V2X, Inc. (NYSE:VVX) Q1 2024 Earnings Call Transcript

V2X, Inc. (NYSE:VVX) Q1 2024 Earnings Call Transcript May 7, 2024

V2X, Inc. beats earnings expectations. Reported EPS is $0.9, expectations were $0.75. V2X, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for joining us for the V2X First Quarter 2024 Earnings Conference Call and Webcast. Today’s 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 the call up for a Q&A session. [Operator Instructions] As a reminder, this conference is being recorded. And now, I’ll pass the call over to your host, Mike Smith, Vice President of Treasury, Investor Relations and Corporate Development at V2X.

Mike Smith: Thank you. Good morning everyone. 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 on the Investor Relations section of our website gov2x.com. Please turn to Slide 2. During today’s presentation, management will be making forward-looking statements pursuant to the Safe Harbor provisions of the Federal Securities Laws. Please review our Safe Harbor statements in our press release and presentation materials for a description of some of the factors that may cause actual results to differ materially from the results contemplated by these forward-looking statements.

The company assumes no obligation to update its forward-looking statements. Additionally, I’d 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, adjusted net income, and adjusted diluted earnings per share. 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’d like to turn the call over to Chuck Prow.

Chuck Prow: Thank you, Mike and good morning everyone. Thank you for joining us on the call today. Please turn to Slide 3. 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 would 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 that V2X has once again been recognized as a top Military-Friendly Employer by VIQTORY. 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 4. V2X 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. 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 and 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. 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 a 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 INDOPACOM, with revenue in the region increasing 7% year-over-year. 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 greater number of opportunities to support our clients’ increasing mission requirements. For example, V2X has been asked to support a series of smaller exercises in 2024 under Balikatan/Salaknib. This INDOPACOM growth is particularly notable since 2023 included the more significant Pacific exercises schedule that occurs in the odd numbered years.

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 US 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 win builds on our 40-year track record of providing cyber security, mission IT and critical communications across the globe. I’ll speak more on how we are expanding our offerings in existing business in the region shortly. Adjusted EBITDA in the quarter was $69.1 million or 6.8% margin. Adjusted EPS increased 8% year-over-year to $0.90. V2X is differentiating as 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. Our agility and ability to deliver mission critical capabilities on a global scale, places V2X that have a unique position to support our clients’ evolving mission requirements and were demonstrated to recent notable awards. First, we were recently awarded over $140 million in task order to continue providing support services to the US Air Force in Jordan and Romania. The awards, which are firm fixed priced, were made under the Air Force Contract Augmentation Program V, 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. Second and building on AFCAP, during the first quarter V2X was awarded a position on the US 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 as executed by the Navy. The total contract ceiling value of GCS MAC III 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. Importantly, we were the leading provider of services under the prior iteration of 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. V2X is creating more value in its core markets by inserting operational technologies into mission essential operations. This was recently exemplified through wins valued at $75 million to operationalize next generation solutions, the threat detection and response to Chemical, Biological, Radiological and Nuclear or CBRN hazards. Importantly, this work expanded from our 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 leak sensors together to provide integrated situational awareness about potential had a hazard to inform and user decision making. In addition to CSC2, V2X will modernize and re-architect the CBRN threat warning and notification application and predictive hazard propagation tool for enhanced operational decision support. In awards to illustrate how we are harnessing technology based solutions, operational expertise and global footprint to address high consequence emission requirements, please turn to slide 6. 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.

As it relates to 5G and smart warehousing, we were awarded additional scope under our existing LOGCAP V 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 this solution is scalable across INDOPACOM region. You provide protected and secure network infrastructure to support warehouse operations, field appointments and exercises. This solution also aligns the type of investments. The DoD is making as part of the Pacific Deterrence Initiative or PDI. The DoD 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. Beyond LOGCAP, we also are supporting the design, implementation, testing and operation of our 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. 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 vehicles in the Middle East. This award established as our solution on the region and displaces an incumbent. 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 improve our client’s security posture.

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. These two recent awards improve the installed 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 inserting solutions through existing contracts. Please turn to Slide 7. 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 submit 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 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 increase – an increasing percentage of the total. As can be seen on this 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 capabilities that V2X brings to the market across a more diversified client base. We believe our pipeline, strong backlog, preliminary re-competes and budgetary environment provides continued confidence and visibility to achieve our commitments.

Now, I’d like to turn the call over to Shawn for a review of the financials. Shawn?

Shawn Mural: Thanks, Chuck and thanks, everyone for joining us here today. Please turn to Slide 8. We have 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 $1.11 billion 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%. As discussed previously, we expect revenue and adjusted EBITDA will ramp sequentially throughout the year.

Adjusted diluted EPS was $0.90, up 8% from prior year. The growth reflects lower income tax and interest expense, partially offset by higher depreciation and other expense. Interest expense for the quarter was $27.6 million. Cash interest expense was $25.4 million. An important attribute of our business, is the ability to generate strong cash flow with low capital expenditure requirements, and 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 collected shortly after the quarter closed.

Adjusted net cash used by operating activities was $83.5 million adding back M&A and integration costs and remove and removing the contribution of the Master Accounts Receivable Purchase Agreement. Regarding 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, continue to expect capital expenditures of approximately $30 million for the year. Please turn to slide 9. 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 million. Net debt to EBITDA leverage ratio was 3.5 times at the end of the quarter, which improved notably from approximately four times at merger closed. 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 remains strong, with over $460 million in capacity which includes approximately $427 million of availability on our revolver. Please turn to slide 10. 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 FMS win, for the $458 million F-5 Adversary Aircraft programs 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. Please turn to slide 11. The company is reaffirming our 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 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?

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Q&A Session

Operator: Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] Thank you. And our first question comes from the line of Ken Herbert with RBC Capital Markets. Please proceed with your question.

Ken Herbert: Hey good morning, everybody. Nice quarter.

Chuck Prow: Thanks Ken. How are you?

Ken Herbert: 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. Could 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 2024?

Chuck Prow: Sure. We’ll kind of walk around the globe to do that. So 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 new wins — nice new wins actually in the region. We are processing a request 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 and they’re much smaller in the even years as we’ve talked about in the past, 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 we’re seeing higher tempo across the globe and probably throughout the year quarter and into the third quarter we’ll begin to process net new requests.

Ken Herbert: Great. And obviously you kept the guidance unchanged. 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 line through the remainder of the year.

Chuck Prow: It’s earlier in the year as you’re aware of our of our typical practices as these opportunities turn into a design task orders will begin to think about the guidance, but we feel very comfortable with the guidance that we’ve previously announced and that Shawn reaffirm here this morning.

Ken Herbert: Perfect. And if I could just finally for Shawn, on cash uses 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, maybe cash usage in the second quarter with a strong second half, but how do we think about that cadence?

Shawn Mural: Yes, that’s exactly right. I can’t, I think 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 had mentioned in the prepared remarks. We had a timing of some receivables that just missed the quarter closed. 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 and then add to the cash in the back half of the year.

Ken Herbert: Great. Thanks Shawn. And I’ll pass it back there.

Operator: Our next question is from the line of Tobey Sommer with Truist Securities. Please proceed with your question.

Tobey Sommer: Thank you. Could you describe, I think, a multiple kind of 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 kind of the blended profitability of the pipeline as you see it.

Chuck Prow : Yes, Thanks. Hi, Tobey. How are you doing? So we have a new format that we talked about this year as portrayed on Slide 7 of the presentation. What you’ll see is that the training and the operational technology and engineering pipeline is a traditionally higher margin aspect of our business in fact demonstrated to be higher margin aspect of our business. I’m really pleased that they continued rate by which we’ve increased the pipeline of those two important capability sets. 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.

Tobey Sommer: Great. That’s what the answer I was hoping for from a protest standpoint could you update us on the time line and milestones to think about for the most significant ones that we’ve sort of got our eyes on?

Charles Prow: Yes the F5 adversary is a big is a big one out there. It is now back in to GAO, you can’t predict the future on 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’ve had some modest our preparation activities before the new Pratt protest happened again. So, where 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 have that’s the most significant one that’s outstanding. Shawn anything else?

Shawn Mural: That’s a big one and we’ll see how it plays out.

Tobey Sommer: Could you comment on the competitive landscape in maybe bifurcated in 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 that training which seems to be growing in the pipeline? Thanks.

Charles 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 the op tempo and the level of stress that both the DoD and the strict State Department are under are still very significant. So are our role in supporting those important clients overseas. It will continue to be a tailwind for us because I just I 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 point one. 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 our self to keep to keep planes in the air especially as it relates to training one of the major mission requirements of both the Navy and Air Force is trained pilots, and they can’t train enough pilots.

So we see good op tempo 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. With regard to modernization and sustainment and what we’re now beginning to call engineered solutions. Frankly the large scale O & M’s 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, expand extend the usefulness of existing platforms like you’ve seen with the F-16 Central Display Unit. So that’s that how I would kind of view the demand profile of our major capabilities.

Tobey Sommer: Thank you very much. Appreciate the answer.

Operator: Our next question is from the line of Trevor Walsh with Citizen’s JMP. Please proceed with your question.

Trevor Walsh: Great. Good morning gentlemen. Thanks for taking my questions. I wanted to just maybe dig in again on that pipeline slide for slide 7. Appreciate kind of the breakout there Chuck or Shawn really. But maybe I’m just Chuck from for some of your comments. As far as the OC&E business kind of growing or kind of becoming a larger part of the contribution of total how much of that is driven by kind of the engineering kind of 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 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 gets larger over time? Or is there some other thing that maybe not picking up?

Charles Prow: I think the — thanks for the question, Trevor. The – -we are aggressively marketing, selling, experimenting with our clients in the operational technology and the engineering component of our business. So this is a — is a very purposeful approach to sell directly to those clients. In some cases, those clients or OEM’s as well as to sell through our existing contracts set. We’ve had good examples of both of those that we talked about in our prepared remarks. The CBRN opportunity, not opportunity where the CBRN contract is like it’s the perfect example. It starts off with experimentation with our clients. We proved a contract. We have put — I’m sorry, we proved the concept. The clients then move directly from there into a sole source first contract and it doesn’t always happen that way. But when it happens that way, it’s really nice. So Shawn, anything to add?

Shawn Mural: The only thing I’d offer up is you know to ensure that the teams have everything that they need. We talked a little bit about some engineering tools and that first off 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 pipeline.

Trevor Walsh: Great. Terrific. Super helpful. And good segue because I wanted to ask a question around that CBRN contract, is it is it base or location kind of specific in terms of footprint whereas where as where can you sort of expand into maybe other geos? Or is it fairly broad-based in terms of kind of where that solution is being implemented? And just talk through kind of…

Shawn Mural: It is geography independent. It 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 capability set that is very focused toward those types of threats, but is geographically independent.

Trevor Walsh: Got it. Great. And maybe just one last one. You mentioned just the DoD needs to kind of balance all the different requirements across the kind of major kind of things going on per region, whether it’s Europe, Ukraine, Middle East and Indo Paycom. How are you I guess balancing that are getting a read from that customer? And I mean is there a lag I suppose in terms of that balancing act in terms of where you guys kind of put resources and whatnot? And how does that I guess play out in terms of how things are how things are moving. I mean I imagine it’s dynamics. I’m just curious how you guys can kind of keep up with that as well in the same way.

Shawn Mural: As you again you see that in the prepared remarks and on slide 7, the bids submitted at 9 billion and the next 12 months bids to be submitted 16 billion. That’s 25 billion of activities. There are proposals there. As we’ve talked about at the last couple of quarters and kind of reaffirm here, the pace by which those awards have been made have been a bit muted, but we actually believe particularly with regards to overseas logistics for the Army, as well as with major training activity that has been — and now we actually believe that some of those awards will actually be forthcoming here in the not too distant future. So kind of the answer to your question is that while things continue to be a bit muted, the contents of the $9 billion in bids submitted or to the point where 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. Appreciate it. Thanks.

Operator: Our next questions come from the line of Bert Subin with Stifel. Please proceed with your question.

Bert Subin: Yes, thank you. Good morning. Chuck, maybe just following up on that question like if I look at those bids submitted of $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 the slowness in that 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? I guess there’s been a balance of sunsetting and then the new tape Navy Test Wing Atlantic and Pacific awards. And do you think sort of the cadence we’ve seen is starting to improve imminently or sort of your hope that it will improve in coming quarters?

ChuckProw: I think we’ve had actually a nice run in organic growth in the aerospace aspect of our business. F-5 Adversary is the big one that needs to now be adjudicated. But our pipeline across both our core aerospace and our core our global mission support business remained high, and again as we’ve talked about, again 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 the bringing new thing to market will become — is becoming increasingly more difficult given the budgetary realities. So not a direct answer to your question, but the demand profile in both aerospace and global mission support is not the issue. It’s just, it’s working with our clients to continue to prosecute the bids that have been submitted, so that they can come out and be awarded and we can begin.

Bert Subin: I guess maybe just to clarify there, is there are — you have obviously the large award in protest and that’s holding up 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?

ChuckProw: 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 of the engineered solutions aspects of the pipeline that you see in many cases are going back to improve capabilities on those platforms that work probably to support.

Bert Subin: Got it. Okay. Thanks. And I guess a follow-up for Shawn. On the margin side, it seems like started the year maybe like in-line-ish with expectations and you made the comment sort of sequential improvement through the year. I guess as we think about going back almost two years to when the deal between Vectrus 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 you think you’re doing on the cost side to get there faster?

Shawn Mural: Yeah, I’ll start with, yeah, I want to reiterate, we are off to the — start of the year like we expected right? So $69 million, I think we said when we released the guide, the profile or give up 45% of the adjusted EBITDA in the first half that that remains the case for no change. We’re feeling good about where we stand and the opportunities that we see. From a margin growth standpoint, as you see us and I talked about it a little bit, we’re streamlining operations a bit putting our processes, tools, things like that in place. That’s not going to be huge incremental margin enhancements. It does, of course, a couple of things also that are happening to us. And again consistent with what we said, 60% of the revenue in the quarter was on cost tight program.

So that we said, we were trending higher in the back half of last year. We continue to see to see that that’s supporting our clients and customers with the demands that they have. Part of what you see on page 7 back to the earlier question on, I’ll say mix changes. There are certainly higher margins and some of the things that are that are on there. Again we feel good about our ability to go address those things. But the team is doing an exceptional job of consistent improvement in program performance and ensuring that we can address everything and capture them – Chuck, any other comments you want to give?

Chuck Prow: No, I think you’ve summarized it perfectly. It’s just continuing to work on mix and then our teams continuing to lean out the operations. May be the last point that we didn’t talk about was just the seasoning of the backlog. Our $12 billion in backlog continued to be very front-end loaded, i.e. in the first couple of 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.

Bert Subin: That’s great. Thank you. I guess last question I had another one for you Sean on the leverage side 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 what 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 expense standpoint seems like the first quarter benefit a little bit. I think you said 25 million, but you’re looking for 116 for the year? Just some commentary on why that’s.

Shawn Mural: Yeah. So yeah, it is still the variable split is still 70, 30. Again, where I think for interest expense for the quarter? Yeah, we had a we had a little bit of favorability and I think you know some of it is just timing. I think we feel fine with again the guided about one 16 and there are things that come up. We just want to make sure that we’re covering everything Bert so that nothing particular there. The guide the 6.16. Thanks, John.

Bert Subin: Thanks, Shawn, thanks, Chuck.

Operator: Our next question is from the line of Joe Gomes with Noble Capital. Please proceed with your questions.

Joe Gomes: Good morning. Thanks for taking my questions.

Chuck Prow: Thank you, Joe.

Shawn Mural: Joe, how are you doing?

Joe Gomes: Well. So the first one kind of just wanted to ask the SG&A line. Look we’ve it looks like it took a step down in the quarters. Just wondering if there’s anything particular behind that? And if that is a good level going forward here, should we see that expect to see that to go back up?

Shawn Mural: Yeah. So no as I mentioned a little bit Joe we will continue to work on our back-office operations and that’s our 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, right? One or that one of the elements there in the SG&A is our bids and proposals and pursuit activities. And so there’s some 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 with putting those tools and processes in place all the things you would expect us.

Joe Gomes: Okay, great. Thanks for that one. And then Shawn maybe to talk a little bit more about the Air Force Augmentation Program. 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 we talked about it was a $900 million in Vectrus was awarded about $300 million. Do you have similar type of numbers here that 6.4 what does V2X end up getting on under this Air Force program? And how do you see the opportunities on the Air Force program playing out from there?

Shawn Mural: Yeah. I think under the last version of Abcam Mike we are 250 million?

Mike Smith: From 2021

Shawn Mural: From 2021 to today it’s about 250 million of that. That CAP program has really been a good program for us. So we’ve done a really nice job of expanding into new task. The margin profile has done very, very good. 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 for IT assets in the military and sometimes even the State Department require extension and the last point I’ll make is that the prior version I’ve asked cap add many more awardees but the consolidation of dine in PA into momentum et cetera have really continue to net down if you will the competitive set to the four or five players that you know.

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 going to be issued here in the near term.

Joe Gomes: Great. Thanks for that. Appreciate you taking the questions.

Shawn Mural: Thanks a lot Joe.

Operator: 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.

Chuck Prow: Thank you, Rob, and I appreciate everybody joining us on the call today. We’ve had a very nice quarter and where we look for looking forward to updating you at the end of the second quarter. Have a good day.

Operator: This will conclude today’s conference. You may disconnect. Your lines at this time and thank you for your participation.