Q1 2024 V2X Inc Earnings Call

Participants

Michael Smith; Vice President of Treasury, Corporate Development and Investor Relations; V2X Inc

Charles Prow; President, Chief Executive Officer, Director; V2X Inc

Shawn Mural; Chief Financial Officer, Senior Vice President; V2X Inc

Ken Herbert; Analyst; RBC Capital Markets

Tobey Sommer; Analyst; Truist Securities

Trevor Walsh; Analyst; Citizens JMP Securities, LLC

Presentation

Operator

Thank you for joining us for the V2X first-quarter 2024 earnings conference call and webcast. Today's call is being recorded. My name is Rob, and I'll be the operator for today's call. (Operator Instructions)
And now I'll pass the call over to your host, Mike Smith, Vice President of Treasury, Investor Relations and Corporate Development at V2X.

Michael Smith

Thank you. Good morning, everyone. Welcome to the V2X first-quarter 2024 earnings conference call. Joining us today are Chuck Prow, President and Chief Executive Officer; and Shawn Mural, Senior Vice President and Chief Financial Officer. Today, Chuck will highlight the company's recent awards as well as highlight some strategic initiatives, and then Shawn will walk us through the first-quarter financial performance. 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.
Additionally, I'd like to point out that in addition to GAAP earnings, we will be discussing and reporting various adjusted non-GAAP metrics, including adjusted EBITDA and margin, adjusted operating cash flow, adjusted net income and adjusted diluted earnings per share. The definition of these non-GAAP measures can be found in our presentation materials available on our Investor Relations website and in our press release filed with the SEC at this time. Now I'd like to turn the call over to Chuck Prow.

Charles Prow

Thank you, Mike, and good morning, everyone. Thank you for joining us on the call today. Please turn to slide 3. I'd like to thank our employees for all of their contributions and commitment to our clients' missions that resulted in a great start to the year in particular, I would like to take a moment to recognize our veteran workforce.
V2X remains a leading participant in the veterans ecosystem with almost 50% of our 16,000 employees having prior military service. Our veteran talent base has been key to be to actually growth and I am honored to analysis. V2X has once again been recognized as a top Military Friendly Employer by victory.
On a similar note, this month will recognize Memorial Day as we honor the brave men and women who gave their lives in the service of our country. I would like to thank all of those past and present who have served to protect our freedom.
Please turn to slide 4. V2X reported a great start to the year with revenue increasing 7% year over year. Revenue in the first quarter was driven by a 22% year-over-year growth in the Middle East and 7% in the Pacific. Our growth in the Middle East or Satcom was driven primarily by expansion in Qatar and our recent aviation support and training contract to support the Saudi Arabian Ministry of National Guard as a substantial foreign military sales program valued at approximately 400 million over five years.
I am pleased to report that phase and activities are well underway and the contract continues to ramp up. We anticipate the program to be operating at full run rate in the second half. As we have discussed previously, the demand signals from our clients in the region remain heightened with the recent supplemental funding package.
We are starting to see new requirements emerge V2X as a top provider of services to the DoD in the region, and we remain ready to support our clients' mission requirements. We continue to demonstrate growth in the Pacific or into Paycom with revenue in the region increasing 7% year over year. This growth highlights the successful execution of our strategy to expand offerings utilizing our geographic footprint.
Our teams continue to demonstrate outstanding performance in endo Paycom, which is leading to greater number of opportunities to support our clients' increasing mission requirements. For example, V2X has been asked to support a series of smaller exercises in 2020 for underbalance, Japan, solid commit. This Indo Paycom growth is particularly notable since 2023 included the more significant Pacific exercises schedule that occurs in the odd numbered years.
Additionally, we are further expanding capabilities in the region, and I'm pleased to announce that just last week, we were awarded a new $88 million contract with the US Navy under the new five-year firm, fixed-price contract [B2F] will provide IT O&M of Navy systems at the Naval computer and telecommunications master station Pacific. This win builds on our 40-year track record of providing cyber security mission IT and critical communications across the globe. I'll speak more on how we are expanding our offerings and existing business in the region shortly.
Adjusted EBITDA in the quarter was $69.1 million or 6.8% margin. Adjusted EPS increased 8% year over year to $0.9. V2X is differentiating as capability offering through converged solutions that sit at the intersection of technology and operations. This differentiation has led to recent awards valued at $75 million to provide technology solutions for the threat detection and response the chemical, biological, radiological and nuclear hazards. I'll describe this award in more detail shortly.
Our agility and ability to deliver mission critical capabilities on a global scale places V2X that have a unique position to support our clients' evolving mission requirements and were demonstrated to recent notable awards. First, we were recently awarded over $140 million task order to continue providing support services to the US Air Force in Jordan and Romania. The awards which are firm fixed priced were made under the Air Force Contract Augmentation Program five, which is a multiple award IDIQ contract that provides worldwide contingency and humanitarian support. The contract extends through May of 2031 and was recently modified to increase the program ceiling value to 15 billion from 6.4 billion.
Second and building on our cap during the first quarter, [V2X] was awarded a position on the US Navy's Global Contingency services multiple award contract rates for GCS MAC three. That contract extends through April of 2032 and provides a similar scope of support services to ask cap. But as executed by the Navy total contract ceiling value of GCS MAC three is $2 billion and V2X is one of six awardees. This ceiling value was significantly increased from the last version, which reached a ceiling value of 900 million. Importantly, we were the leading provider of services under the prior iteration of contract, securing $300 million in task orders. We are honored to continue our support for the Navy and look forward to building on our track record of success.
Please turn to slide 5. Fee to exit creating more value in its core markets by inserting operational technologies into mission essential operations. This was recently exemplified through wins valued at 75 million to operationalize next generation solutions, threat detection and response to chemical biological radiological and nuclear or CBRN hazards.
Importantly, this work expanded from our prototype effort to a new sole source award for the production upgrade and fielding of cutting-edge systems at overseas operational locations. As part of this effort, we are the lead systems integrator for the CBRN support to command and control program. This program known as CSC2 is the program of record for the integration of CBRN, which will leak sensors together to provide integrated situational awareness about potential had a hazard to inform and user decision making in addition to CSC to meet US will modernize and re-architect the CBRN threat warning notification application and predictive hazard propagation tool for enhanced operational decision support in order to illustrate how we are harnessing technology based solutions, operational expertise and global footprint to address high consequence emission requirements.
Please turn to slide 6. One of our strategic imperatives includes enhancing value through technology expansion in our existing business. Our teams are demonstrating this through recent new awards to provide 5G smart warehousing and integrated electronic security solutions. As it relates to 5G and smart warehousing, we were awarded additional scope under our existing LogCAP five contract to deploy an assured and protected private 5G communication solution and enable smart logistics in the Philippines.
While currently small in value, ee believe this solution is scalable across Indo Paycom region. You provide protected and secure network infrastructure to support warehouse operations, field appointments and exercises. This solution also aligns the type of investments. The DoD is making as part of the Pacific deterrence initiative or PDI., the DoD recently released its fiscal 2025 PDI. budget, which requests $9.9 billion, a 9% increase from the prior year and a 59% increase from 2023. Beyond LogCAP, we also are supporting the design implementation, testing and operation of our private 5G cellular network and asset-tracking support solution on Guam naval base.
We continue to be optimistic about our ability to further expand these offerings on existing contracts as it relates to electronic security. We remain a leader in providing integrated electronic security solutions that protect thousands of facilities and assets. Historically, these solutions have generally been procured on a stand-alone basis.
However, I am pleased to announce that our team received a new task order under an existing contract vehicles in the Middle East. This award established as our solution on the region and displaces an incumbent. This further demonstrates our ability to insert technology solutions into operations and logistics programs. We believe we are positioned to grow from this initial step and deliver a modernized integrated solution that significantly improve our client's security posture.
Building on the traction in the Middle East, we were also awarded task to provide the initial establishment of this solution and capability in the Philippines. These two recent awards improve the installed base of our solutions and also offer an ongoing operations and maintenance opportunity. These wins would not have been possible without our unified approach to growth and sell through business model that has inserting solutions through existing contracts.
Please turn to slide 7. We believe our new business pipeline continues to support future backlog and revenue expansion. Our pipeline of near-term opportunities for new business currently stands at approximately 25 billion, comprising $16 billion of bids expected to submit over the next 12 months and $9 billion of bids pending award. The pace of award activity was somewhat muted through the first quarter, but is increasing with several notable bids expected to award this year.
Importantly, our strategy and company-wide focus on converged solutions is evident in our pipeline metrics with higher value and technology solutions comprising an increase in increasing percentage of the total as can be seen on this slide, over 50% of the bids we expect to submit in the next 12 months are tied to operational technology, engineered solutions and training versus 20% of bids pending award. This demonstrates the enhanced capabilities that V2X brings to the market across a more diversified client base. We believe our pipeline strong backlog, preliminary re-competes and budgetary environment provides continued confidence and visibility to achieve our commitments.
Now I'd like to turn the call over to Sean for a review of the financials. Sean?

Shawn Mural

Thanks, Chuck, and thanks, everyone, for joining us here today. Please turn to slide 8. We have started 2024 with strong performance building on the momentum from 2023. Performance across our metrics was in line with our expectations for the quarter. Revenue of [$1,011 million] in the quarter represents growth of 7% year over year. Revenue growth in the quarter was achieved through continued expansion of existing business in the Middle East and Pacific region as well as new programs. This reflects the strong demand for our service offerings around the globe.
Adjusted EBITDA in the quarter was $69.1 million, delivering a margin of 6.8%. As discussed previously, we expect revenue and adjusted EBITDA will ramp sequentially throughout the year. Adjusted diluted EPS was $0.9, up 8% from prior year. The growth reflects lower income tax and interest expense, partially offset by higher depreciation and other expense. Interest expense for the quarter was $27.6 million.
Cash interest expense was $25.4 million. An important attribute of our business is the ability to generate strong cash flow with low capital expenditure requirements and continue to expect adjusted net cash provided by operating activities to be in the range of $145 million to $165 million for the year, representing 120% adjusted net income conversion at the midpoint.
During the quarter, net cash used by operating activities was $57.2 million following our historical pattern and reflective of a receivable delay that collected shortly after the quarter closed adjusted net cash used by operating activities was $83.5 million adding back M&A and integration costs and remove and removing the contribution of the master accounts receivable purchase agreement.
Regarding capital expenditures, CapEx in the quarter was approximately $8 million. We expect our CapEx profile to be more heavily weighted towards the first half of 2024 as we deploy some engineering and infrastructure tools to enhance capabilities and further streamline back-office operations continue to expect capital expenditures of approximately $30 million for the year.
Please turn to slide 9. We ended the quarter with $33.6 million of cash on the balance sheet, excluding $2.1 million of restricted cash. Net debt improved by $115.9 million compared to the prior year, demonstrating the strong cash flow nature of our business. At the end of the first quarter, net debt was $1,173 million. Net debt to EBITDA leverage ratio was 3.5 times at the end of the quarter, which improved notably from approximately four times at merger closed.
Additionally, we continue to expect cash generation to follow the normal pattern of our business and build throughout the year, achieving a net leverage ratio at or below three times by the end of 2024. Company's balance sheet and liquidity position remains strong with over $460 million in capacity, which includes approximately $427 million of availability on our revolver.
Please turn to slide 10. Total backlog was $12.6 billion in the first quarter, representing three times revenue at the guidance midpoint. This key metric and leading indicator is an important attribute of our business and provides excellent revenue visibility. Backlog increased 6% year over year and does not reflect the full value of the approximate $400 million FMS win for the $458 million. F5 adversary aircraft programs currently under protest. It also does not include the $88 million Navy contract Chuck mentioned earlier as the award was made subsequent to the first quarter, please turn to slide 11, the company is reaffirming our guidance for 2024, which at the midpoint reflects 5% revenue and adjusted EBITDA growth, 8% adjusted EPS growth and 120% net income conversion to cash.
In summary, we are pleased with the performance across the business and start of the year. Our teams continue to execute, driving expansion on existing programs, phasing in new programs and further improving our functional and core business operations.
So that we'd like to open the call to questions. Operator?

Question and Answer Session

Operator

Thank you. We'll now be conducting a question-and-answer session. (Operator Instructions)
Ken Herbert, RBC Capital Markets.

Ken Herbert

Hey, good morning, everybody. Nice quarter.

Charles Prow

Thanks, Ken. How are you?

Ken Herbert

Pretty good. Hey, Chuck. Maybe just to start off, the timing of the supplemental doesn't seem like it was able to impact your first quarter, but you still put up some nice revenue growth. Could you maybe just walk through some of the pieces of the supplemental and how you perhaps view that supporting the top-line opportunity at least through the rest of fiscal '24.

Charles Prow

Sure. We'll kind of walk around the globe to do that. So in the Middle East, you saw the nice year-over-year revenue growth. In the Middle East, as we've talked about in prior quarters, that really represents just the increased up tempo in addition to some new wins -- nice new wins actually in the region.
We are processing a request for additional requirements as we speak. None of those awards have actually occurred as of this morning, but we would expect to begin to execute new requirements in the region. Sometime this quarter, you saw the continued growth in the Pacific. The exercises are in fact occurring, and they're much smaller in the even years, as we've talked about in the past, but the military is really maintaining a balance between what's happening in Europe and the Middle East with the need to continue to enhance capabilities in the Pacific.
As it relates to Europe, we are working with our clients on a couple of net new requirements. They may take a bit longer to materialize, but they are important capabilities that align with some of our newer modernization and sustainment activities as well as logistics enhancements in the region as well. So we're seeing higher tempo across the globe and probably throughout the year quarter and into the third quarter, we'll begin to process net new requests.
Great.
And obviously you kept the guidance unchanged. Is it fair to assume that the with the supplemental, I think it was largely as expected, but just gives maybe incremental confidence as we think about at least the top line through the remainder of the year.
It's earlier in the year and you're aware of our of our typical practices as these opportunities turn into a design task orders will begin to think about the guidance, but we feel very comfortable with the guidance that we've previously announced and that Sean reaffirm here this morning.
Perfect. And if I could just finally for Sean on cash uses in the quarter a little greater than we'd expected.
I understand the moving pieces to get to the full year number. Can you just walk through maybe the quarterly cadence, I guess, maybe cash usage in the second quarter with a strong second half, but how do we think about that cadence?
Yes, that's exactly right. I can't I think at the first half of the year, will be a modest cash usage, probably right in aggregate and then cash flow generation in the second half. Again, very consistent with the cadence we did in the first quarter and I had mentioned in the prepared remarks, we had a timing of some some receivables that just missed the quarter closed. Nothing, nothing that's concerning to us or anything like that. But that did cause the cash to be a little bit lower than we've traditionally seen. But but again, first half of the year, modest usage.
And then and then add to the cash in the back half of the year.
Great.
Thanks, and I'll pass it back there.

Operator

Our next question is from the line of Tobey Sommer with Truist Securities. Please proceed with your question.

Tobey Sommer

Could you describe, I think, a multiple kind of vectors of growth in demand that you're seeing. I was wondering if you could sort of comment about what the pipeline looks like from a margin perspective and also whether it embeds a kind of uplift in margin in terms of kind of the blended profitability of the pipeline as you see it yes.

Michael Smith

Thanks, Tobey.
I don't so we have a new format that we talked about this year as portrayed on Slide 7 of the presentation. What you'll see is that the training and the operational technology and engineering pipeline is what is a traditionally higher margin aspect of our business, in fact, demonstrated to be higher margin aspect of our business. I'm really pleased that they continued our rate by which we've increased the pipeline of those two important capability sets. As you know, in your proxy, executing a pipeline in the federal services market is not an instantaneous thing, but I think the teams are doing a really nice job of very nicely balancing our traditional operational capabilities with the higher margin aspects of our tech technology engineered solutions and training activities.

Charles Prow

Great. That's what the answer I was hoping for from a protest standpoint, could you update us on the time line and milestones to think about for the most significant ones that we've sort of got our eyes on.
Yes, the F5 adversary is a big is a big one out there. It is now back in to GAO you can't predict the future on these things. But I think what you can predict is this will probably be the last run at GAO. I know our client is ready to get started, we're ready to get started. In fact, we've had some modest our preparation activities before the new Pratt protest happened again. So where in the about midway point of this next GAO protest, and we're hoping to be able to move forward once this is done. And that's of the protests that have that's the most significant one that's outstanding.
Sean, anything else known or that's well, that's a big one and we'll see how it plays out.
Could you comment on the competitive landscape of scape in maybe bifurcated in two areas?
The logistics and Overseas Logistics area as well as the aircraft maintenance and sustainment and maybe even a third area, if you could talk about that, that training, which seems to be growing in the pipeline?
Yes, via the operational aspects of our business, and I'll include that the overseas base and logistics operations as well as contingency support. There is the op tempo and the level of stress that both the DoD and the strict State Department are under are still very significant. So are our role in supporting those important clients overseas. It will continue to be a tailwind for us because I just I think those activities, the rate and pace of the activities that we all see on the news will continue for a while it's kind of 0.1 0.2 is specific to the aircraft O&M business. We continue to see our clients extending the life cycles of existing platforms and increasing the amount of pressure on themselves and then ultimately our ourself to keep to keep planes in the air, especially as it relates to training one of the major mission requirements of both the Navy and Air Force is trained pilots and they can't train enough pilots. So we see good op tempo support in addition to net new requirements across those two parts of our business. And as you know, that aspect of our business has continued to consolidate over the over the over the last three years with regard to modernization and sustainment and what we're now beginning to call engineered solutions. Frankly, the large scale O & M's are running at capacity, and we see a real opportunity for us to provide quick and agile solutions to integrate disparate platforms 0.1 and then point to expand, extend the usefulness of existing platforms like you've seen with C. The F 16 central display unit. So that's that how I would kind of view the demand profile of our of our major capabilities.
Thank you very much. Appreciate the answer.

Operator

Our next question is from the line of Trevor Walsh with Citizen's GMP. Please proceed with your question.
Great.

Trevor Walsh

Good morning, gentlemen. Thanks for taking my questions. I wanted to just maybe dig in again on that pipeline slide for Slide 7. Appreciate kind of the breakout there, Chuck or Sean, really. But maybe I'm just Chuck from for some of your comments as far as the OC. and E. business kind of growing or kind of becoming a larger part of the contribution of total, how much of that is driven by kind of the engineering kind of paces that need to go with that or is it more just that's how the opportunities are developing? Can you give us a flavor of is it kind of R&D that needs to happen and that's why that that kind of piece of the pie kind of gets to gets larger over time? Or is there some other thing that maybe not not picking up?
I think the of I'm saying enough to think that?
Thanks for the question, Trevor. On the we are aggressively marketing selling experimenting with our clients in the operational technology and the engineering component of our business. So is it a is a very purposeful approach to sell directly to those clients. In some cases, those clients or OEM.s as to what as well as to sell through our existing contracts set. And we've had good examples of both of those that we talked about in our prepared remarks. The CBRN opportunity not obtain where the CBRN contract is like it's the perfect example is start off with experimentation with our clients. We proved a contract. We have put I'm sorry, we proved the concept. The clients then move directly from there into a sole source contract and it doesn't always happen that way. But when it happens that way, it's really nice.
So, Sean, anything that, you know, the only thing I'd offer up is, you know, to ensure that the teams have everything that they need. We talked a little bit about some engineering tools and that first off in the CapEx, we started that last year because as Chuck said, we we see the opportunities and we want to ensure that we're a rock that we're well prepared to capture that to capture that work. So again, I think we feel very good about the ability to address and we think that in that pipeline.
Great.
Terrific. Super helpful. And good segue because I wanted to ask a question around that CDRN. contract, is it is it base or location kind of specific in terms of footprint, whereas where where can you sort of expand into maybe other geos? Or is it fairly broad-based in terms of kind of where that solution is being implemented?
And just talk through kind of I know it's a it is it is it geography independent. It happened to be being deployed overseas right now, but some of the earlier use cases were actually around events here in the United States. So it's a it's a it's a capability set that is very focused toward those types of threats, but is is it geographically independent.

Michael Smith

Got it.

Charles Prow

Great. And maybe just one last one. You mentioned just the DoD needs to kind of balance all the different requirements across the kind of major and kind of things going on per region, whether it's Europe, Ukraine, Middle East and Indo Paycom, how how how are you I guess, balancing that are getting a read from that customer? And I mean, is there a is there a lag I suppose in terms of that balancing act in terms of where you guys kind of put resources and whatnot? And how does that, I guess, play out in terms of how things are how things are moving. I mean, I imagine it's dynamics. I'm just curious how you guys can kind of keep up with that as well in the same way.
But as you as again you see that in the prepared remarks and on slide 7, the bids submitted at 9 billion and the next 12 months bids to be submitted 16 billion. That's 25 billion of activities.

Michael Smith

There are proposals there.
As we've talked about at the last couple of quarters and kind of reaffirm here, the the pace by which those awards have been made have been a bit muted, but we actually believe, particularly with regards to overseas logistics for the Army as well as with major training activity. And that has been now we actually believe that some of those awards will actually be forthcoming here in the not too distant future. So kind of the answer to your question is that while things continue to be a bit muted see the contents of the $9 billion in bids submitted or to the point where they're going to have to be they're going to have to be awarded here sometime again, like I say, in the not too distant future.

Charles Prow

Appreciate it.
Thanks.

Shawn Mural

Is that Our next questions come from the line of Bert Soumen with Stifel. Please proceed with your question.
Yes, good morning. But maybe just following up on that question, like if I look at those bids submitted of $9 billion, about 5 billion of that is for your Aerospace Solutions. I mean, I think we've heard for a while that there's demand there. There's a lot of bids going out, but there's sort of the slowness in that and things actually being awarded. And then when they're awarded, there's the protest phase. And I guess can you give us some detail on maybe how your Aerospace Solutions business has been growing? I guess there's been a balance of sunsetting and then the new tape Navy Test Wing Atlantic and Pacific awards. And do you think sort of the cadence we've seen is starting to improve imminently or sort of your hope that it will improve in coming quarters?
I think we've had actually a nice run in organic growth in the aerospace aspect of our business. F5 adverse areas, the big one that needs to now be adjudicated. But yes, our pipeline across both our core aerospace and our core, our global Mission Support business, it remained high and again, as we've talked about this again, this is a bit of commentary. But given the current budget realities that the nation faces, there's going to be increasing pressure to keep assets and facilities operating longer because the reality is that the bringing new thing that the market will become is becoming increasingly more difficult given the budgetary realities. So not a direct answer to your question, but the demand profile in both aerospace and global mission support it is is not the issue. It's just it's working with our clients to continue to prosecute the bids that have been submitted so that they can come out and be awarded and and and we can begin.
And I guess maybe just to clarify there is there are you have obviously the large award in protest and that's holding up, you know, another growth driver. But have you seen success maybe in smaller endeavors, logistics, other things within that aerospace solution side, and it's just the large awards are getting held.
Yes.
Actually, we have I think the on-contract growth in our aerospace business has been strong and continues to be strong. And the modernization and sustainment of the Engineered Solutions aspects of the pipeline that you see in many cases are going back to improve capabilities on those platforms that work it to to support.
Okay, thanks. And I guess a follow up for Sean. On the margin side, it seems like started the year maybe like in line ish with expectations and you made the comment sort of sequential improvement through the year. And I guess as we think about going back almost two years to when the deal between vectors and Vertex was done and then like 8% plus margin profile. What's it going to take to get there? Is that just a function of better mix or are there specific things you can do on the cost side to get there faster?

Charles Prow

Yes, I'll start and I'll start with.
Yes, I want to reiterate, we are off to the start of the year like we expected, right? So $69 million. I think we said when we were at least to guide the profile or give up 45% of the adjusted EBITDA in the first half that that remains the case for no, no change. We're feeling good about where we stand and the opportunities that we see from a from a margin growth standpoint, as you see us and I talked about it a little bit. We're streamlining operations a bit putting our processes, tools, things like that in place. That's not going to be, you know, huge incremental margin enhancements. It does, of course, a couple of things also that are that are that are happening to us. And again, consistent with what we said, 60% of the revenue in the quarter was on cost program, right? So that we said we were trending higher in the back half of last year. We continue to see to see that that's supporting our clients and customers with the demands that they have. Part of what you see on page 7, back to the earlier question on, I'll say mix changes. There are certainly higher margins and some of the things that are that are on there. Again, we feel good about our ability to go address those things. But the team is doing an exceptional job of consistent improvement in program performance and ensuring that we can address everything and capture them at that until those truck.
Any any other comments you want to know, I think you just summarized it perfectly. It sits continuing to work on mix and then our teams continuing to kind of lean out the operations. It maybe it may be the last point that we didn't talk about was just the seasoning of the backlog in our $12 billion in backlog continued to be very front end loaded, i.e., in the first couple of three years. Of execution. And historically and the progress that we're seeing indicates that as that backlog continues to season, we'll drive higher margins.
That's great. Thank you. And I guess last question, I had another one for you, Sean, on the leverage side, seems like that's ticking lower sort of as expected. And you have here that you're sort of targeting three turns or less by the end of the year, which is encouraging.
And I guess what you think about your position. one, what's the current variable split? Is that still roughly 70 30? And then two from the cash interest expense standpoint, seems like the first quarter benefit a little bit. I think you said 25 million, but you're looking for 116 for the year? Just some commentary on why that's Mike.
Yes.
So yes, it is still the variable split is still 70 30, again, where I think for for interest expense for the quarter?
Yes, we had a we had a little bit of favorability and I think, you know, some of it is just timing. I think we feel fine with again, the guided about one 16 and there are things that come up. We just want to make sure that we're covering everything, Bert, so that nothing particular there. The guide, the 6.16.
Thanks, John.
Thanks.

Shawn Mural

Our next question is from the line of Joe Gomes with NOBLE Capital. Please use your question.

Michael Smith

Good morning.

Charles Prow

Thanks for taking my questions.
Thank you, Joe. Mario, I don't you all.
Well. So the first one kind of just wanted to ask the SG&A line. Look, we've it looks like it took a step down in the quarters. Just wondering if there's anything particular behind that? And if that is a good level going forward here, should we see that expect to see that to go back up?
Yes. So no, as I mentioned a little bit, Joe, we will continue to work on our back-office operations, and that's our stuff. We did a modest amount of realignment and restructuring as we closed out 2023. So you do see a little bit of an impact with lower SG&A here in Q1.
The other thing I'll say is that there's always some seasonality to it right. One or that one of the elements there in the SG&A is our bids and proposals and pursue pursuit activities. And so there's some there's always some seasonality to how those things play out. But I think we feel good about where where our cost structure is today. It's very well aligned to meet the needs of the business. We have more work to do with putting those tools and processes in place, all the things you would expect us.
Yes.
Okay, great.
Thanks for that one. And then Scott, maybe to talk a little bit more about the Air Force Augmentation Program on the DoD announced that you guys are one of the awardees and as you mentioned, it's now a $15 billion program up from 6.4 billion when it was last put out similar to the the other program we talked about, it was a 900 million in Vectrus was awarded about 300 million. Do you have similar type of numbers here that 6.4, what does V2X end up getting on under this Air Force program? And how do you see the opportunities on the Air Force program playing out from there?
Yes, I think under the last version of Abcam, Mike, we are 250 million on 21 on this one from 20 from 21 to today, it's about 250 million of that. That's that our CAP program has really been a good program for us. So we've done a really nice job of expanding into new task. The margin profile has done very, very good. They've done a very nice job on the margin profile. And as I've mentioned, the demands around the world are not diminishing 0.1 0.2 existing assets for IT assets in the military and sometimes even the State Department require extension and the last point I'll make is that the the prior version I've asked cap add many more awardees, but the consolidation of dine in PA into momentum, et cetera, have really continue to net down, if you will, the competitive set to the four or five players that you know. So it's a it's a nice contract for us. I really like the operational capabilities that we've been able to develop internally in support of the Air Force client. And I look for the team to do a really nice job against the requirements that are going to be issued here in the near term.
Great. Thanks for that. Appreciate you taking the questions.
Thanks a lot, Joe. Thank you.

Shawn Mural

At this time, we've reached the end of the question-and-answer session, and I'll turn the call over to Chuck Prow for closing remarks.
Thank you, Rob, and I appreciate everybody joining us on the call today that we've had a very nice quarter and where we look for looking forward to updating you at the end of the second quarter. Have a good day.
So this will conclude today's conference. You may disconnect.
Your lines at this time, and thank you for your participation.