V2X, Inc. Q4 FY2025 Earnings Call

Thank you for joining us for the V2X Fourth Quarter and Full Year 2025 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. 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 Fourth Quarter and Full Year 2025 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 2. During today's presentation, management will be making forward-looking statements pursuant to the safe harbor provisions of the federal securities laws. Please review our safe harbor statements in our press release and presentation materials for a description of some of the factors that may cause actual results to differ materially from the results contemplated by these forward-looking statements. The company assumes no obligation to update its forward-looking statements. 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. Please turn to Slide 3. Today, we'll be providing a recap of our fourth quarter and full year financials for 2025. We will also share more on our positioning and expectations for 2026. I'm pleased with the team's execution and our financial performance, which underscores the strength of our strategy and alignment with national security priorities for readiness and modernization. Looking to the future, we are focused on leading with innovation. We are continuing to prioritize investments and expanded partnerships to deliver innovative solutions that anticipate and fulfill our customer requirements. These growth priorities are further supported by the strength of our capital structure. We continue to see momentum across the business coming through contract wins in our key growth areas, and we are encouraged by the ongoing demand for our mission solutions. As we continue to execute our strategy and innovate the base, we are doing so from a strong position. Our focus on cash generation has yielded positive results. We have a strong capital structure and the flexibility to strategically deploy capital. We believe V2X is well positioned to continue delivering enhanced value for both customers and shareholders in 2026 as supported by the financial outlook we provided today. With that, let's turn to Slide 4, with more detail around the fourth quarter and full year 2025 results and the progress we've made. We reported solid top line growth and strong operating performance. In the fourth quarter, we drove record quarterly revenue, adjusted EBITDA and adjusted cash flow. This is a testament to our commitment to generate value. Revenue increased 5% year-over-year to a record $1.22 billion. For the full year, revenue grew 4% to $4.48 billion, hitting the upper end of our 2025 guidance range. Adjusted EBITDA was $88.7 million for the quarter, a record for the company, and exceeding our expectations, we delivered a full year adjusted EBITDA of $323.3 million with a margin of 7.2%. Adjusted net income was $49.3 million and adjusted EPS was $1.56, both representing double-digit year-over-year growth. Adjusted net income was $166.8 million for the full year, representing a 20% increase year-over-year. Adjusted diluted EPS was $5.24 for 2025 and increasing 21% year-over-year. Our ongoing emphasis on reducing debt and generating cash allowed us to improve our net debt by $116 million, compared to last year. As a result, our net leverage ratio now stands at 2.2x. Shawn will share more of our financials and our outlook later in the presentation. Turning to Slide 5. The progress we have made this year exemplifies how our readiness enabled solutions continue to support our customers' evolving requirements and create tailwinds for continued growth. We have won a number of recent contracts across key growth areas, reflecting both the depth of our customer relationships and our ability to deliver at scale complex high-consequence missions. In 2025, we delivered 2 contract wins valued at more than $1 billion each and 10 awards each exceeding $100 million. In supporting mission readiness, the successful T-6 Aircraft award represents approximately $4.3 billion and underscores customer confidence in our execution and industry-leading readiness rates. Similarly, the F-16 Modernization and Services award reflects our ability to support fleet readiness through modernization, sustainment, integrated support and capabilities that remain essential to our customers' mission priorities. We are also seeing continued traction in training and services. The more than $100 million General Motors training award demonstrates how our core competency translates effectively across both defense and commercial environments. In advanced capabilities, the MDA Shield IDIQ award positions us to extend our space domain awareness and emerging missile defense priorities. The Advanced Technology Support Program IDIQ reflects our growing role in rapid development and fielding of emerging technologies, an area where speed, integration and trust matter deeply. For National Security Programs, our classified awards across cyber operations and systems reinforce the relevance of our capabilities in highly sensitive mission-critical environments. Looking ahead, our qualified pipeline stands at more than $60 billion, reflecting both the scale of opportunities and demand for our offerings. We talked through 2025 about an increase of 50% in bid velocity, and that's exactly what we did. Our continued investment in people, process and technology have allowed us to pursue expanded opportunities. In 2026, we are targeting an additional 30% increase as we further leverage investments to capture larger and more complex programs. We are confident in our momentum exiting 2025 and our ability to carry it forward. We are aligned with well-funded priorities, have secured long duration programs and are positioned with customers who value proven execution. Before we move on, I want to note that this slide really represents a company that's winning. V2X excels in mission-critical work with long-term customers and areas aligned with national security priorities. As we look ahead, we believe this foundation positions V2X well for continued growth. Turning to Slide 6. I'd like to discuss something that we are very excited about and the transformation it represents. We are continuing to build our technology first foundation, including targeted investment and best-in-class partnerships. These efforts are driving innovation across our base and improving outcomes for our customers. Let me walk through how we think about this. Our investments are focused on high-growth opportunities, where technology can accelerate modernization and strengthen our technical depth for customers. These investments are designed to use data to move us faster from concept to deployment while remaining tightly aligned with mission needs. Second, we are partnering with the best. We recognize that innovation at scale requires access to world-class platforms and capabilities. That's why we've established partnerships with leading technology companies that bring AI, data automation and advanced robotic capabilities to deliver mission outcomes. Recently, we announced a partnership with Amazon Web Services to advance smart warehousing and global logistics automation. This partnership helps modernize supply chains, improve visibility and enhance resilience across distributed operations. We also recently partnered with Google public sector to deploy secure, responsible AI solutions in a way that meets the stringent security and compliance requirements of our customers. These partnerships allow our customers to benefit from proven scalable platforms. And V2X provides a mission context, integration experience and operational know-how needed to deploy them effectively at speed. These initiatives allow us to apply top-tier innovation across our base. We will be able to innovate program execution through predictive data-enabled solutions to improve decision-making, increase speed and drive more consistent outcomes. Simply put, we are deepening our bias for innovation. We are transforming our global presence into a true global persistence through speed and execution, with operations expanding some of the most complex environments in the world, speed matters. By connecting data, systems and teams across geographies, we will be able to execute faster, respond quicker and deliver consistent performance at scale. We are turning our footprint into a strategic advantage. When we put it all together, you can see how our capabilities come to life. This is what we mean by technology first solutions, mission tested engineering and global persistent operations working together. No one is better positioned than V2X to meet the mission needs of our customers today and tomorrow. Our recent progress reflects our strategy and as we continue to invest, partner and innovate with discipline, we believe V2X is uniquely positioned to extend that momentum, delivering greater value for our customers and creating sustainable long-term value for our shareholders. With that, I'll turn the call over to Shawn for a review of our financials.

Thank you, Jeremy. Good afternoon, everyone. Please turn to Slide 7. The value V2X delivers for its customers was clearly demonstrated in the fourth quarter, with notable top line growth and strong operating performance. Revenue in the fourth quarter increased 5% to $1.219 billion. Growth was primarily fueled by our training, foreign military sales and rapid prototyping programs. Adjusted EBITDA in the quarter was $88.7 million, a record for the company. Adjusted EBITDA margin was 7.3%. Interest expense in the fourth quarter was $19.6 million. Cash interest expense was $18 million, improving $4.7 million year-over-year. Net income for the quarter was $22.8 million. Adjusted net income was $49.3 million, up 16% year-over-year. Fourth quarter diluted EPS was $0.72, based on 31.6 million weighted average shares. Adjusted diluted EPS in the quarter increased approximately 17% year-over-year to a record $1.56. Adjusted operating cash flow in the fourth quarter was $172.4 million. I feel it's important to highlight that the extended government shutdown did not have a material effect on our financial results in the fourth quarter, further demonstrating the enduring and mission-aligned nature of our business. Please turn to Slide 8, where I'll discuss our full year results. Revenue in 2025 increased 4% on a year-over-year basis to $4.480 billion. Adjusted EBITDA for the year was $323.3 million, exceeding the high end of our guidance range. Interest expense for the year was $79.9 million. Cash interest expense was $73.7 million, improving approximately $27 million compared to the prior year period, demonstrating our proactive repricing activities, debt pay down and cash flow generation. Net income for the year was $77.9 million. Adjusted net income was $166.8 million, increasing 20% year-over-year. Diluted EPS for the year was $2.45. Adjusted diluted EPS increased 21% year-over-year to $5.24, exceeding the high end of our range. Year-to-date net cash provided by operating activities was $182 million. Adjusted net cash provided by operating activities was $148.3 million. The ability to generate strong cash is an important characteristic of our business and is further highlighted on Slide 9. In 2025, our solid cash flow generation drove a $116 million year-over-year improvement in net debt to $758 million. This positive performance yielded a net leverage ratio of 2.2x, representing over 1 full turn of improvement in just 24 months. We thought it important to highlight that we achieved this success while executing our capital allocation strategy, which included deploying over $50 million in the second half of the year to accelerate value creation. The strength of our balance sheet and cash flow provides substantial flexibility and optionality to deploy capital, including internal investments and to strategically acquire complementary capabilities, access to new channels and solutions that accelerate our growth strategy. In summary, we are executing on the capital allocation strategy we outlined in the second quarter and see further opportunities in 2026 and beyond. Please turn to Slide 10. Our backlog and recent wins provide a clear path to revenue growth as we look into 2026. Our backlog at the end of the year was $11.1 billion. Funded backlog improved slightly from the last quarter to $2.3 billion. Important to note that our backlog at the end of the year does not include the approximate $4 billion T-6 award. Subsequent to the fourth quarter, the award decision to V2X was upheld, and we expect to book this award to backlog in the first quarter. This is a great outcome for V2X, representing a milestone program that we expect to add positively to our backlog and revenue visibility. We look forward to delivering our industry-leading mission readiness rates for this important training platform. The book-to-bill ratio for the trailing 12 months was 0.9, in line with our expectations and consistent with our commentary last quarter. Also, as previously mentioned, we expect book-to-bill will be above 1 in 2026. Please turn to Slide 11. We made exceptional progress executing our strategy in 2025. Looking ahead, we believe our recent wins, backlog, limited recompetes and solutions that are transforming the speed with which our customers can achieve mission readiness position us to continue this momentum. For 2026, revenue is expected to be $4.675 billion to $4.825 billion. We expect revenue growth to accelerate to 6% or $4.75 billion at the midpoint, which compares favorably when taking into account 2025 revenue was at the upper end of our guidance range. Revenue in 2026 incorporates the incremental contribution from our training, foreign military sales and rapid prototyping programs as well as the initial ramp on T-6 and completion of previously referenced certain mission support activities in the Middle East. Additionally, a percent of revenue expected to come from recompetes has improved going into 2026 and now represents approximately 3% of revenue at the midpoint of the guide. Adjusted EBITDA is estimated at $335 million to $350 million. Adjusted EBITDA contemplates the above-mentioned items as well as some internal investments. Adjusted diluted earnings per share guidance is $5.50 to $5.90, representing 9% growth at the midpoint. We expect adjusted net cash provided by operating activities to be $150 million to $170 million. Cash flow in 2026 assumes one additional payroll in 2025, which is estimated at approximately $50 million. We believe cash flow should be in line with our normal seasonal pattern and cash generation occurring in the second half of the year. Cash interest expense is expected to be approximately $69 million with other expenses of $15 million. Capital expenditures for the year are estimated at approximately $25 million. In summary, 2025 was a successful year on many fronts, in both supporting our customers' missions and achieving our commitments to our shareholders and employees. We are well positioned going into 2026 and look forward to discussing our progress with you throughout the year. Jeremy, back over to you.

Thanks, Shawn. 2025 was a great year for V2X. We are accelerating our position as a leading provider of mission capabilities. Before I turn it over to Q&A, I'd like to take a moment of appreciation for over 16,000 employees across the globe. Their execution and commitment to our customers' mission propels V2X forward and prepares us today to take on the missions of tomorrow. With that, I'd like to open it up for questions.

Our first question today is from Tobey Sommer with Truist.

I was wondering if you could comment on what has been the trajectory of the company's revenue and activity in the Middle East region with the shifting of resources that direction towards Iran?

Yes. Good to hear from you, Tobey. Thanks. Yes. So at this time, obviously, the situation is, I'll say, fluid. Our priority right now is to make sure everyone's safe. I'd like to think that we'll participate in whatever the outcome looks like eventually. But today, it's like I said, fairly fluid with ensuring the safety of all of our employees in the region that we have throughout that area. So we'll certainly see how things evolve as time progresses, but that's kind of where we are today.

Tobey, it's Jeremy. I think the one thing I'd add to that Shawn is right. We were highly concerned for our employees. And we have actually an activity every day that allows us to understand where everybody is. But I do think presence matters. And we talk about that all the time. I think being in the region allowing and supporting our customer in terms of what they're going to do in the region is something that's very important. Whatever happens there, I think presence matters. But the single most important thing we're doing right now, and I think everybody needs to keep this in mind, is that our employee safety and our concern for them is number one.

How much contribution do you expect from the T-6 contract? Do you anticipate any additional legal challenges during that transition?

And I can't speculate on legal hurdles, Tobey. I'll tell you the assumptions that we've made. So you heard what we said in the prepared remarks, we will effectively start that program on March 1, where transition will be complete. You may recall, we began executing that in the mid-third quarter through the fourth quarter, we were paused for a brief period after the first of the year. And so now we'll pick it up in March. From a planning standpoint, here's a little bit about the assumption that we've made on that. There's an inherent lag. This is a largely material receipts job for us, at least at first. And there's a 90- to 120-day type of lag. So in the guide that we gave at the midpoint, you should think it's somewhere around $140 million to $160 million of revenue for us this year.

I appreciate that. And what are you seeing in your intel business, which has kind of the exposures are relatively new to you, but you had some classified work announced not too long ago. What's the trajectory of that in your guide? Is that area sort of a source of accretive growth there?

Yes. I think what we did with the QinetiQ's acquisition was positioning us well to augment what we do today. We're excited about what that business brings to us. I'm excited about the fact that it builds on a pipeline that is going to only grow. So I think that is a business that we're very excited about.

The next question is from Andre Madrid with BTIG.

I remember that last year, you mentioned five opportunities worth over $1 billion that you were focusing on. In Slide 5, you indicated that $2 billion has been awarded. Can you provide an update on the remaining opportunities? Are those still projects you are actively pursuing? Any additional information would be helpful.

I think the 2 that we retired, obviously, we're thrilled about. We obviously have that plus we've added to that portfolio this year in terms of where we're bidding when we talk about a 30% increase in overall bid velocity. But yes, we're waiting on adjudication on the remaining 3 that we feel very good about. But again, we got to wait for adjudication. But again, the fact that we were able to retire 2 of them in the fiscal year plus the 10-plus $100 million one, I think those bode well for the business in terms of not only this velocity but also our ability to win. So I think those bode well for the company.

Yes, Andre, to put a fine point on it. So 1 of those was bid in the fall. 1 of the 3 was bid in the fall, 2 were captured as exactly as Jeremy said and then there's 1 to be bid this year and 1 to be bid in '27. And there's about a year lag between the time the bid goes in and any award assumption that we would have on those things, not counting any protest periods or anything like that. So very modest to any impact in '26 as a result of any of those captures. We'll be talking about those for some time to come, I suspect, but remain very happy with where we're positioned on those. Teams worked extremely hard to put together wonderful offerings and teammates.

That's very helpful. It seems like everyone wants to discuss the Middle East, but I know you mentioned the Indo Pacific as a growth area for you throughout much of 2025. Can you provide any updates on how that market is developing?

Yes. When you look at the details we provided, it was flat to slightly down, and we're seeing that continue into 2026. People might remember that odd-numbered years tend to be training years in the region. However, we didn't see that translate into the volume we historically experienced. We did notice an increase in requests to present to customers, but those didn't materialize. We'll see how things develop in 2026. As I consider where growth will come from and our positioning, the operations tempo is very good, and we are pleased with our stance. Jeremy regularly discusses presence, and we continually assess opportunity sets in the region. I don't foresee anything immediate as I sit here today, Andre, when thinking about early 2026, but we’ll wait to see. We are just beginning.

The next question is from Peter Arment with Baird.

Jeremy, Shawn, Mike, nice results. Jeremy, you had a really strong year in ramping up the bid velocity and you mentioned a significant pipeline. How should we think about whether there are more opportunities similar to the T-6, or will it be more like the ones you already talked about with the 10 awards of over $100 million? How should we view the pipeline and what you're bidding on?

No, it's a really good question, Peter, because I think we're trying to balance it. We're trying to balance what I call big game hunting with singles and doubles. And I think both of them sit in the portfolio very well. But clearly, the administration and prior administrations have kind of consolidated some of these buys into bigger buys, which at our scale allows us to compete. But again, I think the singles and doubles are just as important and I think they add to the overall value of the company. And so when I look at it, candidly, I look at big velocity as the metric. As long as I'm getting the bid volume out the door, it could be big ones, it could be small ones, it can be intermediate ones. And I think that's important to the company because I think that's what feeds the system.

That's helpful. And then just also, there were some pursuits around that you guys have had a lot of opportunities to think about contracts, maybe moving to fixed price or things of that nature. Has there been any kind of further advancing of that with the administration now kind of more, I guess, up and running with the Department of War. Are there opportunities you think you're pursuing on a fixed price basis?

Yes. I think we're seeing more fixed price opportunities than we have in the past. I don't know, Shawn, if you want to add to that. But yes, I think it's clearly an avenue for us, which we're really good at.

Customers that have traditionally been cost type have reached out to us. While it hasn't yet resulted in a fixed price award, we've observed an increased operational tempo since mid- to late fourth quarter, with customers requesting these types of offerings from us. We're optimistic about this development and are seeing growing engagement from the relevant parties needed to secure contracts. It's evolving from discussions to actual agreements.

And just lastly, Shawn, on the net leverage, you guys have done an incredible job, obviously, setting yourselves up. How are we thinking about kind of the go forward? Is it further reduction? Or are you looking at other pursuits on an M&A perspective?

Yes. Listen, I think we've said we'll look at all options for value creation for the shareholders. And that remains the case, Peter, right? We're extremely happy with the leverage that the company is at. And Jeremy said consistently, that opens up optionality. I think I highlighted it in the remarks, really happy to deliver $2.2 billion while deploying $40 million, $50 million of capital last year to further enhance shareholder value. So we'll see how '26 plays out, but it's a good spot for us to be in to have those options in front of us.

The next question is from Trevor Walsh with Citizens JMP.

I wanted to start with the AI partnerships with Google and AWS. Can you maybe just click in one level deeper around what those opportunities look like kind of broadly as you look at them going forward? Are they more technology-centric type of implementations with the smart warehousing? Or is it more just traditional IT system integrator type work? Just trying to get a sense of what that could look like? And then kind of relatedly, how does that maybe shift by opportunity around like what the margin contract kind of profile might be of those opportunities?

No, it's a really good question, and I appreciate you asking it. I think AWS presents an opportunity for us to collaborate with a leader in smart warehousing worldwide and leverage their expertise in our daily operations. Wherever we operate globally, there's a warehouse, and AWS excels in warehouse management. We control all the data, while they manage the process. Therefore, the partnership between us and AWS, along with Google, which is heavily invested in AI, aims to utilize our data to provide our customers with improved, quicker, and more efficient outcomes. I wanted us to align with the best in the industry to enhance these capabilities using the data I possess. Their technology will help us achieve better results for our customers. In the end, the collaboration with AWS, Google, and IBM turned out to be an ideal fit for us.

And there's a speed-to-market aspect here, too, right, in terms of how quickly we can deploy things you've heard us talk about the global footprint, right? So don't think about it only from a pursuit standpoint, but capability that we have that we can deploy in a broad scale today, and we'll see how things evolve. But exactly, as Jeremy said, a wonderful partnership to go forward and deliver, we think, enhanced capability to our customers at speed and at scale.

I mean we're already doing on the WTRS program, where we're giving them capability that they've never had before, and I'm looking forward to extending that to other customers.

Great. That's fantastic. Shawn, maybe just a quick follow-up then for you. On the T-6 contract, appreciate that color that you gave around the revenue. Can you maybe provide a little bit of color as well on how that's going to affect backlog? I realize the whole amount will go into backlog in Q1, as you mentioned. But could you maybe give us a sense of what would be funded or unfunded if you have like maybe a high level take just as we think about that?

I don't have the funding and unfunded portion yet. We're currently working on that with the customer. However, if it follows the pattern of our other programs, it wouldn't surprise me if it was funded annually or slightly less. Regarding the incremental value we would receive, that's not unusual for these types of programs. I believe the bookings we will record in Q4 will not represent the total value of the contract awarded to us. There are options that can't all be exercised. So from an optionality perspective, it’s kind of one or the other. The team is reviewing this now in relation to bookings and backlog, and you should consider this as a connection between our bookings and our performance obligations on the contract, including the options. That will reflect in our backlog by the end of the quarter.

The next question is from Jonathan Siegmann with Stifel.

This is actually Sebastian Rivera on the line for Jon Siegmann. Congrats on the strong print here. I guess I just wanted to start with a broader question. There's kind of been some AI existential threat jitters recently to service names and I kind of wanted to just get your glass half full view, if you will, on how AI will be a lever for the company over the short to medium term and kind of perhaps in the context of some of your recent wins and partnership announcements.

Yes. I think Sebastian that's why we lean forward with partnerships that we have. We decided that we wanted to be on with partners whose critical path was the future of AI. And I think Google is that. And I think Google also recognized that we have the information that makes AI operate. And so when I look at the transformational aspect of AI in our business, I wanted to partner with somebody who brought a tool, and I brought the data and I brought to mission capability and I want that in the context and the contract that enable that AI to work. So it was a natural partnership that occurred and I'm thrilled to have that part of the team. I'm thrilled to have Amazon part of the team. I'm thrilled to have IBM part of the team. I think our business is going to be enabled by this transformational technology because we have all the mission know-how. I mean I'm the guy on the ground. I'm the guy doing all the work. And they're going to enable me to network much better, much faster and much more efficient and delivering my customer a much better outcome. So we're excited about that.

And Sebastian, I want to emphasize that we should view this in incremental steps. There's no sudden change here, but rather a gradual process of filtering, sorting, and sourcing that can showcase our speed and flexibility to customers using our existing capabilities. As Jeremy has pointed out previously, we have the data and the presence to support this. Let’s utilize these resources and make steady progress in adopting these tools and capabilities as we move forward. I think that's going to be a long-term play. Again, I would call presence and also contract vehicles as the key to participating. Obviously, getting on the contract, having the presence on the ground, having the presence at the local facilities is everything. So as this thing evolves, our goal was to get into the mix that allow us to be a participant to enable the government to deliver Golden Dome, and we think we're well positioned to do that.

The next question is from John Godyn with Citi.

I wanted to follow up on the commentary about book-to-bill and just to make sure I understand it. The T-6 award is hitting in the first quarter. Is that correct?

Correct. Yes, we will book it. The protest was resolved here in the first quarter, and so we will reflect it in our backlog at the end of Q1.

The commentary about the pipeline appears to be very positive and optimistic. I'm interested in whether the guidance of exceeding a 1x book-to-bill for the full year would still apply if we excluded the T-6 award, or if the T-6 award is essential for achieving the greater than 1x book-to-bill for the year.

Yes, I'd say the T-6 award we should certainly be above 1 with the T-6. Like I said earlier, it's early innings in the year. We will see how some things played out, but we're confident that we'll be at one. There's opportunity to be well above 1, 1.4, 1.5 or more, depending on how some other things play out. But we'll see the timing of certain awards as they play out in the year. We can never predict those things perfectly and protest factors and such. But again, feel very comfortable with where we sit today with the guide that we've put out.

I think, John, the key point to highlight is that we bid 50% more last year compared to the previous year. This year, we are projecting a mid 30% increase over last year's bids. Our win rates are competitive and among the best in the industry. That's an easy way for you to think about it.

But it seems like we need that T-6 award amount to be above 1x book-to-bill. Am I understanding that correctly?

Yes, that's a fair interpretation.

And then if we just look at the full year guidance, just simple question about kind of the sensitivity or just the range around kind of low end versus high end. Maybe you guys can talk a little bit about on the revenue and the margin side, what drives the sort of midpoint versus the high end of the guide.

Yes, it's mostly about the timing of various factors. We mentioned that about 3% of our revenue, at the midpoint, is subject to recompete. The timing of new business activities or on-contract growth could influence this relative to our operational tempo and when we expect to see certain developments. We feel optimistic about our visibility for the entire year, especially for the first half, and we will monitor the timing of awards. But it's really just about that.

The next question is from Ken Herbert with RBC.

I wanted to revisit the margin discussion. Considering the T-6 and the additional bookings you're experiencing this year, what is the likelihood of achieving better margins than what we're anticipating for 2026? What are the main factors we should consider regarding potential margin improvement?

Yes. So I'll go to the many of our programs that start out early, and we've got several this year that are contributing to growth. They start out at margins that are somewhat dilutive to the company composite, and then they grow. And so T-6 in the early phases, we'll see. We're going to do the EAC here in Q1, and we'll see. But it wouldn't shock me if it follows the profile for most of our programs that are like that, that we tend to grow into the margins. It takes a little bit of time because what you do is you reengineer the process around delivering those industry-leading readiness rates that we have across the majority of the platforms that we have. And so you've kind of got to tear things down and then build them back up. You've got the supply base. All of those things that go into it, but we're really happy with the performance that we ultimately get. So I don't know that I look at that as being a real margin enhancement activity here in 2026. But I think we have full confidence that the team will deliver to the commitments, 100%.

Look, I think Shawn is right. I think every program kind of goes through its life cycle. But once my team gets in and they're able to get a hold of the supply chain, and they're able to get a hold of the employment base and they're able to understand what's the best-in-class way to do things to deliver the readiness rates that we deliver. I have all confidence in that team's ability to do this. Does it take us a little bit of time to do it? Yes, because you're taking over someone else's preexisting program, but it takes us a moment to just conform it to the way we do business. And once we do, we do exceptionally well.

Yes. That's great. If I could, Jeremy, maybe just obviously, the scale of what you're bidding is up significantly, and I can appreciate then the tailwinds on the top line. Is it fair to say that the stuff you're bidding today to the extent to which you're successful on it would support sort of a structural step-up in margins over time, obviously, as the new work ramps?

We're bidding on projects that enhance the overall business as a standard practice moving forward. This is our approach. To address Shawn's point, we have programs that might start off not being profitable from day one but will develop and improve over time. Nevertheless, as a corporate policy, we firmly believe in increasing margins.

Next question is from Noah Poponak with Goldman Sachs.

Last year and the year prior, the top line growth was stronger in the back half than the first half. I'm just curious if that holds this year or if with the much easier compares in the first half and then tougher compares in the back half if the shape of this year is different?

Yes, it is a little bit different. This year, I think it's more balanced. No, I think it's more 50-50 in terms of what that profile looks like on the revenue side.

Helpful. Shawn, could you explain the factors affecting cash flow as you concluded '25? You mentioned the potential impact of collections related to the government shutdown, which turned out to be close to the lower end of your initial expectations. I had anticipated that '26 would show growth from the original range in '25 and also that there would be a catch-up in working capital. Can you clarify that for us? How should we approach the conversion of EBITDA to free cash flow moving forward?

Yes, you're right, 2025 did exceed the midpoint of our guidance at $148 million, thanks to a few extra days that resulted in significant receipts at the end. We adjusted our expectations due to some timing that was somewhat unpredictable. Looking ahead to 2026, we have an additional pay period that is estimated to be worth about $50 million. Our projected net income conversion at the midpoint of our guidance is around 115%. Overall, I believe we are in a solid position this year, although we will experience cash negativity in the first half. The financial profile will likely mirror what we saw in 2025.

And then just maybe zooming out and thinking about long-term growth, you have some new programs ramping this year that drives a pretty good looking growth rate relative to the industry. That has to keep growing. And then you've discussed a pretty healthy bid pipeline. Can you grow what you're forecasting this year for multiple years? Or do you start to hit just a higher base and tougher compares that drives it to decelerate from here?

No, I believe we are in a favorable position. When I examine the pipeline, we are very selective about what we choose to include. Our focus is on our ability to capture opportunities without wasting resources on uncertain ventures. Considering the pipeline that Roger has developed and the associated win rates, I feel confident about our continued growth. We are not even approaching the majority of the addressable market, leaving us with ample opportunities ahead. We are further expanding Roger's team and consistently bringing in new talent. My primary concern is ensuring we are adequately prepared for this growth. That's where my attention is directed.

The next question is from Mariana Perez Mora with Bank of America.

So first one on '26 guidance, could you mind discussing for the midpoint, what kind of recompete risk you are thinking about? And then like what are the major programs like that are driving this growth? Like this WTRS ramping that much or even within like you mentioned FMS and international with IDIQ also expanding? Like what are the main drivers for that midpoint?

Certainly. I'll provide more detail regarding what I mentioned in the prepared remarks. From the perspective of Foreign Military Sales, we expect growth in the range of $150 million to $170 million. For training, we're looking at a year-over-year range of approximately $130 million to $150 million. I noted the T-6 and previously mentioned that some Middle East mission support activities are concluding and tapering off. When you consider all these factors together, the projected midpoint for year-over-year growth is around 6%. You also brought up recompetes, which currently account for about 3% of the projected revenue growth at the midpoint.

And then how should we think about like at the midpoint, how much is already covered by the funded backlog? And how much you guys have to still go on like get. And then as a link to that, the context or the framework for this question is, we have seen a shutdown. We are getting into a year where we'll see midterm elections later in the year, like how is the award environment and how that could affect this range for '26?

Sure. I'll address your question about the backlog and the revenue associated with it. While I want to clarify that the total revenue isn't fully funded at this moment due to seasonal factors that can impact contract performance mid-year. Currently, around 85% of our total expected revenue for the year is considered backlog. It's important to note that this excludes T-6, which we plan to book in the first quarter. Regarding our award cadence, the fourth quarter unfolded almost exactly as we anticipated, and the first quarter is following a very similar trend. We'll monitor how things evolve throughout the year. Reflecting on last year, the booking cadence for 2025 was largely in line with our expectations. However, whether that will continue remains uncertain for various reasons you mentioned earlier. Overall, in terms of cadence and alignment with our internal plans, it has been quite stable.

Yes. I believe that persistence at the mission level requires someone to be present. Most of our efforts focused on keeping aircraft operational, maintaining the base, and delivering technology and capabilities. While these factors could be influenced by elections or budgets, we noticed very little effect from the government shutdown because everyone prioritizes keeping aircraft in the air, bases operational, and technology being delivered. The impact was minimal. So, do I think we might be affected by politics? Absolutely. However, as Shawn pointed out, everything remained on schedule, which was a pleasant surprise for us.

All right. And for my final question, you talked during the call about using capital deployment and partnerships to prepare for more complex and larger programs, especially regarding the rapid development and deployment of new technologies. Can you discuss, first, how strong the M&A pipeline is? And second, are there any specific internal efforts you can share that support these initiatives and ensure access to the best technologies?

Yes. We are really pleased with how our investment strategy has unfolded, particularly concerning our rapid prototyping activities. Last year, we highlighted our team's remarkable ability to transition from paper designs to deployed assets in a very short timeframe, often measured in months or even weeks. This reflects our internal investments and the co-investment we receive from our customers, which helps finance our rapid prototyping and development efforts. This approach poses minimal risk to us and demonstrates our capability to deploy solutions quickly, setting us apart in the marketplace.

I would agree with that. But I would also tell you, Mariana, we decided in August of '24 to make a fundamental shift in how we think about the next 3 to 5 years in the business. And I think when you saw the announcements that we put out, it was because we made those investments. We made those investments in the future of the company. And those investments are going to pay dividends because we believe that our ability to be effective for our customer means that we are going to deliver technology into our mission. And that is the only way in which our customer is going to benefit long term is taking advantage of what is commercially available to everybody else, and we're leveraging it into what we do today.

The next question is from Joe Gomes with NOBLE Capital.

Most of which have already been asked, but I'll throw this one out there. So a lot of positives. But as you look at '26, what do you see as kind of the biggest risks for the company through achieving the '26 guidance?

It's a great question because it always comes down to us being a very responsive company. When the customer tells us to move left, we move left. When they say to move right, we move right. We don't always have clear visibility, particularly in the Middle East, which isn't always beneficial for foresight. However, I believe it creates opportunities for us, and it has for a long time due to our responsive nature. I don’t view it as risks but rather as being prepared. We need to ensure our recruiting team is ready, our on-ground team is prepared, and that we can respond when the customer needs us to act quickly, building whatever they require and ensuring the aircraft is operational. We excel in these areas. I'm not as concerned about risks in '26; what keeps me up at night is ensuring we are ready for the customer when they need us to respond immediately to their mission requirements.

The next question is from Kristine Liwag with Morgan Stanley.

Just following up on Noah's question earlier on cash flow. When we look at adjusting the operating cash divided by adjusted EBITDA, it looks like 2024 was a higher watermark 52% of that conversion versus 46% last year. I guess I would have thought that this would have been trending higher, especially as the leverage comes down and you get some tailwind from interest expense. So how should we think about these metrics? Is this the right way to think about the cash generation of the business? Is there anything that's changing in the cash cycle or cash milestones that we should think about?

No, it's really just the additional payroll that we have this year, which is worth about $50 million. So if you adjust it for that on the midpoint of the guide, the conversion would be about 115% against net income. And so it's really nothing more than that.

And then does that mean for 2027 with the extra payroll for '26, you should see a higher number for that conversion for that following year. Would that be fair?

All else being equal, yes.

Great. And following up on what you said on the Middle East, you've got some contracts that are sunsetting that's factored into your guidance. Depending on how we see Iran play out this year, is there potentially more upside to that opportunity set in the region? And how do you think about potential timing or magnitude if anything does materialize?

It's very early to make any predictions. Our guidance doesn't account for anything at the moment because we don't have any requirements to respond to. As mentioned earlier, we are focused on ensuring the safety of all our employees in the area. Could situations change? Yes, they have before. However, it would be purely speculative to consider what those changes might entail. We know there's a significant mobilization effort in the region, reportedly the largest since 2003 in terms of resources. While there could be potential opportunities for us, we haven't taken them into account yet.

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

Thank you for joining us today. I really appreciate you taking the time to share with us what we did in 2025. I'm so proud of the team. I'm proud of the 16,000-plus employees and what they do for us every day. And I appreciate your interest in V2X. And I hope that we were fulsome and clear in our remarks. So thank you so much. Take care.

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