V2X, Inc.

Good day and welcome to the V2X fourth quarter 2024 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask questions, you may press star then one on your touchtone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Mike Smith, Vice President of Treasury, Investor Relations, and Corporate Development at V2X. Please go ahead, sir.

Thank you. Good afternoon, everyone. Welcome to the V2X fourth quarter and full year 2024 earnings conference call. Joining us today are Jeremy Wensicker, President and Chief Executive Officer, and Sean Morales, Senior Vice President and Chief Financial Officer. Slides for today's presentation are available on the Investor Relations section of our website, gov2x.com. Please turn to slide two. During today's presentation, managers will be making forward-looking statements pursuant to the safe harbor provisions of the federal securities laws. We review our safe harbor statements in our press release and presentation materials for a description of some of the factors that may cause actual results to differ materially from the results contemplated by these forward-looking statements. The company assumes no obligation to update its forward-looking statements. In addition, in today's remarks, we will refer to certain non-GAAP financial measures because management believes such measures are useful to investors. You can find a reconciliation of these measures to the most comparable measure calculated and presented in accordance with GAAP on our slide presentation and in our earnings release filed with the SEC, both of which are available on the investor relations section of our website. At this time, I would like to turn the call over to Jeremy.

Thank you, Mike, and good afternoon, everyone. Thank you for joining us today. Before we get started, I'd like to recognize the over 16,000 B2X employees for all their contributions, and in particular, their strong performance during the fourth quarter that resulted in record quarterly revenue, adjusted EBITDA, and cash flow. We thank you for all that you've done and continue to do for our nation and our company. Please turn to slide three. In today's call, I'm going to recap the fourth quarter and four-year results and then discuss our positioning and alignment to national security priorities. Our momentum continued into the fourth quarter with revenue increasing 11% year-over-year to $1.16 billion. This was driven by positive growth in all our geographies and noteworthy 27% increase in the Indo-Pacific region. For the full year, revenue grew 9% to $4.3 billion, exceeding the top end of our guidance. Adjusted EBITDA for the fourth quarter and full year was $86.2 million and $310 million, representing 5% and 6% year-over-year growth. Adjusted ETS for the fourth quarter and full year was $1.33 and $4.34, representing 9% and 16% year-over-year growth. Importantly, our focus on debt reduction and cash generation yielded impressive results, with net debt improving $210 million year-over-year. This achievement equates to a 2.6 times net leverage ratio. which provides significant flexibility and optionality for V2X in 2025 and beyond. Total backlog at the end of the year was $12.5 billion, representing a 1.2 times book-to-bill ratio in the quarter. Our focus on growth is demonstrating results, with V2X securing contract wins at over $5.5 billion in 2024. This was a record for the company and builds an excellent foundation from which we can continue to drive revenue, cash flow, and value for our shareholders. Additionally, we are pleased to announce the arrival of Roger Mason, our Chief Growth Officer. Roger brings a wealth of experience and will continue to build on our track record of growth. This move positions V2X exceptionally well for the years to come. In summary, 2024 was a great year for V2X, achieving several milestones and new records for the company. Now I'd like to spend a few minutes and talk about our positioning and how V2X helps customers increase efficiency, reduce costs, modernize capabilities, improve readiness, and strengthen national security. The fact that we are with our customer at every phase of mission execution, primarily as a prime contractor, gives us great intimacy and knowledge of what is happening and insight into evolving requirements. A combination of our unique mission insight, full lifecycle capabilities, and 80-year reputation as a trusted partner is differentiated in yielding results through recent wins and growth in key theaters. For example, in the Indo-Pacific region, V2X is supporting increased mission requirements as DOD continues to identify China as a pacing challenge and is further investing to strengthen our deterrence. Our positioning in the region and our team's strong performance drove revenue growth of 24% in 2024. We expect continued growth building on the requirement for readiness based on the administration's current priorities, funding requests, and demand signals. Turning to the U.S., we continue to ramp up the $3.7 billion Warfighter Training Readiness Solutions Program. This program is critical to national security readiness as it ensures every soldier has the tools required to conduct realistic exercises and training. As the administration has stated, improving lethality, warfighting, and readiness are priorities. We believe V2X is well positioned to meet these priorities. Additionally, And in further support of readiness, V2X was recently awarded two contracts valued at $270 million in aggregate to keep aircraft for the Drug Enforcement Administration and the Federal Bureau of Investigation fully mission-ready and able to meet evolving operational demands. I would also like to call out our growing position in the Arctic. and how under a contract valued up to $3.95 billion with the U.S. Space Force, V2X is supporting the DoD's strategic initiatives and interests in the region by delivering solutions that will enable our customer to meet new challenges as the region is becoming a venue for strategic competition. Finally, the situation in the Middle East continues to evolve. V2X is uniquely positioned in the region with deep mission intimacy and operational expertise to continue delivering best-of-breed, cost-effective solutions that enable successful outcomes. In summary, V2X is positioned in key theaters with the ability to deliver comprehensive end-to-end capabilities throughout the entire mission lifecycle. This provides us with the opportunity to be part of strategic initiatives for the U.S. government as they protect the homeland and focus on deterrence. Please turn to slide four. Not only does V2X have the global scale and capability to support national security priorities, we have a track record of enhancing outcomes and increasing value for our customers through innovation, modernization, and improved operational performance. This is squarely aligned with the focus area of the new administration and the DoD. The current challenges our customers face are very real, with having to prepare for today while planning for the threats of tomorrow, all while facing approximately $240 billion of already deferred maintenance on its equipment and facilities. This deferred maintenance must be addressed in order to maintain readiness. We believe V2X is extremely well positioned to help the DoD solve these challenges. For example, we are delivering innovative solutions and mission-ready technologies by leveraging our operational know-how and technology expertise. This includes our smart warehouse solution, which can improve space utilization by 90%, increase storage capacity by 77%, and importantly, yield a 69% reduction in operating costs. The net benefit to the DoD is not just cost savings and footprint rationalization, but also significantly improving visibility of unaccounted inventory and assets and enhancing readiness. When we think about the DoD's $1.2 trillion of asset base, spanning over 700,000 facilities, we believe there is a tremendous opportunity for audit assurance and value creation for our customers. Additionally, our platform modernization and rapid prototyping solutions are fielding new systems in months, bringing upgraded technology to platforms with significant cost and scheduled benefits. This includes the very recent example where V2X is delivering rapid response prototyping, production, and sustainment of countered unmanned aerial systems and air defense solutions that solve complex and evolving battlefield threats. We are also seeing demand signals and opportunities to utilize this system in the Indo-Pacific region. Lastly, our utilization of technology, predictive and preventive maintenance, data analytics, and continuous improvement have resulted in V2X generating over $65 million of savings through optimized operational performance to the DoD on several Cost Plus programs. These deliberate and purposeful efforts provide customers with additional funding to support the requirements, while maintaining the highest level of mission readiness and performance. This performance makes V2X a trusted partner of choice for missions of consequence. As you can see, V2X is shoulder-to-shoulder with our customers with a proven track record of bringing cost-effective and value-added solutions. Let's turn to slide five. Later this year, V2X will celebrate its 80th anniversary. This is a major milestone and an important trait of our business. For 80 years, V2X has played a critical role supporting our customers' most important missions around the globe. This includes helping establish the Distant Early Warning Line Radar Network back in the 1950s, which was located above the Arctic Circle and was critical to enhancing our readiness and national security during the Cold War. We have continued to grow since that time, investing and expanding our capabilities. This has and is enabling V2X to do more and offer technology-based solutions that prevail on the battlefield and in real mission environments. For example, today we are leveraging our global expertise in spectrum engineering, information technology, cyber, and network communications to deliver a private and secure mission-ready communication solution in the remote regions of the Indo-Pacific. This V2X technology is assuring connectivity and readiness for our warfighters. From the Arctic to Asia and all around the globe, V2X's comprehensive full-life cycle solutions and relatively fresh brand that's backed by a long legacy is allowing us to bring new technologies, innovation, and force-multiplying solutions to our customers. Turning to the right-hand side of the slide, I'd quickly like to call out our 2024 revenue diversification across defense, intelligence, and commercial markets. We thought it important to note that only 5% of our revenue is derived from federal civilian agencies, primarily centered on border security, drug enforcement, and human spaceflight. Moving to our mix of contracts, as you can see, approximately 60% of our 2024 revenue is generated from cost-plus programs and 40% from fixed price. We continue to work with our customers to convert appropriate contracts and programs to fixed price. We welcome the recent emphasis on outcome-based contracting and believe our institutional knowledge presents a compelling opportunity for V2X and our customers. Please turn to slide six. In the prior slides, I discussed why we believe V2X is well-positioned for continued growth and performance. Our strategy is very clear, and it's to deliver full lifecycle capabilities in support of national security priorities that enhance mission effectiveness, extend asset utilization, reduce costs, and improve security and mission outcomes. Our focus on readiness of the warfighter via training, equipping, deploying, supporting, and modernizing, we believe is well aligned to the current administration and future needs of the DOD. When it comes to government efficiencies, we have described how V2X is already executing and supporting these initiatives, and we believe we can do more. For example, V2X keeps over 1,600 aircraft flying and ready for their next mission. Today, the DoD currently has over 13,000 aircraft in its inventory, excluding unmanned vehicles. We believe V2X has the opportunity to gain additional market share by helping the DoD improve readiness and mission-capable rates of the fleet while creating additional cost savings through outsourcing. Additionally, V2X is utilizing technology and internally investing through R&D to modernize assets and platforms, extending their lives, and enabling our customers to close the gap on the $240 billion of deferred maintenance. In terms of overall budgetary environment, B2X has demonstrated performance throughout various economic and political cycles. This is due to our strategic focus on supporting critical and enduring missions. At the global level, the overall threat environment remains elevated with tensions persisting, if not escalating. This is why the DRD is focused on reestablishment of deterrence. The fact that we have presence and mission intimacy and key theaters and geographies that matter positions us exceptionally well to continue delivering end-to-end full lifecycle solutions to support evolving requirements. What we do is 24-7, 365, supporting missions of consequence around the globe. It's something we are extremely proud of and something that cannot be easily replicated. To wrap up, our 2024 results demonstrate the value of V2X brings to our customers, our positioning in key theaters, alignment to missions of high consequence, and our ability to execute on our commitments. We are excited about the future. The trend and leading indicators in our business remain strong, with a $12.5 billion backlog, limited recompete, and a robust pipeline of new opportunities. We look forward to the opportunity V2X has to increase our percentage of a large addressable market and bring more solutions to meet our customers' mission requirements. Now I'd like to turn the call over to Sean for a review of the financials. Sean?

Thank you, Jeremy, and thanks, everyone, for joining us this afternoon. Please turn to slide seven. We are pleased to announce an impressive close to the year with strong fourth quarter performance across all financial metrics, driven by double-digit top-line growth and exceptional cash generation. We are extremely proud of what the team accomplished in 2024, which resulted in V2X meeting or exceeding all financial commitments. Revenue in 2024 increased 9% on a year-over-year basis to $4.32 billion. exceeding the top end of our guidance range by approximately $47 million. Growth reflects the continued demand of our services and solutions in both on-contract growth and the phase-in of new awards. This is reflective of the capabilities V2X brings with notable new awards to include the F-5 Adversary Program, a NATO Missile Defense Program, a Production Award for the Gateway Mission Router, The Navy Pacific Communications Award, a foreign military sales contract for aviation and training support, as well as a sole source award to provide next-generation chem biothreat detection. Adjusted EBITDA for the year was $310 million, increasing 6% year-over-year and delivering a margin of 7.2%. Interest expense for the year was $107.9 million. Cash interest expense was $100.5 million, improving $13 million, or 11%, year-over-year, reflective of our proactive repricing activities, debt paydown, and cash flow generation. Adjusted diluted EPS was $4.34, up 16% from the prior year, based on approximately 32 million weighted average shares. Full year adjusted net cash provided by operating activities was $161 million. This represents 116% adjusted net income conversion and the strong cash generation capabilities of V2X. Please turn to slide eight where I'll discuss our fourth quarter results. Revenue for the quarter was $1.16 billion, increasing 11% year over year and setting yet another record for the company. Adjusted EBITDA was $86.2 million, also a record for the company, with a margin of 7.4%. Interest expense for the quarter was $24.4 million. Cash interest expense was $22.7 million, improving $3.6 million, or 14% year over year. Adjusted diluted EPS was $1.33, growing 9% on a year-over-year basis. Adjusted net cash provided by operating activities was $168 million. Please turn to slide 9. Our commitment to achieve a net leverage ratio at or below three times was a company-wide priority. I'm pleased to report that we demonstrated excellent performance on this front. delivering a net leverage ratio of 2.6 times at the end of the fourth quarter. Our continued focus on cash generation and debt reduction resulted in net debt improving $210 million year over year to $874 million. Our liquidity position is strong with a zero balance on our $500 million revolver at the end of the quarter. As can be seen in our financial results, our focus on enhancing the capital structure and the cost of our credit facilities combined with debt pay down is improving cash flow and earnings. This strong performance allowed us to reprice our $900 million first lien term loan. The repricing further improves our annual interest margin by 50 basis points, representing 135 basis points of savings achieved since October 2023. This outcome is a testament to the strength of our business and will generate additional value in 2025 and beyond. As you can see on the chart, we have made substantial progress. This demonstrates the strong and reoccurring cash flow characteristics of the business. Furthermore, it underscores our commitment to thoughtful allocation of capital. We turn to slide 10. To build in the corridor was approximately 1.2 times. Total backlog was $12.5 billion at quarter end, which represents approximately three times revenue coverage at the midpoint of our 2025 guidance. We believe this provides solid revenue visibility, especially when taking into account the backlog only includes the initial $225 million of funding for the Warfighter Training and Readiness Program. As a reminder, we expect to incrementally book activities associated with this contract as they are transitioned. Further enhancing revenue visibility, at our 2025 midpoint, we expect a modest 4% contribution from re-competes. Please turn to slide 11. The trends in our business remain positive, and we believe our strategy to deliver full lifecycle solutions that increase efficiency, reduce costs, modernize capabilities, improve readiness, and strengthen national security provide substantial opportunities for future growth and value creation. For 2025, we are establishing a guidance range that we would characterize as appropriately prudent. With that, in 2025, we expect revenue to build on a very successful 2024 that exceeded the top end of our guidance. Revenue is expected to be $4.375 to $4.5 billion, representing approximately 3% growth at the midpoint. Revenue in 2025 incorporates the previously disclosed completion of the KC-10 and T1A programs, which contributed approximately $80 million to revenue in 2024 with mature margins. Adjusted EBITDA is estimated at $305 to $320 million. Adjusted EBITDA contemplates the phase-in of new awards, the completion of the previously discussed programs, and modest internal investments. Adjusted diluted earnings per share guidance is $4.45 to $4.85, representing 7% growth at midpoint. Regarding the cadence, We expect revenue and adjusted EBITDA to ramp sequentially throughout the year. This reflects the phase-in of already announced new business. We expect adjusted net cash provided by operating activities to be $150 to $170 million. We believe cash flow should be in line with our normal seasonal pattern with cash generation occurring in the second half of the year. Cash interest expense is expected to be $83 million, with other expense of $12 million. Capital expenditures for the year are estimated at approximately $30 million. Now, we'd like to open the call for your questions. Operator?

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. And at this time, we'll pause momentarily to assemble our roster.

And the first question will come from Peter Arment with Beard.

Please go ahead.

Yeah, good afternoon, Jeremy, Sean, Mike. Nice results. Jeremy, I wanted to see if I could just double-click on a comment that you made about kind of outcome-based contracting and kind of how you see this evolving with, you know, given your mix of cost plus contracting. How quickly can you start to convert if you can convert that to any of it fixed price or more favorable and just maybe how you see this evolving because it seems like certainly you guys have the knowledge and the experience if you wanted to flip it over from a fixed price perspective. Sure.

Yeah, I mean, I think we have proof points from prior years where we have successfully converted this work to fixed price and demonstrated additional savings for the customer. And we continue to approach them all the time on some of these mature programs that we think are great candidates to be flipped over to fixed price and allow us to get more performance-based contracting out of that and save them money.

Is there a percentage of contracts that come up on an annual basis where there's an opportunity to look at it, or how should we think about just the opportunity here?

We continually put white papers in front of customers. We continually talk to them about the opportunities to help them get to a more performance-based contracting outcome for them. It will improve readiness. I think it will save the customer money and improve overall efficiency for them as we look downstream. So, again, this is not something that's new. It's just something that I think aligns pretty well with this current administration to focus on outcomes.

Yeah, for sure. And then just a quick one on On your, just your guidance, what's contemplated regarding impacts from the CR? Is the CR, do you have baked in that it gets resolved, or how are you thinking about that?

Let Sean chime in on this as well, but I think if you look at the kind of work we do, the majority of it's going to be pretty immune to the CR given that it is not new work. These are mostly existing contracts that we are either taking market share or getting renewals on what we're doing already.

Exactly, Peter. I'd say, you know, we have modest impacts, as Jeremy said, typically in a CR environment. And so, you know, our guide contemplates, I'll say, business as usual. We, you know, obviously expect the CR to be resolved, you know, and move forward with a number of things. But if we think about the opportunities that are in front of us, Most of the year is, of course, conversion of our backlog, you know, with modest. We compete, as we said in the prepared remarks, and new, new business. So I think we feel good from a range standpoint that we're aligned around.

Terrific. And just, Sean, just could I get a clarification on the Waters, the Warfighter Training Readiness Contract? Could you give that amount again and how you think it phases in the back half of the year?

Yeah, exactly. So when we think year over year, Peter, think of it as adding about $120 million to the top line, predominantly, you know, in Q3 and Q4. So back half loaded as there's a contracted transitions that we assume that is the bulk of the activities. We are executing task orders today. They're fairly modest, you know, in size. The excellent news is that we're seeing an increase in that ops tempo of those task orders being put in front of us that we're then bidding and responding to. So, like I said, it's back-end loaded. It's about $120 million or so incremental to 2024. Terrific.

Thanks again. I'll jump back in queue. Nice results.

Thanks, Peter. Appreciate it.

The next question will come from Andre Madrian with VTIG. Please go ahead.

Hey, good afternoon, everyone. Thanks for taking my question. You know, if we could kind of zoom in on the Indo-Pacific, I know you mentioned 27% growth in the region sales. Maybe just a point of clarification, that doesn't include Indo-PACOM specifically, right? That falls under U.S. sales. And then I guess further on top of that, I know you mentioned vSPACE in the Philippines, but what are some of the other major moving pieces in the region that we should be looking out for?

Just to clarify, it does include INDOPACOM in terms of those results based on the geography, just as the Middle East, in terms of how we report, the Middle East incorporates CENTCOM. So, INDOPACOM and the activities that we support there are bucketed, you know, in Asia Pacific. But to the other part of your question, you know, when we think about 2025, there are exercises that get undertaken every other year. And so when we think about those things, you know, this year, we expect a level of opportunity. I will admit, you know, these things come up quickly, typically. And so we'll see how those play out, you know, this year from a time sequencing standpoint. Obviously, folks are off assessing the budgetary environment, the funding that may be required for those things of that nature, Andrej.

Yeah, and when I look at that, like I do, you know, we've talked before, I think presence is everything. And as I think this administration has said, you know, looking at the Indo-PACOM region and us having a, you know, a solid footprint in that region and a contract vehicle in that region that's readily accessible to them, I think is why we get, you know, a lot of confidence around the future for B2X in that area. Yeah.

Got it. Got it. Very helpful. And if I could squeeze in just one more, I mean, you know, if you look at the implied EBITDA margin for the year, it's a step down over 24. I mean, could you maybe just move us through the puts and takes there? Is all of it due to the loss of KC-10 and T1A or the other, you know, factors included? You know, just trying to size that up and really assess what are the moving pieces there.

Yeah, yeah, perfect. Thanks for the question. So predominantly those headwinds, you know, from mature programs that have concluded because those assets have been retired, you know, is what's contributing to it. in terms of the change. And then the new work that, you know, we lifted off a number of things in the prepared remarks, always start out at a lower margin. The growth in the year is going to be back half-weighted. And therefore, I do expect, you know, margins in the second half to be higher than they are in the first half. And we, you know, should hopefully build on those things, you know, as we go forward. I will say some of the work that doesn't mature extremely quickly from a margin contribution standpoint, right? Some of the work on platforms that we have may take some time, and I would measure that in excess of a year, not necessarily quarter to quarter on some of those programs. And that's why as some of these platforms have retired, you know, they're kind of at their peak now.

uh when when when we're no longer executing that work and so we have to build that capability back up but that's that's exactly why you see the profile you do and i would say it's a great example of performance-based contracting you can get the new contract award it takes some time to absorb that program figure out the operational side of it and then once they once they get comfortable and have some track records they do a wonderful job of optimizing readiness and supporting the customer and really ensuring our overall understanding of the program as we move through. So it just takes a little bit of time. And so you think about shifting the curve from a very mature program to a program we just, you know, several that we just rattled off.

They'll get there and very comfortable with that because they are that good in terms of execution.

That's extremely helpful, Culler. Thank you so much. I'll leave it there. Thanks, Jeremy, Sean.

Thanks, Andre. The next question will come from Ken Herbert with RBC Capital Markets.

Please go ahead. Pardon me, Mr. Herbert, is your line muted? Yes, hi, thank you.

Good afternoon, Jeremy, Sean, and Mike. Hey, I wanted to first ask, if you look at the 9% growth and outperformance of guidance in 2024, Is there a way, maybe Jeremy or Sean, to think about how much of that came from sort of new contract wins versus sort of on-contract growth and maybe the tech insertion? And I'm just trying to see if you can help us by quantifying sort of where the, maybe really what drove the upside in 24 as we think about maybe a springboard as we think about applicability into 2025.

Yeah, hey Ken. So it was predominantly on-contract growth. Let me give some color a little bit. So we talked about a book to build. It's about 1.2 in the quarter. The bulk of those awards were on contract growth related. And as we've talked previously, that tends to turn into revenue more quickly. And so that's what we saw as we exited 2024 from a contribution and what accelerated some of that growth.

And I would say, you know, you mentioned tech insert. I think when I look at what we're doing in terms of maturing some of the technologies and where they are in terms of either early, you know, LRF production or early development phase, you know, they will continue to mature and become, you know, ever-increasing opportunities for us as we move downstream. And I know it's one of the areas that Roger's focused on as the new chief growth officer, which is, you know, inserting differentiation into our offerings because we have the opportunity to do that with the engineering organization that we have.

Okay, very helpful. I mean, I can appreciate some of the KC-10 and T1A sort of headwinds, but is there any reason to think beyond maybe some risks around timing in terms of just where we are with the CR and fiscal 25 and 26 requests, but any reason to think we couldn't see or you wouldn't deliver on sort of similar on-contract growth in 25? I mean, I'm not trying to get too far ahead of the obviously what looks like a sort of cautiously optimistic revenue guide but it certainly seems like you'll have some levers to pull as the budget situation stabilizes.

I'd say this, and I think we did open up the range a little bit on the guide from what we did a year ago to account for should that occur. We'll see how some things play out. The teams do a wonderful job. Jeremy mentioned conversion of things to performance-based contracting. Our teams around the globe are consistently putting things in front of customers to drive additional value to the customers. you know, save money, improve operational performance for both the customers as well as us. And so, you know, those things, when they occur, they tend to occur pretty quickly. So we don't always have perfect visibility into them, and they're dictated by a whole range of activities, you know, that can arise. So we try to address it in the range that we gave for, you know, some variability that we may see. We'll see. It's obviously very early.

And I would say, you know, we talked a lot about geographic footprint. I think the diversification of the portfolio around the globe and the contracts we have for our customer in terms of accessibility has put us in a very good position to deal with the ever-changing requirements.

That's great. And if I could just finally, in the last few months or basically since the new administration or since the election maybe and then the new administration came in, it may be early, but Have you seen any change in sort of the sense of urgency around, say, funding for projects in Indopay.com or any indication that you might see that become, you know, really signs a higher priority for the new administration in terms of addressing some of the, you know, some of the requirements that we see there?

I think, one, what we're seeing is that we're aligned with their priorities in terms of where we're located. We have not – look, we've seen awards happen, which is great, so we haven't seen a slowdown in that. We've mentioned them in the script. I think you're seeing that we are, in terms of how we've tried to portray the business, I'm extremely excited about how we are aligned with their priorities, whether it's in OPECOM, whether it's in – up in the Arctic region, whether it's even in the U.S. in terms of readiness, in terms of the aircraft, in terms of, you know, putting forward a deterrent strategy, I think we're exceptionally well aligned with that. And so, and I look at, you know, with regards to what we have in terms of the pipeline and the ability to prosecute that pipeline that is, I believe, very much aligned with their overall priorities.

I think the very positive there, Toby, is exactly what Jeremy said, which is the... The things that we've expected to be awarded, the funding activities that we've expected have been consistent in the early days of this administration and as we start out the year. So we haven't seen perturbations or changes from, I'll say, a customer engagement or ops tempo standpoint from that vantage point.

Perfect. Thanks, Sean. Thanks, Jeremy. Sure. Thank you.

The next question will come from Joe Gomes with Noble Capital. Please go ahead.

Good afternoon. Thanks for taking my questions.

Go ahead, Joe. To start out, one of the things you discussed a little bit here, I think a little bit more in the past was foreign military sales and that they had been gaining some traction. I just wanted to give us kind of more of an update. Are you seeing anything new, exciting that is, you know, in the near term that you're pretty positive about?

Yeah, I mean, we obviously have a sales channel that does very well on the FMS front. We have, you know, a contract in the Middle East that's under contract. And we do continue to see opportunities. I will say the FMS side does not pace the same way that, you know, U.S. procurements do. And so we are, although excited about the opportunity, we are very realistic about the pace for which they actually occur. And so, and again, it goes anywhere from, you think about it, into the Pacific all the way back to the Middle East. We have opportunities. We're pursuing those opportunities. We're just cautious about the pacing of those awards.

They take a little longer and are a little more complicated, but very, very comfortable with our strategic position.

Okay, great for that. And then, I mean, you guys talked about, you know, your re-competes, I think it's less than, you know, 5% or 4% for this year. Are there any... large or significant to you, we compete that could be coming up on contracts, obviously, that you don't currently have that you would be very excited about getting in on that bidding?

Yes. I think that's the majority. Like I told you before, very little of what we do is what I would call a new start. I think new starts are mostly what you would see what we're doing over in Indy where we're building a capability that is solving a need for a customer, and that would fall sometimes in the new category. But again, I think the vast majority of our pipeline is about us garnering additional market share for work that doesn't already exist. And yes, We have quite a few bids on the street that are substantial in size, and we look at the pipeline that Roger and his team are building, and again, it reflects a nice mix of both very large and very strategic opportunities for us.

And I think exactly to that point, Joe, because of the modest amount of re-competes that we have up, it's allowing us to make sure that we're addressing and opening our aperture, perhaps, for additional addressable market during this period. And the team's doing a great job of aligning those things so that we can continue to build on that, gain that momentum going out into the out years.

Okay. And then one more, if I may. One of the data points that you historically have given on the pipeline is the amount of bids submitted in the next 12 months pipeline. I was wondering if you could give us what those data points are as of the end of the year.

Yeah, so as Jeremy announced, Roger's joined us. He's going through a thorough pipeline review and assessing it with his team to understand exactly where everything is. So I think you'll hear us. I know you'll hear us talk about it on future calls, Joe. But I think at this time, as the team's progressing, we'll refrain from quantifying anything other than, I think, Jeremy, we've talked about increasing our bid volume as we go through the year. Kind of tied back to what we said previously here, which is taking advantage of the opportunity that's in front of us and having a higher ops tempo from a bid standpoint going forward.

Everything that I see so far for 25 has velocity of bids going through B2X higher than 2024. And that is a primary key metric for me, which is You know, we have a large addressable market. We're relatively small in that market. And so the idea here is create differentiation and use our, you know, key positions that we have around the globe to put more opportunities in, you know, out on the field.

Okay, great. Thanks for that. I'll get back in queue.

The next question will come from Trevor Walsh with Citizens JMP. Please go ahead.

Great. Hi, team. Thanks for taking the questions. Jeremy, and Roshan, really, appreciate the color that you gave at the beginning and the remarks around the messaging aligning with the new administration's, I guess, approach with DOGE and the like. I'm just curious around the potential for 8% budget cuts kind of across the DOD that's been thrown out there. You guys have been doing this for a long time. Just curious how you might see, whether it's 8% or some other number, if there's just a kind of broad kind of base set of priorities to kind of cut, does that basically look like a X percent haircut across all programs? Is it geography specific? Is it certain programs that just get How do we get to that sort of number in terms of how you guys have seen maybe similar types of environments play out just when DOD is kind of just generally trying to cut costs?

Yeah, I would be speculating at best if I knew how they were going to do that, and I think the entire industry would be speculating at best. I will say the enduring nature of what we do in terms of mission support, these are four enduring missions, and they're part of the overall strategy of the U.S. government. But again, you know, I would be just speculating if I told you how they were going to go about doing this.

I think, Trevor, you know, the way that I think we look at it from a, you know, a risk standpoint or whatever might be more aligned with what could be policy changes that could influence outcomes either positively or negatively relative to where we sit today, right? As opposed to, you know, having gone through sequestration in a you know, and other stuff back a decade plus ago, as opposed to broad cuts that impact a certain percentage of every program, they're probably more likely to be impacted by policy changes that the administration says, because that's where they end up putting dollars. I think, as Jeremy said, we are in enduring missions, places that have been longstanding for this country and this nation. As Jeremy said, it would be speculative to say where they're going, I have not seen in the type of work that we do where it's just, hey, you know, take a 10% cut here.

Got it. That's super helpful.

Sean, maybe again for you. Congrats and great work on getting the net leverage kind of below the target level. I was just curious to see, I know we had talked about before when you, there's not necessarily going to be a new goalpost for where that metric might go, but I know you did make comments previously that It would give you some optionality around kind of what you can do with capital. Any ideas or thoughts, especially just given these new dynamics, new administration, et cetera, about where you might deploy some of those resources given you sort of hit that goal?

Sure. Yeah, no, I want to make sure that I say again and thank the team for all of their efforts in achieving our objectives. You know, we are very focused on doing the things we said we're going to do, and the team did an exceptional job as we closed 24. Now, relative to, okay, what's next, which is the heart of your question, you know, I think Jeremy has said before, it provides us with optionality. We're very happy with where we sit today, you know, but I think there's opportunities and options that open for us. By the way, we have been continually sifting through. It's not like we put things on a shelf and weren't looking at things just because we had a leverage ratio that may not have been conducive to those things. It's just part of the DNA and the stuff that the company does regularly, and we've established that appropriate cadence to be looking at those opportunities. We don't have anything to announce, of course, but I think in terms of, you know, looking at what the art of the possible is in areas that we think we can make, you know, be meaningful contributors is stuff that we'll pursue throughout 25.

Yeah, I mean, I think I've been very clear about this. You know, the optionality includes us looking at it from the lens of what's going to generate the most shareholder value, and that'll continue to be our focus. Those options that are reporting to us are going to be

solely squarely on shareholder value. Great. Thanks, both. I'll get back to you. Thanks, Trevor.

The next question will come from Mariana Perez-Mora with Bank of America. Please go ahead.

Good afternoon, everyone. Thank you for taking the question. So my question is a follow-up to this, like, reshuffling of defense spending as part of headset requirements. Training and readiness and sustainment, all those activities are core and they are not up for revision. How much do you think you are like operating in a safe environment, business as usual environment? How much is actually or how soon we could see upside from training opportunities like the one you got on like a WTRS recent contract last year?

The WTRS program has the opportunity to be the contract of choice for people that are looking to perform readiness and training programs. And so I think we've talked about the number of TDLs that were called TDLs or task orders that continue to flow to this contract vehicle because it has been, as the customer said, They want to have the opportunity to make it easy for customers to procure training resources. And, I mean, there's pages of task orders that we're looking at right now, and the team is very busy and doing an exceptional job. Whether there's other training opportunities out there, we'll continue to look at. Obviously, it's a core competency of ours, and we'll continue to look at those opportunities as we build our pipeline.

I think the important to characterize it a little bit, those things, again, they tend to turn very quick when we think about, you know, on-contract growth that this business is very skilled at doing. You know, we're turning some of those task orders, and admittedly, they're modest in size today, but there is a volume of them, and we turn those around to the customer from a pricing and all that good sort of stuff. We turn those around in days. The team does that. It's just second nature to the team. And so they can be put on contract. Your question is around, well, when could we see upside? The bulk of these activities, as I said, will transition in the second half of the year. Could some things happen earlier? They could. We've not seen that yet, but the vehicle, the mechanics, everything is in place such that it is a frictionless transaction between us and our customer to execute on the mission.

The team has done an exceptional job standing up this program, getting it to that point that Sean just said, where it is an engine that it just allows the customer to come to us with these task orders, and the team does a great job turning these task orders around on a very timely basis.

Great, thank you. That's great color. And then what are other key metrics in your, like, U.S. growth? Or any other milestones we should be looking at?

Yeah, I think it's the ramp of a lot of the things that we've talked about, right? So the F5 award that we got last year has completed its transition. It is off and executing. And, you know, obviously we have regular touch points with all of our programs to ensure that they are executing successfully. The waters activity we talked about, we mentioned a GMR award that we got. We've said previously that that kind of went from an LRIP phase to to a full-rate production, so we're ensuring that the supply base and everybody is ready for production capabilities for those things. It's, again, just part of our DNA in terms of how we execute on programs. There's not one particular thing that we put more overweight than another, to be honest with you, Mariana. It's stuff that we do on a weekly basis to support our programs and delivering to the customers.

All right, thank you so much for the caller.

Sure.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Jeremy Westinger for any closing remarks. Please go ahead, sir.

Thank you for the time today, and I appreciate everybody that, you know, listened in. I do want to echo what Sean said. I want to thank the team and the employees of B2X. They delivered. So, manner of amendments, your commitments, and I can't be any more proud of them than I am. And it works so very hard, and we're looking forward to 2025.

So thank you for that, and have a good day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.