Good day, and welcome to the V2X Fourth Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Mike Smith, Vice President of Treasury, Investor Relations and Corporate Development at V2X. Please go ahead, sir.

Thank you. Good afternoon, everyone. Welcome to the V2X fourth quarter and full year 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 2. 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 would 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, I'd like to recognize the over 16,000 V2X employees for all their contributions and in particular their strong performance during the fourth quarter that resulted in record quarterly revenue, adjusted EBITDA and cash flow. We thank you for all that you've done and continue to do for our nation and our company. Please turn to Slide 3. In today's call I'm going to recap the fourth quarter and full year results and then discuss our positioning and alignment to national security priorities. Our momentum continued into the fourth quarter with revenue increasing 11% year-over-year to $1.16 billion. This was driven by positive growth in all our geographies and noteworthy, 27% increase in the Indo-Pacific region. For the full year revenue grew 9% to $4.3 billion exceeding the top end of our guidance. Adjusted EBITDA for the fourth quarter and full year was $86.2 million and $310 million, representing 5% and 6% year-over-year growth. Adjusted EPS for the fourth quarter and full year was $1.33 and $4.34, representing 9% and 16% year-over-year growth. Importantly, our focus on debt reduction and cash generation yielded impressive results with net debt improving $210 million year-over-year. This achievement equates to a 2.6 times net leverage ratio, which provides significant flexibility and optionality for V2X in 2025 and beyond. Total backlog at the end of the year was $12.5 billion, representing a 1.2 times book-to-bill ratio in the quarter. Our focus on growth is demonstrating results with V2X securing contract wins at over $5.5 billion in 2024. This was a record for the company and builds an excellent foundation from which we can continue to drive revenue, cash flow and value for our shareholders. Additionally, we are pleased to…

Thank you, Jeremy and thanks everyone, for joining us this afternoon. Please turn to Slide 7. We are pleased to announce, an impressive close to the year, with strong fourth quarter performance across all financial metrics, driven by double-digit top line growth and exceptional cash generation. We are extremely proud of what the team accomplished in 2024, which resulted in V2X meeting or exceeding all financial commitments. Revenue in 2024 increased 9% on a year-over-year basis to $4.32 billion, exceeding the top end of our guidance range by approximately $47 million. Growth reflects the continued demand of our services and solutions in both on-contract growth and the phase-in of new awards. This is reflective of the capabilities V2X brings, with notable new awards to include the F-5 Adversary program, a NATO Missile Defense Program, a Production Award for the Gateway Mission Router, the Navy Pacific Communications Award, a foreign military sales contract for aviation and training support as well as a sole-source award to provide next-generation Chem Bio Threat Detection. Adjusted EBITDA for the year was $310 million increasing 6% year-over-year and delivering a margin of 7.2%. Interest expense for the year was $107.9 million. Cash interest expense was $100.5 million, improving $13 million or 11% year-over-year, reflective of our proactive repricing activities debt paydown and cash flow generation. Adjusted diluted EPS was $4.34, up 16% from the prior year based on approximately 32 million weighted average shares. Full year adjusted net cash provided by operating activities was $161 million. This represents 116% adjusted net income conversion and the strong cash generation capabilities of V2X. Please turn to Slide 8, where I'll discuss our fourth quarter results. Revenue for the quarter was $1.16 billion, increasing 11% year-over-year and setting yet another record for the company. Adjusted EBITDA was $86.2 million,…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question will come from Peter Arment with Baird. Please go ahead.

Good afternoon, Jeremy, Shawn, and Mike. Nice results. Jeremy I wanted to see if I could just double-click on a comment that you made about kind of outcome-based contracting and kind of how you see this evolving with -- given your mix of cost plus contracting, how quickly can you start to convert if you can convert that to any of it fixed price or more favorable? And just maybe how you see this evolving because it seems like certainly you guys have the knowledge and the experience if you wanted to flip it over to from a fixed price perspective?

Yeah. I mean, I think we have proof points from prior years where we have successfully converted this work to fixed price and demonstrated additional savings for the customer and we continue to approach them all the time on some of these mature programs that we think are great candidates to be flipped over to fixed price, and allow us to get more performance-based contracting out of that and save them money.

Is there a percentage of contracts that come up on an annual basis where there's an opportunity to look at it? Or how should we think about just the opportunity here?

Look, we continually put white papers in front of customers. We continually talk to them about the opportunity set to help them get to a more performance-based contracting outcome for them. It will improve readiness. I think it will save the customer money and improve overall efficiency for them as we look downstream. So, again, this is not something that's new it's just something that I think aligns pretty well with this current administration to focus on outcomes.

Yes, for sure. And then just a quick one on your -- just your guidance. What's contemplated regarding impacts from the CR? Is the CR -- do you have baked in that it gets resolved? Or how are you thinking about that?

I'll let Shawn chime into this as well. But I think if you look at the kind of work we do majority of it's going to be pretty immune to the CR given that it is not new work, these are mostly existing contracts that we are either taking market share or getting renewals on what we're doing already.

Yes. Exactly. Peter I'd say, we have modest impacts as Jeremy said typically in a CR environment. And so, our guide contemplates I'll say business as usual. We obviously expect the CR to be resolved and move forward with a number of things. But if we think about the opportunities that are in front of us, most of the year is of course conversion of our backlog with modest recompetes as we said in the prepared remarks and new-new business. So, I think we feel good from a range standpoint that we're aligned around.

Terrific. And just Shawn, just could I get a clarification on the waters, the warfighter training readiness contract, could you give that amount again and how you think it phases in the back half of the year?

Yes, exactly. So when we think year-over-year Peter, think of it as adding about $120 million to the top line predominantly in Q3 and Q4. So back half loaded, as there's a contract that transitions that we assume that's the bulk of the activities. We are executing task orders today they're fairly modest in size. The excellent news is that, we're seeing an increase in that ops tempo of those task orders being put in front of us that we're then bidding and responding to. So, like I said, it's back-end loaded. It's about $120 million or so incremental to 2024.

Terrific. Thanks, again. I'll jump back in queue. Nice results.

Thanks Peter. Appreciate it.

The next question will come from Andre Madrid with BTIG. Please go ahead.

Hey good afternoon everyone. Thanks for taking my question. If we could kind of zoom in on the Indo-Pacific, I know you mentioned 27% growth in the region sales. Maybe just a point of clarification, that doesn't include INDOPACOM specifically right? That falls under US sales. And then I guess further on top of that, I know you mentioned V-SPACE in the Philippines, but what are some of the other major moving pieces in the region that we should be looking out for?

Yes. Just to clarify, it does include INDOPACOM in terms of those results based on the geography. Just as the Middle East from a -- in terms of how we report the Middle East incorporates CENTCOM, so INDOPACOM and the activities that we support there are bucketed in Asia-Pacific. But to the other part of your question, when we think about 2025, there are exercises that get undertaken every other year. And so when we think about those things this year, we expect a level of opportunity. I will admit it is -- these things come up quickly typically. And so, we'll see how those play out this year from a timing sequencing standpoint. Obviously folks are off assessing the budgetary environment, the funding that may be required for those things of that nature, Andre.

Andre, I look at that like I do we talked before, I think presence is everything. And as I think this administration has said, looking at the INDOPACOM region and us having a solid footprint in that region and a contract vehicle in that region that's readily accessible to them, I think is why we get a lot of confidence around the future for V2X in that area.

Got it. Got it. Very helpful. And if I could squeeze in just one more, I mean, if you look at the implied EBITDA margin for the year it's a step down over 2024. I mean is -- could you maybe just move us through the puts and takes there? Is all of it due to the loss of KC-10 and T-1A or are there other factors included? Just trying to size that up and really assess what are the moving pieces there.

Yes perfect. Thanks for the question. So predominantly those headwinds from mature programs that have concluded because those assets have been retired is what's contributing to it in terms of the change. And then the new work that we listed off a number of things in the prepared remarks always start out at a lower margin. The growth in the year is going to be back half weighted. And therefore, I do expect margins in the second half to be higher than they are in the first half and we should hopefully build on those things as we go forward. I will say some of the work doesn't mature extremely quickly from a margin contribution standpoint right? Some of the work on platforms that we have may take some time and I would measure that in excess of a year not necessarily quarter-to-quarter on some of those programs. And that's why as some of these platforms have retired they're kind of at their peak when we're no longer executing that work. And so we have to build that capability back up. But that's exactly why you see the profile you do.

And I would say it's a great example of performance-based contracting. Team gets a new contract award. It takes some time to absorb that program figure out the operational side of it. And then once they get comfortable and have some track record they do a wonderful job of optimizing readiness and supporting the customer and really ensuring our overall understanding of the program as we move through. So it just takes a little bit of time. And so you think about shifting the curve from a very mature program to a program we just -- several that we just rattled off, they'll get there and very comfortable with that, because they are that good in terms of execution.

That's extremely helpful color. Thanks so much. I’ll leave it there. Thanks Jeremy, Shawn.

Thanks, Andre.

The next question will come from Ken Herbert with RBC Capital Markets. Please go ahead. Pardon me, Mr. Herbert. Is your line muted?

Yes. Hi. Thank you. Good morning, Jeremy, Shawn and Mike. I wanted to first ask if you look at the 9% growth and outperformance of guidance in 2024, is there a way maybe Jeremy or Shawn to think about how much of that came from sort of new contract wins versus sort of on contract growth and maybe the tech insertion? And I'm just trying to see if you can help us by quantifying sort of where the -- maybe really what drove the upside in 2024 as we think about maybe a springboard as we think about applicability into 2025.

Yes Ken. So it was predominantly on contract growth. Let me give some color a little bit. So we talked about a book-to-bill that's about 1.2 times in the quarter. The bulk of those awards were on contract growth related. And as we've talked previously that tends to turn into revenue more quickly. And so that's what we saw as we exited 2024 from a contribution and what accelerated some of that growth.

And I would say you mentioned tech insert. I think when I look at what we're doing in terms of maturing some of the technologies and where they are in terms of either early LRIP production or early development phase, they will continue to mature and become ever-increasing opportunities for us as we move downstream. And I know it's one of the areas that Roger is focused on as the new Chief Growth Officer, which is inserting differentiation into our offerings because we have the opportunity to do that with the engineering organization that we have.

Okay. Very helpful. I mean, I can appreciate some of the KC-10 and T-1A sort of headwinds. But is there any reason to think beyond maybe some risks around timing in terms of just where we are with the CR and fiscal 2025 and 2026 requests? But any reason to think we couldn't see or you wouldn't deliver on sort of similar on-contract growth in 2025? I mean I'm not trying to get too far ahead of the obviously what looks like a sort of cautiously optimistic revenue guide, but it certainly seems like you'll have some levers to pull as the budget situation stabilizes.

Yeah. I'd say this and I think we did open up the range a little bit on the guide from what we did a year ago to account for should that occur. We'll see how some things play out. The teams do a wonderful job. Jeremy mentioned conversion of things to performance-based contracting. Our teams around the globe are consistently putting things in front of the customers to drive additional value to the customers, save money save -- improve operational performance for both the customers as well as us. And so those things when they occur, they tend to occur pretty quickly. So we don't always have perfect visibility into them and they're dictated by a whole range of activities that can arise. So we tried to address it in the range that we gave for some variability that we may see. We'll see. It's obviously very early.

I would say we talked a lot about geographic footprint. I think the diversification in the portfolio around the globe and the contracts we have for our customer in terms of accessibility, puts us in a very good position to deal with the ever-changing requirements.

That's great. And if I could just finally, in the last few months or basically since the new administration or since the election maybe and then the new administration came in it may be early, but have you seen any change in sort of the sense of urgency around say funding for projects in INDOPACOM or any indication that you might see that become early signs a higher priority for the new administration in terms of addressing some of the requirements that we see there?

I think one what we're seeing is that we're aligned with their priorities in terms of where we're located. We have not -- look we've seen awards happen, which is great. So we haven't seen a slowdown in that. We've mentioned them in the script. I think you're seeing that we are -- in terms of how we've tried to portray the business, I'm extremely excited about how we are aligned with their priorities, whether it's INDOPACOM, whether it's in up in the Arctic region, whether it's even in the US in terms of readiness, in terms of the aircraft craft, in terms of putting forward a deterrent strategy, I think we're exceptionally well aligned with that. And so -- and I look at with regards to what we have in terms of the pipeline and the ability to prosecute that pipeline that is I believe very much aligned with their overall priorities.

I think the very positive there Tobey is exactly what Jeremy said -- sorry Ken which is the things that we've expected to be awarded the funding activities that we've expected have been consistent in the early days of this administration and as we start off the year. So we haven't seen perturbations or changes from I'll say a customer engagement or OPTEMPO standpoint from that vantage point.

Perfect. Thanks, Shawn, thanks, Jeremy.

Thanks.

Sure. Thank you.

The next question will come from Joe Gomes with NOBLE Capital. Please go ahead.

Good afternoon. Thanks for taking my questions.

Hey, Joe.

Hey, Joe.

To start out, one of the things you discussed a little bit here I think a little bit more in the past was foreign military sales. And that they had been gaining some traction. I just wonder if you could give us kind of more of an update. Are you seeing anything new exciting that is in the near term that you're pretty positive about?

Yeah. I mean we obviously have a sales channel that does very well on the FMS front. We have a contract -- in the Middle East that's under contract and we do continue to see opportunities. I will tell you the FMS side does not pace the same way that US procurements do. And so we are -- although excited about the opportunity, we are very realistic about pace for which they actually occur. And so -- and again, it goes anywhere from -- you think about it Indo-Pacific all the way back to the Middle East. We have opportunities. We're pursuing those opportunities. We're just cautious about the pacing of those awards. They take a little longer and a little more complicated, but very, very comfortable with our strategic position.

Okay. Great for that. And then I mean, you guys talked about your recompetes I think is less than 5% or 4% for this year. Are there any large or significant to you or recompetes that could be coming up on contracts obviously that you don't currently have that you would be very excited about getting in on that bidding?

Yes. I think that's the majority, like I told you before, very little of what we do is what I would call a new start. I think new starts are mostly what you would see what we're doing over [indiscernible] where we're building a capability that is solving a need for a customer and that would fall sometimes in the new category. But again I think the vast majority of our pipeline is about us garnering additional market share for work that does already exist. And, yes, we have quite a few bids on the street that are substantial in size. And we look at the pipeline that Roger and his team are building, and again it reflects a nice mix of both very large and very strategic opportunities for us.

And I think exactly to that point Joe because of the modest amount of recompetes that we have up it's allowing us to make sure that we're addressing and opening our aperture perhaps for additional addressable market during this period. And the team is doing a great job of aligning those things, so that we can continue to build on that gain that momentum going out into the out years.

Okay. And then one more if I may. One of the data points that you historically have given on the pipeline is the amount of bids submitted in the next 12 months pipeline. I was wondering, if you could give us what those data points are as of the end of the year?

Yeah. So as Jeremy announced Roger has joined us. He's going through a thorough pipeline review and assessing it with his team to understand exactly where everything is. So I think you'll hear us I know you'll hear us talk about it on future calls Joe. But I think at this time as the team is progressing, we'll refrain from quantifying anything other than I think Jeremy we've talked about increasing our bid volume as we go through the year, kind of, tied back to what we said previously here, which is taking advantage of the opportunity that's in front of us and having a higher ops tempo from a bid standpoint going forward.

Yeah. Everything that I see so far for 2025 has velocity of bids going through V2X higher than 2024. And that is the primary key metric for me, which is -- we have a large addressable market we're relatively small in that market. And so the idea here is create differentiation and use our key positions that we have around the globe to put more opportunities out on the field.

Okay, great. Thanks for that. I’ll get back in queue.

The next question will come from Trevor Walsh with Citizens JMP. Please go ahead.

Hi, team. Thank you for taking the questions. Jeremy and/or Shawn, really appreciate the color that you gave at the beginning in the prepared remarks around the messaging aligning with the newest administration's I guess approach with DOGE and the like. I'm just curious around the potential for 8% budget cuts across the DoD that's been thrown out there. You guys have been doing this for a long time. Just curious how you might see or whether it's 8% or some other number if there's just a broad based set of priorities to cut, does that basically look like a x-percent haircut across all programs? Is it geography-specific? Is it certain programs that just get? How do we get to that number in terms of how you guys have seen maybe similar types of environments play out just when DoD is kind of just generally trying to cut costs?

Yeah. I would be speculating at best if I knew how they were going to do that. And I think the entire industry would be speculating at best. I will say the enduring nature of what we do in terms of mission support these are four enduring missions and they're part of the overall strategy of the US government. But again I would be just speculating if I told you how they were going to go about doing this.

I think, Trevor the way that, I think, we look at it from a risk standpoint or whatever might be more aligned with what could be policy changes that could influence outcomes either positively or negatively relative to where we sit today, right? As opposed to having gone through sequestration in a -- and other stuff back a decade plus ago as opposed to broad cuts that impact a certain percentage of every program they're probably more likely to be impacted by policy changes that the administration sets because that's where they end up putting dollars. I think as Jeremy said we are in enduring missions places that have been long-standing for this country and this nation. As Jeremy said, it would be speculative to say where they're going. I have not seen in the type of work that we do where it's just hey take a 10% cut here.

Got it. That's super helpful. Shawn maybe again for you. Congrats and great work on getting the net leverage, kind of, below the target level. Was just curious to see I know we had talked about before when you -- there's not necessarily going to be a new goalpost for where that metric might go but I know you did make comments previously that it would give you some optionality around kind of what you can do with capital. Any ideas or thoughts especially just given these new dynamics new administration et cetera about where you might deploy some of those resources given you sort of hit that goal?

Sure. Yes. No, I want to make sure that I say again and thank the team for all of their efforts in achieving our objectives. We are very focused on doing the things we said we're going to do and the team did an exceptional job as we closed 2024. Now relative to okay what's next which is the heart of your question I think Jeremy has said before it provides us with optionality. We're very happy with where we sit today. But I think there's opportunities and options that open for us that by the way we have been continually sifting through. It's not like we put things on a shelf and weren't looking at things just because we had a leverage ratio that may not have been conducive to those things. It's just part of the DNA and the stuff that the company does regularly. And we've established that appropriate cadence to be looking at those opportunities. We don't have anything to announce of course. But I think in terms of looking at what the art of the possible is in areas that we think we can make be meaningful contributors is stuff that we'll pursue throughout 2025.

Yes. I mean, I think, I've been very clear about this. The optionality includes us looking at it from the lens of what's going to generate the most shareholder value and that will continue to be our focus. Those options that are reported to us are going to be solely squarely on shareholder value.

Great. Thanks, both. I will get back in queue.

Thanks, Trevor.

The next question will come from Mariana Perez Mora with Bank of America. Please go ahead.

Good afternoon, everyone. Thank for taking the question. So my question is a follow-up to this like reshuffling of defense spending as part of headset requirements training and readiness and sustainment all those activities are core and they are not up for revision. How much do you think you are like operating in a safe environment business as usual environment? How much is actually or how soon we could see upside from training opportunities like the one you got on like the W-TRS recent contract last year?

I mean the WTRS program has the opportunity to be the contract of choice for people that are looking to perform readiness and training programs. And so I think we've talked about the number of PDLs were called PDLs or task orders that continue to flow to this contract vehicle, because it has been -- as the customer said, they want to have the opportunity to make it easy for customers to procure training resources. And I mean there's pages of task orders that we're looking at right now. And the team is very busy and doing an exceptional job. Whether there's other training opportunities out there we'll continue to look at. Obviously, it's a core competency of ours and we'll continue to look at those opportunities as we build our pipeline.

I think the important to characterize it a little bit. Those things, again, they tend to turn very quick. When we think about on-contract growth that this business is very skilled at doing we're turning some of those task orders, and admittedly they're modest in size today but there are -- there is a volume of them and we turn those around to the customer from a pricing and all that good sort of stuff. We turn those around in days. The team does that. It's just second nature to the team. And so they can be put on contract to the -- your question is around well when could we see upside? The bulk of these activities, as I said, will transition in the second half of the year. Could some things happen earlier? They could. We've not seen that yet but the vehicle, the mechanics, everything is in place such that it is a frictionless transaction between us and our customer to execute on the mission.

The team has done an exceptional job standing up this program getting it to that point that Shawn just said where it is, an engine that it just allows the customer to come to us with these task orders and the team does a great job turning these task orders around in a very timely basis.

Great. Thank you. That's great color. And then, what are other key metrics in your like U.S. growth or any other milestones we should be looking at?

Yes. I think it's the ramp of a lot of the things that we've talked about right? So we -- the F-5 award that we got last year has completed its transition. It is often executing and obviously, we have regular touch points with all of our programs to ensure that they are executing successfully, the waters activity we talked about. We mentioned the GMR award that we got. We've said previously that that kind of went from an LRIP phase to a full rate production. So we're ensuring that the supply base and everybody is ready for production capabilities for those things. It's, again, just part of our DNA in terms of how we execute on programs. There's not one particular thing that we put more overweight than another to be honest with you Mariana. It's stuff that we do on a weekly basis to support our programs and delivering to the customers.

Great. Thank you so much for the color.

Sure.

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

Thank you for the time today, and I appreciate everybody that listened in. I do want to echo what Shawn said. I want to thank the team and the employees of V2X. They delivered so met our commitments, meet our commitments and I can't be any more proud of them than I am. They have worked so very hard, and we're looking forward to 2025. So thank you with that and have a good day.

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