Earnings Call Transcript - VVX Q4 2024

Mike Smith, Vice President of Treasury, Investor Relations and Corporate Development

Thank you. Good afternoon, everyone. Welcome to the V2X fourth quarter and full year 2024 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.

Jeremy Wensinger, President and CEO

Thank you, Mike and good afternoon, everyone. Thank you for joining us today. Before we get started, I'd like to recognize the over 16,000 V2X employees for all their contributions and in particular their strong performance during the fourth quarter that resulted in record quarterly revenue, adjusted EBITDA and cash flow. We thank you for all that you've done and continue to do for our nation and our company. Please turn to Slide 3. In today's call I'm going to recap the fourth quarter and full year results and then discuss our positioning and alignment to national security priorities. Our momentum continued into the fourth quarter with revenue increasing 11% year-over-year to $1.16 billion. This was driven by positive growth in all our geographies and notably, 27% increase in the Indo-Pacific region. For the full year revenue grew 9% to $4.3 billion exceeding the top end of our guidance. Adjusted EBITDA for the fourth quarter and full year was $86.2 million and $310 million, representing 5% and 6% year-over-year growth. Adjusted EPS for the fourth quarter and full year was $1.33 and $4.34, representing 9% and 16% year-over-year growth. Importantly, our focus on debt reduction and cash generation yielded impressive results with net debt improving by $210 million year-over-year. This achievement equates to a 2.6 times net leverage ratio, which provides significant flexibility and optionality for V2X in 2025 and beyond. Total backlog at the end of the year was $12.5 billion, representing a 1.2 times book-to-bill ratio in the quarter. Our focus on growth is demonstrating results with V2X securing contract wins of over $5.5 billion in 2024. This was a record for the company and builds an excellent foundation from which we can continue to drive revenue, cash flow and value for our shareholders. Additionally, we are pleased to announce the arrival of Roger Mason, our Chief Growth Officer. Roger brings a wealth of experience and will continue to build on our track record of growth. This move positions V2X exceptionally well for the years to come. In summary, 2024 was a great year for V2X, achieving several milestones and new records for the company. Now I'd like to spend a few minutes and talk about our positioning and how V2X helps customers increase efficiency, reduce costs, modernize capabilities, improve readiness and strengthen national security. The fact that we are with our customers at every phase of mission execution, primarily as a prime contractor gives us great intimacy and knowledge of what is happening and insight into evolving requirements. The combination of our unique mission insight, full life cycle capabilities and 80 years of reputation as a trusted partner differentiates us and is yielding results through recent wins and growth in key theaters. For example, in the Indo-Pacific region, V2X is supporting increased mission requirements as the Department of Defense continues to identify China as a pacing challenge and is further investing to strengthen deterrence. Our positioning in the region and our team's strong performance drove revenue growth of 24% in 2024. We expect continued growth building on the requirement for readiness based on the administration's current priorities, funding requests and demand signals. Turning to the U.S., we continue to ramp up the $3.7 billion Warfighter-Training Readiness Solutions program. This program is critical to National Security readiness, as it ensures every soldier has the tools required to conduct realistic exercises and training. As the administration has stated, improving lethality, warfighting and readiness are priorities. We believe V2X is well-positioned to meet these priorities. Additionally, and in further support of readiness, V2X was recently awarded two contracts valued at $270 million in aggregate to keep aircraft for the Drug Enforcement Administration and the Federal Bureau of Investigation fully mission-ready and able to meet evolving operational demands. I would also like to call out our growing position in the Arctic and how under a contract valued up to $3.95 billion with the U.S. Space Force, V2X is supporting the DoD strategic initiatives and interest in the region by delivering solutions that will enable our customers to meet new challenges as the region is becoming a venue for strategic competition. Finally, the situation in the Middle East continues to evolve. V2X is uniquely positioned in the region with deep mission intimacy and operational expertise to continue delivering best-of-breed, cost-effective solutions that enable successful outcomes. In summary, V2X is positioned in key theaters with the ability to deliver comprehensive end-to-end capabilities throughout the entire mission life cycle. This provides us with the opportunity to be part of strategic initiatives for the U.S. government as they protect the homeland and focus on deterrence. Please turn to Slide 4. Not only does V2X have the global scale and capability to support national security priorities; we have a track record of enhancing outcomes and increasing value for our customers through innovation, modernization and improved operational performance. This aligns squarely with the focus area of the new administration and the DoD. The current challenges our customers face are very real, as they must prepare for today while planning for the threats of tomorrow all while facing approximately $240 billion of already deferred maintenance on its equipment and facilities. This deferred maintenance must be addressed in order to maintain readiness. We believe V2X is extremely well-positioned to help the DoD solve these challenges. For example, we are delivering innovative solutions and mission-ready technologies by leveraging our operational know-how and technology expertise. This includes our Smart Warehouse solution, which can improve space utilization by 90%, increase storage capacity by 77% and importantly yield a 69% reduction in operating costs. The net benefit to the DoD is not just cost savings and footprint rationalization, but also significantly improving visibility of unaccounted inventory and assets and enhancing readiness. When we think about the DoD's $1.2 trillion asset base, spanning over 700,000 facilities, we believe there is a tremendous opportunity for audit assurance and value creation for our customers. Additionally, our platform modernization and rapid prototyping solutions are fielding new systems in months bringing upgraded technology to platforms with significant cost and schedule benefits. This includes the very recent example where V2X is delivering rapid response prototyping production and sustainment of counter Unmanned Aerial Systems and air defense solutions that solve complex and evolving battlefield threats. We are also seeing demand signals and opportunities to utilize this system in the Indo-Pacific region. Lastly, our utilization of technology, predictive and preventive maintenance, data analytics and continuous improvement have resulted in V2X generating over $65 million of savings through optimized operational performance to the DoD on several cost-plus programs. These deliberate and purposeful efforts provide customers with additional funding to support their requirements while maintaining the highest level of mission readiness and performance. This performance makes V2X a trusted partner of choice for missions of consequence. As you can see, V2X is shoulder-to-shoulder with our customers with a proven track record of bringing cost-effective and value-added solutions. Please turn to slide 5. Later this year, V2X will celebrate its 80th anniversary. This is a major milestone and an important trait of our business. For 80 years, V2X has played a critical role in supporting our customers' most important missions around the globe. This includes helping establish the Distant Early Warning Line Radar Network back in the 1950s, which was located above the Arctic Circle and was critical to enhancing our readiness and national security during the Cold War. We have continued to grow since that time, investing and expanding our capabilities. This has and is enabling V2X to do more and offer technology-based solutions that prevail on the battlefield and in real mission environments. For example, today, we are leveraging our global expertise in spectrum engineering, information technology, cyber, and network communications to deliver a private and secure mission-ready communication solution in the remote regions of the Indo-Pacific. This V2X technology is assuring connectivity and readiness for our warfighters. From the Arctic to Asia and all around the globe, V2X's comprehensive full life cycle solutions and relatively fresh brand that's backed by a long legacy is allowing us to bring new technologies, innovation and force-multiplying solutions to our customers. Turning to the right-hand side of the slide, I'd quickly like to call out our 2024 revenue diversification across defense, intelligence, and commercial markets. We thought it important to note that only 5% of our revenue is derived from federal civilian agencies, primarily shared on border security, drug enforcement, and human spaceflight. Moving to our mix of contracts, as you can see, approximately 60% of our 2024 revenue is generated from cost-plus programs and 40% from fixed price. We continue to work with our customers to convert appropriate contracts and programs to fixed price. We welcome the recent emphasis on outcome-based contracting and believe our institutional knowledge presents a compelling opportunity for V2X and our customers. Please turn to slide 6. In the prior slides, I discussed why we believe V2X is well-positioned for continued growth and performance. Our strategy is very clear, it is to deliver full lifecycle capabilities in support of national security priorities that enhance mission effectiveness, extend asset utilization, reduce costs and improve security and mission outcomes. Our focus on readiness of the warfighter via training, equipping, deploying, supporting and modernizing we believe is well-aligned to the current administration and future needs of the DoD. When it comes to government efficiencies, we have described how V2X is already executing and supporting these initiatives and we believe we can do more. For example, V2X keeps over 1,600 aircraft flying and ready for their next mission. Today, the DoD currently has over 13,000 aircraft in its inventory excluding unmanned vehicles. We believe V2X has the opportunity to gain additional market share by helping the DoD improve readiness and mission capable rates of the fleet while creating additional cost savings through outsourcing. Additionally, V2X is utilizing technology and internally investing through R&D to modernize assets and platforms, extending their lives and enabling our customers to close the gap on the $240 billion of deferred maintenance. In terms of overall budgetary environment, V2X has demonstrated performance throughout various economic and political cycles. This is due to our strategic focus on supporting critical and enduring missions. At the global level, the overall threat environment remains elevated with tensions persisting, if not escalating. This is why the DoD is focused on reestablishment of deterrence. The fact that we have presence and mission intimacy in key theaters and geographies that matter positions us exceptionally well to continue delivering end-to-end full lifecycle solutions to support evolving requirements. What we do is 24/7, 365 supporting missions of consequence around the globe; it's something we are extremely proud of and something that cannot be easily replicated. To wrap up, our 2024 results demonstrate the value of V2X brings to our customers, our positioning in key theaters, alignment to missions of high consequence and our ability to execute on our commitments. We are excited about the future. The trend and leading indicators in our business remain strong, with a $12.5 billion backlog, limited recompetes and a robust pipeline of new opportunities. We look forward to the opportunity V2X has to increase our percentage of a large addressable market and bring more solutions to meet our customers' mission requirements. Now, I'd like to turn the call over to Shawn for a review of the financials.

Shawn Mural, Senior Vice President and Chief Financial Officer

Thank you, Jeremy, and thanks everyone for joining us this afternoon. Please turn to Slide 7. We are pleased to announce an impressive close to the year, with strong fourth quarter performance across all financial metrics, driven by double-digit top line growth and exceptional cash generation. We are extremely proud of what the team accomplished in 2024, which resulted in V2X meeting or exceeding all financial commitments. Revenue in 2024 increased 9% on a year-over-year basis to $4.32 billion, exceeding the top end of our guidance range by approximately $47 million. Growth reflects the continued demand for our services and solutions in both on-contract growth and the phase-in of new awards. This is reflective of the capabilities V2X brings, with notable new awards to include the F-5 Adversary program, a NATO Missile Defense Program, a Production Award for the Gateway Mission Router, the Navy Pacific Communications Award, a foreign military sales contract for aviation and training support as well as a sole-source award to provide next-generation Chem Bio Threat Detection. Adjusted EBITDA for the year was $310 million, increasing 6% year-over-year and delivering a margin of 7.2%. Interest expense for the year was $107.9 million. Cash interest expense was $100.5 million, improving by $13 million or 11% year-over-year, reflective of our proactive repricing activities, debt paydown and cash flow generation. Adjusted diluted EPS was $4.34, up 16% from the prior year based on approximately 32 million weighted average shares. Full-year adjusted net cash provided by operating activities was $161 million. This represents a 116% adjusted net income conversion and the strong cash generation capabilities of V2X. Please turn to Slide 8, where I'll discuss our fourth quarter results. Revenue for the quarter was $1.16 billion, increasing 11% year-over-year and setting yet another record for the company. Adjusted EBITDA was $86.2 million, also a record for the company, with a margin of 7.4%. Interest expense for the quarter was $24.4 million. Cash interest expense was $22.7 million, improving by $3.6 million or 14% year-over-year. Adjusted diluted EPS was $1.33, growing 9% on a year-over-year basis. Adjusted net cash provided by operating activities was $168 million. Please turn to Slide 9. Our commitment to achieve a net leverage ratio at or below 3 times was a company-wide priority. I'm pleased to report that we demonstrated excellent performance on this front, delivering a net leverage ratio of 2.6 times at the end of the fourth quarter. Our continued focus on cash generation and debt reduction resulted in net debt improving $210 million year-over-year to $874 million. Our liquidity position is strong with a zero balance on our $500 million revolver at the end of the quarter. As can be seen in our financial results, our focus on enhancing the capital structure and the cost of our credit facilities, combined with debt paydown is improving cash flow and earnings. This strong performance allowed us to reprice our $900 million first-lien term loan. The repricing further improves our annual interest margin by 50 basis points, representing 135 basis points of savings achieved since October 2023. This outcome is a testament to the strength of our business and will generate additional value in 2025 and beyond. As you can see on the chart, we have made substantial progress. This demonstrates the strong and recurring cash flow characteristics of the business. Furthermore, it underscores our commitment to thoughtful allocation of capital. Please turn to slide 10. Book-to-bill in the quarter was approximately 1.2 times. Total backlog was $12.5 billion at quarter end, which represents approximately three times revenue coverage at the midpoint of our 2025 guidance. We believe this provides solid revenue visibility, especially when taking into account the backlog only includes the initial $225 million of funding for the Warfighter Training and Readiness Program. As a reminder, we expect to incrementally book activities associated with this contract as they are transitioned. Further enhancing revenue visibility at our 2025 midpoint, we expect a modest 4% contribution from recompetes. Please turn to slide 11. The trends in our business remain positive and we believe our strategy to deliver full life cycle solutions that increase efficiency, reduce costs, modernize capabilities, improve readiness and strengthen national security provide substantial opportunities for future growth and value creation. For 2025, we are establishing a guidance range that we would characterize as appropriately prudent. With that in 2025, we expect revenue to build on a very successful 2024 that exceeded the top end of our guidance. Revenue is expected to be $4.375 billion to $4.5 billion, representing approximately 3% growth at midpoint. Revenue in 2025 incorporates the previously disclosed completion of the KC-10 and T1A programs, which contributed approximately $80 million to revenue in 2024 with mature margins. Adjusted EBITDA is estimated at $305 million to $320 million. Adjusted EBITDA contemplates the phase-in of new awards, the completion of the previously discussed programs and modest internal investments. Adjusted diluted earnings per share guidance is $4.45 to $4.85, representing 7% growth at midpoint. Regarding the cadence, we expect revenue and adjusted EBITDA to ramp sequentially throughout the year. This reflects the phase-in of already announced new business. We expect adjusted net cash provided by operating activities to be $150 million to $170 million. We believe cash flow should be in line with our normal seasonal pattern with cash generation occurring in the second half of the year. Cash interest expense is expected to be $83 million with other expense of $12 million. Capital expenditures for the year are estimated at approximately $30 million. Now, we'd like to open the call for your questions.

Operator, Operator

Thank you. We will now begin the question-and-answer session. Please note, the first question will come from Peter Arment with Baird. Please go ahead.

Peter Arment, Analyst

Good afternoon, Jeremy, Shawn, and Mike. Great results. Jeremy, I wanted to follow up on your comment about outcome-based contracting and how you see this developing with your mix of cost-plus contracting. How quickly can you start to convert that to fixed price or something more favorable? Also, how do you see this evolving, considering you have the knowledge and experience to make that shift to a fixed price approach?

Jeremy Wensinger, President and CEO

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

Peter Arment, Analyst

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

Jeremy Wensinger, President and CEO

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

Peter Arment, Analyst

Yes, absolutely. I have a quick question regarding your guidance. What are your thoughts on the impacts from the continuing resolution? Are you assuming it will be resolved, or how are you approaching that situation?

Jeremy Wensinger, President and CEO

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

Shawn Mural, Senior Vice President and Chief Financial Officer

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

Peter Arment, Analyst

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

Shawn Mural, Senior Vice President and Chief Financial Officer

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

Peter Arment, Analyst

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

Shawn Mural, Senior Vice President and Chief Financial Officer

Thanks Peter. Appreciate it.

Operator, Operator

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

Andre Madrid, Analyst

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

Shawn Mural, Senior Vice President and Chief Financial Officer

Yes. To clarify, the results do include INDOPACOM based on geography. Just as we report the Middle East under CENTCOM, INDOPACOM and our activities there are included in Asia-Pacific. Regarding your question about 2025, there are exercises that occur every other year. We anticipate opportunities this year, though these matters typically arise quickly. We'll see how they unfold this year concerning timing and sequencing. Additionally, evaluations of the budgetary environment and necessary funding are currently in progress.

Jeremy Wensinger, President and CEO

Andre, I look at that the way we talked before, I think presence is everything. And as I think this administration has said, looking at the INDOPACOM region and us having a solid footprint in that region and a contract vehicle in that region that's readily accessible to them, I think is why we get a lot of confidence around the future for V2X in that area.

Andre Madrid, Analyst

I understand. That's very helpful. If I could ask one more question, looking at the implied EBITDA margin for the year, it shows a decline compared to 2024. Can you walk us through the factors influencing this? Is it solely related to the loss of KC-10 and T-1A, or are there other elements at play? I'm trying to understand the overall situation and evaluate the key components involved.

Shawn Mural, Senior Vice President and Chief Financial Officer

Yes, perfect. Thanks for the question. So predominantly those headwinds from mature programs that have concluded because those assets have been retired is what's contributing to it in terms of the change. And then the new work that we listed off in the prepared remarks always starts out at a lower margin. The growth in the year is going to be back half weighted. And therefore, I do expect margins in the second half to be higher than they are in the first half and we should hopefully build on those things as we go forward. I will say some of the work doesn't mature extremely quickly from a margin contribution standpoint, right? Some of the work on platforms that we have may take some time and I would measure that in excess of a year, not necessarily quarter-to-quarter on some of those programs. And that's why as some of these platforms have retired, they're kind of at their peak when we're no longer executing that work. And so we have to build that capability back up. But that's exactly why you see the profile you do.

Jeremy Wensinger, President and CEO

It's a great example of performance-based contracting. The team receives a new contract award, and it takes time to understand the program and manage operations. Once they become familiar and establish a track record, they excel at optimizing readiness, supporting the customer, and deepening our understanding of the program as we progress. It requires some time for this transition. When considering the shift from a mature program to several new ones we've mentioned, they will adapt well because they are highly skilled in execution.

Andre Madrid, Analyst

That's extremely helpful color. Thanks so much. I'll leave it there. Thanks, Jeremy, Shawn.

Jeremy Wensinger, President and CEO

Thanks, Andre.

Operator, Operator

The next question will come from Ken Herbert with RBC Capital Markets. Please go ahead.

Ken Herbert, Analyst

Thank you, good morning, Jeremy, Shawn, and Mike. I wanted to ask about the 9% growth and the outperformance of guidance in 2024. Can you clarify how much of that growth came from new contract wins compared to growth from existing contracts and possibly technology insertions? I'm trying to understand what really contributed to the upside in 2024, as we consider its implications for 2025.

Shawn Mural, Senior Vice President and Chief Financial Officer

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

Jeremy Wensinger, President and CEO

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

Ken Herbert, Analyst

Okay. Very helpful. I mean, I can appreciate some of the KC-10 and T-1A sort of headwinds. But is there any reason to think beyond maybe some risks around timing in terms of just where we are with the CR and fiscal 2025 and 2026 requests? But any reason to think we couldn't see or you wouldn't deliver on sort of similar on-contract growth in 2025? I mean, I'm not trying to get too far ahead of the obviously what looks like a sort of cautiously optimistic revenue guide, but it certainly seems like you'll have some levers to pull as the budget situation stabilizes.

Shawn Mural, Senior Vice President and Chief Financial Officer

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

Jeremy Wensinger, President and CEO

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

Ken Herbert, Analyst

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

Jeremy Wensinger, President and CEO

I think what we're observing is our alignment with their priorities regarding our location. We've seen awards occur, which is encouraging, and we haven't noticed any slowdown in that. As mentioned previously, I am very excited about our alignment with their priorities, whether it pertains to INDOPACOM, the Arctic region, or U.S. readiness in terms of aircraft and deterrent strategy. I believe we are exceptionally well aligned there. Additionally, when I consider our pipeline and our capacity to advance it, I find it is closely aligned with their overall priorities.

Shawn Mural, Senior Vice President and Chief Financial Officer

I think the very positive aspect, Ken, is exactly what Jeremy mentioned, which is that the funding activities we've anticipated have been consistent in the early days of this administration as we begin the year. We haven't observed any disruptions or changes from a customer engagement or operational tempo perspective.

Ken Herbert, Analyst

Perfect. Thanks, Shawn, thanks, Jeremy.

Shawn Mural, Senior Vice President and Chief Financial Officer

Thanks.

Jeremy Wensinger, President and CEO

Sure. Thank you.

Operator, Operator

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

Joe Gomes, Analyst

Good afternoon. Thanks for taking my questions.

Shawn Mural, Senior Vice President and Chief Financial Officer

Hey, Joe.

Jeremy Wensinger, President and CEO

Hey, Joe.

Joe Gomes, Analyst

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

Jeremy Wensinger, President and CEO

We have a sales channel that performs well in foreign military sales. We have a contract in the Middle East and continue to see opportunities. However, the pace of foreign military sales does not match that of U.S. procurements. While we are excited about the opportunities, we are realistic about the timeline for when they occur. Opportunities exist from the Indo-Pacific to the Middle East, and we are actively pursuing them. We are cautious about the timing of these awards, as they tend to take longer and are more complex, but we feel confident in our strategic position.

Joe Gomes, Analyst

Okay. Great for that. And then I mean, you guys talked about your recompetes I think is less than 5% or 4% for this year. Are there any large or significant recompetes that could be coming up on contracts obviously that you don't currently have that you would be very excited about getting in on that bidding?

Jeremy Wensinger, President and CEO

Yes. I think that's the majority, like I told you before, very little of what we do is what I would call a new start. I think new starts are mostly what we're doing over where we're building a capability that is solving a need for a customer and that would fall sometimes in the new category. But again I think the vast majority of our pipeline is about us garnering additional market share for work that does already exist. And, yes, we have quite a few bids on the street that are substantial in size. And we look at the pipeline that Roger and his team are building, and again it reflects a nice mix of both very large and very strategic opportunities for us.

Shawn Mural, Senior Vice President and Chief Financial Officer

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

Joe Gomes, Analyst

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

Shawn Mural, Senior Vice President and Chief Financial Officer

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

Jeremy Wensinger, President and CEO

Everything I see for 2025 shows a higher rate of bids going through V2X compared to 2024. This is the key metric for me. We have a large addressable market and are relatively small in it. The goal is to create differentiation and leverage our global positions to generate more opportunities.

Joe Gomes, Analyst

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

Operator, Operator

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

Trevor Walsh, Analyst

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

Jeremy Wensinger, President and CEO

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

Shawn Mural, Senior Vice President and Chief Financial Officer

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

Trevor Walsh, Analyst

Got it. That's very helpful. Shawn, congratulations and great job on reducing the net leverage below the target level. I was curious to know if there are any updates since we previously discussed that there wouldn't necessarily be a new benchmark for that metric, but you had mentioned before that it would provide some flexibility in terms of capital deployment. Do you have any ideas or thoughts, especially considering the new dynamics and administration, about how you might allocate those resources now that you've achieved that goal?

Shawn Mural, Senior Vice President and Chief Financial Officer

Sure. Yes. No, I want to make sure that I say again and thank the team for all of their efforts in achieving our objectives. We are very focused on doing the things we said we're going to do and the team did an exceptional job as we closed 2024. Now relative to okay what's next, which is the heart of your question I think Jeremy has said before it provides us with optionality. We're very happy with where we sit today. But I think there are opportunities and options that open for us that, by the way, we have been continually sifting through. It's not like we put things on a shelf and weren't looking at things just because we had a leverage ratio that may not have been conducive to those things. It's just part of the DNA and the stuff that the company does regularly. And we've established that appropriate cadence to be looking at those opportunities. We don't have anything to announce of course. But I think in terms of looking at what the art of the possible is in areas that we think we can make meaningful contributors is stuff that we'll pursue throughout 2025.

Jeremy Wensinger, President and CEO

Yes. I mean, I think, I've been very clear about this. The optionality includes us looking at it from the lens of what's going to generate the most shareholder value and that will continue to be our focus. Those options that are reported to us are going to be solely squarely on shareholder value.

Trevor Walsh, Analyst

Great. Thanks, both. I will get back in queue.

Jeremy Wensinger, President and CEO

Thanks, Trevor.

Operator, Operator

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

Mariana Perez Mora, Analyst

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

Jeremy Wensinger, President and CEO

The WTRS program has the potential to become the preferred contract for those seeking readiness and training programs. We have previously mentioned the number of task orders associated with this contract, which continue to increase because customers want a streamlined way to acquire training resources. There are numerous task orders we are currently reviewing, and our team is working diligently and performing exceptionally well. We will keep exploring other training opportunities, as this is a fundamental strength of ours, and we will pursue these prospects as we expand our pipeline.

Shawn Mural, Senior Vice President and Chief Financial Officer

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

Jeremy Wensinger, President and CEO

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

Mariana Perez Mora, Analyst

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

Shawn Mural, Senior Vice President and Chief Financial Officer

Yes, I think it's about the progress of many initiatives we've discussed. The F-5 award we received last year has successfully transitioned and is now being executed. We regularly check in on all of our programs to ensure they are performing well. Regarding the Waters activity, we previously mentioned the GMR award we received, which has shifted from the LRIP phase to full rate production. We are making sure that the supply chain and all stakeholders are prepared for production capabilities. This approach is integrated into our operations, and honestly, we treat all aspects equally. It’s part of our weekly routine to support our programs and deliver to our customers.

Mariana Perez Mora, Analyst

Great. Thank you so much for the color.

Shawn Mural, Senior Vice President and Chief Financial Officer

Sure.

Operator, Operator

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

Jeremy Wensinger, President and CEO

Thank you for the time today, and I appreciate everybody that listened in. I do want to echo what Shawn said. I want to thank the team and the employees of V2X. They delivered so met our commitments, and I can't be any more proud of them than I am. They have worked so very hard, and we're looking forward to 2025. So thank you with that and have a good day.

Operator, Operator

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