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Item 2. Management’s Discussion and Analysis

2024-05-07 compared with 2023-11-06 · 123 added, 180 removed, 161 unchanged (65% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 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.

Actual results could differ materially from the results contemplated by these forward-looking statements.

Refer to "Forward-Looking Information" for further information regarding forward-looking statements.

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

The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto included in this Quarterly Report on Form 10-Q as well as the audited Consolidated Financial Statements and notes thereto and the information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.

This Quarterly Report provides additional information regarding the Company, our services, industry outlook and forward-looking statements that involve risks and uncertainties.

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

Our actual results could differ materially from the results contemplated by these forward-looking statements.

See "Forward-Looking Statement Information" for further information.

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

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.

The Company's primary customer is the U.S.

The Company operates as one segment and provides 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.

Our primary customer is the U.S.

Department of Defense (DoD).

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.

For the three months ended March 29, 2024 and March 31, 2023, the Company had total revenue of $1.0 billion and $0.9 billion, respectively, the substantial majority of which was derived from U.S.

government customers.

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.

For the three months ended March 29, 2024 and March 31, 2023, we generated approximately 43% and 41%, respectively, of our total revenue from the U.S.

Executive Summary

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.

Our revenue increased $67.1 million, or 7.1%, for the three months ended March 29, 2024 as compared to the three months ended March 31, 2023.

Revenue increased primarily due to organic growth for legacy programs.

Revenue from our programs in the Middle East, Europe and Asia increased by $62.1 million, $4.6 million, $4.5 million, respectively, partially offset by a decrease in revenue from our programs in the U.S.

of $4.0 million.

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 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.

Further details related to consolidated financial results for the three months ended March 29, 2024, compared to the three months ended March 31, 2023, are contained in the "Discussion of Financial Results" section.

Significant Contracts

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% of Total Revenue

Nine Months Ended

September 29, September 30,

Three Months Ended

March 29, March 31,

Contract Name 2024 2023

Logistics Civil Augmentation Program (LOGCAP) V - Kuwait Task Order 11.0% 13.6%

Logistics Civil Augmentation Program (LOGCAP) V - Iraq Task Order 7.7% 11.0%

Revenue associated with a contract will fluctuate based on increases or decreases in the work being performed on the contract, award fee payment assumptions, and other contract modifications within the term of the contract resulting in changes to the total contract value.

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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 $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 $224.0 million and $209.6 million of revenue for the nine months ended September 29, 2023 and September 30, 2022 , respectively.

The LOGCAP V - Kuwait Task Order contributed $110.7 million a nd $127.9 million of revenue for the three months ended March 29, 2024 and March 31, 2023 , 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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Total backlog is converted into revenue as work is performed.

The level of order activity related to programs can be affected by the timing of U.S.

government funding authorizations and their project evaluation cycles.

The level of order activity related to programs can be affected by the timing of government funding authorizations and their project evaluation cycles.

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

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 for the remaining contract period.

Our contracts are multi-year contracts and typically include an initial period of one year or less with annual one-year or less option periods for the remaining contract period.

The number of option periods vary by contract, and there is no guarantee that an option period will be exercised.

The right to exercise an option period is at the sole discretion of the U.S.

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

government when we are the prime contractor or of the prime contractor when we are a subcontractor.

government may also extend the term of a program by issuing extensions or bridge contracts, typically for periods of one year or less.

The Company expects to recognize a substantial portion of its funded backlog as revenue within the next 12 months.

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

However, the U.S.

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

Substantially all 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.

Most of our contracts have terms that would permit recovery of all or a portion of our 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:

September 29, December 31,

March 29, December 31,

(In millions) 2024 2023

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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 $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.

We received funded orders of $860.4 million during the three months ended March 29, 2024, which was a decrease of $121.6 million compared to the three months ended March 31, 2023.

Economic Opportunities, Challenges and Risks

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

On March 23, 2024, the President signed into law the Further Consolidated Appropriations Act for FY 2024, which provides $825 billion in funding for the DoD, through September 30, 2024.

The Fiscal 2025 budget request was submitted to the U.S.

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

Congress on March 11, 2024, and requested $895 billion for National Defense, with $850 billion of the total allocated to the DoD.

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 (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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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.

For example, global hostilities 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.

In recent quarters of 2023, the Company’s cost-plus and cost-reimbursable contracts have been increasing sequentially as a percentage of total contract mix and revenue.

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

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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 updated, as necessary, on subsequent quarterly reports on Form 10-Q, and the matters identified under the caption “Forward-Looking Statement Information" herein.

Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, 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 September 29, 2023, compared to three months ended September 30, 2022

Three months ended March 29, 2024, compared to three months ended March 31, 2023

Selected financial highlights are presented in the following table:

Three Months Ended Change

September 29, September 30,

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

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

Cost of revenue 930,828 861,073 69,755 8.1 %

% of revenue 92.9 % 89.9 %

Selling, general, and administrative expenses 49,640 92,596 (42,956) (46.4) %

% of revenue 5.0 % 9.7 %

Operating income 21,039 4,487 16,552 368.9 %

Operating margin 2.1 % 0.5 %

Interest expense, net (30,252) (27,265) (2,987) 11.0 %

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

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

% of revenue (1.1) % (2.4) %

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

Effective income tax rate 43.0 % 25.2 %

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

*Percentage change is not meaningful.

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 $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 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 $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.

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

Selected financial highlights are presented in the following table:

Nine Months Ended Change

September 29, September 30,

March 29, March 31,

(In thousands, except for percentages) 2024 2023 $ %

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Other expense, net (1,633) — (1,633) *

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

Income (loss) from operations before income taxes 1,124 (23,217) 24,341 (104.8) %

% of revenue 0.1 % (2.5) %

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Effective income tax rate (1.8) % 24.7 %

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

Net income (loss) $ 1,144 $ (17,480) $ 18,624 (106.5) %

*Percentage change is not meaningful.

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.

Revenue from programs located in the U.S., Middle East, Asia and Europe increased by $790.4 million, $118.8 million, $79.8 million and $21.1 million, respectively.

Revenue increased $67.1 million, or 7.1%, for the three months ended March 29, 2024 as compared to the three months ended March 31, 2023.

Revenue increased primarily due to organic growth for legacy programs.

of $4.0 million.

Cost of Revenue

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.

Cost of revenue increased $75.7 million, or 8.8%, for the three months ended March 29, 2024 as compared to the three months ended March 31, 2023, primarily driven by increases in revenue and changes in contract mix.

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

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.

SG&A expenses decreased $8.3 million, or 17.2%, for the three months ended March 29, 2024 as compared to the three months ended March 31, 2023, primarily due to cost optimization and lower merger and integration-related costs.

Operating Income

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 $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.

Operating income decreased $0.2 million, or 0.8%, for the three months ended March 29, 2024 as compared to the three months ended March 31, 2023.

Operating income as a percentage of revenue was 3.0% for the three months ended March 29, 2024, compared to 3.2% for the three months ended March 31, 2023 primarily driven by changes in contract mix offset by decreased SG&A expenses.

Aggregate cumulative catch-up adjustments increased operating income by $0.5 million and $13.1 million for the three months ended March 29, 2024 and March 31, 2023, respectively.

The aggregate cumulative catch-up adjustments for the three months ended March 29, 2024 and March 31, 2023 related to changes in contract terms, program performance, customer changes in scope of work and changes to estimates in the reported period.

Loss on Extinguishment of Debt

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.

Loss on extinguishment of debt decreased $22.1 million for the three months ended March 29, 2024 as compared to the three months ended March 31, 2023 due to a $22.1 million loss on extinguishment of debt recorded for the three months ended March 31, 2023.

Interest (Expense) Income, Net

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,

Interest (expense) income, net for the three months ended March 29, 2024 and March 31, 2023 was as follows:

Three Months Ended Change

March 29, March 31,

(In thousands, except for percentages) 2024 2023 $ %

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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.

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

Interest expense, net decreased $4.2 million for the three months ended March 29, 2024 compared to the three months ended March 31, 2023 due to both a decrease in our debt balance in the first quarter of 2024 compared to the first quarter of 2023, and our interest rate swap contracts, which we entered into at the end of the first quarter of 2023.

Other Expense, Net

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 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.

During the three months ended March 29, 2024, we incurred purchase discount fees and other expenses of $1.6 million, related to the sale of accounts receivable through the MARPA Facility.

Income Tax Benefit

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

Our 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.

LIQUIDITY AND CAPITAL RESOURCES

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.

We are 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.

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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.

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

When necessary, the 2023 Revolver and MARPA Facility are available to satisfy short-term working capital requirements.

If cash flows from operations are less than expected, the Company may need to access the long-term or short-term capital markets.

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.

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

If cash flows from operations are less than expected, we may need to access the long-term or short-term capital markets.

Although we believe our current financing arrangements will permit financing of our 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) our credit ratings, (ii) the liquidity of the overall capital markets, and (iii) the current state of the economy.

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

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.

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 portion 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.

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and international cash from wholly owned subsidiaries.

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.

Approximately $34.4 million of our $35.7 million in cash, cash equivalents and restricted cash as of March 29, 2024 is held by foreign subsidiaries and is not available to fund U.S.

operations unless repatriated.

The Company does not currently expect to repatriate undistributed earnings of foreign subsidiaries.

The Company expects its U.S.

domestic cash resources will be sufficient to fund its U.S.

We do not currently expect to repatriate undistributed earnings of foreign subsidiaries.

We expect our U.S.

domestic cash resources will be sufficient to fund our U.S.

operating activities and cash commitments for financing activities.

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.

The declaration of any future cash dividends and the amount of any such dividends, if declared, will depend upon the Company's financial condition, earnings, capital requirements, financial covenants and other contractual restrictions and the discretion of its Board of Directors.

In deciding whether to pay future dividends on common stock, the Board of Directors may take into account such matters as general business conditions, industry practice, the Company's financial condition and performance, its future prospects, cash needs and capital investment plans, income tax consequences, applicable law and such other factors as the Board of Directors may deem relevant.

Sources and Uses of Liquidity

Cash, accounts receivable, unbilled receivables, and accounts payable are the principal components of the Company's working capital and are generally driven by revenue with other short-term fluctuations related to payment practices by customers, sales of accounts receivable through the MARPA Facility and the timing of billings.

The Company's receivables reflect amounts billed to customers, as well as the revenue that was recognized in the preceding month, which is normally billed the month following each balance sheet date.

Our receivables reflect amounts billed to customers, as well as the revenue that was recognized in the preceding month, which is normally billed the month following each balance sheet date.

Accounts receivable balances can vary significantly over time and are impacted by revenue levels and the timing of payments received from customers.

Days sales outstanding (DSO) is a metric used to monitor accounts receivable levels.

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

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

We determine our DSO by calculating the number of days necessary to exhaust our ending accounts receivable balance based on our most recent historical revenue.

DSO wa s 66 and 58 d ays as of March 29, 2024 and December 31, 2023, 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,

Three Months Ended

March 29, March 31,

(in thousands) 2024 2023

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

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.

Net cash used in operating activities for the three months ended March 29, 2024 primarily consisted of net cash outflows in working capital accounts of $119.8 million and net cash outflows in other long-term assets and liabilities of $8.0 million, partially offset by cash inflows from non-cash net income items of $35.8 million, cash inflows from the sale of receivables through the MARPA Facility of $33.7 million and net income of $1.1 million.

Net cash used in operating activities for the three months ended March 31, 2023 primarily consisted of net cash outflows in working capital accounts of $68.7 million, other long-term assets and liabilities of $17.8 million, and a net operating loss of $17.5 million, partially offset by cash inflows from non-cash net income items of $65.5 million.

Net cash used in investing activities for the three months ended March 29, 2024 consisted of $16.9 million for the acquisition of businesses and $7.8 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 three months ended March 31, 2023 consisted of $9.1 million of capital expenditures for the purchase of software and hardware, vehicles and equipment related to ongoing operations.

Net cash provided by financing activities during the three months ended March 29, 2024 consisted of proceeds from the revolver of $375.3 million, partially offset by revolver repayments of $319.3 million, payments for employee withholding taxes on share-based compensation of $5.7 million, and repayments of long-term debt of $3.8 million.

Net cash used in financing activities during the three months ended March 31, 2023 consisted of repayments of long-term debt of $421.0 million, revolver repayments of $163.8 million, payments for employee withholding taxes on share-based compensation of $12.8 million, and payments for debt issuance costs of $7.5 million, partially offset by proceeds from long term debt and the revolver of $250.0 million and $348.7 million, respectively.

Capital Resources

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.

As of March 29, 2024, we held cash, cash equivalents and restricted cash of $35.7 million, which included $34.4 million held by foreign subsidiaries, and had $426.8 million of available borrowing capacity under the 2023 Revolver, which expires on February 25, 2028.

We believe that our cash, cash equivalents and restricted cash as of March 29, 2024, as supplemented by cash flows from operations, the 2023 Revolver, and the MARPA Facility will be sufficient to fund our anticipated operating costs, capital expenditures, and current debt repayment obligations for at least the next 12 months.

Contractual Obligations

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

As of March 29, 2024, commitments to make future payments under long-term contractual obligations were as follows:

Payments Due by Period

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Total $ 1,724,167 $ 133,492 $ 271,592 $ 1,311,028 $ 8,055

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

¹ Includes unused funds fee and is based on the March 29, 2024 interest rate and outstanding balance.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS

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however, actual results in these areas could differ from management's estimates under different assumptions or conditions.

The Company believes that the assumptions and estimates associated with revenue recognition, business combinations, goodwill and other intangible assets, and income taxes have the greatest potential impact on its financial statements.

Therefore, the Company considers these to be its critical accounting policies and estimates.

There have been no material changes in the critical accounting policies and estimates from those discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

We believe that the assumptions and estimates associated with revenue recognition, business combinations, goodwill and other intangible assets, and income taxes have the greatest potential impact on our financial statements.

Therefore, we consider these to be our critical accounting policies and estimates.

There have been no material changes in the critical accounting policies and estimates from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2023.

New Accounting Pronouncements

Refer to Part I, Item 1, Note 2 , Recent Accounting Standards Update in the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for information regarding accounting pronouncements and accounting standards updates.

FORWARD-LOOKING INFORMATION

FORWARD-LOOKING STATEMENT INFORMATION

This Quarterly Report on Form 10-Q and certain information incorporated herein by reference contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 27A of the Securities Act of 1933, as amended (the Securities Act), and the Private Securities Litigation Reform Act of 1995 and, as such, may involve risks and uncertainties.

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Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “could,” “potential,” “continue” or similar terminology.

These statements are based on the beliefs and assumptions of the management of the Company based on information currently available to management.

These statements are based on the beliefs and assumptions of our management based on information currently available to management.

Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements.

The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company's historical experience and its present expectations or projections.

The forward-looking statements included or incorporated by reference in this report are subject to additional risks and uncertainties further identified and discussed in Part I, "Item 1A.

Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023, and updated, as necessary, on subsequent quarterly reports on Form 10-Q and are based on information available to us on the filing date of this report.

Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this report.

New risks and uncertainties arise from time to time, and we cannot predict those events or how they may affect us.

We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

These risks and uncertainties include, but are not limited to:

the Company's ability to submit proposals for and/or win all potential opportunities in the pipeline;

the Company's ability to retain and renew existing contracts;

the Company's ability to compete with other companies in the market;

security breaches and other disruptions to information technology and operation;

the mix of cost-plus, cost-reimbursable, and firm-fixed-price contracts;

maintaining the Company's reputation and relationship with the U.S.

our ability to submit proposals for and/or win all potential opportunities in our pipeline;

our ability to retain and renew our existing contracts;

our ability to compete with other companies in our market;

security breaches, cyber-attacks or cyber intrusions, and other disruptions to our information technology and operation;

our mix of cost-plus, cost-reimbursable, firm-fixed-price and time-and-materials contracts;

maintaining the our reputation and relationship with the U.S.

protests of new awards;

economic, political and social conditions in the countries in which the Company conducts business;

economic, political and social conditions in the countries in which we conduct our business;

changes in U.S.

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changes in technology;

intellectual property matters;

our ability to protect our intellectual property rights;

governmental investigations, reviews, audits and cost adjustments;

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government budget;

the Company's success in extending, deepening, and enhancing its technical capabilities;

success in expanding the Company's geographic footprint or broadening its customer base;

the Company's ability to realize the full amounts reflected in the Company's backlog;

our success in extending, deepening, and enhancing our technical capabilities;

our success in expanding our geographic footprint or broadening our customer base;

our ability to realize the full amounts reflected in our backlog;

impairment of goodwill;

misconduct of employees, subcontractors, agents, prime contractors and business partners;

the Company's ability to control costs;

level of indebtedness;

terms of credit agreements;

misconduct of our employees, subcontractors, agents, prime contractors and business partners;

our ability to control costs;

our level of indebtedness;

terms of our credit agreements;

inflation and interest rate risk;

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

subcontractor performance;

geopolitical risk, including as a result of recent global hostilities;

our subcontractors' performance;

economic and capital markets conditions;

the Company's ability to maintain safe work sites and equipment;

the Company's ability to retain and recruit qualified personnel;

the Company's ability to maintain good relationships with employees and contractors;

teaming relationships with other contractors;

changes in accounting estimates;

the adequacy of the Company's insurance coverage;

volatility in the Company's stock price;

changes in tax provisions or exposure to additional income tax liabilities;

risks and uncertainties relating to the Merger;

our ability to maintain safe work sites and equipment;

our ability to retain and recruit qualified personnel;

our ability to maintain good relationships with our workforce;

our teaming relationships with other contractors;

changes in our accounting estimates;

the adequacy of our insurance coverage;

volatility in our stock price;

changes in our tax provisions or exposure to additional income tax liabilities;

risks and uncertainties relating to integrating and refining internal control systems post-merger;

changes in GAAP;

and other factors described in Item 1A, “Risk Factors” and elsewhere in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 and described from time to time in future reports filed with the SEC.

and other factors described in Part I, "Item 1A.

Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2023 and described from time to time in our future reports filed with the SEC.

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