Thank you for joining us for the V2X Third Quarter 2024 Earnings Conference Call and Webcast. Today's call is being recorded. My name is Dave, and I will be the operator for today's call. At this time, all participants have been placed in a listen-only mode. Following the management's presentation, I will open the call for a Q&A session. [Operator Instructions] And now I'll pass the call over to your host, Mike Smith, Vice President of Treasury, Investor Relations and Corporate Development at V2X.

Thank you. Good afternoon, everyone. Welcome to the V2X third quarter 2024 earnings conference call. Joining us today are Jeremy Wensinger, President and Chief Executive Officer; and Shawn Mural, Senior Vice President and Chief Financial Officer. Slides for today's presentation are available on the Investor Relations section of our website, gov2x.com. Please turn to Slide 1. During today's presentation, management will be making forward-looking statements pursuant to the safe harbor provisions of the federal securities laws. Please review our safe harbor statements in our press release and presentation materials for a description of some of the factors that may cause actual results to differ materially from the results contemplated by these forward-looking statements. The company assumes no obligation to update its forward-looking statements. In addition, in today's remarks, we will refer to certain non-GAAP financial measures because management believes such measures are useful to investors. You can find a reconciliation of these measures to the most comparable measure calculated and presented in accordance with GAAP on our slide presentation and in our earnings release filed with the SEC, both of which are available on the Investor Relations section of our website. At this time, I'd like to turn the call over to Jeremy.

Thank you, Mike, and good afternoon, everyone. Thank you for joining us today. Before we get started in advance of Veterans Day next Monday, I'd like to recognize all veterans for their service to our nation, particularly the over 4,000 that are part of the V2X team, enabling critical missions across the globe. We thank you for all that you've done and continue to do for our nation and our company. I'd also like to acknowledge the over 16,000 global employees at V2X for their unwavering 24/7 365 dedication to ensuring our customers' mission success. Please turn to Slide 2. V2X reported strong third quarter results with revenue of $1.08 billion, representing 8% growth year-over-year. One of the primary differentiators of growth enablement is our global reach. Being in every single time zone with the ability to operate at scale across all environments is not easily replicated. We are positioned in key theaters where missions matter and are receiving strong funding support. This was demonstrated in the third quarter with Indo-Pacific revenue growing 31% year-over-year. Revenue growth is being driven by increased demand to support the DoD's priorities to enhance U.S. readiness in the region. We are also seeing additional opportunities for growth in the region via foreign military sales that align to improving the capacity and capabilities of our allies. We are investing to capture this growth and believe V2X is positioned exceptionally well as a trusted partner to deliver value-added solutions and further expand in the region. Adjusted EBITDA in the quarter was $82.7 million, up 28% year-over-year with a 7.6% margin, reflecting higher volume and strong program performance. Adjusted diluted EPS was $1.29, up 77% year-over-year. Adjusted operating cash flow in the quarter was also strong at $130 million, demonstrating the high cash flow yield expectations of…

Thanks, Jeremy, and thanks to everyone joining us this afternoon. Please turn to Slide 5. Performance in Q3 continued to be strong. Revenue increased 8% on a year-over-year basis to $1.08 billion, setting another record for the company. This growth continues to demonstrate our ability to be in the right place, at the right time to execute high-priority missions. We continued our strong performance, delivering double-digit revenue growth in the Indo-Pacific and Middle East regions, with revenue increasing 31% and 13% year-over-year, respectively. Adjusted EBITDA in the quarter was $82.7 million, increasing 28% from prior year and delivering a margin of 7.6%. EBITDA was also up $10.4 million sequentially. This performance was driven by growth, productivity improvements and program achievements consistent with our expectations. Interest expense for the quarter was $27.2 million. Cash interest expense was $25.6 million. Adjusted diluted EPS was $1.29, up 77% from the prior year. Third quarter adjusted net cash provided by operating activities was $130.1 million, up 35% year-over-year. This performance reflects the strong cash generation capabilities of V2X and our normal cadence of cash flow being greater in the second half of the year. Please turn to Slide 6, where I'll talk about our year-to-date results. Year-to-date revenue was $3.164 billion, increasing 8% year-over-year. Adjusted EBITDA for the first 9 months of the year was $224.1 million, increasing 5.8% from the prior year and delivering a margin of 7.1%. Interest expense for the 9-month period was $83.5 million. Cash interest expense was $77.8 million, an improvement of $9.3 million compared to the prior period. This demonstrates our continued focus on improving our overall cost of debt and cash interest expense. Year-to-date adjusted diluted EPS was $3.01 based on approximately 32 million weighted average shares. Year-to-date adjusted net cash used by operating activities was $7.2…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Tobey Sommer with Truist. Please go ahead.

Thank you. With the strong contract awards, book-to-bill and funded backlog growth, I'm curious what, kind of, rate of organic growth you think would be reasonable for the company to be able to attain as we get go into next year, because the timing of how you're going to be ramping these new awards, we could probably use some color to inform the modeling into 2025.

Hey, Tobey, this is Shawn. Good to hear from you. So listen, we're in the middle of doing our planning, as you would expect. I think, obviously, in light of where we are. We're going to grow in 2025. You know, there are -- remind folks, we certainly have a couple of headwinds that are -- we're always dealing with that program sunset. We've had an excellent ops tempo in some of our contingency support, logistics support around the globe. So I don't want to get ahead of things. But obviously, we're going to grow. We're feeling good about the backlog, that visibility that it provides. But I don't want to give any numbers right now because we're deep in the middle of that planning with various assumptions. And obviously, there's things that can change very quickly in terms of where we would expect to be.

Okay. If I could ask you to double-click in the IndoPACOM and how big a slice of the company does that geography represent? And maybe could you give us some color and your commentary around incremental opportunities that you talked about?

Yes. So we did a little over $80 million in the quarter in the region, excellent growth, as you've heard, and that's been a consistent theme, which is great. We do expect to grow there next year. Obviously, there's exercises that are being planned, the timing of which and the value of which we don't know. But I think we saw good growth in Quad and in other places that we're positioned, and I think we'll continue to see that as we go forward. But like I said, it's about $80 million in the quarter, and it's consistently built through the last year or so.

Hey, Tobey, it's Jeremy. I would add to that, that I think I mentioned in the last call, the Pacific Deterrence Initiative that they funded. I think the presence that we have in that area and the overall strategy by the -- our government and our allies in that area afford us opportunities to be in a position to be a recipient of some of those initiatives as they move forward. And like Sean said, I think the exercises are one thing. But as they continue to build out their strategy IndoPACOM, obviously, with a strong presence there, it helps out quite a bit.

Thanks. Last question for me. I was wondering if you could expand upon the overseas opportunities that you see and maybe you could help us narrow the subset of the kinds of things that you could eventually win from our partners around the globe?

Yes. I think if you listen to the call, you'll hear me talk about in Europe, expanding opportunities there in terms of Assured Comm, same thing in the Middle East, same thing in IndoPACOM. But again, we react to situations as they evolve, like in the Middle East. I think there's a long-term strategy IndoPACOM that we will be obviously benefiting from. But again, as items evolve in the Middle East, we always see ebbs and flows with regards to that activity. And again, obviously, in Europe, with Ukraine, there is always an opportunity there for us to continue to support our allies.

Thank you very much.

Thanks, Trevor.

And the next question comes from Ken Herbert with RBC Capital Markets. Please go ahead.

Yes. Hi. Good afternoon. Nice results this quarter. Hey, yes, Shawn or Jeremy, maybe you had a really nice sequential step-up from the second to third quarter adjusted EBITDA margins. Can you provide any more sort of color or granularity on maybe what drove that increase? And was there anything in terms of one-time EACs or other benefits that might have contributed to the margin improvement sequentially?

Yes, I'd say -- so consistent with what we had said, right, when we came into the year, we said we'd be back-end weighted from a margin standpoint. That's because of the timing of certain programs, deliveries, EACs, as you mentioned, and improvements and the team – the team delivered consistent with what they said. So yes, we did see a few million dollars, maybe $6 million or so of EAC improvements on that in the quarter. And I think it's a testament to the delivery of the products and services at or ahead of schedule to achieve the objectives.

I think it's Jeremy. I think also the team does an excellent job. They are very good executors. And we implemented early on this quarter, program management executive committee. That committee is four program managers to share best practices across the globe. And as that continues to take its maturation path, we're going to continue to see the best program managers of the company sharing those best practices with other program managers, and we'll continue to drive continuous improvement.

That's great. Thank you. And Shawn, in your prepared remarks, you made a comment that you could see some -- there's some options to maybe do more on the leverage or interest in 2025. It can perhaps be a little early, but can you talk at all about sort of level set us on where you expect interest? How much more deleveraging should we expect exiting this year and in 2025? And maybe what some of those options could be as you just think about sort of continuing to clean up the balance sheet?

Yes. I think -- so the interest today is right around a little south of 8.1% Ken. And so I think we'll look here depending on how rates are performing. We'll look at maybe the Term Loan A to see what options exists as we go into 2025. But again, great progress on the part of the team. We recently redid the B that you heard us talk about previously. And so we're always looking at options and scenarios. We'll see how rates play out and what could be available for us, but feeling good about where we sit today.

And Shawn, just remind us, what's the guidance in terms of fourth quarter leverage in terms of where you expect to end the year?

Yes. So at or below 3. So 3.27 today. The team did a wonderful job from a receipt standpoint in Q3. We look to continue to do that to end right around, like I said, at or below three by year-end, Ken.

Perfect. Thank you very much.

Thank you.

And the next question comes from Peter Arment with Baird. Please go ahead.

Hi, good afternoon, Jeremy and Shawn. Nice results.

Hi, Peter.

Hey, Jeremy, you made some comments on the INDOPACOM region, up 31%, really impressive. Middle East, I guess, was up kind of mid-teens as well. Can you maybe give us a little more color on kind of the operations that you're seeing there? Any changes or any pickup in activity?

Yes. Like I mentioned before, I think in INDOPACOM and 2025, we'll know what those exercises look like as the year progresses. It will probably be closer to mid-year, before we know exactly what they're going to do with those exercises. But again, I think as I mentioned before, with the Pacific Deterrence initiative that the government has funded, you'll continue to see efforts flow into that region. And so I'm very happy with the growth we have today. I'm excited about the future for that area for us given the presence we have and the capability that we've delivered to that customer. I think in the Middle East, that is 100% driven by what you read on the front page of the paper. That is a very difficult and dynamic environment there. But again, the presence that we have allows us to be quickly reacting to needs that they have. And obviously, we have benefited from that in this year thus far. But again, it's a very dynamic situation, as you know. And so it would be difficult to say how that's going to play out. But again, I think I go back to -- we are part of enduring missions. It is a very important that we are shoulder to shoulder with our customer, making sure we're there to support them in any initiatives that they have to support the war fighter. Q – Peter Arment: Got it. That's helpful. And then just back to kind of some of the big awards that you booked this quarter, in particular the warfighter training readiness contract. Just generally speaking, I think did you -- if I heard you correctly, this should start to ramp up in the second half of 2025. Is that -- when does it hit kind of run rate?

Yes. I'd say exactly, Peter, the back half of 2025. The initial booking that we took on the contract was $225 million. That will really start, like I said, in, call it, mid 2025 ramp from there. And the team is doing a great job of -- you heard Jeremy talk a little bit about other opportunities that exist that the teams are evaluating in other nations. So I think feeling really good about the start that the team has on the program and look forward to serving that customer here and delivering exceptional capabilities.

Yes. So those will come through in what we call PDLs. We're already putting together PDL offerings for that customer like I referenced. But the big one will come midyear, as Shawn said. But I'm very pleased with the team. I'm very pleased with the customer. The cooperation during start-up review was extraordinary. And so I'm very confident and comfortable with where that program is as it heads towards full operational capacity. Q – Peter Arment: That’s great. Thanks for all the color and great results.

Thank you, Peter.

And the next question comes from Joe Gomes with Noble Capital. Please go ahead. Q – Joe Gomes: Joe Gomes. Thanks for taking my question. Really nice quarter.

Thanks, Joe.

Thank you, Joe. Q – Joe Gomes: So I wanted to start on the 8% quarterly revenue growth. What percent of that was from organic growth, expansion of on-contract versus new program performance?

I'd say it's a mix, Joe, right? So certainly, the timing of some of the things you heard us talk a little bit about the full transition on the Saudi job. That certainly contributed to growth in the quarter. But by and large, it's on-contract activities, specifically and as we said, in both Quad -- or I'm sorry, in INDOPACOM and the Middle East that's obviously what's driven a lot. We have excellent presence in those regions and are able to meet our customers' needs. And so that's really what contributed to a lot of that growth in the quarter. Q – Joe Gomes: Okay. And one of the markets and geographic areas that was down was the European revenues were down 22% in the quarter, down about 10% year-to-date. And just trying to get a little more color on what is driving the weakness, at least through the first couple of quarters here in 2024 in the European market.

Yes. I'd say -- so there's one program specifically that is down, and it's admittedly a modest number, Joe. I think the important thing is that we maintain a strong presence in Europe. There's a program that we had previously. When you look at a year-over-year comp that's doing a little bit less volume this year that's driven some of that. But I think the exciting part is other growth opportunities that we've had with some hardware capabilities and things like that within Europe that we haven't delivered those things entirely yet. So they're -- I'll say they're underway. I think we're encouraged about the future that we have in Europe. Jeremy, anything else?

And I think one of the locations is absolutely core to the US government. We're excited to be there. It's a long-term contract. That's a lot of ceiling on it. And we will continue to drive performance on that contract. And like I said, it is a key asset for the US government.

Okay. And then I'm going to try one other way on 2025. I know, it's early and you guys mentioned you're in the process. But if we look at the midpoint of the revenue guidance would suggest revenues would be up 7% year-over-year, 2024 over 2025. I'm wondering, one, can you repeat that type of performance in 2025? And two, if I'm looking at the adjusted EBITDA margin, again, at the midpoint, it's about 7.2%. Where do you think that margin could grow to?

Yeah. For 2025 specifically, you're talking?

Yes.

So listen, I don't want to get into absolute values from a top line standpoint. I'll say as we're doing our planning, 2025 is not different than other years, right? There's always recompetes. We feel very good about the volume of recompetes we have in there. And I'll remind folks we've said previously, it's fairly modest, 5%-ish type as we go into the year. There's always the timing of what we would call Joe, sales from new bookings. And you heard us talk earlier this year about muted award environments, things like that. Hard to say how some of those things will play out. So I'll stand by what I said earlier, which is we will grow in 2025, and we feel good about our positioning. Relative to the margin, when I think about 2025, I look at the stuff that's in the backlog I see it probably similar to how we're seeing 2024 from an overall margin stand, plus or minus, obviously, right? But the backlog is strong. We have pretty good visibility into those things. We know the recent awards, what we expect them to contribute. I'll remind folks that when we start new contracts, they tend to start at lower margins than where we end up. And so we'll be going through some of that, obviously, in 2025.

Okay. Great. Thanks for taking my question. Again, really nice quarter.

Thank you.

Thank you.

And the next question comes from Trevor Walsh with Citizens JMP. Please go ahead.

Great. Thanks, team for taking the questions. Appreciate the time. On those -- the $5 billion of new awards that you have phasing in that you mentioned, F-5, the Saudi Arabia, aviation support, et cetera. Is there any -- I understand they're fully operational. Is there anything kind of heading into 2025 that could be a got you around any of those either in particular or more broadly speaking, as to where that revenue might not flow in or things just might not go to plan, whether that's just kind of external forces that we should think about or just to avoid surprises next year?

I don't think there's any sitting here right now, Trevor. I don't see anything that would tell me that. But listen, obviously, it's a dynamic environment, funding priorities, things like that can certainly shift. Any time we're dealing with international customers, which we are on the Saudi job, like you just mentioned, things can change. But as we sit here today, there's nothing that I can think of that impacts our line of sight to those backlog programs.

I would just add that I think we need to get through tomorrow and find what the sitting President's priorities are. But again, I think because we are part of enduring missions that are mission-critical, I don't see any material change to who sits in the chair. But again, it's always nice to know what their priorities are and making sure they're aligned with our global footprint.

Great. Terrific. Appreciate the color on that. I also noted in one of the slides, there was a reference to pending contract for the F-16 contract cockpit upgrades. Just curious if that will take -- obviously, it's pending, I get it, so I probably can't provide specific details yet. But -- just curious if you can maybe give us a little bit of perspective if it's similar to GMR where it's going to be something kind of more of an initial kind of smaller footprint of assets and then with a potential to expand or kind of how that's shaping up from just kind of a quantity perspective?

I think it looks a lot like GMR in the sense that we are moving from the development phase and into a phase where we are going to see an opportunity for that program to grow. Obviously, there's a lot of F-16s out there. And so I view it in the same breath. You kind of go through that development phase, you go into LRIP and then obviously, you move it into production. So again, I'm very bullish about this program. I like the technology. I like what the team in India has done. I think they have created an opportunity for our customers' that is differentiated. And so I'm looking forward to that program as it grows and matures.

The only thing I'd add there is I think as we sit here today, that will look like an IDIQ contract probably. And so I don't know that you'll see a huge booking and order straight away. We'll see depending on how many they end up putting on contract, but that's what we're seeing right now.

Got it. Okay. Thanks, super helpful. Last one for me, for, Shawn. Can you just maybe just walk us through your thinking around -- I appreciate the revenue kind of narrowing in an upward fashion on the full year guide. And then same for EPS. I understand that there's some interest kind of affecting that EPS or at least putting -- has a good contribution there, but noticed that the adjusted EBITDA number just kind of stayed kind of consistent. So just maybe walk us through kind of the dynamics there. And how you're thinking about kind of why that number stay the same versus the other ones shifting up somewhat?

Yeah. Yeah. So consistent with what we said, we've seen our cost type work increase throughout the year. So we were at 60% in the quarter. Obviously, based on what we've experienced, what we have in backlog, that tends to be at a little bit lower margin. And so you see a lot of that top line growth coming from some of those types of programs, hence, the change in the guide for the second time this year. And then we're very happy with the overall program performance. Like I said, the productivity that we saw in Q3, we think we're well positioned to meet our commitments here in Q4. But you are seeing some of that mix play out, I'll say, again, consistent with what we thought it would be in the back half of this year.

Great. Thanks. Appreciate it.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Jeremy Wensinger, for any closing remarks.

Shawn, thank you, for joining the call. We had a wonderful quarter. I'm thrilled with the team. We have great executors running our lines of business, in terms of KentTrees and Binny Caputo [ph]. They are great leaders, and they're doing a wonderful job in terms of execution. We're focused, obviously, on finishing the year and making our commitments. But again, I'm proud of the team for the quarter they delivered. And I look forward to talking to you again here real soon. Operator, back to you.

The conference has now been concluded. Thank you for attending today's presentation. You may now disconnect.