May 10, 2023 | 12:27 PM by Jay Kunstman |

Behind The Numbers – V2X Inc. (VVX)

Last month, in the April 18th Webinar (Subscribe HERE), a bullish discussion centered around V2X (VVX), a defense company that provides critical mission solutions and support services to defense customers in the U.S. and internationally. One of the topics that was discussed was an RBC Capital note where they were comparing backlogs among SMID-Cap Defense names. For V2X, they highlighted how their backlog growth was 145% Y/Y leading to a 2022 book-to-bill ratio of 3.51x. The recommendation was to use the current pullback and buy call options.

This leads me to the company’s Q1 earnings report, which came out after the close yesterday. Overall, headline numbers were solid. EPS came in at $0.80 vs $0.64 estimate and Revenue came in at $943.5M vs $851.6M estimate. The company would also reiterate its FY23 EPS and Revenue Guidance, which in my opinion can be viewed as conservative actions. CEO Charles Prow, in his prepared remarks, said that during the quarter, the pace of award activity improved, which led to approximately $600M of new business awards. “The recent award activity is encouraging, and we believe V2X is well positioned to win its share of the over $4 billion of new business opportunities currently under evaluation.” Reading over the transcript, it becomes very clear that there is an award at every corner.

Pacific – Management said they continue to experience significant growth in IndoPACOM, which supports the Defense Department’s “Pacific Deterrence Initiative,” which has $11.5B in authorized funding this fiscal year to enhance the U.S.’ posture in that region where China is also located. Revenue in the region grew 300% Y/Y and 18% Q/Q to $64M, driven by the expansion of existing programs and exercises, such as Talisman Sabre, the largest bilateral combined training activity with the Australian Defense Force and the United States. They said they are also supporting Balikatan 2023, a critical exercise with the U.S. and Philippines that enhances tactics, techniques, and procedures across a wide range of military operations. This year marks the 38th iteration of the training event and is the largest to date.

Cyber – We are seeing momentum built in the cybersecurity, mission IT, and critical communications domain which now has annual revenue of approximately $350M. In the most recent quarter, the momentum was due to a new 3-year contract win valued at approximately $100M to provide critical cybersecurity support across the U.S. for a government client. The contract is currently under protest, but once phased in, will add to the company’s existing cyber work, which includes operating the largest cyber center for the U.S. Army outside of the United States, defending all Army networks throughout the CENTCOM area of operation.

Navy – The company won over $250M of recompetes in the quarter, such as securing a 5-year $142M contract with Naval Air Systems Command, or NAVAIR. Furthermore, subsequent to the quarter close, they were awarded an 8-year fixed price recompete contract valued at $300M to continue providing support services to the Navy in Cuba. Lastly, they were also awarded a Naval Test Wing Pacific contract valued at $440M over 7 years.

When this Naval Test Wing contract was brought up in the Q&A session by Truist, they asked what the “ramp” looks like once they get out of any transition/protest period. CEO Charles Prow would respond, “Yes, our expectation is, as normally occurs on these programs, you have the 100-day protest cycle. As you know, you can’t go to another round, but we typically expect 100 days and then we plan for the ramp of that contract to begin once the 100 days is up, which is early-to-mid July timeframe. So we have essentially 0.5 year of Naval Test Wing Pacific baked into our guidance.”

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