UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~July 1, 2022~~June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-36341

V2X, Inc.

(Exact name of registrant as specified in its charter)


Indiana		38-3924636
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

~~2424 Garden of the Gods Road, Colorado Springs, Colorado 80919~~7901 Jones Branch Drive, Suite 700, McLean Virginia 22102
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code:
~~(719)~~(571)	~~591-3600~~481-2000

Securities Registered Under Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, Par Value $0.01 Per Share	VVX	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”,~~filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☑

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

Table of Contents

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐

No ☑

As of August ~~4, 2022~~,1, 2023, there were ~~30,441,455 share~~s31,185,422 shares of common stock ($0.01 par value per share) outstanding.

Table of Contents

V2X, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


		Page No.
	PART I. FINANCIAL INFORMATION	4
Item 1.	Financial Statements (Unaudited)	4
	Condensed Consolidated Statements of Income (Loss)	4
	Condensed Consolidated Statements of Comprehensive Income (Loss)	5
	Condensed Consolidated Balance Sheets	6
	Condensed Consolidated Statements of Cash Flows	7
	Condensed Consolidated Statements of Changes to Shareholders' Equity	8
	Note 1. Description of Business and Summary of Significant Accounting Policies	9
	Note 2. Recent Accounting Standards Update	10
	Note 3. ~~Revenue~~Merger	10
	Note 4. ~~Receivables~~Revenue	1312
	Note 5. ~~Goodwill and Intangible Assets~~Receivables	1314
	Note 6. Debt	14
	Note 7. Derivative Instruments	1518
	Note 8. ~~Leases~~	15
	~~Note 9.~~ Commitments and Contingencies	16
	~~Note 10. Stock Based Compensation~~	17
	~~Note 11. Income Taxes~~	18
	Note ~~12. Earnings Per Share~~	19
	~~Note 13. Deferred Employee~~9. Stock-Based Compensation	19
	Note ~~14. Multi-employer Pension Plan~~10. Income Taxes	1921
	Note ~~15. Subsequent Event~~11. Earnings (Loss) Per Share	1921
	Note 12. Post-Employment Benefit Plans	22
	Note 13. Sale of Receivables	22
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31
Item 4.	Controls and Procedures	3231
	PART II. OTHER INFORMATION	33
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3833
Item 3.	Defaults U ~~pon~~Upon Senior Securities	3833
Item 4.	Mine Safety Disclosures	3833
Item 5.	Other Information	3933
Item 6.	Exhibits	4034
	Signatures	4134

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

V2X, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)


		Three Months Ended				Six Months Ended					Three Months Ended				Six Months Ended
		July 1,		July 2,		July 1,		July 2,			June 30,		July 1,		June 30,		July 1,
(In thousands, except per share data)	(In thousands, except per share data)	2022		2021		2022		2021		(In thousands, except per share data)	2023		2022		2023		2022
Revenue	Revenue	$	498,066	$	470,845	$	954,537	$	904,849	Revenue	$	977,852	$	498,066	$	1,921,312	$	954,537
Cost of revenue	Cost of revenue	453,305		422,660		872,581		816,308		Cost of revenue	890,452		453,305		1,755,082		872,581
Selling, general, and administrative expenses	Selling, general, and administrative expenses	29,740		25,605		61,699		49,427		Selling, general, and administrative expenses	53,130		29,740		101,381		61,699

Operating income	Operating income	15,021		22,580		20,257		39,114		Operating income	34,270		15,021		64,849		20,257
Loss on extinguishment of debt										Loss on extinguishment of debt	—		—		(22,052)		—
Interest expense, net	Interest expense, net	(1,963)		(2,253)		(3,643)		(4,186)		Interest expense, net	(31,950)		(1,963)		(63,694)		(3,643)
Other expense, net										Other expense, net	(311)		—		(311)		—
Income (loss) from operations before income taxes										Income (loss) from operations before income taxes	2,009		13,058		(21,208)		16,614
Income tax expense (benefit)										Income tax expense (benefit)	210		2,586		(5,527)		3,287
Net income (loss)										Net income (loss)	$	1,799	$	10,472	$	(15,681)	$	13,327

Income from operations before income taxes		13,058		20,327		16,614		34,928
Income tax expense		2,586		4,393		3,287		6,946
Net income		$	10,472	$	15,934	$	13,327	$	27,982

Earnings per share
Earnings (loss) per share										Earnings (loss) per share
Basic	Basic	$	0.89	$	1.36	$	1.13	$	2.40	Basic	$	0.06	$	0.89	$	(0.51)	$	1.13
Diluted	Diluted	$	0.88	$	1.35	$	1.12	$	2.37	Diluted	$	0.06	$	0.88	$	(0.51)	$	1.12
Weighted average common shares outstanding - basic	Weighted average common shares outstanding - basic	11,826		11,715		11,793		11,681		Weighted average common shares outstanding - basic	31,033		11,826		30,981		11,793
Weighted average common shares outstanding - diluted	Weighted average common shares outstanding - diluted	11,954		11,828		11,917		11,823		Weighted average common shares outstanding - diluted	31,605		11,954		30,981		11,917

The accompanying notes are an integral part of these financial statements.

Table of Contents

V2X, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)


		Three Months Ended				Six Months Ended					Three Months Ended				Six Months Ended
		July 1,		July 2,		July 1,		July 2,			June 30,		July 1,		June 30,		July 1,
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2023		2022		2023		2022
Net income		$	10,472	$	15,934	$	13,327	$	27,982
Net income (loss)										Net income (loss)	$	1,799	$	10,472	$	(15,681)	$	13,327
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax									Other comprehensive income (loss), net of tax
Changes in derivative instruments:	Changes in derivative instruments:									Changes in derivative instruments:
Net change in fair value of interest rate swaps	Net change in fair value of interest rate swaps	227		230		667		524		Net change in fair value of interest rate swaps	7,658		227		5,311		667
Net change in fair value of foreign currency forward contracts	Net change in fair value of foreign currency forward contracts	—		(100)		30		(495)		Net change in fair value of foreign currency forward contracts	—		—		—		30

Tax (expense) benefit	Tax (expense) benefit	367		(51)		272		(27)		Tax (expense) benefit	(1,444)		367		(1,296)		272
Net change in derivative instruments	Net change in derivative instruments	594		79		969		2		Net change in derivative instruments	6,214		594		4,015		969
Foreign currency translation adjustments, net of tax	Foreign currency translation adjustments, net of tax	(3,637)		430		(4,254)		(1,926)		Foreign currency translation adjustments, net of tax	274		(3,637)		2,080		(4,254)
Other comprehensive income (loss) net of tax		(3,043)		509		(3,285)		(1,924)
Total comprehensive income		$	7,429	$	16,443	$	10,042	$	26,058
Other comprehensive income (loss), net of tax										Other comprehensive income (loss), net of tax	6,488		(3,043)		6,095		(3,285)
Total comprehensive income (loss)										Total comprehensive income (loss)	$	8,287	$	7,429	$	(9,586)	$	10,042

The accompanying notes are an integral part of these financial statements.

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V2X, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


		July 1,		December 31,			June 30,		December 31,
(In thousands, except per share information)		2022		2021
(In thousands)						(In thousands)	2023		2022
Assets	Assets					Assets
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	31,760	$	38,513	Cash and cash equivalents	$	70,314	$	116,067
Restricted cash		3,311		—

Receivables	Receivables	374,980		348,605		Receivables	746,562		728,582
Prepaid expenses	Prepaid expenses	26,262		21,160		Prepaid expenses	77,724		74,234
Other current assets	Other current assets	10,646		15,062		Other current assets	23,906		13,049
Total current assets	Total current assets	446,959		423,340		Total current assets	918,506		931,932
Property, plant, and equipment, net	Property, plant, and equipment, net	23,530		23,758		Property, plant, and equipment, net	82,284		78,715
Goodwill	Goodwill	321,734		321,734		Goodwill	1,656,965		1,653,822

Intangible assets, net	Intangible assets, net	62,159		66,582		Intangible assets, net	452,739		497,951
Right-of-use assets	Right-of-use assets	39,705		43,651		Right-of-use assets	46,017		52,825
Other non-current assets	Other non-current assets	11,760		10,394		Other non-current assets	22,245		17,858
Total non-current assets	Total non-current assets	458,888		466,119		Total non-current assets	2,260,250		2,301,171
Total Assets	Total Assets	$	905,847	$	889,459	Total Assets	$	3,178,756	$	3,233,103
Liabilities and Shareholders' Equity	Liabilities and Shareholders' Equity					Liabilities and Shareholders' Equity
Current liabilities	Current liabilities					Current liabilities
Accounts payable	Accounts payable	$	244,080	$	212,533	Accounts payable	$	416,424	$	406,706

Compensation and other employee benefits	Compensation and other employee benefits	82,534		80,284		Compensation and other employee benefits	145,000		168,038

Short-term debt	Short-term debt	10,400		10,400		Short-term debt	15,500		11,850
Other accrued liabilities	Other accrued liabilities	48,322		55,031		Other accrued liabilities	255,408		196,538
Total current liabilities	Total current liabilities	385,336		358,248		Total current liabilities	832,332		783,132

Long-term debt, net	Long-term debt, net	78,884		94,246		Long-term debt, net	1,190,023		1,262,811
Deferred tax liability		32,489		32,214
Operating lease liability		30,719		34,536
Deferred tax liabilities						Deferred tax liabilities	13,773		15,813
Operating lease liabilities						Operating lease liabilities	35,490		41,083
Other non-current liabilities	Other non-current liabilities	14,941		20,128		Other non-current liabilities	114,420		133,185
Total non-current liabilities	Total non-current liabilities	157,033		181,124		Total non-current liabilities	1,353,706		1,452,892
Total liabilities	Total liabilities	542,369		539,372		Total liabilities	2,186,038		2,236,024
Commitments and contingencies (Note 9)		0		0
Commitments and contingencies (Note 8)						Commitments and contingencies (Note 8)
Shareholders' Equity	Shareholders' Equity					Shareholders' Equity
Preferred stock; $0.01 par value; 10,000 shares authorized; No shares issued and outstanding	Preferred stock; $0.01 par value; 10,000 shares authorized; No shares issued and outstanding	—		—		Preferred stock; $0.01 par value; 10,000 shares authorized; No shares issued and outstanding	—		—
Common stock; $0.01 par value; 100,000 shares authorized; 11,846 and 11,738 shares issued and outstanding as of July 1, 2022 and December 31, 2021, respectively		118		117
Common stock; $0.01 par value; 100,000 shares authorized; 31,081 and 30,470 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively						Common stock; $0.01 par value; 100,000 shares authorized; 31,081 and 30,470 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively	311		305
Additional paid in capital	Additional paid in capital	91,464		88,116		Additional paid in capital	754,096		748,877
Retained earnings	Retained earnings	281,081		267,754		Retained earnings	237,743		253,424
Accumulated other comprehensive loss		(9,185)		(5,900)
Accumulated other comprehensive income (loss)						Accumulated other comprehensive income (loss)	568		(5,527)
Total shareholders' equity	Total shareholders' equity	363,478		350,087		Total shareholders' equity	992,718		997,079
Total Liabilities and Shareholders' Equity	Total Liabilities and Shareholders' Equity	$	905,847	$	889,459	Total Liabilities and Shareholders' Equity	$	3,178,756	$	3,233,103

The accompanying notes are an integral part of these financial statements.

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V2X, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended
July 1, July 2,
(In thousands) 2022 2021
Operating activities
Net income $ 13,327 $ 27,982
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense 3,238 3,097
Amortization of intangible assets 4,423 4,891
(Gain) Loss on disposal of property, plant, and equipment (15) 60
Stock-based compensation 4,725 4,923
Amortization of debt issuance costs 388 463
Changes in assets and liabilities:
Receivables (29,302) (38,882)
Prepaid expenses (5,321) (4,660)
Other assets 5,185 597
Accounts payable 32,470 18,784
Deferred taxes — 370
Compensation and other employee benefits 2,507 11,285
Other liabilities (11,989) (14,884)
Net cash provided by operating activities 19,636 14,026
Investing activities
Purchases of capital assets (3,492) (4,833)
Proceeds from the disposition of assets 18 16
Business acquisition purchase price adjustment — 262
Contribution to joint venture (2,113) (1,846)
Net cash used in investing activities (5,587) (6,401)
Financing activities
Repayments of long-term debt (5,200) (4,000)
Proceeds from revolver 392,000 215,000
Repayments of revolver (402,000) (215,000)
Proceeds from exercise of stock options 370 113
Payment of debt issuance costs (458) (17)
Payments of employee withholding taxes on share-based compensation (1,696) (2,272)
Net cash used in financing activities (16,984) (6,176)
Exchange rate effect on cash (507) (373)
Net change in cash, cash equivalents and restricted cash (3,442) 1,076
Cash, cash equivalents and restricted cash - beginning of year 38,513 68,727
Cash, cash equivalents and restricted cash - end of period $ 35,071 $ 69,803
Supplemental disclosure of cash flow information:
Interest paid $ 3,409 $ 3,111
Income taxes paid $ 6,112 $ 5,747
Purchase of capital assets on account $ 13 $ 618


	Six Months Ended
	June 30,		July 1,
(In thousands)	2023		2022
Operating activities
Net (loss) income	$	(15,681)	$	13,327
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation expense	11,326		3,238
Amortization of intangible assets	45,211		4,423
Loss (gain) on disposal of property, plant, and equipment	522		(15)
Stock-based compensation	20,446		4,725
Amortization of debt issuance costs	4,692		388
Loss on extinguishment of debt	22,052		—
Changes in assets and liabilities:
Receivables	(20,404)		(29,302)
Prepaid expenses	(1,645)		(5,321)
Other assets	436		5,185
Accounts payable	7,647		32,470
Deferred taxes	(5,143)		—
Compensation and other employee benefits	(23,150)		2,507
Other liabilities	31,831		(11,989)
Net cash provided by operating activities	78,140		19,636
Investing activities
Purchases of capital assets	(11,543)		(3,492)
Proceeds from the disposition of assets	5		18
Contribution to joint venture	—		(2,113)
Net cash used in investing activities	(11,538)		(5,587)
Financing activities
Proceeds from issuance of long-term debt	250,000		—
Repayments of long-term debt	(424,888)		(5,200)
Proceeds from revolver	552,750		392,000
Repayments of revolver	(467,750)		(402,000)
Proceeds from exercise of stock options	6		370
Payment of debt issuance costs	(7,507)		(458)
Prepayment premium on early redemption of debt	(1,600)		—


Payments of employee withholding taxes on share-based compensation	(14,618)		(1,696)
Net cash used in financing activities	(113,607)		(16,984)
Exchange rate effect on cash	1,252		(507)
Net change in cash and cash equivalents	(45,753)		(3,442)
Cash and cash equivalents - beginning of period	116,067		38,513
Cash and cash equivalents - end of period	$	70,314	$	35,071

Supplemental disclosure of cash flow information:
Interest paid	$	58,300	$	3,409
Income taxes paid	$	2,707	$	6,112

Purchase of capital assets on account	$	1,813	$	13

The accompanying notes are an integral part of these financial statements.

Table of Contents

V2X, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES TO SHAREHOLDERS' EQUITY (UNAUDITED)


		Common Stock Issued			Additional Paid-in Capital								Accumulated Other Comprehensive Loss				Total Shareholders' Equity					Common Stock Issued					Additional Paid-in Capital						Accumulated Other Comprehensive (Loss) Income			Total Shareholders' Equity
(In thousands)	(In thousands)	Shares	Amount				Retained Earnings								(In thousands)				Shares				Amount			Retained Earnings
Balance at December 31, 2020		11,625	$	116			$	82,823			$	222,026			$	(27)				$	304,938
Net income									12,048								12,048
Foreign currency translation adjustments													(2,356)				(2,356)
Unrealized loss on cash flow hedge													(77)				(77)
Employee stock awards and stock options		75	1		113												114
Taxes withheld on restricted stock unit compensation awards					(2,184)												(2,184)
Stock-based compensation					1,983												1,983
Balance at April 2, 2021		11,700	$	117	$	82,735			$	234,074			$	(2,460)			$	314,466
Net income									15,934								15,934
Foreign currency translation adjustments													430				430
Unrealized gain on cash flow hedge													79				79
Employee stock awards and stock options		24	—		—												—
Taxes withheld on restricted stock unit compensation awards					(88)												(88)
Stock-based compensation					2,003												2,003
Balance at July 2, 2021		11,724	$	117	$	84,650			$	250,008			$	(1,951)			$	332,824

Balance at December 31, 2021	Balance at December 31, 2021	11,738	$	117	$	88,116			$	267,754			$	(5,900)			$	350,087	Balance at December 31, 2021			11,738		$	117			$	88,116		$	267,754		$	(5,900)		$	350,087
Net income	Net income								2,855								2,855		Net income			—		—			—			2,855			—			2,855
Foreign currency translation adjustments	Foreign currency translation adjustments												(616)				(616)		Foreign currency translation adjustments			—		—			—			—			(616)			(616)
Unrealized gain on cash flow hedge	Unrealized gain on cash flow hedge												374				374		Unrealized gain on cash flow hedge			—		—			—			—			374			374
Employee stock awards and stock options	Employee stock awards and stock options	67	1		—												1		Employee stock awards and stock options			67		1			—			—			—			1
Taxes withheld on stock compensation awards	Taxes withheld on stock compensation awards				(1,626)												(1,626)		Taxes withheld on stock compensation awards			—		—			(1,626)			—			—			(1,626)
Stock-based compensation	Stock-based compensation				3,100												3,100		Stock-based compensation			—		—			3,100			—			—			3,100
Balance at April 1, 2022	Balance at April 1, 2022	11,805	$	118	$	89,590			$	270,609			$	(6,142)			$	354,175	Balance at April 1, 2022			11,805		$	118		$	89,590		$	270,609		$	(6,142)		$	354,175
Net income	Net income								10,472								10,472		Net income			—		—			—			10,472			—			10,472
Foreign currency translation adjustments	Foreign currency translation adjustments												(3,637)				(3,637)		Foreign currency translation adjustments			—		—			—			—			(3,637)			(3,637)
Unrealized loss on cash flow hedge													594				594
Unrealized gain on cash flow hedge																			Unrealized gain on cash flow hedge			—		—			—			—			594			594
Employee stock awards and stock options	Employee stock awards and stock options	41	—		369												369		Employee stock awards and stock options			41		—			369			—			—			369
Taxes withheld on restricted stock unit compensation awards	Taxes withheld on restricted stock unit compensation awards				(70)												(70)		Taxes withheld on restricted stock unit compensation awards			—		—			(70)			—			—			(70)
Stock-based compensation	Stock-based compensation				1,575												1,575		Stock-based compensation			—		—			1,575			—			—			1,575
Balance at July 1, 2022	Balance at July 1, 2022	11,846	$	118	$	91,464			$	281,081			$	(9,185)			$	363,478	Balance at July 1, 2022			11,846		$	118		$	91,464		$	281,081		$	(9,185)		$	363,478

Balance at December 31, 2022																			Balance at December 31, 2022			30,470		$	305		$	748,877		$	253,424		$	(5,527)		$	997,079
Net loss																			Net loss			—		—			—			(17,480)			—			(17,480)
Foreign currency translation adjustments																			Foreign currency translation adjustments			—		—			—			—			1,806			1,806
Unrealized loss on cash flow hedge																			Unrealized loss on cash flow hedge			—		—			—			—			(2,199)			(2,199)
Employee stock awards and stock options																			Employee stock awards and stock options			535		5			—			—			—			5
Taxes withheld on stock compensation awards																			Taxes withheld on stock compensation awards			—		—			(12,806)			—			—			(12,806)
Stock-based compensation																			Stock-based compensation			—		—			12,066			—			—			12,066
Balance at March 31, 2023																			Balance at March 31, 2023			31,005		$	310		$	748,137		$	235,944		$	(5,920)		$	978,471

Net income																			Net income			—		—			—			1,799			—			1,799
Foreign currency translation adjustments																			Foreign currency translation adjustments			—		—			—			—			274			274
Unrealized gain on cash flow hedge																			Unrealized gain on cash flow hedge			—		—			—			—			6,214			6,214
Employee stock awards and stock options																			Employee stock awards and stock options			76		1			—			—			—			1
Taxes withheld on restricted stock unit compensation awards																			Taxes withheld on restricted stock unit compensation awards			—		—			(1,812)			—			—			(1,812)
Stock-based compensation																			Stock-based compensation			—		—			7,771			—			—			7,771
Balance at June 30, 2023																			Balance at June 30, 2023			31,081		$	311		$	754,096		$	237,743		$	568		$	992,718

The accompanying notes are an integral part of these financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

~~Description of Business and Basis of Presentation~~

~~Our~~ Business

V2X, Inc., an Indiana Corporation, formerly known as Vectrus, Inc. (Vectrus), ~~(V2X or the Company)~~ is a leading provider of ~~services~~critical mission solutions and support to ~~the United States Government (U.S. government) worldwide.~~defense clients globally. The Company operates as 1one segment and ~~provides~~delivers a comprehensive suite of integrated solutions across the ~~following services and offerings: facility and base~~ operations ~~supply chain~~ and logistics, ~~services, information~~aerospace, training and technology ~~mission support,~~markets to national security, defense, civilian and ~~engineering~~international clients.

On March 7, 2022, Vectrus entered into an Agreement and ~~digital integration services.~~

~~V2X was incorporated in the State~~Plan of ~~Indiana in February 2014. On September 27, 2014, Exelis Inc. completed the spin-off~~Merger (the ~~Spin-off) of Vectrus, Inc. and Vectrus, Inc. became an independent, publicly traded company. References in these notes to "Exelis" or "Former Parent" refer to Exelis~~Merger Agreement) with Vertex Aerospace Services Holding Corp., a Delaware corporation (Vertex), Andor Merger Sub Inc., ~~an Indiana~~a Delaware corporation (Merger Sub Inc.) and Andor Merger Sub LLC, a Delaware limited liability company (Merger Sub LLC). On July 5, 2022 (the Closing Date), Vectrus completed its ~~consolidated subsidiaries (other than Vectrus,~~merger (Merger) thereby forming V2X, Inc.~~). Exelis was acquired by~~ For a ~~predecessor entity~~description of ~~L3Harris Technologies, Inc. in May 2015.~~the Merger, see Note 3, Merger.

Unless the context otherwise requires or unless stated otherwise, references in these notes to "V2X", "we," "us," "our," “combined company”, "the Company" and "our Company" refer to V2X, Inc. and all of its consolidated subsidiaries (including, subsequent to the Merger, Vertex and its consolidated subsidiaries), taken together as a ~~whole, and does not include Vertex Aerospace Services Holding Corp., a Delaware corporation (Vertex), and/or its consolidated subsidiaries as of July 1, 2022.~~

On July 5, 2022 (the Closing Date), the Company completed its previously announced business transaction with Vertex, Andor Merger Sub LLC, a Delaware limited liability company (Merger Sub LLC), and Andor Merger Sub Inc., a Delaware corporation (Merger Sub Inc.), thereby forming V2X, Inc. (the Merger). For a description of the Merger, see Note 15. Su~~bsequent Event, in this Quarterly Report on Form 10-Q.~~whole.

Equity Investments

In 2011, wethe Company entered into a joint venture agreement with Shaw Environmental & Infrastructure, Inc., which is now APTIM Federal Services LLC. Pursuant to the joint venture agreement, High Desert Support Services, LLC (HDSS) was established to pursue and perform work on the Ft. Irwin Installation Support Services Contract, which was awarded to HDSS in October 2012. In 2018, wethe Company entered into a joint venture agreement with J&J Maintenance. Pursuant to the joint venture agreement, J&J Facilities Support, LLC (J&J) was established to pursue and perform work on various U.S. government contracts. In 2020, wethe Company entered into a joint venture agreement with Kuwait Resources House for Human Resources Management andand Services Company. Pursuant to the joint venture agreement, ServCore Resources and Services Solutions, ~~LLC.~~LLC (ServCore) was established to operate and manage labor and life support services outside of the continental United States at designated locations serviced by V2X and ~~other contractors~~others around the world.

~~We account~~The Company accounts for ~~our~~ investments in HDSS, J&J, and ServCore under the equity method ~~as we have~~and has the ability to exercise significant influence but dodoes not hold a controlling ~~interest in these entities. We record our~~interest. The Company's proportionate ~~40%~~25%, 50%, and 40% shares, respectively, of income or losses from HDSS, J&J, and ServCore are recorded in selling, general and administrative ~~(SG&A)~~ expenses in the Condensed Consolidated Statements of ~~Income. Our~~Income (Loss). The Company's investment in these joint ventures is recorded in other non-current assets in the Condensed Consolidated Balance Sheets.

When ~~we receive~~ cash distributions are received by the Company from ~~our~~its equity method investments, the cash distribution is compared to cumulative earnings and cumulative cash distributions. Cash distributions received are recorded as a return on investment in operating cash flows within the Condensed Consolidated Statements of Cash Flows to the extent cumulative cash distributions are less than cumulative earnings. Any cash distributions in excess of cumulative earnings are recorded as a return of investment in investing cash flows within the Condensed Consolidated Statements of Cash Flows. ~~During the six months ended July 1, 2022, we made a cash contribution of $2.1 million to our joint ventures and received~~ ~~a $0.8 million~~ ~~cash distribution.~~ As of ~~July 1, 2022~~June 30, 2023 and December 31, ~~2021 our~~2022 the Company's joint venture investment balance was ~~$6.7~~ $6.3 million and ~~$5.4~~$7.0 million, respectively. ~~Our~~The Company's proportionate share of income from the HDSS, J&J, and ServCore joint ventures was ~~immaterial~~$2.0 million and $3.8 million for the three and six months ended June 30, 2023, respectively, and not material for the first ~~two~~and second quarters of ~~both 2022 and 2021.~~2022.

Basis of Presentation

~~Our~~The Company's quarterly financial periods end on the Friday closest to the last day of the calendar quarter ~~(July~~(June 30, 2023 for the second quarter of 2023 and July 1, 2022 for the second quarter of ~~2022 and July 2, 2021 for the second quarter of 2021)~~2022), except for the last quarter of the fiscal year, which ends on December 31. For ease of presentation, the quarterly financial statements included herein are described as ~~"three~~three months ended."

The unaudited interim Condensed Consolidated Financial Statements of V2X have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles (GAAP) in the U.S. have been omitted. These unaudited interim Condensed Consolidated Financial Statements

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should be read in conjunction with ~~our~~the audited Consolidated Financial Statements and notes thereto included in ~~our~~the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

It is management’s opinion that these financial statements include all normal and recurring adjustments necessary for a fair presentation of the Company’s financial position and operating results. Revenue and net income for any interim period are not necessarily indicative of future or annual results.

~~Restricted Cash~~

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NOTE 2

RECENT ACCOUNTING STANDARDS UPDATE

There have been no accounting standards issued or adopted during the first or second quarters of 2023 that are expected to have a material impact on the Company's financial statements.

NOTE 3

MERGER

In accordance with Accounting Standards Codification (ASC) Topic 805, Business Combinations, the Company accounted for the below transaction using the acquisition method. The Company conducted valuations of certain acquired assets and liabilities for inclusion in its Condensed Consolidated Balance Sheets as of the date of the Merger. Assets that normally would not be recorded in ordinary operations, such as intangibles related to contractual relationships, were recorded at their estimated fair values. The excess purchase price over the estimated fair value of the net assets acquired was recorded as goodwill.

On the Closing Date, Vectrus completed its previously announced Merger with Vertex, forming V2X by acquiring all of the outstanding shares of Vertex. On the Closing Date, Vertex and its consolidated subsidiaries became wholly-owned subsidiaries of the Company.

The combined V2X entity from the Merger is a larger and more diversified Company ~~had restricted cash~~with the ability to compete for more integrated business opportunities and generate revenue across geographies, clients, and contract types in supporting the mission of ~~$3.3~~its customers.

Purchase Price Allocation

The Merger is accounted for as a business combination. As such, the assets acquired and liabilities assumed are accounted for at fair value, with the excess of the purchase price over the fair value of the net identifiable assets acquired and liabilities assumed recorded as goodwill.

The Closing Date fair value of the consideration transferred totaled $634.0 million, ~~related to collateral security for 2 outstanding letters~~which was comprised of ~~credit at July 1, 2022~~the following:


(In thousands, except share and per share amounts)	Purchase Price
Shares of V2X common stock issued	18,591,866
Market price per share of V2X as of Closing Date	$	33.92
Fair value of common shares issued	$	630,636
Fair value of cash consideration	3,315
Total consideration transferred	$	633,951

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The following table summarizes the final fair values of the assets acquired and ~~no restricted cash~~liabilities assumed in the Merger as of ~~December 31, 2021.~~

~~Reconciliation~~the Closing Date. As of ~~cash, cash equivalents and restricted cash as of July 1, 2022 is presented in~~June 30, 2023, the ~~following table:~~Company considered these amounts to be final.


(In thousands)	~~July 1, 2022~~Fair Value
Cash and cash equivalents	$	~~31,760~~196,993
~~Restricted cash~~Receivables	~~3,311~~ 331,300
Prepaid expenses	50,838
Property, plant, and equipment	55,678
Intangible assets	480,000
Other non-current assets	17,104
Right-of-use assets	21,062
Accounts payable	(121,515)
Debt	(1,352,303)
Compensation and other employee benefits	(45,968)
Other current and non-current liabilities	(334,469)
Total ~~cash, cash equivalents and restricted cash~~identifiable net assets	(701,280)
Goodwill	1,335,231
Total purchase consideration	$	~~35,071~~633,951

~~NOTE 2~~As a result of the Merger, the Company recognized $1,335.2 million of goodwill. The goodwill recognized is attributable to operational and general and administrative cost synergies, expanded market opportunities and other benefits that do not qualify for separate recognition. None of the goodwill is expected to be deductible for tax purposes. Intangible assets related to backlog and customer contracts arising from the Merger were also recognized. The fair value of backlog was $316.0 million, and the fair value of the customer contracts was $164.0 million with amortization periods of 4.5 years and 14.0 years, respectively. The receivables of $331.3 million represent fair value and are considered fully collectible.

~~RECENT AC~~As part of the Merger, V2X acquired certain contracts, including a Transition Services Agreement (TSA) with Crestview Aerospace LLC (Crestview), which was previously divested to American Industrial Partners Capital Fund VI, L.P. (AIP). For the ~~COUNTING STANDARDS UPDATE~~three and six months ended June 30, 2023, the Company recorded $0.7 million and $1.4 million of income related to the TSA with Crestview, respectively, which was recorded as a reduction in cost of revenue. AIP indirectly held approximately 59.5% of V2X common stock through Vertex Aerospace Holdco LLC as of June 30, 2023.

~~Accounting Standards Issued but Not Yet Effective~~

~~In October 2021,~~The following unaudited information shows the ~~Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2021-08,~~ ~~Business Combinations (Topic 805): Accounting~~combined actual results of operations for ~~Contract Assets~~the three and ~~Contract Liabilities~~six months ended June 30, 2023 and pro forma results for the three and six months ended July 1, 2022 as if the Merger had occurred on January 1, 2021. The unaudited pro forma information reflects the effects of applying the Company's accounting policies and certain pro forma adjustments to the combined historical financial information of Vertex. The pro forma adjustments include: a) incremental amortization expense associated with identified intangible assets; b) incremental interest expense resulting from ~~Contracts~~fair value adjustments applied to the Vertex debt that was assumed; and c) a reduction of revenues and operating expenses associated with ~~Customers~~ ~~(ASU 2021-08). The amendment requires~~fair value adjustments made to acquire assets and assumed liabilities, such as contract assets and contract ~~liabilities acquired in a business combination to be recognized~~liabilities.

This unaudited pro forma information is presented for informational purposes only and ~~measured in accordance with ASC 606, Revenue from Contracts with Customers, as if~~may not necessarily reflect the acquirer had originated the contract. The amendment also provides certain practical expedients when applying the guidance. ASU No. 2021-08 is effective for interim and annual periods beginning after December 15, 2022, on a prospective basis, with early adoption permitted. The Company is currently evaluating the potential impactactual results of ~~ASU 2021-08 to its consolidated financial statements and expects~~operations that would have been achieved, nor are they necessarily indicative of future results of operations.


	Three Months Ended				Six Months Ended
	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
(Unaudited, in thousands)	Actual		Pro forma		Actual		Pro forma
Revenue	$	977,852	$	887,377	$	1,921,312	$	1,730,118
Net income (loss)	$	1,799	$	4,004	$	(15,681)	$	15,897

~~to early adopt ASU 2021-08 during 2022 in conjunction with the Merger (See Note 15. Subsequent Event, in this Quarterly Report on Form 10-Q).~~Table of Contents

~~Accounting Standards That Were Adopted~~

~~In March 2020, the FASB issued ASU 2020-04,~~ ~~Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04).~~ To ease the burden in accounting for reference rate reform on financial reporting, the ASU provides companies with optional expedients and exceptions for applying accounting guidance to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. The Company adopted the standard during the first quarter of 2022. It did not have a material impact on the Company's financial statements.

NOTE 34

REVENUE

Performance Obligations

~~A performance obligation is a promise in a contract to transfer a distinct good or service to~~Performance obligations represent firm orders by the customer and is the unit of account for revenue in ASC Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. To determine the proper revenue recognition method, consideration is given as to whether a single contract should be accounted for as more than one performance obligation. For most of our contracts, the customer contracts with us to perform an integrated set of tasks and deliverables as a single service solution, whereby each service is not separately identifiable from other promises in the contract and therefore is not distinct. As a result, when this integrated set of tasks exists, the contract is accounted for as one performance obligation. The vast majority of our contracts have a single performance obligation. Unexercised contract options andexcludes potential orders under indefinite delivery and indefinite quantity (IDIQ) contracts, unexercised contract options and contracts awarded to us that are ~~considered~~being protested by competitors with the U.S. Government Accountability Office (GAO) or in the U.S. Court of Federal Claims (COFC). The level of order activity related to programs can be ~~separate performance obligations when~~affected by the ~~option or IDIQ task order is exercised or awarded.~~timing of government funding authorizations and their project evaluation cycles. Year-over-year comparisons could, at times, be impacted by these factors, among others.

Contracts are often modified to account for changes in contract specifications and requirements. If the modification either creates new enforceable rights and obligations or changes the existing enforceable rights and obligations, the modification will be treated as a separate contract. ~~Our contract~~Contract modifications, except for those to exercise option years, have historically not been distinct from the existing contract and have been accounted for as if they were part of that existing contract.

The Company's performance obligations are satisfied over time as services are provided throughout the contract term. ~~We recognize revenue~~Revenue is recognized over time using the input method (e.g., costs incurred to date relative to total estimated costs at completion) to measure progress. ~~Our over time~~Over-time recognition is reinforced by the fact that ~~our~~the Company's customers simultaneously receive and consume the benefits of ~~our~~its services as they are performed. For most U.S. government contracts, this continuous

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transfer of control to the customer is supported by ~~clauses in the~~ contract terms that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process. This continuous transfer of control requires that ~~we track~~ progress towards completion of performance obligations is tracked in order to measure and recognize revenue.

The Company's contracts are multi-year contracts and typically include an initial period of one year or less with annual one-year ~~or less~~(or less) option periods. The number of option periods varies by contract, and there is no guarantee that an option period will be exercised. The right to exercise an option period is at the sole discretion of the U.S. government when ~~we are~~the Company is the prime contractor or of the prime contractor when ~~we are~~the Company is a subcontractor. ~~We expect~~The Company expects to recognize a substantial portion of ~~our~~its performance obligations as revenue within the next 12 months. However, the U.S. government or the prime contractor may cancel any contract at any time through a termination for convenience or for cause. Substantially all of ~~our~~the Company's contracts have terms that would permit ~~us to recover~~recovery of all or a portion of ~~our~~the Company's incurred costs and fees for work performed in the event of a termination for convenience.

~~Remaining performance~~Performance obligations as of ~~July 1, 2022~~June 30, 2023 and December 31, ~~2021~~2022 are presented in the following table:


		July 1,		December 31,			June 30,		December 31,
(In millions)	(In millions)	2022		2021		(In millions)	2023		2022
Performance Obligations	Performance Obligations	$	1,599	$	1,398	Performance Obligations	$	3,696	$	2,997

As of ~~July 1, 2022, we expect~~June 30, 2023, the Company expects to recognize approximately 43% and 57% of ~~the remaining~~these performance obligations as revenue in ~~2022~~2023 and ~~the remaining~~ ~~43% during 2023.~~2024, respectively.

Contract Estimates

Accounting for contracts and programs involves the use of various techniques to estimate total contract revenue and costs. For contracts, we estimate the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognize that profit over the life of the contract.

Contract estimates are based on various assumptions to project the outcome of future events. These assumptions include: labor productivity and availability; the complexity of the services being performed; the cost and availability of materials; the performance of subcontractors; and negotiations with the customer on contract modifications. When the estimates of total costs to be incurred on a contract exceed total estimates of the transaction price, a provision for the entire loss is determined at a contract level and is recognized in the period in which the loss was determined.

The impact of adjustments in contract estimates on ~~our~~the Company's operating income can be reflected in either revenue or cost of revenue. Cumulative catch-up adjustments for the three and six months ended ~~July 1, 2022~~ June 30, 2023 increased operating income by ~~$6.8~~$9.1 million and ~~$7.4~~$22.2 million,, respectively. For the three and six months ended July ~~2, 2021,~~1, 2022, the adjustments ~~decreased~~increased operating income by ~~$1.7~~$6.8 million and ~~$3.0~~$7.4 million, respectively.

For the three and six months ended June 30, 2023, the cumulative catch-up adjustments to operating income increased revenue by $9.6 million and $23.5 million, respectively. For the three and six months ended July 1, 2022, the cumulative catch-up adjustments to operating income increased revenue by ~~$6.8 million~~ ~~and~~ ~~$7.4 million, respectively. For the three and six months ended July 2, 2021, the cumulative catch-up adjustments to operating income decreased revenue by $1.7~~$6.8 million and ~~$3.6~~$7.4 million, respectively.

Revenue by Category

Generally, the sales price elements for ~~our~~the Company's contracts are cost-plus, cost-reimbursable or ~~firm-fixed-price. We~~firm-fixed-price, all of which are commonly ~~have elements of cost-plus, cost-reimbursable and firm-fixed-price contracts on~~identified with a single contract. On a cost-plus ~~type~~ contract, ~~we are~~the Company is paid ~~our~~ allowable incurred costs plus a profit, which can be fixed or variable depending on the contract’s fee arrangement, up to funding levels predetermined by ~~our~~the Company's customers.

On cost-plus ~~type~~ contracts, ~~we do~~the Company does not bear the risks of unexpected cost overruns, provided that weincurred costs do not ~~incur costs that~~ exceed the predetermined funded amounts. Most of ~~our~~the Company's cost-plus contracts also contain a ~~firm-fixed price~~firm-fixed-price element. Cost-plus ~~type~~ contracts with award and incentive fee provisions are ~~our~~ primary variable contract fee ~~arrangement.~~arrangements. Award fees provide for a fee based on actual performance relative to contractually specified performance criteria. Incentive fees ~~provide for a fee~~are based on the relationship between total allowable and target cost. ~~On most~~

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Most of the Company's contracts include a cost-reimbursable element ~~captures~~to capture costs of consumable materials required for the ~~contract.~~program. Typically, these costs do not bear fees.

On a time-and-materials contract, the Company is reimbursed for labor at fixed hourly rates and generally reimbursed separately for allowable materials, costs and expenses at cost. For this contract type, the Company bears the risk that labor costs and allocable indirect expenses are greater than the fixed hourly rate defined within the contract.

On a firm-fixed-price ~~type~~ contract, ~~we agree~~the Company agrees to perform the contractual statement of work for a predetermined contract price. A firm-fixed-price ~~type~~ contract typically offers higher profit margin potential than a cost-plus ~~type~~ contract, which is commensurate with the greater levels of risk ~~we assume~~assumed on a firm-fixed-price ~~type~~ contract. Although a firm-fixed-price ~~type~~ contract generally permits ~~us to retain~~retention of profits if the total actual contract costs are less than the estimated contract costs, ~~we bear~~the Company bears the risk that increased or unexpected costs may reduce ~~our~~ profit or cause usthe Company to sustain losses on the contract. Although the overall scope of work required under the contract may not change, profit may be adjusted as experience is gained and as efficiencies are realized or costs are incurred.

~~On a time-and-materials type contract, we are reimbursed for labor at fixed hourly rates and generally reimbursed separately for allowable materials, costs, and expenses at cost. For this~~The following tables present various revenue disaggregations.

Revenue by contract type ~~we bear~~is as follows:


	Three Months Ended						Six Months Ended
	June 30,		July 1,		%		June 30,		July 1,		%
(In thousands)	2023		2022		Change		2023		2022		Change
Cost-plus and cost-reimbursable	$	507,282	$	355,559	42.7	%	$	1,019,217	$	666,653	52.9	%
Firm-fixed-price	438,684		128,348		241.8	%	834,891		256,352		225.7	%
Time-and-materials	31,886		14,159		125.2	%	67,204		31,532		113.1	%
Total revenue	$	977,852	$	498,066			$	1,921,312	$	954,537

Revenue by geographic region in which the ~~risk when our labor costs and allocable indirect expenses exceed the fixed hourly rate specified within the contract.~~contract is performed is as follows:


	Three Months Ended						Six Months Ended
	June 30,		July 1,		%		June 30,		July 1,		%
(In thousands)	2023		2022		Change		2023		2022		Change
United States	$	578,514	$	158,719	264.5	%	$	1,127,284	$	325,454	246.4	%
Middle East	279,083		250,222		11.5	%	560,204		485,313		15.4	%
Asia	65,533		46,386		41.3	%	129,850		62,592		107.5	%
Europe	54,722		42,739		28.0	%	103,974		81,178		28.1	%
Total revenue	$	977,852	$	498,066			$	1,921,312	$	954,537

Revenue by contract relationship is as follows:


	Three Months Ended						Six Months Ended
	June 30,		July 1,		%		June 30,		July 1,		%
(In thousands)	2023		2022		Change		2023		2022		Change
Prime contractor	$	916,060	$	468,453	95.5	%	$	1,795,239	$	895,546	100.5	%
Subcontractor	61,792		29,613		108.7	%	126,073		58,991		113.7	%
Total revenue	$	977,852	$	498,066			$	1,921,312	$	954,537

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~~The following tables present our revenue disaggregated by several categories.~~ Revenue by ~~contract type for the three and six months ended July 1, 2022 and July 2, 2021~~customer is as follows:

Three Months Ended Six Months Ended
July 1, July 2, % July 1, July 2, %
(In thousands) 2022 2021 Change 2022 2021 Change
Cost-plus and cost-reimbursable $ 355,559 $ 344,189 3.3 % $ 666,653 $ 634,420 5.1 %
Firm-fixed-price 128,348 111,416 15.2 % 256,352 240,173 6.7 %
Time and material 14,159 15,240 (7.1) % 31,532 30,256 4.2 %
Total revenue $ 498,066 $ 470,845 $ 954,537 $ 904,849

~~Revenue by geographic region in which the contract is performed for the three and six months ended July 1, 2022 and July 2, 2021 is as follows:~~

Three Months Ended Six Months Ended
July 1, July 2, % July 1, July 2, %
(In thousands) 2022 2021 Change 2022 2021 Change
Middle East $ 250,222 $ 258,488 (3.2) % $ 485,313 $ 498,500 (2.6) %
United States 158,719 146,549 8.3 % 325,454 296,362 9.8 %
Europe 42,739 36,084 18.4 % 81,178 76,706 5.8 %
Asia 46,386 29,724 56.1 % 62,592 33,281 88.1 %
Total revenue $ 498,066 $ 470,845 $ 954,537 $ 904,849

~~Revenue by contract relationship for the three and six months ended July 1, 2022 and July 2, 2021 is as follows:~~

Three Months Ended Six Months Ended
July 1, July 2, % July 1, July 2, %
(In thousands) 2022 2021 Change 2022 2021 Change
Prime contractor $ 468,453 $ 440,040 6.5 % $ 895,546 $ 843,303 6.2 %
Subcontractor 29,613 30,805 (3.9) % 58,991 61,546 (4.2) %
Total revenue $ 498,066 $ 470,845 $ 954,537 $ 904,849

~~Revenue by customer for the three and six months ended July 1, 2022 and July 2, 2021 is as follows:~~


		Three Months Ended						Six Months Ended							Three Months Ended						Six Months Ended
		July 1,		July 2,		%		July 1,		July 2,		%			June 30,		July 1,		%		June 30,		July 1,		%
(In thousands)	(In thousands)	2022		2021		Change		2022		2021		Change		(In thousands)	2023		2022		Change		2023		2022		Change
Army	Army	$	326,756	$	310,638	5.2	%	$	606,869	$	567,987	6.8	%	Army	$	393,499	$	326,756	20.4	%	$	784,002	$	606,869	29.2	%
Navy														Navy	293,198		64,885		351.9	%	585,888		140,102		318.2	%
Air Force	Air Force	68,457		63,206		8.3	%	129,930		141,375		(8.1)	%	Air Force	154,001		68,457		125.0	%	283,982		129,930		118.6	%
Navy		64,885		56,399		15.0	%	140,102		112,827		24.2	%
Other	Other	37,968		40,602		(6.5)	%	77,636		82,660		(6.1)	%	Other	137,154		37,968		261.2	%	267,440		77,636		244.5	%
Total revenue	Total revenue	$	498,066	$	470,845			$	954,537	$	904,849			Total revenue	$	977,852	$	498,066			$	1,921,312	$	954,537

Contract Balances

The timing of revenue recognition, billings, and cash collections results in billed and unbilled accounts receivable (contract assets) and customer advances and deposits (contract liabilities) on the Condensed Consolidated Balance Sheets. Amounts are billed as work progresses in accordance with agreed-upon contractual terms at periodic intervals (e.g., biweekly or monthly). Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, wethe Company may receive advances or deposits from ~~our~~its customers before revenue is recognized, resulting in contract liabilities. These advance billings and payments are not considered significant financing components because they are frequently intended to ~~fund current operating expenses under~~ensure that both parties are in conformance with the ~~contract.~~primary contract terms. These assets and liabilities are reported on the Condensed Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period.

As of ~~July 1, 2022~~June 30, 2023 and December 31, ~~2021, we~~2022, the Company had contract assets of ~~$277.6~~$570.8 million and ~~$240.0~~ $487.8 million, respectively. Contract assets primarily consist of unbilled receivables which represent rights to consideration for work completed but not billed as of the reporting date. The balance of unbilled receivables consists of costs and fees that are: (i) billable immediately;

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(ii) billable on contract completion; or (iii) billable upon other specified events, such as the resolution of a request for equitable adjustment. Refer to Note ~~4. "Receivables"~~5, Receivables for additional information regarding the composition of ~~our~~the Company's receivable balances. As of ~~both July 1, 2022~~June 30, 2023 and December 31, ~~2021, our~~2022, contract liabilities, included in other accrued liabilities in the Condensed Consolidated Balance Sheets, were ~~insignificant.~~$62.6 million and $76.4 million, respectively.

NOTE 45

RECEIVABLES

Receivables were comprised of the following:


(In thousands)	(In thousands)	July 1, 2022		December 31, 2021		(In thousands)	June 30, 2023		December 31, 2022
Billed receivables	Billed receivables	$	91,985	$	104,074	Billed receivables	$	164,677	$	227,718
Unbilled receivables (contract assets)	Unbilled receivables (contract assets)	277,583		239,979		Unbilled receivables (contract assets)	570,785		487,758
Other	Other	5,412		4,552		Other	11,100		13,106
Total receivables	Total receivables	$	374,980	$	348,605	Total receivables	$	746,562	$	728,582

As of ~~July 1, 2022~~June 30, 2023 and December 31, ~~2021,~~2022, substantially all billed receivables are due from the U.S. government, either directly as prime contractor to the U.S. government or as subcontractor to another prime contractor to the U.S. government. Because the Company's billed receivables are with the U.S. government, the Company does not believe it has a material credit risk exposure.

Unbilled receivables are contract assets that represent revenue recognized on long-term contracts in excess of amounts billed as of the balance sheet date. ~~We expect~~The Company expects to bill customers for the majority of the ~~July 1, 2022~~June 30, 2023 contract assets during ~~2022. Changes~~2023. Changes in the balance of unbilled receivables are primarily due to the timing differences between ~~our~~ performance and customers' payments.

~~NOTE 5~~

~~GOODWILL AND INTANGIBLE ASSETS~~

~~As of July 1, 2022 and December 31, 2021 the carrying amount of goodwill was $321.7 million.~~

The Company tests goodwill for impairment on the first day of the Company's fourth fiscal quarter each year, or more frequently should circumstances change or events occur that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

~~Identifiable intangible assets consist of the following:~~

July 1, 2022 December 31, 2021
(In thousands) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Contract backlogs and recompetes $ 77,300 $ (18,568) $ 58,732 $ 77,300 $ (14,988) $ 62,312
Customer contracts 7,200 (4,293) 2,907 7,200 (3,572) 3,628
Trade names and other 1,249 (729) 520 1,249 (607) 642
Balance $ 85,749 $ (23,590) $ 62,159 $ 85,749 $ (19,167) $ 66,582

Identifiable intangible asset amortization expense was $2.1 million and $4.4 million for the three and six months ended July 1, 2022, respectively. Intangible asset amortization for the three and six months ended July 2, 2021 was $2.4 million and $4.9 million, respectively. As of July 1, 2022, the remaining average intangible asset amortization period was ~~9.0 years~~.

~~Future estimated amortization expense is as follows (in thousands):~~

Period Amortization
2022 (remainder of the year) $ 4,244
2023 $ 8,486
2024 $ 7,379
2025 $ 6,582
2026 $ 6,112
After 2026 $ 29,356

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NOTE 6

DEBT

Senior Secured Credit Facilities

~~Term Loan and Revolver~~. In September 2014, weVectrus and ~~our~~its wholly-owned subsidiary, Vectrus Systems Corporation (VSC), entered into a senior secured credit agreement. The credit agreement was subsequently amended on December 24, 2020 and January 24, 2022 and is collectively referred to as the ~~Amended~~Prior Credit Agreement. The credit agreement ~~consists~~consisted of a term loan (Amended Term Loan) and a $270.0 million revolving credit facility (Amended Revolver) ~~as of July 1, 2022.~~.

~~The Amended Agreement includes an accordion feature that allows~~On the ~~Company to draw up to an additional $100.0 million, subject to~~Closing Date, the ~~lender's consent on the same terms and conditions as the existing commitments. The Amended Agreement also permits the Company to borrow up to $75.0 million in unsecured~~outstanding debt ~~as long as the aggregated sum of both the unsecured debt and the accordion does not exceed $100.0 million.~~

The Amended Term Loan amortizes in an amount equal to $2.6 million for the fiscal quarters ending September 30, 2022 through September 30, 2023, with the balance of $37.2 million due on November 15, 2023. Amounts borrowed under the Amended Term Loan that are repaid or prepaid may not be re-borrowed. Any unpaid amounts must be repaid by the maturity dates. As of July 1, 2022, the balance outstanding under the Amended Term Loan was ~~$50.2 million~~.

~~The Amended Revolver is available for working capital, capital expenditures and other general corporate purposes. There were~~ ~~$40.0 million~~ ~~of outstanding borrowings under the Amended Revolver at July 1, 2022. Up to $25.0 million of the Amended Revolver is available for the issuance of letters of credit. As of July 1, 2022, there were~~ ~~2 letters of credit outstanding in the aggregate amount of $3.2 million, which reduced our borrowing availability under the Amended~~ ~~Revolver to~~ ~~$226.8 million. At December 31, 2021, there were $50.0 million of outstanding borrowings under the Amended Revolver. The Amended Revolver will mature and the commitments thereunder will terminate on November 15, 2023~~.

~~The aggregate scheduled maturities of~~from the Amended Term Loan and ~~Amended Revolver as of July 1, 2022, are as follows:~~

(In thousands) Payments due
2022 (remainder of the year) $ 5,200
2023 85,000
Total $ 90,200

~~Guarantees and Collateral.~~ The indebtedness and other obligations under the Amended Agreement are unconditionally guaranteed jointly and severally on a senior secured basis by us and certain of our restricted subsidiaries and are secured, subject to permitted liens and other exceptions, by a first-priority lien on substantially all of our tangible assets and those of each domestic guarantor.

~~Voluntary Prepayments.~~ We may voluntarily prepay the Amended Term Loan in whole or in part at any time without premium or penalty, subject to the payment of customary breakage costs under certain conditions. Voluntary prepayments of the Amended Term Loan will be applied to the remaining installments thereof as directed by us. We may reduce commitments under the Amended Revolver, ~~in whole or in part at any time without premium or penalty.~~

~~Covenants. The Amended~~$50.2 million and $40.0 million, respectively, was repaid and related guarantees and liens were discharged and released. Repayment was made using proceeds from the Vertex First Lien Credit Agreement contains customary covenants, including covenants that, under certain circumstances and subject to certain qualifications and exceptions: limit or restrict our ability to incur additional indebtedness; merge, dissolve, liquidate or consolidate; make acquisitions, investments, advances or loans; dispose of or transfer assets; pay dividends; redeem or repurchase certain debt; and enter into certain restrictive agreements.

In addition, we are required to comply with (a) a maximum ratio of total consolidated indebtedness to consolidated earnings before interest, tax, depreciation and amortization (EBITDA) of 3.00 to 1.00 (3.50 to 1.00 for the 12 months following a qualified acquisition), and (b) a minimum ratio of consolidated EBITDA to consolidated interest expense (net of cash interest income) of 4.50 to 1.00. As of July 1, 2022, we had a ratio of total consolidated indebtedness to EBITDA of ~~1.09~~ ~~to 1.00 and a ratio of consolidated EBITDA to consolidated interest expense of~~ ~~12.41~~ ~~to 1.00. We were in compliance with all covenants related to the Amended Agreement as of July 1, 2022.~~

~~Interest Rates and Fees.~~ ~~Outstanding borrowings under the Amended Agreement accrue interest, at our option, at a per annum rate of (i)~~ ~~SOFR p~~lus the applicable margin, which ranges from 1.85% to 2.60% depending on the leverage ratio, or (ii) a base rate plus the applicable margin, which ranges from 0.75% to 1.50% depending on the leverage ratio. The interest rate under the Amended Agreement at July 1, 2022 was ~~3.63%. We pay a commitment fee on the undrawn portion of the Amended Revolver ranging from 0.30% to 0.45%, depending on the leverage ratio.~~

~~Carrying Value and Fair Value.~~ As of July 1, 2022 and December 31, 2021, the fair value of the Amended Agreement approximated the carrying value because the debt bears interest at a floating rate of interest. The fair value is based ondescribed below.

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On the Closing Date, certain of the Company's subsidiaries, including VSC (and together with VSC, the Company Guarantor Subsidiaries), that became direct or indirect subsidiaries of Vertex Aerospace Service Corp., a Delaware corporation and wholly-owned indirect subsidiary of Vertex (Vertex Borrower), have provided guarantees of the indebtedness under each of:

i.the First Lien Credit Agreement, dated as of December 6, 2021 (as amended by the Amendment No. 1 to First Lien Credit Agreement, dated as of the Closing Date, and as further amended, restated, amended and restated, supplemented and otherwise modified from time to time, the Vertex First Lien Credit Agreement), by and among Vertex Borrower, as borrower, Vertex Aerospace Intermediate LLC, a Delaware limited liability company, direct parent entity of Vertex Borrower and wholly-owned indirect subsidiary of Vertex (Vertex Holdings), the lenders from time to time party thereto and Royal Bank of Canada, as administrative agent;

ii.the Second Lien Credit Agreement, dated as of December 6, 2021 (as amended, restated, amended and restated, supplemented and otherwise modified from time to time, the Vertex Second Lien Credit Agreement), Vertex Borrower, as borrower, Vertex Holdings, the lenders from time to time party thereto and Royal Bank of Canada, as administrative agent; and

iii.the ABL Credit Agreement, dated as of June 29, 2018 (as amended by the First Amendment to ABL Credit Agreement, dated as of May 17, 2019, as further amended by the Second Amendment to ABL Credit Agreement, dated as of May 17, 2021, and as further amended by the Third Amendment to ABL Credit Agreement, dated as of December 6, 2021, as further amended by the Fourth Amendment to ABL Credit Agreement, dated as of the Closing Date, and as further amended, restated, amended and restated, supplemented and otherwise modified from time to time, the Vertex ABL Credit Agreement), by and among Vertex Borrower, Vertex Holdings, certain other subsidiaries of Vertex Borrower from time to time party thereto as co-borrowers, the lenders from time to time party thereto and Ally Bank, as administrative agent (in such capacity, the ABL Agent).

On February 28, 2023, Vertex Borrower entered into a credit agreement (the 2023 Credit Agreement) among the lenders identified therein and Bank of America, N.A., as administrative agent, collateral agent, swingline lender and letter of credit issuer. The 2023 Credit Agreement provides for $750.0 million in senior secured financing, with a first lien on substantially all the Borrower’s assets, consisting of a $500.0 million five-year Revolving Credit Facility (2023 Revolver) and a five-year $250.0 million Term Loan. The proceeds of these Credit Facilities were used to, among other things, (i) repay the First Lien Incremental Term Tranche (as defined below), (ii) repay the entire outstanding amount of the Second Lien Credit Agreement, and (iii) repay the entire outstanding ABL Credit Facility.

Vertex First Lien Credit Agreement

The Vertex First Lien Credit Agreement provides for senior secured first lien term loans in an aggregate principal amount of $1,185.0 million, consisting of a $925.0 million term loan “B” tranche, (the First Lien Initial Term Tranche) and a $260.0 million incremental term loan “B” tranche (the First Lien Incremental Term Tranche and, together with the First Lien Initial Term Tranche, collectively, the First Lien Term Facility). The entire amount of the proceeds from the (i) First Lien Initial Term Tranche were previously used to finance the acquisition of certain subsidiaries of Raytheon Company, a Delaware corporation, and related transaction costs (the Sky Acquisition in December 2021). As provided in the Merger Agreement, the proceeds of the First Incremental Term Tranche were used by the Vertex Borrower to redeem all of the shares of previously issued preferred stock on the Closing Date (but prior to the Merger). The remaining First Lien Incremental Term Tranche proceeds were used to repay in full all outstanding indebtedness under the Prior Credit Agreement, and other transaction costs. Approximately $54.0 million of cash remained after funding the preferred stock redemption, repayment of the Prior Credit Agreement and other transaction costs.

On February 28, 2023, the outstanding balance of the First Incremental Term Tranche of $258.7 million was repaid. The balance of unamortized deferred financing costs related to the First Incremental Term Tranche of $11.9 million was recorded as a loss on extinguishment of debt in the Condensed Consolidated Statements of (Loss) Income for the three months ended March 31, 2023.

The remaining loans under the First Lien Term Facility (consisting solely of the Initial Term Loan Tranche) amortize in an amount equal to approximately $2.3 million per quarter for the fiscal quarters ending June 30, 2023, through September 30, 2028, with the balance of $864.9 million due on December 6, 2028.

The Vertex Borrower’s obligations under the First Lien Term Facility, which were assumed in the Merger, are guaranteed by Vertex Holdings and Vertex Borrower’s wholly-owned domestic subsidiaries (including the Company Guarantor Subsidiaries, collectively, the Guarantors), subject to customary exceptions and limitations. The Vertex Borrower’s obligations under the First Lien Term Facility and the Guarantors’ obligations under the related guarantees are secured by a first-lien on substantially all of the Vertex Borrower’s and the Guarantors’ assets which exists on a pari passu basis with the lien held by the 2023 Credit Agreement lenders.

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The borrowings under the First Lien Initial Term Tranche bear interest at rates that, at the Vertex Borrower’s option, can be either a base rate, determined by reference to the greater of (a) the federal funds rate plus 0.50%, (b) the prime lending rate, or (c) an adjusted Eurodollar rate plus 1.00%, plus a margin of 2.50% to 2.75% per annum, or a Eurodollar rate, determined by reference to SOFR, plus a margin of 3.50% to 3.75% per annum, in each case, depending on the consolidated first lien net leverage ratio of the Vertex Borrower and its subsidiaries. As of June 30, 2023, the effective interest rate for the First Lien Initial Term Tranche was 9.73%.

The Vertex First Lien Credit Agreement contains customary representations and warranties and affirmative covenants. The Vertex First Lien Credit Agreement also includes negative covenants that limit, among other things, additional indebtedness, additional liens, sales of assets, dividends, investments and advances, prepayments of debt and mergers and acquisitions.

The Vertex First Lien Credit Agreement contains customary events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the First Lien Term Facility to be in full force and effect, and a change of control. If an event of default occurs and is continuing, the Vertex Borrower may be required immediately to repay all amounts outstanding under the Vertex First Lien Credit Agreement.

As of June 30, 2023, the carrying value of the First Lien Credit Agreement was $913.4 million, excluding deferred discount and unamortized deferred financing costs of $39.0 million. The estimated fair value of the First Lien Credit Agreement as of June 30, 2023 was $914.6 million. The fair value is based on observable inputs of interest rates that are currently available to us for debt with similar terms and maturities for non-public ~~debt.~~debt (Level 2).

Vertex Second Lien Credit Agreement

The Vertex Second Lien Credit Agreement provided for senior secured second lien term loans in an aggregate principal amount of $185.0 million (the Second Lien Term Facility). The entire amount of the proceeds from the Second Lien Term Facility were previously used to finance the Sky Acquisition in December 2021. The Company voluntarily prepaid $25.0 million of the Second Lien Term Facility on December 30, 2022 (the Voluntary Prepayment). On February 28, 2023, the remaining Second Lien Term Facility balance of $160.0 million was repaid (the 2023 Payoff) and related guarantees and liens were discharged and released. The balance of unamortized deferred financing costs related to the Second Lien Term Facility of $7.1 million was recorded as a loss on extinguishment of debt in the Condensed Consolidated Statements of (Loss) Income for the three months ended March 31, 2023.

Under the terms of the Vertex Second Lien Credit Agreement, the Vertex Borrower was required to remit a prepayment premium of $1.6 million with the 2023 Payoff which was recorded as a loss on extinguishment of debt in the Condensed Consolidated Statements of (Loss) Income for the three months ended March 31, 2023.

Vertex ABL Credit Agreement

The Vertex ABL Credit Agreement provided for a senior secured revolving loan facility (the ABL Facility) of up to an aggregate amount of $200.0 million (the loans thereunder, the ABL Loans). The Vertex ABL Credit Agreement also provided for (i) a $30.0 million sublimit of availability for letters of credit, and (ii) a $10.0 million sublimit for short-term borrowings on a swingline basis. On February 28, 2023, the outstanding ABL Facility borrowings of $67.5 million were repaid and related guarantees and liens were discharged and released. The balance of unamortized deferred financing costs related to the Vertex ABL Credit Agreement of $1.5 million was recorded as a loss on extinguishment of debt in the Condensed Consolidated Statements of (Loss) Income for the three months ended March 31, 2023.

2023 Credit Agreement

The 2023 Credit Agreement provides for $750.0 million in senior secured financing, with a first lien on substantially all the Borrower’s assets and consists of (a) the 2023 Revolver (which includes (i) a $50.0 million sublimit of availability for letters of credit, and (ii) a $50.0 million sublimit for short-term borrowings on a swingline basis) and (b) a five-year $250.0 million Term Loan.

The Term Loan portion of the 2023 Credit Agreement amortizes at approximately $1.6 million per quarter for the fiscal quarters ending June 30, 2023 through March 31, 2025, increasing to $3.1 million per quarter for the fiscal quarters ending June 30, 2025 through December 31, 2027, with the balance of $203.1 million due on February 28, 2028.

The Vertex Borrower’s obligations under the 2023 Credit Agreement are guaranteed by the Guarantors, subject to customary exceptions and limitations. The Vertex Borrower’s obligations under the 2023 Credit Agreement and the Guarantors’ obligations under the related guarantees are secured by a first priority-lien on substantially all of the Vertex Borrower’s and the Guarantors’ assets (subject to customary exceptions and limitations) which exists on a pari passu basis with the lien held by the First Lien Credit Agreement lenders.

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The borrowings under the 2023 Credit Agreement bear interest at rates that, at the Vertex Borrower’s option, can be either a base rate, determined by reference to the greater of (a) the federal funds rate plus 0.50%, (b) the prime lending rate, or (c) an adjusted Eurodollar rate plus 1.00%, plus a margin of 1.00% to 2.25% per annum, or a Eurodollar rate, determined by reference to SOFR, plus a margin of 2.00% to 3.25% per annum, in each case, depending on the consolidated total net leverage ratio of the Vertex Borrower and its subsidiaries. As of June 30, 2023, the effective interest rates for the 2023 Revolver and Term Loan portion of the 2023 Credit Agreement were 8.47% and 8.65%, respectively.

Unutilized commitments under the 2023 Revolver are subject to a per annum fee ranging from 0.25% to 0.50% depending on the consolidated total net leverage ratio of the Vertex Borrower and its subsidiaries.

The Vertex Borrower is also required to pay a letter of credit fronting fee to each letter of credit issuer equal to 0.125% per annum of the amount available to be drawn under each such letter of credit (or such other amount as may be mutually agreed by the Vertex Borrowers and the applicable letter of credit issuer), as well as a fee to all lenders equal to the applicable margin to SOFR of Revolving Credit loans times the average daily amount available to be drawn under all outstanding letters of credit.

The 2023 Credit Agreement contains customary representations and warranties, which must be accurate for the Vertex Borrower to borrow under the 2023 Credit Agreement, and affirmative covenants. The 2023 Credit Agreement also includes negative covenants that limit, among other things, additional indebtedness, transactions with affiliates, additional liens, sales of assets, dividends, investments and advances, prepayments of debt, mergers and acquisitions.

The 2023 Credit Agreement contains financial covenants requiring (a) the consolidated total net leverage ratio not to exceed 5.00 to 1.00 for the reporting periods ending on or after June 30, 2023, and on or prior to June 30, 2024, with further step downs thereafter, and (b) the consolidated interest coverage ratio be at least 2.00 to 1.00 commencing with the reporting period ending on June 30, 2023.

The 2023 Credit Agreement contains customary events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the 2023 Credit Agreement to be in full force and effect, and a change of control. If an event of default occurs and is continuing, the Borrowers may be required immediately to repay all amounts outstanding under the 2023 Credit Agreement.

As of June 30, 2023, there were $85.0 million of outstanding borrowings and $16.1 million of outstanding letters of credit under the 2023 Revolver. Availability under the 2023 Revolver was $398.9 million as of June 30, 2023. Unamortized deferred financing costs related to the 2023 Revolver of $4.7 million are included in other non-current assets in the Condensed Consolidated Balance Sheets. As of June 30, 2023, the fair value of the 2023 Revolver approximated the carrying value because the debt bears a floating interest rate.

As of June 30, 2023, the carrying value of the Term Loan portion of the 2023 Credit Agreement was $248.4 million, excluding unamortized deferred financing costs of $2.3 million. The estimated fair value of the Term Loan portion of the 2023 Credit Agreement as of June 30, 2023 was $248.1 million. The fair value is based on observable inputs of interest rates that are currently available to us for debt with similar terms and maturities for non-public debt (Level 2).

The aggregate scheduled maturities of the First Lien Credit Agreement and 2023 Credit Agreement as of June 30, 2023 are as follows:


(In thousands)	Payments due
2023 (remainder of the year)	$	7,750
2024	15,500
2025	20,188
2026	21,750
2027	21,750
After 2027	1,159,937
Total	$	1,246,875

As of June 30, 2023 the Company was in compliance with all covenants related to the First Lien Credit Agreement and the 2023 Credit Agreement.

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NOTE 7

DERIVATIVE INSTRUMENTS

During the periods covered by this report, ~~we have~~the Company has made no changes to ~~our~~its policies or strategies for the use of derivative instruments and there has been no change in ~~our~~ related accounting methods. ~~For our derivative~~Derivative instruments, which are designated as cash flow hedges, gains and losses are initially reported as a component of accumulated other comprehensive ~~loss~~income (loss) and subsequently recognized in earnings with the corresponding hedged item.

Interest Rate Derivative Instruments

~~On June 29, 2022,~~The Company is exposed to the risk that the earnings and cash flows could be adversely impacted due to fluctuations in ~~conjunction with our planned extinguishment~~interest rates. To mitigate this risk, the Company entered into $350.0 million of ~~the related hedged debt interest expense, we terminated our remaining~~ interest rate ~~swaps that were~~swap contracts during the first six months of 2023. These contracts had a notional value of $348.4 million as of June 30, 2023. These contracts are designated and ~~qualified~~qualify as effective cash flow ~~hedges (See Note 15. Subsequent Eventin this Quarterly Report on Form 10-Q). Interest rate swap losses in accumulated other comprehensive loss upon termination were immaterial.~~hedges.

The following table summarizes the amount at fair value and ~~balance sheet caption~~location of the derivative instruments ~~used~~ for ~~our~~ interest rate hedges in the Condensed Consolidated Balance Sheets as of ~~December 31, 2021:~~June 30, 2023:

(In thousands)

Fair Value (level 2)

Balance sheet caption

Amount

Interest rate swap designated as cash flow hedge

Other ~~accrued~~current assets

5,381

Interest rate swap designated as cash flow hedge

Other non-current assets

269

Interest rate swap designated as cash flow hedge

Other non-current liabilities

~~666~~339

Interest rate swap designated as cash flow hedge

Accumulated other comprehensive income

5,311

There were no interest rate swaps designated as cash flow hedges for the period ended December 31, 2022.

The Company regularly assesses the creditworthiness of the counterparty. As of June 30, 2023, the counterparty to the interest rate swaps had performed in accordance with its contractual obligations. Both the counterparty credit risk and the Company's credit risk were considered in the fair value determination.

Net interest rate derivative gains of $1.2 million were recognized in interest expense, net, in the Condensed Consolidated Statements of Income (Loss) during the three and six months ended June 30, 2023. Net interest rate derivative losses of $0.4 million ~~and $0.5 million~~ were recognized in ~~interest expense, net, in our~~the Condensed Consolidated Statements of Income (Loss) during the first six months of ~~2022 and 2021, respectively.~~

~~Foreign Currency Derivative Instruments~~

2022. The Company ~~had no outstanding foreign currency forward contracts at July 1, 2022 and had outstanding forward contracts with a current liability value~~expects $5.4 million of ~~less than $0.1 million at December 31, 2021.~~

~~Net foreign currency derivative~~existing interest rate swap gains ~~and losses~~reported in accumulated other comprehensive income as of June 30, 2023 to be recognized in ~~SG&A expenses during~~earnings within the ~~first six months of 2022 and 2021 were immaterial.~~next 12 months.

NOTE 8

~~LEASES~~

We determine whether an arrangement contains a lease at inception. We have operating leases for office space, apartments, vehicles, and machinery and equipment. Our operating leases have lease terms of less than one year to ten years.

~~We do not separate lease components from non-lease components (e.g., common area maintenance, property taxes and insurance) but account for both components in a contract as a single lease component.~~

~~The components of lease expense are as follows:~~

Three Months Ended Six Months Ended
(In thousands) July 1, 2022 July 2, 2021 July 1, 2022 July 2, 2021
Operating lease expense $ 3,608 $ 2,240 $ 7,281 $ 4,065
Variable lease expense 130 213 260 415
Short-term lease expense 24,461 17,289 38,130 30,737
Total lease expense $ 28,199 $ 19,742 $ 45,671 $ 35,217

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~~Supplemental balance sheet information related to our operating leases is as follows:~~

(In thousands) July 1, 2022 December 31, 2021
Right-of-use assets $ 39,705 $ 43,651
Current lease liabilities (recorded in Other accrued liabilities) $ 12,334 $ 11,983
Long-term lease liabilities (recorded in Operating lease liability) 30,719 34,536
Total operating lease liabilities $ 43,053 $ 46,519

~~Additional right-of-use assets of~~ ~~$2.6 million were recognized as non-cash asset additions that resulted from new operating lease liabilities during the first~~ ~~six~~ ~~months of~~ ~~2022~~.

~~The weighted average remaining lease term and discount rate for our operating leases at July 1, 2022 was~~ ~~5.1 yearsand 3.8%, respectively.~~

~~Maturities of lease liabilities at July 1, 2022 were as follows:~~

(In thousands) Payments due
2022 (remainder of the year) $ 6,675
2023 13,274
2024 8,700
2025 4,650
2026 3,980
After 2026 10,722
Total minimum lease payments 48,001
Less: Imputed interest (4,948)
Total operating lease liabilities $ 43,053

~~NOTE 9~~

COMMITMENTS AND CONTINGENCIES

General

From time to time, ~~we are~~the Company is involved in various investigations, lawsuits, arbitration, claims, enforcement actions and other legal proceedings, ~~that~~including government investigations and claims, which are incidental to the operation of ~~our~~its business. Some of these proceedings seek remedies relating to employment matters, matters in connection with ~~our~~the Company's contracts and matters arising under laws relating to the protection of the environment. Additionally, U.S. government customers periodically advise the Company of claims and penalties concerning certain potential disallowed costs. When such findings are presented, V2X and the U.S. government representatives engage in discussions to enable V2X to evaluate the merits of these claims as well as to assess the amounts being claimed.

Where appropriate, provisions are made to reflect probable losses related to the matters raised by ~~the~~ U.S. government representatives. Such assessments, along with any assessments regarding provisions for legal proceedings, are reviewed on a quarterly basis for sufficiency based on the ~~most recent~~latest information available to us. ~~We have~~

The Company estimated and accrued ~~$9.8~~ $28.6 million and ~~$9.6~~$27.6 million as of ~~July 1, 2022~~June 30, 2023 and December 31, ~~2021,~~2022, respectively, in ~~"Other~~other accrued ~~liabilities"~~liabilities in the Condensed Consolidated Balance Sheets for legal proceedings and for claims with respect to ~~our~~its U.S. government contracts as discussed below, including years where the U.S. government has not completed its incurred cost audits. Although the ultimate outcome of any legal matter or claim cannot be predicted with certainty, based on present information, including ~~our~~the assessment of the merits of ~~the~~a particular claim, ~~we do~~the Company does not expect that any asserted or unasserted legal or contractual claims or proceedings, individually or in the aggregate, including the lawsuit discussed below, will have a material adverse effect on ~~our~~its cash ~~flow,~~flows, results of operations or financial condition.

1618

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U.S. Government Contracts, Investigations and Claims

~~We have~~The Company has U.S. government contracts that are funded incrementally on a year-to-year basis. Changes in ~~U.S.~~ government policies, priorities or funding levels through agency or program budget reductions by the U.S. Congress or executive agencies could have a material adverse effect on ~~our~~the Company's financial condition or results of operations. Furthermore, ~~our~~ contracts with the U.S. government may be terminated or suspended by the U.S. government at any time, with or without cause. Such contract suspensions or terminations could result in ~~unreimbursable~~non-reimbursable expenses or charges or otherwise adversely ~~affect our~~affecting the Company's financial condition and results of operations.

Departments and agencies of the U.S. government have the authority to investigate various transactions and operations of the Company, and the results of such investigations may lead to administrative, civil or criminal proceedings, the ultimate outcome of which could be fines, penalties, repayments or compensatory or treble damages. U.S. government regulations provide that certain findings against a contractor may lead to suspension or debarment from future U.S. government contracts or the loss of export privileges for a company or an operating division or subdivision. Suspension or debarment could have a material adverse effect on the Company because of its reliance on U.S. government contracts.

U.S. government agencies, including the Defense Contract Audit Agency, ~~(DCAA),~~ the Defense Contract Management Agency ~~(DCMA)~~ and others, routinely audit and review ~~our~~the Company's performance on ~~U.S.~~ government contracts, indirect rates and pricing practices, and compliance with applicable contracting and procurement laws, regulations and standards. Accordingly, costs billed or billable to U.S. government customers are subject to potential adjustment upon audit by such agencies. The U.S. government agencies also review the adequacy of ~~our~~ compliance with ~~U.S.~~ government standards for ~~our~~ business systems, including ~~our~~ accounting, earned value management, estimating, materials management and accounting, purchasing, and property management systems.

~~As a result~~In the performance of ~~final indirect rate negotiations between~~its contracts, the Company routinely requests contract modifications that require additional funding from U.S. government customers. Most often, these requests are due to customer-directed changes in the scope of work. While the Company is entitled to recovery of these costs under its contracts, the administrative process with the U.S. government ~~and our Former Parent, we were subject to~~customer may be protracted. Based on the circumstances, the Company periodically files requests for equitable adjustments ~~to costs previously allocated by our Former Parent to our business from 2007 through 2014. On July 7, 2022, we accepted an offer~~(REAs) that are sometimes converted into claims. In some cases, these requests are disputed by the U.S. government to settle this legal matter involving our payment of an insignificant amount, thereby bringing closure to the matter. With respect to our Former Parent, we believe we are fully indemnified under our distribution agreement and have notified our Former Parent of the closure of our appeal of the U.S. government's decision in this matter.

~~COVID-19 Pandemic~~

On March 11, 2020, the World Health Organization designated the outbreak of COVID-19 as a global pandemic. Governments and businesses around the world have taken unprecedented actions to mitigate the spread of COVID-19, including, but not limited to, shelter-in-place orders, quarantines, significant restrictions on travel, social distancing guidelines, and restrictions on employees going to work. Uncertainty with respect to the economic impacts of the pandemic has introduced significant volatility in the financial markets.customer. The Company ~~has observed,~~believes its outstanding modifications, REAs and continues to experience, some disruptions to its operations due to government and supply chain delays related to the global pandemic. While the extent to which COVID-19 ultimately impacts the Company’s future resultsother claims will ~~depend on future developments, the pandemic and associated economic impacts, particularly with respect to newly issued vaccine mandates for government contractors and subcontractors, could result in a~~be resolved without material adverse impact to ~~the Company’s future financial condition,~~its results of operations, ~~and~~financial condition or cash flows.

~~For the three and six months ended July 1, 2022, the impact of COVID-19 was immaterial to our financial results.~~

NOTE 109

STOCK-BASED COMPENSATION

The Company maintains an equity incentive plan, the 2014 Omnibus Incentive Plan, as amended and restated effective as of ~~May 13, 2016~~October 27, 2022 (the 2014 Omnibus Plan), to govern awards granted to V2X employees and directors, including nonqualified stock options (NQOs), restricted stock units (RSUs), total shareholder return (TSR) awards, performance share units (PSUs) and other awards. ~~We account~~The Company accounts for NQOs, ~~and~~ stock-settled RSUs and PSUs as equity-based compensation awards. TSR awards, described below, ~~and cash-settled RSUs~~ are accounted for as liability-based compensation awards.

~~Stock-based compensation expense and the associated tax benefits impacting our Condensed Consolidated Statements of Income were as follows:~~

Three Months Ended Six Months Ended
(In thousands) July 1, 2022 July 2, 2021 July 1, 2022 July 2, 2021
Compensation costs for equity-based awards $ 1,575 $ 2,003 $ 4,676 $ 3,986
Compensation costs for liability-based awards 592 298 50 937
Total compensation costs, pre-tax $ 2,167 $ 2,301 $ 4,725 $ 4,923
Future tax benefit $ 466 $ 500 $ 1,017 $ 1,069

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Liability-based awards are revalued at the end of each reporting period to reflect changes in fair value.

Stock-based compensation expense and the associated tax benefits impacting the Company's Condensed Consolidated Statements of Income (Loss) were as follows:


	Three Months Ended				Six Months Ended
(In thousands)	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Compensation costs for equity-based awards	$	7,771	$	1,575	$	19,837	$	4,676
Compensation costs for liability-based awards	304		592		609		50
Total compensation costs, pre-tax	$	8,075	$	2,167	$	20,446	$	4,725
Future tax benefit	$	1,756	$	466	$	4,445	$	1,017

Compensation costs for equity-based awards for the six months ended June 30, 2023, included $10.8 million related to RSUs issued in connection with the Merger.

As of ~~July 1, 2022,~~June 30, 2023, total unrecognized compensation costs related to equity-based awards and liability-based awards were ~~$8.3~~$28.0 million and ~~$2.8~~ $1.4 million, respectively, which are expected to be recognized ratably over a weighted average period of ~~2.00 years~~ ~~and~~ ~~2.17~~1.75 years ~~respe~~and 1.37 years, respectively. Total unrecognized compensation costs included $15.6 million of expense related to RSUs granted in connection with the Merger.

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The following table provides a summary of the activities for NQOs, RSUs and ~~RSUs~~PSUs for the six months ended June 30, 2023:


	NQOs			RSUs			PSUs
(In thousands, except per share data)	Shares	Weighted Average Exercise Price Per Share		Shares	Weighted Average Grant Date Fair Value Per Share		Shares	Weighted Average Grant Date Fair Value Per Share
Outstanding at January 1, 2023	42	$	22.86	1,628	$	35.47	—	$	—
Granted	—	$	—	301	$	39.70	265	$	35.66
Exercised	—	$	—	—	$	—	—	$	—
Vested	—	$	—	(957)	$	41.95	—	$	—


Forfeited or expired	—	$	—	(6)	$	40.59	—	$	—
Outstanding at June 30, 2023	42	$	22.86	966	$	36.82	265	$	35.66

Restricted Stock Units

On July ~~1, 2022:~~

NQOs RSUs
(In thousands, except per share data) Shares Weighted Average Exercise Price Per Share Shares Weighted Average Grant Date Fair Value Per Share
Outstanding at January 1, 2022 59 $ 23.19 245 $ 51.18
Granted — $ — 231 $ 35.89
Exercised (16) $ 24.43 — $ —
Vested — $ — (130) $ 43.78
Forfeited or expired — $ — (15) $ 40.24
Outstanding at July 1, 2022 43 $ 22.76 331 $ 42.19

~~During~~5, 2022, pursuant to the ~~six months ended July 1, 2022, we granted long-term incentive awards to employees consisting~~terms of ~~208,397~~the Merger Agreement, the Company issued an additional 1,346,089 RSUs, with a ~~weighted average~~ grant date fair value of $33.92 per share, to certain employees of ~~$36.09 and to our directors consisting~~Vertex. The RSUs have been or will be settled in shares of ~~22,309~~the Company's common stock, with 517,918 RSUs ~~with a weighted average~~vesting on the six-month anniversary following the grant date ~~fair value per share of $34.07.~~

~~For employee RSUs, one-third~~and a quarter of the ~~award vests~~remaining 828,171 RSUs vesting or having vested on each of ~~the three~~four six-month anniversary dates following the grant date. ~~Director RSUs were granted on May 13, 2022 with 3,229 scheduled to vest on the Closing Date and the balance scheduled to vest on May 12, 2023.~~ The fair value of each RSU grant to employees and directors was determined based on the closing price of V2X common stock on the date of grant. Stock compensation expense will be recognized ratably over the vesting period of the awards.

RSUs awarded to employees, excluding the RSU awards awarded under the Merger Agreement, discussed above, vest in one-third increments on each of the three anniversary dates following the grant date subject to continued employment. Director RSUs are granted on the date of an annual meeting of shareholders and vest on the business day immediately prior to the next annual meeting or the one-year anniversary of the grant date, if earlier. The fair value of each RSU grant was determined based on the closing price of V2X common stock on the date of grant. Stock compensation expense will be recognized ratably over the requisite service period of the RSU awards.

As of June 30, 2023, there was $21.8 million of unrecognized RSU related compensation expense.

Total Shareholder Return Awards

TSR awards are performance-based cash awards that are subject to a three-year performance period. Any payments earned are made in cash following completion of the performance period according to the achievement of specified performance goals. As a result of the Merger and pursuant to the terms of the TSR awards, performance achievement fair value was measured at July 4, 2022 at $4.6 million and the aggregate future award payouts were fixed at that value. There were no cash-based TSR awards granted in the first or second quarters of 2023.

As of June 30, 2023, there was $1.4 million of unrecognized TSR related compensation expense.

Performance Share Units

During the ~~six months ended July 1, 2022, we~~first and second quarters of 2023, the Company granted ~~TSR~~two types of performance-based awards with ~~an outstanding aggregate target TSR value~~market conditions. The first award will vest and the stock will be issued at the end of ~~$2.8 million. The fair value of TSR awards is measured quarterly and is~~a three-year period based on the ~~Company’s~~attainment of certain total shareholder return performance measures relative to ~~the performance of the~~ Aerospace and Defense ~~Companies~~companies in the S&P 1500 ~~Index. Depending on~~Index and the ~~Company’s performance during~~employee's continued service through the ~~three-year performance period, payments~~vesting date. The number of shares ultimately awarded, if any, can range ~~from 0%~~up to 200% of the specified target ~~value.~~awards. If performance is below the threshold level of performance, no shares will be issued.

The second award will vest and stock will be issued at the end of a three-year period based on achievement of certain stock price targets, shareholder return performance measures relative to certain Aerospace and Defense companies in the S&P 1500 Index and the employee's continued service through the vest date. The numbers of shares ultimately awarded, if any, can range up to the specified target awards.

As of June 30, 2023, there was $6.2 million of unrecognized PSU related compensation expense.

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NOTE 1110

INCOME TAXES

Effective Tax Rate

Income tax expense during interim periods is based on an estimated annual effective income tax rate, plus discrete items that may occur in any given interim periods. The computation of the estimated effective income tax rate at each interim period requires certain estimates and judgment including, but not limited to, forecasted operating income for the year, projections of the income earned and taxed in various jurisdictions, newly enacted tax rate and legislative changes, permanent and temporary differences, and the likelihood of recovering deferred tax assets generated in the current year.

For the three months ended June 30, 2023 and July 1, 2022, ~~and July 2, 2021, we~~the Company recorded an income tax provision of ~~$2.6~~$0.2 million and ~~$4.4~~$2.6 million, respectively, representing effective income tax rates of ~~19.8%~~10.5% and ~~21.6%~~19.8%, respectively. For the six months ended June 30, 2023 and July 1, 2022, ~~and July 2, 2021, we~~the Company recorded an income tax ~~provisions~~benefit of ~~$3.3~~$5.5 million and ~~$6.9~~a provision of $3.3 million, respectively, representing effective income tax rates of ~~19.8%~~26.1% and ~~19.9%~~19.8%, respectively. The effective income tax rates vary from the federal statutory rate of 21.0% mainly due to state and foreign taxes, ~~required tax income exclusions, nondeductible expenses,~~disallowed compensation deduction under Internal Revenue Code Section 162(m), available deductions not reflected in book income, and income tax credits.

Uncertain Tax ~~Provisions~~Positions

As of ~~July 1, 2022~~June 30, 2023 and December 31, ~~2021,~~2022, unrecognized tax benefits from uncertain tax positions were ~~$10.1~~$8.4 million and ~~$9.3~~$8.6 million, respectively. The ~~increase~~decrease in ~~the~~ uncertain tax positions was principally the result of the ~~additional Foreign Derived Intangible Income (FDII) deduction as the Company reserves~~release of a ~~portion~~position for lapse of ~~the FDII benefit claimed or expected to be claimed on its income tax return filings.~~statute of limitation.

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NOTE 1211

EARNINGS (LOSS) PER SHARE

Basic earnings per share (EPS) is computed by dividing net income, or loss, by the weighted average number of common shares outstanding for the period. Diluted EPS reflects potential dilution that could occur if securities to issue common stock were exercised or converted into common stock. Diluted EPS includes the dilutive effect of stock-based compensation outstanding after application of the treasury stock method.


		Three Months Ended				Six Months Ended					Three Months Ended				Six Months Ended
		July 1,		July 2,		July 1,		July 2,			June 30,		July 1,		June 30,		July 1,
(In thousands, except per share data)	(In thousands, except per share data)	2022		2021		2022		2021		(In thousands, except per share data)	2023		2022		2023		2022
Net income		$	10,472	$	15,934	$	13,327	$	27,982
Net income (loss)										Net income (loss)	$	1,799	$	10,472	$	(15,681)	$	13,327

Weighted average common shares outstanding	Weighted average common shares outstanding	11,826		11,715		11,793		11,681		Weighted average common shares outstanding	31,033		11,826		30,981		11,793
Add: Dilutive impact of stock options	Add: Dilutive impact of stock options	18		37		22		40		Add: Dilutive impact of stock options	18		18		—		22
Add: Dilutive impact of restricted stock units	Add: Dilutive impact of restricted stock units	110		76		102		102		Add: Dilutive impact of restricted stock units	554		110		—		102
Diluted weighted average common shares outstanding	Diluted weighted average common shares outstanding	11,954		11,828		11,917		11,823		Diluted weighted average common shares outstanding	31,605		11,954		30,981		11,917

Earnings per share
Earnings (loss) per share										Earnings (loss) per share
Basic	Basic	$	0.89	$	1.36	$	1.13	$	2.40	Basic	$	0.06	$	0.89	$	(0.51)	$	1.13
Diluted	Diluted	$	0.88	$	1.35	$	1.12	$	2.37	Diluted	$	0.06	$	0.88	$	(0.51)	$	1.12

The following table summarizes the weighted average of anti-dilutive securities excluded from the diluted earnings per share calculation.


		Three Months Ended		Six Months Ended			Three Months Ended		Six Months Ended
		July 1,	July 2,	July 1,	July 2,		June 30,	July 1,	June 30,	July 1,
(In thousands)	(In thousands)	2022	2021	2022	2021	(In thousands)	2023	2022	2023	2022

Anti-dilutive restricted stock units	Anti-dilutive restricted stock units	25	5	15	2	Anti-dilutive restricted stock units	2	25	2	15

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NOTE 1312

~~DEFERRED EMPLOYEE COMPENSATION~~POST-EMPLOYMENT BENEFIT PLANS

Deferred Employee Compensation

~~During the first quarter of 2021, the~~The Company ~~established a~~sponsors two non-qualified deferred compensation ~~plan under which~~plans. Under these plans, participants are eligible to defer a portion of their compensation on a tax deferred basis. ~~The assets in the plan are held in a Rabbi trust.~~ Plan investments and obligations were recorded in other non-current assets and other non-current liabilities, respectively, in the Condensed Consolidated Balance Sheets, representing the fair value related to the deferred compensation ~~plan.~~plans. Adjustments to the fair value of the plan investments and obligations are recorded in ~~SG&A~~selling, general, and administrative expenses. The ~~plan~~plans assets and liabilities were ~~$0.9~~$2.8 million and ~~$0.5~~$1.5 million as of ~~July 1, 2022~~June 30, 2023 and December 31, ~~2021,~~2022, respectively.

~~NOTE 14~~

~~MULTI-EMPLOYER PENSION PLAN~~Multi-Employer Pension Plans

~~Certain~~Certain Company employees who perform work on contracts within the continental United States participate in ~~a multiemployer~~multi-employer pension ~~plan~~plans of which the Company is not the sponsor. ~~Expense recognized for this plan was~~ ~~$0.3~~Company expenses related to these plans were $4.9 million and ~~$0.5~~$8.2 million for the three and six months ended ~~July 1, 2022,~~June 30, 2023, respectively, and $0.3 million and $0.5 million for the three and six months ended July ~~2, 2021,~~1, 2022, respectively.

NOTE 1513

~~SUBSEQUENT EVENT~~SALE OF RECEIVABLES

~~Merger~~On June 27, 2023, the Company entered into a Master Accounts Receivable Purchase Agreement (MARPA Facility) with MUFG Bank, Ltd. (MUFG) for the sale of certain designated eligible receivables with the U.S. government. Under the MARPA Facility, the Company can sell eligible receivables up to a maximum amount of $150.0 million. The receivables sold under the MARPA Facility are without recourse for any U.S. government credit risk.

OnThe Company accounts for these receivable transfers under the ~~Closing Date, Vectrus, Inc. completed~~MARPA Facility as sales under ASC Topic 860, Transfers and Servicing, and removes the sold receivables from its ~~previously announced Merger with Vertex, a global leader in aerospace and defense technologies, by acquiring all~~balance sheet. The fair value of the ~~outstanding shares~~sold receivables approximated their book value due to their short-term nature.

The Company does not retain an ongoing financial interest in the transferred receivables other than cash collection and administrative services. The Company estimated that its servicing fee was at fair value and therefore has not recognized a servicing asset or liability as of ~~Vertex. O~~nJune 30, 2023. Proceeds from the ~~Closing Date, Vertex and its consolidated subsidiaries became a wholly-owned subsidiary~~sale of receivables are reflected as cash flows from operating activities on the ~~Company.~~Condensed Consolidated Statements of Cash Flows.

~~We recognized $5.9~~MARPA Facility activity consisted of sales of $113.0 million an~~d $14.9 million~~of ~~acquisition-related costs that were expensed as incurred during~~receivables representing an increase to cash flows provided by operating activities for the ~~three and~~ six months ended ~~July 1, 2022, respectively. These costs~~June 30, 2023. Cash collected, but not remitted to MUFG, of $69.7 million is included in other accrued liabilities on the Condensed Consolidated Balance Sheets as of June 30, 2023. As of June 30, 2023, remaining receivables sold were $43.3 million.

During the three months ended June 30, 2023, the Company incurred purchase discount fees, net of servicing fees, of $0.2 million, which are ~~included~~ presented in ~~SG&A~~other expense, in net on the Condensed Consolidated Statements of Income (Loss).

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~~Preliminary Purchase Price Allocation~~

The Merger will be accounted for as a purchase business combination. As such, the Company will record the assets acquired and liabilities assumed at fair value, with the excess of the purchase price over the fair value of the net identifiable assets acquired and liabilities assumed recorded as goodwill. ~~None of the goodwill is expected to be~~ ~~deductible for tax purposes.~~

The Company expects to finalize its purchase price allocation in 2023 after we have further analyzed and assessed a number of the factors used in establishing the fair values of assets acquired and liabilities assumed as of the Closing Date including, but not limited to, contractual and operational factors underlying the customer-related intangible assets and property, plant and equipment; details surrounding tax matters; and assumptions underlying certain existing or potential reserves, such as those for legal and environmental matters. The final fair value determination could result in material adjustments.

~~The Closing Date fair value of the consideration transferred totaled~~ ~~$634 million, which was comprised of the following:~~


~~($ in millions, except share and per share amounts)~~	~~Purchase Price~~
~~Shares of V2X common stock issued~~	~~18,591,866~~
~~Market price per share of V2X as of Closing Date~~	$	~~33.92~~
~~Fair value of common shares issued~~	$	~~631~~
~~Fair value of cash consideration~~	$	3
~~Total consideration transferred~~	$	~~634~~

~~Debt~~

Outstanding debt from the Company’s Amended Agreement (See Note 6. Debt, in this Quarterly Report on Form 10-Q) was repaid on the Merger Closing Date and related guarantees and liens were discharged and released.~~Repayment was made using proceeds from the Vertex First Lien Credit Agreement described below.~~

~~Senior Secured Credit Facilities~~

~~Senior Secured Credit Facilities~~. On the Closing Date, following the Merger and a series of certain intercompany contributions described in the Agreement and Plan of Merger, dated as of March 7, 2022, by and among Vertex, the Company, Merger Sub Inc., and Merger Sub LLC (the Merger Agreement), certain of our subsidiaries, including VSC (and together with VSC, the Company Guarantor Subsidiaries), that became direct or indirect subsidiaries of Vertex Aerospace Service Corp., a Delaware corporation and wholly-owned indirect subsidiary of Vertex (Vertex Borrower), have provided guarantees of the indebtedness under each of (i) the First Lien Credit Agreement, dated as of December 6, 2021 (as amended by the Amendment No. 1 to First Lien Credit Agreement, dated as of the Closing Date (the Vertex First Lien Amendment), and as further amended, restated, amended and restated, supplemented and otherwise modified from time to time, the Vertex First Lien Credit Agreement), by and among Vertex Borrower, as borrower, Vertex Aerospace Intermediate LLC, a Delaware limited liability company, direct parent entity of Vertex Borrower and wholly-owned indirect subsidiary of Vertex (Vertex Holdings), the lenders from time to time party thereto and Royal Bank of Canada, as administrative agent, (ii) the Second Lien Credit Agreement, dated as of December 6, 2021 (as amended, restated, amended and restated, supplemented and otherwise modified from time to time, the Vertex Second Lien Credit Agreement), Vertex Borrower, as borrower, Vertex Holdings, the lenders from time to time party thereto and Royal Bank of Canada, as administrative agent, and (iii) the ABL Credit Agreement, dated as of June 29, 2018 (as amended by the First Amendment to ABL Credit Agreement, dated as of May 17, 2019, as further amended by the Second Amendment to ABL Credit Agreement, dated as of May 17, 2021, and as further amended by the Third Amendment to ABL Credit Agreement, dated as of December 6, 2021, as further amended by the Fourth Amendment (the Vertex ABL Amendment) to ABL Credit Agreement, dated as of the Closing Date, and as further amended, restated, amended and restated, supplemented and otherwise modified from time to time, the Vertex ABL Credit Agreement), by and among Vertex Borrower, Vertex Holdings, certain other subsidiaries of Vertex Borrower from time to time party thereto as co-borrowers, the lenders from time to time party thereto and Ally Bank, as administrative agent (in such capacity, the ABL Agent).

~~Vertex First Lien Credit Agreement.~~

~~Term Loans.~~ The Vertex First Lien Credit Agreement provides for senior secured first lien term loans in an aggregate principal amount of $1,185,000,000, consisting of a $925,000,000 term loan “B” tranche (the First Lien Initial Term Tranche) and a $260,000,000 incremental term loan “B” tranche (the First Lien Incremental Term Tranche and, together with the First Lien Initial Term Tranche, collectively, the First Lien Term Facility). The entire amount of the proceeds from the (i) First Lien Initial Term Tranche were previously used to finance the acquisition of certain subsidiaries of Raytheon Company, a Delaware corporation, and related transaction costs (the Sky Acquisition), and (ii) First Lien Incremental Term Tranche were used on the Closing Date to finance the repayment in full all outstanding indebtedness, terminate all commitments and release and

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discharge all liens and guarantees under that certain Credit Agreement, dated as of September 17, 2014 (as amended, restated, amended and restated, supplemented and otherwise modified from time to time prior to the Closing Date), by and among us, VSC, as borrower, the lenders and issuing banks from time to time party thereto, and JPMorgan Chase Bank, N.A., as administrative agent. The loans under the First Lien Term Facility will be payable in full on December 6, 2028.

~~Guarantees and Collateral.~~ The Vertex Borrower’s obligations under the First Lien Term Facility are guaranteed by Vertex Holdings and Vertex Borrower’s wholly-owned domestic subsidiaries (including the Company Guarantor Subsidiaries, collectively, the First Lien Guarantors), subject to customary exceptions and limitations. The Vertex Borrower’s obligations under the First Lien Term Facility and the First Lien Guarantors’ obligations under the related guarantees are secured by (i) a first priority-lien on substantially all of the Vertex Borrower’s and the First Lien Guarantors’ assets other than the ABL Priority Collateral, as defined below (subject to customary exceptions and limitations), and (ii) a second-priority lien on substantially all of the Vertex Borrower’s and the First Lien Guarantors’ accounts receivable, inventory and certain other assets arising therefrom or related thereto (collectively, the ABL Priority Collateral) (subject to customary exceptions and limitations).

~~Interest Rates.~~ The borrowings under the First Lien Initial Term Tranche bear interest at rates that, at the Vertex Borrower’s option, can be either a base rate, determined by reference to the federal funds rate, plus a margin of 2.75% to 3.00% per annum, or a Eurodollar rate, determined by reference to LIBOR, plus a margin of 3.75% to 4.00% per annum, in each case, depending on the consolidated first lien net leverage ratio of the Vertex Borrower and its subsidiaries. The borrowings under the First Lien Incremental Term Tranche bear interest at rates that, at the Vertex Borrower’s option, can be either a base rate, determined by reference to the federal funds rate, plus a margin of 3.00% per annum, or a term benchmark rate, determined by reference to Term SOFR, plus a margin of 4.00% per annum.

~~Representations and Warranties; Covenants.~~ The Vertex First Lien Credit Agreement contains customary representations and warranties and affirmative covenants. The Vertex First Lien Credit Agreement also includes negative covenants that limit, among other things, additional indebtedness, additional liens, sales of assets, dividends, investments and advances, prepayments of debt and mergers and acquisitions.

~~Events of Default.~~ The Vertex First Lien Credit Agreement contains customary events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the First Lien Term Facility to be in full force and effect, and a change of control. If an event of default occurs and is continuing, the Vertex Borrower may be required immediately to repay all amounts outstanding under the Vertex First Lien Credit Agreement.

~~Vertex Second Lien Credit Agreement.~~

~~Term Loans.~~ The Vertex Second Lien Credit Agreement provides for senior secured second lien term loans in an aggregate principal amount of $185,000,000 (the Second Lien Term Facility). The entire amount of the proceeds from the Second Lien Term Facility were previously used to finance the Sky Acquisition. The loans under the Second Lien Term Facility will be payable in full on December 6, 2029.

~~Guarantees and Collateral.~~ The Vertex Borrower’s obligations under the Second Lien Term Facility are guaranteed by Vertex Holdings and the Vertex Borrower’s wholly-owned domestic subsidiaries (including the Company Guarantor Subsidiaries, collectively, the Second Lien Guarantors), subject to customary exceptions and limitations. The Vertex Borrower’s obligations under the Second Lien Term Facility and the Second Lien Guarantors’ obligations under the related guarantees are secured by (i) a second priority-lien on substantially all of the Vertex Borrower’s and Second Lien Guarantors’ assets other than the ABL Priority Collateral (subject to customary exceptions and limitations), and (b) a third-priority lien on substantially all of the Vertex Borrower’s and Second Lien Guarantors’ assets ABL Priority Collateral (subject to customary exceptions and limitations).

~~Interest Rates~~. The borrowings under the Second Lien Term Facility bear interest at rates that, at the Vertex Borrower’s option, can be either a base rate, determined by reference to the federal funds rate, plus a margin of 6.50% per annum, or a Eurodollar rate, determined by reference to LIBOR, plus a margin of 7.50% per annum.

~~Representations and Warranties; Covenants.~~ The Vertex Second Lien Credit Agreement contains customary representations and warranties and affirmative covenants. The Vertex Second Lien Credit Agreement also includes negative covenants that limit, among other things, additional indebtedness, additional liens, sales of assets, dividends, investments and advances, prepayments of debt and mergers and acquisitions.

~~Events of Default.~~ The Vertex Second Lien Credit Agreement contains customary events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the First Lien Term Facility to be in full force and effect, and a change of control. If an event of default occurs and is continuing, the Vertex Borrower may be required immediately to repay all amounts outstanding under the Vertex Second Lien Credit Agreement.

~~Vertex ABL Credit Agreement~~

~~ABL Facility~~. The Vertex ABL Credit Agreement provides for a senior secured revolving loan facility (the ABL Facility) of up to an aggregate amount of $200,000,000 (the loans thereunder, the ABL Loans). The Vertex ABL Credit Agreement also

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provides for (i) a $15,000,000 sublimit of availability for letters of credit, and (ii) a $10,000,000 sublimit for short-term borrowings on a swingline basis. The commitments under the ABL Facility expire on June 29, 2026, and any ABL Loans then outstanding will be payable in full at that time.

~~Availability.~~ Availability under the ABL Facility is subject to a borrowing base (the Borrowing Base), which is based on 85% of eligible accounts receivable, eligible government account receivable and eligible government subcontract accounts receivable, plus 50% of eligible unbilled accounts receivable, plus the lesser of (x) 65% of the book value of eligible inventory, and (y) 85% of the net orderly liquidation value of eligible inventory of the Vertex Borrower, Vertex Holdings and most of the Vertex Borrower’s wholly-owned domestic subsidiaries (including the Company Guarantor Subsidiaries, collectively, the ABL Guarantors), after adjusting for customary reserves that are subject to the ABL Agent’s discretion. The aggregate amount of the ABL Loans made and letters of credit issued under the ABL Facility shall at no time exceed the lesser of the aggregate commitments under the ABL Facility (currently $200,000,000 or, if increased at the Vertex Borrower’s option as described above, up to $250,000,000) or the Borrowing Base. To the extent that the Vertex Borrower’s and ABL Guarantors’ eligible accounts receivable, eligible government account receivable, eligible government subcontract accounts receivable, eligible unbilled accounts receivable, and eligible inventory, decline, the Borrowing Base will decrease, and the availability under the ABL Facility may decrease below $200,000,000. Any ABL Loans in requested are subject to a number of customary conditions, including accuracy of representations and warranties and no default. The proceeds from the ABL Loans may be used to finance the working capital needs and general corporate purposes of the Vertex Borrower and its subsidiaries.

~~Guarantees and Collateral~~. The Vertex Borrower’s obligations under the ABL Term Facility are guaranteed by the ABL Guarantors, subject to customary exceptions and limitations. The Vertex Borrower’s obligations under the ABL Facility and the ABL Subsidiary Guarantors’ obligations under the related guarantees are secured by (a) a first priority-lien on substantially all of the Vertex Borrower’s and the ABL Guarantors’ ABL Priority Collateral (subject to customary exceptions and limitations), and (b) a third priority-lien on substantially all of the Vertex Borrower’s and the ABL Guarantors’ assets other than the ABL Priority Collateral (subject to customary exceptions and limitations).

~~Interest Rates and Fees.~~ The borrowings under the ABL Facility bear interest at rates that, at the Vertex Borrower’s option, can be either a base rate, determined by reference to the federal funds rate, plus a margin of 0.75% to 1.25% per annum, or a term benchmark rate, determined by reference to Term SOFR, plus a margin of 1.75% to 2.25% per annum, in each case, depending on the aggregate availability under the ABL Facility.

Unutilized commitments under the ABL Facility are subject to a per annum fee of (x) 0.375% if the total outstandings were equal to or less than 50% of the aggregate commitments, or (y) 0.25% if such total outstandings were more than 50% of the aggregate commitments.

The Vertex Borrower is also required to pay a letter of credit fronting fee to each letter of credit issuer equal to 0.125% per annum of the amount available to be drawn under each such letter of credit (or such other amount as may be mutually agreed by the Vertex Borrowers and the applicable letter of credit issuer), as well as a fee to all lenders equal to the applicable margin for Term SOFR ABL Loans times the average daily amount available to be drawn under all outstanding letters of credit.

~~Representations and Warranties; Covenant~~s. The Vertex ABL Credit Agreement contains customary representations and warranties, that must be accurate in order for the Vertex Borrower to borrow under the ABL Facility, and affirmative covenants. The Vertex ABL Credit Agreement also includes negative covenants that limit, among other things, additional indebtedness, transactions with affiliates, additional liens, sales of assets, dividends, investments and advances, prepayments of debt, mergers and acquisitions. The Vertex ABL Credit Agreement also includes a financial covenant that requires the fixed charge coverage ratio to be at least 1.00 to 1.00 as of the end of any period of four fiscal quarters while aggregate availability is less than the greater of (i) $10,000,000 and (ii) 10% of the aggregate borrowing base.

~~Events of Default.~~ The Vertex ABL Credit Agreement contains customary events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the ABL Facility to be in full force and effect, and a change of control. If an event of default occurs and is continuing, the Borrowers may be required immediately to repay all amounts outstanding under the Vertex ABL Credit Agreement.

~~Stock-based Compensation~~

Pursuant to and subject to the terms of the Merger Agreement, the Company agreed to issue up to 1,346,139 restricted stock units to certain employees of Vertex following the consummation of the Merger, which restricted stock units will be settled in shares of the Company's common stock upon satisfaction of the applicable vesting conditions. The grant price of these awards was $33.92 per share.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of ~~our~~the Company's financial condition and results of operations should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto included in this Quarterly Report on Form 10-Q as well as the audited Consolidated Financial Statements and notes thereto and the information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in ~~our~~the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. This Quarterly Report provides additional information regarding the Company, ~~our~~its services, industry outlook and forward-looking statements that involve risks and uncertainties, including those related to ~~the potential impact of the coronavirus pandemic (COVID-19),~~economic conditions such as inflation and ~~any current or future government mandated COVID-19 precautions, including mandatory vaccination,~~rising interest rates, and ~~its~~the impact on ~~us, our~~the Company, its operations or ~~our~~ future financial or operational results. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about ~~our~~the Company's industry, business and future financial results. ~~Our actual~~Actual results could differ materially from the results contemplated by these forward-looking statements. Refer to "Forward-Looking Information" for further information regarding forward-looking statements. Amounts presented in and throughout this Item 2 are rounded and, as such, any rounding differences could occur in period over period changes and percentages reported.

Overview

V2X, Inc.~~, formerly known as Vectrus, Inc.~~ is a leading provider of ~~services~~critical mission solutions primarily to ~~the United States Government (U.S. government) worldwide.~~defense clients globally. The Company operates as one segment and provides a comprehensive suite of integrated solutions across the ~~following services and offerings: facility and base~~ operations ~~supply chain~~ and logistics, ~~services, information~~aerospace, training and technology ~~mission support,~~markets to national security, defense, civilian and ~~engineering and digital integration services.~~international clients.

~~Our~~The Company's primary customer is the U.S. Department of Defense (DoD)~~, with a high concentration in the U.S. Army.~~. For the six months ended June 30, 2023 and July 1, 2022, ~~and July 2, 2021, we~~the Company had total revenue of ~~$954.5~~$1,921.3 million and ~~$904.8~~$954.5 million, respectively, substantially all of which was derived from U.S. government customers. For ~~both~~ the six months ended June 30, 2023 and July 1, 2022, ~~and July 2, 2021, we~~ the Company generated approximately 41% and 64%, respectively, of ~~our~~its total revenue from the U.S. ~~Army~~.Army.

Executive Summary

~~Our revenue~~Revenue increased ~~$27.2~~$479.8 million, or ~~5.8%~~96.3%, for the three months ended ~~July 1, 2022~~June 30, 2023 compared to the three months ended July ~~2, 2021.~~1, 2022. Revenue increased $442.6 million due to the Merger and the remaining increase was from organic growth for legacy programs. Revenue from ~~our~~programs in the U.S., Middle East, Asia ~~U.S.~~ and Europe ~~programs~~increased by $~~16.7~~419.8 million, ~~$12.2~~$28.9 million, $19.1 million and ~~$6.6~~$12.0 million, respectively.~~respectively, and revenue from our Middle East programs decreased by $8.3 million~~

Operating income for the three months ended ~~July 1, 2022~~June 30, 2023, was $34.3 million, an increase of $19.2 million, or 128.1%, compared to the three months ended July ~~2, 2021.~~

~~Operating income decreased $7.6 million, or 33.5%, for the three months ended July~~ 1, ~~2022, compared to the three months ended July 2, 2021.~~2022. The ~~decrease~~increase was due to ~~increased SG&A expenses related to mergers~~the Merger and ~~acquisitions (M&A) and integration costs and lower margin rates associated with early phases~~improved performance of ~~new program operations.~~legacy programs.

During the performance of ~~our~~long-term contracts, ~~we periodically review~~ estimated final contract prices and costs are reviewed periodically, and ~~make~~ revisions are made as required, which are recorded as changes in revenue and cost of revenue in the periods in which they are determined. Additionally, the fees under certain contracts may be increased or decreased in accordance with cost or performance incentive provisions which measure actual performance against established targets or other criteria. ~~Such~~These incentive ~~fee awards~~fees or penalties are included in revenue when there is sufficient information to reasonably assess anticipated contract performance. Amounts representing contract change orders ~~claims, requests for equitable adjustment,~~ or limitations in funding on contracts are recorded only if it is probable ~~the~~a claim will result in additional contract revenue and the amounts can be reliably estimated. Changes in estimated revenue, cost of revenue and the related effect to operating income are recognized using cumulative ~~catch-up~~ adjustments, which recognize in the current period the cumulative effect of the changes on current and prior periods based on a contract's percentage of completion. Cumulative ~~catch-up adjustments due to aggregate changes in contract estimates~~ ~~increased operating income by $6.8 million~~ ~~and decreased operating income by $1.7 million for the three months ended July 1, 2022 and July 2, 2021, respectively. Cumulative catch-up~~ adjustments are driven by changes in contract terms, program performance, customer scope changes and changes to estimates in the reported period. These changes can increase or decrease operating income depending on the dynamics of each contract.

Further details related to ~~our~~consolidated financial results for the three and six months ended ~~July 1, 2022,~~June 30, 2023, compared to the three and six months ended July ~~2, 2021,~~1, 2022, are contained in the "Discussion of Financial Results" ~~section below.~~section.

Merger with Vertex

~~See Note 15.~~ ~~Subsequent Event,~~ ~~in this Quarterly Report on Form 10-Q for~~For a discussion of ~~our~~the Merger ~~with Vertex~~ and related debt and stock-based compensation ~~obligations.~~obligations, see Note 3,

Merger, Note 6, Debt, and Note 9, Stock-Based Compensation, in the Notes to Condensed Consolidated Financial Statements.

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~~COVID-19 Impact~~

The COVID-19 pandemic continues to present significant business challenges in 2022. During the first six months of 2022, we continued to experience impacts related to COVID-19, including continued increased coronavirus-related costs, global supply chain disruptions, local immigration regulations limiting the ability to deploy personnel, delays in supplier deliveries, impacts of travel restrictions, site access and quarantine restrictions, and the impacts of remote work and adjusted work schedules. In addition, President Biden announced new vaccine mandates on September 9, 2021 for government contractors and subcontractors. If these mandates are implemented, the extent of the regulatory impact is unclear and could have a material adverse impact on the Company's operations. As new variants of the virus emerge, we remain cautious as many factors remain unpredictable. We continue to take measures to protect the health and safety of our employees, including measures to facilitate the provision of vaccines to our employees in line with state and local guidelines, to work with our customers to minimize ultimate potential disruptions, and to support our community in addressing the challenges posed by this global pandemic.

The extent of the ultimate impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our programs in the expected timeframe, will depend on future developments, including any potential subsequent waves or variants of COVID-19, the effectiveness, distribution and acceptance of COVID-19 vaccines, new government regulations for defense contractors and other related actions taken by the U.S. government, state and local government officials, and international governments to prevent disease spread, all of which remain uncertain and cannot be predicted.

~~For the three and six months ended July 1, 2022, the impact of COVID-19 was immaterial to our financial results.~~

In accordance with the DoD guidance issued in March 2020 designating the Defense Industrial Base as a critical infrastructure workforce, our U.S. facilities have continued to operate in support of essential products and services required to meet our commitments to the U.S. government and the U.S. military; however, facility closures, work slowdowns and supply chain disruptions have affected and may continue to affect our financial results and projections. In addition, other countries are responding to the pandemic differently which has affected our international operations and the operations of our suppliers and customers. However, any closures to date have not had a material adverse impact on V2X's business.

We continue to work with our customers, employees, suppliers and communities to address the impacts of COVID-19. We continue to assess possible implications to our business, supply chain and customers and to take actions in an effort to mitigate adverse consequences in order to support our customers' mission critical business and national security.

~~For additional risks to the Company related to the COVID-19 pandemic, see Item 1A, Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2021.~~

Significant Contracts

The following table reflects contracts that accounted for more than 10% of ~~our~~ total ~~revenue for the six months ended July 1, 2022 and July 2, 2021:~~revenue:

% of Total Revenue

Six Months Ended

Contract Name

July 1, 2022

July 2, 2021

Contract Name

June 30, 2023

July 1, 2022

Logistics Civil Augmentation Program (LOGCAP) V - Kuwait Task Order

22.2%

3.1%

Logistics Civil Augmentation Program (LOGCAP) V - Kuwait Task Order

13.4%

22.2%

Logistics Civil Augmentation Program (LOGCAP) V - Iraq Task Order

15.2%

6.9%

Logistics Civil Augmentation Program (LOGCAP) V - Iraq Task Order

7.8%

15.2%

Kuwait Base Operations and Security Support Services (K-BOSSS)

1.7%

25.7%

Revenue associated with a contract will fluctuate based on increases or decreases in the work being performed on the contract, award fee payment assumptions, and other contract modifications within the term of the contract resulting in changes to the total contract value. ~~See "Backlog" below.~~

The LOGCAP V - Kuwait Task Order is currently exercised through June 30, ~~2023,~~2024, with ~~four~~two additional twelve-month options and one six-month option through December 31, 2026. The task ~~order~~order provides services to support the Geographical Combatant Commands and Army Service Component Commands throughout the full range of military operations in the Kuwait region. The LOGCAP V - Kuwait Task Order contributed ~~$212.2~~$257.1 million ~~and $28.3~~and $212.2 million of revenue for the six months ended June 30, 2023 and July 1, 2022 ~~and July 2, 2021~~, respectively.

The LOGCAP V - Iraq Task Order is currently exercised through June 21, ~~2023,~~2024, with ~~four~~two additional twelve-month options and one six-month option through December 21, 2026. The task order provides services to support the Geographical Combatant Commands and Army Service Component Commands throughout the full range of military operations in the Iraq region. The LOGCAP V - Iraq Task Order contributed ~~$144.9~~ $150.5 million and ~~$62.6~~$144.9 million of revenue for the six months ended June 30, 2023 andJuly 1, 2022 ~~and July 2, 2021~~, ~~respectively.~~

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The K-BOSSS contract is currently exercised through August 28, 2022. Components of the K-BOSSS contract were re-competed as a task order under the LOGCAP V contract vehicle and were awarded to us on April 12, 2019. The K-BOSSS contract contributed ~~$15.8 million~~ ~~and $232.9 million of revenue for the six months ended July 1, 2022 and July 2, 2021,~~ respectively.

Backlog

Total backlog includes remaining performance obligations, consisting of both funded backlog (firm orders for which funding is contractually authorized and appropriated by the customer) and unfunded backlog (firm orders for which funding is not currently contractually obligated by the customer and unexercised contract options). Total backlog excludes potential orders under IDIQ contracts and contracts awarded to us that are being protested by competitors with the GAO or in the COFC. The value of the backlog is based on anticipated revenue levels over the anticipated life of the contract. Actual values may be greater or less than anticipated. Total backlog is converted into revenue as work is performed. The level of order activity related to programs can be affected by the timing of U.S. government funding authorizations and their project evaluation cycles. Year-over-year comparisons could, at times, be impacted by these factors, among others.

~~Our~~The Company's contracts are multi-year contracts and typically include an initial period of one year or less with annual one-year or less option periods for the remaining contract period. The number of option periods vary by contract, and there is no guarantee that an option period will be exercised. The right to exercise an option period is at the sole discretion of the U.S. government when ~~we are~~the Company is the prime contractor or of the prime contractor when ~~we are~~the Company is a subcontractor. The U.S. government may also extend the term of a program by issuing extensions or bridge contracts, typically for periods of one year or less.

~~We expect~~The Company expects to recognize a substantial portion of ~~our~~its funded backlog as revenue within the next 12 months. However, the U.S. government or the prime contractor may cancel any contract at any time through a termination for convenience. Substantially all of ~~our~~the Company's contracts have terms that would permit ~~us to recover~~recovery of all or a portion of ~~our~~ incurred costs and fees for work performed in the event of a termination for convenience.

~~For the six months ended July 1, 2022,~~As of June 30, 2023, total backlog was ~~$4.6~~$13.0 billion as compared to ~~$5.0~~$12.3 billion at December 31, ~~2021.~~2022. The following is a summary of ~~our backlog as of July 1, 2022~~funded and ~~December 31, 2021:~~unfunded backlog:


		July 1,		December 31,			June 30,		December 31,
(In millions)	(In millions)	2022		2021		(In millions)	2023		2022
Funded backlog	Funded backlog	$	1,283	$	1,033	Funded backlog	$	3,067	$	2,567
Unfunded backlog	Unfunded backlog	3,332		3,972		Unfunded backlog	9,916		9,695
Total backlog	Total backlog	$	4,615	$	5,005	Total backlog	$	12,983	$	12,262

Funded orders (different from funded backlog) represent orders for which funding was received during the period. WeThe Company received funded orders of ~~$1.1~~$2.4 billion during the six months ended ~~July 1, 2022,~~June 30, 2023, which was a ~~decrease~~an increase of ~~$121.3 million~~$1.3 billion compared to the six months ended July ~~2, 2021.~~1, 2022.

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Economic Opportunities, Challenges and Risks

The U.S. government’s investment in services and capabilities in response to changing security challenges creates a complex and fluid business environment for V2X and other firms in this market. However, the U.S. continues to face substantial fiscal and economic challenges in addition to a varying political environment which could affect funding. The pace and depth of U.S. government acquisition reform and cost savings initiatives, combined with increased industry competitiveness to win long-term positions on key programs, could add pressure to revenue levels and profit margins. However, ~~we expect~~the Company expects the U.S. government will continue to place a high priority on national security and will continue to invest in affordable solutions. ~~We believe~~V2X believes that ~~our~~its capabilities, particularly in ~~base~~ operations ~~support, supply chain~~ and logistics, ~~IT mission support, engineering~~aerospace, training and ~~digital integration, security, or maintenance, repair, and overhaul,~~technology, should help ~~our~~its clients increase efficiency, reduce costs, improve readiness, and strengthen national security and, as a result, continue to allow for long-term profitable growth in ~~our~~the business. Further, the DoD budget remains the largest in the world and ~~management~~management believes ~~our~~the Company's addressable portion of the DoD budget offers substantial opportunity for growth.

The U.S. government's ~~fiscal year~~Fiscal Year (FY) begins on October 1 and ends on September 30. On ~~March 15,~~December 29, 2022, the ~~Consolidated~~FY 2023 Omnibus Appropriations Act ~~of 2022~~ was signed into law by the President, ~~Biden~~providing $817 billion to the Defense Department (and $886 billion for National Defense). This reflects a $44 billion increase over the President’s FY 2023 budget request. The Fiscal 2024 budget request was submitted to the U.S. Congress on March 9, 2023, and ~~provides funding through the end of FY 2022 or September 30, 2022. The bill provides $782 billion in total national defense spending, including $742~~requested $842 billion for the ~~DoD.~~Department of Defense.

~~On March 28, 2022,~~In January 2023, the ~~U.S. government submitted~~statutory debt ceiling limit of $31.4 trillion was reached and on June 3, 2023, the President signed “The Fiscal Responsibility Act” (FRA) into law, which suspends the debt ceiling until January 1, 2025. The FRA places caps on defense and non-defense discretionary spending in FY ~~2023 Federal budget, which requests $813 billion~~2024 and FY 2025. The FRA cap on discretionary spending for total national defense spending including $773 billion for the DoD. Subsequently, both the Senate Armed Services Committee and House Armed Services Committee have reported their versions of the FY 2023 National Defense ~~Authorizations Act, which provide an additional $45~~in FY 2024 and FY 2025 is $886 billion and ~~$37~~$895 billion, ~~respectively, for~~respectively. Additionally, the ~~DoD. While final legislation has yet~~FRA mandates cuts to ~~be enacted and~~discretionary spending by one percent below the current-year level if a continuing resolution is in place on January 1, 2024 or 2025.

While it is difficult to predict the specific course of future defense budgets, ~~final FY 2023 DoD funding is currently expected~~V2X believes the core functions the Company performs are mission-essential and spending to ~~be higher than the original request.~~

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~~We believe spending on maintaining, operating,~~maintain readiness, improve performance, increase service life, lower cost, and ~~hardening national security defense assets, as well as civilian agency infrastructure~~modernize digital and ~~equipment,~~physical environments will continue to be a U.S. government priority. ~~Our~~The Company's focus is on ~~sustaining~~providing integrated solutions across the mission lifecycle that encompass (i) high consequence training; (ii) readiness/logistics/deployment; (iii) mission and ~~protecting infrastructures, equipment,~~infrastructure support, including rapid response contingency efforts; (iv) battlefield connectivity and ~~IT networks, while utilizing~~communications; (v) maintenance, modification, repair, and overhaul of assets and aircraft; (vi) and upgrades and modernization across digital and physical environments. The Company develops and inserts operational technologies ~~and converged~~across its solutions to improve efficiency and the outcomes of ~~our~~its clients' missions. ~~We believe~~The Company believes this aligns with ~~our customers'~~its clients' intent to utilize and harden existing equipment, infrastructure, and ~~infrastructure~~assets rather than executing new purchases. Many of the core functions we perform are mission-essential. The following are examples of a few of these core functions: (i) keeping communications networks operational; (ii) maintaining airfields and aircraft; (iii) providing emergency services; (iv) guarding our nation’s military bases, and other critical resources with integrated electronic security systems; and (v) supporting rapid response contingency efforts. While customers may reduce the level of services required from us, ~~we do~~the Company does not currently anticipate the complete elimination of these services.

However, business conditions have become more challenging due to macroeconomic conditions, including inflation and rising interest rates. Given the current pace of inflation and other geopolitical factors, the Company is monitoring the impact of rising costs on its active and future contracts. To date, the Company has not experienced broad-based increases due to inflation in the costs of fixed-price and time and materials contracts that are material to the business as a whole; however, if the Company begins to experience greater than expected inflation in its supply chain and labor costs, profit margins, and in particular, the profit margin from fixed-price and time and materials contracts, which represent a substantial portion of its contracts, the Company could be adversely affected. See Item 1A, "Risk Factors".

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022, which includes, among other provisions, changes to the U.S. corporate income tax system. While the Company does not currently anticipate any impact on its business, evaluation of the Inflation Reduction Act of 2022 and its requirements continues, as well as any potential impact on its business in the future.

The information provided above does not represent a complete list of trends and uncertainties that could impact ~~our~~the Company's business in either the near or long-term and should be considered along with the risk factors identified under the caption “Risk Factors” identified in Part 1, Item 1A in ~~our~~the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 and the matters identified under the caption “Forward-Looking Statement Information" herein.

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DISCUSSION OF FINANCIAL RESULTS

Three months ended ~~July 1, 2022,~~June 30, 2023, compared to three months ended July ~~2, 2021~~1, 2022

Selected financial highlights are presented in the following table:


		Three Months Ended						Change					Three Months Ended						Change
(In thousands, except for percentages)	(In thousands, except for percentages)	July 1, 2022			July 2, 2021			$		%		(In thousands, except for percentages)	June 30, 2023			July 1, 2022			$		%
Revenue	Revenue	$	498,066		$	470,845		$	27,221	5.8	%	Revenue	$	977,852		$	498,066		$	479,786	96.3	%
Cost of revenue	Cost of revenue	453,305			422,660			30,645		7.3	%	Cost of revenue	890,452			453,305			437,147		96.4	%
% of revenue	% of revenue	91.0		%	89.8		%					% of revenue	91.1		%	91.0		%
Selling, general, and administrative expenses	Selling, general, and administrative expenses	29,740			25,605			4,135		16.1	%	Selling, general, and administrative expenses	53,130			29,740			23,390		78.6	%
% of revenue	% of revenue	6.0		%	5.4		%					% of revenue	5.4		%	6.0		%

Operating income	Operating income	15,021			22,580			(7,559)		(33.5)	%	Operating income	34,270			15,021			19,249		128.1	%
Operating margin	Operating margin	3.0		%	4.8		%					Operating margin	3.5		%	3.0		%

Interest expense, net	Interest expense, net	(1,963)			(2,253)			(290)		(12.9)	%	Interest expense, net	(31,950)			(1,963)			(29,987)		1,527.6	%

Income from operations before income taxes		13,058			20,327			(7,269)		(35.8)	%
Other expense, net												Other expense, net	(311)			—			(311)		*
Income (loss) from operations before income taxes												Income (loss) from operations before income taxes	2,009			13,058			(11,049)		(84.6)	%
% of revenue	% of revenue	2.6		%	4.3		%					% of revenue	0.2		%	2.6		%
Income tax expense		2,586			4,393			(1,807)		(41.1)	%
Income tax expense (benefit)												Income tax expense (benefit)	210			2,586			(2,376)		(91.9)	%
Effective income tax rate	Effective income tax rate	19.8		%	21.6		%					Effective income tax rate	10.5		%	19.8		%
Net Income		$	10,472		$	15,934		$	(5,462)	(34.3)	%
Net income (loss)												Net income (loss)	$	1,799		$	10,472		$	(8,673)	(82.8)	%
*Percentage change is not meaningful.												*Percentage change is not meaningful.

Revenue

Revenue increased $479.8 million, or 96.3%, for the three months ended ~~July 1, 2022 was $498.1 million, an increase of $27.2 million, or 5.8%,~~June 30, 2023 as compared to the three months ended July ~~2, 2021.~~1, 2022. Revenue increased $442.6 million due to the Merger and the remaining increase was from organic growth for legacy programs. Revenue from ~~our~~programs located in the U.S., Middle East, Asia ~~U.S~~ and Europe ~~programs~~ increasedby ~~$16.7~~$419.8 million, ~~$12.2~~$28.9 million, $19.1 million and ~~$6.6~~$12.0 million, ~~respectively, and revenue from our Middle East programs decreased by $8.3 million.~~respectively.

Cost of Revenue

Cost of revenue ~~as a percentage of revenue was 91.0%~~ ~~compared to 89.8% for the three months ended July 1, 2022 and July 2, 2021, respectively. The increase in cost of revenue of $30.6~~increased $437.1 million, or ~~7.3%~~96.4%, for the three months ended ~~July 1, 2022,~~June 30, 2023 as compared to the three months ended July ~~2, 2021, was~~1, 2022, primarily due to the ~~volume fluctuations described above for revenue. In addition, we realized lower margins associated with~~increased revenue from the ~~early phases~~Merger and increased amortization of ~~new program operations during the three months ended July 1, 2022.~~intangible assets.

Selling, General, & Administrative (SG&A) Expenses

~~For~~SG&A expenses increased $23.4 million, or 78.6%, for the three months ended June 30, 2023 as compared to the three months ended July 1, 2022, ~~SG&A expenses of $29.7 million~~primarily due to the Merger.

Operating Income

Operating income increased ~~by $4.1~~$19.2 million, or ~~16.1%~~128.1%, for the three months ended June 30, 2023 as compared to the three months ended July ~~2, 2021.~~1, 2022. Operating income as a percentage of revenue was 3.5% for the three months ended June 30, 2023, compared to 3.0% for the three months ended July 1, 2022. The increase ~~in SG&A expenses~~ was due to ~~M&A~~the Merger and ~~integration costs~~improved performance of ~~$5.9 million.~~legacy programs.

Aggregate cumulative catch-up adjustments increased operating income by $9.1 million and $6.8 million for the three months ended June 30, 2023 and July 1, 2022, respectively. The aggregate cumulative catch-up adjustments for the three months ended June 30, 2023 and July 1, 2022 related to changes in contract terms, program performance, customer changes in scope of work and changes to estimates in the reported period. Operating income was also impacted by the mix of labor and cost differential between internal resources and subcontractors as well as the volume of other direct cost purchases.

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~~Operating Income~~Six months ended June 30, 2023, compared to six months ended July 1, 2022

~~Operating income~~Selected financial highlights are presented in the following table:


	Six Months Ended						Change
(In thousands, except for percentages)	June 30, 2023			July 1, 2022			$		%
Revenue	$	1,921,312		$	954,537		$	966,775	101.3	%
Cost of revenue	1,755,082			872,581			882,501		101.1	%
% of revenue	91.3		%	91.4		%
Selling, general, and administrative expenses	101,381			61,699			39,682		64.3	%
% of revenue	5.3		%	6.5		%


Operating income	64,849			20,257			44,592		220.1	%
Operating margin	3.4		%	2.1		%
Loss on extinguishment of debt	(22,052)			—			(22,052)		*
Interest expense, net	(63,694)			(3,643)			(60,051)		1,648.4	%
Other expense, net	(311)			—			(311)		*
Income (loss) from operations before income taxes	(21,208)			16,614			(37,822)		(227.7)	%
% of revenue	(1.1)		%	1.7		%
Income tax (benefit) expense	(5,527)			3,287			(8,814)		(268.1)	%
Effective income tax rate	26.1		%	19.8		%
Net (loss) income	$	(15,681)		$	13,327		$	(29,008)	(217.7)	%
*Percentage change is not meaningful.

Revenue

Revenue increased $966.8 million, or 101.3%, for the ~~three~~six months ended June 30, 2023 as compared to the six months ended July 1, 2022. Revenue increased $855.1 million due to the Merger and the remaining increase was from organic growth for legacy programs. Revenue from programs located in the U.S., Middle East, Asia and Europe increasedby$801.8 million, $74.9 million, $67.3 million and $22.8 million, respectively.

Cost of Revenue

Cost of revenue increased $882.5 million, or 101.1%, for the six months ended June 30, 2023 as compared to the six months ended July 1, 2022, ~~decreased by $7.6~~primarily due to the increased revenue from the Merger and increased amortization of intangible assets.

Selling, General, & Administrative (SG&A) Expenses

SG&A expenses increased $39.7 million, or ~~33.5%~~64.3%, for the six months ended June 30, 2023 as compared to the ~~three~~six months ended July ~~2, 2021. The decrease was~~1, 2022, primarily due ~~primarily~~ to the ~~fluctuations described~~Merger.

Operating Income

Operating income increased $44.6 million, or 220.1%, for ~~above SG&A expenses and lower margin rates associated with early phases of new program operations.~~

the six months ended June 30, 2023 as compared to the six months ended July 1, 2022. Operating income as a percentage of revenue was ~~3.0%~~3.4% for the ~~three~~six months ended June 30, 2023, compared to 2.1% for the six months ended July 1, ~~2022, compared~~2022. The increase was due to ~~4.8% for~~ the ~~three months ended July 2, 2021. The decrease in operating income as a percent~~Merger and improved performance of ~~revenue was the result of an increase in M&A and integration costs in SG&A expenses and lower margin rates associated with early phases of new program operations.~~legacy programs.

Aggregate cumulative catch-up ~~adjustments~~adjustments increased operating income by ~~$6.8~~$22.2 million and ~~decreased operating income by $1.7~~$7.4 million for the ~~three~~six months ended June 30, 2023 and July 1, 2022, ~~and July 2, 2021,~~ respectively. The aggregate cumulative catch-up adjustments for the ~~three~~six months ended June 30, 2023 and July 1, 2022 ~~and July 2, 2021~~ related to changes in contract terms, program performance, customer changes in scope ~~changes~~of work and changes to estimates in the reported period. Operating income iswas also impacted by the mix of labor ~~mix~~ and ~~the~~ cost differential between internal resources and subcontractors as well as the volume of ~~Other Direct Cost (ODCs)~~other direct cost purchases.

~~Six months ended July 1, 2022, compared to six months ended July 2, 2021~~

~~Selected financial highlights are presented in the following table:~~

Six Months Ended Change
(In thousands, except for percentages) July 1, 2022 July 2, 2021 $ %
Revenue $ 954,537 $ 904,849 $ 49,688 5.5 %
Cost of revenue 872,581 816,308 56,273 6.9 %
% of revenue 91.4 % 90.2 %
Selling, general, and administrative expenses 61,699 49,427 12,272 24.8 %
% of revenue 6.5 % 5.5 %
Operating income 20,257 39,114 (18,857) (48.2) %
Operating margin 2.1 % 4.3 %
Interest expense, net (3,643) (4,186) 543 (13.0) %
Income from operations before income taxes 16,614 34,928 (18,314) (52.4) %
% of revenue 1.7 % 3.9 %
Income tax expense 3,287 6,946 (3,659) (52.7) %
Effective income tax rate 19.8 % 19.9 %
Net Income $ 13,327 $ 27,982 $ (14,655) (52.4) %

~~Revenue~~Loss on Extinguishment of Debt

~~Revenue~~The Company recorded a $22.1 million loss on extinguishment of debt for the six months ended ~~July 1, 2022 wa~~June 30, 2023. For a discussion of the loss on extinguishment see Note 6, ~~s $954.5 million, an increase of $49.7 million, or 5.5%, as~~ ~~compared to the six months ended July 2, 2021. Revenue from our U.S., Asia and Europe programs~~Debt, ~~increased~~by~~$29.1 million, $29.3 million, and $4.5 million,respectively, and revenue from our Middle East programs decreased by $13.2 million.~~

~~Cost of Revenue~~

~~Cost of revenue as a percentage of revenue for~~in the ~~six months ended July 1, 2022 was~~ ~~91.4%~~ ~~compared~~Notes to ~~90.2% for July 2, 2021, respectiv~~ely. The increase in cost of revenue of $56.3 million, or 6.9%, for the six months ended July 1, 2022, as compared to the six months ended July 2, 2021, was primarily due to the volume fluctuations described above for revenue. In addition, we realized lower margins associated with the early phases of new program operations during the six months ended July 1, 2022.

~~Selling, General, & Administrative (SG&A) Expenses~~

~~For the six months ended July 1, 2022, SG&A expenses of~~ ~~$61.7 million increased by $12.3 million, or 24.8%, as compared to the six months ended July 2, 2021. The increase in SG&A expenses was due to M&A and integration costs of $14.9 million.~~Condensed Consolidated Financial Statements.

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~~Operating Income~~

~~Operating income for the six months ended July 1, 2022 decreased by $18.9 million, or 48.2%, as compared to the six months ended July 2, 2021.~~ ~~The decrease was due primarily to the fluctuations described above for SG&A expenses and lower margin rates associated with early phases of new program operations.~~

~~Operating income as a percentage of revenue was 2.1% for the six months ended July 1, 2022, compared to 4.3% for the six months ended July 2, 2021.~~ ~~The decrease in operating income was a result of an increase M&A and integration costs in SG&A expenses and lower margin rates associated with early phases of new program operations.~~

~~Aggregate cumulative catch-up adjustments increased operating income by~~ ~~$7.4 million~~ ~~for the six months ended July 1, 2022 and decreased oper~~ating income by $3.0 million for the six months ended July 2, 2021, respectively. The aggregate cumulative catch-up adjustments for the six months ended July 1, 2022 and July 2, 2021 related to changes in contract terms, program performance, customer scope changes and changes to estimates in the reported period. Operating income is also impacted by labor mix and the cost differential between internal resources and subcontractors as well as the volume of ODCs purchases.

Interest (Expense) Income, Net

Interest (expense) income, net for the three and six months ended June 30, 2023 and July 1, 2022 ~~and July 2, 2021~~ was as follows:


		Three Months Ended				Change				Six Months Ended				Change					Three Months Ended				Change				Six Months Ended				Change
(In thousands, except for percentages)	(In thousands, except for percentages)	July 1, 2022		July 2, 2021		$		%		July 1, 2022		July 2, 2021		$		%		(In thousands, except for percentages)	June 30, 2023		July 1, 2022		$		%		June 30, 2023		July 1, 2022		$		%
Interest income	Interest income	$	6	$	8	$	(2)	(25.0)	%	$	50	$	33	$	17	51.5	%	Interest income	$	141	$	6	$	135	2,250	%	$	349	$	50	$	299	598	%
Interest expense	Interest expense	$	(1,969)	(2,261)		(292)		(12.9)	%	(3,693)		(4,219)		(526)		(12.5)	%	Interest expense	(32,091)		(1,969)		(30,122)		1,530	%	(64,043)		(3,693)		(60,350)		1,634	%
Interest expense, net	Interest expense, net	$	(1,963)	$	(2,253)	$	(290)	(12.9)	%	$	(3,643)	$	(4,186)	$	(543)	(13.0)	%	Interest expense, net	$	(31,950)	$	(1,963)	$	(29,987)	1,528	%	$	(63,694)	$	(3,643)	$	(60,051)	1,648	%

Interest income is directly related to interest earned on ~~our cash.~~cash and cash equivalents. Interest expense is directly related to borrowings under ~~our~~the Company's senior secured credit facilities, with the ~~amortization~~amortization of debt issuance costs, and derivative instruments used to hedge a portion of ~~our~~ exposure to interest rate risk. ~~The decrease in interest~~Interest expense, net ~~of $0.5~~increased $60.1 million for the six months ended June 30, 2023 compared to the six months ended July 1, 2022 ~~compared~~due to increased debt assumed with the Merger.

Other expense, net

During the three months and six months ended ~~July 2, 2021 was due~~June 30, 2023, the Company incurred purchase discount fees and other expenses of $0.2 million and $0.1 million, respectively, related to ~~increased use~~the sale of ~~our revolving credit facility in 2021 for~~accounts receivable through the ~~December 31, 2020 acquisitions of Zenetex and HHB.~~MARPA Facility.

Income Tax ~~Expense~~(Benefit) Provision

WeThe Company recorded income tax ~~expense of $2.6~~provisions of $0.2 million and ~~$4.4~~$2.6 million for the three months ended June 30, 2023 and July 1, 2022, ~~and July 2, 2021,~~ respectively, representing effective income tax rates of ~~19.8%~~10.5% and ~~21.6%~~19.8%, respectively. For the six months ended June 30, 2023 and July 1, 2022, ~~and July 2, 2021, we~~the Company recorded income tax ~~provisions~~benefit of ~~$3.3~~$5.5 million and ~~$6.9~~provision of $3.3 million, representing effective income tax rates of ~~19.8%~~26.1% and ~~19.9%~~19.8%, respectively. The effective income tax rates vary from the federal statutory rate of 21.0% mainly due to state and foreign taxes, ~~required tax income exclusions, nondeductible expenses,~~disallowed compensation deduction under Internal Revenue Code Section 162(m), available deductions not reflected in book income,and income tax credits.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

~~We have~~The Company has generated operating cash flows sufficient to fund ~~our~~its working capital, capital expenditures, and financing requirements. ~~We expect~~The Company expects to fund ~~our~~its ongoing working capital, capital expenditure and financing requirements and pursue additional growth through new business development and potential acquisition opportunities by using cash flows from operations, cash on hand, ~~our~~its credit facilities, and access to capital markets. When necessary, ~~we will utilize our revolving credit facility~~the 2023 Revolver and MARPA Facility are available to satisfy short-term working capital requirements.

If ~~our~~ cash flows from operations are less than ~~what we expect, we~~expected, the Company may need to access the long-term or short-term capital markets. Although ~~we believe that our~~the Company believes its current financing arrangements will permit ~~us to finance our~~financing of its operations on acceptable terms and conditions, ~~our~~ access to and the availability of financing on acceptable terms and conditions in the future will be impacted by many factors, including: (i) ~~our~~its credit ratings, (ii) the liquidity of the overall capital markets, and (iii) the current state of the economy. WeThe Company cannot provide assurance that such financing will be available ~~to us~~ on acceptable terms or that such financing will be available at all.

~~To date, COVID-19 has not had a significant impact on our liquidity, cash flows or capital resources. However,~~As of June 30, 2023, there were $85.0 million of outstanding borrowings and $16.1 million of outstanding letters of credit under the ~~continued spread~~2023 Revolver. Unamortized deferred financing costs related to the 2023 Revolver of ~~COVID-19 has also led to disruption and volatility~~$4.7 million are included in other non-current assets in the ~~global capital markets, which, depending on future developments, could impact our capital resources and liquidity in~~Condensed Consolidated Balance Sheets. As of June 30, 2023, the ~~future.~~fair value of the 2023 Revolver approximated the carrying value because the debt bears a floating interest rate.

As of June 30, 2023, the carrying value of the Term Loan portion of the 2023 Credit Agreement was $248.4 million, excluding unamortized deferred financing costs of $2.3 million. The ~~CARES Act, signed into law in March 2020 in response to~~estimated fair value of the ~~COVID-19 pandemic, provided a deferral~~Term Loan portion of ~~payroll tax payments from which we benefited by deferring cash outlays of $16.8 million in 2020. This had~~ the ~~effect of increasing cash outlays for payroll taxes by~~ ~~$8.1 million during the first quarter of 2022.~~

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In September 2014, we and our wholly-owned subsidiary, VSC, entered into a credit agreement. The credit agreement was subsequently amended, with the most recent amendment occurring January 24, 2022 and is collectively referred to as the Amended2023 Credit Agreement ~~(See Note 6. Debt, in this Quarterly Report on Form 10-Q). The Amended Agreement consists of a term loan (Amended Term Loan) and a $270.0 million revolving credit facility (Amended Revolver).~~

~~At July 1, 2022, there were~~ ~~$40.0 million of~~ ~~outstanding borrowings under the Amended Revolver. In addition, there were~~ ~~two letters of credit outstanding in the aggregate amount~~ ~~of $3.2 million, which reduced our borrowing availability under the Amended Revolver to $226.8 million. V2X had net debt of $58.4 million as~~ ~~of July 1, 2022 and $66.9 million~~ as of ~~December 31, 2021.~~June 30, 2023 was $248.1 million. The fair value is based on observable inputs of interest rates that are currently available to us for debt with similar terms and maturities for non-public debt.

~~The Company recognized~~ ~~$5.9~~ ~~million and $14.9~~ million of M&A-related costs that were expensed as incurred during the three and six months ended July 1, 2022, respectively. These costs increased cash outlays for Merger related payments by $5.8 million during the first and second quarters of 2022.

The cash presented on ~~our~~the Condensed Consolidated Balance Sheets consists of U.S. and international cash from wholly owned subsidiaries. Approximately ~~$12.5~~ $26.7 million of ~~our total $31.8~~the Company's $70.3 million in ~~unrestricted~~ cash and cash equivalents at ~~July 1, 2022~~June 30, 2023 is held by ~~our~~ foreign subsidiaries and is not available to fund U.S. operations unless repatriated. ~~We do~~The Company does not currently expect ~~that we will be required~~ to repatriate undistributed earnings of foreign subsidiaries. ~~We expect our~~The Company expects its U.S. domestic cash resources will be sufficient to fund ~~our~~its U.S. operating activities and cash commitments for financing activities.

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Dividends

~~We do~~The Company does not currently plan to pay a regular dividend on ~~our~~its common stock. The declaration of any future cash dividends and the amount of any such dividends, if declared, will depend upon ~~our~~the Company's financial condition, earnings, capital requirements, financial covenants and other contractual restrictions and the discretion of ~~our~~its Board of Directors. In deciding whether to pay future dividends on ~~our~~ common stock, ~~our~~the Board of Directors may take into account such matters as general business conditions, industry practice, ~~our~~the Company's financial condition and performance, ~~our~~its future prospects, ~~our~~ cash needs and capital investment plans, income tax consequences, applicable law and such other factors as ~~our~~the Board of Directors may deem relevant.

Sources and Uses of Liquidity

Cash, accounts receivable, unbilled receivables, and accounts payable are the principal components of ~~our~~the Company's working capital and are generally driven by ~~our level of~~ revenue with other short-term fluctuations related to payment practices by ~~our~~ customers, sales of accounts receivable through the MARPA Facility and the timing of ~~our~~ billings. ~~Our~~The Company's receivables reflect amounts billed to ~~our~~ customers, as well as the revenue that was recognized in the preceding month, which is normally billed the month following each balance sheet date.

~~The total amount of our accounts~~Accounts receivable balances can vary significantly over time and ~~is sensitive to~~are impacted by revenue levels and the timing of payments received from ~~our~~ customers. Days sales outstanding (DSO) is a metric used to monitor accounts receivable levels. The Company determines its DSO by calculating the number of days necessary to exhaust its ending accounts receivable balance based on its most recent historical revenue. ~~Our~~ DSO ~~was~~ wa67s 68 d ~~and 75 days~~ays as of ~~July 1, 2022~~June 30, 2023 and December 31, ~~2021, respectively.~~2022.

The following table sets forth net cash ~~provided by (used in)~~used in operating activities, investing activities and financing activities:


		Six Months Ended					Six Months Ended
(In thousands)	(In thousands)	July 1, 2022		July 2, 2021		(In thousands)	June 30, 2023		July 1, 2022
Operating activities	Operating activities	$	19,636	$	14,026	Operating activities	$	78,140	$	19,636
Investing activities	Investing activities	(5,587)		(6,401)		Investing activities	(11,538)		(5,587)
Financing activities	Financing activities	(16,984)		(6,176)		Financing activities	(113,607)		(16,984)
Foreign exchange1	Foreign exchange1	(507)		(373)		Foreign exchange1	1,252		(507)
Net change in cash, cash equivalents and restricted cash		$	(3,442)	$	1,076
Net change in cash and cash equivalents						Net change in cash and cash equivalents	$	(45,753)	$	(3,442)
1 Impact on cash balances due to changes in foreign exchange rates.	1 Impact on cash balances due to changes in foreign exchange rates.					1 Impact on cash balances due to changes in foreign exchange rates.

Net cash provided by operating activities for the six months ended June 30, 2023, primarily consisted of cash inflows from non-cash net income items of $104.3 million and sales of accounts receivable through the MARPA Facility of $113.0 million, partially offset by net cash outflows in working capital accounts of $123.5 million and a net loss of $15.7 million.

Net cash used in operating activities for the six months ended July 1, 2022 consisted of cash inflows from net income of $13.3 million and non-cash net income items of $12.7 million, partially offset by cash outflows for other long-term assets and liabilities of $3.2 million and net working capital requirements of $3.2 million. The net working capital inflows were largely from increases in accounts payable offset by increases in accounts receivable and decreases in other accrued liabilities, which included an $8.1 million payment of deferred CARES Act payroll taxes.

Net cash ~~provided by operating~~used in investing activities for the six months ended ~~July 1, 2021~~June 30, 2023 consisted of ~~inflows from net income~~$11.5 million of ~~$28.0 million increased by non-cash items~~capital expenditures for the purchase of ~~$13.4 million partially offset by outflows of net working capital requirements of $20.2 million~~software and ~~other long-term assets~~hardware, vehicles and ~~liabilities of $7.2 million. The net working capital outflows were largely from increases in accounts receivable and accrued compensation partially offset by increases in accounts payable.~~

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equipment related to ongoing operations.

Net cash used in investing activities for the six months ended July 1, 2022 consisted of $3.5 million of capital expenditures for the purchase of software and hardware, and vehicles and equipment related to ongoing operations and $ 2.1 million for a joint venture contribution.

Net cash used in ~~investing~~financing activities ~~for~~during the six months ended ~~July 2, 2021~~June 30, 2023 consisted of ~~$4.8~~repayments of long-term debt of $424.9 million, revolver repayments of ~~capital expenditures~~$467.8 million, payments for ~~the purchase~~employee withholding taxes on share-based compensation of ~~software~~$14.6 million, and ~~hardware, and vehicles and equipment related to ongoing operations and $1.8~~payments for debt issuance costs of $7.5 million, ~~for a joint venture contribution. These outflows were~~ partially offset by ~~inflows~~proceeds from ~~a business acquisition purchase price adjustment.~~long term debt and the revolver of $250.0 million and $552.8 million, respectively.

Net cash used in financing activities during the six months ended July 1, 2022 consisted of repayments of long-term debt of $5.2 million, payments of $1.7 million for employee withholding taxes on share-based compensation and payments $0.5 million for debt issuance costs. During the six months ended July 1, 2022, ~~we also~~the Company borrowed and repaid $392.0 million and $402.0 million, respectively, on the Amended Revolver. These cash outflows were partially offset by $0.4 million received from the exercise of stock options.

~~Net~~

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Capital Resources

At June 30, 2023, the Company held cash ~~used in financing activities during the six months ended July 2, 2021 consisted~~and cash equivalents of repayments of long-term debt of $4.0 million and payments of $2.3 million for employee withholding taxes on share-based compensation. This was partially offset by $0.1 million received from the exercise of stock options. During the six months ended July 2, 2021, we borrowed and repaid $215.0 million on the Amended Revolver.

~~Capital Resources~~

At ~~July 1, 2022, we held unrestricted cash of $31.8~~$70.3 million, which included ~~$12.5~~$26.7 million held by foreign subsidiaries, and had ~~$226.8~~$398.9 million of available borrowing capacity under the ~~Amended~~2023 Revolver, which expires on ~~November 15, 2023. We believe~~February 25, 2028. The Company believes that ~~our~~its cash and cash equivalents at ~~July 1, 2022,~~June 30, 2023, as supplemented by cash flows from operations, the 2023 Revolver, and the ~~Amended Revolver,~~MARPA Facility will be sufficient to fund ourits anticipated operating costs, capital expenditures, and current debt repayment obligations for at least the next 12 months.

We have a shelf registration statement with the Securities and Exchange Commission (the SEC) that became effective in January 2020 under which we may issue, from time to time, up to $250 million of common stock, preferred stock, depository shares, warrants, rights and debt securities. If necessary, we may seek to obtain additional term loans or issue debt or equity under the registration statement to supplement our working capital and investing requirements or to fund acquisitions. A financing transaction may not be available on terms acceptable to us, or at all, and a financing transaction may be dilutive to our current stockholders.

~~See Note 15.~~ ~~Subsequent Event,in this Quarterly Report on Form 10-Q for a discussion of the debt incurred in connection with the Merger with Vertex.~~

Contractual Obligations

As of ~~July 1, 2022, our~~June 30, 2023, commitments to make future payments under long-term contractual obligations were as follows:

Payments Due by Period
Less than 1 year More than 5 Years
(In thousands) Total 1 - 3 Years 3 - 5 Years
Operating leases 48,001 13,312 17,663 9,242 7,784
Principal payments on Amended Term Loan 50,200 10,400 39,800 — —
Principal payments on Amended Revolver 40,000 — 40,000 — —
Interest on Term Loan and Amended Revolver ¹ 5,398 3,989 1,409 — —
Total 143,599 27,701 98,872 9,242 7,784
¹ Includes unused funds fee and is based on the July 1, 2022 interest rate and outstanding Amended Revolver balance


	Payments Due by Period
			Less than 1 year						More than 5 Years
(In thousands)	Total				1 - 3 Years		3 - 5 Years
Operating leases	$	58,750	$	17,002	$	20,533	$	14,275	$	6,940
Principal payments on Vertex First Lien Credit Agreement¹	913,437		9,250		18,500		18,500		867,187
Principal payments on 2023 Credit Agreement¹	333,438		6,250		20,313		306,875		—
Interest on Vertex First Lien and 2023 Credit Agreements	595,323		114,165		227,697		217,521		35,940
Total	$	1,900,948	$	146,667	$	287,043	$	557,171	$	910,067
¹ Includes unused funds fee and is based on the June 30, 2023 interest rate and outstanding balance.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Estimates are revised as additional information becomes available. Management believes that the accounting estimates employed and the resulting balances are reasonable; however, actual results in these areas could differ from management's estimates under different assumptions or conditions.

~~We believe~~The Company believes that the assumptions and estimates associated with revenue recognition, business combinations, goodwill and other intangible assets, and income taxes have the greatest potential impact on ~~our~~its financial statements. Therefore, ~~we consider~~the Company considers these to be ~~our~~its critical accounting policies and estimates. There have been no material changes in ~~our~~the critical

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accounting policies and estimates from those discussed in ~~our~~the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

New Accounting Pronouncements

Refer to Part I, Item 1, Note 2~~. "Recent~~, Recent Accounting Standards ~~Update"~~Update in the Notes to ~~our unaudited~~ Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for information regarding accounting pronouncements and accounting standards updates.

FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q and certain information incorporated herein by reference contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 27A of the Securities Act of 1933, as amended (the Securities Act), and the Private Securities Litigation Reform Act of 1995 and, as such, may involve risks and uncertainties. All statements included or incorporated by reference in this report, other than statements that are purely historical, are forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “could,” “potential,” “continue” or similar terminology. These statements are based on the beliefs and assumptions of the management of the Company based on information currently available to management. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements.

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The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company's historical experience and ~~our~~its present expectations or projections. These risks and uncertainties include, but are not limited to: the ~~continued impact of~~ ~~COVID-19 and any variant strains thereof on the global economy and any current or future government mandated COVID-19 precautions, including mandatory vaccination;~~ ~~our~~Company's ability to submit proposals for and/or win all potential opportunities in ~~our~~the pipeline; ~~our~~the Company's ability to retain and renew ~~our~~ existing contracts; ~~our~~the Company's ability to compete with other companies in ~~our~~the market; security breaches and other disruptions to ~~our~~ information technology and operation; ~~our~~the mix of cost-plus, cost-reimbursable, and firm-fixed-price contracts; maintaining ~~our~~the Company's reputation and relationship with the U.S. government; protests of new awards; economic, political and social conditions in the countries in which ~~we conduct our businesses;~~the Company conducts business; changes in U.S. or international government defense budgets; government regulations and compliance therewith, including changes to the DoD procurement process; changes in technology; intellectual property matters; governmental investigations, reviews, audits and cost adjustments; contingencies related to actual or alleged environmental contamination, claims and concerns; delays in completion of the U.S. ~~government's~~government budget; ~~our~~the Company's success in extending, deepening, and enhancing ~~our~~its technical capabilities; ~~our~~ success in expanding ~~our~~the Company's geographic footprint or broadening ~~our~~its customer base; ~~our~~the Company's ability to realize the full amounts reflected in ~~our~~the Company's backlog; impairment of goodwill; misconduct of ~~our~~ employees, subcontractors, agents, prime contractors and business partners; ~~our~~the Company's ability to control costs; ~~our~~ level of indebtedness; terms of ~~our~~ credit ~~agreement;~~agreements; inflation and interest rate risk; subcontractor performance; economic and capital markets conditions; ~~our~~the Company's ability to maintain safe work sites and equipment; ~~our~~the Company's ability to retain and recruit qualified personnel; ~~our~~the Company's ability to maintain good relationships with ~~our workforce; our~~employees and contractors; teaming relationships with other contractors; changes in ~~our~~ accounting estimates; the adequacy of ~~our~~the Company's insurance coverage; volatility in ~~our~~the Company's stock price; changes in ~~our~~ tax provisions or exposure to additional income tax liabilities; risks and uncertainties relating to the ~~Merger~~,Merger; risks and uncertainties relating to the Spin-off; changes in GAAP; and other factors described in Item 1A, “Risk Factors” and elsewhere in ~~our~~the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 and described from time to time in ~~our~~ future reports filed with the SEC.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~Our earnings,~~Earnings, cash flows and financial position are exposed to market risks relating to fluctuations in interest rates and foreign currency exchange rates. All ~~of the~~ potential changes noted below are based on information available at ~~July 1, 2022.~~June 30, 2023.

Interest Rate Risk

Each one percentage point change associated with the variable rate ~~Amended Term Loan~~Vertex First Lien Credit Agreement and would result in a ~~$0.5~~$8.2 million change in ~~our~~the related annual cash interest expenses.

Assuming ~~our Amended~~the 2023 Revolver was fully drawn to a principal amount equal to ~~$270.0~~$500.0 million, each one percentage point change in interest rates would result in a ~~$2.7~~$5.1 million change in ~~our~~ annual cash interest expense.

InAs of June 30, 2023, the ~~past, we entered into~~notional value of the Company's interest rate swap ~~derivative instruments~~agreements totaled $348.4 million. The difference to ~~manage our exposure~~be paid or received under the terms of the interest rate swap agreements is accrued as interest rates change and recognized as an adjustment to interest ~~rate risk~~expense for the related debt in the period incurred. Changes in the variable interest rates to ~~our Amended Term Loan. On June 29, 2022, in conjunction with our planned extinguishment~~be paid pursuant to the terms of the ~~related hedged debt interest expense, we terminated our remaining~~ interest rate ~~swaps that were designated and qualified as effective~~swap agreements will have a corresponding effect on future cash ~~flow hedges.~~flows. Refer to Note 7. 7, Derivative Instruments in the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information regarding ~~our derivative instruments.~~

the Company's interest rate swaps.

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Foreign Currency Exchange Risk

The majority of ~~our~~the Company's business is conducted in U.S. dollars. However, ~~we are~~the Company is required to transact in foreign currencies for some of ~~our~~its contracts, resulting in some assets and liabilities denominated in foreign currencies. As a result, ~~our~~ earnings may experience ~~some~~ volatility related to movements in foreign currency exchange rates. In the past, wethe Company entered into forward foreign exchange contracts to buy or sell various foreign currencies to selectively protect against volatility in the value of non-functional currency denominated monetary assets and liabilities. The impact of the related contracts on ~~our~~the Condensed Consolidated Statements of Income (Loss) and ~~our~~ Condensed Consolidated Balance Sheets was ~~immaterial~~not material and related hedging was discontinued. ~~Our last~~The Company's forward contracts expired in January ~~2021~~2022 and no such contracts are outstanding as of ~~July 1, 2022.~~June 30, 2023.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of ~~July 1, 2022.~~June 30, 2023. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of ~~July 1, 2022,~~June 30, 2023, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in reports the Company files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) accumulated and communicated to management to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

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Changes in Internal Control over Financial Reporting

~~There were no changes~~As discussed in ~~our~~Note 3, Merger in the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, the Company completed the Merger with Vertex on July 5, 2022. As permitted by interpretive guidance for newly acquired businesses issued by the SEC Staff, management has excluded the internal control over financial reporting (ICFR) of Vertex and its consolidated subsidiaries from the evaluation of the Company's effectiveness of its disclosure controls and procedures as of June 30, 2023. Since the date of Merger, Vertex's financial results are included in the Company's Consolidated Financial Statements. As part of the post-closing integration activities, the Company is engaged in the process of assessing the internal controls. The Company has begun to integrate policies, processes, people, technology and operations for the post-acquisition combined company, and it will continue to evaluate the impact of any related changes to ICFR.

Other than the items discussed above, there were no changes in the Company's ICFR that occurred during the ~~period~~six months ended ~~July 1, 2022,~~June 30, 2023, that ~~have~~ materially affected, or are reasonably likely to materially affect, ~~our internal control over financial reporting.~~

its ICFR.

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PART II. OTHER INFORMATION

Unless the context otherwise requires or unless stated otherwise, and with the exception of the Item 1A. Risk Factors section below, references in this Part II to the “Company,” “combined company,” "we," "us," and "our," refer to V2X, Inc. and all of its consolidated subsidiaries, taken together as a whole, excluding Vertex Aerospace Services Holding Corp. (Vertex) and/or its consolidated subsidiaries acquired in Vectrus, Inc.'s (Vectrus) merger with Vertex (the Merger).

ITEM 1. LEGAL PROCEEDINGS

From time to time, ~~we are~~the Company is involved in legal proceedings that are incidental to the operation of ~~our~~its business. Some of these proceedings seek remedies relating to employment matters, matters in connection with ~~our~~ contracts and matters arising under laws relating to the protection of the environment.

Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including ~~our~~the Company's assessment of the merits of the particular claim, ~~we do~~the Company does not expect that any asserted or unasserted legal claims or proceedings, individually or in the aggregate, will have a material adverse effect on ~~our~~its cash ~~flow,~~flows, results of operations or financial condition.

Refer to Note 9. 8, Commitments and Contingencies, in the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information.

ITEM 1A. RISK FACTORS

This section supplements and updates certain of the information found under Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021, based on information currently known to us and recent developments since the date of the filing of the Annual Report on Form 10-K. In this Item 1A. Risk Factors, unless the context otherwise requires or unless stated otherwise, the "Company", "combined company", "we", "us", and "our", refer to V2X, Inc. and all of its consolidated subsidiaries, taken together as a whole, including Vertex and/or its consolidated subsidiaries acquired in the Merger. However, the risks and uncertainties that we face are not limited to those described below and those set forth in the Annual Report on Form 10-K for the year ended December 31, 2021. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business, financial condition or future results.

~~The market price for our common stock may be affected by factors different from those that historically have affected our common stock.~~

Following the Merger, our shareholders became shareholders of the combined company. The combined company’s business will differ from that of Vectrus, and accordingly the results of operations of the combined company following the Merger will be affected by some factors that are different from those previously affecting our results of operations.

We meet the requirements to be a “controlled company” within the meaning of the rules of the New York Stock Exchange (NYSE) and, as a result, qualify for, and intend to rely on, exemptions from certain corporate governance standards, which limit the presence of independent directors on its Board of Directors or Board committees.

Following the Merger, approximately 62.25% of the outstanding shares of the common stock of the combined company is held by holders of the equity interests of Vertex, on a fully diluted basis, and approximately 37.75% is held by the holders of the common stock of Vectrus, on a fully diluted basis. Vertex Aerospace Holdco LLC, a Delaware limited liability company (Vertex Holdco), an affiliate of American Industrial Partners Capital Fund VI, L.P., a Delaware limited partnership and private equity fund affiliated with American Industrial Partners (AIP Fund VI), owns approximately 58% of the fully diluted shares of the common stock of the combined company.

As a result, we are a “controlled company” for purposes of Section 303A of the NYSE Listed Company Manual and are exempt from certain governance requirements otherwise required by the NYSE. Under Section 303A, a company of which more than 50% of the voting power is held by an individual, a group or another company is a “controlled company” and is exempt from certain corporate governance requirements, including requirements that (1) a majority of the board of directors consist of independent directors, (2) compensation of officers be determined or recommended to the board of directors by a majority of its independent directors or by a compensation committee that is composed entirely of independent directors and (3) director nominees be selected or recommended for selection by a majority of the independent directors or by a nominating/corporate governance committee composed solely of independent directors. Following the consummation of the Merger, we continue to have an audit committee that is composed entirely of independent directors.

As a result, the procedures for approving significant corporate decisions could be determined by directors who have a direct or indirect interest in such decisions, and our shareholders will not have the same protections afforded to shareholders of other companies that are required to comply with the independence rules of the NYSE.

~~Combining the two companies may be more difficult, costly or time-consuming than expected and the anticipated benefits and cost savings of the Merger may not be realized.~~

The success of the Merger, including anticipated benefits and cost savings, will depend, in part, on our ability to successfully combine and integrate our business with Vertex’s. We may not realize the benefits of the Merger, including,

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among other things: (i) the expectation that combining Vectrus and Vertex would create a larger, stronger company with (a) an enhanced ability to compete for more integrated business opportunities, (b) a more diversified revenue base across geographies, clients and contract types in supporting missions for the U.S. Department of Defense and other government agencies, and (c) a combined contract portfolio that will be more balanced across the government agencies served or (ii) the expectation that Vectrus will be able to use free cash flow to reduce its indebtedness.

The Merger involves the integration of Vertex’s business with our existing business, which is a complex, costly and time-consuming process. Furthermore, Vertex’s current process of integrating its Defense Training and Mission Critical Services business (the TTS Business), which still relies on certain operating and support services from Raytheon Company, could further increase the complexity and costs of integrating our and Vertex’s businesses following the Merger. It is possible that the integration process could result in material challenges, including, without limitation:

• the diversion of management’s attention from ongoing business concerns and performance shortfalls at one or both of the companies as a result of the devotion of management’s attention to the Merger;

~~• managing a larger combined company;~~

~~• the creation of a new executive management team that combines certain members of Vectrus’ current management team with certain members of Vertex’s current management team;~~

~~• maintaining employee morale and retaining key management and other employees;~~

~~• the possibility of faulty assumptions underlying expectations regarding the integration process;~~

~~• retaining existing business and operational relationships and attracting new business and operational relationships;~~

~~• consolidating corporate and administrative infrastructures and eliminating duplicative operations and inconsistencies in standards, controls, procedures and policies;~~

• integrating the companies’ financial reporting and internal control systems, including compliance by the combined company with Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and the rules promulgated thereunder by the SEC;

~~• coordinating geographically separate organizations;~~

~~• maintaining and protecting the competitive advantages of each of Vectrus and Vertex, including the trade secrets, know-how and intellectual property related to its processes;~~

~~• unanticipated issues in integrating information technology, communications and other systems; and~~

~~• unforeseen expenses or delays associated with the Merger.~~

Many of these factors will be outside of the combined company’s control, and any one of them could result in delays, increased costs, decreases in revenues and diversion of management’s time and energy, which could materially affect the combined company’s financial position, results of operations and cash flows.

If we experience difficulties with the integration process, the anticipated benefits of the Merger may not be realized fully or at all, or may take longer to realize than expected. These integration matters could have an adverse effect on us for an undetermined period after completion of the Merger. In addition, the actual cost savings of the Merger could be less than anticipated.

~~Our future results may be adversely impacted if the combined company does not effectively manage its expanded operations.~~

Following the completion of the Merger, the size of our business is significantly larger than the previous size of either Vectrus’ or Vertex’s respective businesses. Our ability to successfully manage this expanded business will depend, in part, upon management’s ability to design and implement strategic initiatives that address not only the integration of two discrete companies, but also the increased scale and scope of the combined business with its associated costs and complexity. There can be no assurances that we will be successful or that we will realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the Merger.

~~We incurred substantial expenses related to the completion of the Merger and the integration of Vectrus and Vertex.~~

We incurred, and expect to continue to incur, a number of nonrecurring costs associated with the Merger and combining the operations of the two companies. The substantial majority of nonrecurring expenses will be comprised of transaction and regulatory costs related to the Merger. We will incur transaction fees and costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs. We continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in the Merger and the integration of the two companies’ businesses. Furthermore, Vertex’s current process of integrating its Defense Training and Mission Critical Services business (the TTS Business), which still relies on certain operating and support services from Raytheon Company, could further increase the complexity and costs of integrating our businesses following the Merger.

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~~Anti-takeover defenses may delay or prevent future mergers.~~

Provisions contained in our articles of incorporation and bylaws and certain provisions of Indiana law could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our shareholders. These provisions could limit the price that some investors might be willing to pay in the future for shares of our common stock and may have the effect of delaying or preventing a change in control.

~~The composition of the combined company Board of Directors is different than the prior composition of the Vectrus Board of Directors.~~

Upon consummation of the Merger, the composition of the Board of Directors of the combined company became different than the Vectrus Board. Upon the consummation of the Merger, the Board of Directors of the combined company consisted of eleven members, five of whom are designated by Vertex, five of whom are designated by Vectrus, and one of whom is the Chief Executive Officer of Vectrus as of immediately prior to the closing of the Merger on July 5, 2022 (the Closing Date). Further, certain Vertex parties have the ability to designate directors, so long as certain former Vertex stockholders own certain specified thresholds of combined company common stock.

~~This new composition of the Board of Directors of the combined company may affect the future decisions of the combined company.~~

~~Vectrus shareholders have significantly less influence as shareholders of the combined company than they did as shareholders of Vectrus.~~

Following the Merger, approximately 62.25% of the outstanding shares of the common stock of the combined company is held by holders of the equity interests of Vertex, on a fully diluted basis, and approximately 37.75% is held by the holders of the common stock of Vectrus, on a fully diluted basis. Consequently, holders of Vectrus shares prior to the Merger, as a group, will exercise significantly less influence over the management and policies of the combined company than they previously had over our management team and policies.

Through their indirect ownership of a majority of our voting power and the provisions set forth in the amended and restated articles of incorporation, the amended and restated bylaws, and the shareholders agreement entered into on the Closing Date, among Vertex Holdco, Ally Commercial Finance LLC, a Delaware limited liability company, and certain other individual shareholders of Vertex and Vectrus (the Shareholders Agreement), AIP Fund VI and its affiliates will have the ability to designate and elect a majority of the combined company’s directors until our 2024 annual shareholders meeting. Further, AIP Fund VI and its affiliates will also have control over all other matters submitted to shareholders for approval, including changes in capital structure, transactions requiring stockholder approval under Delaware law, and corporate governance, subject to the terms of the shareholders agreement entered into on the Closing Date, among Vertex Holdco, Ally Commercial Finance LLC, a Delaware limited liability company, and certain other individual shareholders of Vertex and Vectrus (the Shareholders Agreement) that require Vertex Holdco and its affiliates to which shares of Company common stock are transferred by certain other former stockholders of Vertex who became shareholders of the Company (the Former Vertex Stockholders and collectively, the Vertex Holdco Parties) to vote in a specified manner in director elections. AIP Fund VI and its affiliates may have different interests than other holders of Vectrus common stock and may make decisions adverse to such holders’ interests.

Among other things, AIP Fund VI’s and its affiliates’ control could delay, defer, or prevent a sale of Vectrus that Vectrus’ other shareholders support, or, conversely, this control could result in the consummation of such a transaction that other shareholders do not support. This concentrated control could discourage a potential investor from seeking to acquire Vectrus common stock and, as a result, might harm the market price of Vectrus common stock.

In connection with the Merger, we assumed significantly more indebtedness than Vectrus’ prior indebtedness, which could adversely affect us, including decreasing our business flexibility and increasing our interest expense.

In connection with the Merger, the combined company incurred significant additional indebtedness, including under the First Term Lien Facility and the Second Lien Term Facility and the ABL Facility (each as defined in Note 15. Subsequent Event,in the Notes to our unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q), which could adversely affect us, including by decreasing our business flexibility and increasing our interest expense.

The amount of cash required to pay interest on our increased indebtedness levels following completion of the Merger, and thus the demands on our cash resources, is expected to be greater than the amount of cash flows required to service our indebtedness prior to the Merger. The increased levels of indebtedness following completion of the Merger could also reduce funds available for working capital, capital expenditures, acquisitions, the repayment or refinancing of our indebtedness as it becomes due and other general corporate purposes and may create competitive disadvantages for us relative to other companies with lower debt levels. If we do not achieve the expected benefits and cost savings from the Merger, or if our financial performance does not meet current expectations, then our ability to service our indebtedness may be adversely impacted.

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Moreover, in the future, we may be required to raise substantial additional financing to fund working capital, capital expenditures, the repayment or refinancing of our indebtedness, acquisitions or other general corporate requirements. Our ability to arrange additional financing or refinancing will depend on, among other factors, our financial position and performance, as well as prevailing market conditions and other factors beyond our control. We cannot assure you that we will be able to obtain additional financing or refinancing on terms acceptable to us or at all.

Additionally, certain of our financial obligations and instruments, including the secured credit facilities, as well as financial instruments that we hold or use, are or may be made at variable interest rates that use LIBOR (or metrics derived from or related to LIBOR) and/or the Secured Overnight Financing Rate as a benchmark for establishing the applicable interest rate. On March 5, 2021, the U.K.’s Financial Conduct Authority publicly announced that all U.S. Dollar LIBOR settings will either cease to be provided by any administrator or no longer be representative (i) immediately after December 31, 2021 for one-week and two-month U.S. Dollar LIBOR settings and (ii) immediately after June 30, 2023 for the remaining U.S. Dollar LIBOR settings. In addition, as a result of supervisory guidance from U.S. regulators, some U.S. regulated entities will cease to enter into new LIBOR contracts after December 31, 2021. The Federal Reserve Bank of New York now publishes the Secured Overnight Financing Rate based on overnight U.S. Treasury repurchase agreement transactions, which has been recommended as the alternative to U.S. dollar LIBOR by the Alternative Reference Rates Committee convened by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York. The potential consequences from discontinuation, modification or reform of LIBOR, implementation of alternative reference rates, including the Secured Overnight Financing Rate, and any interest rate transition process cannot be fully predicted and may have an adverse impact on values of LIBOR-linked securities and other financial obligations or extensions of credit and may involve, among other things, increased volatility or illiquidity in markets for instruments that rely on LIBOR, reductions in effectiveness of related transactions such as hedges, increased borrowing costs, uncertainty under applicable documentation, or difficult and costly consent processes.

The secured credit facilities include fallback language providing for a mechanism to convert to a new reference rate in the event that LIBOR ceases to exist. In certain circumstances, such transition may also occur at the election of Vertex and the administrative agent under the respective credit facility. This could materially and adversely affect our results of operations, cash flows and liquidity. The methodology forcalculating these reference rates differs in a number of respects from the methodology for calculating LIBOR, and they are not expected to be the economic equivalent of LIBOR. As a result of such differences in methodology, among other factors, it is possible that these rates will perform differently from LIBOR in future periods and may be more volatile. Additionally, there can be no assurance that the new reference rates will attain market acceptance as replacements of LIBOR. These interest rates will fluctuate with changing market conditions and, if they increase, our interest expense will also increase. The market transition away from LIBOR to alternative reference rates is complex and could have a range of material adverse effects on our business, financial condition and results of operations. In particular, increased interest rate expense would adversely affect our cash flow and our ability to service our indebtedness and fund our operations.

~~Following the Merger, our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.~~

Borrowings under the secured credit facilities are at variable rates of interest and will expose us to interest rate risk. If interest rates were to increase, our debt service obligations on our variable rate indebtedness would increase even though the amount borrowed would remain the same, and our ability to generate cash from operations and other cash flows, including cash available for servicing our indebtedness, would correspondingly decrease.

We may in the future enter into interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce future interest rate volatility of our variable rate indebtedness. However, due to risks for hedging gains and losses and cash settlement costs, we may not elect to maintain such interest rate swaps, and any swaps may not fully mitigate our interest rate risk.

The agreements that govern the indebtedness incurred in connection with the Merger contain various covenants that impose restrictions on us and certain of our subsidiaries that may affect our ability to operate our businesses.

The agreements that govern the indebtedness incurred in connection with the Merger contain various affirmative and negative covenants that may, subject to certain significant exceptions, restrict our and certain of our subsidiaries’ ability to incur debt and our and certain of our subsidiaries’ ability to merge, dissolve, liquidate or consolidate; make acquisitions, investments, advances or loans; dispose of or transfer assets; pay dividends; redeem or repurchase certain debt; and enter into certain restrictive agreements. Our and our subsidiaries’ ability to comply with these provisions may be affected by events beyond our control. Failure to comply with these covenants could result in an event of default, which, if not cured or waived, could accelerate our repayment obligations and could result in a default and acceleration under other agreements containing cross-default provisions. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations.

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A downgrade, suspension or withdrawal of the rating assigned by a rating agency to us following the Merger or our indebtedness could make it more difficult or costly for us to obtain additional financing in the future.

Vectrus and Vertex have been and, following the consummation of the Merger, we will be rated by one or more nationally recognized rating agencies and may in the future be rated by additional rating agencies. There can be no assurance that any rating assigned to the combined company will be as favorable as our or Vertex’s rating prior to the Merger nor will such combined company rating remain as favorable for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, circumstances relating to the basis of the rating, such as adverse changes in our business, so warrant. Any downgrade, suspension or withdrawal of a rating by a rating agency (or any anticipated downgrade, suspension or withdrawal) could make it more difficult or more expensive for us to obtain additional debt financing on terms acceptable to the combined company or at all in the future.

~~Sales of shares of our common stock after the Merger may negatively affect the market price of our common stock.~~

If Vertex Holdco or certain other Former Vertex Stockholders sell substantial amounts of our common stock in the public market following the Merger, the market price of our common stock could decrease. Following the Merger, approximately 62.25% of the outstanding shares of the common stock of the combined company is held by the holders of the equity interests of Vertex as of immediately prior to the Merger, on a fully diluted basis, and approximately 37.75% is held by the holders of the common stock of Vectrus, on a fully diluted basis. The Merger consideration held by certain former Vertex stockholders is generally eligible for resale subject to a six-month lockup period pursuant to the terms of the Shareholders Agreement and certain limitations under applicable federal securities laws. Further, the terms of the registration rights agreement require us to file a resale shelf registration statement on Form S-3 or other applicable registration form registering all of the registrable securities held by Vertex Holdco and the certain former Vertex stockholders as soon as reasonably practicable, but no later than the earlier of (a) the forty-fifth (45th) calendar day following the Vectrus’s receipt of all of the historical financial information of Vertex’s Virgo and the Sky businesses and all of the related pro forma financial information required to be included in a shelf registration on a Form S-3 and (b) the ninetieth (90th) calendar day following the Closing Date.

~~The market price of our common stock could decline once restrictions on resale by Vertex Holdco and other holders of our common stock lapse.~~

~~Following the consummation of the Merger, we assumed certain potential liabilities relating to Vertex.~~

Following the consummation of the Merger, we assumed certain potential liabilities relating to Vertex, including its outstanding legal proceedings. Vertex does not maintain or has limited remaining insurance coverage for certain of these claims and we may not be able to obtain additional insurance on acceptable terms or at all that will provide adequate protection against potential liabilities related to these claims. In addition, any reserves established by us for estimated losses, including with respect to these claims, do not represent an exact calculation of actual liability but instead represent estimates of the probable loss at the time the reserve is established. Due to the inherent uncertainty underlying loss reserve estimates, additional reserves may be established from time to time, and actual losses may be materially higher or lower than the related reserve. Any of the foregoing could have a material adverse effect on our business, financial condition or results of operations.

Following the completion of the Merger, AIP Fund VI, through its affiliate, Vertex Holdco, is our largest shareholder, owning approximately 58% of the fully diluted shares of our common stock, and has the ability to exercise significant influence over decisions requiring our shareholders’ approval and, pursuant to the Shareholders Agreement, has consent rights over certain fundamental actions of the combined company.

~~Following the completion of the Merger, AIP Fund VI, through its affiliate, Vertex Holdco, owns approximately 58% of the fully diluted shares of our common stock. As a result, AIP~~Fund VI has the ability to exercise significant influence over decisions requiring approval of our shareholders, including the election of directors, amendments to our articles of incorporation and approval of significant corporate transactions, such as a merger or other sale of us or our assets.

This concentration of ownership may have the effect of delaying, preventing or deterring a change in control of the Company and may negatively affect the market price of our common stock. Also, AIP Fund VI and its affiliates are in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete with us. AIP Fund VI or its affiliates may also pursue acquisition opportunities that are complementary to our business and, as a result, those acquisition opportunities may not be available to us.

In addition, pursuant to the Shareholders Agreement, for so long as the certain former Vertex stockholders collectively beneficially own 34% or more of the outstanding shares of our common stock, we will not be permitted to take certain fundamental actions without the requisite consent.

~~The Merger has exposed us to additional risks in our industry, as well as new risks associated with Vertex’s business.~~

Upon completion of the Merger, we became subject to a variety of additional risks inherent in ours and Vertex’s industries, including increased competition, governmental regulation and litigation, as well as additional risks inherent to contracting with the U.S. government.

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~~If we do not successfully manage our investments in new business strategies or integrate and manage our acquired businesses or brands, our operating results may adversely be affected.~~

Vectrus and Vertex have pursued, and from time to time following the Merger, we may pursue, strategic acquisitions or other investments in order to increase our competitive position. These transactions require significant investment of time and resources and may disrupt our business and distract our management team from other responsibilities. Even if successful, these transactions could affect our operating results for a number of reasons, including the amortization of intangible assets, impairment charges, acquired operations that are not yet profitable or the payment of additional consideration under earn-out arrangements if an acquisition performs better than expected. If we engage in such transactions, we may incur significant transaction and integration costs and have difficulty integrating personnel, operations, products or technologies or otherwise realizing synergies or other benefits from the transactions. The integration process could result in the loss of key employees, key customers, key vendors, decreases in revenue and increases in operating costs. In addition, we may assume material liabilities in an acquisition, including liabilities that are unknown at the time of the acquisition. Such transactions may dilute our earnings per share, disrupt our ongoing business, distract our management team and employees, increase our expenses, perform poorly, subject us to liabilities, and increase risk of litigation, all of which could harm the combined company’s business. Furthermore, Vertex’s process of integrating its TTS Business, which still relies on certain operating and support services from a former owner, could further increase the complexity and costs of integrating our businesses following the Merger.

Furthermore, we may incur unforeseen liabilities and obligations in connection with any of our recently completed acquisitions and any future acquisitions, including in connection with the integration or management of the acquired businesses or brands and may encounter unexpected difficulties and costs in integrating them into our operating and internal control structures. We may also experience delays in extending our respective internal control over financial reporting to newly acquired businesses, which may increase the risk of failure to prevent misstatements in our financial records and in our consolidated financial statements. Additionally, new ventures and investments are inherently risky and may not be successful, and we may face challenges in achieving strategic objectives and other benefits expected from such investments or ventures. Any acquisitions, investments or ventures may also result in the diversion of management attention and resources from other initiatives and operations. Our financial performance will depend in large part on how well we can manage and improve the performance of acquired businesses or brands and the success of our other investments and ventures. We cannot assure you, however, that we will be able to achieve our strategic and financial objectives for such transactions. If we are unable to achieve such objectives, our consolidated results could be negatively affected.

Following the Merger, the combined company’s workforce is represented by labor unions, and the combined company’s business could be harmed in the event of labor disputes or prolonged work stoppages.

As of December 31, 2021, approximately 15% of Vectrus’ employees and 50% of Vertex’s employees were unionized. We had 21, and Vertex had 32, collective bargaining agreements with labor unions. We cannot accurately predict how stable our relations will be or whether we will be able to successfully negotiate successor agreements without impact on our financial condition. In addition, the presence of unions may limit our flexibility in dealing with our workforce. Work stoppages by our union employees could negatively impact our ability to provide services to the U.S. government on a timely basis, which could negatively impact our results of operations and financial condition.

~~Following the Merger, we could lose key personnel or may be unable to recruit qualified personnel.~~

Due to the specialized nature of our business, our future performance and rate of growth is highly dependent upon the continued services of key personnel and executive officers, the development of additional management personnel and the hiring of new qualified technical, marketing, sales, and management personnel for our operations. We may be unable to retain and motivate personnel and executive officers sufficiently to maintain our current business and support the projected growth and initiatives of the combined business and financial performances may be adversely affected.

In addition, our profitability is affected by how efficiently we utilize each of our workforces, including our and Vertex’s ability to transition employees from completed contracts to new assignments, to hire and assimilate new employees; to hire personnel in or timely deploy expatriates to foreign countries; to manage attrition and a subcontractor workforce; and to devote time and resources to training, business development, professional development and other non-chargeable activities. Further, continued visa and other travel restrictions related to the ongoing COVID-19 pandemic as well as political unrest in other areas of the world may also impact our ability to properly perform on existing and future contracts. None.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

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ITEM 5. OTHER INFORMATION

None.

3933

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ITEM 6. EXHIBITS




~~3.1~~			~~Second Amended and Restated Articles of Incorporation of V2X, Inc. (incorporated by reference to Exhibit 3.1 to V2X, Inc.’s Current Report on Form 8-K filed July 5, 2022)~~
~~3.2~~			~~Second Amended and Restated Bylaws of V2X, Inc. (incorporated by reference to Exhibit 3.~~2 ~~to V2X, Inc.’s Current Report on Form 8-K filed July 5, 2022)~~
~~4.1~~			Shareholders Agreement, dated as of July 5, 2022, by and among Vectrus, Inc. and the shareholders that are party thereto (incorporated by reference to Exhibit 4.1 to V2X, Inc.’s Current Report on Form 8-K filed July 5, 2022)*
~~4.2~~			Registration Rights Agreement, dated as of July 5, 2022, by and among Vectrus, Inc. and the shareholders that are party thereto (incorporated by reference to Exhibit 4.2 to V2X, Inc.’s Current Report on Form 8-K filed July 5, 2022)*
10.1			Management Services Agreement, dated as of July 5, 2022, by and between Vectrus, Inc. and AIP, LLC (incorporated by reference to Exhibit 10.1 to V2X, Inc.’s Current Report on Form 8-K filed July 5, 2022)
~~10.~~2			Form of ~~Indemnification Agreement (incorporated by reference to Exhibit 10.2 to~~ V2X, Inc.~~’s Current Report on Form 8-K filed July 5, 2022)~~
~~10.~~3			~~First Lien Credit Agreement, dated as~~ Second Amendment and Restatement of the December 6, 2021 (as amended by Amendment No 1., dated as of July 5, 2022), by and among Vertex Aerospace Service Corp., Vertex Aerospace Intermediate LLC, the lenders from time to time party thereto and Royal Bank of Canada, as administrative agent (incorporated by reference to Exhibit ~~10.3~~ to V2X, Inc.~~’s Current Report on Form 8-K filed July 5, 2022)~~
~~10.4~~			~~Second Lien Credit~~ 2014 Omnibus Incentive Plan – Restricted Stock Unit Award Agreement dated as of December 6, 2021, by and among Vertex Aerospace Service Corp., Vertex Aerospace Intermediate LLC, the lenders from time to time party thereto and Royal Bank of Canada, as administrative agent (incorporated by reference to Exhibit ~~10.~~4 ~~to V2X, Inc.’s Current Report on Form 8-K filed July 5, 2022)~~
~~10.5~~			ABL Credit Agreement, dated as of June 29, 2018 (as amended by the First Amendment to ABL Credit Agreement, dated as of May 17, 2019, as further amended by the Second Amendment to ABL Credit Agreement, dated as of May 17, 2021, and as further amended by the Third Amendment to ABL Credit Agreement, dated as of December 6, 2021, as further amended by the Fourth Amendment to ABL Credit Agreement, dated as of July 5, 2022), by and among Vertex Aerospace Service Corp., Vertex Aerospace Intermediate LLC, certain other subsidiaries of Vertex Borrower from time to time party thereto as co-borrowers, the lenders from time to time party thereto and Ally Bank, as administrative agent (incorporated by reference to Exhibit 10 .5 ~~to V2X, Inc.’s Current Report on Form 8-K filed July 5, 2022)~~(Non-employee Director)*+
31.1			Chief Executive Officer Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +
31.2			Chief Financial Officer Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +
32.1			Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This Exhibit is intended to be furnished in accordance with Regulation S-K Item 601(b)(32)(ii) and shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934 or incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference. +
32.2			Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This Exhibit is intended to be furnished in accordance with Regulation S-K Item 601(b)(32)(ii) and shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934 or incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference. +
101			The following materials from V2X, Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~July 1, 2022,~~June 30, 2023, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Unaudited Condensed Consolidated Statements of Income (Loss), (ii) Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) Unaudited Condensed Consolidated Balance Sheets, (iv) Unaudited Condensed Consolidated Statements of Cash Flows, (v) Unaudited Condensed Consolidated Statements of Changes to Shareholders' Equity and (vi) Notes to Condensed Consolidated Financial Statements. #

104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) #

* ~~Certain schedules to this exhibit have been omitted in accordance with Item 601(a)(5) of Regulation S-K.~~Indicates management contract or compensatory plan or arrangement.

+ ~~Filed~~Indicates this document is filed as an exhibit herewith.

# Submitted electronically with this report.

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The Company’s Commission File Number for Reports on Form 10-K, Form 10-Q and Form 8-K is 001-36341.

SIGNATURES

Pursuant to the requirements ~~of Section 13 or 15(d)~~ of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


V2X, INC.
/s/ William B. Noon
By: William B. Noon
Corporate Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Date: August ~~9, 2022~~8, 2023

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Period	Amortization
2022 (remainder of the year)	$	4,244
2023	$	8,486
2024	$	7,379
2025	$	6,582
2026	$	6,112
After 2026	$	29,356