V2X, Inc.

Thank you for joining us for the V2X Second Quarter 2026 Earnings Conference Call and Webcast. Today's call is being recorded. My name is Gary, and I'll be the operator for today's call. At this time, all participants have been placed in a listen-only mode. Following management's presentation, I will open up the call for a Q&A session. To ask a question, you may press star then 1 on your telephone keypad. Withdraw your question. Please press star, then two. And now I'll pass the call over to your host, Mike Smith, Vice President of Treasury, Investor Relations, and Corporate Development at V2X. Please go ahead.

Thank you. Good afternoon, everyone. Welcome to the V2X second quarter 2026 earnings conference call. Joining us today are Jeremy Wensinger, President and Chief Executive Officer, and Shawn Mural, 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, management will be making forward-looking statements pursuant to the safe harbor provisions of the federal securities laws. Please view 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 followed with the SEC, both of which are available on the Investors Relations section of our website. At this time, I'd like to turn the call over to Jeremy.

Thank you, Mike, and good afternoon, everyone. Thank you for joining us today. Please turn to slide three. Today, I will be providing a recap of our second quarter results for 2026 and sharing more of our outlook for the rest of the year. Before I go through some of the highlights, I want to thank our team at V2X for their continued focus and dedication to delivering our customers' mission. In the second quarter and first half, our consistent execution, recent contract wins, and continued alignment to national security priorities drove double-digit revenue growth. The value of our end-to-end solutions was reinforced by approximately $1 billion in recent awards across modernization, global training, aerospace, and mission readiness. These awards are expected to improve the composite margin of our backlog as we continue to prioritize profitable growth. We continue to pursue new bids throughout the quarter, leveraging our AI solutions that deliver differentiated customer outcomes. With more than $8 billion in bids submitted that incorporate these solutions, Our focus remains on margin accretive opportunities that further enhance the quality of our backlog. Supported by our strong cash generation and healthy balance sheet, we also continue to evaluate growth opportunities that allow us to further our go towards tomorrow strategy. As we enter the second half of 2026, we are confident in our market position and are increasing our full year guidance for revenue, adjusted EBITDA, and adjusted diluted EPS. We expect revenue and adjusted EBITDA to increase approximately 10% year over year at the midpoint and adjusted diluted EPS to increase 16% at the midpoint. Our results to date and momentum underway underscores our continued ability to deliver for our customers and shareholders. With that, let's move to slide four. which summarizes the financial operating highlights of the second quarter and the first half of 2026. In the second quarter, revenue increased 17% year over year to $1.26 billion. Adjusted net income was $51.6 million, representing an increase of 22% year over year. Adjusted EBITDA was $89.8 million, with a margin of 7.1%. Adjusted diluted EPS was $1.64, representing an increase of 23% compared to the same period last year. Our solid financial and operating performance reflects the progress we've been delivering on our strategic priorities and our position as a leading provider of mission capabilities. Turning now to slide five. We have received approximately $1 billion in recent awards, demonstrating the breadth of our portfolio and its close alignment with our customers' priorities. As it relates to modernization, we were selected to provide multi-year production of carriage equipment, enabling next-generation weapons for the strategic bomber fleet. And in global training, we captured awards to deliver solutions for enhanced UAS maintenance and operator training. This reflects the sustained demand We are seeing for training solutions that improve readiness and operational effectiveness. With respect to aerospace, we continue to support essential requirements securing a five-year re-compete to continue delivering proven readiness for the U.S. Air Force C-12 fleet. And in mission readiness, we received awards to support operations for U.S. Marine Corps assets and enhanced electronic security capabilities for a foreign military customer in the Middle East. With an aggregate margin that is accretive to our current portfolio, these recent awards reinforce our continued pursuit of high-quality, profitable growth opportunities and our team's focus on disciplined execution. Moreover, it underscores the diversity of our offerings across markets and capabilities. This is a great sample of differentiated, high-value work that our team is pursuing. While we recognize that not all our awards will have this margin profile, these awards exemplify the progress we have made in our strategic focus looking towards future opportunities. As an end-to-end mission provider, we are proud of our proven ability to support our customers wherever and however they need. Moving to slide six, our robust backlog. Funding and pipeline of high-quality awards support our positioning and outlook for the remainder of this year. Bookings were $600 million in the quarter, yielding a quarterly book-to-bill ratio of 0.5 times and a trailing 12-month book-to-bill of 1.4 times. I'd like to note that our bookings do not reflect approximately $1 billion in recent awards as they came in shortly after the quarter. Total backlog for the quarter was $12.7 billion, which includes the modified scope of our log cap work in Kuwait. Importantly, funded backlog increased 10% sequentially and 8% year over year, $2.5 billion. This further supports the confidence we have in our 2026 outlook and demonstrates the strong funding environment for the solutions we provide. We are also continuing to see increased activity and funding in the Asia Pacific region and are optimistic about the growth prospects. Altogether, our diverse portfolio, strong backlog, and continued demand position us well to drive value and deliver for our customers over the long term. Turning to slide seven, as we highlighted in the first quarter, we continue to advance our go towards tomorrow strategy. including expanding our AI capabilities. We are currently operating three AI platforms across our enterprise IT infrastructure, and we see strong adoption across the business. To further employee education, productivity, and operational efficiency, we're investing in ongoing training and continuing to expand internal use cases.

At the same time,

Our AI capabilities are embedded into our pursuit of new bids. Last quarter, we introduced early customer-facing applications focused on predictive readiness and operational efficiency. We are expanding our AI opportunities across a wide range of customer solutions, further diversifying our bid portfolio. This is reflected in more than $8 billion of margin-accretive new bids We recently submitted that include V2X's AI solutions. By investing in AI capabilities that enhance both internal operations and customer solutions, we are strengthening our ability to deliver more efficient, innovative, and mission-relevant outcomes for our customers while driving more value for our shareholders. I look forward to sharing more on these strategic pursuits in the coming quarter. I will now turn the call over to Shawn for a more detailed review of our financials.

Thank you, Jeremy, and good afternoon, everyone. Please turn to slide eight. We reported exceptional second quarter financial performance across the business. Revenue in the second quarter increased 17% year over year to $1,257,000,000. Revenue growth was driven primarily by the ramp up of training and aerospace programs and continued support for national security activities. Our ability to rapidly scale and support customer requirements by leveraging capabilities, contracts and global presence remains a key differentiator of our business. We are seeing continued demand to support discrete national security activities, which contributed approximately $100 million of revenue in the second quarter. Based on the demand signals from our customers, we currently see these requirements continuing through 2026 and into the early part of 2027. From a geographic perspective, I'd like to note the growth we're seeing in Asia Pacific, which increased 13% year over year in the second quarter. As Jeremy discussed, we're seeing a step up in activities and funding in the region as compared to last year. Our revenue associated with the U.S. also continues to grow, increasing 26% year over year, driven primarily by new program starts and national security support. As it relates to the Middle East, revenue was up slightly year over year, reflecting contributions from foreign military sales. For the year, we expect revenue in the region to be flat to down as support for logistics-related contracts shift within the region. Overall, we are well positioned with differentiated solutions across multiple geographies. With our diversified portfolio, global presence, and operational excellence, we have the flexibility necessary to ramp our presence to adjust to our customers' needs in real time. For example, we are ramping up to support additional activities in Israel, as well as national security requirements in the U.S., while responding to evolving customer requirements in Kuwait. This demonstrates our strategy in action, supporting critical mission requirements across multiple fronts and meeting our customers wherever they are. We are proud of our team's accomplishments in the second quarter, which reflect our ability to deliver integrated solutions across geographies by leveraging capabilities, technology, past performance, and access to the right contracts. Turning back to our performance for the quarter. Adjusted EBITDA in the quarter was $89.8 million, increasing 9% from the same period in the prior year. Adjusted EBITDA margin was 7.1%. Interest expense in the second quarter was $16.7 million. Cash interest expense was $15.1 million, reflecting a 21% improvement year over year. Net income for the quarter was $25.5 million. Adjusted net income was $51.6 million, up 22% year-over-year. Second quarter diluted EPS was 81 cents, based on 31.5 million weighted average shares. Adjusted diluted EPS in the quarter increased approximately 23% year-over-year to $1.64. Adjusted operating cash flow improved 23% year-over-year and was $71.8 million in the quarter. Please turn to slide nine, where I'll discuss our year-to-date results. Year-to-date revenue was $2,511,000,000, up 20% year-over-year, driven by new programs and on-contract growth. This growth was partially offset by lower volume on certain logistics programs. Adjusted EBITDA for the first half of the year was $175.4 million, increasing approximately 17% year over year, with a margin of 7%. Interest expense through June was $34.8 million. Cash interest expense was $31.6 million, improving approximately 15% compared to the first half of 2025. Year-to-date net income was $44.5 million. Adjusted net income was $99.7 million, increasing 35% year over year. The diluted EPS in the first half was $1.41. Adjusted diluted EPS was $3.16, up 37% compared to prior year. Year-to-date net cash used by operating activities was $108.4 million. Adjusted net cash from operating activities was $49.7 million, reflecting a $109.5 million year-over-year improvement. As discussed last quarter, we expected our cash flow in the first half of 2026 to track more favorably relative to our historical profile, and our first half results demonstrate that performance. Please turn to slide 10 where I will further discuss our cash flow profile and strengthening balance sheet. The ability to generate significant durable cash flow with low CapEx remains a hallmark of our business, and this quarter was no exception. Our capital expenditure requirements remain disciplined, averaging approximately 0.4% of revenue over the past three years. The positive cash flow attributes of our business are evident in the balance sheet with a net debt improving approximately $71.4 million year over year. The progress we've made strengthening the financial and operational aspects of the business presented us with the opportunity to reprice our first lien term loan, immediately lowering our borrowing costs and creating additional interest savings. This progress was also acknowledged by Moody's, which recently revised its credit ratings outlook to positive. Putting it all together, we expect 2026 to be a year of solid adjusted operating cash flow generation, which we anticipate will drive our net leverage ratio to approximately two times or below by the end of 2026. Please turn to slide 11, where I'll discuss how the combination of high operating cash flow and low-cap X Combined with our focused capital allocation strategy creates significant flexibility to pursue growth and value creating opportunities. Looking ahead, our capital allocation strategy remains unchanged. We are focused on one, generating strong predictable cash flow and targeting at or above 100% adjusted net income conversion on average over time. Two, maintaining a low CapEx profile, and three, strategically deploying capital to pursue growth and margin expansion via organic and inorganic opportunities. As it relates to margin accretive M&A, our focus is on opportunities that reinforce our value proposition and expand our capabilities, customer access, and domains. We continue to prioritize M&A that is strategically complementary to our business and the missions we support today, some of which are represented on the slide. From an organic growth perspective, we will continue to invest in our innovation strategy, which includes deploying internal R&D to support opportunities we are seeing in engineering and modernization. Key recent success here was the carriage equipment production award for the strategic bomber fleet which went from a development program to full-rate production expected to continue for years until the fleet is built out. Additionally, and as Jeremy discussed, we will continue to invest in AI to advance business processes, customer solutions, and profitability. We believe that in aggregate, these investments strengthen our ability to generate reoccurring cash flow and further compound the growth and Value Creation Flywheel. Overall, we have established clear criteria as we actively evaluate opportunities to invest for growth and value. Please turn to slide 12. We are pleased with our performance through the second quarter as our team continued to bring the best of V2X to meet our customers' critical mission requirements. Given our momentum and current trends, we are increasing our guidance ranges for revenue, adjusted EBITDA, and adjusted diluted EPS. Revenue is now expected to be between 4.875 and $5.025 billion. Adjusted EBITDA is expected to be between 347.5 and $362.5 million. Adjusted diluted earnings per share is expected to be between $5.90 and $6.30. Adjusted net cash from operating activities is expected to be between $160 and $180 million. With that, I'll turn the call back over to Jeremy for some closing remarks.

Thank you, Shawn. As outlined on slide 13, we have a solid momentum heading into the second half of the year. We continue to innovate and expand our capabilities across the enterprise. making V2X a stronger, more integral national security partner. As we advance our Go Towards Tomorrow strategy, I want to again recognize the dedication and talent of our global team. Their continued hard work and commitment to our company and our customers' mission drive our success. Their unwavering focus is what allows us to pursue growth opportunities and support the critical missions of tomorrow. With that, I'll open it up to questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.

The first question today is from John Siegman with Stiefel.

Please go ahead.

Good afternoon, Jeremy, Shawn, and Mike. Thanks for taking my question.

Hey, John, how are you?

Real good. Hey, so nice news about that re-compete you won on the C12. You had talked about previously how this year was light for re-competes. Do you mind taking a forward look at 2027? Is there anything to

I mean, John, we don't talk specifically about programs. What I've been saying from, you know, the better part of the 18 months is we're going to have a nice re-compete holiday. And that re-compete holiday, even though, you know, we had C-12 come at us, we're thrilled with the outcome there. Obviously, we'll have other re-competes that we'll, you know, pursue in the same vein. But if you look at the majority of the capital allocation for, you know, Our new business, it's on growth. And it's on new business that is not in the portfolio today. And I think that's why you're seeing, you know, not only on the win rates, but also on our ability to drive top line growth. Those investment dollars, the strategy we've put in place are all benefiting us as it stands right now. But again, we're highly focused on re-competes. I'm thrilled with our re-compete win rate. But again, we don't talk about specifics, but we've benefited from the fact that we've had and a smaller part of the portfolio in the Recompete world, which has enabled us to spend the money we have on new growth.

Great. And then maybe just given the level of tempo for the warfighters is pretty high the last couple of months, is there any way to think about what that's meant for your business and how that may or may not taper off in the months ahead? Thank you.

No, I think because it's a global business, we respond on a global basis. And so we are very unable to spin up and spin down capabilities within a region or a global basis. I think that's the advantage of the portfolio. Regardless of where we're at, we're enabling our customers to deliver their mission. And I think that serves well for the portfolio and also for our customers. One thing I will say, is, you know, that item in the Middle East, I am so proud of our team. You know, they stood shoulder to shoulder with our customer and continue to do so. And it's a testament to the leadership, but it's also a testament to the people in that region that they deliver on their mission every day and unwaveringly. And so, you know, my heart goes out to them and everything they do because they have done everything that the customers ask. And I'm just so very proud of them.

Thank you. The next question is from Trevor Walsh with Citizens. Please go ahead.

Great, 18. Thanks for taking the questions. Jeremy, maybe for you, just piggybacking a little bit off the win rate, can you just give us a sense of, for that new business, it sounds like you, both in the one billion or so that you've won across several opportunities and then the eight billion plus that you've just submitted in pipeline, how are you just How are you assessing the win rates there in terms of what you're expecting? I guess is it by nature of what you're actually bidding for? Do you feel like you have maybe better chances than what V2X may have had in the past? Maybe just give a sense of how the team is just sort of seeing what the prospects are for kind of the things that you've submitted and kind of what your chances are there.

It's a really good question, and that's why I spent so much time on the call talking about what Greg Lundy is doing as our CTO, doing to help us create differentiation with AI. You know, I look at what we're doing in terms of the bid submittal. Now look, there's a very rigid process to get something to the point where you submit a bid. And it's a very disciplined process because we wouldn't bid something if we didn't feel like we had a better than most chance of winning it. But I do appreciate what the team has done to put us in a position to put things on the table that are compelling to the customer. And I think that they are seeing that and So when I look at what we have on the table, I view that as one differentiated solution, great customer intimacy, and also the ability for us to look at the requirements from what we do on a global basis and meet their needs.

Fantastic. Thank you, Jeremy.

Appreciate it. Shawn, maybe just a quick follow-up for you around your comments for Middle East revenues being flat to maybe even down for the year. Obviously, everyone would like to have a crystal ball and a lot of moving dynamics there as far as conflicts are on, et cetera. But any just thoughts as far as the way you've got the guidance now kind of set up for the back half of the year? whether, you know, things that could move in the Middle East are pretty much more to the upside, or could there be any surprises kind of more on the negative, or do you think most of kind of the, I guess, the disruption has been washed out of the system for the most part, and you guys are sort of kind of know at least what's happening there? Again, as much as you can understand what's going on in a pretty dynamic environment.

Perfect. Yeah, thanks, Trevor. I appreciate that. Let me give you some context. I'll start with, you know, as we sit here today, 98% of our revenue for the total year is in backlog. That's a testament to exactly what Jeremy was saying before with having the right strategy, the right contracts, the right capabilities around the globe consistently. And so this team does a remarkable job of doing that and that's what we would say is our strategy in action. Relative to the Middle East and in the assumptions We do have the activity that we were performing in Kuwait significantly contracting in the second half of the year. That's baked into the guide that we issued today. That's down probably about $150 million sequentially from what it did in the first half of the year. There's a ramp on some other activities there that we know of today, but I'll say that they're modest, Trevor. And so you exactly know that it's dynamic, to say the least. Our teams respond in a timely manner. But as we see things today, those are hence the comments that you saw flat to perhaps down in light of activities in that region. But it can change very quickly. And you saw that happen since the last time we talked at the end of Q1 versus today.

I just would add to that. As you look at Kuwait, when I think about regional stuff, I think the diversity of the portfolio is really important to understand. As we look at Kuwait, look at Israel, an award we announced, right? And so as that spools up, we'll continue to look at how we can support the customer in Kuwait. But again, I think the diversity of the portfolio and our ability to be present in region or present, as Shawn said, with contracts that are accessible is what differentiates us from many other companies.

Great. Thanks, gentlemen. Appreciate the questions. Thanks, Trevor.

The next question is from Toby Sommer with Truist. Please go ahead.

Thank you. I was wondering if you could speak to the M&A market, what you're seeing out in the market for opportunities for acquisitions, and whether you had any call-outs of, you know, professional fees in the quarter as you were looking for opportunities. Thanks.

No, it's a good question. I think I've said in previous quarters, we have a capital allocation strategy that we've talked about before. In terms of the market and what we continue to have the opportunity to look at opportunities that would augment either platform modernization, counter UAS, space domain awareness, electronic warfare, integrated air and missile defense, C6ISR, all those things that we do today and would augment the overall portfolio. And so we, you know, we're very disciplined in the way we look at things. And I think that has bode very well for us. But again, I think, you know, as we look at the market, it is really, it has to fit within the strategy for which we put forward. So I think, you know, that discipline approach has proven well served for us. But again, when, you know, when someone comes to the market or doesn't come to the market, you know, I don't get to make that call, but Again, I think the capital allocation strategy and being patient is probably the best thing that I would say that we have to date.

And were there any notable, you know, investments to pursue acquisitions in the quarter or nothing to call out like in 1Q?

Yeah, I'd say, Toby, there was a modest amount of spend in the quarter down from what we had spent previously. I'll amplify what Jeremy said. Listen, we won't comment on any specifics about any M&A activities, as you would expect, but we do have a solid pipeline, and the team goes through a disciplined approach, just as Jeremy said, to evaluate those opportunities.

Great. And then if I could, on your recent wins that are coming in at a higher margin, and you said the bid pipeline, superior margin as well, How would you characterize that and sort of define it? Is it the contract type is varying favoring higher margin forms like fixed price or common materials? How would you sort of break that down and provide us a basis for understanding it further?

I think it comes down to, I don't think it's a contract type issue as much as I think it is. really looked at what we do for a living and use differentiation to create separation between us and maybe others. Like I said, whether it's the AI tool or whether it's past performance or whether it's the readiness rates that we provide, I think those things are things that the customer is recognizing and recognize the fact that that differentiation gives them better mission outcomes. That has been an opportunity for us to work with them, to give them what they want and where they want it and when they want it. And so I'm excited about this strategy coming together and actually starting to see benefits of it, for lack of a better term. Thank you.

The next question is from Peter Arment with Baird. Please go ahead.

Yeah, good afternoon, Jeremy, Shawn, Mike. Nice results. Hey, Jeremy, 98% are already in backlog, so a CR to you, I guess, is more noise, but maybe you could just describe what you kind of baked in or assumed for kind of the budget process.

Yeah, it's a good question. I think, you know, where we sit, Peter, you know, obviously CRs always can potentially impact you, but even in the last CR, Most of what we do in terms of the world in terms of readiness, those tend to be mission-critical environments. And so that doesn't tend to impact us that much. We went through the last CR, and it was a rather protracted CR. We were really not impacted by it. You still keep aircraft in the air. I still need to do the things we're doing. I still need to deliver on the production programs that we have. These are all time-based programs. So, again, I really didn't see much of an impact. Look, do I hope that they can not go through a continuing resolution? But again, I don't think the type of work we do is really at risk a lot of times in that unless something happens that we can't foresee.

Got it. That's good color. And then regarding the T6 program, would you just give us an update there how the second half ramp is scheduled to go? Thanks.

Sure. Hey, Peter. So the program's off doing exactly what it should be doing. I'll give a little bit of color and provide some numbers around it, roughly. So the program delivered about $40 million of revenue in the first half of the year. And consistent with what we said previously, and the program's tracking exactly that, we expect it to be about $100 million in the second half of the year. So right in that range of what we said when we established the guide, team's doing an exceptional job. It's ramped exactly as expected. We have regular program check-ins with the team and very happy with the progress the team's made.

Appreciate the details. Thanks, Shawn. Sure.

The next question is from Joe Gomez with Noble Capital. Please go ahead.

Good afternoon. Thanks for taking the questions.

Hi, Joe. Hi, Joe.

Can you either from a high level kind of break down the recent revenue growth into new program wins, expansion on existing contracts, and maybe higher volume on re-competes?

Yeah, sure.

So I think the growth, at least on a year-to-date basis, is existing contracts and contract vehicles that the company has had. So I'll go back to the strategy that we talked about previously, the right contracts, the right capabilities around the globe. And so a significant driver in our growth in the first half and for the total year will be the support for the national security mission that we talked about previously. And that's an activity set that we've had. It's at a much higher ops tempo than it was. And that's the largest set of activities contributing to, you know, growth beyond what we had in, you know, last year, meaning from a material standpoint, Joe. I would say the program, the other programs around the globe that we ramped the beginning of the year include our activities in the Middle East and Balad, as well as WTRS. And those programs are performing exactly as we would have thought. So that's really the, you know, I'll say a significant contributor trail, but not necessarily distinguish between, you know, new wins or something like that. It's part of what the core capability has been.

I think sometimes people underestimate having the right contract vehicle and you being in the right location yields growth. And I think the team does, I mean, universally does an exceptional job at New requirements being added to an existing program or new requirements being added to a vehicle, the team does a great job at that. And again, we'll do a T6 win, we'll do a Balad win, we'll do an Israeli win, all that. But I will tell you, on a global basis, this team does an exceptional job of being available to deliver mission outcomes for the customer in a timely way just because of the presence and the contract vehicles that we have.

Okay, and then, Jeremy, maybe, you know, you've got a lot of wins here, a lot of high-profile, large wins, but if you look at the recent awards, which one do you view as most strategically important rather than simply just, you know, the largest one going forward for the company?

You know, it's interesting because I kind of think they fall in two buckets. One, I think C12 falls in the bucket of it's a proof of strategy, but I also think, you know, the bomber fleet having a large production program that came out of, like Shawn said in his, where it was a development item and moving that into a long-term production program for a strategic program, I think, again, demonstrates not only the engineering prowess, but also the ability to move something from design all the way through into production, and that is a production run that kind of goes for a long term. So I'm pretty excited about that. I'm excited, candidly, about a lot of the programs are kind of tailing that that have similar characteristics.

Okay, and then Shawn, just one real quick one here. I'm trying to find it in my notes here, but on the guide, you're guiding the revenue up roughly about $50 million. and then adjusted EBITDA only by about $2.5 million, which would be below that kind of first half 7% margin. And just maybe you could talk a little bit as to what is causing the lower projected margin on the guide for the second half of the year.

Yeah, just some modest mix changes, nothing more than that, Joe, based on how we see it. I'll say the guide contemplates about 49% of the adjusted EBITDA in the first half, 51% in the second half. So that will imply, in fact, a higher margin contribution in the second half of the year versus the first half, consistent with the profile that we have seen. And those are productivity improvements that we tend to see in the back half of the year, contract actions, that sort of stuff. So there is a margin expansion in the back half of the year.

The next question is from Andre Madrid with BTIG. Please go ahead.

Hey, good afternoon. This is actually Ned Morgan on for Andre. You guys highlighted recent awards. are carrying margins above the current company average. I guess, how should we think about those high-quality awards impacting margins and when we can see, you know, the accretion?

Well, okay, great question, because, you know, as we've talked before, we're bleeding off backlog, and as we add new backlog to the portfolio on an accretive basis, it will work its way into the overall margin profile. But again, and again, these are programs that, you know, we'll start relatively immediately, like C12, where it was a recompete. So I think, you know, when I look at it, you know, it will be a progression as we continue to execute this strategy. And as we win new work and add accretive margins to the portfolio, it'll work its way through. But again, you know, these programs that we have in backlog, those were long-lived assets. And as we work them down and we replace them with New wins or, you know, re-competes. The overall strategy is to continue to look at margin expansion.

These are, you know, these awards that are not in backlog today. Important to note that we highlighted because they occurred post Q2. They'll be booked in the third quarter, and they are multi-year, I think, five-year type programs, Ned. So it will, you know, you will see incremental improvements, of course, but they'll be modest when you think about where the You know, what those contributions would be, you know, on an annual basis, that's all.

Okay. And then could you guys just discuss the opportunity you're seeing in the Asia Pacific today? You know, where's demand the strongest? And, you know, how can we think about that region becoming a more meaningful contributor to growth over the next couple years?

Yeah. Thank you. We continue to pursue, you know, we consider that to be our backyard. And so we are continuing to pursue not just the organic side of new business, but also with the contract vehicles we have in region, looking how we can support the customer to deliver on their mission requirements.

So we're highly focused on Indopaycom.

And I think the team does it very well on on-contract growth. But also, I think on the new business front, the team's doing well to look at opportunities to take advantage of what we do as a core company to deliver on mission requirements for our customer in that region.

Really happy with we delivered 13% growth year over year in the quarter and seeing strong demand signals with our incumbency, as Jeremy mentioned, in several of the places and putting in proposals, white papers, that sort of stuff. So clearly strong demand signals. Now we'll have to see that turn into funded activities. That hasn't happened yet. But very strong performance in the second quarter, and we think the prospects are very good for that region writ large.

Great. Thank you.

The next question is from John Godden with Citi. Please go ahead.

Hi, guys. This is Jeremy Jason. I'm for John Godden. Congrats on the quarter. Just going back to Joe's question. I was kind of wondering if you could dive a bit deeper into the main sources of upside to the new guide on the back of what looks like already pretty solid business momentum.

Yeah, I think, you know, let me give you the assumptions that go into the guide, and I'll use the same categories that we've used previously to paint that picture a bit. So I mentioned the assumptions about Kuwait. The first half of the year, Kuwait activities delivered approximately $180 million in revenue. In the second half, we see that as $20 to $30 million in revenue. So very modest. Think of that as a, call it $150-ish million type headwind. Our national security support missions in the first half of the year delivered about $200 million in revenue. You'll see that spiked out specifically in the T&M line. And then in the second half of the year, we see it being slightly less probably about $180 million. And then the ramp on T6, I mentioned that it delivered about $40 million in the first half, ramping to approximately $100 million in the second half. So that's about $60 million incremental. So when we think about what the growth is, those are major programs. To highlight a couple of the others that are performing exactly as expected, We had our support with Balad in Iraq, and we have our support with WTRS that are performing very much in line with plan. So those are some of the assumptions that are in there. At the midpoint of the guide, with 51% of the revenue in the first half, about 49% in the second half, and you see that based on the walk that I just gave you and the assumptions that we have around Kuwait specifically, if that helps.

Gotcha, no, that's really helpful. And then as a follow-up, I just kind of wanted to go pick your brain on your thought process behind if we could, you know, what to expect with a potential blue wave now that we're thinking about midterms and, you know, what you'd like, you know, investors to think about on that front.

Yeah, I don't really have much to say about, you know, what happens on Capitol Hill, you know, in terms of who's elected, who's not elected. I view what we do as mission critical. I don't think the strategy is going to change that you need readiness around the globe. I think it's an imperative for the U.S. national security. And so I like being in the space of making sure that national security is in a position to deliver the readiness that is required. So with regards to the blue wave, that's not something that keeps me up as much as it does What we do, how we do it, and making sure we do it in an excellent way for our customers.

Gotcha. Well said. Appreciate the color.

The next question is from Greg Parrish with Morgan Stanley. Please go ahead.

Hey, guys. Good evening. Congrats on the result. I want to ask about the national security customer. I appreciate the color you gave, Shawn, about Demand signals through the end of the year and then early next year. But maybe just like zooming out, is there potential for this pace to continue or is the work more one time in nature?

Yeah, you know, it's certainly evolved, right? And so I think that speaks to the capability that the team has and what we're able to provide that customer. And so that ops tempo has continued. We do see capability being delivered into Call it the first part of 2027 today. As I'm sure everyone can appreciate, it's dynamic and evolving. And so hence, that's why I wanted to walk you through the assumptions that we've got today. And we remain ready to support that customer as those needs evolve. But clearly, given the volume that we're seeing, that speaks to the capability that the company is able to offer this particular customer to deliver that mission.

Yeah, great. Okay, appreciate that caller. And then I wanted to ask you about AI, and thank you for this AI slide. I think it's sort of a great way to frame what you're doing. Maybe, you know, it's kind of, you called out AI built into some of the bids that you're putting out there. Fantastic opportunity. Can you just give us some flavor and maybe some examples of what those AI capabilities that are built into these bids look like? Thanks.

Sure. I think it's twofold in the AI. One is using it internally as a proof point to increase operational effectiveness. And then two, it is in the biz. We've announced partnerships in the past. They're great partners. They have worked with us to enable our customer to see increased readiness rates. Better Training Platforms, Lower Predictive Analytics, things like that, that I think increase readiness rates and overall mission performance. And I think that has been a proof point that we have seen most recently with many of our bids. But I've also seen it internally, the use of some of these tools internally to increase overall operational effectiveness. So I'm excited about what our CIO, Mike Uster, is doing. I'm excited about what our CTO, Greg Lundy, is doing. These guys are delivering on this commitment, and it's manifesting itself not only in bids, but also in an internal operation.

Okay, great. Thanks for the color there, and congrats on a strong quarter. Thank you.

The next question is from Ken Herbert with RBC. Please go ahead.

Hi, good afternoon. Again, congrats on the nice quarter. Maybe, Shawn, you... You know, the guidance implies about 3% growth in the second half, and I know you're facing some more challenging comps than you were in the first half, and I appreciate all the detail you just went through on the programmatic basis here. I'm just trying to get a sense as to the bookings outlook in the quarter and where maybe could we see some conservatism in the assumptions for the second half of the year?

Yeah, great question, Ken. So the bookings for the year, because there's always some timing of things, right? You heard us talk about some awards that happened after the quarter closed. But Jeremy has been very clear. We talk about it in terms of the trailing 12 months. And so we're looking at a book to bill for the total year between 1.3 and 1.5 times for the total year. There could be some lumpiness to it, which is typical. If we were to play out the high side of the guide, what would be occurring? Well, there could be some change in ops tempo in the Middle East from the assumptions that I already laid out that could have demand signals. Similarly, with both T6 and WTRS, those could be things that might play out differently. That's how I think about it today. We think we've got it appropriately bracketed, of course. and wanted to make sure that we conveyed the most updated information that we know of. Feeling very good about 2026, you know, with, like I said before, 98% of the revenue in backlog as we sit here at the midpoint of the year. Very strong position to be in.

Yeah, that's helpful, Shawn. Thank you. And you're going to exit this year, looks like, you know, give or take two times levered. Is the goal, as we think beyond this year, to continue to push leverage down? Or how should we think about capital allocation post-26, considering where the leverage should be?

Yeah, as I said, and I think there was a previous question on it, we have a fairly healthy pipeline of things that we can look at from an M&A standpoint that are consistent with the six items I had referenced before. to round out the portfolio or enhance the portfolio, create competitive posturing for us. And so we're looking at that. I think we've been clear about capital allocation in the past. But again, as we look at the business, the best thing that we can do is drive shareholder value by using that capital allocation in a way that's going to drive shareholder wealth.

Perfect. Thanks, Jeremy.

This concludes our question and answer session. I would like to turn the conference back over to Jeremy Wensinger for any closing remarks.

I want to thank everyone for joining today, and I also want to thank my team. They work tirelessly on a global basis, and I can't thank them enough for what they do, but thank you for joining the call. I appreciate the questions, and I appreciate you taking time out of your schedule to participate today.

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