V2X, Inc. (VVX) Q3 2025 Earnings Call Transcript

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Overview

The earnings call summary indicates a positive sentiment with strong financial performance, strategic market opportunities, and a solid pipeline. Despite some concerns about timing and margins, the company has optimistic guidance and a good book-to-bill ratio. The Q&A section highlights potential growth areas and international expansion, with management addressing key concerns. The reaffirmation of revenue and cash flow guidance, along with the potential for margin expansion, supports a positive outlook. The market cap suggests moderate volatility, aligning with a positive stock price movement prediction.

Key Financial Performance

Revenue Revenue increased 8% year-over-year to $1.17 billion. Growth was fueled by the WTRS, F-5, and Iraq F-16 programs.

Adjusted EPS Adjusted EPS was $1.37, an increase of approximately 6% year-over-year. This reflects strong operational performance.

Adjusted EBITDA Adjusted EBITDA was $85 million in the quarter, delivering a margin of 7.3%. This reflects strong demand and operational efficiency.

Interest Expense Interest expense in the third quarter was $20 million. Cash interest expense was $18.4 million, improving $7.2 million year-over-year due to better financial management.

Net Income Net income for the quarter was $24.6 million. Adjusted net income was $43.7 million, up 6% year-over-year, driven by operational improvements.

Adjusted Operating Cash Flow Adjusted operating cash flow in the quarter was $35.8 million, reflecting effective capital allocation and operational efficiency.

Year-to-Date Revenue Year-to-date revenue was $3,261 million, up 3% year-over-year, driven by strong program performance.

Year-to-Date Adjusted EBITDA Adjusted EBITDA increased 5% for the first 9 months of the year to $234.6 million, reflecting a 10 basis point increase in margin to 7.2%.

Year-to-Date Adjusted Net Income Adjusted net income was $117.5 million, increasing 22% year-over-year, driven by operational improvements and cost efficiencies.

Year-to-Date Adjusted Diluted EPS Adjusted diluted EPS was $3.68, up 22% compared to last year, reflecting strong financial performance.

Backlog Total backlog at the end of the third quarter was $11.6 billion, with funded backlog at $2.3 billion. This reflects strong demand and contract wins.

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Operating Highlights

T-6 Award: Cornerstone award ensuring training for Navy, Air Force, and Army pilots. Valued over $1 billion, though currently under protest.

F-16 Iraq Program: Awarded a $1 billion foreign military sales contract for Iraq's F-16 program.

Counter-UAS Platform: Demonstrated capabilities in rapid prototyping and hardware integration. Expected orders from new customers globally.

Cockpit Modernization Contract: Secured a $425 million contract with the U.S. Air Force for F-16 fleet modernization.

Acquisition: Completed a small acquisition to enhance capabilities and access to the intelligence community.

Training Portfolio Expansion: Expanded training portfolio with exercises like Saber Junction in Germany, simulating chemical attacks.

Revenue Growth: Revenue increased 8% year-over-year to $1.17 billion in Q3 2025.

Adjusted EBITDA: Achieved $85 million in adjusted EBITDA with a 7.3% margin.

Share Repurchase: Repurchased $10 million worth of shares in Q3 2025.

Backlog: Total backlog at the end of Q3 was $11.6 billion, with funded backlog at $2.3 billion.

Capital Allocation Strategy: Focused on acquisitions and share repurchases to drive shareholder value.

AI and Data Investments: Investing in AI and data to enhance readiness, drive efficiencies, and transform market operations.

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Risk or Challenges

Government Shutdown: Potential delays in cash flow collections and contract actions due to the government shutdown, which may impact financial operations and timing of revenue recognition.

T-6 Award Protest: The T-6 award, a significant contract worth approximately $4 billion, is under protest, creating uncertainty in backlog and future revenue projections.

Book-to-Bill Ratio: The book-to-bill ratio is expected to be below 1 for the full year 2025 due to potential slippage of awards caused by the government shutdown, which could impact future growth.

F-16 Iraq Program: The F-16 Iraq program contract is currently being definitized, and backlog does not yet reflect its full value, creating uncertainty in revenue realization.

Cash Flow Guidance Adjustment: Proactive lowering of adjusted operating cash flow guidance due to potential timing delays in collections related to the government shutdown, indicating short-term liquidity challenges.

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Guidance & Outlook

Revenue Growth: The company has increased the midpoint of its 2025 revenue guidance to $4.5 billion, reflecting confidence in continued growth. Year-over-year revenue growth is also expected in 2026, supported by recent contract wins and minimal recompete exposure.

Adjusted EBITDA and EPS: The midpoint of 2025 adjusted EBITDA guidance has been raised to $316 million, and adjusted EPS guidance has been increased to $4.95. These adjustments reflect strong performance and confidence in future execution.

Cash Flow Guidance: The midpoint of adjusted operating cash flow guidance for 2025 has been lowered to account for potential timing delays in collections related to the government shutdown. This is described as a timing adjustment, not a reflection of business fundamentals.

Backlog and Book-to-Bill Ratio: The company reported a total backlog of $11.6 billion at the end of Q3 2025. While the book-to-bill ratio for 2025 is expected to be below 1 due to potential award slippage, it is projected to accelerate to above 1 in fiscal year 2026.

Future Contract Wins: The company has secured significant awards, including the T-6 and F-16 Iraq programs, each worth over $1 billion. These contracts are expected to contribute to future growth, with the T-6 award potentially adding incremental improvements in 2026 if the protest is resolved successfully.

Market Opportunities and Investments: V2X is capitalizing on large and growing market opportunities, particularly in training, mission support, and modernization. Investments in data, AI, and counter-UAS platforms are expected to drive future growth and operational efficiencies.

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Shareholder Return Plan

Share Repurchase: During the quarter, the company repurchased $10 million worth of shares as part of its capital allocation strategy. This activity was highlighted as a demonstration of the company's focus on delivering value for its shareholders.

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Key Q&A

Q:Could you provide more details on the reduction in cash and how it might change if the government reopens soon?

A:Shawn Mural explained that the reduction in cash is due to elongated payment times, averaging about 7 days longer than earlier in the year. This is attributed to delays in adjudicating contract items. The midpoint was brought down by $25 million, purely due to timing, with no risk to receipts.

Q:Can you elaborate on the progress in building a bigger qualified pipeline and ability to bid more?

A:Jeremy Wensinger highlighted the hiring of Roger Mason as Chief Growth Officer and the maturity of the company and growth organization. Two of the five major pursuits have been successful, and the company is seeing bids that leverage the entire organization, which is making a significant difference.

Q:Is it your standard practice to exclude protested contracts from the backlog, and does this indicate higher risk?

A:Shawn Mural confirmed that it is standard practice to exclude protested contracts from the backlog. A modest amount of funded transition work, in the low single-digit millions, has been booked, but the main award is not included in the backlog.

Q:What is the timing for the other three major contracts being pursued?

A:Jeremy Wensinger stated that the timing is still to be determined (TBD) and depends on the government shutdown. Many contracting officers are not working, delaying adjudication of contract modifications.

Q:How does the government shutdown impact the potential benefit of the recompete holiday?

A:Shawn Mural noted that the shutdown could push some benefits into 2026. The company feels good about its 7% recompetes next year and its backlog, but extensions or bridges might be needed.

Q:What are the expectations for the fastest-growing branches and geographies in 2026?

A:Shawn Mural expects cost-type revenue to grow faster and the U.S. to grow faster than other regions. Funding remains a significant variable, but demand is strong, as evidenced by a good book-to-bill ratio.

Q:Can you parse out the growth drivers (F-16, F-5, WTRS) for the 8% growth in Q3?

A:Shawn Mural stated that growth is as expected, with modest material timing adjustments. Sequential growth is expected to continue into Q4, and the strength of these programs is anticipated to persist.

Q:Why does the revised guidance imply a sequential step-down in margins for Q4?

A:Shawn Mural attributed this to the timing of expenses, which were anticipated. The company raised the midpoint of the guidance by $3.5-$4 million and 10 basis points in margin.

Q:What is the opportunity for ongoing and new sales outside the U.S.?

A:Jeremy Wensinger mentioned the F-16 deal with Iraq as an emerging opportunity. The company is leveraging its U.S. government support capabilities to attract international customers, creating demand pull.

Q:Will there be a wider array of foreign military sales contracts in 2-3 years?

A:Jeremy Wensinger noted that foreign military sales take time to develop, but demand pull from international customers is strong. Being present in the region helps create opportunities.

Q:Is the elongation of DSO a widespread phenomenon or specific to certain payment offices?

A:Shawn Mural explained that payments are taking about 7 days longer on average due to delays in adjudicating contract actions. This is a timing issue with no risk to receipts.

Q:What is the update on efforts in INDOPACOM?

A:Jeremy Wensinger expressed confidence in the company's position in INDOPACOM, despite some training activities being less than anticipated. The company sees long-term opportunities in the region.

Q:How might the T-6 protest impact the February start date?

A:Jeremy Wensinger stated that the timing is hard to predict as it is in the court of federal claims. The company is treating T-6 as a binary event for 2026.

Q:What opportunities exist in counter-UAS and training support around UAS?

A:Jeremy Wensinger highlighted the Tempest product as an example of rapid prototyping and evolving threats. The company sees opportunities in modernization, upgrades, and support for UAVs.

Q:How does the recent acquisition impact the 2026 pipeline?

A:Jeremy Wensinger stated that the acquisition is about customer access rather than size. The pipeline does not yet reflect this acquisition, but it provides access to demonstrate the company's capabilities to new customers.

Q:Was the strong book-to-bill ratio in Q3 due to pull-forward of contract awards?

A:Jeremy Wensinger stated that the awards occurred on schedule and were not moved forward. The impact of the government shutdown on Q4 awards is uncertain.

Q:How does the U.S. decision to withdraw troops from Romania impact the company?

A:Jeremy Wensinger stated that the Aegis Ashore program in Romania is strategically important and unlikely to be affected by the troop withdrawal.

Q:What factors contribute to the Q4 revenue guidance range?

A:Shawn Mural attributed the range to funding dynamics and potential reductions on current contracts. The company has seen modest impacts so far and expects critical services to persist.

Q:What is the outlook for 2026 revenue growth?

A:Shawn Mural expects WTRS and F-16 Iraq to continue ramping, with contingency support activities presenting a headwind in early 2026. Funding variability makes precise predictions difficult.

Q:Is there a multiyear margin expansion opportunity?

A:Shawn Mural sees margin expansion as a multiyear opportunity, with new programs starting lower and improving over time. Long-term franchise programs provide stability for margin growth.

Q:How will the timing of payments impact 2026 cash flow?

A:Shawn Mural expects 2026 cash flow to include the recapture of $20-$30 million from payment timing issues, assuming revenue holds steady.

Q:Review of Unclear Management Responses

A:Management appeared to avoid giving a direct answer or lacked clarity on the following questions: 1. Timing for the other three major contracts being pursued, as it remains TBD due to the government shutdown. 2. How far the T-6 protest might push out the February start date, as it is hard to predict. 3. The potential wider array of foreign military sales contracts in 2-3 years, as it depends on the timing of country decisions. 4. Specific details on the impact of the U.S. troop withdrawal from Romania, as the response was limited to the strategic importance of the Aegis Ashore program.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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V2X, Inc. (VVX) Q3 2025 Earnings Call Transcript

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VVX Slides

V2X Q3 2025 presentation slides: record revenue and raised guidance boost outlook

2025-11-03

VVX Report

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