

Three Months Ended Change

(In thousands, except for percentages) June 30, 2023 July 1, 2022 $ %

September 29, September 30,

(In thousands, except for percentages) 2023 2022 $ %

Revenue $ 1,001,507 $ 958,156 $ 43,351 4.5 %

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

Income (loss) from operations before income taxes 2,009 13,058 (11,049) (84.6) %

Loss from operations before income taxes (11,237) (22,778) 11,541 (50.7) %

% of revenue (1.1) % (2.4) %

Income tax expense (benefit) 210 2,586 (2,376) (91.9) %

Income tax benefit (4,837) (5,739) 902 (15.7) %

Effective income tax rate 43.0 % 25.2 %

Net income (loss) $ 1,799 $ 10,472 $ (8,673) (82.8) %

Net loss $ (6,400) $ (17,039) $ 10,639 (62.4) %

*Percentage change is not meaningful.

Revenue increased $479.8 million, or 96.3%, for the three months ended June 30, 2023 as compared to the three months ended July 1, 2022.

Revenue increased $442.6 million due to the Merger and the remaining increase was from organic growth for legacy programs.

Revenue from programs located in the U.S., Middle East, Asia and Europe increased by $419.8 million, $28.9 million, $19.1 million and $12.0 million, respectively.

Revenue increased $43.4 million, or 4.5%, for the three months ended September 29, 2023 as compared to the three months ended September 30, 2022.

Revenue increased due to organic growth for legacy programs.

and Europe, respectively.

Cost of Revenue

Cost of revenue increased $437.1 million, or 96.4%, for the three months ended June 30, 2023 as compared to the three months ended July 1, 2022, primarily due to the increased revenue from the Merger and increased amortization of intangible assets.

Cost of revenue increased $69.8 million, or 8.1%, for the three months ended September 29, 2023 as compared to the three months ended September 30, 2022, primarily driven by increases in revenue.

Cost of revenue as a percent of revenue increased to 92.9% for the three months ended September 29, 2023 as compared to 89.9% for the three months ended September 30, 2022, due to changes in contract mix and recognition of non-recurring deliverables.

Selling, General, & Administrative (SG&A) Expenses

SG&A expenses increased $23.4 million, or 78.6%, for the three months ended June 30, 2023 as compared to the three months ended July 1, 2022, primarily due to the Merger.

SG&A expenses decreased $43.0 million, or 46.4%, for the three months ended September 29, 2023 as compared to the three months ended September 30, 2022, primarily due to M&A and integration costs of $44.9 million incurred in connection with the Merger during the third quarter of 2022.

Operating Income

Operating income increased $19.2 million, or 128.1%, for the three months ended June 30, 2023 as compared to the three months ended July 1, 2022.

Operating income as a percentage of revenue was 3.5% for the three months ended June 30, 2023, compared to 3.0% for the three months ended July 1, 2022.

The increase was due to the Merger and improved performance of legacy programs.

Aggregate cumulative catch-up adjustments increased operating income by $9.1 million and $6.8 million for the three months ended June 30, 2023 and July 1, 2022, respectively.

The aggregate cumulative catch-up adjustments for the three months ended June 30, 2023 and July 1, 2022 related to changes in contract terms, program performance, customer changes in scope of work and changes to estimates in the reported period.

Operating income increased $16.6 million, or 368.9%, for the three months ended September 29, 2023 as compared to the three months ended September 30, 2022.

Operating income as a percentage of revenue was 2.1% for the three months ended September 29, 2023, compared to 0.5% for the three months ended September 30, 2022.

The increase was due to lower SG&A spending.

Aggregate cumulative catch-up adjustments increased operating income by $5.0 million and decreased operating income by $1.5 million for the three months ended September 29, 2023 and September 30, 2022, respectively.

The aggregate cumulative catch-up adjustments for the three months ended September 29, 2023 and September 30, 2022 related to changes in contract terms, program performance, customer changes in scope of work and changes to estimates in the reported period.

Operating income was also impacted by the mix of labor and cost differential between internal resources and subcontractors as well as the volume of other direct cost purchases.

Six months ended June 30, 2023, compared to six months ended July 1, 2022

Nine months ended September 29, 2023, compared to nine months ended September 30, 2022

Selected financial highlights are presented in the following table:

Six Months Ended Change

(In thousands, except for percentages) June 30, 2023 July 1, 2022 $ %

Nine Months Ended Change

September 29, September 30,

(In thousands, except for percentages) 2023 2022 $ %

Revenue $ 2,922,819 $ 1,912,693 $ 1,010,126 52.8 %

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

Income (loss) from operations before income taxes (21,208) 16,614 (37,822) (227.7) %

Loss from operations before income taxes (32,445) (6,164) (26,281) 426.4 %

% of revenue (1.1) % (0.3) %

Income tax (benefit) expense (5,527) 3,287 (8,814) (268.1) %

Income tax benefit (10,364) (2,453) (7,911) 322.5 %

Effective income tax rate 31.9 % 39.8 %

Net (loss) income $ (15,681) $ 13,327 $ (29,008) (217.7) %

Net loss $ (22,081) $ (3,711) $ (18,370) 495.0 %

*Percentage change is not meaningful.

Revenue increased $966.8 million, or 101.3%, for the six months ended June 30, 2023 as compared to the six months ended July 1, 2022.

Revenue increased $1,010.1 million, or 52.8%, for the nine months ended September 29, 2023 as compared to the nine months ended September 30, 2022.

Revenue increased $855.1 million due to the Merger and the remaining increase was from organic growth for legacy programs.

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Cost of Revenue

Cost of revenue increased $882.5 million, or 101.1%, for the six months ended June 30, 2023 as compared to the six months ended July 1, 2022, primarily due to the increased revenue from the Merger and increased amortization of intangible assets.

Cost of revenue increased $952.3 million, or 54.9%, for the nine months ended September 29, 2023 as compared to the nine months ended September 30, 2022, primarily due to the increased revenue from the Merger and increased amortization of intangible assets.

Selling, General, & Administrative (SG&A) Expenses

SG&A expenses increased $39.7 million, or 64.3%, for the six months ended June 30, 2023 as compared to the six months ended July 1, 2022, primarily due to the Merger.

SG&A expenses decreased $3.3 million, or 2.1%, for the nine months ended September 29, 2023 as compared to the nine months ended September 30, 2022 primarily due to a decrease in M&A, integration and related expenses.

Operating Income

Operating income increased $44.6 million, or 220.1%, for the six months ended June 30, 2023 as compared to the six months ended July 1, 2022.

Operating income as a percentage of revenue was 3.4% for the six months ended June 30, 2023, compared to 2.1% for the six months ended July 1, 2022.

Operating income increased $61.1 million, or 247.1%, for the nine months ended September 29, 2023 as compared to the nine months ended September 30, 2022.

Operating income as a percentage of revenue was 2.9% for the nine months ended September 29, 2023, compared to 1.3% for the nine months ended September 30, 2022.

The increase was due to the Merger and improved performance of legacy programs.

Aggregate cumulative catch-up adjustments increased operating income by $22.2 million and $7.4 million for the six months ended June 30, 2023 and July 1, 2022, respectively.

The aggregate cumulative catch-up adjustments for the six months ended June 30, 2023 and July 1, 2022 related to changes in contract terms, program performance, customer changes in scope of work and changes to estimates in the reported period.

Aggregate cumulative catch-up adjustments increased operating income by $27.2 million and $5.9 million for the nine months ended September 29, 2023 and September 30, 2022, respectively.

The aggregate cumulative catch-up adjustments for the nine months ended September 29, 2023 and September 30, 2022 related to changes in contract terms, program performance, customer changes in scope of work and changes to estimates in the reported period.

Operating income was also impacted by the mix of labor and cost differential between internal resources and subcontractors as well as the volume of other direct cost purchases.

Loss on Extinguishment of Debt

The Company recorded a $22.1 million loss on extinguishment of debt for the six months ended June 30, 2023.

The Company recorded a $22.1 million loss on extinguishment of debt for the nine months ended September 29, 2023.

For a discussion of the loss on extinguishment see Note 6, Debt, in the Notes to Condensed Consolidated Financial Statements.

Interest (Expense) Income, Net

Interest (expense) income, net for the three and six months ended June 30, 2023 and July 1, 2022 was as follows:

Three Months Ended Change Six Months Ended Change

(In thousands, except for percentages) June 30, 2023 July 1, 2022 $ % June 30, 2023 July 1, 2022 $ %

Interest (expense) income, net for the three and nine months ended September 29, 2023 and September 30, 2022 was as follows:

Three Months Ended Change Nine Months Ended Change

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

(In thousands, except for percentages) 2023 2022 $ % 2023 2022 $ %

Interest income $ 334 $ 16 $ 318 1,988 % $ 683 $ 66 $ 617 935 %

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Interest expense, net $ (30,252) $ (27,265) $ (2,987) 11 % $ (93,946) $ (30,908) $ (63,038) 204 %

Interest income is directly related to interest earned on cash and cash equivalents.

Interest expense is directly related to borrowings under the Company's senior secured credit facilities, with the amortization of debt issuance costs, and derivative instruments used to hedge a portion of exposure to interest rate risk.

Interest expense, net increased $60.1 million for the six months ended June 30, 2023 compared to the six months ended July 1, 2022 due to increased debt assumed with the Merger.

Interest income is related to interest earned on cash and cash equivalents.

Interest expense is related to borrowings under the Company's senior secured credit facilities, with the amortization of debt issuance costs, and derivative instruments used to hedge a portion of exposure to interest rate risk.

Interest expense, net increased $63.0 million for the nine months ended September 29, 2023 compared to the nine months ended September 30, 2022 due to increased debt assumed with the Merger.

Other Expense, Net

During the three months and six months ended June 30, 2023, the Company incurred purchase discount fees and other expenses of $0.2 million and $0.1 million, respectively, related to the sale of accounts receivable through the MARPA Facility.

During the three and nine months ended September 29, 2023, the Company incurred purchase discount fees and other expenses of $2.0 million and $2.1 million, respectively, related to the sale of accounts receivable through the MARPA Facility.

Income Tax (Benefit) Provision

The Company recorded income tax provisions of $0.2 million and $2.6 million for the three months ended June 30, 2023 and July 1, 2022, 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 income tax benefit of $5.5 million and provision of $3.3 million, 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.

The Company recorded income tax benefits of $4.8 million and $5.7 million for the three months ended September 29, 2023 and September 30, 2022, 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, 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.

LIQUIDITY AND CAPITAL RESOURCES

The Company has generated operating cash flows sufficient to fund its working capital, capital expenditures, and financing requirements.

The Company is not aware of any known trends, demands, commitments, events or uncertainties that will result in, or that are reasonably likely to result in, a material decrease in our liquidity.

In addition, other than items discussed, there are no known material trends, favorable or unfavorable, in our capital resources and no expected material changes in the mix of such resources.

Our major source of funding for 2023 and beyond will be our operating cash flow, our existing balances of cash and cash equivalents and proceeds from any issuances of debt.

We believe we have sufficient liquidity to fund operations, acquisitions, capital expenditures and scheduled debt repayments.

The Company expects to fund its ongoing working capital, capital expenditure and financing requirements and pursue additional growth through new business development and potential acquisition opportunities by using cash flows from operations, cash on hand, its credit facilities, and access to capital markets.

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Although the Company believes its current financing arrangements will permit financing of its operations on acceptable terms and conditions, access to and the availability of financing on acceptable terms and conditions in the future will be impacted by many factors, including:

(i) its credit ratings, (ii) the liquidity of the overall capital markets, and (iii) the current state of the economy.

(i) its credit ratings, (ii) the liquidity of the overall capital markets, and (iii) the

current state of the economy.

The Company cannot provide assurance that such financing will be available on acceptable terms or that such financing will be available at all.

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.

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.

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.

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and international cash from wholly owned subsidiaries.

Approximately $26.7 million of the Company's $70.3 million in cash and cash equivalents at June 30, 2023 is held by foreign subsidiaries and is not available to fund U.S.

Approximately $42.8 million of the Company's $78.3 million in cash, cash equivalents and restricted cash as of September 29, 2023 is held by foreign subsidiaries and is not available to fund U.S.

operations unless repatriated.

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operating activities and cash commitments for financing activities.

Debt Refinancing

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.

The Company does not currently plan to pay a regular dividend on its common stock.

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The Company determines its DSO by calculating the number of days necessary to exhaust its ending accounts receivable balance based on its most recent historical revenue.

DSO wa s 68 d ays as of June 30, 2023 and December 31, 2022.

The following table sets forth net cash used in operating activities, investing activities and financing activities:

Six Months Ended

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

DSO wa s 62 and 68 d ays as of September 29, 2023 and December 31, 2022, respectively.

The following table sets forth net cash (used in) provided by operating activities, investing activities and financing activities:

Nine Months Ended

September 29, September 30,

(in thousands) 2023 2022

Operating activities $ 135,175 $ 91,559

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Foreign exchange 1

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

(1,540) (3,668)

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

1 Impact on cash balances due to changes in foreign exchange rates.

Net cash provided by operating activities for the six months ended June 30, 2023, primarily consisted of cash inflows from non-cash net income items of $104.3 million and sales of accounts receivable through the MARPA Facility of $113.0 million, partially offset by net cash outflows in working capital accounts of $123.5 million and a net loss of $15.7 million.

Net cash used in operating activities for the six months ended July 1, 2022 consisted of cash inflows from net income of $13.3 million and non-cash net income items of $12.7 million, partially offset by cash outflows for other long-term assets and liabilities of $3.2 million and net working capital requirements of $3.2 million.

The net working capital inflows were largely from increases in accounts payable offset by increases in accounts receivable and decreases in other accrued liabilities, which included an $8.1 million payment of deferred CARES Act payroll taxes.

Net cash used in investing activities for the six months ended June 30, 2023 consisted of $11.5 million of capital expenditures for the purchase of software and hardware, vehicles and equipment related to ongoing operations.

Net cash used in investing activities for the six months ended July 1, 2022 consisted of $3.5 million of capital expenditures for the purchase of software and hardware, and vehicles and equipment related to ongoing operations and $ 2.1 million for a joint venture contribution.

Net cash used in financing activities during the six months ended June 30, 2023 consisted of repayments of long-term debt of $424.9 million, revolver repayments of $467.8 million, payments for employee withholding taxes on share-based compensation of $14.6 million, and payments for debt issuance costs of $7.5 million, partially offset by proceeds from long term debt and the revolver of $250.0 million and $552.8 million, respectively.

Net cash used in financing activities during the six months ended July 1, 2022 consisted of repayments of long-term debt of $5.2 million, payments of $1.7 million for employee withholding taxes on share-based compensation and payments $0.5 million for debt issuance costs.

During the six months ended July 1, 2022, the Company borrowed and repaid $392.0 million and $402.0 million, respectively, on the Amended Revolver.

Net cash provided by operating activities for the nine months ended September 29, 2023, primarily consisted of cash inflows from non-cash net income items of $140.7 million and net cash inflows in working capital accounts of $44.6 million, partially offset by a liability of $20.9 million for MARPA sales and a net loss of $22.1 million.

Net cash provided by operating activities for the nine months ended September 30, 2022 consisted of cash inflows from non-cash net income items of $60.0 million, a decrease in net working capital requirements of $55.4 million, partially offset by cash outflows for other long-term assets and liabilities of $11.9 million and a net loss of $3.7 million.

The net working capital inflows were largely from increases in accounts payable and compensation and other employee benefits offset by increases in accounts receivable and decreases in prepaid expenses other accrued liabilities, which included an $8.1 million payment of deferred CARES Act payroll taxes.

Net cash used in investing activities for the nine months ended September 29, 2023 consisted of $16.6 million of capital expenditures for the purchase of software and hardware, vehicles and equipment related to ongoing operations.

Net cash provided by investing activities for the nine months ended September 30, 2022 consisted of $194.4 million of net cash acquired in the Merger.

This was partially offset by $8.2 million of capital expenditures for the purchase of software and hardware, and vehicles and equipment related to ongoing operations.

Net cash used in financing activities during the nine months ended September 29, 2023 consisted of repayments of long-term debt of $428.8 million, revolver repayments of $669.8 million, payments for employee withholding taxes on share-based compensation of $17.9 million, and payments for debt issuance costs of $7.5 million, partially offset by proceeds from long term debt and the revolver of $250.0 million and $719.8 million, respectively.

Net cash used in financing activities during the nine months ended September 30, 2022 consisted of repayments of long-term debt of $58.4 million, payments of $1.9 million for employee withholding taxes on share-based compensation and payments of $2.3 million for debt issuance costs.

During the nine months ended September 30, 2022 , the Company borrowed and repaid $392.0 million and $495.0 million, respectively, on the Amended Revolver.

These cash outflows were partially offset by $0.4 million received from the exercise of stock options.

Capital Resources

At June 30, 2023, the Company held cash and cash equivalents of $70.3 million, which included $26.7 million held by foreign subsidiaries, and had $398.9 million of available borrowing capacity under the 2023 Revolver, which expires on February 25, 2028.

The Company believes that its cash and cash equivalents at June 30, 2023, as supplemented by cash flows from operations, the 2023 Revolver, and the MARPA Facility will be sufficient to fund its anticipated operating costs, capital expenditures, and current debt repayment obligations for at least the next 12 months.

As of September 29, 2023, the Company held cash, cash equivalents and restricted cash of $78.3 million, which included $42.8 million held by foreign subsidiaries, and had $434.1 million of available borrowing capacity under the 2023 Revolver, which expires on February 25, 2028.

The Company believes that its cash, cash equivalents and restricted cash as of September 29, 2023, as supplemented by cash flows from operations, the 2023 Revolver, and the MARPA Facility will be sufficient to fund its anticipated operating costs, capital expenditures, and current debt repayment obligations for at least the next 12 months.

Contractual Obligations

As of June 30, 2023, commitments to make future payments under long-term contractual obligations were as follows:

As of September 29, 2023, commitments to make future payments under long-term contractual obligations were as follows:

Payments Due by Period

6 unchanged sentences

Total $ 1,793,221 $ 140,990 $ 273,159 $ 497,021 $ 882,051

¹ Includes unused funds fee and is based on the June 30, 2023 interest rate and outstanding balance.

¹ Includes unused funds fee and is based on the September 29, 2023 interest rate and outstanding balance.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS

43 unchanged sentences

inflation and interest rate risk;

geopolitical risk, including as a result of recent international events;

subcontractor performance;

9 unchanged sentences

risks and uncertainties relating to the Merger;

risks and uncertainties relating to the Spin-off;

changes in GAAP;

1 unchanged sentence

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 2. Management’s Discussion and Analysis