V2X sees growth ahead from platform modernization programs

In its almost two years of post-merger existence, V2X has made platform modernization a core component of the company's strategy and vision amid the military's desire to keep systems in use for longer periods.

That concept especially becomes apparent with respect to how V2X looks at aircraft. During V2X's first quarter earnings call Tuesday, chief executive Chuck Prow told investors that the push for longer lifecycles of aircraft to keep them flying has another aspect worth considering.

"One of the major mission requirements of both the Navy and the Air Force is trained pilots, and they can't train enough pilots," Prow told analysts.

Air Force and Navy leaders are on-record with their concerns about that problem, which has been called a crisis for five years, and the related shortage of civilian instructors.

Their push to reverse the downward trends feeds into the concept of operational tempo -- the overall rate at which units of or supporting the armed forces are involved in all military activities including training.

Armed conflicts like the current events in Ukraine and Israel, plus the ever-present potential of other conflicts, only cause those level of activities to go up.

"The OPTEMPO and the level of stress that both the (Defense Department) and the State Department are under are still very significant," Prow said. "I think those activities, the rate and pace of the activities that we all see on the news will continue for a while."

Which likely means that the other trend of fielding systems and other assets for more elongated timelines than in years past will continue, he said.

"There's going to be increasing pressure to keep assets and facilities operating longer, because the reality is that bringing new things to market is becoming increasingly more difficult given the budgetary realities."

Original equipment manufacturers are also running at capacity, Prow added. That comes into play for V2X's push to be more of a leader in modernization and sustainment, which includes what the company calls engineered solutions.

"We see a real opportunity for us to provide quick and agile solutions to integrate disparate platforms," Prow said. "Then point two, extend the usefulness of existing platforms like you've seen with the F-16 central display unit."

The unit Prow referenced is intended to support the Air Force's lineup of 1,000 F-16 fighter jets under a contract that V2X sees as giving it expanded footing in technology insertion work.

Also during the Tuesday call, Prow cited a pair of contracts in the so-called CBRN defense field as signs of progress for V2X on the technology integration front.

The combined ceiling of those awards is $75 million in new and follow-on work. One of them puts V2X in position as the lead tech integrator for DOD's program of record focused on defending against chemical, biological, radiological and nuclear hazards.

DOD established the CBRN Support to Command and Control program to link sensors to provide integrated situational awareness to operators about potential chemical, biological, radiological and nuclear hazards.

V2X will be responsible for modernizing and rearchitecting the CBRN threat warning and notification application and predictive hazard propagation tools that are a key cog in operational decision-making.

How V2X secured those contracts is a model that V2X likely wants to replicate when selling into its existing client set.

"It started off with experimentation with our clients, we proved the concept, the clients then moved directly from there into a sole source contract," Prow said. "It doesn't always happen that way, but when it happens that way, it's really nice."

First quarter revenue of $1.1 billion was approximately 7% higher than the prior year period, while profit of $69.1 million was relatively flat in terms of adjusted EBITDA (earnings before interest, taxes, depreciation and amortization).

The company held to the full-year outlook it issued in March, which at the midpoint reflects 5% revenue and adjusted EBITDA increases.