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What changed in V2X, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of V2X, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+346 added−390 removedSource: 10-K (2024-03-05) vs 10-K (2023-03-02)

Top changes in V2X, Inc.'s 2023 10-K

346 paragraphs added · 390 removed · 274 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

72 edited+15 added−43 removed46 unchanged
Biggest changeThe percentage of our total revenue generated from each contract type for the periods presented was as follows: Year Ended December 31, Contract type 2022 2021 2020 Cost-plus and cost-reimbursable 56 % 71 % 68 % Firm-fixed-price 40 % 25 % 29 % Time-and-materials 4 % 4 % 3 % Total revenue 100 % 100 % 100 % Backlog For a discussion of our backlog, see Management’s Discussion and Analysis of Financial Condition and Results of Operations - Backlog in Item 7 of Part II of this Annual Report on Form 10-K .
Biggest changeThe percentage of our total revenue generated from each contract type for the periods presented was as follows: Year Ended December 31, 2023 2022 2021 Cost-plus and cost-reimbursable 56 % 56 % 71 % Firm-fixed-price 41 % 40 % 25 % Time-and-materials 3 % 4 % 4 % Total revenue 100 % 100 % 100 % Backlog For a discussion of our backlog, see Management’s Discussion and Analysis of Financial Condition and Results of Operations - Backlog in Item 7 of Part II of this Annual Report on Form 10-K . 8 Table of Contents Environmental, Health and Safety We are subject to federal, state, local, and foreign environmental protection laws and regulations, including those governing the management and disposal of hazardous substances, the cleanup of contaminated sites, and the maintenance of a safe and healthy workplace for our employees, contractors, and visitors.
Our principal competitors in Aerospace Solutions include Amentum, IAP Worldwide Services, AAR, M-1 Support Services, Jacobs Technology, Marvin Engineering, divisions of Leidos Holdings, divisions of Northrop Grumman Services, and Akima Logistics Services, among others. Our principal competitors in Advanced Technology include divisions of Leidos Holdings, Inc., Science Applications International Corporation (SAIC), Peraton, and General Dynamics (GD) Technologies Segment.
Our principal competitors in Aerospace Solutions include Amentum, IAP Worldwide Services, AAR, M-1 Support Services, Jacobs Technology, Marvin Engineering, divisions of Leidos Holdings, divisions of Northrop Grumman Services, and Akima Logistics Services, among others. Our principal competitors in Technology Solutions include divisions of Leidos Holdings, Inc., Science Applications International Corporation (SAIC), Peraton, and General Dynamics (GD) Technologies Segment.
We provide upgrades and obsolescence management to increase service life and enhance performance as well as DevSecOps to extend enterprise software solutions. Our sensor capabilities include design, integration, and installation of complex, multi-sensor systems for border security and critical infrastructure protection in the U.S. and abroad.
We provide upgrades and obsolescence management to increase service life and enhance performance as well as DevSecOps to extend enterprise software solutions. Our sensor capabilities include design, integration, and installation of complex, multi-sensor systems for border/perimeter security and critical infrastructure protection in the U.S. and abroad.
In 2022, our five ERGs developed goals in three focus areas to foster awareness, respect, and inclusion: • Business development and outreach; • Employee engagement and retention and professional development; and • Recruitment.
Our five ERGs developed goals in three focus areas to foster awareness, respect, and inclusion: • Business development and outreach; • Employee engagement and retention and professional development; and • Recruitment.
Smith was a senior equity research associate at Lazard Capital Markets, covering the aerospace and defense, federal government information technology services, and defense technology sectors. He also spent five years with BB&T Capital Markets covering defense and government services and seven years with Raymond James & Associates in various capacities, including senior equity research liaison. Mr.
Smith was a senior equity research associate at Lazard Capital Markets, covering the aerospace and defense, federal government information technology services, and defense technology sectors. He also spent five years with BB&T Capital Markets covering defense and government services and seven years with Raymond James & Associates in various capacities. Mr.
However, various factors can affect the distribution of our revenue between accounting periods, including the timing of awards, product deliveries, customer acceptance of products and services, contract phase-in durations, contract completions, world events and the availability of customer funding. Weather and natural phenomena can also temporarily affect the performance of our services.
However, various factors may affect the distribution of our revenue between accounting periods, including the timing of awards, product deliveries, customer acceptance of products and services, contract phase-in durations, contract completions, world events and the availability of customer funding. Weather and natural phenomena may also temporarily affect the performance of our services.
More than 400 multi-disciplined engineers provide critical development, integration, production, repair and overhaul and sustainment expertise to contracts ranging from situational awareness products to production of missile launchers to repair and overhaul of tactical aircraft radar systems and components.
More than 550 multi-disciplined engineers provide critical development, integration, production, repair and overhaul and sustainment expertise to contracts ranging from situational awareness products to production of missile launchers to repair and overhaul of tactical aircraft radar systems and components.
In 2022, V2X engaged our larger, and recently merged, global workforce through structured surveys using a third-party platform to better understand concerns and expectations regarding Ethics, and Diversity, Equity & Inclusion (DE&I).
In 2023, V2X engaged our larger, and recently merged, global workforce through structured surveys using a third-party platform to better understand concerns and expectations regarding Ethics, and Diversity, Equity & Inclusion (DE&I).
To help ensure compliance with these complex laws and regulations, all of our employees are required to complete ethics and other compliance training relevant to their respective positions. We are subject to other U.S. government laws, regulations and policies, including the International Traffic in Arms Regulations, the Export Administration Regulations, the Foreign Corrupt Practices Act and the False Claims Act.
To help ensure compliance with these complex laws and regulations, all of our employees are required to complete ethics and other compliance training relevant to their respective positions. 7 Table of Contents We are subject to other U.S. government laws, regulations and policies, including the International Traffic in Arms Regulations, the Export Administration Regulations, the Foreign Corrupt Practices Act and the False Claims Act.
Responses to the 2022 employee engagement surveys indicated that V2X employees generally find the company culture to be inclusive, a great place to work, and that managers’ behaviors were consistent with the V2X Code of Conduct.
Responses to the 2023 employee engagement surveys indicated that V2X employees generally find the company culture to be inclusive, a great place to work, and that managers’ behaviors were consistent with the V2X Code of Conduct.
Our ethical culture and people serve as the foundation for providing long-term value to our stakeholders. We strive to support our people to ensure they can bring their best selves to work. We will continue to build and leverage an inclusive business environment by developing leadership competency, increasing employee engagement, and building organizational capacity.
Our ethical culture and people are the foundation for providing long-term value to our stakeholders. We strive to support our people to ensure they can bring their best selves to work. We will continue to build and leverage an inclusive business environment by developing leadership competency, increasing employee engagement, and building organizational capacity.
We track workforce safety metrics including Total Recordable Incident Rate, Days Away Restricted or Transferred Rate as well as Near Miss Frequency Rate. We initiated annual reporting of these metrics in 2021. Our robust EHS program promotes a safe and healthy workplace for all employees and subcontractors.
We track workforce safety metrics including Total Recordable Incident Rate, Days Away Restricted or Transferred Rate as well as Near Miss Frequency Rate. We initiated annual reporting of these metrics in 2021 and continued this reporting in 2023. Our robust EHS program promotes a safe and healthy workplace for all employees and subcontractors.
For details on how we are striving to enhance our culture, see our Human Capital Management disclosure. Our Service Offerings We offer our customers around the world a broad suite of technology and services capabilities to support national security readiness and modernization initiatives.
For details on how we are striving to enhance our culture, see our Human Capital Management disclosure. 4 Table of Contents Our Service Offerings We offer our customers around the world a broad suite of technology and services capabilities to support national security readiness and modernization initiatives.
Our initiatives focused on delivery excellence are designed to improve client relationships and improve business performance. As part of this strategy, we are standardizing, improving, 4 Table of Contents and automating our core operational capabilities through enterprise systems excellence, as well as technology insertion and enablement.
Our initiatives focused on delivery excellence are designed to improve client relationships and improve business performance. As part of this strategy, we are standardizing, improving, and automating our core operational capabilities through enterprise systems excellence, as well as technology insertion and enablement.
We were the prime contractor on contracts representing 93%, 93% and 95% of our revenue for the three years ended December 31, 2022, 2021, and 2020, respectively. In other contracts, we team with the prime contractor as a subcontractor. The U.S. Congress usually appropriates funds on a fiscal year basis even though a program may extend across several fiscal years.
We were the prime contractor on contracts representing 94%, 93% and 93% of our revenue for the three years ended December 31, 2023, 2022, and 2021, respectively. In other contracts, we team with the prime contractor as a subcontractor. The U.S. Congress usually appropriates funds on a fiscal year basis even though a program may extend across several fiscal years.
This commitment is codified in our COC and our Supplier Code of Conduct. V2X monitors its subcontractors to verify that they are maintaining compliance with CTIP and other provisions in their contracts.
This commitment is codified in our COC and our Supplier Code of Conduct. 10 Table of Contents V2X monitors its subcontractors to verify that they are maintaining compliance with CTIP and other provisions in their contracts.
Advanced Technology : Our capabilities include sensors and solutions, as well as the operation of complex systems in austere locations. We discriminate ourselves through unmatched expertise to define and integrate the right technologies for unique mission requirements, driving optimal results and maximum mission efficacy.
Technology Solutions : Our capabilities include the deployment, integration, and maintenance of sensors and solutions, as well as the operation of complex systems in austere locations. We discriminate ourselves through unmatched expertise to define and integrate the right technologies for unique mission requirements, driving optimal results and maximum mission efficacy.
ITEM 1. BUSINESS Overview V2X , Inc. (V2X or the Company), an Indiana Corporation, formerly known as Vectrus, Inc. (Vectrus), is a leading provider of critical mission solutions primarily to defense clients in 343 locations and 45 countries and territories worldwide.
ITEM 1. BUSINESS Overview V2X , Inc. (V2X or the Company), an Indiana Corporation, formerly known as Vectrus, Inc. (Vectrus), is a leading provider of critical mission solutions primarily to defense clients in 322 locations and 51 countries and territories worldwide.
The results of those surveys are anonymized and shared with V2X employees and with management. Additionally, the results of the surveys are scored to form a benchmark 9 Table of Contents against which the results of future surveys will be evaluated.
The results of those surveys are anonymized and shared with V2X employees and with management. Additionally, the results of the surveys are scored to form a benchmark against which the results of future surveys will be evaluated.
We also sponsored our first Annual Corporate Compliance Ethics Week Program in 2022, which was open to all V2X employees, and was designed to shine a spotlight on Corporate Ethics by highlighting our Core Values, educating employees on our “Speak Up” culture and providing best practices resources for leaders in addressing employees’ concerns.
In 2023, we sponsored our Annual Corporate Compliance Ethics Week, which was open to all V2X employees, and was designed to shine a spotlight on Corporate Ethics by highlighting our Core Values, educating employees on our “Speak Up” culture and providing best practices resources for leaders in addressing employees’ concerns.
We provide all levels of maintenance, to include organizational flight line maintenance and depot level maintenance, for the Navy’s fleet of TH-57 and TH-73 training helicopters. 6 Table of Contents • Fort Bragg Logistics Support Services.
We provide all levels of maintenance, to include organizational flight line maintenance and depot level maintenance, for the Navy’s fleet of TH-57 and TH-73 training helicopters. • Fort Liberty Logistics Support Services.
For a description of the Merger, see Note 3, Merger and Acquisitions . The Merger created a larger and more diversified company with the ability to compete for more integrated business opportunities and generate revenue across geographies, clients, and contract-types. We continue to operate under one reportable business segment post-Merger.
The Merger created a larger and more diversified company with the ability to compete for more integrated business opportunities and generate revenue across geographies, clients, and contract-types. We continue to operate under one reportable business segment post-Merger.
Prior to his commercial career, Ken served in the United States Army as a Logistics Officer, retiring after twenty-eight years, having commanded at every level through Brigade Command and culminating as the Army Chair at the National War College in Washington DC. Mr.
Shreves served in the United States Army as a logistics officer, retiring after twenty-eight years, having commanded at every level through Brigade Command and culminating as the Army Chair at the National War College in Washington DC. Mr.
Our global footprint and ability to deliver full lifecycle converged solutions across the world enables us to support the success of our clients' missions rapidly and with precision. As of December 31, 2022, we had approximately 15,400 employees and 6,500 subcontract personnel.
Our global footprint and ability to deliver full lifecycle converged solutions across the world enables us to support the success of our clients' missions rapidly and with precision. As of December 31, 2023, we had approximately 16,000 employees and 6,200 subcontract personnel.
Our on-line V2X University gives employees access to more than 2,000 virtual courses that address such topics as leadership/management and information technology skills, along with the standard required compliance courses required for a defense contractor company.
Learning and Development We provide learning and development opportunities to our employees to support a successful career at V2X. Our on-line V2X University gives employees access to more than 2,000 virtual courses that address such topics as leadership/management and information technology skills, along with the standard required compliance courses required for a defense contractor company.
The governing IDIQ contracts often have multi-billion-dollar ceiling values. We closely monitor costs to foster highly competitive pricing and use an in-house business development model both to manage the cost of revenue and capture opportunities for future bids. 7 Table of Contents Seasonality We do not consider any material portion of our business to be seasonal.
We closely monitor costs to foster highly competitive pricing and use an in-house business development model both to manage the cost of revenue and capture opportunities for future bids. Seasonality We do not consider any material portion of our business to be seasonal.
There are typically fewer competitors in the overseas market for each of our services capabilities and they vary from region to region . The U.S. government has implemented policies designed to protect small businesses and under-represented minority contractors. From time to time, certain U.S. government work in the U.S. has been restricted to small businesses, including Alaskan native companies.
There are typically fewer competitors in the overseas market for each of our services capabilities and they vary from region to region . 6 Table of Contents The U.S. government has implemented policies designed to protect small businesses and under-represented minority contractors.
We do not expect that any of the contracts subject to renegotiation in 2023 (individually or as a whole) present a significant risk to our business. We believe that relations with our employees and union representatives are positive.
In the ordinary course of business, a number of collective bargaining agreements will be subject to renegotiation in a given year. We do not expect that any of the contracts subject to renegotiation in 2024 (individually or as a whole) present a significant risk to our business. We believe that relations with our employees and union representatives are positive.
The Company's major task orders under the LOGCAP V program are: ▪ Kuwait Task Order – V2X supports all base operations on multiple bases in Kuwait in support of power projections and reception operations. ▪ Iraq Task Order – V2X supports all base operations on multiple bases in Iraq in support of counter-ISIS operations. ▪ INDOPACOM Task Order– V2X supports base operations and contingency sustainment in multiple countries throughout the INDOPACOM region. • Cobra Dane Radar Maintenance Operation (COBRA DANE).
The Company's major task orders under the LOGCAP V program are: ▪ Kuwait Task Order – V2X supports all base operations on multiple bases in Kuwait in support of power projections and reception operations. ▪ Iraq Task Order – V2X supports all base operations on multiple bases in Iraq in support of deployed U.S. forces. ▪ INDOPACOM Task Order – V2X supports base operations, military exercises, and contingency operations in multiple countries throughout the INDOPACOM region. ▪ Qatar Task Order – V2X supports all base operations supporting non-DoD U.S. governmental agencies. • Cobra Dane Radar Maintenance Operation (COBRA DANE).
We conduct periodic reviews of succession plans and the individual development plans of our emerging talent. These sessions focus on high potential talent, diverse talent, and the succession for our most critical roles, 10 Table of Contents and are led by our Vice President and Chief Growth & Client Service Officer, Chief Human Resource Officer, and Senior Vice Presidents.
We conduct periodic reviews of succession plans and the individual development plans of our emerging talent. These sessions focus on high potential talent, diverse talent, and the succession for our most critical roles, and are led by our Chief Human Resource Officer and our executive leadership team.
Customers Our strong relationship with the Department of Defense (DoD) is attributable to our dedication to program performance, global responsiveness and operational excellence, as well as to the execution of our core values of integrity, respect, responsibility and professionalism. We treat sales to our U.S. government customers as sales within the U.S. regardless of where the services are performed.
Customers Our strong relationship with the Department of Defense (DoD) and other government agencies is attributable to our dedication to program performance, global responsiveness and operational excellence, as well as to the execution of our core values of integrity, respect, responsibility and professionalism.
The V2X Code of Conduct, and the standards of business conduct and ethics incorporated in the Code, apply to all employees, officers, and directors of V2X. V2X requires each employee to complete Code of Conduct training annually. Our COC was updated in 2022 for the combined entity post-Merger.
The V2X Code of Conduct, and the standards of business conduct and ethics incorporated in the Code, apply to all employees, officers, and directors of V2X. V2X requires each employee to complete Code of Conduct training annually.
Exelis was acquired by a predecessor entity of L3Harris Technologies, Inc. in May 2015. On July 5, 2022 (the Closing Date), Vectrus completed its merger (Merger) with Vertex Aerospace Services Holding Corp., a Delaware corporation (Vertex), thereby forming V2X . The fair value of the consideration transferred with respect to the Merger totaled $634.0 million as of the Closing Date.
Exelis was acquired by a predecessor entity of L3Harris Technologies, Inc. in May 2015. On July 5, 2022 (the Closing Date), Vectrus completed its merger (Merger) with Vertex Aerospace Services Holding Corp., a Delaware corporation (Vertex), thereby forming V2X . For a description of the Merger, see Note 3, Merger .
Revenue, primarily from U.S. government customers, for the periods presented below was as follows: Year Ended December 31, (In thousands) 2022 2021 2020 Army $ 1,342,406 $ 1,134,849 $ 965,558 Navy 713,732 224,407 68,748 Air Force 459,849 266,291 299,272 Other 374,873 158,118 61,951 Total revenue $ 2,890,860 $ 1,783,665 $ 1,395,529 Key customer services contracts include the following: • The Logistics Civil Augmentation Program V (LOGCAP V) indefinite delivery and indefinite quantity (IDIQ) contract for base operations support and sustainment services to the Army.
Revenue, primarily from U.S. government customers, for the periods presented below was as follows: Year Ended December 31, (In thousands) 2023 2022 2021 Army $ 1,633,525 $ 1,342,406 $ 1,134,849 Navy 1,233,463 713,732 224,407 Air Force 538,698 459,849 266,291 Other 557,440 374,873 158,118 Total revenue $ 3,963,126 $ 2,890,860 $ 1,783,665 5 Table of Contents Representative customer services contracts include the following: • The Logistics Civil Augmentation Program V (LOGCAP V) indefinite delivery and indefinite quantity (IDIQ) contract.
Some U.S. government customers have shown a strong preference for multiple award IDIQ contracts. These contracts offer awards to a pool of contractors, followed by competition within the pool for individual programs via task orders under each IDIQ over the period of performance. The period of performance under IDIQ contracts follows a traditional three-to-ten-year performance cycle.
These contracts offer awards to a pool of contractors, followed by competition within the pool for individual programs via task orders under each IDIQ over the period of performance. The period of performance under IDIQ contracts follows a traditional three-to-ten-year performance cycle. The governing IDIQ contracts often have multi-billion-dollar ceiling values.
Earlier in his career, he held senior executive positions with public and private technology services and product companies, including MCR, LLC, Vangent, Inc., General Dynamics Information Technology, Anteon International Corporation and InterWorld Corporation. Mr. Boyle currently serves on the Board of the Wolf Trap Foundation. Susan L. Deagle 54 Senior Vice President and Chief Growth & Client Service Officer Ms.
Boyle held senior executive positions with public and private technology services and solutions companies, including, MCR, LLC, Vangent, Inc., General Dynamics Information Technology, Anteon International Corporation and InterWorld Corporation. Mr. Boyle currently serves on the Board of the Wolf Trap Foundation. Corinne L. Minton-Package 51 Senior Vice President, Operational Technology and Engineering Ms.
We are a leading employer of veterans and veteran spouses with more than 42% of our U.S employees voluntarily reporting a military background, and we have been recognized numerous times in recent years by veteran-focused organizations as a military-friendly employer, including recently by the National Organization on Disability as a Leading Disability Employer, by the Military Friendly Company as a Top 10 Diversity Supplier and as a Top 10 Military Spouse Employer, and by the Military Times as a Best for Vets Employer.
Annually, ERGs evaluate their performance against these goals and report them to the DE&I Executive Council, which in turn reports at least annually to our Board of Directors. 9 Table of Contents We are a leading employer of veterans and veteran spouses with more than 48% of our U.S. employees voluntarily reporting a military background, and we have been recognized numerous times in recent years by veteran-focused organizations as a military-friendly employer, including by the National Organization on Disability as a Leading Disability Employer, by the Military Friendly Company as a Top 10 Diversity Supplier and as a Top 10 Military Spouse Employer, and by the Military Times as a Best for Vets Employer.
We provide the remanufacture, overhaul or repair and/or tear down and evaluation of Marine Corps Ground Equipment SECREP items turned in at designated Government locations worldwide. • Transportation Security Administration Checked Baggage - Screening Equipment Deployment Services (CB-SEDS).
We provide the remanufacture, overhaul or repair and/or tear down and evaluation of Marine Corps Ground Equipment SECREP items at Government locations worldwide. • Transportation Security Administration Checked Baggage - Screening Equipment Deployment Services (CB-SEDS). We provide installation, on-site coordination and oversight support to CB-SEDS at federalized airports nationwide. Competition Our competition varies depending on our service offerings.
The U.S. government's fiscal year ends on September 30 of each year. U.S. government agencies may award extra tasks or complete other contract actions in the timeframe leading up to the end of its fiscal year in order to avoid the loss of unexpended fiscal year funds, which may favorably impact our third fiscal quarter.
The U.S. government's fiscal year ends on September 30 of each year. While not certain, it is not uncommon for U.S. government agencies to award extra tasks or complete other contract actions in the weeks before the end of its fiscal year in order to avoid the loss of unexpended fiscal year funds.
We periodically hold senior leadership development events to continually develop leadership and management skills. In November 2022, we held our Leading into 2023 conference to bring together our leaders from both legacy companies to collaborate on the future of V2X.
We periodically hold senior leadership development events to continually develop leadership and management skills. In July 2023, we held our annual Leadership Summit which brought together the top leaders from across our organization to collaborate on the future of V2X.
Minton-Package held various positions at IBM Global Business Services, and most recently, from 2014 to 2017, as a partner in the commercial healthcare practice. 13 Table of Contents Kenneth W. Shreves 60 Senior Vice President, Global Mission Training & Sustainment Mr. Shreves has served as the Senior Vice President, Global Mission Training & Sustainment since July 2022.
Prior to joining the Company, Ms. Minton-Package held various positions at IBM Global Business Services, most recently as a partner in the commercial healthcare practice. Kenneth W. Shreves 61 Senior Vice President, Global Mission Solutions Mr. Shreves has served as the Senior Vice President, Global Mission Solutions since January 2024.
Smith has served as the Company’s Vice President of Treasury, Corporate Development, and Investor Relations since 2014. Prior to joining V2X in 2014, he was co-founder and managing director of The Silverline Group, a strategic consulting and advisory services firm that focuses on the aerospace and defense, intelligence, government services, homeland security, and federal civilian markets from 2012 to 2014.
Prior to joining the Company, he was co-founder and managing director of The Silverline Group, a strategic consulting and advisory services firm that focuses on the aerospace and defense, intelligence, government services, homeland security, and federal civilian markets. Prior to co-founding The Silverline Group, Mr.
We discriminate ourselves through vertically integrated organic engineering, supply chain management, manufacturing, rapid prototyping and dedicated facilities including – 500,000 square feet of hangar space, 4 FAA Part 145 Repair Stations, and over 900,000 square feet of engineering, lab, manufacturing and repair and overhaul space at our Indianapolis facility.
We differentiate ourselves through vertically integrated organic engineering, supply chain management, manufacturing, rapid prototyping and dedicated facilities including FAA Part 145 Repair Stations, and over 900,000 square feet of engineering, lab, manufacturing and repair and overhaul space. Comprehensive in-house testing capabilities including cyber, E 3 , environmental, AR/VR and development labs reside under one roof at our Indianapolis, Indiana facility.
We seek to drive growth and deliver value through our strategic framework, which consists of the following strategies: Expand the Base, Capture New Markets, Deliver with Excellence, and Enhance Culture. Key components of these strategies, and our progress in executing these strategies, include: • Expand the Base.
The execution of our strategic framework, which consists of the following business strategies: Expand the Base, Capture New Markets, Deliver with Excellence, and Enhance Culture supports achievement of this goal. Key components of these strategies include: • Expand the Base.
We operate, maintain and upgrade the AN/FPS-108 radar and associated systems in support of the Strategic Warning and Surveillance Systems Division COBRA DANE Program Office located in Shemya, Alaska. • Operations, Maintenance and Defense of Army Communications in Southwest Asia and Central Asia (OMDAC-SWACA).
We operate, maintain and upgrade the AN/FPS-108 radar and associated systems in support of the Strategic Warning and Surveillance Systems in Alaska. • Operations, Maintenance and Defense of Army Communications in Southwest Asia and Central Asia (OMDAC-SWACA). We operate the largest Outside the Continental United States (OCONUS) cyber center for the Army. • T-45 Contractor Logistics Support.
We deliver a comprehensive set of integrated solutions and critical service offerings across the operations and logistics, aerospace, training and technology markets to national security, defense, civilian and international customers. Effective January 1, 2023, the Company is organized across three core business areas to provide multiple service offerings and solutions.
We deliver a comprehensive set of integrated solutions and critical service offerings across the aerospace, technology, operations and logistics, and training markets to national security, defense, civilian and international customers. Aerospace Solutions: We provide the engineering, facilities, and skilled employees required to sustain systems and platforms.
V2X conducts regularly scheduled audits and inspections of employee housing and transportation, interviews employees hired through our subcontractors, and reviews employment contracts and related documentation to further validate our subcontractors' compliance with FAR 52.222-50 and both country of origin and host nation labor laws. 11 Table of Contents Information about our Executive Officers The following table sets forth certain information as of January 31, 2023 regarding our executive officers, including a five-year employment history and any directorships held in public companies.
V2X conducts regularly scheduled audits and inspections of employee housing and transportation, interviews employees hired through our subcontractors, and reviews employment contracts and related documentation to further validate our subcontractors' compliance with FAR 52.222-50 and both country of origin and host nation labor laws.
We participate with these small businesses as a subcontractor for select opportunities. In addition, we rely on our teaming relationships with other prime contractors and subcontractors for large procurements or other opportunities where we believe the combination of services will help us win and perform the contract.
In addition, we rely on our teaming relationships with other prime contractors and subcontractors for large procurements or other opportunities where we believe the combination of services will help us win and perform the contract. Our competitors may consolidate or establish teaming or other relationships among themselves or with third parties to increase their ability to address customers’ needs.
Comprehensive in-house testing capabilities including cyber, E 3 , environmental, AR/VR and development labs reside under one roof at our Indianapolis, Indiana facility. Our teams deliver full spectrum (flight line to depot), safe, high-quality maintenance in support of over 1,200 aircraft deployed around the world that fly more than 300,000 flight hours annually.
Our teams deliver full spectrum (flight line to depot), safe, high-quality maintenance in support of approximately 1,200 aircraft deployed around the world that fly more than 300,000 flight hours annually.
He holds a Senior Professional Human Resources (SPHR) certification from the Human Resources Certification Institute. 14 Table of Contents Available Information Our principal executive offices are located at 7901 Jones Branch Drive, McLean, Virginia, 22102. Our telephone number i s (571) 481-2000 and our website add ress is www.goV2X.com.
Smith is a CFA® charterholder and graduated from the University of South Florida where he received a Bachelor’s degree with a major in finance and a minor in economics. Available Information Our principal executive offices are located at 7901 Jones Branch Drive, McLean, Virginia, 22102. Our telephone number i s (571) 481-2000 and our website add ress is www.goV2X.com.
During his career, he has run large global government services organizations, delivering solutions to a wide array of DoD and other government customers. Mr.
Mr. Prow has over 30 years of information technology and federal services experience, including leadership positions at IBM Corporation, PricewaterhouseCoopers, and Coopers & Lybrand. During his career, he has run large global government services organizations, delivering solutions to a wide array of DoD and other government customers. Previously, Mr.
Our team of professionals provides worldwide support to the U.S. Intelligence Community; Critical Infrastructure & Logistics in support of Intelligence Operations; Classified IT; Intelligence Services; and Cyber Security.
Once deployed, our clients find us in theater to meet them and ensure they are supported logistically with facilities, training ranges, logistical support and materials. Our team of professionals provides worldwide support to the U.S. intelligence community; critical infrastructure & logistics in support of intelligence operations; classified IT; intelligence services; and cyber security.
The contracts and subcontracts under a program generally are subject to termination for convenience or adjustment if appropriations for such programs are not available or if they change.
The contracts and subcontracts under a program generally are subject to termination for convenience or adjustment if appropriations for such programs are not available or if they change. The U.S. government is required to equitably adjust a contract for additions to or reductions in scope or other changes, including price, which it directs.
The Fort Bragg Logistics Readiness Center serves as the primary logistics provider for maintenance, supply and services, and transportation support to the installation. • Thule Air Force Base Operations Support in Greenland (THULE). We provide base operations and maintenance services under extreme weather conditions to the Thule Air Base (AB) in Greenland.
We are the primary logistics provider for maintenance, supply and services, and transportation support at the Fort Liberty Logistics Readiness Center. • Pituffik Space Base Operations Support in Greenland. We provide base operations and maintenance services under extreme weather conditions to the Pituffik Space Base in Greenland. • U.S. Marine Corps Secondary Repairables (SECREPS).
The U.S. government is required to equitably adjust a contract for additions to or reductions in scope or other changes, including price, which it directs. 8 Table of Contents Generally, the sales price elements for our contracts are cost-plus, cost-reimbursable, time-and-materials or firm-fixed-price. We commonly have elements of cost-plus, cost-reimbursable and firm-fixed-price contracts on a single contract.
Generally, the sales price elements for our contracts are cost-plus, cost-reimbursable, time-and-materials or firm-fixed-price. We commonly have elements of cost-plus, cost-reimbursable and firm-fixed-price contracts on a single contract.
We provide the operations, maintenance and defense of the Army’s communications network across multiple locations in the Middle East and Central Asia. • T-45 Contractor Logistics Support. We provide Organizational, Intermediate and Depot level maintenance for the Navy’s fleet of 193 T-45 that are used to train jet, strike pilot and naval flight officers. • Naval Test Wing Atlantic (NTWL).
We provide Organizational, Intermediate and Depot level maintenance for the Navy’s fleet of 193 T-45 that are used to train jet, strike pilot and naval flight officers. • Naval Test Wing Atlantic (NTWL). We provide maintenance in support of the Navy’s test and evaluation aircraft primarily located at NAS Patuxent River, Maryland. • Advanced Helicopter Training System.
Unless the context otherwise requires or unless stated otherwise, references to "V2X", "we," "us," "our," “combined company”, "the Company" and "our Company" refer to V2X and all of its consolidated subsidiaries (including, subsequent to the Merger, Vertex and its consolidated subsidiaries), taken together as a whole.
Unless the context otherwise requires or unless stated otherwise, references to "V2X", "we," "us," "our," “combined company”, "the Company" and "our Company" refer to V2X and all of its consolidated subsidiaries. Our Business Strategies Our goal is to be a leader in the operational segment of the broader Federal services market.
While not every contract is procured via selection of the lowest priced bidder, customers are sensitive to cost based on their budget allocations. Acquisition cycles are long (generally 12 to 24 months), and contracts are typically multi-year contracts that include an initial period of one-year or less with annual one-year (or less) option periods for the remaining contract period.
Acquisition cycles are long (generally 12 to 24 months), and contracts are typically multi-year contracts that include an initial period of one-year or less with annual one-year (or less) option periods for the remaining contract period. Some U.S. government customers have shown a strong preference for multiple award IDIQ contracts.
Within our Global Mission Training and Sustainment service offering, we see many of the same competitors such as Amentum, Leidos, SAIC, GD in addition to KBR, Valiant Integrated Services, PULAU Corporation and Lockheed Martin, Rotary and Missions Systems Segment.
Within Operations and Logistics, competitors include KBR, Fluor, Amentum, among others. Our competition in Training Solutions includes many of the aforementioned competitors, in addition to Valiant Integrated Services, PULAU Corporation, and Lockheed Martin, Rotary and Missions Systems Segment.
We provide infrastructure operations and sustainment for fixed facilities worldwide that focuses on preventative, predictive and reliability-centered maintenance to provide the greatest readiness at the lowest cost. At the same facilities, we provide cutting edge training to prepare the Warfighter for their mission.
Operations and Logistics: Our capabilities provide government clients with full spectrum support for logistics, infrastructure sustainment and contingency operations, wherever needed. We differentiate ourselves by providing infrastructure operations and sustainment for fixed facilities worldwide that focuses on preventative, predictive and reliability-centered maintenance to deliver the greatest readiness at the lowest cost.
Shreves was Vice President of Business Development/Capture, where he worked to build and execute the Company's organic growth strategy. He joined V2X in October 2017 from SOSi, where he was Vice President of Business Development. Prior to SOSi, he was at DynCorp International where he held multiple leadership positions in the fields of national security and business development.
Prior to joining the Company in 2017, he served as Vice President of Business Development at SOSi and held multiple leadership positions in the fields of national security and business development at DynCorp International. Prior to his commercial career, Mr.
Once deployed, our clients find us in theater to meet them and ensure they are supported logistically with facilities, training ranges / opportunities, logistical support and materials. We also provide commercial training 5 Table of Contents to both large U.S. companies and to foreign governments that leverage state of the art remote learning platforms.
We also provide commercial training to both large U.S. companies and to foreign governments that leverage state of the art remote learning platforms.
Our competitors may consolidate or establish teaming or other relationships among themselves or with third parties to increase their ability to address customers’ needs. Competitive bids for the work that V2X pursues are based on technical qualifications and corporate experience in performing contracts of similar size and scope and can be highly price sensitive.
Competitive bids for the work that V2X pursues are based on technical qualifications and corporate experience in performing contracts of similar size and scope and can be highly price sensitive. While not every contract is procured via selection of the lowest priced bidder, customers are sensitive to cost based on their budget allocations.
Shreves earned a B.S. in Business Administration – Finance from the University of Florida, an M.S. in Administration from Central Michigan University and an M.S. in National Security Studies from the National War College, Fort McNair, Washington DC. Michael J. Smith 42 Vice President of Treasury, Corporate Development, and Investor Relations Mr.
Shreves graduated from the University of Florida where he received a Bachelor of Science degree in Business Administration – Finance, from Central Michigan University with a Master of Science in Administration, and from the National War College, Fort McNair, Washington DC with a Master of Science in National Security Studies. 12 Table of Contents Name Age Current Title(s) Business Experience Michael J.
From January 2021 through January 2023, Ms. Minton-Package was the Senior Vice President of Systems and Technology. From October 2020 to January 2021, Ms. Minton-Package was Senior Vice President, Operational Technology and Enterprise. She is responsible for leading the technology business unit at V2X, growing around applications, network and cyber for military customers.
Minton-Package served as Senior Vice President, Advanced Technology from January 2023 to January 2024, served as the Senior Vice President of Systems and Technology from January 2021 to January 2023, and as Senior Vice President, Operational Technology and Enterprise from October 2020 to January 2021.
Name Age Current Title(s) Business Experience Charles L. Prow 63 President and Chief Executive Officer (CEO), Director Mr. Prow has served as President, CEO and director of the Company since December 2016. Mr. Prow has over thirty years of information technology and federal services experience, including leadership positions at IBM Corporation, PricewaterhouseCoopers, and Coopers & Lybrand.
Information about our Executive Officers The following table sets forth certain information regarding our executive officers, including a five-year employment history and any directorships held in public companies. Name Age Current Title(s) Business Experience Charles L. Prow 64 President and Chief Executive Officer (CEO), Director Mr. Prow has served as President, CEO and director of the Company since December 2016.
We differentiate ourselves through a holistic approach that packages solutions to deliver high consequence training, infrastructure sustainment and integrated logistics that ensures readiness while at home station and mission or contingency support while deployed.
Training Solutions: We deliver full life cycle innovative training solutions to government clients worldwide. We improve client outcomes through a holistic approach that packages training solutions with our Operations and Logistics Solutions ensuring readiness while at home station or while deployed.
Human Capital Management We believe our employees are among our most important resources and are critical to our continued success. On December 31, 2022, we employed approximately 15,400 full-time employees, an increase of 7,300 employees from December 31, 2021 primarily due to the Merger. We also utilized approximately 6,500 subcontract workers, which remained substantially unchanged fr om the prior year.
Human Capital Management We believe our employees are among our most important resources and are critical to our continued success. On December 31, 2023, we employed approximately 16,000 full-time employees. We also utilized approximately 6,200 subcontract workers . As of December 31, 2023, approximat ely 30% of our employees were represented by 46 collective bargaining agreements with labor unions .
In this role, Mr. Shreves is responsible for base operations, logistics, high consequence training and the national security program businesses. From November 2021 to July 2022, he was Senior Vice President, Organic Growth, Operational Enablement and Supply Chain. Prior to this role, Mr.
He is responsible for base operations; logistics; high consequence training; aerospace and defense; modernization and sustainment and the national security program businesses as well as top and bottom line organic growth, strategy, and operational efficiency. Mr.
He led Vencore through a strategic transaction process, resulting in the merger of Vencore with two other companies to create Perspecta, Inc. Mr. Boyle was senior vice president, general counsel and secretary from January 2014 until January 2016 with Alion Science and Technology Corporation, a global engineering and technology solutions company providing services to federal and international customers.
Prior to joining the Company, he served as Senior Vice President, General Counsel and Secretary of Vencore, Inc. from 2017 to 2018 and as Senior Vice President, General Counsel and Secretary of Alion Science and Technology Corporation from 2014 to 2016. Earlier in his career, Mr.
Public Sector business unit. He currently serves on the board of directors for the Professional Services Council, Christian Brothers High School - St. Louis Missouri, and International Research and Exchange Board. Susan D. Lynch 61 Senior Vice President and Chief Financial Officer (CFO) Ms. Lynch has served as Senior Vice President and Chief Financial Officer since August 2019.
Prow served in multiple roles with IBM Corporation, including from 2014 to 2015 as General Manager, Global Government Industry and from 2007 to 2013 as General Manager, Global Business Services. He currently serves on the board of directors for the Professional Services Council, Christian Brothers High School — St. Louis Missouri, and International Research and Exchange Board (IREX). Mr.
Boyle has served as Senior Vice President, Chief Legal Officer, General Counsel and Corporate Secretary since October 2018. Prior to joining V2X, he served as senior vice president, general counsel and secretary of Vencore Holding Corp, a provider of information solutions, cyber security, engineering and analytics for the U.S. government and intelligence community, from March 2017 until June 2018.
Boyle 54 Senior Vice President, Chief Legal Officer, General Counsel and Corporate Secretary Mr. Boyle has served as Senior Vice President, Chief Legal Officer, General Counsel and Corporate Secretary since October 2018. He is responsible for all legal, contracts, ethics and corporate compliance matters, and government relations.
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Significant Acquisitions On December 31, 2020, we acquired Zenetex, LLC (Zenetex) and Higgins, Hermansen, Banikas, LLC (HHB). Zenetex is a leading provider of technical and strategic solutions focused on enabling mission readiness, performance, and enhanced protection for defense and national security clients globally and HHB delivers intelligence community solutions. These solutions were integrated into our existing business as additional services.
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Our nationwide deployment of transportation security equipment includes airports for the Transportation Security Administration and commercial customers as well. We bring cutting edge technological capabilities that support real time decision making and provide clients with tools that work at the speed of their mission. Our engineering and application work includes spectrum deconfliction, digital integration, Smart X engineering and 5G development.
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The purchase prices for the Zenetex and HHB acquisitions of $117.6 million and $15.5 million, respectively, were funded with cash on hand and borrowings under our revolving credit facility. Our Business Strategies Our strategy is designed to deliver growth by providing converged solutions that fuse the digital and physical aspects of our clients' missions.
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At the same facilities where we provide Operations and Logistics Solutions, we provide cutting edge training to prepare the Warfighter for their mission.
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This strategy also supports our goal to be a leader in the operational segment of the broader Federal services market. Our mission focus, innovation, and technology insertion into converged environments allow us to differentiate, drive value and expand client satisfaction across all geographies and client sets.
Added
We treat sales to our U.S. government customers as sales within the U.S. regardless of where the services are performed.
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Aerospace Solutions: We provide the engineering, facilities, and skilled employees required to sustain systems and platforms from cradle to grave.
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From time to time, certain U.S. government work in the U.S. has been restricted to small businesses, including Alaskan native companies. We participate with these small businesses as a subcontractor for select opportunities.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIt is possible that the integration process could result in material challenges, including, without limitation: • the diversion of management’s attention from ongoing business concerns and performance shortfalls at one or both of the companies as a result of the devotion of management’s attention to the Merger; • managing a larger combined company; • the creation of a new executive management team; • maintaining employee morale and retaining key management and other employees; • the possibility of faulty assumptions underlying expectations regarding the integration process; • retaining existing business and operational relationships and attracting new business and operational relationships; • consolidating corporate and administrative infrastructures and eliminating duplicative operations and inconsistencies in standards, controls, procedures and policies; • integrating the companies’ financial reporting and internal control systems, including the Company’s compliance with Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and the rules promulgated thereunder by the SEC; • coordinating geographically separate organizations; • maintaining and protecting the competitive advantages of each of Vectrus and Vertex, including the trade secrets, know-how and intellectual property related to its processes; • unanticipated issues in integrating information technology, communications and other systems; and • unforeseen expenses or delays associated with the Merger.
Biggest changeIt is possible that the integration process could result in material challenges, including, without limitation: • managing a larger combined company; • the creation of a new executive management team; • the possibility of faulty assumptions underlying expectations regarding the integration process including unforeseen expenses; • retaining existing business and operational relationships and attracting new business and operational relationships; • consolidating corporate and administrative infrastructures and eliminating duplicative operations and inconsistencies in standards, controls, procedures and policies; • integrating the companies’ financial reporting and internal control systems, including the Company’s compliance with Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and the rules promulgated thereunder by the SEC; and • unanticipated issues in integrating information technology, communications and other systems.
Because many fixed-price contracts are long-term and may also involve new technologies, unforeseen events, such as technological difficulties, cost fluctuations, significant inflation, problems with suppliers, and cost overruns can result in the contractual price becoming less favorable or even unprofitable to us.
Because many fixed-price contracts are long-term and may also involve new technologies, unforeseen events, such as significant inflation, technological difficulties, cost fluctuations, problems with suppliers, and cost overruns can result in the contractual price becoming less favorable or even unprofitable to us.
Business disruptions caused by natural disasters, pandemics, global hostilities and other crises could adversely affect our profitability and our overall financial position. We have operations located in regions of the U.S. and internationally that may be exposed to natural disasters, such as hurricanes, tornadoes, blizzards, flooding, wildfires or earthquakes.
Business disruptions caused by natural disasters, global hostilities, pandemics, and other crises could adversely affect our profitability and our overall financial position. We have operations located in regions of the U.S. and internationally that may be exposed to natural disasters, such as hurricanes, tornadoes, blizzards, flooding, wildfires or earthquakes.
If our reputation is negatively affected, we may lose our ability to conduct business in a foreign country (e.g., loss of business license), lose a required security clearance, or are suspended or debarred from contracting with government agencies or any branch of the DoD, our revenue and growth prospects could be adversely impacted.
If our reputation is negatively affected, we may lose our ability to conduct business in a foreign country (e.g., loss of business license), lose a required security clearance, or if we are suspended or debarred from contracting with government agencies or any branch of the DoD, our revenue and growth prospects could be adversely impacted.
Although we have implemented policies, procedures and controls and training that are designed to prevent and detect these activities, these precautions may not prevent all misconduct and as a result, we could face unknown risks or losses.
Although we have implemented policies, procedures, controls and training that are designed to prevent and detect these activities, these precautions may not prevent all misconduct and as a result, we could face unknown risks or losses.
Our business may be adversely affected by factors in the U.S. and other countries that are beyond our control, such as disruptions in financial markets or downturns in economic activity in specific countries or regions, or in the various industries in which our company operates; social, political or labor conditions in specific countries or regions; geopolitical conflict or hostilities; or adverse changes in the availability and cost of capital, inflation, interest rates, foreign currency exchange rates, tax rates, or regulations in the jurisdictions in which our company operates.
Our business may be adversely affected by factors in the U.S. and other countries that are beyond our control, such as disruptions in financial markets or downturns in economic activity in specific countries or regions, or in the various industries in which our company operates; social, political or labor conditions in specific countries or regions; geopolitical conflict or global hostilities; or adverse changes in the availability and cost of capital, inflation, interest rates, foreign currency exchange rates, tax rates, or regulations in the jurisdictions in which our company operates.
Some significant statutes and regulations that affect us include: • The FAR and department or agency-specific regulations that implement or supplement the FAR, such as the DoD’s DFARS, which regulate the formation, administration and performance of U.S. government contracts; • The Truth in Negotiations Act, which requires certification and disclosure of cost and pricing data in connection with certain contract negotiations; • The Procurement Integrity Act, which regulates access to competitor bid and proposal information and government source selection information, and our ability to provide compensation to certain former government officials; • The Civil False Claims Act, which provides for substantial civil penalties, including claims for treble damages, for violations, including for submission of a false or fraudulent claim to the U.S. government for payment or approval; • The CTIP Act, which ensures that government contractors and others are fully trained to combat human trafficking pursuant to the National Security Presidential Directive 22; and • The U.S.
Some significant statutes and regulations that affect us include: • The FAR and department or agency-specific regulations that implement or supplement the FAR, such as the DoD’s DFARS, which regulate the formation, administration and performance of U.S. government contracts; 22 Table of Contents • The Truth in Negotiations Act, which requires certification and disclosure of cost and pricing data in connection with certain contract negotiations; • The Procurement Integrity Act, which regulates access to competitor bid and proposal information and government source selection information, and our ability to provide compensation to certain former government officials; • The Civil False Claims Act, which provides for substantial civil penalties, including claims for treble damages, for violations, including for submission of a false or fraudulent claim to the U.S. government for payment or approval; • The CTIP Act, which ensures that government contractors and others are fully trained to combat human trafficking pursuant to the National Security Presidential Directive 22; and • The U.S.
Some of our services, including those using subcontractors, are performed in high-risk locations, including but not limited to, Iraq, certain parts of Africa, and the Middle East, where the country, region or surrounding areas may have unstable governments, or in areas of military conflict, or hostile and unstable environments, including war zones, or at military installations.
Some of our services, including those using subcontractors, are performed in high-risk locations, including but not limited to the Middle East and certain parts of Africa, where the country, region or surrounding areas may have unstable governments, or in areas of military conflict, or hostile and unstable environments, including war zones, or at military installations.
Such factors may have direct bearing on our new business opportunities as well as on whether the U.S. government will exercise its options for services under existing contracts, thus affecting the timing and volume of our business.
Such factors may have a direct bearing on our new business opportunities as well as on whether the U.S. government will exercise its options for services under existing contracts, thus affecting the timing and volume of our business.
We are subject to federal, state, local, and foreign environmental, health and safety laws and regulations, including those governing: air emissions; discharges to water; the management, storage, transportation and disposal of hazardous wastes, petroleum, and other regulated substances; the investigation and cleanup of contaminated property; and the maintenance of a safe and healthy workplace for our employees, contractors, and visitors.
We are subject to federal, state, local, and foreign environmental, health and safety laws and regulations, including those governing: climate change; air emissions; discharges to water; the management, storage, transportation and disposal of hazardous wastes, petroleum, and other regulated substances; the investigation and cleanup of contaminated property; and the maintenance of a safe and healthy workplace for our employees, contractors, and visitors.
Our business operations are also subject to additional risks associated with conducting business internationally, including, without limitation: • Political instability in foreign countries; • Terrorist activity by various groups in the areas in which we operate; • Imposition of inconsistent foreign laws, regulations or policies or changes in or interpretations of such laws, regulations or policies; • Currency exchange controls, fluctuations of currency and foreign exchange rates, and currency revaluations; • Conducting business in places where laws, business practices and customs are unfamiliar or unknown; and • Imposition of limitations on or increases in withholding and other taxes on payments by foreign operations.
Our business operations are also subject to additional risks associated with conducting business internationally, including, without limitation: • Political instability in foreign countries; • Terrorist activity by various groups in the areas in which we operate; • Imposition of inconsistent foreign laws, regulations or policies or changes in or interpretations of such laws, regulations or policies; 18 Table of Contents • Currency exchange controls, fluctuations of currency and foreign exchange rates, and currency revaluations; • Conducting business in places where laws, business practices and customs are unfamiliar or unknown; and • Imposition of limitations on or increases in withholding and other taxes on payments by foreign operations.
As of the date of this Form 10-K, approximately 60.1% of the outstanding shares of our common stock are held by the shareholders party to the Shareholders Agreement. Such shareholders may decide not to hold the shares of our common stock they received upon completion of the Merger.
As of the date of this Form 10-K, approximately 59.1% of the outstanding shares of our common stock are held by the shareholders party to the Shareholders Agreement. Such shareholders may decide not to hold the shares of our common stock they received upon completion of the Merger.
As a result, our failure to maintain adequate safety standards and equipment, as well as the nature of the environment in which we conduct business, could result in environmental disasters, employee deaths or 20 Table of Contents injuries, reduced profitability, or the loss of projects or customers, any of which could have a material adverse impact on our business, financial condition, results of operations and reputation.
As a result, our failure to maintain adequate safety standards and equipment, as well as the nature of the environment in which we conduct business, could result in employee deaths or injuries, environmental disasters, reduced profitability, or the loss of projects or customers, any of which could have a material adverse impact on our business, financial condition, results of operations and reputation.
Our employees, contractors and joint venture partners are subject to confidentiality obligations, but this protection may be inadequate to deter or prevent misappropriation of our confidential information and/or infringement of our intellectual property 27 Table of Contents rights. Further, we may be unable to detect unauthorized use of our intellectual property or otherwise take appropriate steps to enforce our rights.
Our employees, contractors and joint venture partners are subject to confidentiality obligations, but this protection may be inadequate to deter or prevent misappropriation of our confidential information and/or infringement of our intellectual property rights. Further, we may be unable to detect unauthorized use of our intellectual property or otherwise take appropriate steps to enforce our rights.
DoD budgets are a function of a number of factors beyond our control, including, but not limited to, changes in U.S. procurement policies, budget considerations, the federal debt ceiling, current and future economic conditions, presidential administration and congressional priorities, government shutdowns, continuing resolutions, changing national security and defense requirements, geopolitical developments and actual fiscal year congressional appropriations for defense budgets.
Impacts on DoD budgets are a function of many factors beyond our control, including, but not limited to, changes in U.S. procurement policies, budget considerations, the federal debt ceiling, current and future economic conditions, presidential administration and congressional priorities, government shutdowns, continuing resolutions, changing national security and defense requirements, geopolitical developments and actual fiscal year congressional appropriations for defense budgets.
The amount of cash required to pay interest on our increased indebtedness levels following completion of the Merger, and thus the demands on our cash resources, is expected to be greater than the amount of cash flows required to service our indebtedness prior to the Merger.
The amount of cash required to pay interest on our increased indebtedness levels following completion of the Merger, and thus the demands on our cash resources, is greater than the amount of cash flows required to service our indebtedness prior to the Merger.
Given the current rising interest rate environment, if interest rates continue to increase, our debt service obligations on our variable rate indebtedness would increase even though the amount borrowed would remain the same, and our ability to generate cash from operations and other cash flows, including cash available for servicing our indebtedness, would correspondingly decrease.
Given the unpredictable interest rate environment, if interest rates continue to increase, our debt service obligations on our variable rate indebtedness would increase even though the amount borrowed would remain the same, and our ability to generate cash from operations and other cash flows, including cash available for servicing our indebtedness, would correspondingly decrease.
Adverse changes to financial conditions also could jeopardize certain counterparty obligations, including those of our insurers and financial institutions and other third parties. 29 Table of Contents We may not realize as revenue the full amounts reflected in our backlog, which could adversely affect our future revenue and growth.
Adverse changes to financial conditions also could jeopardize certain counterparty obligations, including those of our insurers and financial institutions and other third parties. We may not realize as revenue the full amounts reflected in our backlog, which could adversely affect our future revenue and growth.
In addition, the terms of the agreements governing our current debt limit the payment of dividends and debt that we may incur in the future may also limit the payment of dividends. 31 Table of Contents Anti-takeover provisions in our organizational documents and Indiana law could delay or prevent a change in control.
In addition, the terms of the agreements governing our current debt limit the payment of dividends and debt that we may incur in the future may also limit the payment of dividends. Anti-takeover provisions in our organizational documents and Indiana law could delay or prevent a change in control.
Failure to maintain safe work sites and equipment or effectively respond to the impacts of COVID-19 to our workplaces could result in environmental disasters, employee deaths or injuries, reduced profitability, the loss of projects or customers and possible exposure to litigation.
Failure to maintain safe work sites and equipment or effectively respond to the impacts of pandemics in our workplaces could result in employee deaths or injuries, environmental disasters, reduced profitability, the loss of projects or customers and possible exposure to litigation.
In addition to security threats, we are also subject to other systems failures, including network, software or hardware failures, whether caused by us, third-party service providers, natural disasters, power shortages, terrorist attacks or other events.
In addition to security risks listed, we are also subject to other systems failures, including network, software or hardware failures, whether caused by us, third-party service providers, natural disasters, power shortages, terrorist attacks or other events.
Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, or nature of future offerings.
Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, 27 Table of Contents timing, or nature of future offerings.
We are subject to legal and regulatory compliance risks associated with operating internationally. Our U.S. government contracts operating internationally represented approximately 48% of total revenue for the year ended December 31, 2022. We are subject to a variety of U.S. and foreign laws and regulations, including, without limitation, business compliance, tax and anti-corruption laws, including the U.S.
We are subject to legal and regulatory compliance risks associated with operating internationally. Our U.S. government contracts operating internationally represented approximately 42% of total revenue for the year ended December 31, 2023. We are subject to a variety of U.S. and foreign laws and regulations, including, without limitation, business compliance, tax and anti-corruption laws, including the U.S.
Litigation and other claims are subject to inherent uncertainties and management’s view of these matters may change in the future. Our insurance may be insufficient to protect us from claims or losses.
Litigation and other claims are subject to inherent uncertainties and management’s view of these matters may change in the future. 21 Table of Contents Our insurance may be insufficient to protect us from claims or losses.
Any new contracting requirements or procurement methods could be costly or administratively difficult for us to implement and could adversely affect our future revenue, profitability and prospects. Our business depends upon obtaining and maintaining required facility security clearance and individual security clearances.
Any new contracting requirements or procurement methods could be costly or administratively difficult for us to implement and could adversely affect our future revenue, profitability and prospects. 23 Table of Contents Our business depends upon obtaining and maintaining required facility security clearance and individual security clearances.
We face an added risk of a security breach or other significant disruption of our information technology systems and related systems that we develop, install, operate and maintain for certain of our customers, which may involve managing and protecting information relating to national security and other sensitive government functions or personally identifiable or protected health information.
We face an added risk of a security event or other significant disruption of our information technology systems and related systems that we develop, install, operate and maintain for our customers, which may involve managing and protecting controlled unclassified information relating to national security and other sensitive government functions or personally identifiable or protected health information.
As of December 31, 2022, our total backlog was $12.3 billion, which included $2.6 billion in funded backlog. We may not realize the full amount of our backlog as revenue, particularly unfunded backlog and future services where the customer has an option to decline our continued services under a contract.
As of December 31, 2023, our total backlog was $12.8 billion, which included $2.8 billion in funded backlog. We may not realize the full amount of our backlog as revenue, particularly unfunded backlog and future services where the customer has an option to decline our continued services under a contract.
Such events could disrupt our operations or those of our customers or third parties on which we rely, including through direct damage to assets and indirect impacts from supply chain disruption and market volatility.
Such events could disrupt our operations or those of our customers or third parties on which we rely, including through direct damage to assets and indirect impacts from supply chain disruption and market volatility. We rely on our information and communications systems in our operations.
If our employees are unable to obtain or retain security clearances or if our employees who hold security clearances terminate employment with us, our ability to perform the work under the contract may be negatively affected, and the customer whose work requires cleared employees could terminate the contract or decide not to renew it upon its expiration.
If our employees are unable to obtain or maintain security clearance eligibility or if our employees who hold security clearance eligibility terminate employment with us, our ability to perform the work under the contract may be negatively affected, and the customer whose work requires cleared employees could terminate the contract or decide not to renew it upon its expiration.
Our variable rate indebtedness may expose us to interest rate risks, which could cause our debt costs to increase significantly. Borrowing under the secured credit facilities are at variable rates of interest and will expose us to interest rate risk. As of December 31, 2022, we had approximately $1,336.8 million of aggregate debt outstanding under our secured credit facility.
Our variable rate indebtedness may expose us to interest rate risks, which could cause our debt costs to increase significantly. Borrowing under the secured credit facilities are at variable rates of interest and will expose us to interest rate risk. As of December 31, 2023, we had approximately $1,154.2 million of aggregate debt outstanding under our secured credit facility.
Our earnings and margins depend, in part, on subcontractor performance. We rely on third-party subcontractors to perform some of the services that we provide to our customers. Disruptions or performance problems caused by our subcontractors could have an adverse effect on our ability as a prime contractor or higher tier subcontractor to meet our commitments to customers.
We rely on third-party subcontractors to perform some of the services that we provide to our customers. Disruptions or performance problems caused by our subcontractors could have an adverse effect on our ability as a prime contractor or higher tier subcontractor to meet our commitments to customers.
In addition, we may protest the contract awards of our competitors when we believe it is prudent to do so to protect our rights and interest in the competition. This process requires the time, effort and attention of our management and employees and incurs additional costs.
We cannot predict the timing or outcome of protests. In addition, we may protest the contract awards of our competitors when we believe it is prudent to do so to protect our rights and interest in the competition. This process requires the time, effort and attention of our management and employees and incurs additional costs.
Furthermore, the actual receipt of revenue from contracts included in our backlog may never occur or may be delayed because: • a program schedule could change, or the program could be canceled; a contract’s funding or scope could be reduced, modified, delayed, or terminated early, including as a result of a lack of appropriated funds or as a result of cost cutting initiatives and other efforts to reduce U.S. government spending or the automatic federal defense spending cuts required by sequestration; • in the case of funded backlog, the period of performance for the contract has expired; or • in the case of unfunded backlog, funding may not be available; or, in the case of priced options, our clients may not exercise their options.
Furthermore, the actual receipt of revenue from contracts included in our backlog may never occur or may be delayed because: • a program schedule could change, or the program could be canceled; a contract’s funding or scope could be reduced, modified, delayed, or terminated early, including as a result of a lack of appropriated funds or as a result of cost cutting initiatives and other efforts to reduce U.S. government spending or the automatic federal defense spending cuts required by sequestration; • in the case of funded backlog, the period of performance for the contract has expired; or • in the case of unfunded backlog, funding may not be available; or, in the case of priced options, our clients may not exercise their options. 26 Table of Contents Unanticipated changes in our tax provisions or exposure to additional U.S. and foreign tax liabilities could affect our profitability.
Our business could also be disrupted by pandemics, including as a result of COVID-19, and other national or international crises, such as the war in Ukraine. Although preventative measures may help mitigate the damage from such occurrences, impacts on our supply chain and the damage and disruption to our business resulting from any of these events may be significant.
Our business could also be disrupted by national or international crises or hostilities and pandemics, such as COVID-19. Although preventative measures may help mitigate the damage from such occurrences, impacts on our supply chain and the damage and disruption to our business resulting from any of these events may be significant.
If these implementation activities are not executed successfully or if we encounter significant delays in our implementation efforts, we could experience interruptions to our business processes. Under certain contracts with the U.S. 22 Table of Contents government, the adequacy of our business processes and related systems could be called into question.
If these implementation activities are not executed successfully or if we encounter significant delays in our implementation efforts, we could experience interruptions to our business processes. Under certain contracts with the U.S. government, the adequacy of our business processes and protections of controlled unclassified information on related systems could be called into question.
We derive all or most of our revenue from work performed under U.S. government contracts, primarily the DoD, either as a prime contractor or as a subcontractor to other contractors engaged in work for the U.S. government. For the year ended December 31, 2022, we generated approximately 46% of our total revenue from the U.S. Army.
We derive a substantial majority of our revenue from work performed under U.S. government contracts, primarily the DoD, either as a prime contractor or as a subcontractor to other contractors engaged in work for the U.S. government. For the year ended December 31, 2023, we generated approximately 41% of our total revenue from the U.S. Army.
As a U.S. government contractor, we are also subject to regulatory compliance requirements under the DFARS and other federal regulations that require our IT systems to comply with the security and privacy controls in National Institute of Standards and Technology Special Publication 800-171 (NIST 800-171).
As a U.S. government contractor, we are also subject to regulatory compliance requirements under DFARS and other federal regulations that require our IT systems to comply with the security and privacy controls such as the National Institute of Standards and Technology Special Publication 800-171 (NIST 800-171). We may also be responsible if our subcontractors do not comply with these requirements.
Indiana law also imposes restrictions on mergers and other business combinations between any beneficial holder of 10% or more of our outstanding common stock and us. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Indiana law also imposes restrictions on mergers and other business combinations between any beneficial holder of 10% or more of our outstanding common stock and us.
Any of the foregoing could materially adversely affect our business, financial condition or results of operations, and our insurance and other risk mitigation mechanisms may not be sufficient to recover the costs.
Any of the foregoing could materially and adversely affect our business, financial condition or operations, and our insurance and other risk mitigation mechanisms may not be sufficient to recover the costs. Our contract sites are inherently dangerous workplaces.
Certain collective bargaining agreements require us to contribute to their various multiemployer pension plans. For the year ended December 31, 2022, we contributed $6.3 million to multiemployer pension plans.
Certain collective bargaining agreements require us to contribute to their various multiemployer pension plans. For the year ended December 31, 2023, we contributed $12.9 million to multiemployer pension plans.
As of December 31, 2022, we had approximately $1,336.8 million of aggregate debt outstanding, which consists of the First Lien Term Facility, the Second Lien Term Facility and the ABL Facility (See Note 10, Debt, in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K).
As of December 31, 2023, we had approximately $1,154.2 million of aggregate debt outstanding, which consists of the First Lien Term Facility and the 2023 Revolver and Term Loan (See Note 10, Debt, in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K).
Many of our federal government contracts require our employees to maintain various levels of security clearances complying with U.S. government requirements. Obtaining and maintaining security clearances for employees involves a lengthy process and it can be difficult to identify, recruit and retain employees who already hold security clearances.
Many of our federal government contracts require our employees to maintain various levels of security clearance eligibility and access in compliance with U.S. government requirements. Obtaining and maintaining security clearance eligibility involves a lengthy process and it can be difficult to identify, recruit and retain employees who already hold or meet security clearance eligibility.
Such transactions may dilute our earnings per share, disrupt our ongoing business, distract our management and employees, increase our expenses, perform poorly, subject us to liabilities, and increase our risk of litigation, all of which could harm our business.
Such transactions may dilute our earnings per share, disrupt our ongoing business, distract our management and employees, increase our expenses, perform poorly, subject us to liabilities, and increase our risk of litigation, all of which could harm our business. We depend on our teaming arrangements and relationships with other contractors.
We utilize, develop, install and maintain a number of information technology systems both for us and for our customers. Additionally, we utilize and rely on external systems maintained by our service providers.
We utilize, develop, install and maintain a number of information technology systems both for us and for our customers. Additionally, we utilize and rely on external systems maintained by our service providers, including using a managed service provider (MSP) to administer our systems and servers.
We may in the future enter into interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce future interest rate volatility of our variable rate indebtedness.
To reduce interest expense volatility, we entered into $350.0 million of interest rate swaps during 2023. We may in the future enter into additional interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce future interest rate volatility of our variable rate indebtedness.
Termination, expiration or non-renewal of our existing U.S. government contracts may adversely affect our business. The U.S. government services marketplace is characterized by contracts of shorter duration as compared to large production and systems integration programs. U.S. government services contracts generally are of a finite duration of five years and usually range between three and ten years.
The U.S. government services marketplace is characterized by contracts of shorter duration as compared to large production and systems integration programs. U.S. government services contracts generally are of a finite duration of five years and usually range between three and ten years.
The Merger involves the integration of Vertex’s business with our legacy business, which is a complex, costly and time-consuming process. Furthermore, Vertex’s current process of integrating its Defense Training and Mission Critical Services business, which still relies on certain operating and support services from Raytheon Company, could further increase the complexity and costs of integrating Vertex’s businesses following the Merger.
Furthermore, Vertex’s current process of integrating its Defense Training and Mission Critical Services business, which still relies on certain operating and support services from Raytheon Company, could further increase the complexity and costs of integrating Vertex’s businesses following the Merger.
If we are found to have violated any of these or other laws or regulations, or are found not to have acted responsibly as defined by them, we may be subject to reductions of the value of contracts; contract modifications or terminations; the assessment of penalties and fines, compensatory damages or treble damages; or suspension or debarment from government contracting or subcontracting, any of which could have a material adverse effect on our financial position, results of operations, or cash flows. 26 Table of Contents Our business is subject to audits, reviews, cost adjustments, and investigations by the U.S. government, which, if resolved unfavorably to us, could adversely affect our profitability, cash position or growth prospects.
If we are found to have violated any of these or other laws or regulations, or are found not to have acted responsibly as defined by them, we may be subject to reductions of the value of contracts; contract modifications or terminations; the assessment of penalties and fines, compensatory damages or treble damages; or suspension or debarment from government contracting or subcontracting, any of which could have a material adverse effect on our financial position, results of operations, or cash flows.
Depending on the nature of the initiative, such failure could result in loss of revenues, product development delays, compromise, corruption or loss of confidential, proprietary or sensitive information (including personal information or technical business information), remediation costs, indemnity obligations and other potential liabilities, regulatory or government action, breach of contract claims, contract termination, class action or individual lawsuits from affected parties, negative media attention, reputational damage, and loss of confidence from our government clients.
Such delays, failures, or impacts from security events or disruptions described above, could result in loss of revenues, product development delays, compromise, corruption or loss of confidential, proprietary or sensitive information (including personal information or controlled unclassified information), remediation costs, indemnity obligations and other potential liabilities, regulatory or government action, breach of contract claims, contract termination, class action or individual lawsuits from affected parties, negative media attention, reputational damage, and loss of confidence from our government clients.
The market price of our common stock has been, and is likely to continue to be, highly volatile due to a number of factors, including the volatility of the stock market in general and uncertainty related to major contract awards, such as our LOGCAP V Award.
The market price of our common stock has been, and is likely to continue to be, highly volatile due to a number of factors, including the volatility of the stock market in general, uncertainty related to major contract awards, the budgetary and political climate, and overall trading liquidity.
If any of our third-party insurers fail, cancel our coverage or otherwise are unable to provide us with adequate insurance coverage, then our overall risk 25 Table of Contents exposure and our operational expenses would increase, and the management of our business operations would be disrupted.
If any of our third-party insurers fail, cancel our coverage or otherwise are unable to provide us with adequate insurance coverage, then our overall risk exposure and our operational expenses would increase, and the management of our business operations would be disrupted. Our insurance may be insufficient to protect us from significant warranty and other liability claims or losses.
Vertex Aerospace Holdco LLC, a Delaware limited liability company (Vertex Holdco), an affiliate of American Industrial Partners Capital Fund VI, L.P., a Delaware limited partnership and private equity fund affiliated with American Industrial Partners, owns approximately 62.25% of the fully diluted shares of the common stock of the Company.
As of December 31, 2023, Vertex Aerospace Holdco LLC, a Delaware limited liability company (Vertex Holdco), an affiliate of American Industrial Partners Capital Fund VI, L.P., a Delaware limited partnership and private equity fund affiliated with American Industrial Partners, owns approximately 59.3% of the issued and outstanding shares of the common stock of the Company.
A significant deficiency as defined by the DoD is a “shortcoming in the system that materially affects the ability of officials of the DoD to rely upon information produced by the system that is needed for management purposes.” If we have significant deficiencies and contract payments are withheld, our revenue and financial position may be adversely affected.
A significant deficiency as defined by the DoD is a “shortcoming in the system that materially affects the ability of officials of the DoD to rely upon information produced by the system that is needed for management purposes.” If we have significant deficiencies and contract payments are withheld, our revenue and financial position may be adversely affected. 24 Table of Contents We are subject to certain data privacy regulations, which expose us to certain risks if we do not comply with these requirements.
In addition, our profitability is affected by how efficiently we utilize our workforce, including our ability to transition employees from completed contracts to new assignments; to hire and assimilate new employees; to hire personnel in or timely deploy expatriates to foreign countries; to manage attrition and a subcontractor workforce; and to devote time and resources to training, business development, professional development and other non-chargeable activities.
In addition, our profitability is affected by how efficiently we utilize our workforce, including our ability to transition employees from completed contracts to new assignments; to hire and assimilate new employees; to hire personnel in or timely deploy expatriates to foreign countries; to manage attrition and a subcontractor workforce; and to devote time and resources to training, business development, professional development and other non-chargeable activities. 13 Table of Contents We may not be successful in winning new contracts or recompeting our existing contracts, which could have an adverse impact on our business and prospects.
Risks Related to Our Indebtedness, Financial Condition and Markets • In connection with the Merger, we assumed significantly more indebtedness than V2X's prior indebtedness.
A failure to comply with these requirements could negatively impact our business and financial condition. RISKS RELATED TO OUR INDEBTEDNESS, FINANCIAL CONDITION AND MARKETS In connection with the Merger, we assumed significantly more indebtedness than V2X's prior indebtedness.
Our insurance may be insufficient to protect us from significant warranty and other liability claims or losses. Moreover, there is a risk that commercially available liability insurance will not continue to be available to us at a reasonable cost, if at all.
Moreover, there is a risk that commercially available liability insurance will not continue to be available to us at a reasonable cost, if at all. If liability claims or losses exceed our current or available insurance coverage, our business and prospects may be harmed.
Our project sites often put our employees and others in close proximity with mechanized equipment, moving vehicles, and highly regulated materials. Additionally, the COVID-19 pandemic has introduced additional risks to our worksites, which require additional policies and procedures.
Our project sites often put our employees and others in close proximity with mechanized equipment, moving vehicles, and highly regulated materials. Additionally, global pandemics, such as COVID-19, could introduce additional risks to our worksites requiring additional policies and procedures.
Many of the systems and networks that we develop, install and maintain for our customers involve managing and protecting personal information and information relating to national security and other sensitive government functions.
Many of the systems and networks that we develop, install and maintain for our customers involve managing and protecting personal information and information relating to national security and other sensitive government functions. The collection and use of personal data is subject to various U.S. federal and state privacy and data security laws and regulations.
Competition within our markets may reduce our revenue and market share. Our business is highly competitive, and we compete with larger companies that have greater name recognition, greater financial resources, and larger technical staff, as well as companies with a competitive advantage due to a small business designation.
Our business is highly competitive, and we compete with larger companies that have greater name recognition, greater financial resources, and larger technical staff, as well as companies with a competitive advantage due to a small business designation. Within our industry, companies have engaged in mergers and acquisitions to increase their competitive position.
If we engage in such 24 Table of Contents transactions, we may incur significant transaction and integration costs and have difficulty integrating personnel, operations, products or technologies or otherwise realizing synergies or other benefits from the transactions.
If we engage in such transactions, we may incur significant transaction and integration costs and have difficulty integrating personnel, operations, products or technologies or otherwise realizing synergies or other benefits from the transactions. The integration process could result in the loss of key employees, loss of key customers, loss of key vendors, decreases in revenue and increases in operating costs.
Additionally, changes in the geographic mix of our revenue, including certain additional foreign taxes resulting from the Merger, could also impact our tax liabilities and affect our overall tax expense and profitability. The effects of changes in worldwide economic and capital markets conditions may significantly affect our ability to maintain liquidity or procure capital.
Additionally, changes in the geographic mix of our revenue, including certain additional foreign taxes resulting from the Merger, could also impact our tax liabilities and affect our overall tax expense and profitability.
The loss or material reduction of any of these contracts could have a material adverse effect on our revenue, results of operations and cash flows. See "Significant Contracts" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, in this Annual Report on Form 10-K.
The loss or material reduction of any of these contracts could have a material adverse effect on our revenue, results of operations and cash flows. See "Item 7.
A reduction in 19 Table of Contents U.S. government defense spending, changing defense spending priorities or delays in contract or task order awards could potentially reduce our future revenue, earnings and cash flow and have a material impact on our business.
A reduction in U.S. government defense spending, changing defense spending priorities or delays in contract or task order awards could potentially reduce our future revenue, earnings and cash flow and have a material impact on our business. We depend on the collection of our receivables to generate cash flow, provide working capital, pay debt and continue our business operations.
We could be liable for both our obligations and those of our partners, which may result in reduced profits or, in some cases, significant losses on the project. Additionally, these factors could have a material adverse effect on the business operations of the joint venture and, in turn, our business operations and reputation.
We could be liable for both our obligations and those of our partners, which may result in reduced profits or, in some cases, significant losses on the project.
Uncertainties in the U.S. government defense budget, changes in spending or budgetary priorities or delays in contract awards may significantly and adversely affect our future revenue and limit our growth prospects. Our contracts and revenue primarily depend upon the U.S. DoD budget, which is subject to the congressional budget authorization and appropriations process and is difficult to predict. The U.S.
Uncertainties in the U.S. government defense budget, changes in spending or budgetary priorities or delays in contract awards or collection of our receivables may significantly and adversely affect our financial performance and limit our growth prospects. Our contracts and revenue primarily depend upon the U.S.
Cost-reimbursable contracts generally have lower profitability than firm-fixed-price contracts. Our profitability is adversely affected when we incur contract costs that we cannot bill to our customers. Profitability also may be adversely affected during the start of a new contract due to initial spending necessary to successfully complete phase-in requirements.
The Company’s earnings and profitability may vary materially depending on significant changes to the total mix of contracts. Our profitability is adversely affected when we incur contract costs that we cannot bill to our customers. Profitability also may be adversely affected during the start of a new contract due to initial spending necessary to successfully complete phase-in requirements.
If we are unable to consistently win new contract awards, or successfully recompete our existing contracts, our business and prospects will be adversely affected, and our actual results may differ materially and adversely from those anticipated. Our earnings and margins may vary based on the mix of our contracts, our performance, and our ability to control costs.
If we are unable to consistently win new contract awards, or successfully recompete our existing contracts, our business and prospects will be adversely affected, and our actual results may differ materially and adversely from those anticipated. Termination, expiration or non-renewal of our existing U.S. government contracts may adversely affect our business.
Failure to obtain DBA insurance may result in fines or other sanctions, including the loss of a particular contract. There is a rapidly evolving awareness and focus from stakeholders with respect to environmental, social and governance practices, which could affect our business. Stakeholder expectations with respect to environmental, social and governance matters have been rapidly evolving and increasing.
There is a rapidly evolving awareness and focus from stakeholders with respect to environmental, social and governance practices, which could affect our business. Stakeholder expectations with respect to environmental, social and governance matters have been rapidly evolving and increasing.
In addition, our failure to satisfy customer expectations or contract requirements may result in reduced fees or claims made against us by our customers and may affect our financial performance.
To varying degrees, each of our contract types involves risk that we could underestimate the costs and resources necessary to fulfill the contract. In addition, our failure to satisfy customer expectations or contract requirements may result in reduced fees or claims made against us by our customers and may affect our financial performance.
Congress usually appropriates funds for a given program on a September 30 fiscal year basis, even though contract periods of performance may extend over many years.
DoD budget, which is subject to the congressional budget authorization and appropriations process and is difficult to predict. The U.S. Congress usually appropriates funds for a given program on a September 30 fiscal year basis, even though contract periods of performance may extend over many years.
In addition, the presence of unions may limit our flexibility in managing our workforce. Work stoppages by our union employees or implementation of a work stoppage contingency plan could negatively impact our ability to provide services to our customers on a timely basis, which could in turn negatively impact our results of operations and financial condition.
Labor actions, work stoppages or the threat of work stoppages by our union employees or implementation of a work stoppage contingency plan, and our failure to obtain favorable labor contract terms during negotiations, may disrupt our operations, negatively impact our ability to provide services to our customers on a timely basis, and result in higher labor costs, which could in turn negatively impact our reputation, results of operations and financial condition.
RISKS RELATED TO OUR INDEBTEDNESS, FINANCIAL CONDITION AND MARKETS In connection with the Merger, we assumed significantly more indebtedness than V2X's prior indebtedness. Our level of indebtedness and our ability to make payments on or service our indebtedness could adversely affect our business, financial condition, results of operations, cash flow and liquidity.
Our level of indebtedness and our ability to make payments on or service our indebtedness could adversely affect our business, financial condition, results of operations, cash flow and liquidity.
Cybersecurity threats are significant and evolving and include, among others, malicious software, attempts to gain unauthorized access to data, and other electronic security breaches that could lead to disruptions in mission critical systems, unauthorized release of confidential or otherwise protected information and corruption of data.
Cybersecurity risks are significant and continue to evolve. They include, among others, phishing attempts, ransomware, malware and zero-day attacks attempting to gain unauthorized access to systems or data. Other electronic security events could lead to disruptions in mission critical systems, unauthorized release of personal identifiable information, confidential or otherwise protected unclassified information and corruption of data.
We generate revenue under various types of contracts, which include cost-plus, cost-reimbursable (including non-fee-bearing costs) and firm-fixed-price.
Our earnings and margins may vary based on the mix of our contracts, our performance, and our ability to control costs. We generate revenue under various types of contracts, which include cost-plus, cost-reimbursable (including non-fee-bearing costs), firm-fixed-price and time-and-materials.
Within our industry, companies have engaged in mergers and acquisitions to increase their competitive position. Our competitors may provide our customers with different or greater capabilities or better contract terms than we can provide, including past contract experience, geographic presence, price, and the availability of qualified professional personnel.
Our competitors may provide our customers with different or greater capabilities or better contract terms than we can provide, including past contract experience, geographic presence, price, and the availability of qualified professional personnel. In addition, our competitors may consolidate or establish teaming or other relationships among themselves or with third parties to increase their ability to address customers’ needs.
It can take a significant amount of time to resolve contract 21 Table of Contents protests and, in the interim, the contracting U.S. federal agency may suspend our performance under the contract pending the outcome of the protest. We cannot predict the timing or outcome of protests.
Any such protest or challenge could result in the resubmission of bids on modified specifications, or in the termination, reduction or modification of the awarded contract. It can take a significant amount of time to resolve contract protests and, in the interim, the contracting U.S. federal agency may suspend our performance under the contract pending the outcome of the protest.
These activities may involve substantial risks to our ongoing business processes including, but not limited to, accurate and timely customer invoicing, employee payroll processing, supplier and vendor payment processing, supply chain management and financial reporting.
We also contract with Software-as-a-Service (SaaS) providers to provide core company services such as for enterprise resource planning, human capital management, and contract lifecycle management. These activities may involve substantial risks to our ongoing business processes including, but not limited to, accurate and timely customer invoicing, employee payroll processing, supplier and vendor payment processing, supply chain management and financial reporting.
Because of this volatility, investors in our stock may experience a decline in the value of their investment or may not be able to sell their common stock at or above the price paid for the shares. 30 Table of Contents Any future offerings of securities, including debt or preferred stock, which would be senior to our common stock, or other equity securities may materially and adversely affect us or our shareholders, including the per share trading price of our common stock.
Any future offerings of securities, including debt or preferred stock, which would be senior to our common stock, or other equity securities may materially and adversely affect us or our shareholders, including the per share trading price of our common stock.
In addition, pursuit of these REAs and claims can require significant time and additional costs, including legal fees and expenses, and there is no guarantee that such actions would ultimately be successful. 18 Table of Contents Given the current pace of inflation and other geopolitical factors, we are monitoring the impact of rising costs on our active and future government contracts.
In addition, pursuit of these REAs and claims can require significant time and additional costs, including legal fees and expenses, and there is no guarantee that such actions would ultimately be successful.
In addition, many of the contracts on which we bid require us to maintain a facility security clearance. To the extent we are not able to maintain a facility security clearance, we may not be able to bid on or win new contracts, or effectively re-bid on expiring contracts.
To the extent we are not able to maintain a facility security clearance, we may not be able to bid on or win new contracts, or effectively re-bid on expiring contracts. As a U.S. defense contractor, we are subject to security restrictions, which may limit investor insight into portions of our business.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur McLean, Colorado Springs and Madison offices are leased and have approximately 24,400, 65,000 and 164,000 square feet, respectively. The leases for our McLean, Colorado Springs and Madison offices expire in 2032, 2028 and 2030, respectively. We consider the properties that we lease to be in good condition and generally suitable for the purposes for which they are used.
Biggest changeOur McLean, Colorado Springs, Madison and Indianapolis locations are leased and have approximately 24,400, 65,000 164,000, and 900,000 square feet, respectively. The leases for our McLean, Colorado Springs, Madison, and Indianapolis locations expire in 2032, 2028, 2030 and 2026, respectively.
ITEM 3 . LEGAL PROCEEDINGS From time to time, we are party to various investigations, lawsuits, arbitration, claims, enforcement actions and other legal proceedings including government investigations and claims, which are incidental to the operation of our business.
LEGAL PROCEEDINGS From time to time, we are party to various investigations, lawsuits, arbitration, claims, enforcement actions and other legal proceedings including government investigations and claims, which are incidental to the operation of our business.
ITEM 2. PROPERTIES We have 343 locations in 45 countries and territories on six continents. Our contract performance typically occurs on the government customer’s facility.
ITEM 2. PROPERTIES We have 322 locations in 51 countries and territories on six continents. Our contract performance typically occurs on the government customer’s facility.
Our material locations are the corporate headquarters office located at 7901 Jones Branch Drive, McLean, Virginia, an operations office located at 2424 Garden of the Gods Road, Colorado Springs, Colorado, and an operations office at 555 Industrial Drive, Madison, Mississippi. These properties are used by our sole operating segment.
Our material locations are the corporate headquarters office located at 7901 Jones Branch Drive, McLean, Virginia and operations offices located at: 2424 Garden of the Gods Road, Colorado Springs, Colorado; 555 Industrial Drive, Madison, Mississippi; and 6125 East 21st Street, Indianapolis, Indiana. These properties are used by our sole operating segment.
Added
We consider the properties that we lease to be in good condition and generally suitable for the purposes for which they are used. ITEM 3 .

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeEQUITY COMPENSATION PLAN INFORMATION For a discussion of the securities authorized under our equity compensation plans, see Item 12 of this Annual Report on Form 10-K, which incorporates by reference the information to be disclosed in our definitive proxy statement for our 2023 Annual Meeting of Shareholders.
Biggest changeEQUITY COMPENSATION PLAN INFORMATION For a discussion of the securities authorized under our equity compensation plans, see Item 12 of this Annual Report on Form 10-K, which incorporates by reference the information to be disclosed in our definitive proxy statement for our 2024 Annual Meeting of Shareholders. RECENT SALES OF UNREGISTERED SECURITIES None.
The graph assumes that $100 had been invested in V2X common stock, the Russell 2000 Index and the S&P Aerospace & Defense Select Industry Index on December 31, 2017 and that all dividends were reinvested. ITEM 6. SELECTED FINANCIAL DATA Reserved
The graph assumes that $100 had been invested in V2X common stock, the Russell 2000 Index and the S&P Aerospace & Defense Select Industry Index on December 31, 2018 and that all dividends were reinvested. ITEM 6. SELECTED FINANCIAL DATA Reserved.
STOCK PERFORMANCE GRAPH The following graph provides a comparison of the cumulative total shareholder return of our common stock to the returns of the Russell 2000 Index and the S&P Aerospace & Defense Select Industry Index from December 31, 2014 through December 31, 2022 with data points as of December 31 for the years shown.
STOCK PERFORMANCE GRAPH The following graph provides a comparison of the cumulative total shareholder return of our common stock to the returns of the Russell 2000 Index and the S&P Aerospace & Defense Select Industry Index from December 31, 2018 through December 31, 2023 with data points as of December 31 for the years shown.
As of February 28, 2023, there were approximately 3,899 s tockholders of record an d 30.9 million outstanding shares of common stock. To date, we have not declared or paid any dividends on our common stock.
As of February 26, 2024, there were approximately 3,629 s tockholders of record an d 31.3 million outstanding shares of common stock. To date, we have not declared or paid any dividends on our common stock.
RECENT SALES OF UNREGISTERED SECURITIES None ISSUER PURCHASES OF EQUITY SECURITIES We did not repurchase any of our equity securities for the year ended December 31, 2022.
ISSUER PURCHASES OF EQUITY SECURITIES We did not repurchase any of our equity securities for the year ended December 31, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe information provided above does not represent a complete list of trends and unc ertainties that could impact our business in either the near or long-term and should be considered along with the risk factors identified under the caption “Risk Factors” identified in Part 1, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2022 and the matters identified under the caption “Forward-Looking Statement Information" herein. 37 Table of Contents DISCUSSION OF FINANCIAL RESULTS Year ended December 31, 2022, compared to Year ended December 31, 2021 Selected financial highlights are presented in the table below: Year Ended December 31, Change (In thousands) 2022 2021 $ % Revenue $ 2,890,860 $ 1,783,665 $ 1,107,195 62.1 % Cost of revenue 2,595,848 1,623,245 972,603 59.9 % % of revenue 89.8 % 91.0 % Selling, general and administrative expenses 239,241 98,400 140,841 143.1 % % of revenue 8.3 % 5.5 % Operating income 55,771 62,020 (6,249) (10.1) % Operating margin 1.9 % 3.5 % Interest expense, net (61,879) (7,985) (53,894) 674.9 % (Loss) income before taxes (6,108) 54,035 (60,143) (111.3) % % of revenue (0.2) % 3.0 % Income tax expense 8,222 8,307 (85) (1.0) % Effective income tax rate (134.6) % 15.4 % Net (loss) income $ (14,330) $ 45,728 $ (60,058) (131.3) % Revenue Our revenue increased by $1,107.2 million, or 62.1%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.
Biggest changeThe information provided above does not represent a complete list of trends and uncertainties that could impact our business in either the near or long-term and should be considered along with the risk factors identified under the caption “Risk Factors” identified in Part 1, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2023 and the matters identified under the caption “Forward-Looking Statement Information" herein. 35 Table of Contents DISCUSSION OF FINANCIAL RESULTS Selected financial highlights are presented in the table below: Year Ended December 31, Change (In thousands) 2023 2022 $ % Revenue $ 3,963,126 $ 2,890,860 $ 1,072,266 37.1 % Cost of revenue 3,628,271 2,595,848 1,032,423 39.8 % % of revenue 91.6 % 89.8 % Selling, general and administrative expenses 210,439 239,241 (28,802) (12.0) % % of revenue 5.3 % 8.3 % Operating income 124,416 55,771 68,645 123.1 % Operating margin 3.1 % 1.9 % Loss on extinguishment of debt (22,298) — (22,298) * Interest expense, net (122,442) (61,879) (60,563) 97.9 % Other expense, net (4,194) — (4,194) * Loss before taxes (24,518) (6,108) (18,410) 301.4 % % of revenue (0.6) % (0.2) % Income tax (benefit) expense (1,945) 8,222 (10,167) (123.7) % Effective income tax rate 7.9 % (134.6) % Net loss $ (22,573) $ (14,330) $ (8,243) 57.5 % *Percentage change is not meaningful.
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 regarding forward-looking statements.
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.
Merger with Vertex For a discussion of our Merger and related debt and stock-based compensation obligations, see Note 3, Merger and Acquisitions , Note 10, Debt and Note 16, Stock Based Compensation, in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
Merger with Vertex For a discussion of our Merger and related debt and stock-based compensation obligations, see Note 3, Merger , Note 10, Debt and Note 16, Stock-Based Compensation, in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
Amounts representing contract change orders or limitations in funding on contracts are recorded only if it is probable the claim will result in additional contract revenue and the amounts can be reliably estimated.
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.
Our 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'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.
We recognize revenue over time using the input method (e.g., costs incurred to date relative to total estimated costs at completion) to measure 41 Table of Contents progress. Our over time recognition is reinforced by the fact that our customers simultaneously receive and consume the benefits of our services as they are performed.
We recognize revenue over time using the input method (e.g., costs incurred to date relative to total estimated costs at completion) to measure progress. Our over time recognition is reinforced by the fact that our customers simultaneously receive and consume the benefits of our services as they are performed.
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,” 33 Table of Contents “expect,” “intend,” “estimate,” “anticipate,” “believe,” “could,” “potential,” “continue” or similar terminology.
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.
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. Revenue Recognition We account for revenue following the guidance in Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (Topic 606).
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. 39 Table of Contents Revenue Recognition We account for revenue following the guidance in Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (Topic 606).
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. Such incentive fee awards or penalties are included in revenue when there is sufficient information to reasonably assess anticipated contract performance.
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.
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 34 Table of Contents percentage of completion.
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.
The increase in the effective income tax rate for the year ended December 31, 2022 compared to the year ended December 31, 2021 was due to increased non-deductible compensation, non-deductible transaction costs, foreign tax expenses, and state income tax expense which were partially offset by the release of prior year uncertain tax position and current year Foreign Derived Intangible Income (FDII) Deduction.
The effective income tax rate for the year ended December 31, 2022 was due to increased non-deductible compensation, non-deductible transaction costs, foreign tax expenses, and state income tax expense which were partially offset by the release of prior year uncertain tax position and current year Foreign Derived Intangible Income (FDII) deduction.
For 2022 and 2021, we used the qualitative approach to assess goodwill for impairment. No impairment charges related to goodwill were recorded during 2022 and 2021.
For 2023 and 2022, we used the qualitative approach to assess goodwill for impairment. No impairment charges related to goodwill were recorded during 2023 and 2022.
If we elect to perform a qualitative assessment and determine that an impairment is more likely than not, we then perform a 42 Table of Contents quantitative impairment test as described below. Otherwise, no further analysis is required. We also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test.
If we elect to perform a qualitative assessment and determine that an impairment is more likely than not, we then perform a quantitative impairment test as described below. Otherwise, no further analysis is required. We also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test.
As a defense contractor engaging in long-term contracts, substantially all of our revenue is derived from long-term service contracts. The unit of account for revenue in ASC Topic 606 is a performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer.
As a defense contractor engaging in long-term contracts, the substantial majority of our revenue is derived from long-term service contracts. The unit of account for revenue in ASC Topic 606 is a performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer.
Days sales outstanding (DSO) is a metric used to monitor accounts receivable levels. The Company determines its DSO by calculating the number of days necessary to exhaust its ending accounts receivable balance based on its most recent historical revenue. Our DSO was 68 and 75 as of December 31, 2022 and 2021, respectively.
Days sales outstanding (DSO) is a metric used to monitor accounts receivable levels. The Company determines its DSO by calculating the number of days necessary to exhaust its ending accounts receivable balance based on its most recent historical revenue. DSO was 58 and 68 as of December 31, 2023 and 2022, respectively.
These risks and uncertainties include, but are not limited to: the continued impact of COVID-19 and any variant strains thereof on the global economy; 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 and other disruptions to our information technology and operation; our mix of cost-plus, cost-reimbursable, and firm-fixed-price 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 businesses; changes in U.S. or international government defense budgets; government regulations and compliance therewith, including changes to the DoD procurement process; changes in technology; intellectual property matters; 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's 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 agreement; inflation and interest rate risk; subcontractor 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 the Merger; risks and uncertainties relating to the Spin-off; changes in U.S. generally accepted accounting principles (GAAP); and other factors described in Item 1A, “Risk Factors,” and elsewhere in this report and described from time to time in our future reports filed with the SEC.
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 businesses; 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 agreement; 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 the post-Merger integration efforts; changes in U.S. generally accepted accounting principles (GAAP); and other factors described in Item 1A, “Risk Factors,” and elsewhere in this report and described from time to time in our future reports filed with the SEC.
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 of bridge contracts, typically for periods of one year or less.
The right to exercise an option period is at the sole discretion of the U.S. government. 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 believe that our capabilities, particularly in operations and logistics, aerospace, training and technology, should help our clients increase efficiency, reduce costs, improve readiness, and strengthen national security and, as a result, continue to allow for long-term profitable growth in our business.
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.
See Item 1A, "Risk Factors". 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.
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.
Sources and Uses of Liquidity Cash, accounts receivable, unbilled receivables, and accounts payable are the principal components of our working capital and are generally driven by our level of revenue with other short-term fluctuations related to payment practices by our customers and the timing of our billings.
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.
Overview V2X, formerly known as Vectrus, is a leading provider of critical mission solutions primarily to defense clients globally. The Company operates as one segment and delivers a comprehensive suite of integrated solutions 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.
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. DoD.
The LOGCAP V - Iraq Task Order is currently exercised through June 21, 2023, with three additional twelve-month options and one six-month option through December 21, 2026. The task order provides services to support the Geographical Combatant Commands and Army Service Component Commands throughout the full range of military operations in the Iraq region.
The LOGCAP V - Kuwait Task Order is currently exercised through June 30, 2024, with two additional twelve-month options and one six-month option through December 31, 2026. The task order provides services to support the Geographical Combatant Commands and Army Service Component Commands throughout the full range of military operations in the Kuwait region.
Significant Contracts The following table reflects contracts that accounted for more than 10% of our total revenue for one or more of the years ended December 31, 2022, 2021 and 2020: % of Total Revenue Years Ended December 31, Contract Name 2022 2021 2020 LOGCAP V - Kuwait Task Order 16.4% 11.8% —% LOGCAP V - Iraq Task Order 9.8% 11.7% —% OMDAC-SWACA 4.2% 7.8% 14.2% K-BOSSS 0.7% 15.8% 34.1% Revenue associated with a contract will fluctuate based on increases or decreases in the work being performed on the contract, award fee payments, and other contract modifications within the term of the contract resulting in changes to the total contract value.
Significant Contracts The following table reflects contracts that accounted for more than 10% of total revenue: % of Total Revenue Years Ended December 31, Contract Name 2023 2022 2021 LOGCAP V - Kuwait Task Order 12.0% 16.4% 11.8% LOGCAP V - Iraq Task Order 7.5% 9.8% 11.7% K-BOSSS —% 0.7% 15.8% 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.
Our receivables reflect amounts billed to our customers, as well as the revenue that was recognized in the preceding month, which is normally billed the month following each balance sheet date. The total amount of our accounts receivable can vary significantly over time and is sensitive to revenue levels and the timing of payments received from our customers.
The Company's receivables reflect amounts billed to customers, as well as the revenue that was recognized in the preceding month, which is normally billed in 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.
We believe that our cash as of December 31, 2022, as supplemented by cash flows from operations and our credit facilities, will be sufficient to fund our anticipated operating costs, capital expenditures and current debt repayment obligations for at least the next 12 months.
We believe that our cash, cash equivalents and restricted cash as of December 31, 2023, as supplemented by cash flows from operations, the 2023 Revolver, and the MARPA Facility will be sufficient to fund our anticipated operating costs, capital expenditures and current debt repayment obligations for at least the next 12 months.
The increase in interest expense of $53.9 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 was due to increased debt assumed with the Merger.
The increase in interest expense of $61.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 was due to increased debt assumed with the Merger.
The task order provides services to support the Geographical Combatant Commands and Army Service Component Commands throughout the full range of military operations in the Kuwait region. The LOGCAP V - Kuwait Task Order contributed $472.9 million and $210.8 million of revenue for the years ended December 31, 2022 and 2021, respectively .
The task order provides services to support the Geographical Combatant Commands and Army Service Component Commands throughout the full range of military operations in the Iraq region. The LOGCAP V - Iraq Task Order contributed $296.9 million and $282.5 million of revenue for the years ended December 31, 2023 and 2022, respectively .
For the years ended December 31, 2022, 2021 and 2020, we had total revenue of $2.9 billion, $1.8 billion and $1.4 billion, respectively, substantially all of which was derived from U.S. government customers. For the years ended December 31, 2022, 2021 and 2020, we generated approximately 46% , 64% and 69%, respectively, of our total revenue from the U.S. Army.
For the years ended December 31, 2023, 2022 and 2021, we had total revenue of $4.0 billion, $2.9 billion and $1.8 billion, respectively, the substantial majority of which was derived from U.S. government customers. For the years ended December 31, 2023, 2022 and 2021, we generated approximately 41% , 46% and 64%, respectively, of our total revenue from the U.S.
Further, the DoD budget remains the largest in the world and manag ement believes our 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.
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. The Fiscal 2024 budget request was submitted to the U.S.
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 U.S. 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 excludes potential orders under IDIQ contracts and contracts awarded to us that are being protested by competitors with the U.S. Government Accountability Office (GAO) or in the U.S. Court of Federal Claims (COFC). The value of the backlog is based on anticipated revenue levels over the anticipated life of the contract.
We develop and insert operational technologies across our solutions to improve efficiency and the outcomes of our clients' missions. We believe this aligns with our clients' intent to utilize and harden existing equipment, infrastructure, and assets rather than executing new purchases.
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.
Income Tax Expense We recorded income tax expense of $8.2 million and $8.3 million for the years ended December 31, 2022 and 2021, respectively, which represented effective income tax expense rates of (134.6)% and 15.4%, for the respective years.
Income Tax (Benefit) Expense We recorded income tax benefit of $1.9 million and income tax expense of $8.2 million for the years ended December 31, 2023 and 2022, respectively, which represented effective income tax expense rates of 7.9% and (134.6)%, for the respective years.
Further details related to our financial performance for the year ended December 31, 2022, compared to the year ended December 31, 2021, are contained in the Discussion of Financial Results section.
Details related to our financial performance for the year ended December 31, 2022, compared to the year ended December 31, 2021 are contained in "Item 7.
Although we believe that our current financing arrangements will permit us to finance our operations on acceptable terms and conditions, our 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 or absence of a credit rating, (ii) the liquidity of the overall capital markets and (iii) the current state of the economy.
Although the Company believes its current financing arrangements will permit financing of its operations on acceptable terms and conditions, access to and the availability of financing on acceptable terms and conditions in the future will be impacted by many factors, including but not limited to: (i) its credit ratings, (ii) the liquidity of the overall capital markets, and (iii) the current state of the economy.
Operating Income Our operating income decreased by $6.2 million, or 10.1%, for the year ended December 31, 2022 as compared to the year ended December 31, 2021. Operating income as a percentage of revenue was 1.9% for the year ended December 31, 2022, compared to 3.5% for the year ended December 31, 2021.
Operating Income Operating income increased by $68.6 million, or 123.1%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022. Operating margin (income as a percentage of revenue) was 3.1% for the year ended December 31, 2023, compared to 1.9% for the year ended December 31, 2022.
The OMDAC-SWACA contract contributed $122.7 million and $139.5 million of revenue for the years ended December 31, 2022 and 2021 , respectively. The K-BOSSS contract currently is exercised through August 28, 2023. Components of the K-BOSSS contract were re-competed as a task order under the LOGCAP V contract vehicle and were awarded to us on April 12, 2019.
The K-BOSSS contract ended on August 28, 2023. Components of the K-BOSSS contract were re-competed as a task order under the LOGCAP V contract vehicle and were awarded to us in 2019. The K-BOSSS contract contributed $1.9 million and $18.9 million of revenue for the years ended December 31, 2023 and 2022 , respectively.
While we do not currently anticipate any impact on our business, we are continuing to evaluate the Inflation Reduction Act of 2022 and its requirements, as well as any potential impact on our business in future.
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.
Executive Summary Our revenue increased by $1,107.2 million, or 62.1%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. Revenue increased $908.4 m illion due to the Merger and the remaining increase was from organic growth for legacy programs.
Army. Executive Summary Our revenue increased by $1.1 billion, or 37.1%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. Revenue increased $877.7 million due to the Merger and the remaining increase was from organic growth of our legacy programs.
The aggregate cumulative adjustments for the years ended December 31, 2022 and December 31, 2021 related to changes in contract terms, program performance, customer changes in scope of work and changes to estimates in the reported period.
The aggregate cumulative adjustments for the years ended December 31, 2023 and 2022 related to changes in contract terms, program performance, customer changes in scope of work and changes to estimates in the reported period. Operating income was also impacted by labor mix and other direct cost purchases.
Cost of Revenue Our cost of revenue increased by $972.6 million, or 59.9%, for the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to increased revenue from the Merger and increased amortization of intangible assets.
Cost of Revenue Cost of revenue increased by $1.0 billion, or 39.8%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily due to increased revenue from the Merger and increased amortization of intangible assets.
While it is difficult to predict the specific course of future defense budgets, we believe many of the core functions we perform are mission-essential and that 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.
Depending on the length and nature of a potential shutdown, companies that are reliant on U.S. government funding, could be significantly impacted. 34 Table of Contents 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.
Selling, General & Administrative (SG&A) Expenses Our SG&A expenses increased by $140.8 million, or 143.1%, for the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to the Merger, including $39.9 million of acquisition-related costs.
Selling, General & Administrative (SG&A) Expenses SG&A expenses decreased by $28.8 million, or 12.0%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily due to $39.9 million of acquisition-related costs that were incurred during 2022.
As of December 31, 2022, total backlog (funded and unfunded) was $12.3 billion as set forth in the following table: As of December 31, (In millions) 2022 2021 Funded backlog $ 2,567 $ 1,033 Unfunded backlog 9,695 3,972 Total backlog $ 12,262 $ 5,005 Funded orders (different from funded backlog) represent orders for which funding was received during the period.
The following is a summary of funded and unfunded backlog: As of December 31, (in millions) 2023 2022 Funded backlog $ 2,778 $ 2,567 Unfunded backlog 10,011 9,695 Total backlog $ 12,789 $ 12,262 Funded orders (different from funded backlog) represent orders for which funding was received during the period.
We adjust our liability for unrecognized tax benefits in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities.
The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. 41 Table of Contents We adjust our liability for unrecognized tax benefits in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities.
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.
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.
Net cash provided by investing activities for the year ended December 31, 2022 consisted of $193.7 million of cash acquired in the Merger. This was partially offset by $12.4 million of net capital expenditures for the purchase of computer hardware and software, and equipment related to ongoing operations and $5.3 million of cash disbursed in a business disposition.
Net cash used in investing activities for the year ended December 31, 2023 consisted of $25.0 million of net capital expenditures for the purchase of computer hardware and software and equipment related to ongoing operations, partially offset by $1.3 million of cash received in a business disposition and $1.0 million of cash received in joint venture distributions.
Net cash provided by operating activities for the year ended December 31, 2021 consisted of net income of $45.7 million and non-cash items of $25.9 million and a decrease in net working capital requirements of $3.1 million, partially offset by cash outflows deferred taxes of $7.3 million and other non-current assets and liabilities of approximately $6.1 million.
Net cash provided by operating activities for the year ended December 31, 2023 consisted of cash inflows from non-cash income items of $169.8 million and cash inflows from the sale of receivables through the MARPA Facility of $72.7 million, partially offset by a net loss of $22.6 million, cash outflows for other non-current assets and liabilities of $25.8 million, and cash outflows for working capital requirements of $6.1 million.
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.
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.
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.
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.
This decrease was primarily due to amortization of intangible assets, and acquisition-related costs associated with the Merger. During the performance of our long-term contracts, we periodically review estimated final contract prices and costs and make revisions as required, which are recorded as changes in revenue and cost of revenue in the periods in which they are determined.
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.
Details related to our financial performance for the year ended December 31, 2021, compared to the year ended December 31, 2020 are included in the Discussion of Financial Results section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, electronically filed with the SEC on EDGAR on March 7, 2022.
Management's Discussion and Analysis of Financial Condition and Results of Operation - Discussion of Financial Results" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, electronically filed with the SEC on EDGAR on March 2, 2023.
Revenue from our U.S, Asia, Europe and Middle East programs increased by $916.0 million, $105.7 million, $61.7 million, and $23.8 million, respectively. Operating income for the year ended December 31, 2022 was $55.8 million, a decrease of $6.2 million or 10.1%, compared to the year ended December 31, 2021.
Revenue from programs in the U.S, Middle East, Asia, and Europe increased by $791.8 million, $168.9 million, $96.7 million, and $14.8 million, respectively. Operating income for the year ended December 31, 2023 was $124.4 million, an increase of $68.6 million or 123.1%, compared to the year ended December 31, 2022.
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, our credit facilities and the issuance of equity and/or debt securities as appropriate given market conditions.
We believe we have sufficient liquidity to fund operations, acquisitions, capital expenditures and scheduled debt repayments. The Company expects to fund its ongoing working capital, capital expenditure and financing requirements and pursue additional growth through new business development and potential acquisition opportunities by using cash flows from operations, cash on hand, its credit facilities, and access to capital markets.
To date, we have not experienced broad-based increases due to inflation in the costs of our fixed-price and time and materials contracts that are material to the business as a whole; however, if we begin to experience greater than expected inflation in our supply chain and labor costs, our profit margins, and in particular, our profit margin from fixed-price and time and materials contracts, which represent a substantial portion of our contracts, could be adversely affected.
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.
Business Combinations, Goodwill and Other Intangible Assets The purchase price of an acquired business is allocated to the tangible assets, financial assets and separately recognized intangible assets acquired less liabilities assumed based upon their respective fair values, with the excess recorded as goodwill.
See Note 1, Description of Business and Summary of Significant Accounting Policies, and Note 4, Revenue , in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion. 40 Table of Contents Business Combinations, Goodwill and Other Intangible Assets The purchase price of an acquired business is allocated to the tangible assets, financial assets and separately recognized intangible assets acquired less liabilities assumed based upon their respective fair values, with the excess recorded as goodwill.
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.
Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this report.
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.
Year-over-year comparisons could, at times, be impacted by these factors, among others. 33 Table of Contents 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.
Net cash used in financing activities during the year ended December 31, 2021 consisted of net repayments on the Amended Revolver of $65.0 million, long-term debt payments of $8.6 million, and payments of $2.4 million for employee 40 Table of Contents withholding taxes on share-based compensation. This was partially offset by $0.4 million received from the exercise of stock options.
This was partially offset by $12.4 million of net capital expenditures for the purchase of computer hardware and software, and equipment related to ongoing operations and $5.3 million of cash disbursed in a business disposition. 38 Table of Contents Net cash used in financing activities during the year ended December 31, 2023 consisted of repayments of long-term debt of $432.6 million, payment of debt issuance costs of $8.8 million, prepayment penalty of $1.6 million, and payments of $18.0 million for employee withholding taxes on share-based compensation, partially offset by proceeds from long-term debt of $250.0 million.
Most of our contracts have terms that would permit us to recover all or a portion of our incurred costs and fees for work performed in the event of a termination for convenience. Total backlog increased by $7.3 billion in the year ended December 31, 2022 primarily due to the Merger.
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 us to recover all or a portion of our incurred costs and fees for work performed in the event of a termination for convenience.
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.
The U.S. government may also extend the term of a program by issuing extensions of 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.
Capital Resources As of December 31, 2022, we held cash and cash equivalents of $116.1 million, which included $25.5 million held by foreign subsidiaries and had $184.4 million of available borrowing capacity under the ABL Facility, which expires on June 29, 2026.
These cash outflows were partially offset by $0.4 million received from the exercise of stock options. Capital Resources As of December 31, 2023, we held cash, cash equivalents and restricted cash of $72.7 million, which included $43.6 million held by foreign subsidiaries and had $482.5 million of available borrowing capacity under the 2023 Revolver, which expires on February 25, 2028.
Year Ended December 31, (In thousands) 2022 2021 2020 Operating activities $ 93,495 $ 61,339 $ 64,081 Investing activities 175,958 (12,643) (138,025) Financing activities (193,236) (75,585) 105,774 Foreign exchange 1,337 (3,325) 1,579 Net change in cash $ 77,554 $ (30,214) $ 33,409 Trends in our operating cash flows tend to follow trends in operating income, excluding non-cash charges and tax law changes such as the CARES Act.
Year Ended December 31, (in thousands) 2023 2022 2021 Operating activities $ 187,968 $ 93,495 $ 61,339 Investing activities (22,649) 175,958 (12,643) Financing activities (211,023) (193,236) (75,585) Foreign exchange 1 2,288 1,337 (3,325) Net change in cash, cash equivalents and restricted cash $ (43,416) $ 77,554 $ (30,214) 1 Impact on cash balances due to changes in foreign exchange rates.
The decrease in operating income was primarily due to amortization of intangible assets and acquisition-related costs associated with the Merger. Aggregate cumulative adjustments increased operating income by $13.3 million for the year ended December 31, 2022 and decreased operating income by $1.3 million for the year ended December 31, 2021.
The increase in o perating income was due to the Merger and organic growth for legacy programs, partially offset by acquisition-related costs incurred during 2022. For the years ended December 31, 2023 and 2022, aggregate cumulative adjustments increased operating income by $22.7 million and $13.3 million, respectively.
For additional discussion of the Company’s indebtedness, see Note 10, Debt, in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. In conjunction with the Merger, V2X assumed first and second lien debt of $1,182.7 million and $185.0 million, respectively.
For additional discussion of the Company’s indebtedness, see Note 10, Debt , in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. The cash presented on our Consolidated Balance Sheets consists of U.S. and international cash from wholly-owned subsidiaries.
Our future cash needs are expected to include cash for operating activities, working capital, capital expenditures, strategic investments, and periodic principal and interest payments on our debt. If our cash flows from operations are less than we expect, we may need to access the long-term or short-term capital markets.
When necessary, our revolving credit facility and MARPA Facility are available to satisfy short-term working capital requirements. If cash flows from operations are less than expected, the Company may need to access the long-term or short-term capital markets.
The Credit Agreement provides for $750 million in senior secured financing, with a first lien on substantially all the Borrower’s assets, consisting of a $500 million five-year Revolving Credit Facility and a five-year $250 million Term Loan.
During the first quarter of 2023, we entered into a credit agreement (the 2023 Credit Agreement) that provided for $750.0 million in senior secured financing, consisting of a $500.0 million five-year revolving credit facility (2023 Revolver) and a five-year $250.0 million term loan (Term Loan). The proceeds were used to repay certain existing debt balances.
Given the current pace of inflation and other geopolitical factors, we are monitoring the impact of rising costs on our active and future contracts.
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.
We received funded orders of $2.6 billion during the year ended December 31, 2022, which was an increase of $771.3 million compared to the year ended December 31, 2021. 36 Table of Contents 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.
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.
Net cash provided by operating activities increased for the year ended December 31, 2022, as compared to the year ended December 31, 2021, due primarily to the Merger.
Net cash provided by investing activities for the year ended December 31, 2022 consisted of $193.7 million of cash acquired in the Merger.
These assets and liabilities are reported on the Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. See Note 1, Description of Business and Summary of Significant Accounting Policies, and Note 4, Revenue , in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion.
These assets and liabilities are reported on the Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period.
We recorded an income tax expense of $8.2 million and $8.3 million for the years ended December 31, 2022 and 2021, respectively, which represent effective income tax rates of (134.6)% and 15.4%, respectively. See Note 13, Income Taxes , in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further information.
We recorded a n income tax benefit of $1.9 million and an income tax expense of $8.2 million for the years ended December 31, 2023 and 2022, respectively, which represent effective income tax rates of 7.9% and (134.6)%, respectively.
While customers may reduce the level of services required from us, we do not currently anticipate the complete elimination of these services. However, business conditions have become more challenging due to macroeconomic conditions, including inflation and rising interest rates.
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.
We cannot provide assurance that such financing will be available to us on acceptable terms or that such financing will be available at all. To date, COVID-19 has not had a significant impact on our liquidity, cash flows or capital resources.
The Company cannot provide assurance that such financing will be available on acceptable terms or that such financing will be available at all.
We do not currently expect that we will 39 Table of Contents be required 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. Subsequent Events: Debt Refinancing On February 28, 2023, Vertex Aerospace Services Corp.
We expect our U.S. domestic cash resources will be sufficient to fund our U.S. operating activities and cash commitments for financing activities.
The right to exercise an option period is at the sole discretion of the U.S. government.
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. 35 Table of Contents The LOGCAP V - Kuwait Task Order is currently exercised through June 30, 2023, with three additional twelve-month options and one six-month option through December 31, 2026.
The LOGCAP V - Kuwait Task Order contributed $474.3 million and $472.9 million of revenue for the years ended December 31, 2023 and 2022, respectively . The LOGCAP V - Iraq Task Order is currently exercised through June 21, 2024, with two additional twelve-month options and one six-month option through December 21, 2026.
Revenue increased $908.4 millio n due to the Merger and the remaining increase was from organic growth for legacy programs. Revenue from our U.S, Asia, Europe and Middle East programs increased by $916.0 million, $105.7 million, $61.7 million, and $23.8 million, respectively.
Revenue from programs in the U.S, Middle East, Asia, and Europe increased by $791.8 million, $168.9 million, $96.7 million, and $14.8 million, respectively.
Operating income was also impacted by labor mix and the cost differential between internal resources and subcontractors as well as the volume of other direct cost purchases. 38 Table of Contents Interest (Expense) Income, Net Interest (expense) income, net for the years ended December 31, 2022 and 2021 was as follows: Year Ended December 31, Change (In thousands) 2022 2021 $ % Interest income $ 165 $ 161 $ 4 2.5 % Interest expense (62,044) (8,146) (53,898) (661.6) % Interest expense, net $ (61,879) $ (7,985) $ (53,894) (674.9) % Interest income is directly related to interest earned on our cash.
For a discussion of the loss on extinguishment see Note 10, Debt, in the Notes to Consolidated Financial Statements. 36 Table of Contents Interest (Expense) Income, Net Interest (expense) income, net was as follows: Year Ended December 31, Change (In thousands) 2023 2022 $ % Interest income $ 966 $ 165 $ 801 485.5 % Interest expense (123,408) (62,044) (61,364) 98.9 % Interest expense, net $ (122,442) $ (61,879) $ (60,563) 97.9 % Interest income is directly related to interest earned on our cash.
Contractual Obligations Our commitments to make future payments under long-term contractual obligations were as follows, as of December 31, 2022: Payments Due in Period (In thousands) Total Less than 1 Year 1 - 3 Years 3 - 5 Years More than 5 Years Operating leases $ 65,603 $ 19,588 $ 22,313 $ 12,437 $ 11,265 Principal payments on Vertex First Lien Credit Agreements¹ 1,176,763 11,850 23,700 23,700 1,117,513 Principal payments on Vertex Second Lien Credit Agreement¹ 160,000 — — — 160,000 Interest on Vertex First and Second Lien Credit Agreements 688,689 115,603 228,636 222,872 121,578 Total $ 2,091,055 $ 147,041 $ 274,649 $ 259,009 $ 1,410,356 ¹ Includes unused funds fee and is based on the December 31, 2022 interest rate and outstanding Credit Agreement balance CRITICAL ACCOUNTING ESTIMATES 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.
Contractual Obligations As of December 31, 2023, commitments to make future payments under long-term contractual obligations were as follows: Payments Due in Period (In thousands) Total Less than 1 Year 1 - 3 Years 3 - 5 Years More than 5 Years Operating leases $ 54,341 $ 15,489 $ 19,478 $ 11,309 $ 8,065 Principal payments on Vertex First Lien Credit Agreement¹ 908,847 9,111 18,223 881,513 — Principal payments on 2023 Credit Agreement¹ 245,313 6,250 23,438 215,625 — Interest on Vertex First Lien and 2023 Credit Agreements 475,197 102,787 200,358 172,052 — Total $ 1,683,698 $ 133,637 $ 261,497 $ 1,280,499 $ 8,065 ¹ Includes unused funds fee and is based on the December 31, 2023 interest rate and outstanding balance.
Removed
COVID-19 Impact On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. COVID-19 has negatively impacted public health and the global economy, disrupted global supply chains, and created volatility in financial markets. Furthermore, in September 2021, the Biden Administration issued an executive order mandating a COVID-19 vaccination requirement for federal contractors, except in certain limited circumstances.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+2 added−1 removed2 unchanged
Biggest changeInterest Rate Risk Each one percentage point change associated with the variable rate Vertex First Lien Credit Agreement and Vertex Second Lien Credit Agreement would result in a $13.4 million change in our related annual cash interest expenses. 43 Table of Contents Assuming our ABL Facility was fully drawn to a principal amount equal to $200.0 million, each one percentage point change in interest rates would result in a $2.0 million change in our annual cash interest expense.
Biggest changeInterest Rate Risk Each one percentage point change associated with the variable rate Vertex First Lien Credit Agreement would result in an $8.2 million change in our related annual cash interest expenses.
Our forward contracts expired in January 2022 and no such contracts are outstanding as of December 31, 2022. For additional information on our interest rate and foreign currency hedge contracts, refer to Note 11, Derivative Instruments , in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. ITEM 8.
Our forward contracts expired in January 2022 and no such contracts are outstanding as of December 31, 2023. For additional information on our interest rate and foreign currency hedge contracts, refer to Note 11, Derivative Instruments , in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. ITEM 8.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our earnings, cash flows and financial position are exposed to market risks relating to fluctuations in interest rates and foreign currency exchange rates. All of the potential changes noted below are based on information available as of December 31, 2022.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our earnings, cash flows and financial position are exposed to market risks relating to fluctuations in interest rates and foreign currency exchange rates. All of the potential changes noted below are based on information available as of December 31, 2023.
However, we are required to transact in foreign currencies for some of our contracts, resulting in some assets and liabilities denominated in foreign currencies. As a result, our earnings may experience volatility related to movements in foreign currency exchange rates.
Foreign Currency Exchange Risk The majority of our business is conducted in U.S. dollars. However, we are required to transact in foreign currencies for some of our contracts, resulting in some assets and liabilities denominated in foreign currencies. As a result, our earnings may experience volatility related to movements in foreign currency exchange rates.
For additional information regarding our derivative instruments, see Note 11, Derivative Instruments, in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K . Foreign Currency Exchange Risk The majority of our business is conducted in U.S. dollars.
Changes in the variable interest rates to be paid pursuant to the terms of the interest rate swap agreements will have a corresponding effect on future cash flows. For additional information regarding our derivative instruments, see Note 11, Derivative Instruments , in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
Removed
In the past, we entered into interest rate swap derivative instruments to manage our exposure to interest rate risk related to our Amended Term Loan. On June 29, 2022, in conjunction with our planned extinguishment of the related hedged debt interest expense, we terminated our remaining interest rate swaps that were designated and qualified as effective cash flow hedges.
Added
Assuming the 2023 Revolver was fully drawn to a principal amount equal to $500.0 million, each one percentage point change in interest rates would result in a $5.1 million change in our annual cash interest expense. As of December 31, 2023, the notional value of the Company's interest rate swap agreements totaled $345.3 million.
Added
The difference to be paid or received under the terms of the interest rate swap agreements is accrued as interest rates change and recognized as an adjustment to interest expense for the related debt in the period incurred.

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