Q1 2024 V2X Inc Earnings Call
Rob: Thank you for joining us for the V2X First Quarter 2024 Earnings Conference Call and Webcast. This call is being recorded. My name is Rob, and I'll be the operator for today's call. At this time, all participants have been placed in listen-only mode. Following management's presentation, I will open up the call for a Q&A session. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. And now I'll pass the call over to your host, Mike Smith, Vice President of Treasury, Investor Relations, and Corporate Development at V2X.
Thank you for joining us for the V to X first quarter 'twenty 'twenty four earnings conference call and webcast today's call is being recorded.
Rob: My name is Rob and I'll be the operator for today's call.
Rob: All participants have been placed in listen only mode.
Rob: Following managements presentation I'll open up the call for Q&A session.
Rob: If anyone should require operator assistance during the conference. Please press star zero from your telephone keypad.
Rob: And now I'll pass the call over to your host Mike Smith, Vice President of Treasury, Investor Relations and corporate development at V to X.
Michael Smith: Thank you. Good morning, everyone.
Michael Smith: Thank you good morning, everyone welcome to the <unk> first quarter 2024 earnings conference call.
Michael Smith: Welcome to the V2X first quarter 2024 earnings conference call. Joining us today are Chuck Prow, President and Chief Executive Officer, and Shawn Mural, Senior Vice President and Chief Financial Officer. Today, Chuck will highlight the company's recent awards, as well as highlight some strategic initiatives. And then, Shawn will walk us through the first quarter financial performance. Slides for today's presentation are available in the investor relations section of our website, gov2x. com. Please turn to slide two.
Michael Smith: Joining us today are Chuck Prow, President and Chief Executive Officer.
Shawn Mural: And Sean morale.
Michael Smith: Senior Vice President and Chief Financial Officer.
Michael Smith: Today, Chuck will highlight the company's recent awards as well as highlight some strategic initiatives.
Shawn Mural: Then John will walk us through the first quarter financial performance.
Shawn Mural: Slides for today's presentation are available on the Investor Relations section of our website go meet you ask Scott.
Shawn Mural: Dot com.
Speaker Change: Please turn to slide two.
Michael Smith: During today's presentation, management will be making forward-looking statements pursuant to the safe 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. The company assumes no obligation to update its forward-looking statements. Additionally, I'd like to point out that in addition to gap earnings, we will be discussing and reporting various adjusted non-gap metrics, including adjusted EBITDA and margin, adjusted operating cash flow, adjusted net income, and adjusted diluted earnings per share.
Speaker Change: During today's presentation.
John: We will be making forward looking statements pursuant to the safe Harbor provisions of the federal Securities laws.
John: 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.
John: The company assumes no obligation to update its forward looking statements.
John: Additionally.
John: Like to point out that in addition to GAAP earnings we will be discussing and reporting various adjusted non-GAAP metrics, including adjusted EBITDA and margin adjusted operating cash flow.
John: <unk> net income and adjusted diluted earnings per share.
Michael Smith: The definition of these non-GAAP measures can be found in our presentation materials available on our investor relations website and in our press release filed with the SEC. At this time, I would like to turn the call over to Chuck Prow.
John: The definition of these non-GAAP measures can be found in our presentation materials.
Also on our Investor Relations website.
John: In our press release filed with the FCC.
John: At this time I would like to turn the call over to Chuck Crow.
Chuck Prow: Thank you, Mike. And good morning, everyone. Thank you for joining us on the call today. Please turn to slide three.
Chuck Prow: Thank you Mike and good morning, everyone. Thank you for joining us on the call today.
Chuck Prow: Please turn to slide three.
Chuck Prow: I'd like to thank our employees for all of their contributions and commitment to our client's missions that resulted in a great start to the year. In particular, I'd like to take a moment to recognize our veteran workforce. V2X remains a leading participant in the veterans' ecosystem, with almost 50% of our 16,000 employees having prior military service. Our veteran talent base has been key to V2X's growth, and I am honored to announce that V2X has, once again, been recognized as a top military-friendly employer by Victory.
Chuck Prow: I'd like to thank our employees for all of their contributions and commitment to our clients' missions that resulted in a great start to the year in particular I'd like to take a moment to recognize our veteran workforce.
Chuck Prow: <unk> remains a leading participant in the veterans ecosystem with almost 50% of our 16000 employees, having prior military service Alright veteran talent base has been key to <unk> growth and I am honored to announce that <unk> has once again been recognized at the top military friendly employer.
Chuck Prow: <unk> Bye victory.
Chuck Prow: On a similar note, this month will recognize Memorial Day, as we honor the brave men and women who gave their lives in the service of our country. I would like to thank all of those, past and present, who have served to protect our freedom. Please turn to slide four.
On a similar note just mindful recognize memorial day, and we honor the brave men and women, who gave their lives and the surface of our country.
Chuck Prow: Like do you think all of those past and present, who have served to protect our freedom.
Chuck Prow: Please turn to slide four.
Chuck Prow: V2X reported a great start to the year, with revenue increasing 7% year-over-year. Revenue in the first quarter was driven by 22% year-over-year growth in the Middle East and 7% in the Pacific. Our growth in the Middle East, or CENTCOM, was driven primarily by expansion in Qatar and our recent aviation support and training contract to support the Saudi Arabian Ministry of National Guard. This is a substantial foreign military sales program valued at approximately $400 million over five years. I am pleased to report that phase-in activities are well underway, and the contract continues to ramp up. We anticipate the program to be operating at full run rate in the second half.
<unk> reported a great start to the year with revenue increasing 7% year over year revenue in the first quarter was driven by a 22% year over year growth in the middle East and 7% in the Pacific.
Chuck Prow: Growth in the middle East or Centcom, what's driven primarily by expansion in Qatar.
Speaker Change: And our recent aviation support and training contract to support the Saudi Arabian Ministry of National Guard, Yes.
Speaker Change: So the substantial foreign military sales program value.
Speaker Change: You'd had approximately $400 million over five years.
Speaker Change: I am pleased to report that phase and activities are well underway and the contract continues to ramp up.
Speaker Change: We anticipate that program to be operating at full run rate in the second half.
Chuck Prow: As we have discussed previously, the demand signals from our clients in the region remain heightened. With the recent supplemental funding package, we are starting to see new requirements emerge. V2X is the top provider of services to the DoD in the region, and we remain ready to support our clients' mission requirements. We continue to demonstrate growth in the Pacific, or Indo-Paco, with revenue in the region increasing 7% year over year.
Speaker Change: As we have discussed previously the demand signals from our clients in the region remain heightened.
Speaker Change: With our recent supplemental funding package, we are starting to see new requirements emerge meet you acts as a top provider of services to the D. O D. In the region and we remain ready to support our clients' mission requirements.
Speaker Change: We continue to demonstrate growth in the Pacific or Endo, Paypal with revenue in the region, increasing 7% year over year.
Chuck Prow: This growth highlights the successful execution of our strategy to expand offerings, utilizing our geographic footprint. Our teams continue to demonstrate outstanding performance in Indopacom, which is leading to a greater number of opportunities to support our clients' increasing mission requirements. For example, B2X has been asked to support a series of smaller exercises in 2024 under Balaketan, Salekinets. This Indo-Pacom growth is particularly notable since 2023 included the more significant Pacific exercise schedule that occurred in an odd number of years.
Speaker Change: This growth highlights the successful execution of our strategy to expand offerings utilizing our geographic footprint. Our teams continue to demonstrate outstanding performance in Endo K com.
Speaker Change: Which is leading to greater number of opportunities to support our clients increasing mission requirements. For example, <unk> been asked to support a series of smaller exercises in 'twenty 'twenty four under Bally Cotan silicon that.
Speaker Change: This Indo pay Cam gross if particularly notable since 2023 included that more significant Pacific exercises schedule that occurs in the odd number years. Additionally.
Chuck Prow: Additionally, we are further expanding capabilities in the region, and I'm pleased to announce that just last week we were awarded a new $88 million contract with the U.S. Navy. Under the new five-year firm fixed price contract, V2X will provide IT O&M of Navy systems at the Naval Computer and Telecommunications Master Station Pacific. This one builds on our 40-year track record of providing cybersecurity, mission IT, and critical communications across the globe. I'll speak more about how we are expanding our offerings and existing business in the region shortly, adjusted even in the quarter with $69.1 million or 6.8% margin. Adjusted EPS increased 8% year-over-year to $0.90.
Speaker Change: We are further expanding capabilities in the region and I am pleased to announce that just last week, we were awarded a new $88 million contract with the U S. Navy.
Speaker Change: Under the new five year firm fixed price contract <unk> will provide I T. O&M of Navy systems at the Naval computer and Telecommunications Master station Pacific.
Speaker Change: This win builds on our 40 year track record of providing cyber security mission I T.
Speaker Change: Critical communications across the globe.
Speaker Change: I'll speak more on how we are expanding our offerings and existing business in the region shortly.
Speaker Change: Adjusted EBIT in the quarter was $69 $1 million or six 8% margin.
Speaker Change: Just at EPS increased 8% year over year to 90 cents.
Chuck Prow: V2X is differentiating its capability offering through converged solutions that sit at the intersection of technology and operations. This differentiation has led to recent awards valued at $75 million to provide technology solutions for the threat detection and response to chemical, biological, radiological, and nuclear hazards. I'll describe this award in more detail shortly.
Speaker Change: Vito exit differentiating us capability offerings through converged solutions that sit at the intersection of technology and operations. This differentiation has led to recent awards valued at $75 million to provide technology solutions for their threat detection and response the chemical biological.
Speaker Change: Radiological and nuclear hazards I'll.
Speaker Change: I'll just grab just award in more detail shortly.
Chuck Prow: Our agility and ability to deliver mission-critical capabilities on a global scale places V2X in a unique position to support our clients' evolving mission requirements, as demonstrated through recent notable awards. First, we were recently awarded over $140 million in task orders to continue providing support services to the U.S. Air Force in Jordan and Romania. The awards, which are firm fixed prices, were made under the Air Force Contract Augmentation Program 5, which is a multiple award IDIQ contract that provides worldwide contingency and humanitarian support. The contract extends through May of 2031 and was recently modified to increase the program ceiling value to $15 billion from $6.4 billion.
Speaker Change: Our agility and our ability to deliver mission critical capabilities on a global scale places V to X out a unique position to support our clients' evolving mission requirements and our demonstrated through recent notable awards.
Chuck Prow: Second, and building on AFCAP, during the first quarter, V2X was awarded a position on the U.S. Navy's Global Contingency Services Multiple Award Contract III, or GCS MAC III. The contract extends through April of 2032 and provides a similar scope of support services to AFCAP, but is executed by the Navy. The total contract ceiling value of GCS MAC-3 is $2 billion, and V2X is one of six awardees. This ceiling value was significantly increased from the last version, which reached a ceiling value of $900 million.
Speaker Change: First we were recently awarded over $140 million in task orders to continue providing support services to the U S Air Force in Jordan and Romania.
Speaker Change: The award which are firm fixed priced were made under the Air Force contract Augmentation program, five which is a multiple award <unk> contract that provides worldwide contingency and humanitarian support the contract extends through May of 'twenty 31, and was recently modified to increase a pro.
Speaker Change: Graham ceiling value to $15 billion from $6 $4 billion.
Speaker Change: Second and billing on ask cats during the first quarter <unk> was awarded a position on the U S. Navy's Global contingency services multiple award contract free.
Speaker Change: Or G C S. Max free the contract extends through April of 'twenty 32, and provides a similar scope of support surfaces to ask cap, but as executed by the Navy.
Speaker Change: The total contract ceiling value of Gcs Mac three is $2 billion N V to X is one of six award east this.
Speaker Change: The ceiling value with significantly increased from the last version, which reached the ceiling value of $900 million Importantly, we were the leading provider of services under the prior iteration of the contract.
Chuck Prow: Importantly, we were the leading provider of services under the prior iteration of the contract, securing $300 million in task orders. We are honored to continue our support for the Navy and look forward to building on our track record of success. Please turn to slide 5.
Speaker Change: <unk> $300 million in task orders.
Speaker Change: We're honored to continue our support for the Navy and look forward to building on our track record of success. Please turn to slide five.
Chuck Prow: B2X is creating more value in its core markets by inserting operational technologies into mission-essential operations. This was recently exemplified by WEND, valued at $75 million, through operationalized next-generation solutions for threat detection and response to chemical, biological, radiological, and nuclear, or CBRN, hazards. Importantly, this work expanded from a prototype effort to a new sole source award for the production, upgrade, and fielding of cutting-edge systems at overseas operational locations. As part of this effort, we are the lead systems integrator for the CBRN Support to Command and Control Program. This program, known as CSC2, is the program of record for the integration of CBRN, which will link sensors together to provide integrated situational awareness about potential hazards to inform end user decision making.
Speaker Change: B to exit creating more value in its core markets by inserting operational technologies into mission essential operations.
Speaker Change: This was recently exemplified through wind valued at $75 million to operationalize next generation solutions for threat detection and response to chemical biological radiological and nuclear or C. B R. N hazard importantly.
Speaker Change: This work expanded from a prototype effort to a new sole source award for the production.
Speaker Change: Upgrade and fielding of cutting edge systems and overseas operational locations.
Speaker Change: As part of this effort we.
Speaker Change: Are the lead systems integrator for the CBR and support to command and control programs. This program known as CFC too is the program of record for the integration of CVR, and which will make sensors together to provide integrated situational awareness about potential had to their hazard to inform and user.
Speaker Change: A decision making.
Chuck Prow: In addition to CSC2, V2S will modernize and re-architect the CBRN threat warning and notification application and predictive hazard propagation tools for enhanced operational decision support. These awards illustrate how we are harnessing technology-based solutions, operational expertise, and global footprint to address high-consequence mission requirements. Please turn to slide six. One of our strategic imperatives includes enhancing value through technology expansion in our existing business. Our teams are demonstrating this through recent new awards to provide 5G, smart warehousing, and integrated electronic security solutions.
Speaker Change: In addition to CSC to meet your vessel modernize and re architect the CVR and threat warning and notification application.
Speaker Change: And predictive hazard propagation tools for enhanced operational decision support.
Speaker Change: These awards illustrate how we are harnessing technology based solutions operational expertise and global footprint to address high consequence mission requirements. Please turn to slide six.
Speaker Change: One of our strategic imperatives include enhancing value through technology expansion in our existing business. Our teams are demonstrating that through recent new awards to provide five G smartwatch housing and integrated electronic security solutions.
Chuck Prow: As it relates to 5G and smart warehousing, we were awarded additional scope under our existing Logcat 5 contract to deploy an assured and protected private 5G communication solution and enable smart logistics in the Philippines. While currently small in value, we believe the solution is scalable across the DOPECOM region to provide protected and secure network infrastructure to support warehouse operations, field deployments, and exercises. This solution also aligns the type of investments the DOD is making as part of the Pacific Deterrence Initiative, or PDI. The Department recently released its fiscal 2025 PDI budget, which requests $9.9 billion, a 9% increase from the prior year and a 59% increase from 2023.
Speaker Change: As it relates to five G and smart warehousing, we were awarded additional scope under our existing Logcap five contract to deploy an assured and protected private five G communication solution and enable smart logistics in the Philippines.
Speaker Change: While currently small in value. We believe the solution is scalable across into pay Cam region can provide protected and secured network infrastructure to support warehouse operations.
Speaker Change: Filled appointments and exercises. This solution also aligns the type of investments the D. O D is making as part of the Pacific Deterrence initiative or TDI. The D. O D. Recently released its fiscal 'twenty twenty-five PDI budget, which request $9.9 billion, a 9% increase from the prior year and.
Chuck Prow: Beyond LOGCAP, we also are supporting the design, implementation, testing, and operation of a private 5G cellular network and asset tracking support solution on Guam Naval Base. We continue to be optimistic about our ability to further expand these offerings on existing contracts. As it relates to electronic security, we remain a leader in providing integrated electronic security solutions that protect thousands of facilities and assets. However, historically, these solutions have generally been procured on a standalone basis.
Speaker Change: 59% increase from 2023 beyond Logcap. We also are supporting the design implementation testing and operation of a private five G cellular network and asset tracking support solution on Guam Naval base.
Speaker Change: We continue to be optimistic about our ability to further expand these offerings on existing contracts.
Speaker Change: As it relates to electronic security, we remain a leader in providing integrated electronic security solutions that protect thousands of facilities and assets. Historically. These solutions have generally been procured on a standalone basis. However, I am pleased to announce that our team received a new task order under an existing contract.
Chuck Prow: However, I am pleased to announce that our team received a new task order under an existing contract vehicle in the Middle East. This award establishes our solution in the region and displaces an incumbent. This further demonstrates our ability to integrate technology solutions into operations and logistics programs. We believe we are positioned to grow from this initial step and deliver a modernized, integrated solution that significantly improves our clients' security posture. Building on the traction in the Middle East, we have also been awarded the task to provide the initial establishment of this solution and capability in the Philippines.
Of course in the Middle East This award established as our solution in their region and displacing an incumbent that's.
Speaker Change: This further demonstrates our ability to insert technology solutions into operations and logistics programs. We believe we are positioned to grow from this initial step and deliver a modernized integrated solution that significantly improves our client's security posture.
Speaker Change: Building on the traction in the Middle East. We were also awarded task to provide the initial establishment of this solution and capability in the Philippines.
Chuck Prow: These two recent awards improve the install base of our solutions and also offer an ongoing operations and maintenance opportunity. These wins would not have been possible without our unified approach to growth and sell-through business model that has inserted solutions through existing contracts. Please turn to slide seven.
Speaker Change: These two recent awards improve the installed base of our solutions and also offer an ongoing operation and maintenance opportunity.
Speaker Change: These ones would not have been possible without our unified approach to growth and sell through business model that is inserting solutions through existing contracts. Please turn to slide seven.
Chuck Prow: We believe our new business pipeline continues to support future backlog and revenue expansion. Our pipeline of near-term opportunities for new business currently stands at approximately $25 billion, comprising $16 billion of bids expected to be submitted over the next 12 months and $9 billion of bids pending award. The pace of award activity was somewhat muted through the first quarter, but it is increasing, with several notable bids expected to award this year. Importantly, our strategy and company-wide focus on converged solutions is evident in our pipeline metrics, with higher value and technology solutions comprising an increasing percentage of the total.
Speaker Change: We believe our new business pipeline continues to support future backlog and revenue expansion or a pipeline of near term opportunities for new business. Currently stands at approximately $25 billion comprising $16 billion of bids expected to submit over the next 12 months and $9 billion of bids pending award.
Speaker Change: The pace of award activity was somewhat muted through the first quarter, but is increasing with several notable bids expected to award this year.
Speaker Change: Importantly, our strategy and companywide focus on converged solutions is evident in our pipeline metrics with higher value and technology solutions, comprising an increase an increasing percentage of the total.
Chuck Prow: As can be seen on the slide, over 50% of the bids we expect to submit in the next 12 months are tied to operational technology, engineered solutions, and training versus 20% of bids pending award. This demonstrates the enhanced capability that V2X brings to the market across a more diversified client base. We believe our pipeline, strong backlog, limited re-competes, and budgetary environment provide continued confidence and visibility to meet our commitments. Now, I would like to turn the call over to Shawn for a review of the financials. [inaudible]
Speaker Change: As can be seen on this slide over 50% of the bids we expect to submit in the next 12 months are tied your operational technology.
Speaker Change: Engineered solutions and training personnel as 20% of bids pending award. This demonstrates the enhanced capabilities that <unk> brings to the market across a more diversified client base.
Speaker Change: We believe our pipeline strong backlog limited recompete and budgetary environment provides continued confidence and visibility to achieve our commitments.
Speaker Change: Now I would like to turn the call over to Sean.
Speaker Change: Review of the financials Sean.
Shawn Mural: Thanks, Chuck. And thanks, everyone, for joining us here today.
Sean: Thanks, Chuck and thanks, everyone for joining us here today.
Sean: Please turn to slide eight.
Shawn Mural: Please turn to slide eight. You started 2024 with strong performance, building on the momentum from 2023; performance across our metrics was in line with our expectations for the quarter. Revenue of $1,011,000,000 in the quarter represents growth of 7% year-over-year. Revenue growth in the quarter was achieved through continued expansion of existing business in the Middle East and Pacific regions, as well as new programs. This reflects the strong demand for our service offerings around the globe. Adjusted EBITDA in the quarter was $69.1 million, delivering a margin of 6.8%.
Sean: You started 2024 with strong performance building on the momentum from 2023.
Sean: Performance across our metrics was in line with our expectations for the quarter.
Sean: Revenue of $1 billion 11 million in the quarter represents growth of 7% year over year.
Sean: Revenue growth in the quarter was achieved through continued expansion of existing business in the middle East and Pacific regions as well as new programs.
Sean: This reflects the strong demand for our service offerings around the globe.
Sean: Adjusted EBITDA in the quarter was $69 $1 million delivering a margin of six 8%.
Shawn Mural: As discussed previously, we expect revenue and adjusted EBITDA to ramp sequentially throughout the year. Adjusted diluted EPS was $0.90, up 8% from the prior year. The growth reflects lower income tax and interest expense, partially offset by higher depreciation and other expenses.
Sean: As discussed previously we expect revenue and adjusted EBITDA will ramp sequentially throughout the year.
Sean: Adjusted diluted EPS was <unk> 90 up 8% from prior year.
Sean: The growth reflects lower income tax and interest expense, partially offset by higher depreciation and other expense.
Shawn Mural: Interest expense for the quarter was $27.6 million, and cash interest expense was $25.4 million. An important attribute of our business is the ability to generate strong cash flow with a low capital expenditure requirement. We continue to expect adjusted net cash provided by operating activities to be in the range of $145 million to $165 million for the year, representing 120% adjusted net income conversion at the midpoint. During the quarter, net cash used by operating activities was $57.2 million, following our historical pattern and reflective of a receivable delay that was collected shortly after the quarter closed.
Sean: Interest expense for the quarter was $27 $6 million cash.
Sean: Cash interest expense was $25 4 million.
Sean: An important attribute of our business is the ability to generate strong cash flow with low capital expenditure requirements.
Sean: We continue to expect adjusted net cash provided by operating activities to be in the range of $145 million to $165 million for the year.
Sean: Representing 120% adjusted net income conversion at the midpoint.
Sean: During the quarter net cash used by operating activities was $57 $2 million following our historical pattern and reflective of a receivable delay that collected shortly after the quarter closed.
Shawn Mural: Adjusted net cash used by operating activities was $83.5 million, adding back M&A and integration costs and removing the contribution of the Master Accounts Receivable Purchase Agreement related to capital expenditures. CapEx in the quarter was approximately $8 million. We expect our CAPEX profile to be more heavily weighted towards the first half of 2024 as we deploy some engineering and infrastructure tools to enhance capabilities and further streamline back office operations. Please turn to slide nine.
Sean: Adjusted net cash used by operating activities was $83 $5 million, adding back M&A and integration costs and removed and removing the contribution of the master accounts receivable purchase agreement.
Sean: Regarding capital expenditures.
Sean: Capex in the quarter was approximately $8 million.
Sean: We expect our capex profile to be more heavily weighted towards the first half of 2024, as we deploy some engineering and infrastructure tools to enhance capabilities and further streamline back office operations.
Sean: Continue to expect capital expenditures of approximately $30 million for the year.
Sean: Please turn to slide nine.
Shawn Mural: We ended the quarter with $33.6 million of cash on the balance sheet, excluding $2.1 million of restricted cash. Net debt improved by $115.9 million compared to the prior year, demonstrating the strong cash flow nature of our business. At the end of the first quarter, net debt was $1,173,000,000.
Sean: We ended the quarter with $33.6 million of cash on the balance sheet, excluding $2 $1 million of restricted cash.
Sean: Net debt improved by $115 $9 million compared to the prior year, demonstrating the strong cash flow nature of our business.
Sean: At the end of the first quarter net debt was $1.173 billion.
Shawn Mural: The net debt to EBITDA leverage ratio was three and a half times at the end of the quarter, which improved notably from approximately four times at merger close. Additionally, we continue to expect cash generation to follow the normal pattern of our business and build throughout the year, achieving a net leverage ratio at or below three times by the end of 2024. The company's balance sheet and liquidity position remain strong, with over $460 million in capacity, which includes approximately $427 million of availability on our revolvers. Please turn to slide 10.
Sean: The net debt to EBITDA leverage ratio was three and a half times at the end of the quarter, which improved notably from approximately four times at merger close.
Sean: Additionally, we continue to expect cash generation to follow the normal pattern of our business and build throughout the year, achieving our net leverage ratio at or below three times by the end of 2024.
Sean: The company's balance sheet and liquidity position remains strong with over $460 million in capacity, which includes approximately $427 million of availability on our revolver.
Please turn to slide 10.
Shawn Mural: Total backlog was $12.6 billion in the first quarter, representing three times revenue at the guidance midpoint. This key metric and leading indicator is an important attribute of our business and provides excellent revenue visibility. Backlog increased 6% year over year and does not reflect the full value of the approximate 400 million dollar FMS win for the 458 million dollar F-5 adversary aircraft program currently under protest. It also does not include the $88 million Navy contract Chuck mentioned earlier, as the award was made subsequent to the first quarter.
Sean: Total backlog was $12 $6 billion in the first quarter, representing three times revenue.
Sean: Guidance midpoint.
Sean: This key metric and leading indicator is an important attribute of our business and provides excellent revenue visibility.
Sean: Backlog increased 6% year over year and does not reflect the full value will be approximate $400 million Fms win or the $458 million S. Five adversaries aircraft programs currently under protest.
Sean: It also does not include the $88 million Navy contracts Chuck mentioned earlier as the award was made subsequent to the first quarter.
Shawn Mural: Please turn to slide 11. The company is reaffirming its guidance for 2024, which at the midpoint reflects 5% revenue and adjusted EBITDA growth. 8% adjusted EPS growth and 120% net income conversion to cash. In summary, we are pleased with the performance across the business and the start of the year. Our teams continue to execute, driving expansion on existing programs, phasing in new programs, and further improving our functional and core business operations. With that, we'd like to open the call to questions. Operator?
Sean: Please turn to slide 11.
Sean: The company is reaffirming our guidance for 2024.
Sean: The midpoint reflects 5% revenue and adjusted EBITDA growth.
Sean: 8% adjusted EPS growth and 120% net income conversion to cash.
Sean: In summary, we are pleased with the performance across the business and start of the year. Our teams continued to execute driving expansion on existing programs phasing in new programs and further improving our functional and core business operations.
Speaker Change: With that we'd like to open the call to questions operator.
Speaker Change: Thank you we will now be conducting a question and answer session.
Rob: Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Speaker Change: If you'd like to ask a question. Please press star one from your telephone keypad and a confirmation tone will indicate your line. This is the question queue.
Speaker Change: If I start to feel like to remove your question from the queue.
Speaker Change: For participants using speaker equipment.
Speaker Change: Do you mean necessary to pick up your handset before pressing the starkey.
Rob: One moment, please, while we poll for questions. Thank you. Thank you, and our first question is from the line of Ken Herbert with RBC Capital Markets. Please receive your three questions.
One moment. Please we poll for questions. Thank you.
Speaker Change: Thank you and our first question is from the line of Ken Herbert with RBC Capital markets. Please proceed with your question.
Ken Herbert: Hey, good morning, everybody. Nice quarter. Thanks Ken, how are you? Pretty good. Hey Chuck, maybe just to start off, the timing of the supplemental doesn't seem like it was able to impact your first quarter, but you still put up some nice revenue growth. Can you maybe just walk through some of the pieces of the supplemental and how you perhaps view that supporting the top line opportunity at least through the rest of fiscal 24?
Ken Herbert: Hey, good morning, everybody nice quarter.
Ken Herbert: Thanks, Ken how are you.
Ken Herbert: It's pretty good Hey, Chuck maybe just to start off the timing of the supplemental it doesn't seem like it was a.
Ken Herbert: The impact your first quarter, but you still put up some nice revenue growth could you maybe just walk through some of the pieces of the supplemental and how you're perhaps view that supporting the top line opportunity at least through the rest of fiscal 'twenty four.
Chuck Prow: Sure, we'll kind of walk around the globe to do that. In the Middle East, you saw the nice year-over-year revenue growth in the Middle East. As we've talked about in prior quarters, that really represents just the increased up-tempo in addition to some nice new wins in the region. We are processing requests for additional requirements as we speak. None of those awards have actually occurred as of this morning, but we would expect to begin to execute new requirements in the region sometime this quarter. You saw the continued growth in the Pacific. The exercises are, in fact, occurring, but they're much smaller in the even years as we've talked about in the past.
Chuck: Sure what kind of walk around the globe to do that so in the.
Chuck: On the Middle East you saw the nice year over year revenue growth in the middle East.
And we've talked about in prior quarters that really represents just the increased op tempo. In addition to some new win nice new wins actually in the region.
Speaker Change: We are processing.
Speaker Change: Request for additional requirements as we speak.
Speaker Change: None of those awards have actually occurred as of this morning, but.
Speaker Change: But we would expect to begin to execute new requirements in the region.
Speaker Change: Sometime this quarter.
Speaker Change: You saw the continued growth in the Pacific.
Speaker Change: The exercises are in fact occurring they're much smaller in the even years as we've talked about in the past.
Chuck Prow: But the military is really maintaining a balance between what's happening in Europe and the Middle East with the need to continue to enhance capabilities in the Pacific. As it relates to Europe, we are working with our clients on a couple of net new requirements. They may take a bit longer to materialize, but they are important capabilities that align with some of our newer modernization and sustainment activities as well as logistics enhancements in the region as well. So, you know, we're seeing high-op tempo across the globe, and probably throughout this quarter and into the third quarter, we'll begin to process that net new requirement.
Speaker Change: The military is really maintaining a balance between what's happening in Europe, and the middle east with the need to continue to enhance capabilities in the Pacific.
Speaker Change: As it relates to Europe, we are working with our clients in a couple of net new requirements.
Speaker Change: They may take a bit longer to materialize, but they are.
Speaker Change: Important capabilities that align with some of our newer modernization and sustainment activities.
Speaker Change: Well as logistics enhancements in the region as well so.
Speaker Change: We're seeing higher <unk> across the globe and probably throughout this quarter and into the third quarter will begin to process a net new requirements.
Chuck Prow: Great. Now, obviously, you kept the guidance unchanged. Is it fair to assume that the supplemental, I think it was largely as expected, but just gives maybe incremental confidence as we think about at least the top line through the remainder of the year?
Speaker Change: Great and obviously you kept the guidance unchanged is it is it fair to assume that the with the supplemental I think it was largely as expected, but just gives maybe incremental confidence as we think about at least the top lines through the remainder of the year.
Chuck Prow: It's earlier in the year, and as you know our typical practices, as these opportunities turn into assigned task orders, we'll begin to think about guidance. But we feel very comfortable with the guidance that we previously announced and that Shawn reaffirmed here this morning.
Speaker Change: It's earlier in the year and as you are aware of our of our typical practice is as these opportunities.
Speaker Change: Turn into science task orders will begin to think about the guidance, but we feel very comfortable with the guidance that we had previously.
Speaker Change: Announced in there Sean reaffirm here this morning.
Shawn Mural: Perfect. And if I could just finally for Shawn, cash usage in the quarter, a little greater than we'd expected, I understand the moving pieces. To get to the full-year number, can you just walk through maybe the quarterly cadence, I guess, cash usage in the second quarter with a strong second half, but how do we think about that cadence?
Speaker Change: Perfect and if I could just finally for Shaun cash users in the quarter, a little greater than we'd expected I understand the moving pieces.
Speaker Change: To get to the full year number can you just walk through maybe the quarterly cadence I guess, maybe cash usage in the second quarter with a strong second half, but how do we think about that cadence.
Shawn Mural: Yeah, that's exactly right, Ken. You know, I think the first half of the year will probably be a modest cash usage, right, in aggregate, and then cash flow generation in the second half. Again, very consistent with the cadence. In the first quarter, and I mentioned it in the prepared remarks, you know, we had the timing of some receivables that just missed the quarter close. Nothing, you know, nothing that's concerning to us or anything like that, but that did cause the cash to be a little bit lower than we've traditionally seen. But again, first half of the year, modest usage, and then add to the cash in the back.
Speaker Change: Yeah, that's exactly right.
Speaker Change: Okay.
Speaker Change: At.
The first half of the year will be a modest cash usage, probably right in aggregate and then cash flow generation in the second half again very consistent with the cadence we did in the first quarter and I've mentioned it in the prepared remarks, we had a timing of some some receivables that.
Speaker Change: Just as the quarter closed nothing.
Speaker Change: Nothing that's concerning to us or anything like that but.
Speaker Change: That did cause the cash to be a little bit lower than we've traditionally seen but but again first half of the year modest usage.
Speaker Change: And then.
Speaker Change: And then after the cash in the back half.
Shawn Mural: Great. Thanks, Shawn. I'll pass it on there.
Speaker Change: Great. Thanks, Sean I'll pass it back there.
Rob: Our next question is from the line of Tobey Sommer with Truist Securities. Who's here with your question?
Speaker Change: Our next question is from the line of Tobey Sommer with <unk> Securities. Please proceed with your question.
Tobey Sommer: Thank you. You described, I think, multiple vectors of growth in demand that you're seeing. I was wondering if you could sort of comment about what the pipeline looks like from a margin perspective and also whether it embeds a kind of uplift in margin in terms of the kind of blended profitability of the pipeline as you see it.
Tobey Sommer: Thank you.
Tobey Sommer: Describe I think.
Tobey Sommer: Multiple vik.
Tobey Sommer: Vectors of growth in demand that you're seeing.
Tobey Sommer: I was wondering if you could sort of comment about what the pipeline looks like from a margin perspective.
Tobey Sommer: Also weather in beds are kind of up.
Tobey Sommer: Up lift in margin in terms of.
Tobey Sommer: Kind of the blended profitability of the pipeline as you see it.
Chuck Prow: Yeah, thanks. Hi Tobey, how are you doing?
Speaker Change: Yeah, Thanks, Hi, Tobey How're you doing.
Chuck Prow: So we have a new format that we talked about this year, and it's portrayed on slide seven of the presentation. What you will see is that the training and the operational technology and engineering pipeline is the traditionally higher-margin aspect of our business. In fact, it has been demonstrated to be the higher-margin aspect of our business. I'm really pleased with the continued rate by which we've increased the pipeline of those two important capability sets.
Tobey Sommer: So we have a new format that we talked about this year and for trade on slide seven of the presentation.
Tobey Sommer: What you'll see is that the training and the operational technology and engineering.
Speaker Change: Blind is what is the traditionally higher margin aspect of our business in fact demonstrated to be higher margin aspect of our business I'm really pleased that the continued.
Speaker Change: Right.
Speaker Change: Right by which we've increased the pipeline of those two important capability sets.
Chuck Prow: As you know, executing a pipeline in the federal services market is not an instantaneous thing. But I think the teams are doing a really nice job of very nicely balancing our traditional operational capabilities with the higher margin aspects of our technology-engineered solutions and training activities.
Speaker Change: As you know executing our pipeline in the federal services market is not an instantaneous thing.
Speaker Change: But I think the teams are doing a really nice job of a very nicely balancing our traditional operational capabilities.
Speaker Change: With the higher margin aspects of our tech technology engineered solutions.
Speaker Change: And training activities.
Chuck Prow: Great, that's the answer I was hoping for. And from a protest standpoint, could you update us on the timeline and milestones to think about for the most significant ones that we've sort of got our eyes on?
Speaker Change: Great that's what I was hoping for.
Speaker Change: From a.
Speaker Change: Protest standpoint could you update us on the timeline and milestones to think about for the most significant ones that we've sort of got our eyes on.
Chuck Prow: Yeah, the F5 adversary is a big one out there. It is, and it is now back into GAO. You know, you can't predict the future with these things, but I think what you can predict is this will probably be the last run at GAO. I know our client is ready to get started. We're ready to get started. In fact, we had some modest preparation activities before the new protest happened again.
Speaker Change: Yeah. The five adverse areas is the big is a big one out there. It is it is now back in to.
Speaker Change: G a O.
Speaker Change:
Speaker Change: You can't predict the future on these things, but I think what you can predict is yes.
Speaker Change: So proud to be the last run at G. E O I know our client is ready to get started we're ready to get started in fact, we've had some modest.
Speaker Change: Preparation activities before the new Pratt protest happened again so.
Chuck Prow: We're in the about midway point of this next GAO protest, and we're hoping to be able to move forward once this is done. And that's, of the protests, that's the most significant one that's outstanding. Shawn, anything else? No, that's the big one, and we'll see how it plays out.
Speaker Change: We're in the about Midway point of this next G E O protest and.
Speaker Change: We're hoping to be able to move forward. Once this is done.
Speaker Change: And net debt of the protests that that's the that's the most significant one that's outstanding Sean anything else.
Sean: That's the big one and we'll see how it plays out.
Chuck Prow: Okay, could you comment on the competitive way to escape? It could be bifurcated into two areas, the Logistics and Overseas Logistics area, as well as the aircraft, maintenance, and sustainment, and maybe even a third area if you could talk about that training which seems to be growing in the pipeline. Thanks.
Speaker Change: Okay can you comment on the competitive landscape.
Speaker Change: Chip.
Speaker Change: And maybe bifurcated in two areas.
Speaker Change: Logistics and overseas logistics.
Speaker Change: Area as well as.
Speaker Change: Of the aircraft.
Speaker Change: Maintenance and Sustainment and maybe even a third area. If you could talk about that.
Speaker Change: That training, which seems to be growing in the pipeline. Thanks.
Chuck Prow: Yeah, the operational aspects of our business, and I'll include that, the overseas base and logistics operations, as well as contingency support. There is an operational tempo, and the level of stress that both the DOD and the State Department are under is still very significant. So our role in supporting those important clients overseas will continue to be a tailwind for us because I just think those activities, the rate and pace of the activities that we all see on the news will continue for a while. It's kind of like point one.
Speaker Change: Yeah.
Speaker Change: The operational aspects of our business and I'll include that the oversea sees based on logistics operations as well as contingency support.
Speaker Change: There is.
Speaker Change: The op tempo and the level of stress that both the D. O D industry State Department are under are still very significant so are our role in supporting those important clients overseas.
Speaker Change: We will continue to be a tailwind for us because I just.
Speaker Change: I think those activities the rate and pace of the activities that we all see on the news.
Speaker Change: We will continue for a while.
Chuck Prow: Point two is specific to the aircraft O&M business. We continue to see our clients extending the life cycles of existing platforms and increasing the amount of pressure on themselves and then ultimately ourselves to keep planes in the air, especially as it relates to training. One of the major mission requirements of both the Navy and the Air Force is trained pilots, and they can't train enough pilots.
Speaker Change: <unk> going to specific to the aircraft O&M business.
Speaker Change: We continue to see our clients extending the life cycles of.
Speaker Change: Existing platforms and increasing the amount of pressure on themselves and then ultimately our ourselves.
Speaker Change: To keep to keep planes in the air, especially as it relates to to training you know one of the major mission.
Speaker Change: Requirements of both the Navy and the Air Force is trained pilots.
Speaker Change: And they can't train enough pilots, so we see good op tempo.
Chuck Prow: So we see good OpTempo support in addition to net new requirements across both parts of our business. And as you know, that aspect of our business has continued to consolidate over the last three years. With regard to modernization and sustainment and what we're now beginning to call engineered solutions. Frankly, the large-scale O&Ms are running at capacity, and we see a real opportunity for us to provide quick and agile solutions to integrate disparate platforms, point one, and then point two, extend the usefulness of existing platforms, like you've seen with the F-16 central display unit. So that's how I would kind of view the demand profile of our major capabilities.
Speaker Change: Support in addition to net new requirements across those two parts of our business and as you know that aspect of our business has continued to consolidate over the over the over the last three years.
Speaker Change: With regard to modernization and Sustainment and what we're now beginning to call engineered solutions.
Speaker Change: Frankly, the large scale O&M are running at capacity and we see a real opportunity for us too.
Speaker Change: Quick and agile solutions too.
Speaker Change: Integrate disparate platforms 0.1, and then point to expand extend the usefulness of existing platforms like you've seen with the.
Speaker Change:
Speaker Change: The F 16 central display unit so.
Speaker Change: So that's.
Speaker Change: How I would kind of view the the demand profile of our of our major capabilities.
Chuck Prow: Thank you very much. I appreciate the answers.
Speaker Change: Thank you very much appreciate the answer.
Rob: Our next questions are from the line of Trevor Walsh with Citizens JMP.
Speaker Change: Our next question is from the line of Trevor Walsh with citizens JMP. Please proceed with your question.
Trevor Walsh: Great. Good morning, gentlemen.
Trevor Walsh: Great. Good morning, gentlemen, thanks for taking my questions.
Trevor Walsh: Thanks for taking my questions. I wanted to just maybe dig in again on that pipeline slide for slide seven. I appreciate kind of the break out there. Chuck or Shawn, really, but maybe just Chuck for some of your comments.
Trevor Walsh: Wanted to just maybe dig in again on that pipeline slide after slide seven appreciate kind of the breakout there Chuck.
Trevor Walsh: Chuck.
Trevor Walsh: Sean really but maybe just for some of your comments as.
Chuck Prow: As far as the OT&E business kind of growing or kind of becoming a larger part of the contribution total, how much of that is driven by the kind of the engineering paces that need to go with that, or is it more just that's how the opportunities are developing? Can you give us a flavor of what that kind of R&D needs to happen, and that's why that kind of piece of the pie kind of gets larger over time, or is there some other thing that I'm maybe not picking up on? I'm sorry, thanks for the question, Trevor.
Trevor Walsh: As far as the OTT business kind of growing or becoming a larger part of the contribution of total how.
Trevor Walsh: How much of that is driven by kind of the engineering kind of pieces that need to go with that or is it more just that's how the opportunities are developing I. Just can you give us a flavor of is it kind of R&D that needs to happen and that's why that that kind of piece of the pie kind of gets to get larger over time or is there. Some other thing that maybe not not picky.
Trevor Walsh: I think the.
Speaker Change: I'm sorry.
Trevor Walsh: For the question Trevor.
Trevor Walsh: The.
Chuck Prow: We are aggressively marketing, selling, and experimenting with our clients in the operational technology and the engineering component of our business. So this is a very purposeful approach to sell directly to those clients. In some cases, those clients are OEMs, as well as to sell through our existing contracts. And we've had good examples of both of those that we talked about in our prepared remarks. The CBRN opportunity, not an opportunity anymore, the CBRN...
Trevor Walsh: We are aggressively marketing selling.
Trevor Walsh: Experimenting with our clients and the operational technology and the engineering component of our business now is are they.
Trevor Walsh: A very purposeful approach to sell directly to those clients in some cases those clients or Oems.
Trevor Walsh: As well as to sell through our existing contracts set and we've had good examples of both of those that we've talked about in our prepared remarks.
Trevor Walsh: B R N opportunity that opportunity and where the CBR and contract.
Trevor Walsh: Is like.
Chuck Prow: Like, it's the perfect example. It started off with experimentation with our clients; we proved a contract. We approved, I'm sorry, we approved the concept. The clients then moved directly from there into a sole source contract. And it doesn't always happen that way, but when it happens that way, it's really nice.
Trevor Walsh: It's the perfect example, it started off with experimentation with our clients we proved a contract.
Trevor Walsh: We I'm sorry, we proved the concept the clients then move directly from there into a sole source contract and it doesn't always happen that way, but when it happens that way, it's really nice.
Chuck Prow: So, Shawn, anything to add? Yeah, no, the only thing I'd
Trevor Walsh: So Sean anything to add.
Shawn Mural: Yeah, no, the only thing I'd offer up is, you know, to ensure that the teams have everything that they need. You know, we talked a little bit about some engineering tools and that sort of stuff in the CapEx. We started that last year because, as Chuck said, we see the opportunities, and we want to ensure that we're well prepared to capture that work. So, again, I think we feel very good about the ability to address everything in that.
Sean: Only thing I would offer up is.
Sean: To ensure that the teams.
Sean: We have everything that they need we talked a little bit about some engineering tools and that sort of soften in the Capex. We started that last year because as Chuck said, we we see the opportunities and we want to ensure that we're <unk>.
Sean: We are well prepared to.
Sean: After that to capture that work so again I think we.
Sean: We feel very good about the ability to address everything in that in that pipeline.
Chuck Prow: Great, terrific, super helpful. And a good segue, because I wanted to ask a question about that CVRN contract. Is it base or location kind of specific in terms of footprint, whereas it is where it can sort of expand into maybe other geos, or is it fairly broad in terms of kind of where that solution is being talked through in terms of the... No, it is geography independent. It's happened to be being deployed overseas right now, but some of the earlier use cases were actually around events here in the United States. So it's a... It's a capability set that is... You know, very focused on those types of threats but is geographically independent. Great. And maybe just one last one.
Speaker Change: Great terrific Super helpful.
Speaker Change: Good segue because I wanted to ask a question around that CVR in contract.
Speaker Change: Is it is it base or location kind of specific in terms of footprint, whereas where where it can sort of expand into maybe other geos or is it fairly broad based in terms of kind of where that solutions being a player. You can just talk through kind of the no. It's oh it.
Speaker Change: Is it geography independent.
Speaker Change: It happened to be being deployed overseas right now but.
Speaker Change: Some of the earlier use cases were actually around events here in the United States.
Speaker Change: So I'd say its.
Speaker Change: It's a it's a capability set that is.
Speaker Change: Very focused toward those types of threats, but is is geographically independent.
Chuck Prow: You mentioned just the DOD need to kind of balance all the different requirements across the kind of major things going on per region, whether it's Europe, Ukraine, Middle East, and then Indo-PACOM. How are you, I guess, balancing that or getting the read from that customer? I mean, is there a lag, I suppose, in terms of that balancing act and in terms of where you guys kind of put resources and whatnot? And how does that, I suppose, play out in terms of how things are moving? I imagine it's dynamic. I'm just curious how you guys can keep up with that as well.
Speaker Change: Got it great and maybe just one last one you mentioned just the Dod needs to kind of balance all of the different requirements across the kind of major.
Speaker Change: Kind of things going on for a reason, whether it's Europe, Ukraine Middle East and then you know Indo pay com.
Speaker Change: Hi, how are you I guess balancing that are getting the read from that customer in terms. I mean is there a is there a lag I suppose in terms of that balancing act.
Speaker Change: Where are you guys kind of put resources and whatnot and how does that play out in terms of how things are helping somebody.
Speaker Change: This dynamics I'm just curious how you guys can keep up with that as well in the same way.
Chuck Prow: As again, you see in the prepared remarks and on slide 7, the bid submitted is $9 billion, and the next 12 months' bid to be submitted $16 billion. That's $25 billion of activities there, of proposals there.
Speaker Change: Yeah as you again, you see back in the prepared remarks on slide seven.
Speaker Change: The bid submitted at $9 billion and the next 12 months bids to be submitted 16 billion, that's $25 billion of activities there.
Speaker Change: Proposals there as.
Chuck Prow: As we've talked about in the last couple of quarters and reaffirmed here, the pace by which those awards have been made has been a bit muted. However, we actually believe, particularly with regard to overseas logistics for the Army, as well as the major training activity that has been announced, that some of those awards will actually be forthcoming here in the not-too-distant future. So the answer to your question is that while things continue to be a bit muted, the contents of the $9 billion have been submitted to the point where they're going to have to be awarded here sometime, again, like I say, in the not-too-distant future.
Speaker Change: As we've talked about in the last couple of quarters and kind of reaffirmed here the.
Speaker Change: The pace by which those awards have been made have been a bit muted but.
Speaker Change: We actually leave, particularly with regards to overseas logistics for the army as well as a major training activity.
Speaker Change: That has been announced we actually believe that some of those awards will actually be forthcoming here in the not too distant future. So.
Speaker Change: Answer to your question is as well things continue to be a bit muted.
Speaker Change: <unk>.
Speaker Change: The contents of the $9 billion in bids submitted it to the point where.
Speaker Change: They're going to have to be they're going to have to be awarded here sometime again like I say in the not too distant future.
Trevor Walsh: Great. I appreciate it. Thanks.
Speaker Change: Great appreciate it thanks.
Rob: Our next questions come from the line of Bert Subin with CFL. Please proceed with your question.
Speaker Change: Our next questions come from the line of Bruce <unk> with Stifel. Please proceed with your question.
Bert William Subin: Thank you. Good morning.
Bruce: Okay. Thank you and good morning.
Bert William Subin: Chuck, maybe just following up on that question, like if I look at this bid submitted for $9 billion, about $5 billion of that is for your aerospace solutions. I mean, I think we've heard for a while that there's demand there, there's a lot of bids going out, but there's sort of this slowness and things actually being awarded. And then when they're awarded, there's the protest phase. I guess, can you give us some detail on maybe how your aerospace solutions business has been growing?
Bruce: Doug maybe just following up on that question like if I look at those bids submitted a $9 billion about $5 billion of that is for your aerospace solutions.
Bruce: I mean, I think we've heard for a while that there was demand there theres a lot of bids going out, but theres sort of the slowness in that if things actually being awarded and then when they're awarded Theres the protest phase.
Bruce: Yes can you give us some detail on maybe how your aerospace solutions business has been growing I guess theres been a balance of sunsetting and then the new Navy Test wing Atlantic and Pacific Awards, and do you think.
Bert William Subin: I guess there's been a balance of sun setting and then the new Navy test wing Atlantic and Pacific awards. And do you think sort of the cadence we've seen is starting to improve imminently, or is it sort of your hope that it'll improve in coming quarters?
Bruce: Sort of the cadence we've seen is starting to improve imminently or is sort of your hope that it will improve in coming quarters.
Chuck Prow: I think we've actually had a nice run and organic growth in the aerospace aspect of our business. F5 adversary is the big one that needs to now be adjudicated. But our pipeline across both our core aerospace and our core global mission support businesses remains high. And again, as we've talked about, as... This is a bit of commentary, but... Given the current budget realities that the nation faces, there's going to be increasing pressure to keep assets and facilities operating longer because the reality is that bringing new things into the market is becoming increasingly more difficult given the budgetary reality.
Bruce: I think we've had actually a nice run in organic growth in the.
Bruce: And the aerospace aspect of our business F. Five adverse areas the big one that needs to now be adjudicated.
Bruce: But.
Bruce: Our pipeline.
Bruce: Across both our core aerospace and our core.
Bruce: Global mission support business it remains high and again as we've talked about as well.
Bruce: Again, this is a bit of commentary but.
Bruce: Given the current budget realities that the nation faces theres going to be increasing pressure to keep assets and facilities.
Bruce: Operating longer because the reality is is that.
Bruce: Bringing new things to market will be.
Bruce: It is becoming increasingly more difficult given the budgetary realities.
Chuck Prow: So not a direct answer to your question, but the demand profile for both Aerospace and Global Mission Support is not the issue. It's just, working with our clients to continue to pursue the bids that have been submitted so that they can come out and be awarded, and we can begin them.
Speaker Change: So not a direct answer to your question, but.
Speaker Change: The demand profile in both aerospace and global mission support.
Speaker Change: Is is not the issue. It's just it's working with our clients continue to prosecute the bids that have been submitted so that they can come out and be awarded.
Speaker Change: And we can begin them.
Chuck Prow: I guess maybe just to clarify there: is there a, you know, you have obviously the large award in protest, and that's holding up, you know, another growth driver, but have you seen success maybe in smaller endeavors, logistics, other things within that aerospace solution side, and it's just the large awards are getting held up?
Speaker Change: I guess, maybe just to clarify there is there.
Speaker Change: You have obviously the large award in protest and that's holding up you know another growth driver, but have you seen success, maybe in smaller endeavors logistics other things within that aerospace solutions side and it's just the large awards are getting held up.
Chuck Prow: No, actually, we have I think the on contract growth in our aerospace business has been strong and continues to be strong. And the modernization and sustainment, and the engineered solutions aspects of the pipeline that you see, in many cases, are going back to improve capabilities on those platforms that we're privileged to support.
Speaker Change: No actually we have I think the on contract growth in our aerospace business has been strong and continues to be strong.
Speaker Change: And the modernization and Sustainment.
Speaker Change: The engineered solutions.
Speaker Change: Specs of the pipeline that you see in many cases are going back to improve capabilities on those platforms that we are privileged to support.
Speaker Change: Okay.
Chuck Prow: Got it. Okay. Thanks, Chuck. I guess a follow-up for Shawn on the margin side. It seems like you started the year in line-ish with expectations, and you made the comment about sequential improvement through the year. I guess as we think about going back almost two years to when the deal between Vectors and Vertex was done, and then like an 8% plus margin profile, what's it going to take to get there? Is that just a function of a better mix, or are there specific things you think you can do on the cost side to get there faster?
Speaker Change: Got it okay. Thanks, Chuck I guess, the follow up for Sean on the margin side.
Speaker Change: It seems like started the year, maybe like in line ish with expectations. When you made the comment sort of sequential improvement through the year.
Speaker Change: I guess as we think about.
Sean: Going back almost two years to when the deal between factories and vertex was done and then like 8% plus margin profile, what's it going to take to get there is that just a function of better mix or are there specific things.
Sean: You can do on the cost side to get there faster.
Shawn Mural: Yeah, I'll start. I'll start with, you know, I want to reiterate that we are off to a good start of the year, like we expected, right? So $69 million, I think we said when we released the profile, about 45% of the adjusted EBITDA in the first half. That remains the case, Bert. No change. We're feeling good about where we stand and the opportunities that we see, from a, you know, from a margin growth standpoint. You'd see us, And I talked about it a little bit, we're streamlining operations a bit, putting processes, tools, things like that in place. That's not going to be, you know, huge incremental margin enhancements. It does, of course.
Speaker Change: Yes, I'll start.
Speaker Change: I'll start with the.
Speaker Change: I want to reiterate.
Speaker Change: We are off to the.
Speaker Change: Starting the year like we expected right so $69 million I think we've said.
Speaker Change: When we released the Guy.
Sean: Profile would be about 45% of the of the adjusted EBITDA in the first half.
Sean: That remains the case.
Sean: No change there.
Sean: We're feeling good about.
Sean: Where we stand in the opportunity such that we see.
Sean: From a margin growth standpoint.
Sean: And I talked about it a little bit we're streamlining operations.
Sean: Our bid putting processes tools things like that in place that's not going to be huge.
Sean: Incremental margin enhancements. It does of course, a couple of things also.
Shawn Mural: A couple of things also, you know, that are happening to us, and again, consistent with what we said, 60% of the revenue in the quarter was on cost-type programs. Right, so we said we were trending higher in the back half of last year, and we continue to see that that's supporting our clients and customers with the demands that they have. Part of what you see on page seven, back to the earlier question about mixed changes, I'll say mixed changes, there are certainly higher margins in some of the things that are on there.
Sean: <unk> got her happen indoors and again consistent with what we said.
Sean: 60% of the revenue in the quarter was on cost type program.
Speaker Change: Right. So that we said we were trending higher in the back half of last year.
Speaker Change: We continue to see to see that that's supporting our clients and customers with the demands that they have.
Speaker Change: Part of what you see on page seven and back to the earlier question on I'll say mix changes there are certainly higher margins than some of the things that are that are on there again, we feel good about our ability to go address those things.
Shawn Mural: Again, we feel good about our ability to go address those things, but the team is doing an exceptional job. Thank you all for joining us today. Chuck, any other comments you want to add? No, no.
Speaker Change: But the team is doing an exceptional job of.
Sean: Sustained improvement and program performance and ensuring that we can address everything.
Sean: And capture them.
Chuck: Chuck any any other common Q&A no no I think you summarized it perfectly it's continuing to work on mix and then our teams continuing to kind of lean out the operations.
Chuck Prow: No, no, I think you summarized it perfectly. It's just continuing to work on MIX, and then, you know, our team's continuing to kind of lean out the operations. Maybe the last point that we didn't talk about was just the seasoning of the backlog. You know, our $12 billion in backlog continues to be very front-end loaded, i.e., in the first couple, three years of the execution. And historically, and the progress that we're seeing indicates that as that backlog continues to season, we'll drive higher margins.
Speaker Change: Maybe the last point that we didn't talk about was just the seasoning of the backlog.
Speaker Change: $12 billion in backlog continues to be very front end loaded I E. In the first couple of three years of the execution and.
Sean: Historically in the progress that we're seeing indicates that as that backlog continues to season.
Sean: Will drive higher margins.
Bert William Subin: That's great. Thank you.
Speaker Change: That's great. Thank you I guess last question I've got another one for you Sean on the leverage side it seems.
Bert William Subin: I guess the last question. I have another one for you, Shawn, on the leverage side. It seems like that's ticking lower, sort of as expected, and you have here that you're sort of targeting three turns or less by the end of the year, which is encouraging. I guess, as you think about your position, one, what's the current variable split? Is that still roughly 70-30? And then two, from the cash interest expectation standpoint, seems like the first quarter benefits a little bit. I think you said $25 million, but you're looking for $116 for the year. Just some commentary on why that steps back up. Yeah, so yeah, it is still the very best.
Sean: Seems like that's ticking lower sort of as expected and you have here that youre sort of targeting three turns or less by the end of the year, which is encouraging.
Sean: I guess as you think about <unk>.
Sean: Your position one.
Sean: What's the current variable split is that still roughly 70 30, and then two from the cash interest expect standpoint. It seems like the first quarter that had been a little bit I think you said $25 million.
Sean: But you are looking for 116 for the year, just some commentary on why that steps back up.
Shawn Mural: Yeah, so yeah, the variable split is still 70-30. You know, again, I think for interest expense for the quarter, we had a little bit of favorability. I think, you know, some of it is just timing. I think we feel fine with, again, the guide at about 116, and, you know, there are things that come up. We just want to make sure that we're covering everything, Bert, so nothing particular there, the guide that sticks out at 160.
Sean: Yes.
Speaker Change: Yes. It is the variable split is still 70 30.
Sean: Ken.
Speaker Change: I think for for interest expense for the quarter, Yeah, we had a little bit of favorability.
Speaker Change: Some of it is just timing I think we feel fine with again the guide at about 116, and there are things that come up.
Speaker Change: We just want to make sure that we're covering everything Burke so.
Speaker Change: Nothing particular Barry.
Speaker Change: The guy that sticks out at 116.
Burke: Thanks, John Thanks, Chuck.
Rob: Our next question is from the line of Joe Gomes with Noble Capital. Please proceed with your question.
Burke: Our next question is from the line of Joe Gomes with Noble capital. Please proceed with your question.
Joe Gomes: Good morning, thanks for taking my question.
Joe Gomes: Good morning, Thanks for taking my questions.
Joe Gomes: Thank you, Joe. Good morning.
Joe Gomes: Thank you Joe Good morning, how are you doing.
Joe Gomes: do well. So the first one kind of just wanted to ask, the SG&A line looks like it took a step down in the quarter. I'm just wondering if there's anything particular behind that and if that is a good level going forward here or should we expect to see that go back up?
Joe Gomes: Well, so first one kind of just.
Joe Gomes: Wanted to ask the SG&A line looked like it looks like you took a step down in the quarter I was just wondering if there was anything particular behind that.
Joe Gomes: If that is.
Joe Gomes: A good level going forward here or should we see that I expect to see that to go back up.
Shawn Mural: Yeah, so, you know. As I mentioned a little bit, Joe, we continue to work on our back office operations and that sort of stuff. We did a modest amount of realignment and restructuring as we closed out 2023. So, you do see a little bit of an impact with lower SG&A here in Q1. The other thing I'll say is that there's always some seasonality to it. One of the elements in the SG&A is our bids, proposals, and pursuit activities.
Joe Gomes: Yeah.
Joe Gomes: So.
Burke: As I mentioned, a little bit Joe.
Burke: We continue to work on our back office operations, and that's where so we did a modest amount of.
Burke: Our realignment and restructuring as we closed out 2023, so you do see a little bit of an impact.
Burke: With lower SG&A here in Q1, the other thing I'll say is that there's always some seasonality to it right one of the one of the elements there in the SG&A as our bids and proposals.
Burke: And.
Burke: Pursue pursued activities from so there's some there's always some seasonality or how those things play out.
Shawn Mural: And so, there's always some seasonality to how those things play out. But I think we feel good about where our cost structure is today. It's very well aligned to meet the needs of the business. We have more work to do. We're putting those tools and processes in place, all the things you would expect.
Burke: But I think we feel good about where where our cost structure is today.
Burke: It's very well aligned to meet the needs of the business, we have more work to do.
Burke: Putting these tools and processes in place all of the things you would expect us to do.
Joe Gomes: Okay, great. Thanks for that one.
Burke: Okay, great. Thanks for that one and then Chuck maybe you could talk a little bit more about the air Force augmentation program.
Joe Gomes: And then, Chuck, maybe we can talk a little bit more about the Air Force Augmentation Program. You know, the DOD announced that you guys are one of the awardees, and as you mentioned, it's now a $15 billion program, up from $6.4 billion when it was last put out. Similar to the other program that we talked about, it was $900 million, and Vectris was awarded about $300 million. Do you have similar numbers here, that $6.4? What V2X will end up getting under this Air Force program, and how do you see the opportunities on the Air Force program playing out from there?
Chuck: <unk> announced that you guys are one of the award ease in as you mentioned, it's now a $15 billion program up from $6 4 billion.
Chuck: What it was last put out.
Chuck: Similar to the <unk>.
Chuck: The other program.
Chuck: When you talked about it was a $900 million in that Chris was awarded about $300 million do you have similar type of numbers here that six four <unk> and up.
Chuck: Getting under this Air Force program and how do you see the opportunities.
Chuck: On the Air Force program playing out from that.
Chuck Prow: Yeah, I think under the last version of AFCAP, Mike, we were $250 million.
Chuck: Yes, I think under the last version of App cap, Mike we were at $250 million.
Chuck: 2021 on this one from 'twenty from 'twenty, one to today, but $250 million.
Chuck Prow: From 2021 up to... on this one. From 20...
Chuck Prow: From 21 to today, it's about $250 million. That, that, that, uh...
Burke: That that debt.
Chuck Prow: The AFCAP program has really been a good program for us. We've done a really nice job of expanding into new tasks. The margin profile has done. They've done a very nice job on the margin profile. And as I've mentioned, the demands around the world are not diminishing, point one. Point two, existing assets, deployed assets to the military, and sometimes even to the State Department, require extension. And the last point I'll make is that the prior version of AFSCAP had many more awardees, but the consolidation of DINE and PAE into momentum, et cetera, have really continued to neck down, if you will, the competitive set to the four or five players that you know.
Burke: As Caf program has really been.
Speaker Change: Good program for us.
Speaker Change: We've done a really nice job of expanding.
Burke: Two new task the margin profile has done.
Burke: Very good they've done a very nice job on the margin profile.
Burke: And as I've mentioned the <unk> the.
Burke: The demands around the world are not diminishing.
Burke: One point to existing assets deployed assets in the military and sometimes even to the state department require.
Burke: Extension and the last point I'll make is that the the prior version.
Burke: Vas cap add many more award ease, but the consolidation of dine in PAA into a mentum.
Burke: Et cetera are really key.
Burke: Continue to neck down if you will the competitive set too.
Burke: The four or five players that you know so.
Chuck Prow: So it's a nice contract for us. I really like the operational capabilities that we've been able to develop internally in support of the Air Force client. And I look for the team to do a really nice job against the requirements that are to be issued here in the near term.
Burke: It's a nice contract for us I really like the operational.
Burke: Capabilities that we've been able to develop internally in support of the Air Force client and I looked for the team to do a really nice job against the requirements that it should be issued here in the near term.
Chuck Prow: Great. Thanks for that. I appreciate you taking the time to answer the question.
Speaker Change: Great. Thanks for that I appreciate you taking the questions.
Speaker Change: Thanks, a lot Joe.
Rob: Thank you. At this time, we've reached the end of the question and answer session, and I'll turn the call over to Chuck Prow for closing remarks.
Speaker Change: Thank you at this time, we've reached the end of the question and answer session and I will turn the call over to Chuck proof for closing remarks.
Chuck Prow: Thank you, Rob, and I appreciate everybody joining us on the call today. I think we've had a very nice quarter, and we'll be looking forward to updating you at the end of the second quarter. Have a good day.
Chuck: Thank you, Rob and I appreciate everybody joining us on the call today I think we've got a very nice quarter, and where we'll be looking forward to updating you at the end of the second quarter have a good day.
Rob: This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: This will conclude today's conference you may disconnect your lines at this time and thank you for your participation.