V2X, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. Overview 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 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 27, 2024 and September 29, 2023, the Company had total revenue of $3.2 billion and $2.9 billion, respectively, the substantial majority of which was derived from U.S. government customers. For the nine months ended September 27, 2024 and September 29, 2023, we generated approximately 42% and 41%, respectively, of our total revenue from the U.S. Army. Executive Summary Our revenue increased $80.1 million, or 8.0%, for the three months ended September 27, 2024 as compared to the three months ended September 29, 2023. Revenue increased primarily due to organic growth on legacy programs and new program performance. Revenue from our programs in the Middle East, the U.S., and Asia increased by $40.6 million, $33.5 million, and $19.6 million, respectively, partially offset by a decrease in revenue from our programs in Europe of $13.6 million, during the three months ended September 27, 2024 as compared to the three months ended September 29, 2023. 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. Additionally, the fees under certain contracts may be increased or decreased in accordance with cost or performance incentive provisions which measure actual performance against established targets or other criteria. These incentive fees or penalties are included in revenue when there is sufficient information to reasonably assess anticipated contract performance. Amounts representing contract change orders or limitations in funding on contracts are recorded only if it is probable a claim will result in additional contract revenue and the amounts can be reliably estimated. Changes in estimated revenue, cost of revenue and the related effect to operating income are recognized using cumulative adjustments, which recognize in the current period the cumulative effect of the changes on current and prior periods based on a contract's percentage of completion. Cumulative adjustments are driven by changes in contract terms, program performance, customer scope changes and changes to estimates in the reported period. 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 27, 2024, compared to the three and nine months ended September 29, 2023, are contained in the "Discussion of Financial Results" section. Significant Contracts The following table reflects the contract that accounted for more than 10% of total revenue: % of Total Revenue Nine Months Ended September 27, September 29, Contract Name 2024 2023 Logistics Civil Augmentation Program (LOGCAP) V - Kuwait Task Order 10.4% 12.3% 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. 22 Table of Contents The LOGCAP V - Kuwait Task Order is currently exercised through June 30, 2025, with one additional twelve-month option and one six-month option through December 31, 2026. 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 $328.8 million a nd $360.5 million of revenue for the nine months ended September 27, 2024 and September 29, 2023 , respectively. Backlog 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). Total backlog excludes potential orders under IDIQ contracts and contracts awarded to us that are being protested by competitors with the GAO or in the COFC. The value of the backlog is based on anticipated revenue levels over the anticipated life of the contract. Actual values may be greater or less than anticipated. 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 government funding authorizations and their project evaluation cycles. Year-over-year comparisons could, at times, be impacted by these factors, among others. 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 we are the prime contractor or of the prime contractor when we are a subcontractor. The U.S. government may also extend the term of a program by issuing extensions or bridge contracts, typically for periods of one year or less. 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. 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 27, December 31, (In millions) 2024 2023 Funded backlog $ 3,016 $ 2,778 Unfunded backlog 9,213 10,011 Total backlog $ 12,229 $ 12,789 Funded orders (different from funded backlog) represent orders for which funding was received during the period. We received funded orders of $3.4 billion during the nine months ended September 27, 2024, which was a decrease of $0.1 billion compared to the nine months ended September 29, 2023. Economic Opportunities, Challenges and Risks The U.S. government’s investment in services and capabilities in response to changing security challenges creates a complex and fluid business environment for V2X and other firms in this market. However, the U.S. continues to face substantial fiscal and economic challenges in addition to a varying political environment which could affect funding. The pace and depth of U.S. government acquisition reform and cost savings initiatives, combined with increased industry competitiveness to win long-term positions on key programs, could add pressure to revenue levels and profit margins. However, the Company expects the U.S. government will continue to place a high priority on national security and will continue to invest in affordable solutions. V2X believes that its capabilities, particularly in operations and logistics, aerospace, training and technology, should help its clients increase efficiency, reduce costs, improve readiness, and strengthen national security and, as a result, continue to allow for long-term profitable growth in the business. Further, the DoD budget remains the largest in the world and management believes the Company's addressable portion of the DoD budget offers substantial opportunity for growth. The U.S. 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 provided $825 billion in funding for the DoD, through September 30, 2024. On April 24, 2024, the President signed a bill providing $95 billion in additional supplemental funding for Ukraine, Israel and the Indo-Pacific region. 23 Table of Contents The Fiscal 2025 budget request was submitted to the U.S. Congress on March 11, 2024, and requested $895 billion for National Defense, with $850 billion of the total allocated to the DoD. The Fiscal 2025 budget has not yet been approved by Congress. On September 26, 2024, the President signed into law a Continuing Resolution (CR) that funds U.S. government operations in FY 2025 at FY 2024 levels through December 20, 2024. The timing and approval of FY 2025 appropriations remains uncertain and over the coming months, Congress will need to approve or revise the Fiscal 2025 budget request through enactment of appropriations and other legislation, which would require final approval from the President to become law. Government operations under an extended CR could have potential impacts on the timing and award of new programs and contracts. We anticipate the federal budget will continue to be subject to debate and compromise shaped by, among other things, heightened political tensions and the 2024 elections, the global security environment, inflationary pressures, and macroeconomic conditions. The result may be shifting funding priorities, which could have material impacts on defense spending broadly and our programs. 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. The FRA places caps on defense and non-defense discretionary spending in FY 2024 and FY 2025. The FRA cap on discretionary spending for National Defense in FY 2024 and FY 2025 is $886 billion and $895 billion, respectively. The $95 billion in additional supplemental funding described above is not subject to the FRA caps. We believe the federal and DoD budget will be shaped by many factors including economic, political, and security conditions. The result may be shifting funding priorities, which could impact DoD spending and our programs. 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. government priority. The Company's focus is on providing integrated solutions across the mission lifecycle that encompass (i) high consequence training; (ii) readiness/logistics/deployment; (iii) mission and infrastructure support, including rapid response contingency efforts; (iv) battlefield connectivity and communications; (v) maintenance, modification, repair, and overhaul of assets and aircraft; (vi) and upgrades and modernization across digital and physical environments. The Company develops and inserts operational technologies across its solutions to improve efficiency and the outcomes of its clients' missions. The Company believes this aligns with its clients' intent to utilize and harden existing equipment, infrastructure, and assets rather than executing new purchases. While customers may reduce the level of services required from us, the Company does not currently anticipate the complete elimination of these services, and the Company continues to focus on contract expansion and capturing new business opportunities. However, business conditions have become more challenging and uncertain due to macroeconomic conditions, including inflation and rising interest rates, as well as recent international events. For example, global hostilities 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. Continuing the 2023 trend, in 2024 the Company's cost-plus and cost reimbursable contracts as a percentage of total contract mix and revenue have increased as compared to the year ended 2023. The Company’s earnings and profitability may vary materially depending on the total mix of contracts. To date, the Company has not experienced broad-based increases from inflation or geopolitical hostilities in the costs of its fixed-price and time and materials contracts that are material to the business. However, if the geopolitical conditions worsen or if the Company experiences greater than expected inflation in its supply chain and labor costs, then profit margins, and in particular, the profit margin from fixed-price and time and materials contracts, which represent a substantial portion of its contracts, could be adversely affected. On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022, which includes, among other provisions, changes to the U.S. corporate income tax system. 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 uncertainties that could impact the Company's business in either the near or long-term and should be considered along with the risk factors identified in Part I, "Item 1A. 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. 24 Table of Contents Secondary Public Offering On September 4, 2024, we entered into an underwriting agreement (the Underwriting Agreement), by and among the Company, Vertex Aerospace Holdco LLC (the Selling Stockholder) and Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC and Robert W. Baird & Co. Incorporated, as representatives to several underwriters named therein (the Underwriters), relating to the public offering of 2,000,000 shares of common stock by the Selling Stockholder (the Secondary Offering) and up to 300,000 additional shares of common stock (the Option Shares) by the Selling Stockholder at the Underwriters’ option at any time on or before the 30th day after the date of the Underwriting Agreement (the Option, and together with the Secondary Offering, the Offering). The Secondary Offering closed on September 6, 2024. The Company did not sell any securities in the Secondary Offering and did not receive any proceeds from the sale of the shares offered by the Selling Stockholder. On September 11, 2024, the Underwriters notified the Company and the Selling Stockholder that they had elected to exercise the Option in full. The offering of the Option Shares closed on September 12, 2024. All of the Option Shares were sold by the Selling Stockholder. The Company did not receive any of the proceeds from the sale of the Option Shares by the Selling Stockholder in the offering. During the three months ended September 27, 2024, we incurred costs of $0.6 million in connection with the Offering. These costs are included within selling, general, and administrative expenses on our Condensed Consolidated Statement of Income (Loss). DISCUSSION OF FINANCIAL RESULTS Three months ended September 27, 2024, compared to three months ended September 29, 2023 Selected financial highlights are presented in the following table: Three Months Ended Change September 27, September 29, (In thousands, except for percentages) 2024 2023 $ % Revenue $ 1,081,656 $ 1,001,507 $ 80,149 8.0 % Cost of revenue 990,220 930,828 59,392 6.4 % % of revenue 91.5 % 92.9 % Selling, general, and administrative expenses 41,549 49,640 (8,091) (16.3) % % of revenue 3.8 % 5.0 % Operating income 49,887 21,039 28,848 137.1 % Operating margin 4.6 % 2.1 % Interest expense, net (27,152) (30,252) 3,100 (10.2) % Other expense, net (3,198) (2,024) (1,174) 58.0 % Income (loss) from operations before income taxes 19,537 (11,237) 30,774 (273.9) % % of revenue 1.8 % (1.1) % Income tax expense (benefit) 4,486 (4,837) 9,323 (192.7) % Effective income tax rate 23.0 % 43.0 % Net income (loss) $ 15,051 $ (6,400) $ 21,451 (335.2) % Revenue Revenue increased $80.1 million, or 8.0%, for the three months ended September 27, 2024 as compared to the three months ended September 29, 2023. Revenue increased primarily due to organic growth on legacy programs and new program performance. Revenue from our programs in the Middle East, the U.S., and Asia, increased by $40.6 million, $33.5 million, and $19.6 million, respectively, partially offset by a decrease in revenue from our programs in Europe of $13.6 million. Cost of Revenue Cost of revenue increased $59.4 million, or 6.4%, for the three months ended September 27, 2024 as compared to the three months ended September 29, 2023, primarily driven by increases in revenue and changes in contract mix. Selling, General, & Administrative (SG&A) Expenses SG&A expenses decreased $8.1 million, or 16.3%, for the three months ended September 27, 2024 as compared to the three months ended September 29, 2023, primarily due to cost optimization and lower integration-related costs. 25 Table of Contents Operating Income Operating income increased $28.8 million, or 137.1%, for the three months ended September 27, 2024 as compared to the three months ended September 29, 2023. Operating income as a percentage of revenue was 4.6% for the three months ended September 27, 2024, compared to 2.1% for the three months ended September 29, 2023, primarily driven by changes in aggregate cumulative adjustments, along with decreased SG&A expenses. Aggregate cumulative adjustments increased operating income by $17.3 million and $5.0 million for the three months ended September 27, 2024 and September 29, 2023, respectively. The aggregate cumulative adjustments for the three months ended September 27, 2024 and September 29, 2023 related to changes in contract terms, program performance, customer changes in scope of work and changes to estimates in the reported period. Nine months ended September 27, 2024, compared to nine months ended September 29, 2023 Selected financial highlights are presented in the following table: Nine Months Ended Change September 27, September 29, (In thousands, except for percentages) 2024 2023 $ % Revenue $ 3,164,403 $ 2,922,819 $ 241,584 8.3 % Cost of revenue 2,928,858 2,685,910 242,948 9.0 % % of revenue 92.6 % 91.9 % Selling, general, and administrative expenses 127,901 151,021 (23,120) (15.3) % % of revenue 4.0 % 5.2 % Operating income 107,644 85,888 21,756 25.3 % Operating margin 3.4 % 2.9 % Loss on extinguishment of debt (1,998) (22,052) 20,054 (90.9) % Interest expense, net (83,533) (93,946) 10,413 (11.1) % Other expense, net (9,566) (2,335) (7,231) 309.7 % Income (loss) from operations before income taxes 12,547 (32,445) 44,992 (138.7) % % of revenue 0.4 % (1.1) % Income tax expense (benefit) 2,896 (10,364) 13,260 (127.9) % Effective income tax rate 23.1 % 31.9 % Net income (loss) $ 9,651 $ (22,081) $ 31,732 (143.7) % Revenue Revenue increased $241.6 million, or 8.3%, for the nine months ended September 27, 2024 as compared to the nine months ended September 29, 2023. Revenue increased primarily due to organic growth on legacy programs and new program performance. Revenue from programs located in the Middle East, Asia, and the U.S. increased by $184.8 million, $43.2 million, and $29.8 million, respectively, partially offset by a decrease in revenue from programs located in Europe of $16.2 million. Cost of Revenue Cost of revenue increased $242.9 million, or 9.0%, for the nine months ended September 27, 2024 as compared to the nine months ended September 29, 2023, primarily driven by increases in revenue and changes in contract mix. Selling, General, & Administrative (SG&A) Expenses SG&A expenses decreased $23.1 million, or 15.3%, for the nine months ended September 27, 2024 as compared to the nine months ended September 29, 2023 primarily due to cost optimization and lower integration-related costs. Operating Income Operating income increased $21.8 million, or 25.3%, for the nine months ended September 27, 2024 as compared to the nine months ended September 29, 2023. Operating income as a percentage of revenue was 3.4% for the nine months ended September 27, 2024, compared to 2.9% for the nine months ended September 29, 2023. The increase in operating income was primarily driven by decreased SG&A expenses. Aggregate cumulative adjustments increased operating income by $18.5 million and $27.2 million for the nine months ended September 27, 2024 and September 29, 2023, respectively. The aggregate cumulative adjustments for the nine months ended September 27, 2024 and September 29, 2023 related to changes in contract terms, program performance, customer changes in scope of work and changes to estimates in the reported period. 26 Table of Contents Interest Expense, Net Interest expense, net for the three and nine months ended September 27, 2024 and September 29, 2023 was as follows: Three Months Ended Change Nine Months Ended Change September 27, September 29, September 27, September 29, (In thousands, except for percentages) 2024 2023 $ % 2024 2023 $ % Interest income $ 187 $ 334 $ (147) (44) % $ 776 $ 683 $ 93 14 % Interest expense (27,339) (30,586) 3,247 (11) % (84,309) (94,629) 10,320 (11) % Interest expense, net $ (27,152) $ (30,252) $ 3,100 (10) % $ (83,533) $ (93,946) $ 10,413 (11) % Interest income is related to interest earned on cash and cash equivalents. 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 $10.4 million for the nine months ended September 27, 2024 compared to the nine months ended September 29, 2023 due to both a decrease in our debt balance, and our interest rate swap contracts. Other Expense, Net During the three and nine months ended September 27, 2024, we incurred purchase discount fees and other expenses of $3.2 million and $7.4 million, respectively, related to the sale of accounts receivable through the MARPA Facility. In addition, during the nine months ended September 27, 2024, we incurred a $2.2 million impairment charge on a non-operating, long-lived asset, primarily due to a decreased fair market value. During the three and nine months ended September 29, 2023, we 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 Expense (Benefit) We recorded an income tax provision of $4.5 million and income tax benefits of $4.8 million for the three months ended September 27, 2024 and September 29, 2023, respectively. Our effective income tax rates for the three months ended September 27, 2024 and September 29, 2023, were 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, 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. LIQUIDITY AND CAPITAL RESOURCES 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. Our major source of funding for 2024 and beyond will be our operating cash flow, our existing balances of cash and cash equivalents and proceeds from any issuances of debt. We believe we have sufficient liquidity to fund operations, acquisitions, capital expenditures and scheduled debt repayments. 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, 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 September 27, 2024, there were $15.9 million of outstanding letters of credit under the 2023 Revolver. 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, the fair value of the 2023 Revolver approximated the carrying value because the debt bears a floating interest rate. 27 Table of Contents As of September 27, 2024, the carrying value of the 2023 Term Loan portion 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. 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). The cash presented on the Condensed Consolidated Balance Sheets consists of U.S. and international cash from wholly owned subsidiaries. Approximately $19.8 million of our $59.9 million in cash, cash equivalents and restricted cash as of September 27, 2024 is held by foreign subsidiaries and is not available to fund U.S. operations unless repatriated. 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. 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. 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. 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 was 61 and 58 days as of September 27, 2024 and December 31, 2023, respectively. The following table sets forth net cash provided by (used in) operating activities, investing activities and financing activities: Nine Months Ended September 27, September 29, (in thousands) 2024 2023 Operating activities $ 31,103 $ 135,175 Investing activities (27,625) (15,709) Financing activities (16,739) (155,734) Foreign exchange 1 467 (1,540) Net change in cash, cash equivalents and restricted cash $ (12,794) $ (37,808) 1 Impact on cash balances due to changes in foreign exchange rates. Net cash provided by operating activities for the nine months ended September 27, 2024 primarily consisted of cash inflows from non-cash net income items of $110.8 million, cash inflows from the sale of receivables through the MARPA Facility of $70.7 million and net income of $9.7 million, partially offset by net cash outflows in working capital accounts of $119.7 million and net cash outflows in other long-term assets and liabilities of $40.3 million. 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 , cash inflows from the sale of receivables through the MARPA Facility of $87.9 million, partially offset by net cash outflows in working capital accounts of $44.1 million, net cash outflows in other long-term assets and liabilities of $25.8 million, and a net loss of $22.1 million. Net cash used in investing activities for the nine months ended September 27, 2024 consisted of $16.9 million for the acquisition of businesses and $10.7 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 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 used in financing activities during the nine months ended September 27, 2024 consisted of revolver repayments of $1.0 billion, payments for employee withholding taxes on share-based compensation of $8.0 million, repayments of long-term debt of $7.7 million, and payments for debt issuance costs of $1.2 million, partially offset by proceeds from the revolver of $1.0 billion. 28 Table of Contents 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. Capital Resources As of September 27, 2024, we held cash, cash equivalents and restricted cash of $59.9 million, which included $19.8 million held by foreign subsidiaries, and had $484.1 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 September 27, 2024, as supplemented by operating cash flows, 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 27, 2024, commitments to make future payments under long-term contractual obligations were as follows: Payments Due by Period Less than 1 year More than 5 Years (In thousands) Total 1 - 3 Years 3 - 5 Years Operating leases $ 44,728 $ 3,190 $ 20,777 $ 12,466 $ 8,295 Principal payments on Vertex First Lien Credit Agreement¹ 904,303 9,066 18,131 18,131 858,975 Principal payments on 2023 Credit Agreement¹ 242,188 7,813 25,000 209,375 — Interest on Vertex First Lien and 2023 Credit Agreements 488,668 91,892 177,299 141,840 77,637 Total $ 1,679,887 $ 111,961 $ 241,207 $ 381,812 $ 944,907 ¹ Includes unused funds fee and is based on the September 27, 2024 interest rate and outstanding balance. CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Estimates are revised as additional information becomes available. Management believes that the accounting estimates employed, and the resulting balances, are reasonable; however, actual results in these areas could differ from management's estimates under different assumptions or conditions. We believe that the assumptions and estimates associated with revenue recognition, business combinations, goodwill impairment, 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 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. All statements included or incorporated by reference in this report, other than statements that are purely historical, are forward-looking statements. 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 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. 29 Table of Contents 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. 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 our present expectations or projections. These risks and uncertainties include, but are not limited to: 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 our reputation and relationship with the U.S. government; protests of new awards; economic, political and social conditions in the countries in which we conduct our business; changes in U.S. or international government defense budgets; government regulations and compliance therewith, including changes to the DoD procurement process; changes in technology; our ability to protect our intellectual property rights; governmental investigations, reviews, audits and cost adjustments; contingencies related to actual or alleged environmental contamination, claims and concerns; delays in completion of the U.S. government budget; 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 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 global hostilities; our subcontractors' performance; economic and capital markets conditions; 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; the impact of the U.S. November 2024 presidential and congressional elections; 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.