V2X, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS V2X, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED) Three Months Ended Nine Months Ended September 27, September 29, September 27, September 29, (In thousands, except per share data) 2024 2023 2024 2023 Revenue $ 1,081,656 $ 1,001,507 $ 3,164,403 $ 2,922,819 Cost of revenue 990,220 930,828 2,928,858 2,685,910 Selling, general, and administrative expenses 41,549 49,640 127,901 151,021 Operating income 49,887 21,039 107,644 85,888 Loss on extinguishment of debt — — ( 1,998 ) ( 22,052 ) Interest expense, net ( 27,152 ) ( 30,252 ) ( 83,533 ) ( 93,946 ) Other expense, net ( 3,198 ) ( 2,024 ) ( 9,566 ) ( 2,335 ) Income (loss) from operations before income taxes 19,537 ( 11,237 ) 12,547 ( 32,445 ) Income tax expense (benefit) 4,486 ( 4,837 ) 2,896 ( 10,364 ) Net income (loss) $ 15,051 $ ( 6,400 ) $ 9,651 $ ( 22,081 ) Earnings (loss) per share Basic $ 0.48 $ ( 0.21 ) $ 0.31 $ ( 0.71 ) Diluted $ 0.47 $ ( 0.21 ) $ 0.30 $ ( 0.71 ) Weighted average common shares outstanding - basic 31,550 31,179 31,458 31,048 Weighted average common shares outstanding - diluted 31,973 31,179 31,921 31,048 The accompanying notes are an integral part of these financial statements. 4 Table of Contents V2X, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) Three Months Ended Nine Months Ended September 27, September 29, September 27, September 29, (In thousands) 2024 2023 2024 2023 Net income (loss) $ 15,051 $ ( 6,400 ) $ 9,651 $ ( 22,081 ) Other comprehensive (loss) income, net of tax Changes in derivative instruments: Net change in fair value of interest rate swaps ( 10,247 ) 4,170 ( 4,785 ) 9,481 Tax benefit (expense) 2,523 ( 1,759 ) 1,220 ( 3,203 ) Net change in derivative instruments ( 7,724 ) 2,411 ( 3,565 ) 6,278 Foreign currency translation adjustments, net of tax 4,574 ( 2,324 ) 1,305 ( 96 ) Other comprehensive (loss) income, net of tax ( 3,150 ) 87 ( 2,260 ) 6,182 Total comprehensive income (loss) $ 11,901 $ ( 6,313 ) $ 7,391 $ ( 15,899 ) The accompanying notes are an integral part of these financial statements. 5 Table of Contents V2X, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) September 27, December 31, (In thousands, except per share data) 2024 2023 Assets Current assets Cash, cash equivalents and restricted cash $ 59,857 $ 72,651 Receivables 766,399 705,995 Prepaid expenses and other current assets 156,042 96,223 Total current assets 982,298 874,869 Property, plant, and equipment, net 65,746 85,429 Goodwill 1,652,855 1,656,926 Intangible assets, net 345,712 407,530 Right-of-use assets 33,370 41,215 Other non-current assets 46,124 15,931 Total non-current assets 2,143,807 2,207,031 Total Assets $ 3,126,105 $ 3,081,900 Liabilities and Shareholders' Equity Current liabilities Accounts payable $ 538,225 $ 453,052 Compensation and other employee benefits 115,569 158,088 Short-term debt 16,878 15,361 Other accrued liabilities 235,379 213,700 Total current liabilities 906,051 840,201 Long-term debt, net 1,096,865 1,100,269 Deferred tax liabilities 12,313 11,763 Operating lease liabilities 29,590 34,691 Other non-current liabilities 78,725 104,176 Total non-current liabilities 1,217,493 1,250,899 Total liabilities 2,123,544 2,091,100 Commitments and contingencies (Note 7) Shareholders' Equity Preferred stock; $ 0.01 par value; 10,000,000 shares authorized; No shares issued and outstanding — — Common stock; $ 0.01 par value; 100,000,000 shares authorized; 31,556,556 and 31,191,628 shares issued and outstanding as of September 27, 2024 and December 31, 2023, respectively 316 312 Additional paid in capital 766,690 762,324 Retained earnings 240,502 230,851 Accumulated other comprehensive loss ( 4,947 ) ( 2,687 ) Total shareholders' equity 1,002,561 990,800 Total Liabilities and Shareholders' Equity $ 3,126,105 $ 3,081,900 The accompanying notes are an integral part of these financial statements. 6 Table of Contents V2X, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended September 27, September 29, (In thousands) 2024 2023 Operating activities Net income (loss) $ 9,651 $ ( 22,081 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation expense 16,442 16,532 Amortization of intangible assets 68,252 67,818 Amortization of cloud computing arrangements 2,073 213 Impairment of non-operating long-lived asset 2,192 — Loss on disposal of property, plant, and equipment 1,170 625 Stock-based compensation 12,874 26,809 Deferred taxes 72 ( 9,887 ) Amortization of debt issuance costs 5,717 6,875 Loss on extinguishment of debt 1,998 22,052 Changes in assets and liabilities: Receivables ( 25,614 ) 9,647 Other assets ( 70,827 ) 7,916 Accounts payable 66,101 28,094 Compensation and other employee benefits ( 42,417 ) ( 28,620 ) Other liabilities ( 16,581 ) 9,182 Net cash provided by operating activities 31,103 135,175 Investing activities Purchases of capital assets ( 10,700 ) ( 16,559 ) Proceeds from the disposition of assets 14 16 Acquisitions of businesses ( 16,939 ) — Distribution from joint venture — 834 Net cash used in investing activities ( 27,625 ) ( 15,709 ) Financing activities Proceeds from issuance of long-term debt — 250,000 Repayments of long-term debt ( 7,669 ) ( 428,763 ) Proceeds from revolver 1,009,250 719,750 Repayments of revolver ( 1,009,250 ) ( 669,750 ) Proceeds from stock awards and stock options 154 7 Payment of debt issuance costs ( 1,188 ) ( 7,507 ) Prepayment premium on early redemption of debt — ( 1,600 ) Payments of employee withholding taxes on stock-based compensation ( 8,036 ) ( 17,871 ) Net cash used in financing activities ( 16,739 ) ( 155,734 ) Exchange rate effect on cash 467 ( 1,540 ) Net change in cash, cash equivalents and restricted cash ( 12,794 ) ( 37,808 ) Cash, cash equivalents and restricted cash - beginning of period 72,651 116,067 Cash, cash equivalents and restricted cash - end of period $ 59,857 $ 78,259 Supplemental disclosure of cash flow information: Interest paid $ 74,774 $ 89,635 Income taxes paid $ 9,167 $ 5,242 Purchase of capital assets on account $ 90 $ 2,882 The accompanying notes are an integral part of these financial statements. 7 Table of Contents V2X, INC. 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 ) Foreign currency translation adjustments — — — — 1,806 1,806 Unrealized loss on cash flow hedge — — — — ( 2,199 ) ( 2,199 ) Employee stock awards and stock options 535 5 — — — 5 Taxes withheld on stock compensation awards — — ( 12,806 ) — — ( 12,806 ) Stock-based compensation — — 12,066 — — 12,066 Balance at March 31, 2023 31,005 $ 310 $ 748,137 $ 235,944 $ ( 5,920 ) $ 978,471 Net income — — — 1,799 — 1,799 Foreign currency translation adjustments — — — — 422 422 Unrealized gain on cash flow hedge — — — — 6,066 6,066 Employee stock awards and stock options 76 1 — — — 1 Taxes withheld on stock 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 income — — — ( 6,400 ) — ( 6,400 ) Foreign currency translation adjustments — — — — ( 2,324 ) ( 2,324 ) Unrealized gain on cash flow hedge — — — — 2,411 2,411 Employee stock awards and stock options 106 1 — — — 1 Taxes withheld on stock compensation awards — — ( 3,254 ) — — ( 3,254 ) Stock-based compensation — — 5,939 — — 5,939 Balance at September 29, 2023 31,187 $ 312 $ 756,781 $ 231,343 $ 655 $ 989,091 8 Table of Contents V2X, INC. 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, 2023 31,192 $ 312 $ 762,324 $ 230,851 $ ( 2,687 ) $ 990,800 Net income — — — 1,144 — 1,144 Foreign currency translation adjustments — — — — ( 3,431 ) ( 3,431 ) Unrealized gain on cash flow hedge — — — — 5,939 5,939 Employee stock awards and stock options 261 3 — — — 3 Taxes withheld on stock compensation awards — — ( 5,702 ) — — ( 5,702 ) Stock-based compensation — — 4,983 — — 4,983 Balance at March 29, 2024 31,453 $ 315 $ 761,605 $ 231,995 $ ( 179 ) $ 993,736 Net loss — — — ( 6,544 ) — ( 6,544 ) Foreign currency translation adjustments — — — — 162 162 Unrealized loss on cash flow hedge — — — — ( 1,780 ) ( 1,780 ) Employee stock awards and stock options 27 — 146 — — 146 Taxes withheld on stock compensation awards — — ( 65 ) — — ( 65 ) Stock-based compensation — — 6,296 — — 6,296 Balance at June 28, 2024 31,480 $ 315 $ 767,982 $ 225,451 $ ( 1,797 ) $ 991,951 Net income — — — 15,051 — 15,051 Foreign currency translation adjustments — — — — 4,574 4,574 Unrealized loss on cash flow hedge — — — — ( 7,724 ) ( 7,724 ) Employee stock awards and stock options 77 1 4 — — 5 Taxes withheld on stock compensation awards — — ( 2,269 ) — — ( 2,269 ) Stock-based compensation — — 973 — — 973 Balance at September 27, 2024 31,557 $ 316 $ 766,690 $ 240,502 $ ( 4,947 ) $ 1,002,561 The accompanying notes are an integral part of these financial statements. 9 Table of Contents NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business V2X, Inc., an Indiana Corporation, formerly known as Vectrus, Inc. (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 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, taken together as a whole. Equity Investments In 2011, the Company entered into a joint venture agreement with Shaw Environmental & Infrastructure, Inc., which is now APTIM Federal Services LLC. Pursuant to the joint venture agreement, High Desert Support Services, LLC (HDSS) was established to pursue and perform work on the Ft. Irwin Installation Support Services Contract, which was awarded to HDSS in October 2012. In 2018, the Company entered into a joint venture agreement with J&J Maintenance. Pursuant to the joint venture agreement, J&J Facilities Support, LLC (J&J) was established to pursue and perform work on various U.S. government contracts. In 2020, the Company entered into a joint venture agreement with Kuwait Resources House for Human Resources Management and Services Company . Pursuant to the joint venture agreement, ServCore Resources and Services Solutions, LLC (ServCore) was established to operate and manage labor and life support services outside of the continental United States at designated locations serviced by V2X and others around the world. In February 2022, the Company and Permagreen Grønland formed Inuksuk A/S (Inuksuk), a corporation in Greenland to bid for certain contracts in Greenland. The Company accounts for its investments in HDSS, J&J, ServCore, and Inuksuk 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 %, 40 %, and 49 % shares, respectively, of income or losses from HDSS, J&J, ServCore, and Inuksuk are recorded in selling, general and administrative expenses in the Condensed Consolidated Statements of Income (Loss). These investments are recorded in other non-current assets in the Condensed Consolidated Balance Sheets. When cash distributions are received by the Company from its equity method investments, the cash distribution is compared to cumulative earnings and cumulative cash distributions. Cash distributions received are recorded as a return on investment in operating cash flows within the Condensed Consolidated Statements of Cash Flows to the extent cumulative cash distributions are less than cumulative earnings. Any cash distributions in excess of cumulative earnings are recorded as a return of investment in investing cash flows within the Condensed Consolidated Statements of Cash Flows. As of September 27, 2024 and December 31, 2023, the Company's combined investment balance was $ 8.7 million and $ 5.4 million, respectively. The Company's proportionate share of income from equity method investments was $ 2.0 million and $ 9.0 million for the three and nine months ended September 27, 2024, respectively, and a loss of $ 1.5 million and income of $ 2.3 million for the three and nine months ended September 29, 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 27, 2024 for the third quarter of 2024 and September 29, 2023 for the third 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. The unaudited interim Condensed Consolidated Financial Statements of V2X have been prepared pursuant to the rules and regulations of the U.S. 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 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. It is management’s opinion that these financial statements include all normal and recurring adjustments necessary for a fair presentation of the Company’s financial position and operating results. Revenue and net income for any interim period are not necessarily indicative of future or annual results. Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no material impact on the results of operations, financial position, or changes in shareholders’ equity. Restricted Cash As of September 27, 2024, the Company had total cash, cash equivalents, and restricted cash of $ 59.9 million which included $ 2.1 million of restricted cash. The Company's restricted cash was $ 2.0 million as of December 31, 2023. 10 Table of Contents Cloud Computing Arrangements (CCA) The Company capitalizes implementation costs associated with its CCA consistent with costs capitalized for internal-use software. Capitalized CCA implementation costs are included in prepaid expenses and other current assets and other non-current assets on the Company's Condensed Consolidated Balance Sheets. The CCA implementation costs are amortized over the term of the related hosting agreement, including renewal periods that are reasonably certain to be exercised. Amortization expense of CCA implementation costs is included in cost of revenue on the Company's Condensed Consolidated Statements of Income (Loss). The CCA implementation costs are included within operating activities on the Company's Condensed Consolidated Statements of Cash Flows. As of September 27, 2024, the Company had total capitalized CCA implementation costs, net of accumulated amortization, of $ 30 million included in prepaid expenses and other current assets and other non-current assets. Prepaid Expenses and Other Current Assets The components of prepaid expenses and other current assets are as follows: September 27, December 31, (In thousands) 2024 2023 Inventory, net $ 49,714 $ 46,981 Prepaid expenses 44,411 30,664 Prepaid taxes 12,102 10,715 Other 49,815 7,863 Total $ 156,042 $ 96,223 Related Party Transactions During the three and nine months ended September 27, 2024, the Company recorded no income and income of $ 0.7 million, respectively, and $ 0.7 million and $ 2.1 million of income for the three and nine months ended September 29, 2023, respectively, related to a Transition Services Agreement with Crestview Aerospace LLC (Crestview). The income was recorded as a reduction in cost of revenue. Crestview is a subsidiary of American Industrial Partners Capital Fund VI, L.P. (AIP), an affiliate of the majority shareholder of the Company. NOTE 2 RECENT AC COUNTING STANDARDS UPDATE 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. NOTE 3 REVENUE Remaining Performance Obligations Remaining performance obligations represent firm orders by the customer and exclude 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. Court of Federal Claims (COFC). 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. 11 Table of Contents 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. The number of option periods varies 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. The Company expects to recognize a substantial portion of its performance obligations as revenue within the next 12 months. However, the U.S. government or the prime contractor may cancel any contract at any time through a termination for convenience or for cause. Substantially all 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. Remaining performance obligations are presented in the following table: September 27, December 31, (In millions) 2024 2023 Performance Obligations $ 4,033 $ 3,629 As of September 27, 2024, the Company expects to recognize approximately 23 % and 77 % 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 adjustments for the three and nine months ended September 27, 2024 were favorable by $ 17.3 million and $ 18.5 million, respectively. Cumulative adjustments for the three and nine months ended September 29, 2023 were favorable by $ 5.0 million and $ 27.2 million, respectively. For the three and nine months ended September 27, 2024, the net adjustments to operating income increased revenue by $ 12.8 million and $ 22.2 million, respectively. For the three and nine months ended September 29, 2023, the net adjustments to operating income increased revenue by $ 10.3 million and $ 33.8 million, respectively. Revenue by Category 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. The Company does not bear the risks of unexpected cost overruns, provided that incurred costs do not exceed the predetermined funded amounts. Most of the Company's cost-plus contracts also contain a firm-fixed-price element. Cost-plus contracts with award and incentive fee provisions are primarily variable contract fee arrangements. Award fees provide for a fee based on actual performance relative to contractually specified performance criteria. Incentive fees are based on the relationship between total allowable and target cost. Most of the Company's contracts include a cost-reimbursable element to capture costs of consumable materials required for the program. Typically, these costs do not bear fees. On a firm-fixed-price contract, the Company agrees to perform the contractual statement of work for a predetermined contract price. A firm-fixed-price contract typically offers higher profit margin potential than a cost-plus contract, which is commensurate with the greater levels of risk assumed on a firm-fixed-price contract. Although a firm-fixed-price contract generally permits retention of profits if the total actual contract costs are less than the estimated contract costs, the Company bears the risk that increased or unexpected costs may reduce profit or cause the Company to sustain losses on the contract. Although the overall scope of work required under the contract may not change, profit may be adjusted as experience is gained and as efficiencies are realized or costs are incurred. 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. 12 Table of Contents The following tables present various revenue disaggregations. Revenue by contract type is as follows: Three Months Ended Nine Months Ended September 27, September 29, % September 27, September 29, % (In thousands) 2024 2023 Change 2024 2023 Change Cost-plus and cost-reimbursable $ 649,925 $ 570,402 13.9 % $ 1,850,584 $ 1,589,619 16.4 % Firm-fixed-price 403,132 402,219 0.2 % 1,229,565 1,237,110 ( 0.6 ) % Time-and-materials 28,599 28,886 ( 1.0 ) % 84,254 96,090 ( 12.3 ) % Total revenue $ 1,081,656 $ 1,001,507 $ 3,164,403 $ 2,922,819 Revenue by geographic region in which the contract is performed is as follows: Three Months Ended Nine Months Ended September 27, September 29, % September 27, September 29, % (In thousands) 2024 2023 Change 2024 2023 Change United States $ 604,872 $ 571,405 5.9 % $ 1,728,480 $ 1,698,689 1.8 % Middle East 346,527 305,918 13.3 % 1,050,888 866,122 21.3 % Asia 82,907 63,259 31.1 % 236,371 193,109 22.4 % Europe 47,350 60,925 ( 22.3 ) % 148,664 164,899 ( 9.8 ) % Total revenue $ 1,081,656 $ 1,001,507 $ 3,164,403 $ 2,922,819 Revenue by contract relationship is as follows: Three Months Ended Nine Months Ended September 27, September 29, % September 27, September 29, % (In thousands) 2024 2023 Change 2024 2023 Change Prime contractor $ 1,021,497 $ 945,669 8.0 % $ 2,972,773 $ 2,740,908 8.5 % Subcontractor 60,159 55,838 7.7 % 191,630 181,911 5.3 % Total revenue $ 1,081,656 $ 1,001,507 $ 3,164,403 $ 2,922,819 Revenue by customer is as follows: Three Months Ended Nine Months Ended September 27, September 29, % September 27, September 29, % (In thousands) 2024 2023 Change 2024 2023 Change Army $ 455,877 $ 412,841 10.4 % $ 1,345,997 $ 1,196,843 12.5 % Navy 366,217 311,088 17.7 % 1,037,425 896,976 15.7 % Air Force 121,863 134,728 ( 9.5 ) % 367,899 418,710 ( 12.1 ) % Other 137,699 142,850 ( 3.6 ) % 413,082 410,290 0.7 % Total revenue $ 1,081,656 $ 1,001,507 $ 3,164,403 $ 2,922,819 Contract Balances The timing of revenue recognition, billings, and cash collections results in billed and unbilled accounts receivable (contract assets) and customer advances and deposits (contract liabilities) on the Condensed Consolidated Balance Sheets. Amounts are billed as work progresses in accordance with agreed-upon contractual terms at periodic intervals (e.g., biweekly or monthly). Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, the Company may receive advances or deposits from its customers before revenue is recognized, resulting in contract liabilities. These advance billings and payments are not considered significant financing components because they are frequently intended to ensure that both parties are in conformance with the primary contract terms. These assets and liabilities are reported on the Condensed Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. 13 Table of Contents As of January 1, 2023, the Company had contract assets of $ 487.8 million. As of September 27, 2024 and December 31, 2023, the Company had contract assets of $ 644.7 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. The balance of unbilled receivables consists of costs and fees that are: (i) billable immediately; (ii) billable on contract completion; or (iii) billable upon other specified events, such as the resolution of a request for equitable adjustment. Refer to Note 4, Receivables for additional information regarding the composition of the Company's receivable balances. As of January 1, 2023, the Company had contract liabilities of $ 76.4 million. As of September 27, 2024 and December 31, 2023, contract liabilities, included in other accrued liabilities in the Condensed Consolidated Balance Sheets, were $ 96.2 million and $ 109.6 million, respectively. NOTE 4 RECEIVABLES Receivables were comprised of the following: September 27, December 31, (In thousands) 2024 2023 Billed receivables $ 101,274 $ 109,318 Unbilled receivables (contract assets) 644,735 561,862 Other 20,390 34,815 Total receivables $ 766,399 $ 705,995 As of September 27, 2024 and December 31, 2023, substantially all billed receivables were due from the U.S. government, either directly as prime contractor to the U.S. government or as subcontractor to another prime contractor to the U.S. government. Because the Company's billed receivables are with the U.S. government, the Company does not believe it has a material credit risk exposure. 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 27, 2024 contract assets during 2024. Changes in the balance of receivables are primarily due to the timing differences between performance and customers' payments. NOTE 5 DEBT Senior Secured Credit Facilities First Lien Credit Agreement On May 30, 2024, the First Lien Credit Agreement was amended to provide, among other things, a new tranche of term loans in an aggregate original principal amount of $ 906.6 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 Term Tranche as in effect immediately prior to the amendment (the Existing Term Loans). The loans under the First Lien Credit Agreement, as amended (the First Lien Credit Agreement), amortize in an amount equal to approximately $ 2.3 million per quarter through September 30, 2030, with the balance of $ 847.6 million due on December 6, 2030. The replacement of the Existing Term Loans with the New Term Loans resulted in a loss on extinguishment of debt of $ 2.0 million in the Condensed Consolidated Statement of Income (Loss) for the nine months ended September 27, 2024. 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 1.75 % per annum, or SOFR, plus a margin of 2.75 % per annum. As of September 27, 2024, the effective interest rate for the First Lien Credit Agreement was 8.52 %. 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. 14 Table of Contents 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 September 27, 2024, the carrying value of the First Lien Credit Agreement was $ 904.3 million, excluding deferred discount and unamortized deferred financing costs of $ 31.0 million. The estimated fair value of the First Lien Credit Agreement as of September 27, 2024 was $ 903.2 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). 2023 Credit Agreement 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 SOFR rate plus 1.00 %, plus a margin of 1.00 % to 2.25 % per annum, or adjusted 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 27, 2024, the effective interest rate for the 2023 Term Loan was 8.55 %. 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. The Vertex Borrower is also required to pay a letter of credit fronting fee to each letter of credit issuer equal to 0.125 % per annum of the amount available to be drawn under each such letter of credit (or such other amount as may be mutually agreed by the Vertex Borrowers and the applicable letter of credit issuer), as well as a fee to all lenders equal to the applicable margin to SOFR of revolving credit loans times the average daily amount available to be drawn under all outstanding letters of credit. The 2023 Credit Agreement contains customary representations and warranties, which must be accurate for the Vertex Borrower to borrow under the 2023 Credit Agreement, and affirmative covenants. The 2023 Credit Agreement also includes negative covenants that limit, among other things, additional indebtedness, transactions with affiliates, additional liens, sales of assets, dividends, investments and advances, prepayments of debt, mergers and acquisitions. The 2023 Credit Agreement contains financial covenants requiring (a) the consolidated total net leverage ratio not to exceed 5.00 to 1.00 for the reporting periods ending on or after June 30, 2023, and on or prior to June 30, 2024, with a step down to 4.75 to 1.00 for periods ending on or after July 1, 2024, and on or prior to December 31, 2025, with further step downs thereafter, and (b) the consolidated interest coverage ratio be at least 2.00 to 1.00 commencing with the reporting period ending on June 30, 2023. The 2023 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 2023 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 Borrowers may be required immediately to repay all amounts outstanding under the 2023 Credit Agreement. As of September 27, 2024, there were $ 15.9 million of outstanding letters of credit under the 2023 Revolver. Availability under the 2023 Revolver was $ 484.1 million as of September 27, 2024. Unamortized deferred financing costs related to the 2023 Revolver of $ 3.4 million are included in other non-current assets in the Condensed Consolidated Balance Sheets as of September 27, 2024. As of September 27, 2024, the fair value of the 2023 Revolver approximated the carrying value because the debt bears a floating interest rate. 15 Table of Contents As of September 27, 2024, the carrying value of the 2023 Term Loan was $ 242.2 million, excluding unamortized deferred financing costs of $ 1.7 million. The estimated fair value of the 2023 Term Loan as of September 27, 2024 was $ 242.3 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 27, 2024 are as follows: (In thousands) Payments due 2024 (remainder of the year) $ 7,658 2025 20,003 2026 21,566 2027 21,566 2028 212,191 After 2028 863,507 Total $ 1,146,491 As of September 27, 2024, the Company was in compliance with all covenants related to the First Lien Credit Agreement and the 2023 Credit Agreement. NOTE 6 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. 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 loss and subsequently recognized in earnings with the corresponding hedged item. Interest Rate Derivative Instruments The Company is exposed to the risk that the earnings and cash flows could be adversely impacted due to fluctuations in interest rates. To mitigate this risk, the Company entered into $ 100.0 million and $ 350.0 million of interest rate swap contracts during the three months ended September 27, 2024 and the first six months of 2023, respectively. As of September 27, 2024 and December 31, 2023, these contracts had notional values of $ 442.2 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: Fair Value (level 2) September 27, December 31, (In thousands) Balance sheet caption 2024 2023 Interest rate swap designated as cash flow hedge Prepaid expenses and other current assets $ 519 $ 3,381 Interest rate swap designated as cash flow hedge Other accrued liabilities $ 53 $ — Interest rate swap designated as cash flow hedge Other non-current liabilities $ 4,876 $ 3,006 Interest rate swap designated as cash flow hedge Accumulated other comprehensive loss $ ( 4,411 ) $ 375 The Company regularly assesses the creditworthiness of the counterparty. As of September 27, 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 $ 1.6 million and $ 4.5 million were recognized in interest expense, net, in the Condensed Consolidated Statements of Income (Loss) during the three and nine months ended September 27, 2024, respectively. 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 Income (Loss) during the three and nine months ended September 29, 2023, respectively . The Company expects $ 0.2 million of existing interest rate swap gains reported in accumulated other comprehensive loss as of September 27, 2024 to be recognized in earnings within the next 12 months. 16 Table of Contents NOTE 7 COMMITMENTS AND CONTINGENCIES General 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. government customers periodically advise the Company of claims and penalties concerning certain potential disallowed costs. When such findings are presented, V2X and the U.S. government representatives engage in discussions to enable V2X to evaluate the merits of these claims as well as to assess the amounts being claimed. Where appropriate, provisions are made to reflect probable losses related to the matters raised by U.S. government representatives. 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 $ 14.0 million and $ 12.1 million as of September 27, 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, will have a material adverse effect on its cash flows, results of operations or financial condition. U.S. Government Contracts, Investigations and Claims The Company has U.S. government contracts that are funded incrementally on a year-to-year basis. Changes in government policies, priorities or funding levels through agency or program budget reductions by the U.S. Congress or executive agencies could have a material adverse effect on the Company's financial condition or results of operations. Furthermore, the Company's contracts with the U.S. government may be terminated or suspended by the U.S. government at any time, with or without cause. Such contract suspensions or terminations could result in non-reimbursable expenses or charges or otherwise adversely affecting the Company's financial condition and results of operations. Departments and agencies of the U.S. government have the authority to investigate various transactions and operations of the Company, and the results of such investigations may lead to administrative, civil or criminal proceedings, the ultimate outcome of which could be fines, penalties, repayments or compensatory or treble damages. U.S. government regulations provide that certain findings against a contractor may lead to suspension or debarment from future U.S. government contracts or the loss of export privileges for a company or an operating division or subdivision. Suspension or debarment could have a material adverse effect on the Company because of its reliance on U.S. government contracts. U.S. government agencies, including the Defense Contract Audit Agency, the Defense Contract Management Agency and others, routinely audit and review the Company's performance on government contracts, indirect rates and pricing practices, and compliance with applicable contracting and procurement laws, regulations and standards. Accordingly, costs billed or billable to U.S. government customers are subject to potential adjustment upon audit by such agencies. The U.S. government agencies also review the adequacy of compliance with government standards for business systems, including accounting, earned value management, estimating, materials management and accounting, purchasing, and property management systems. 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. government customers. Most often, these requests are due to customer-directed changes in the scope of work. While the Company is entitled to recovery of these costs under its contracts, the administrative process with the U.S. government customer may be protracted. Based on the circumstances, the Company periodically files requests for equitable adjustments (REAs) that are sometimes converted into claims. In some cases, these requests are disputed by the U.S. government customer. The Company believes its outstanding modifications, REAs and other claims will be resolved without material adverse impact to its results of operations, financial condition or cash flows. 17 Table of Contents NOTE 8 STOCK-BASED COMPENSATION The Company maintains an equity incentive plan, the 2014 Omnibus Incentive Plan, as amended and restated effective as of October 27, 2022 (the 2014 Omnibus Plan), to govern awards granted to V2X employees and directors, including nonqualified stock options (NQOs), restricted stock units (RSUs), total shareholder return (TSR) awards, performance share units (PSUs) and other awards. The Company accounts for NQOs, stock-settled RSUs and PSUs as equity-based compensation awards. TSR awards, described below, are accounted for as liability-based compensation awards. Liability-based awards are revalued at the end of each reporting period to reflect changes in fair value. Stock-based compensation expense and the associated tax benefits impacting the Company's Condensed Consolidated Statements of Income (Loss) were as follows: Three Months Ended Nine Months Ended September 27, September 29, September 27, September 29, (In thousands) 2024 2023 2024 2023 Compensation costs for equity-based awards $ 974 $ 5,939 $ 12,252 $ 25,775 Compensation costs for liability-based awards 106 424 622 1,033 Total compensation costs, pre-tax $ 1,080 $ 6,363 $ 12,874 $ 26,808 Future tax benefit $ 275 $ 1,688 $ 3,283 $ 7,112 As of September 27, 2024, total unrecognized compensation costs related to equity-based awards and liability-based awards were $ 17.2 million and $ 0.04 million, respectively, which are expected to be recognized ratably over a weighted average period of 1.33 years and 0.26 years, respectively. The following table provides a summary of the activities for NQOs, RSUs and PSUs for the nine months ended September 27, 2024: NQOs RSUs PSUs (In thousands, except per share data) Shares Weighted Average Exercise Price Per Share Shares Weighted Average Grant Date Fair Value Per Share Shares Weighted Average Grant Date Fair Value Per Share Outstanding at January 1, 2024 40 $ 22.93 800 $ 37.29 267 $ 43.45 Granted — $ — 316 $ 45.58 161 $ 45.44 Exercised ( 6 ) $ 25.90 — $ — — $ — Vested — $ — ( 549 ) $ 37.33 ( 9 ) $ 46.45 Forfeited or expired — $ — ( 109 ) $ 42.42 ( 157 ) $ 36.26 Outstanding at September 27, 2024 34 $ 22.43 458 $ 41.35 262 $ 43.55 Restricted Stock Units 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 27, 2024, there was $ 12.1 million of unrecognized RSU related compensation expense. Total Shareholder Return Awards TSR awards are performance-based cash awards that are subject to a three-year performance period. Any payments earned are made in cash following completion of the performance period according to the achievement of specified performance goals. There were no cash-based TSR awards granted in the first nine months of 2024. As of September 27, 2024, there was $ 0.04 million of unrecognized TSR related compensation expense. 18 Table of Contents Performance Share Units During the first nine months 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. As of September 27, 2024, there was $ 5.1 million of unrecognized PSU related compensation expense. NOTE 9 INCOME TAXES Effective Tax Rate Income tax expense during interim periods is based on an estimated annual effective income tax rate, plus discrete items that may occur in any given interim periods. 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 27, 2024 and September 29, 2023, the Company recorded an income tax provision of $ 4.5 million and income tax benefits of $ 4.8 million, respectively, representing effective income tax rates of 23.0 % and 43.0 %, respectively. For the nine months ended September 27, 2024 and September 29, 2023, the Company recorded an income tax provision of $ 2.9 million and income tax benefits of $ 10.4 million, respectively, representing effective income tax rates of 23.1 % and 31.9 %, 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 both September 27, 2024 and December 31, 2023, unrecognized tax benefits from uncertain tax positions were $ 6.6 million. NOTE 10 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. Diluted EPS reflects potential dilution that could occur if securities to issue common stock were exercised or converted into common stock. 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 27, September 29, September 27, September 29, (In thousands, except per share data) 2024 2023 2024 2023 Net income (loss) $ 15,051 $ ( 6,400 ) $ 9,651 $ ( 22,081 ) Weighted average common shares outstanding 31,550 31,179 31,458 31,048 Add: Dilutive impact of stock options 20 — 19 — Add: Dilutive impact of restricted stock units 403 — 444 — Diluted weighted average common shares outstanding 31,973 31,179 31,921 31,048 Earnings (loss) per share Basic $ 0.48 $ ( 0.21 ) $ 0.31 $ ( 0.71 ) Diluted $ 0.47 $ ( 0.21 ) $ 0.30 $ ( 0.71 ) 19 Table of Contents The following table summarizes the weighted average of anti-dilutive securities excluded from the diluted EPS calculation. Three Months Ended Nine Months Ended September 27, September 29, September 27, September 29, (In thousands) 2024 2023 2024 2023 Anti-dilutive restricted stock units — — 22 1 Total — — 22 1 NOTE 11 POST-EMPLOYMENT BENEFIT PLANS Deferred Employee Compensation The Company sponsors two non-qualified deferred compensation plans. Under these plans, participants are eligible to defer a portion of their compensation on a tax deferred basis. Plan investments and obligations were recorded in other non-current assets and other non-current liabilities, respectively, in the Condensed Consolidated Balance Sheets, representing the fair value related to the deferred compensation plans. 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 $ 5.0 million and $ 3.2 million as of September 27, 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 $ 3.6 million and $ 13.0 million for the three and nine months ended September 27, 2024, respectively, and $ 2.9 million and $ 11.1 million for the three and nine months ended September 29, 2023, respectively. NOTE 12 SALE OF RECEIVABLES 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 $ 300.0 million with the U.S. government. Receivables sold under the MARPA Facility are without recourse for any U.S. government credit risk. The Company accounts for these receivable transfers under the MARPA Facility as sales under ASC Topic 860, Transfers and Servicing , and removes the sold receivables from its balance sheet. The fair value of the sold receivables approximated their book value due to their short-term nature. As of and for the Nine Months Ended September 27, September 29, (In thousands) 2024 2023 Beginning balance: $ 72,715 $ — Sale of receivables 2,311,341 705,205 Cash collections ( 2,240,639 ) ( 617,340 ) Outstanding balance sold to MUFG 1 143,417 87,865 Cash collected, not remitted to MUFG 2 ( 38,265 ) ( 66,999 ) Remaining sold receivables $ 105,152 $ 20,866 1 For the nine months ended September 27, 2024, the Company recorded a net cash inflow from sale of receivables of $ 70.7 million from operating activities. 2 Includes the cash collected on behalf of, but not yet remitted to, MUFG as of September 27, 2024. This balance is included in other accrued liabilities as of the balance sheet date. During the nine months ended September 27, 2024 and September 29, 2023, the Company incurred purchase discount fees, net of servicing fees, of $ 7.4 million and $ 2.1 million, respectively, 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. 20 Table of Contents The Company does not retain an ongoing financial interest in the transferred receivables other than cash collection and administrative services. The servicing fee approximates fair value and, therefore, the Company has not recognized a servicing asset or liability as of September 27, 2024. Proceeds from the sale of receivables are reflected as cash flows from operating activities on the Condensed Consolidated Statements of Cash Flows. 21 Table of Contents