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Item 1. Financial Statements

2024-05-07 compared with 2023-11-06 · 163 added, 299 removed, 352 unchanged (57% of the section changed)

FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF LOSS (UNAUDITED)

Three Months Ended Nine Months Ended

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

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

Three Months Ended

March 29, March 31,

(In thousands, except per share data) 2024 2023

6 unchanged sentences

Other expense, net ( 1,633 ) —

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

Income (loss) from operations before income taxes 1,124 ( 23,217 )

Income tax benefit ( 20 ) ( 5,737 )

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

Loss per share

Net income (loss) $ 1,144 $ ( 17,480 )

Earnings (loss) per share

Basic $ 0.04 $ ( 0.57 )

3 unchanged sentences

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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)

Three Months Ended Nine Months Ended

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

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

Three Months Ended

March 29, March 31,

(In thousands) 2024 2023

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

Net income (loss) $ 1,144 $ ( 17,480 )

Other comprehensive income (loss), net of tax

1 unchanged sentence

Net change in fair value of interest rate swaps 4,921 ( 2,347 )

Net change in fair value of foreign currency forward contracts — — — 31

Tax (expense) benefit ( 1,907 ) — ( 3,203 ) 272

Tax benefit 430 148

Net change in derivative instruments 5,351 ( 2,199 )

1 unchanged sentence

Other comprehensive income (loss), net of tax 2,508 ( 393 )

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

Total comprehensive income (loss) $ 3,652 $ ( 17,873 )

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

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

September 29, December 31,

March 29, December 31,

(In thousands, except per share data) 2024 2023

2 unchanged sentences

Receivables 788,490 705,995

Prepaid expenses 80,816 74,234

Other current assets 19,623 13,049

Prepaid expenses and other current assets 129,427 96,223

Total current assets 953,575 874,869

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100,000,000 shares authorized;

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

31,452,806 and 31,191,628 shares issued and outstanding as of March 29, 2024 and December 31, 2023, respectively

Additional paid in capital 761,605 762,324

Retained earnings 231,995 230,851

Accumulated other comprehensive income (loss) 655 ( 5,527 )

Accumulated other comprehensive loss ( 179 ) ( 2,687 )

Total shareholders' equity 993,736 990,800

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine Months Ended

September 29, September 30,

Three Months Ended

March 29, March 31,

(In thousands) 2024 2023

Operating activities

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

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

Net income (loss) $ 1,144 $ ( 17,480 )

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

Depreciation expense 6,243 5,412

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Stock-based compensation 5,149 12,872

Deferred taxes ( 262 ) ( 6,034 )

Amortization of debt issuance costs 2,160 2,513

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Receivables ( 55,363 ) ( 30,649 )

Prepaid expenses ( 5,067 ) ( 4,142 )

Other assets ( 23,522 ) ( 9,778 )

Accounts payable ( 33,715 ) ( 4,115 )

Deferred taxes ( 9,887 ) —

Compensation and other employee benefits ( 18,607 ) ( 24,182 )

Other liabilities 37,000 ( 11,740 )

Net cash provided by operating activities 135,175 91,559

Net cash used in operating activities ( 57,226 ) ( 38,492 )

Investing activities

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Proceeds from the disposition of assets 5 —

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

Acquisitions of businesses ( 16,939 ) —

Net cash used in investing activities ( 24,709 ) ( 9,076 )

Financing activities

3 unchanged sentences

Repayments of revolver ( 319,250 ) ( 163,750 )

Proceeds from exercise of stock options 7 370

Proceeds from stock awards and stock options 3 5

Payment of debt issuance costs — ( 7,507 )

1 unchanged sentence

Payments of employee withholding taxes on share-based compensation ( 5,702 ) ( 12,806 )

Net cash used in financing activities ( 155,734 ) ( 165,251 )

Net cash provided by (used in) financing activities 46,461 ( 7,921 )

Exchange rate effect on cash ( 1,519 ) 1,567

Net change in cash, cash equivalents and restricted cash ( 36,993 ) ( 53,922 )

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

Cash, cash equivalents and restricted cash - beginning of period 72,651 116,067

Cash, cash equivalents and restricted cash - end of period $ 35,658 $ 62,145

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Purchase of capital assets on account $ 410 $ 494

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

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

3 unchanged sentences

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

Net income — — — 2,855 — 2,855

Foreign currency translation adjustments — — — — ( 616 ) ( 616 )

Unrealized gain on cash flow hedge — — — — 374 374

Employee stock awards and stock options 67 1 — — — 1

Taxes withheld on stock compensation awards — — ( 1,626 ) — — ( 1,626 )

Stock-based compensation — — 3,100 — — 3,100

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

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

Net loss — — — ( 17,480 ) — ( 17,480 )

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

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, 2023 31,192 $ 312 $ 762,324 $ 230,851 $ ( 2,687 ) $ 990,800

Net income — — — 1,144 — 1,144

2 unchanged sentences

Employee stock awards and stock options 261 3 — — — 3

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

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 — — ( 5,702 ) — — ( 5,702 )

Stock-based compensation — — 4,983 — — 4,983

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

Balance at March 29, 2024 31,453 $ 315 $ 761,605 $ 231,995 $ ( 179 ) $ 993,736

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

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(Vectrus), is a leading provider of critical mission solutions and support to defense clients globally.

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.

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).

On July 5, 2022 (the Closing Date), Vectrus completed its merger (Merger) thereby forming V2X, Inc.

For a description of the Merger, see Note 3, Merger .

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

Unless the context otherwise requires or unless stated otherwise, references in these notes to "V2X", "we," "us," "our," “combined company”, "the Company" and "our Company" refer to V2X, Inc.

and all of its consolidated subsidiaries (including, subsequent to the Merger, Vertex and its consolidated subsidiaries), taken together as a whole.

and all of its consolidated subsidiaries, taken together as a whole.

Equity Investments

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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 Loss.

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

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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 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.

As of March 29, 2024 and December 31, 2023, the Company's combined investment balance was $ 4.8 million and $ 5.4 million, respectively.

The Company's proportionate share of income from equity method investments was $ 2.6 million and $ 1.8 million for the three months ended March 29, 2024 and March 31, 2023 , respectively.

Basis of Presentation

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.

The Company's quarterly financial periods end on the Friday closest to the last day of the calendar quarter (March 29, 2024 for the first quarter of 2024 and March 31, 2023 for the first quarter of 2023), 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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Securities and Exchange Commission (SEC).

Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles (GAAP) in the U.S.

have been omitted.

Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the U.S.

(GAAP) have been omitted.

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, 2023.

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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.

As of March 29, 2024, the Company had total cash, cash equivalents, and restricted cash of $ 35.7 million which included $ 2.1 million of restricted cash.

The Company's restricted cash was $ 2.0 million as of December 31, 2023.

Related Party Transactions

During the three months ended March 29, 2024 and March 31, 2023, the Company recorded income of $ 0.5 million and $ 0.7 million, respectively, related to a Transition Services Agreement with Crestview Aerospace LLC (Crestview).

The income was recorded as a reduction in cost of sales.

Crestview is a subsidiary of American Industrial Partners Capital Fund VI, L.P.

(AIP), an affiliate of the majority shareholder of the Company.

RECENT AC COUNTING STANDARDS UPDATE

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.

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.

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 the outstanding shares of Vertex.

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 its customers.

Purchase Price Allocation

The Merger is accounted for as a business combination.

As such, the assets acquired and liabilities assumed are accounted for at fair value, with the excess of the purchase price over the fair value of the net identifiable assets acquired and liabilities assumed recorded as goodwill.

The Closing Date fair value of the consideration transferred totaled $ 634.0 million, which was comprised of the following:

(In thousands, except share and per share amounts) Purchase Price

Shares of V2X common stock issued 18,591,866

Market price per share of V2X as of Closing Date $ 33.92

Fair value of common shares issued $ 630,636

Fair value of cash consideration 3,315

Total consideration transferred $ 633,951

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

Receivables 331,300

Prepaid expenses 50,838

Property, plant, and equipment 55,678

Intangible assets 480,000

Other non-current assets 17,104

Right-of-use assets 21,062

Accounts payable ( 121,515 )

Debt ( 1,352,303 )

Compensation and other employee benefits ( 45,968 )

Other current and non-current liabilities ( 334,469 )

Total identifiable net assets ( 701,280 )

Goodwill 1,335,231

Total purchase consideration $ 633,951

As a result of the Merger, the Company recognized $ 1,335.2 million of goodwill.

The goodwill recognized is attributable to operational and general and administrative cost synergies, expanded market opportunities and other benefits that do not qualify for separate recognition.

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

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.

The receivables of $ 331.3 million represent fair value and are considered fully collectible.

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 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.

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

Performance Obligations

Performance obligations represent firm orders by the customer and excludes potential orders under indefinite delivery and indefinite quantity (IDIQ) contracts, unexercised contract options and contracts awarded to us that are being protested by competitors with the U.S.

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2023-07, Segment Reporting (Topic 280), to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

Amongst other amendments, the standard requires annual and interim disclosures of significant segment expenses that are regularly provided to the chief operating decision maker (CODM), and interim disclosures about a reportable segment’s profit or loss and assets that are currently required annually.

This standard does not change how an entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments.

The standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The Company is currently evaluating the impact of adoption of this standard on its consolidated financial statements.

In December 2023, the FASB issued ASU No.

2023-09 Income Taxes (Topic 740) to improve income tax disclosures primarily related to the rate reconciliation and income taxes paid information.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The Company is currently evaluating the impact of adoption of this standard on its consolidated financial statements.

Remaining Performance Obligations

Remaining performance obligations represent firm orders by the customer and excludes potential orders under indefinite delivery and indefinite quantity (IDIQ) contracts, unexercised contract options and contracts awarded to us that are being protested by competitors with the U.S.

Government Accountability Office (GAO) or in the U.S.

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Year-over-year comparisons could, at times, be impacted by these factors, among others.

Contracts are often modified to account for changes in contract specifications and requirements.

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.

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.

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 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.

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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,

Remaining performance obligations are presented in the following table:

March 29, December 31,

(In millions) 2024 2023

Performance Obligations $ 3,268 $ 3,629

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.

As of March 29, 2024, the Company expects to recognize approximately 63 % and 37 % of these remaining performance obligations as revenue in 2024 and 2025, 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 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.

Cumulative adjustments for the three months ended March 29, 2024 and March 31, 2023 were favorable by $ 0.5 million and $ 13.1 million, respectively.

For the three months ended March 29, 2024 and March 31, 2023, the net adjustments to operating income increased revenue by $ 3.4 million and $ 13.9 million, respectively.

Revenue by Category

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.

Generally, the sales price elements for the Company's contracts are cost-plus, cost-reimbursable, firm-fixed-price and time-and-materials, 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.

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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.

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

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

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Typically, these costs do not bear fees.

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.

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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.

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.

The following tables present various revenue disaggregations.

Revenue by contract type is as follows:

Three Months Ended Nine Months Ended

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

(In thousands) 2023 2022 Change 2023 2022 Change

Three Months Ended

March 29, March 31, %

(In thousands) 2024 2023 Change

Cost-plus and cost-reimbursable $ 604,167 $ 523,030 15.5 %

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

Three Months Ended Nine Months Ended

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

(In thousands) 2023 2022 Change 2023 2022 Change

Three Months Ended

March 29, March 31, %

(In thousands) 2024 2023 Change

United States $ 544,726 $ 548,770 ( 0.7 ) %

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Revenue by contract relationship is as follows:

Three Months Ended Nine Months Ended

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

(In thousands) 2023 2022 Change 2023 2022 Change

Three Months Ended

March 29, March 31, %

(In thousands) 2024 2023 Change

Prime contractor $ 945,155 $ 879,179 7.5 %

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Revenue by customer is as follows:

Three Months Ended Nine Months Ended

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

(In thousands) 2023 2022 Change 2023 2022 Change

Three Months Ended

March 29, March 31, %

(In thousands) 2024 2023 Change

Army $ 433,430 $ 390,503 11.0 %

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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 September 29, 2023 and December 31, 2022, the Company had contract assets of $ 570.9 million and $ 487.8 million, respectively.

As of January 1, 2023, the Company had contract assets of $ 487.8 million.

As of March 29, 2024 and December 31, 2023, the Company had contract assets of $ 658.9 million and $ 561.9 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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Refer to Note 4, Receivables for additional information regarding the composition of the Company's receivable balances.

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.

As of January 1, 2023, the Company had contract liabilities of $ 76.4 million.

As of March 29, 2024 and December 31, 2023, contract liabilities, included in other accrued liabilities in the Condensed Consolidated Balance Sheets, were $ 142.0 million and $ 109.6 million, respectively.

Receivables were comprised of the following:

September 29, December 31,

March 29, December 31,

(In thousands) 2024 2023

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Total receivables $ 788,490 $ 705,995

As of September 29, 2023 and December 31, 2022, substantially all billed receivables are due from the U.S.

As of March 29, 2024 and December 31, 2023, 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.

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.

The Company expects to bill customers for most of the March 29, 2024 contract assets during 2024.

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

Senior Secured Credit Facilities

In September 2014, Vectrus and its wholly-owned subsidiary, Vectrus Systems Corporation (VSC), entered into a senior secured credit agreement.

The credit agreement was subsequently amended on December 24, 2020 and January 24, 2022 and is collectively referred to as the Prior Credit Agreement.

The credit agreement consisted of a term loan (Amended Term Loan) and a $ 270.0 million revolving credit facility (Amended Revolver).

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.

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.

1 to First Lien Credit Agreement, dated as of the Closing Date, and as further amended, restated, amended and restated, supplemented and otherwise modified from time to time, the Vertex First Lien Credit Agreement), by and among Vertex Borrower, as borrower, Vertex Aerospace Intermediate LLC, a Delaware limited liability company, direct parent entity of Vertex Borrower and wholly-owned indirect subsidiary of Vertex (Vertex Holdings), the lenders from time to time party thereto and Royal Bank of Canada, as administrative agent;

the Second Lien Credit Agreement, dated as of December 6, 2021 (as amended, restated, amended and restated, supplemented and otherwise modified from time to time, the Vertex Second Lien Credit Agreement), Vertex Borrower, as borrower, Vertex Holdings, the lenders from time to time party thereto and Royal Bank of Canada, as administrative agent;

the ABL Credit Agreement, dated as of June 29, 2018 (as amended by the First Amendment to ABL Credit Agreement, dated as of May 17, 2019, as further amended by the Second Amendment to ABL Credit Agreement, dated as of May 17, 2021, and as further amended by the Third Amendment to ABL Credit Agreement, dated as of December 6, 2021, as further amended by the Fourth Amendment to ABL Credit Agreement, dated as of the Closing Date, and as further amended, restated, amended and restated, supplemented and otherwise modified from time to time, the Vertex ABL Credit Agreement), by and among Vertex Borrower, Vertex Holdings, certain other subsidiaries of Vertex Borrower from time to time party thereto as co-borrowers, the lenders from time to time party thereto and Ally Bank, as administrative agent (in such capacity, the ABL Agent).

On February 28, 2023, Vertex Borrower entered into a credit agreement (the 2023 Credit Agreement) among the lenders identified therein and Bank of America, N.A., as administrative agent, collateral agent, swingline lender and letter of credit issuer.

The 2023 Credit Agreement provides for $ 750.0 million in senior secured financing, with a first lien on substantially all the Borrower’s assets, consisting of a $ 500.0 million five-year Revolving Credit Facility (2023 Revolver) and a five-year $ 250.0 million Term Loan.

The proceeds of these Credit Facilities were used to, among other things, (i) repay the First Lien Incremental Term Tranche (as defined below), (ii) repay the entire outstanding amount of the Second Lien Credit Agreement, and (iii) repay the entire outstanding ABL Credit Facility.

Vertex First Lien Credit Agreement

The Vertex First Lien Credit Agreement provides for senior secured first lien term loans in an aggregate principal amount of $ 1,185.0 million, consisting of a $ 925.0 million term loan “B” tranche, (the First Lien Initial Term Tranche) and a $ 260.0 million incremental term loan “B” tranche (the First Lien Incremental Term Tranche and, together with the First Lien Initial Term Tranche, collectively, the First Lien Term Facility).

The entire amount of the proceeds from the (i) First Lien Initial Term Tranche were previously used to finance the acquisition of certain subsidiaries of Raytheon Company, a Delaware corporation, and related transaction costs (the Sky Acquisition in December 2021).

As provided in the Merger Agreement, the proceeds of the First Incremental Term Tranche were used by the Vertex Borrower to redeem all of the shares of previously issued preferred stock on the Closing Date (but prior to the Merger).

The remaining First Lien Incremental Term Tranche proceeds were used to repay in full all outstanding indebtedness under the Prior Credit Agreement, and other transaction costs.

Approximately $ 54.0 million of cash remained after funding the preferred stock redemption, repayment of the Prior Credit Agreement and other transaction costs.

On February 28, 2023, the outstanding balance of the First Incremental Term Tranche of $ 258.7 million was repaid.

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 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 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 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.

The Vertex First Lien Credit Agreement also includes negative covenants that limit, among other things, additional indebtedness, additional liens, sales of assets, dividends, investments and advances, prepayments of debt and mergers and acquisitions.

The Vertex First Lien Credit Agreement contains customary events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the First Lien Term Facility to be in full force and effect, and a change of control.

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 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.

First Lien Credit Agreement

The First Lien Credit Agreement provides for a tranche of term loans in an aggregate original principal amount of $ 911.1 million.

The loans under the First Lien Credit Agreement amortize in an amount equal to approximately $ 2.3 million per quarter through September 30, 2028, with the balance of $ 865.6 million due on December 6, 2028.

Vertex Aerospace Services LLC (Vertex Borrower) obligations under the First Lien Credit Agreement are guaranteed by Vertex Intermediate LLC and Vertex Borrower’s wholly-owned domestic subsidiaries (collectively, the Guarantors), subject to customary exceptions and limitations.

The Vertex Borrower’s obligations under the First Lien Credit Agreement and the Guarantors’ obligations under the related guarantees are secured by a first priority-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 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 Secured Overnight Financing Rate (SOFR) rate plus 1.00 %, plus a margin of 2.25 % per annum, or SOFR, plus a margin of 3.25 % per annum.

As of March 29, 2024, the effective interest rate for the First Lien Credit Agreement was 9.48 %.

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

The First Lien Credit Agreement also includes negative covenants that limit, among other things, additional indebtedness, additional liens, sales of assets, dividends, investments and advances, prepayments of debt and mergers and acquisitions.

The First Lien Credit Agreement contains customary events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the First Lien Credit Agreement to be in full force and effect, and a change of control.

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

As of March 29, 2024, the carrying value of the First Lien Credit Agreement was $ 906.6 million, excluding deferred discount and unamortized deferred financing costs of $ 34.7 million.

The estimated fair value of the First Lien Credit Agreement as of March 29, 2024 was $ 908.8 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).

Vertex Second Lien Credit Agreement

The Vertex Second Lien Credit Agreement provided for senior secured second lien term loans in an aggregate principal amount of $ 185.0 million (the Second Lien Term Facility).

The entire amount of the proceeds from the Second Lien Term Facility were previously used to finance the Sky Acquisition in December 2021.

The Company voluntarily prepaid $ 25.0 million of the Second Lien Term Facility on December 30, 2022 (the Voluntary Prepayment).

On February 28, 2023, the remaining Second Lien Term Facility balance of $ 160.0 million was repaid (the 2023 Payoff) and related guarantees and liens were discharged and released.

The balance of unamortized deferred financing costs related to the Second Lien Term Facility of $ 7.1 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.

Under the terms of the Vertex Second Lien Credit Agreement, the Vertex Borrower was required to remit a prepayment premium of $ 1.6 million with the 2023 Payoff 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.

Vertex ABL Credit Agreement

The Vertex ABL Credit Agreement provided for a senior secured revolving loan facility (the ABL Facility) of up to an aggregate amount of $ 200.0 million (the loans thereunder, the ABL Loans).

The Vertex ABL Credit Agreement also provided for (i) a $ 30.0 million sublimit of availability for letters of credit, and (ii) a $ 10.0 million sublimit for short-term borrowings on a swingline basis.

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 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) 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.

The 2023 Credit Agreement provides for $ 750.0 million in senior secured financing, with a first lien on substantially all the Vertex Borrower’s assets and consists of (a) a $ 500.0 million five-year revolving credit facility (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 (2023 Term Loan).

The 2023 Term Loan 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.

The Vertex Borrower’s obligations under the 2023 Credit Agreement are guaranteed by the Guarantors, subject to customary exceptions and limitations.

The Vertex Borrower’s obligations under the 2023 Credit Agreement and the Guarantors’ obligations under the related guarantees are secured by a first priority-lien on substantially all of the Vertex Borrower’s and the Guarantors’ assets (subject to customary exceptions and limitations) which exists on a pari passu basis with the lien held by the First Lien Credit Agreement lenders.

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 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.

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 SOFR rate plus 1.00 %, plus a margin of 1.00 % to 2.25 % per annum, or 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 29, 2024, the effective interest rates for the 2023 Revolver and Term Loan were 9.14 % and 8.38 %, 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 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.

As of March 29, 2024, there were $ 56.0 million of outstanding borrowings and $ 17.2 million of outstanding letters of credit under the 2023 Revolver.

Availability under the 2023 Revolver was $ 426.8 million as of March 29, 2024.

Unamortized deferred financing costs related to the 2023 Revolver of $ 3.9 million are included in other non-current assets in the Condensed Consolidated Balance Sheets.

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.

As of March 29, 2024, the fair value of the 2023 Revolver approximated the carrying value because the debt bears a floating interest rate.

As of March 29, 2024, the carrying value of the 2023 Term Loan was $ 243.8 million, excluding unamortized deferred financing costs of $ 2.0 million.

The estimated fair value of the 2023 Term Loan as of March 29, 2024 was $ 244.1 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 September 29, 2023 are as follows:

The aggregate scheduled maturities of the First Lien Credit Agreement and 2023 Credit Agreement as of March 29, 2024 are as follows:

(In thousands) Payments due

2024 (remainder of the year) $ 11,521

After 2027 1,124,937

2028 1,131,527

Total $ 1,206,319

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 .

As of March 29, 2024, 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, 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.

For the Company's 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

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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 $ 346.9 million as of September 29, 2023.

As of March 29, 2024 and December 31, 2023, these contracts had notional values of $ 343.8 million and $ 345.3 million, respectively.

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 September 29, 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 March 29, 2024:

(In thousands) Fair Value (level 2)

Balance sheet caption Amount

Interest rate swap designated as cash flow hedge Other current assets $ 5,240

Interest rate swap designated as cash flow hedge Prepaid expenses and other current assets $ 4,095

Interest rate swap designated as cash flow hedge Other non-current assets $ 1,201

Interest rate swap designated as cash flow hedge Accumulated other comprehensive income $ 5,296

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

The Company regularly assesses the creditworthiness of the counterparty.

As of September 29, 2023, the counterparty to the interest rate swaps had performed in accordance with its contractual obligations.

As of March 29, 2024, 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 $ 1.4 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.

Net interest rate derivative gains of $ 1.5 million and a nominal amount were recognized in interest expense, net, in the Condensed Consolidated Statements of Income (Loss) during the three months ended March 29, 2024 and March 31, 2023, respectively.

The Company expects $ 4.3 million of existing interest rate swap gains reported in accumulated other comprehensive income as of March 29, 2024 to be recognized in earnings within the next 12 months.

COMMITMENTS AND CONTINGENCIES

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.

From time to time, the Company is involved in various investigations, lawsuits, arbitrations, 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 relating to injuries to people or property damage, 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 latest information available to us.

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.

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

The Company estimated and accrued $ 12.4 million and $ 12.1 million as of March 29, 2024 and December 31, 2023, 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 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.

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, will have a material adverse effect on its cash flows, results of operations or financial condition.

Government Contracts, Investigations and Claims

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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.

Furthermore, the Company's contracts with the U.S.

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

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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.

A finding by a U.S.

government agency that the Company’s business systems are not adequate could adversely affect the Company’s financial condition and results of operations.

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

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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 Loss were as follows:

Three Months Ended Nine Months Ended

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

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

March 29, March 31,

(In thousands) 2024 2023

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Future tax benefit $ 1,065 $ 2,971

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 nine months ended September 29, 2023:

As of March 29, 2024, total unrecognized compensation costs related to equity-based awards and liability-based awards were $ 26.6 million and $ 0.5 million, respectively, which are expected to be recognized ratably over a weighted average period of 1.85 years and 0.76 years, respectively.

The following table provides a summary of the activities for NQOs, RSUs and PSUs for the three months ended March 29, 2024:

NQOs RSUs PSUs

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Forfeited or expired — $ — ( 29 ) $ 39.83 ( 34 ) $ 39.45

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

Outstanding at March 29, 2024 40 $ 22.93 625 $ 40.86 329 $ 41.88

Restricted Stock Units

On July 5, 2022, pursuant to the terms of the Merger Agreement, the Company issued an additional 1,346,089 RSUs, with a grant date fair value of $ 33.92 per share, to certain employees of Vertex.

The RSUs have been or will be settled in shares of the Company's common stock, with 517,918 RSUs vesting on the six-month anniversary following the grant date and a quarter of the remaining 828,171 RSUs vesting or having vested on each of four six-month anniversary dates following the grant date.

The fair value of each RSU grant to employees and directors was determined based on the closing price of V2X common stock on the date of grant.

Stock compensation expense will be recognized ratably over the vesting period of the awards.

RSUs awarded to employees, excluding the RSU awards awarded under the Merger Agreement, discussed above, vest in one-third increments on each of the three anniversary dates following the grant date subject to continued employment.

Director RSUs are granted on the date of an annual meeting of shareholders and vest on the business day immediately prior to the next annual meeting or the one-year anniversary of the grant date, if earlier.

RSUs awarded to employees vest in one-third increments on each of the three anniversary dates following the grant date subject to continued employment as described in the RSU award agreement.

RSUs issued to directors are typically granted annually and vest approximately one year after the grant date.

The fair value of each RSU grant was determined based on the closing price of V2X common stock on the date of grant.

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

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

As of March 29, 2024, there was $ 18.5 million of unrecognized RSU related compensation expense.

Total Shareholder Return Awards

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Any payments earned are made in cash following completion of the performance period according to the achievement of specified performance goals.

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 or second quarters of 2023.

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

There were no cash-based TSR awards granted in the first quarter of 2024.

As of March 29, 2024, there was $ 0.5 million of unrecognized TSR related compensation expense.

Performance Share Units

During the first and second quarters 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 vesting date.

During the first quarter of 2024, the Company granted performance-based awards with market conditions.

The awards 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 as compared to peer group companies, and the employee's continued service through the vesting date.

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

If performance is below the threshold level of performance, no shares will be issued.

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

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

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

As of March 29, 2024, there was $ 8.1 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 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.

For the three months ended March 29, 2024 and March 31, 2023, the Company recorded income tax benefits which were not material and $ 5.7 million, respectively.

The Company's effective income tax rates for the three months ended March 29, 2024 and March 31, 2023 were ( 1.8 )% and 24.7 %, respectively.

The effective income tax rates vary from the federal statutory rate of 21.0% mainly due to state and foreign taxes, disallowed compensation deduction under Internal Revenue Code Section 162(m), offset by available deductions not reflected in book income and income tax credits.

Uncertain Tax Positions

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.

(LOSS) EARNINGS PER SHARE

As of March 29, 2024 and December 31, 2023, unrecognized tax benefits from uncertain tax positions were $ 6.6 million and $ 6.6 million, respectively.

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 Nine Months Ended

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

Three Months Ended

March 29, March 31,

(In thousands, except per share data) 2024 2023

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

Net income (loss) $ 1,144 $ ( 17,480 )

Weighted average common shares outstanding 31,351 30,927

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Diluted weighted average common shares outstanding 31,794 30,927

Loss per share

Earnings (loss) per share

Basic $ 0.04 $ ( 0.57 )

1 unchanged sentence

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,

Three Months Ended

March 29, March 31,

(In thousands) 2024 2023

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Anti-dilutive restricted stock units 25 —

Total — 14 1 17

POST-EMPLOYMENT BENEFIT PLANS

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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 $ 2.7 million and $ 1.5 million as of September 29, 2023 and December 31, 2022, respectively.

The plans assets and liabilities were $ 4.2 million and $ 3.2 million as of March 29, 2024 and December 31, 2023, 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 $ 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.

Company expenses related to these plans were $ 5.0 million and $ 3.3 million for the three months ended March 29, 2024 and March 31, 2023, respectively.

SALE OF RECEIVABLES

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

The Company has a Master Accounts Receivable Purchase Agreement (MARPA Facility) with MUFG Bank, Ltd.

(MUFG) for the sale of certain designated eligible receivables up to a maximum amount of $ 200.0 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.

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

government credit risk.

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As of and for the

Nine Months Ended

September 29,

Three Months Ended

(In thousands) 2024

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Remaining sold receivables $ 82,202

(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.

1 For the three months ended March 29, 2024, the Company recorded a net cash inflow from sale of receivables of $ 33.7 million from operating activities.

2 Includes the cash collected on behalf of, but not yet remitted to, MUFG as of March 29, 2024.

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.

During the three months ended March 29, 2024, the Company incurred purchase discount fees, net of servicing fees, of $ 1.6 million, which are presented in other expense, net on the Condensed Consolidated Statements of Income (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 September 29, 2023.

The Company estimated that its servicing fee was at fair value and therefore has not recognized a servicing asset or liability as of March 29, 2024.

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

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