V2X's Q3 2025 Earnings Call: Contradictions on T-6 Contract Impact, Government Shutdown Effects on Cash Flow, and INDOPACOM Growth

Date of Call: None provided

Financials Results

• Revenue: $1.167 billion, up 8% year-over-year
• EPS: Adjusted diluted EPS $1.37, up ~6% YOY; GAAP diluted EPS $0.77
• Operating Margin: Adjusted EBITDA $85.2 million, 7.3% margin (adjusted EBITDA margin)

Guidance:

• Increased 2025 midpoints to: Revenue $4.5B; Adjusted EBITDA $316M; Adjusted EPS $4.95.
• Lowered midpoint of adjusted operating cash flow by ~ $25M to reflect potential timing delays in collections from the government shutdown (timing-related, not fundamental).
• Company expects a strong close to 2025 and continued momentum into 2026; potential upside if protested awards (e.g., T6) are resolved in favor of V2X.

Business Commentary:

* Record Financial Performance: - V2X reported record revenue of $1.17 billion for the third quarter, up 8% year-over-year, with an adjusted EPS of $1.37. - The growth was driven by strong demand, strategic acquisitions, and successful captures of major contracts.

• Strategic Acquisitions and Market Expansion:
• The company completed an acquisition to increase its capabilities and access to customers in the intelligence community.

• This acquisition is expected to add to the existing pipeline and contribute to future growth opportunities.

• Strong Book-to-Bill Ratio:

• V2X delivered a solid book-to-bill ratio of 1.2, indicating strong demand and favorable market positioning.

• This ratio reflects the positive impact of new contract awards and strategic execution.

• Impact of Government Shutdown:

• While there has been no material impact on the business, V2X is proactively adjusting its cash flow guidance due to potential temporary delays in collections.
• The adjustment reflects a cautious approach to the current government shutdown, which may affect funding and operations of ongoing contracts.

Sentiment Analysis:

Overall Tone: Positive

• Management: "record revenue and adjusted EPS" (Q3 revenue +8% YoY to $1.167B; adjusted EPS $1.37). Management stated they have "not seen a material impact" from the government shutdown and raised midpoints for revenue, adjusted EBITDA and adjusted EPS while describing execution, new awards, and a $50B pipeline.

Q&A:

• Question from Peter Ament (BERD): Could you give more color on the reduction in cash — if the government reopens soon does that change the approach?
  Response: Payments have elongated ~7 days vs H1; we lowered operating cash flow midpoint by about $25M purely for timing risk—no expected loss of receipts; slippage may move cash into 2026.

• Question from Peter Ament (BERD): Progress on expanding the qualified pipeline and ability to bid more broadly?
  Response: Hired a Chief Growth Officer; company maturity plus full-company bidding has retired two of five major pursuits and is driving a deeper, higher-quality pipeline.

• Question from John Sigmund (SkyShell): You didn’t include the protested T6 award in backlog — is that standard and does that imply higher risk?
  Response: Standard practice: protested awards are excluded from backlog; only low single-digit millions of funded transition work is booked today; the main award and timing remain excluded and uncertain.

• Question from Andrey Mudvedeva (BTIG): Does the shutdown push the recompete holiday into 2026 and which branches/geographies will grow fastest?
  Response: Recompete timing is uncertain and could be affected, but the company is well positioned; expect cost-type revenue to grow faster and the U.S. region (e.g., WTRS) to be a faster-growing contributor.

• Question from Ken Herbert (RBC Capital Markets): Were F16, F5 and WTRS better than expected and why does the revised guide imply sequential margin step-down into Q4?
  Response: Those programs performed as expected (some modest material timing); the implied Q4 margin step-down reflects timing of incremental expenses rather than material operational issues.

• Question from Toby Sommer (Truist): Opportunity for sales outside the U.S. and is payment elongation widespread under the shutdown?
  Response: FMS demand (e.g., Iraq F16) is an emerging channel driven by demand pull from allies but has long lead times; payments are taking ~7 days longer on average due to adjudication/contract-action delays—primarily timing, not credit risk.

• Question from Joe Gomes (Noble Capital): Update on INDOPACOM activity and could the T6 protest push the Feb 2026 start significantly?
  Response: Strong positioning and in-region presence in INDOPACOM; some training volumes below expectations but overall demand remains; T6 timing is hard to predict (in federal claims)—it’s treated as binary for 2026 planning.

• Question from Trevor Walsh (Citizens JMP): Tempest’s rapid fielding — what other UAS opportunities exist, and what does the recent acquisition contribute?
  Response: Tempest demonstrates rapid-prototyping and broader UAS modernization/flight-line/MRO opportunities; the acquisition is modest in size and intended to provide customer access (not yet reflected in pipeline) and is undergoing integration.

• Question from Christine Levak (Morgan Stanley): Was the strong book-to-bill a pull-forward due to funding uncertainty, and any impact from U.S. withdrawals in Romania?
  Response: Book-to-bill reflected normal timing and expected awards, not a pull-forward; Q4 adjudications are uncertain due to absent contracting officers; Romania work (e.g., EGIS Assure) was not impacted and remains strategically important.

• Question from Noah Popnak (Goldman Sachs): The updated full-year guide implies various Q4 outcomes—is the low end shutdown-driven, and how should we think of 2026 growth, margins, and cash conversion?
  Response: Range reflects funding uncertainty from the shutdown; WTRS and F16 Iraq should ramp into 2026 while contingency support declines early in 2026; management expects multi-year margin expansion and, assuming revenues hold, 2026 cash conversion at or above 100% as timing-related receivables reverse.

Contradiction Point 1

T-6 Contract Impact on Revenue

It involves the expected impact of the T-6 contract on revenue, which affects financial forecasting and investor expectations.

Why wasn't the T6 award included in the backlog, and is this standard practice or an indication of higher risk? - John Sigmund (SkyShell)

2025Q3: It's our policy to not include protested contracts in the backlog. We only booked the transition funded work, which is a low single-digit millions amount. The main award is scheduled to begin in February 2026, with a 10-year duration, not included in backlog. - Mike Smith(CFO)

What is the expected incremental revenue from the T-6 contract in 2023 and 2024? How will its revenue growth progress over time? - Kenneth George Herbert (RBC Capital Markets)

2025Q2: We expect no impact to the financials this year. The transition period goes until early 2026. The program has historically been somewhere between $200 million to $300 million a year, but we'll see how it plays out given variables like funding profiles and potential protests. - Shawn M. Mural(CFO)

Contradiction Point 2

Impact of Government Shutdown on Cash Flow

It involves the expected impact of the government shutdown on cash flow, which is crucial for financial planning and investor confidence.

How will the government shutdown impact cash guidance? Would a government reopening affect this? - Peter Ament (BERD)

2025Q3: We've assumed certain contract actions routine in the business may be delayed. Payments have been elongated, on average about seven days longer than experienced earlier in the year. We've adjusted the guidance to reflect potential timing delays, not risk to receipts but whether they slip into 2026. - Mike Smith(CFO)

Comments on the budget environment and potential frictions in contracting actions? - Jonathan Siegmann (Stifel Financial Corp.)

2025Q2: We have not seen friction in our operations. - Shawn M. Mural(CFO)

Contradiction Point 3

Government Shutdown Impact on Cash Flow

The contradiction revolves around the impact of the government shutdown on V2X's cash flow and the adjustments made to the cash guidance. This is a critical thematic area, as it reflects the company's financial robustness and investor confidence.

Can you explain the reduction in cash guidance caused by the government shutdown? - Peter Ament(BERD)

2025Q3: We've assumed certain contract actions routine in the business may be delayed. Payments have been elongated, on average about seven days longer than experienced earlier in the year. We've adjusted the guidance to reflect potential timing delays, not risk to receipts but whether they slip into 2026. - Mike Smith(CFO)

Could you elaborate on cash flow usage in Q1? - Noah Poponak(Goldman Sachs)

2025Q1: We expect to be positive in every subsequent quarter and build throughout the year. We saw some good collections after the quarter closed, nothing that's sticking out as being anything other than what we had planned. - Shawn Mural(CFO)

Contradiction Point 4

INDOPACOM Growth and Contracts

It involves the company's growth and contract expectations in the INDOPACOM region, which are crucial for understanding regional sales strategy and performance.

Can you provide an update on INDOPACOM's progress in Q3? - Joe Gomes (Noble Capital)

2025Q3: We remain confident in our positioning in INDOPACOM. Some training activities were less than anticipated, but overall we're proud of our relationship with the customer. - Mike Smith(CFO)

Does the 27% growth in the Indo-Pacific region include INDOPACOM sales? What are the key factors in the Indo-Pacific region? - Andre Madrid (BTIG)

2024Q4: The 27% growth includes INDOPACOM. We expect future opportunities from exercises every other year. Our presence in the region and contract vehicle with INDOPACOM aligns with their priorities. - Jeremy Wensinger(CEO)