Q2 2022 V2X Inc Earnings Call

Slide 2.

During today's presentation, management will be making forward-looking statements pursuant to the State Harbor provisions of the Federal Securities Law.

Please review our Safe Harbor statements in our press release and presentation materials for a description of some of the factors that may cause actual results to differ materially from the results contemplated by these forward-looking statements.

Company assumes no obligation to update its forward-looking statement.

Additionally, I would like to point out that in addition to gap burning, we will be discussing and reporting various adjusted non-gap metrics.

including adjusted operating income and margin, adjusted EBITDA and margin, adjusted net income, and adjusted diluted earnings per share. Definition of these non-GAAP measures can be found in our presentation materials, press release, and Form 10Q.

At this time, I would like to turn the call over to Chuck Bro.

Thank you, Mike, and good afternoon, everyone. Thank you for joining us on the call today.

Please turn to slide four.

Before we begin, I'd like to point out that on July 5th, Vectress completed the combination with the Vertex company and introduced the combined company as V2X. I'd like to thank the employees of Vectress and Vertex for all of their hard work in bringing this combination to fruition while continuing to deliver solid results with high quality, uninterrupted service and support to our clients.

The agenda on this slide outlines the topics we plan to discuss today.

First, we will introduce V2X, talk about the momentum of the combined company, the leading indicator of our business, future opportunities, and second half financial guidance.

From there, we will touch on the Vectra's second quarter highlights and financial results. At the conclusion, we will provide an update on the integration of the merchant.

Please turn to slide five.

On July 5th, we formally started our journey as V2X.

with 14,000 employees, $3.6 billion in pro forma revenue.

and $290 million dollars of Proforma adjusted EVA.

B2X is a leader in the operational segment of the Federal Services Market, providing converged solutions throughout the mission lifecycle of our clients.

most critical and enduring global mission.

The company also has a strong financial profile with significant free cash flow and long-term revenue visibility to a $12 billion backlog.

B2X will have no recompete that is more than 2% of revenue over the next two and one half years.

As you can see on the slide, V2X has markedly improved its geographic, client, and contract diversity, including over 300 contracts with no task order over 11% of revenue.

V2X's geographic footprint spans across 330 locations globally.

presenting opportunities to further deliver comprehensive solutions across Indopacom, Cencom, UCOM, and NORTHCOM areas of operation. Additionally, V2X has access to a larger client base and funding streams, including national security, defense, civilian, and international clients. This includes long-standing relationships with the Army, the Air Force, Navy, and the Army.

NASA, the Drug Enforcement Agency, and four military clients, including the UK Royal Navy. This diversification also helps provide top-line resiliency to various economic and political cycles.

Furthermore, with a stronger percentage of fixed-price contracts, we believe there is an opportunity for V2X to expand margins over time as process and technology insertion generate efficiencies.

On slide six, you can see the truly unique and comprehensive set of capability B2X has across the aerospace, operations and logistics, training, and technology markets.

As clients move toward a converged environment, the company is well positioned to meet the mission essential requirements of its clients while delivering cost savings, increased security, and resiliency. Please wizard your secure cracks in your

I'd also like to point out that from a macro budgetary perspective, V2X's solutions and capability are aligned with key spending priorities for the DoD and international clients such as mission essential operations, platform modernization and sustainment, technology upgrade and lifecycle support, security, readiness and training.

The breadth of V2X's capabilities are significant and provide a meaningful opportunity for future revenue synergies. including

By leveraging our capabilities, B2X is well positioned to increase its addressable market through new clients and cross-selling opportunities. Please turn to slide 7.

The leading indicators for V2X are supported by several recent wins, strong backlog and Richardson Syncro X positioning.

This slide illustrates diverse capabilities and wins from both Vectress and Vertex in 2022. This slide illustrates the unique capabilities and wins from both Vectress and Vertex in

For example, Vertex recently won two new key opportunities, the Naval Test Wing Atlantic, a seven-year program valued at $850 million, and the Air Force Global Strike Command five-year contract valued at $130 million.

Both awards are ramping and expected to be fully operational in the third quarter.

Importantly, this slide does not capture several large and important wins that ERTEX received in the latter part of 2021.

Please turn to slide 8.

B2X has been successful winning several significant contracts that are in the early stage of their life cycle with little to no period of performance remaining.

These wins are partially reflected in the trailing 12-month award of approximately $6 million.

Importantly, our teams have been able to increase work scope on existing programs which results in additional orders and backlogs. For example, in the second quarter, on a stand-alone basis, our teams have been able to increase

Vectra's existing programs have generated over $500 million in add-on orders.

which is significant given the pace of awards in our industry at large.

These additional orders demonstrate our team's continued solid performance and increased top tempo in several geographic regions.

Furthermore, we expect that given our current run rate at no-paycom, we could see an additional award in excess of $300 million associated with the Kwajalein task order.

expansion on current contracts has historically been a key growth driver for the legacy vector business.

with a much larger contract base.

We now have the opportunity to further expand our existing contracts by providing innovation and technology to complex challenges throughout the mission lifecycle.

A strong velocity of awards has resulted in a significant backlog of approximately $12 million that provides solid visibility over the next several years.

The visibility and long-term contract of the combined company is an important attribute and differentiator.

As I previously mentioned, the company does not have any Reconpied contract that is more than 2% of revenue for at least the next two and one half years.

with a significant portion of our region behind us.

and a solid amount of revenue under contract over the next several years.

we believe V2X is well positioned to aggressively focus on addressing new opportunities and contract expansion to further grow the business.

In terms of new business, the current pipeline of opportunity for B2X is approximately $14 billion. This includes opportunities that are submitted and expected to be submitted in the next 12 months.

The current pipeline of opportunity for V2X is approximately $14 billion. This includes opportunities that are submitted and expected to be submitted in the next 12 months. Thank you for your attention.

Proposal activity continues to be robust and we expect continued new business awards in the second half of the year.

While our current pipeline of opportunity is solid, we believe there is substantial opportunity to generate revenue synergies that leverage our combined capabilities.

is solid, we believe there is substantial opportunity to generate revenue synergies that leverage our combined capabilities. For example,

Slide 9 demonstrates how the applicable solutions powered by V2X

And increase the rate and pace at which we can jointly deliver an integrated portfolio of technologies and solutions.

to better provide full life cycle support.

in a critical and enduring mission.

We plan to further describe and quantify these incremental growth accelerators during a third-quarter call. Now, I would like to turn the call over to our Chief Financial Officer.

Susan Lynch to discuss the V2X second half guidance.

Thanks Chuck and good afternoon. Everyone turn out a slide. 10.

We are establishing second half 2022 guidance ranges for V2x, which includes the contribution from both Vectris and the Vertex company.

Our focus for the remainder of the year will be delivering on our committed results while executing our integration and synergies.

Revenue is expected to be in the range of $1.9 to $1.94 billion.

Adjusted EBITDA is expected to be $140 to $150 million. Adjusted diluted EPS is expected to be in the range of $1.94 to $2.19.

Regarding the net cash provided by operating activities, please note that the guidance does not include M&A costs.

due to merger activities associated with BERTACs.

We are not providing gap guidance or a reconciliation due to the difficulty in quantifying certain amounts related to the transactions that are necessary for the reconciliation.

Please turn with me now to slide 11.

The fundamentals of V2x are impressive, improved scale, strong margin, and significant cash generation.

Net debt of V2X at July 5 was approximately $1.3 billion, which incorporates the merger closing ahead of schedule.

The ability to generate strong cash with low CapEx requirements is an important attribute of V2x.

Our cash generation capabilities, combined V2X's strong backlog, limited recompete risk, and revenue visibility provide a clear path for us to rapidly de-lever the company's debt. We anticipate ending the year at approximately $1.2 billion in net debt and leverage of approximately 3.7 times net leverage. Debt reduction is a primary goal for our management team and we believe through continued cash generation and EBITDA.

for the second quarter and do not include contributions from the Vertex company.

I'm pleased to report that we ended our journey as Vectress on a high note, posting strong second quarter results with record revenue and momentum.

continuing across the business.

I'd like to thank all the Vectress employees, past and present, for their many contributions and support in making Vectress a leader in this market and, importantly, for their unwavering dedication to our clients' missions across the globe. We accomplished a great deal with Vectress and our future as V2X looks even brighter.

During the quarter, revenue grew 6% year over year and 9% sequentially to $498 million. The growth was driven by continued high up tempo in support of ongoing world affairs.

All Cap 5 momentum as well as contract growth on our core programs. Adjusted EBITDA for the quarter was $25 million or 5% margin and adjusted diluted EPS was $1.41.

Importantly, cash generation was strong at $46 million and represents the significant cash flow characteristics of our business.

Awards for vectors in the quarter exceeded 600M dollars and were driven primarily by growth on our current program.

Looking ahead, we expect award activity to remain solid.

In the second half, as our teams continue to expand on core programs and the pace of new business awards from government accelerates.

During the quarter, we continued to experience growth in Indopaycom, which now makes up 9% of revenue. It was primarily driven by achieving full operational capability on the LogCap-5 modular task order.

Additionally, we continue to support contingency efforts in Europe as part of the European Deterrence Initiative.

Finally, we successfully transitioned the five-year, $250 million contract to support the Logistics Readiness Center at Fort Benning.

Please turn to slide 14.

V2X position in the Pacific continues to expand in support of mission requirements.

We are fully operational at Kwajalein with over 1,500 employees and partners providing full spectrum of services.

As a reminder, Plodulon is part of the Ronald Reagan Ballistic Missile Defense Test Site.

with various radars, tracking cameras, missile launchers, and support systems across many islands.

Additionally, our teams recently expanded the scope of responsibility at Suvic Bay in the Philippines through a new eight-year program that provides strategic logistics services to the DOD.

program reach full operational capability in the second quarter.

I'd like to thank our team for their seamless faith in this important program, which leveraged our existing presence in the region.

This new work demonstrates how V2X is continuing to increase its footprint in the region. We are incrementally adding greater capability.

which positions us well for growth and to support our clients' missions throughout the Indo-Pecan era.

DOD's fiscal year 2023 budget prioritizes China as a preeminent pacing challenge.

Our clients are allocating additional resources to enhance the U.S. force posture, infrastructure, presence, and readiness in the region.

Forecasting future budgets and demand is difficult, but we believe funding for initiatives, such as the Pacific Deterrence Initiative,

which we are well positioned to support, will likely continue to be prioritized given affairs in the region.

As it relates to V2X, in 2023, the DOD plans to conduct exercise called Talisman Sabre.

This exercise is a large-scale, biennial, joint, multilateral exercise with Australia and 12 other allies and partners.

As you may recall, B2X supported a similar exercise in the second and third quarter of 2021 called Specific Defender. We are well prepared and looking forward to supporting our clients' requirements in 2023.

In short, given the off tempo in the theater, we believe we should drive additional growth and end up a job next year.

Beyond the Pacific, B2X has also successfully expanded its footprint in Europe by leveraging its enduring presence and differentiated capabilities to support current operations.

We also remain well positioned to support our clients' increased requirements and anticipated investment in readiness and training.

As a reminder, B2X has provided mission-critical support in Europe for more than 40 years.

capabilities, the training.

Facility support, logistics, IT, and engineering solutions are supporting enhanced readiness for our clients in Europe at over 30 locations.

Our proven track record in Europe had led to a recent $30 million award providing support for the US Air Force as part of the European Deterrence Initiative. This is a testament to V2X's ability to provide rapid response capability.

and support to complex missions across the world.

DoD's 2023 budget allocates $4.2 billion for the European Deterrence Initiative, also known as EDI. EDI is focused on increasing military presence, additional training, logistics, preposition equipment, improved infrastructure and readiness, and building partner capacity.

allocates $4.2 billion for the European Deterrence Initiative, also known as EDI. EDI is focused on increasing military presence, additional training, logistics, prepositioned equipment, improved infrastructure and readiness, and building partner capacity. Importantly,

This budget was developed prior to the unprovoked invasion of Ukraine by Russia.

It was also prior to the Congress recent passage of a $40 billion Ukraine Supplemental Appropriations Act that supports security, economic and humanitarian assistance for Ukraine and Central European lord.

While the operating environment in Europe remains dynamic, V2X continues to support our clients' most critical missions with high levels of execution, agility, and performance.

We remain committed to ensuring mission success for our clients and partners.

and stand ready to assist during this complex period.

Excuse me

Turn with me now to slide 15 to discuss the standalone results for Vectra's second quarter.

As Chuck mentioned, second quarter 2022 results for Vectress were strong, with record revenue, a great capstone in our journey as Vectress can start to V2X.

Second quarter 2022 revenue was $498.1 million, up $27.2 million for a growth of 5.8% year-on-year.

Top line growth was boosted by our transition to full operational capability on logcat 5 in Iraq and Kuwait late last year and Indo-PECOM this quarter.

In addition, revenue benefits from transitioning port binning and volume associated with rapid response and contingency efforts.

We were able to demonstrate this growth despite the headwinds we have from the withdrawal of the U.S. military from Afghanistan in the third quarter of last year. Operating income was $15 million and was impacted by the occurrence of $5.9 million of M&A and integration related costs as well as the amortization of acquired intangible assets of $2.1 million.

Adjusted EVID DAW was $24.7 million or a 5% margin, increasing sequentially $6.5 million and 100 basis points.

That compares to $26.6 million or 5.6% in the prior year.

The year-on-year margin change was influenced by the significant amount of revenue and contracts that are in the early stages of their life cycle.

In aggregate, on average, and over time, we expect to see improvement in the margin profile as we drive operational efficiencies and diversify into higher margin scopes of work.

Net income for the second quarter of 2022 was $10.5 million. Effective tax rate in the second quarter of 2022 was 19.8% compared to 21.6% in Q2 2021.

adjusted net income with $16.9 million compared to $17.9 million in the prior year.

Fully diluted earnings per share for the second quarter of 2022 with 88 sips.

Adjusted EPS, which adds back merger, integration, and amortization of acquired and tangible assets with $1.41 compared to $1.52 in the prior year. The change in adjusted EPS was primarily due to the aforementioned change in adjusted EBITDA.

Turn now to slide 16 to discuss cash and liquidity.

Cash generated in the quarter was strong, with cash provided from operating activities of $46 million.

Year-to-date cash from operating activities was favorable at $19.6 million compared to $14 million in the prior year.

Our year-to-date cash flow is splitting the $8 million CARES Act repayment and the roughly $6 million of merger-related payments would have been approximately $34 million, more than double our year-to-date cash flows in the prior year.

I want to thank our operations, contracts, and finance teams for the focus on collections and the momentum they have delivered in the first half of the year.

The company's total leverage ratio was 1.09 times, down from 1.76 times in Q2 2021.

The substantial reduction in Vectra's debt profile is representative of our priority and commitment to appropriately managing the balance sheet and leverage ratio.

Back to you.

Thank you, Susan. I would now like to provide a brief update on the merger integration and relevant focus areas. Please turn to slide 18.

Integration activities are well underway.

Our cultural alignment is helping to deliver a unified approach.

Our integration strategy and framework has been developed and being actioned by leaders across both organizations that have deep experience in integration execution.

on the approach.

planned efforts have already resulted in several collaborative summits among our business advisory functions that focus on harmonizing processes and accelerating integration.

Additionally, we remain focused on speed to value and have planned very specific actions among functions and programs that are tracked through a robust method.

Detailed metrics are discussed among the joint team regularly. And are supporting our ability to generate rapid outcomes and synergy.

We have spent significant time and effort in preparing a phased IT integration roadmap that focuses on prudently and seamlessly optimizing our systems, tools, and processes for maximum efficiency, security, and scalability.

significant time and effort in preparing a phased IT integration roadmap that focuses on prudently and seamlessly optimizing our systems, tools, and processes for maximum efficiency, security, and scalability. Next slide, please.

Our integration timeline is shown here on slide 19 and highlights some key objectives. As you can see, our priority for the remainder of the year will be on delivering our 2022 results while executing integration plans and synergy achievements.

We look forward to updating you on our progress as we execute our planned approach.

Please turn to slide 20.

Financial and strategic attributes of B2X continue to drive a compelling investment thesis with significant value creation opportunities for our shareholders.

with several of the notable characteristics on this slide, which include enhanced scale and leadership of the operational segment of the Federal Service's market.

with differentiated capabilities that can deliver full life cycle converged solutions throughout the mission life cycle.

B2X has a diverse and resilient business with significant geographic client and contract diversity. This diversity also helps provide top-line resiliency to various economic and political cycles.

The company has a strong revenue visibility.

with $12 billion in backlogs and no recompete that had more than 2% of revenue over the next two and one half years.

macro market drivers, and funding streams that guide the defense services industry.

align with V2X's core offerings, and remain solid with tailwinds from enhanced focus on investment in the areas that we operate. The defense budget environment is favorable, as demonstrated by the Congressional Defense Committee's increase in the top line for the fiscal year 2023 defense, authorization, and appropriations bill between $30 and $45 billion.

While the FY23 legislative process is ongoing, these actions point to continued support for defense priority in the FY23 budget and finalized.

Additionally, our pipeline provides opportunity for continued expansion in our core business and potential new growth from leveraging the combined capabilities of the industry.

As Susan mentioned, B2X has a high cash flow and low capex business model which is capable of driving significant free cash flow per share for investors. I'd like to conclude by reiterating B2X's potential to create significant value for shareholders while providing unique, differentiated, and converged solutions for our clients.

Now, I'd like to open the call to questions.

Thank you. If you would like to answer your question, please press the 1 followed by the 4 on your telephone.

You will hear a three-tone prompt technology request.

If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3.

One more please for the first question which comes from the last name of Sama from Tris Securities. Please go ahead.

Hey, good afternoon everyone. This is actually Jasper, but bond for Toby. Thanks for taking our questions. So, I just wanted to ask about the.

I'm doing well, how are you, Chuck?

Doing great.

So just on the second half guidance, if I take a look at the merger proxy and net out the synergy assumptions, the outlook you provided today would seem to imply a bit stronger combined run rate than previously contemplated for 22 on revenue in EBITDA. Would you say you're a bit ahead of plan here or is the second half outlook more in line with your prior expectations?

I would say that in general we're we have a lot of momentum in the business.

The guidance is a little bit stronger than we had originally projected. We're very focused on the results that we had committed to at the time of announcement. All I'll say is we have some good momentum in the business. The teams are executing very strongly. We believe the guidance is obviously very achievable or we would not have provided it.

And we like the way things are right now, both from an operational perspective and a market support perspective.

Thanks. And then I was just hoping you could update us on your bookings activity for the second quarter and what you're seeing on the customer side. In the past couple of weeks, some of the peers have talked about issues with getting task orders cleared. I was curious if you're seeing the same thing. And know so far, I was somewhere in the optimization area that I was seen when we were Friday starting

Yeah, we have in terms that I kind of break this down into pieces right so in terms of our Historical pipeline as I mentioned in my prepared remarks. We are sticking a bit of a down But I will tell you the combination of vertex

very strong first half of the year, and quite frankly, the end of last year, and our very strong growth on our existing contract base that really left us in a good position, which is the momentum I discussed.

So the macro market has slowed down a bit, but we're really been bolstered by the winds here over the last 12 months and a very strong set of...

current contract growth activities and I think our teams continue to support our client very nicely and grow our contract base in line with our expectations.

Last question for me, do you have any assumptions for cost synergies in the second half guide and maybe following up on the timeline to achieve that synergy target by 24? Should we think about that 20 million synergy target being more front or back half weighted over the next 18 months? We feel very strongly that the 20 million full run rate in the 2024 is very achievable. We're off to a good start and baked into

the second half position is a kind of a three million plus or minus number.

So it is, I wouldn't call it back out loaded because we're just kind of getting started, but everything we can see so far, the status of the various integration activities, we feel very comfortable of the 20 million full run rate going into 2024.

Okay, appreciate the color. Thanks for taking the questions.

Thank you. Appreciate it. Good to talk to you.

The next question comes from Subin from Steve Ball. Please go ahead.

Good day, good afternoon.

Hello, how are you? Good to talk to you.

Hey Doug.

So, maybe just to start off.

for the vectorous margins in the quarter, you called out 5% even that margin that was.

I don't know, somewhere close to 100 basis points above, I think, where you guys were sort of talking to last quarter. Is that sustainable, that improvement? Should we think about Vectris in this higher op temp world as having the ability to push more fixed price work and ultimately the ability to sort of have higher margins? Clearly, your combination with Vertex is driving that margin higher, but if there's ability for Vectris's core margins to also be higher, I think that'd be interesting to highlight.

As we highlighted on last quarter's earnings call, a significant amount, the number we used last quarter was 40% plus of our business is in the very early stages of its contract life.

We think we're ahead of schedule in migrating our recently run contracts to different contract structures. A bit of this year was a bit of this quarter's improvement was some one time closeout activity. So, I'll answer your question by saying our trajectory is, I would say a bit ahead of schedule. The 5% this quarter again was bolstered a bit by some closeout activity.

Our teams are moving in a very good direction in terms of getting the run rate margin back to our projections as we migrated contract structures from old contracts to new contracts.

very good direction in terms of getting the run rate margin back to our projections as we migrated contract structures from old contracts to new contracts. Answer your question.

It does, yeah. Thanks, Chuck. And maybe just to follow up on some of your comments with previous questions, something we've been hearing throughout this earnings season is just a lot of questions around a budget flush. Outlays have been unusually low year-to-date, and there's a lot of money to be spent. I'm just curious what your thoughts for your business are on a budget flush. Is it as simple as this op-tempo rises, from a Prime Act up until 2020 when all you got invest taxes escorting everything that you need is advice for a lens of value or do you think this idea cannot only press into thehest of amplifiers. For many, many years it has been useful and you really experience this fact that there are plenty of responsible Arctic seaders and we realously look at them and we Boys, it is the beginning of a new era and just a hubcenter that rer COVID. We can't stand all this trade that trade, it is fine to sell Anna

you see more activity in the Taiwan Strait or you like you noted the European Turns Initiative starts to rise and then ultimately that materialized into additional spend just over time or are there also opportunities for you guys to capitalize on additional money being out there on a shorter term basis.

I kind of break that down into three components. There is opportunity to take share in some of the newer budget activity that's been announced.

We're focused on that is much of it is right in line with our core competencies and we're very focused on that point. One point two is as I discussed in our prepared remarks and we talked last quarter. A significant amount of our business is in the early stages of their contract lifecycle. So as we begin to phase that business in, we always see opportunity.

to increase scope on current contracts. And we talked about the success we had doing that here in the second quarter. And the third point is, as you indicated, our business, because of the nature of our business, is very op tempo dependent. And as op tempo increases and.

various regions around the globe, depending on where that is, the opportunity for us to support our clients for missions while simultaneously growing our business becomes very high.

Yeah, that's super helpful, Chuck. And maybe just one last follow-up, and I'll turn it over. On the Vertex side, you know, notable contract, the $850 million Naval Test Wing contract, that's fixed price. Can you explain maybe or delineate between fixed-price work that Vertex may have versus Vectris in terms of how you think about it from a risk perspective? Are they similar in that fixed price just gives you a greater opportunity for margin? Or is there some additional risk that you get on the Vertex side?

Thank you for the question. It's an important question. It's actually quite similar. The aerospace maintenance business is a business that is a very mature business. Many of the platforms we support are very mature platforms. Because of that, the scope is very well known. And as that scope changes, it is very well understood by both our teams and our clients.

that cost and price fluctuate accordingly. But just like in our business, the mature nature of what we do allows us to work with our clients closely as scope changes, price changes. I see the very same characteristics in the aerospace and training business as well.

Just a clarification there, I mean, specifically, you know, there's been. Challenges getting technicians and additional labor for maintenance and presumably that's lifting labor costs there. What's your ability? Do you do you end up taking on those headwinds? Under a fixed price contract, or do you generally have the ability to reprice these such that it's not a good.

It's a it's a

It's a combination, so you know much of the labor base is, you know, under agreement that do allow inflation type adjustments full stop. The other point is, and like our core businesses, the insertion of new technology and new capabilities and new and better ways of doing things also apply to that business as well. So, there's

I do want to make the point, however, that inflation is real, both in terms of labor and supply chain, and those are areas like any other business in the country, really, we're focused on managing those effects on both our fixed and cost-type projects. But in terms of the overall macro effect, we believe we have the protections and we believe we have the momentum in terms of...

understanding how to improve effectiveness and efficiency through the application of technology that we think we can keep the inflation realities in check.

Thanks, Todd.

Thank you. Good to talk to you.

The next question comes from Joe Gomes from Noble Capital. Please go ahead. The next question comes from Joe Gomes from Noble Capital.

Good afternoon. Thanks for taking the questions. Good afternoon.

Thanks for taking the questions.

I wanted to circle back first on the synergies.

I think the goal was you put out about 1.3% of trailing 12-month revenues, which seems kind of a low bar given normally in these types of acquisitions you see it more of about a 3% level. Is this just being conservative on your end, or do you think that there actually might be some more synergies as you delve deeper into the putting the two firms together there? Yes I'm happy with that. I think they may either be policy made by people,aganda-making going on or doing a

Yeah, I think we're being conservative. I would not call that overly conservative. However. We know we have to remember also that the. The vertex aspect of this combination. Recently went through a combination with the former businesses. Those synergies are kind of baked into the run rate that you already have.

So in macro, in fatality, you know, I'd like to think that we can overachieve on the 20, but putting these businesses together, you see a portion of the synergy that are affected in the run rate from the vertex aspect of this combination. Make sense? Yeah, sure you will.

Yes, yes, thank you for that. You mentioned in your remarks, talisman, saber, you know, kind of a call.

similar to the Pacific Defender. Can you kind of size that, the potential opportunity for for talisman saber?

I can't, it probably wouldn't be prudent to project future activities. I can't tell you, though, that the specific defender with plus or minus 50M over 2 quarters in last year.

And as you saw, we were more than able to overcome that quote unquote erosion from that high up sample kind of activity, which makes our results this quarter really even more impressive from a growth perspective.

It's tough to judge, but.

Looking back a couple of years, you study this stuff deeply, I know, and you can compare what we did last year versus what you see kind of emerging in that theater now and make some projections based upon that knowledge.

Okay, thank you. When you talked about having 40% or so of contracts or revenues in early stages of contracts, and you mentioned about getting success into getting into different contract structures. Can you just kind of walk us through how you go from a...

the original contract structure into a more favorable contract structure.

Yeah, it's, you know, it's not going into a lot of detail. It really breaks down, you know, in a pretty straightforward way. I mean, you have you have opportunity at certain points at a contract. The opportunity, the first opportunity is between phase in and the base year. And then you have opportunities at each subsequent option year. And what our team work very hard. You know, every day, every week, every month, every quarter to do.

is to demonstrate to our clients that certain portions of our scope can actually be well-defined and in fact defined well enough that they can be moved to fixed price.

And so we look at the transition between.

phase in and base year and base year in option one, option one to option two.

You know those are the points by which we can transition transition to different contract structures. And also, by the way, it's the reason that we have A always talked about and trade inability to drive margins higher over time.

Okay. And then on the second half, Guy, you give us the overall numbers. Is there any type of seasonality or cadence to that? Vectress standalone had some. Often we talked about the second half being significantly stronger than the first.

I'm just wondering for the second half here on the numbers you gave us, is it a 50-50 type of breakdown between the third and fourth quarters? Or do you see one quarter more weighted than the other?

We're thinking somewhere in the 45, 55 kind of breakdown. Susan said that they'll come up with that so you can think 45% for Q3, 55%.

for Q2 and as a backdrop, and Joe I know you know this, but all of the recent kind of new wins and ramp up both between the former Vertex and former Vectra companies.

Many of those are beginning to phase in, right? So we have that momentum that plays into that 45-55 split as well.

Okay, great. Thanks for having me.

And just one last one for me. I know you talked a little bit about hiring and some of the other defense companies that I've talked with here.

talking about real difficulty in hiring people with security classification. Is that any an issue with you guys?

It's always difficult, it's always difficult. You know, at this point in time, our national security business is a smaller portion of our overall portfolio, but just like any other company that's in the security business, it's tough. I mean, it's tough, I think we've done a very good job of keeping and retaining people, whether it's a day in and day out, our team working very hard to kind of recruit and retain.

The next question comes line of Subin from Stifle. Please go ahead.

Hey, thanks for the follow-up. I just had two quick questions.

For on the vertex side, the KC transport platforms being talked about being replaced with a new platform.

Is that a risk in terms of thinking about the core revenue base for vertex? Or do you think the winds that you have recently on that side are helping to mitigate any potential risk there?

Yeah, I think the, but I think the risk.

are a bit mitigated just by the overall life cycle of these platforms. They're long life cycles. They tend to extend well past their projected maturation date, if you will, and we've planned that type of erosion in our annual and five-year planning process. So it's something that, short answer, is something that

we're planning for and believe that we can manage within all the projections that we've made. Okay, and then just a follow-up sort of to my budget-flush question earlier. You know, we've heard that August 15th is sort of like this unofficial hard date when if you don't reach, don't get things allocated by then, it's sort of hard to get the additional money in the fiscal quarter. Maybe as it pertains to probably more to Vertex, are you seeing that, one, is that most libraries do have exact so s

do you agree with that sentiment? And two, have you seen any sort of uptick as we think about going into next week, or is that sort of not the case and you could continue to get additional project work on both sides of the business in the next six or seven weeks?

And we've in my prepared remarks in our earlier questions, I am very comfortable with the rate and pace of our kind of on contract growth, if you will. The program that we've talked about that have been one are all now, if not fully, at full operational capability, they're very near that point. I never want to trivialize budget realities.

But I'll make one last point is that between our combined company and I'll say it this way. We rely very significantly on O&M dollars.

which is in many respects an advantage of our business model because of the kind of the more stable aspect of that funding mechanism.

Thanks Chuck, and thanks for the follow up.

Appreciate it. It was good to talk to you again.

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Mr. Chuck Pro, there are no further questions at this time. I'll now turn the call back to you. Please continue with the presentation and or closing remarks.

Thank you very much and thank you to everyone for joining us on the call today. Thank you for the questions. We're thrilled with what we see in the very early stages of this combination. And we look forward to bringing you up to date in our next earnings call. In early November , we'll talk to you soon. Thank you. Bye.

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