V2X Inc

NYSE:VVX

Earnings Call Analysis

V2X Reports Record Q2 Revenue and Raises 2024 Guidance

V2X recorded a 10% year-over-year increase in Q2 revenue, reaching $1.1 billion, driven by growth in the Pacific and Middle East. Adjusted EBITDA margin was 6.7%, with an adjusted diluted EPS of $0.83. The company's mission-oriented solutions led to over $4 billion in new awards, including major contracts with NASA and the Department of Defense. Given the strong performance, V2X raised its 2024 revenue guidance to $4.175-$4.275 billion and reaffirmed its adjusted EBITDA, EPS, and net cash from operating activities goals .

Record Revenue Growth Marks Strong Performance

In the second quarter of 2024, V2X reported impressive revenue of $1.07 billion, achieving a 10% increase year-over-year. This growth was primarily driven by the expansion of existing contracts in the Middle East and Pacific regions, reflecting robust global demand for the company's mission-oriented solutions【4:3†source】. Year-to-date, revenue clocked in at $2.83 billion, reflecting an overall growth of 8% for the first half of the year【4:2†source】.

Strong Profitability Metrics with Guidance Adjustments

The adjusted EBITDA for the quarter was $72.3 million, translating to a margin of 6.7%. Year-to-date adjusted EBITDA reached $141.4 million with a margin of 6.8%【4:5†source】. Encouragingly, the company raised its 2024 revenue guidance to between $4.175 billion and $4.275 billion based on its positive performance, while reaffirming its other financial metrics【4:5†source】.

Significant Contract Wins Highlight Strategic Strengths

V2X secured several major contracts totaling over $4 billion, demonstrating the strength of its integrated solutions. Key awards included a $3 billion-plus contract for next-generation readiness, a $747 million award for the adversarial F-5 program, and significant contracts from NASA worth $265 million for support missions【4:4†source】【4:1†source】. This robust order book is expected to enhance revenue visibility moving forward.【4:6†source】.

Backlog and Future Revenue Potential

The company's backlog stands at an impressive $12.2 billion, representing approximately three times its revenue at the midpoint of guidance. This backlog provides excellent visibility for future revenue streams, particularly with expectations to increase further due to ongoing awards and contract definitizations in the latter half of the year【4:6†source】.

Financial Structure Improvements Drive Cost Efficiency

V2X has been proactive in improving its capital structure, successfully repricing its $904 million Term Loan B, leading to an 85 basis point reduction in the interest rate since October 2023. This initiative has resulted in a decrease in cash interest expense by approximately $5 million in 2024, enhancing overall financial health【4:6†source】. The net debt-to-EBITDA ratio remains stable at 3.6x, reflecting effective debt management strategies【4:5†source】.

Shifting Focus from Integration to Optimization

CEO Jeremy Wensinger conveyed a strong commitment to optimizing performance as V2X moves past integration into a phase centered on execution and operational excellence. By enhancing visibility and resources for local program managers, V2X is aiming to improve overall execution and establish a culture of performance measurement【4:10†source】. This focus on operational efficiency is expected to support future growth and margin recovery【4:11†source】.

Navigating Market Conditions with Strategic Flexibility

As geopolitical conditions shift and funding landscapes evolve, V2X is strategically positioned to adapt its operations and capitalize on government spending in defense-related contracts. With the Department of Defense's request for $9.9 billion for the Pacific Deterrence Initiative—up approximately 60% from the previous year's funding—V2X's extensive global presence and capability portfolio put it in a favorable position to secure additional contracts【4:10†source】【4:9†source】.

Pathway Ahead: Market and Operational Outlook

The management is optimistic about increased contract awards in the second half of 2024, with expectations for a book-to-bill ratio around 1.0 for the total year. The company anticipates that the combination of its capabilities will lead to enhanced bidding competitiveness and greater contract wins【4:11†source】. In summary, V2X is poised for continued growth, leveraging its strong financial performance, strategic contract awards, and an agile operational framework to navigate future challenges【4:12†source】.

Earnings Call Transcript 2024-Q2

[Operator]

Thank you for joining us for the V2X Second Quarter 2024 Earnings Conference Call and Webcast. [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, executive]

Good morning, everyone. Welcome to the V2X Second Quarter 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'd like to turn the call over to Jeremy.

[Jeremy Wensinger, executive]

Thank you, Mike, and good morning, everyone. Thank you for joining us today. Before I get started, I would like to thank 16,000 V2X employees for the warm welcome. I'm honored to be part of the organization that is supporting some of the most important missions around the globe and play such a critical role in our national security.



Please turn to slide 3. V2 actually reported record quarter 2 revenue of $1.1 billion, increasing 10% year-over-year. Growth was driven by the company's continued momentum in the Pacific and Middle East. Adjusted EBITDA margin in the quarter was 6.7%, and adjusted diluted EPS was $0.83. The demand for our mission-oriented full life-cycle solutions remained strong and was demonstrated through several recent awards valued at over $4 billion. This includes a production award for our Gateway Mission Routers, an award from NASA valued at $265 million, the award of the adversarial aircraft program, named F-5 at $747 million, and finally, a $3 billion-plus award to deliver next-generation readiness. Given our year-to-date performance, backlog and awards, we are raising our 2024 revenue guidance and reaffirming our adjusted EBITDA, EPS and net cash from operations.



Please turn to slide 4, where I will further discuss recent notable awards. Our focus on providing mission-based technology solutions that enable assured communications is yielding results. This was exemplified in approximately $280 million of recent awards, which are listed on the left-hand side of the slide. First, V2X secured a $49 million award to provide enhanced communications across multiple domains with the Gateway Mission Router or GMR. The GMR is a cyber-hardened technology designed to facilitate real-time situational awareness. It seamlessly integrates information and assured communications, creating a truly converged operational environment. GMR has broad applicability across numerous aviation and ground platforms, and we believe offers opportunity for growth beyond this initial award. As such, we are continuing to enhance and invest in the solution to provide even greater advanced processing capabilities at lower size, weight and power. Additionally, we believe GMR is positioned to be a key enabler for the Department of Defense, combined joint all-domain command and control or JADC2 initiative. JADC2 is a DoD concept that it connects disparate systems into the Internet of Military things, creating a common operational picture, making information accessible anywhere, anytime for rapid decisions.



Next, V2X is delivering assured communications to the U.S. Navy while further expanding its footprint in the Pacific. Our new 5-year $88 million Naval Computer and Telecommunications Pacific award, also known as [ Nick TAMs ] will provide vital C4I support to over 700 U.S. and allied forces across the Pacific and Indian Ocean.

Our 5-year $141 million fleet systems engineering team program will continue to deliver end-to-end C4I systems engineering solutions that are integral to the communications and readiness of the U.S. Navy ships. FSET ensures that no U.S. Navy Strike Group deploys without V2X. Moving to the center of the slide, V2X continues to be a leader in providing global solutions to our customers' most critical and high-impact missions. This market strength was recently demonstrated through approximately $1 billion of awards, which includes our 9-year award to support the NASA operations and preparedness for human space flight mission at the Johnson Space Center. Specifically, V2X will assist NASA in preparing for the upcoming ARTEMIS 2 mission by ensuring the reliability of the integrated hardware and software systems at the Neutral Buoyancy Laboratory. Additionally, we are currently phasing in the new 8-year F-5 program, which is enabling the advanced training of U.S. naval pilots or providing readiness to the F-5 aircraft that mimics current threat aircraft.



Lastly, and moving to the right-hand side of the slide, V2X is harnessing its capabilities to deliver next-generation readiness solutions for customers. For example, the company recently secured an award valued at $3-plus billion over 5 years to enable full spectrum readiness. This award is representative of the capability synergies that can be generated by V2X. This award leveraged the legacy and breadth of the combined company. This includes readiness support, ability to operate large complex programs and the insertion of technologies such as smart warehousing, 5G and logistics tools. Combining this robust set of capabilities with the insertion of artificial intelligence in a differentiated tool suite allowed V2X to submit a unique proposal.



This is just one example of our combined capabilities that can be leveraged to win. Now I'd like to turn the call over to Shawn for a review of the financials. Shawn?

[Shawn Mural, executive]

Thanks, Jeremy. It's a pleasure to be working with you, and thanks to everyone joining us today. Please turn to slide 5. Strong top line performance continued in Q2. Record revenue of $1.07 billion in the quarter represents growth of 10% year-over-year. Revenue growth in the quarter was again achieved through expansion of existing business in the Middle East and Pacific regions as well as new programs. This reflects the continued strong demand of our offerings around the globe. Adjusted EBITDA in the quarter was $72.3 million, delivering a margin of 6.7%.



As a reminder, we are referring to certain non-GAAP financial measures because we believe such measures are useful to investors. As we have mentioned previously, we expect revenue and adjusted EBITDA to ramp sequentially throughout the remainder of the year. Interest expense for the quarter was $28.8 million. Cash interest expense was $26.8 million. Adjusted diluted EPS was $0.83. I'd like to point out that the adjusted tax rate in the second quarter was 28% due to the executive transition. Absent this, our adjusted tax rate would have been approximately 23%, yielding adjusted EPS of $0.88.



Please turn to slide 6, where I'll discuss our year-to-date results. Consistent with our expectations, year-to-date revenue was [ $2.83 ] billion, increasing 8% year-over-year. Adjusted EBITDA for the first half of the year was $141.4 million or 6.8% margin compared to $147.1 million in the prior year. The change reflects contract actions that were more heavily weighted in the first half of 2023 compared to 2024. Interest expense through June was $56.4 million. Cash interest expense was $52.2 million, a decrease of $6.8 million compared to the first half of 2023. This improvement is reflective of the continued debt reduction and successful repricing efforts. Year-to-date adjusted diluted EPS was $1.72 based on 31.9 million weighted average shares. Year-to-date, net cash used by operating activities was $31.6 million, reflective of working capital requirements to support growth as well as the implementation of new business applications. Adjusted net cash used by operating activities was $137.3 million, adding back approximately $12.1 million of M&A and integration costs and removing the contribution of the master accounts receivable purchase or MARPA facility of $117.8 million.



Please turn to slide 7. During the quarter, we repriced and extended the $904 million Term Loan B. This represents the second successful repricing of the Term Loan B, which in aggregate, have yielded an 85 basis point improvement in interest rate pricing since October of last year. These positive efforts have allowed us to reduce cash interest expense by $5 million in 2024, which is incorporated into our assumptions. We continue to make excellent progress proactively enhancing the capital structure and lowering interest expense. Since the merger closed, we have lowered weighted average annual interest rate grid pricing on our total debt by 170 basis points. Net debt improved by $27 million compared to prior year. The net debt-to-EBITDA leverage ratio was 3.6x at the end of the quarter, essentially flat compared to the first quarter. The company's balance sheet and liquidity position remained strong with $479 million in capacity, which includes approximately $436 million of availability on the revolver.



Please turn to slide 8. Total backlog was $12.2 billion in the second quarter, representing approximately 3x revenue at the midpoint of guidance. This key metric is an important attribute of our business and provides excellent revenue visibility. We expect backlog to increase in the second half of the year due to awards and contract definitizations. As Jeremy discussed, there will be several awards that will add to our backlog. For example, the $747 million F-5 adversary award, which is currently in the transition phase and expected to be booked in the third quarter. In addition, the $141 million recompete of FSET, which was awarded subsequent to Q2, is expected to be booked in Q3. With regard to the Saudi Aviation Training and Support Services award, we have completed transition, are successfully executing the program and are progressing towards definitizing the contract. Finally, on the $3 billion-plus readiness award, we expect to incrementally book activities as they are put on contract. In terms of revenue, we expect the program to ramp in the second half of 2025 with full annual incremental contribution of approximately $200 million. This, coupled with the F-5 win, enhances revenue visibility by potentially adding approximately $300 million of annual revenue over the next several years.

Please turn to slide 9. Given our strong year-to-date top-line performance, we are raising our revenue guidance to $4.175 billion to $4.275 billion. We are reaffirming adjusted EBITDA, adjusted EPS and adjusted net cash from operating activities. In summary, we are pleased with the performance across the business in the first half of the year. With that, I'd like to turn the call back over to Jeremy.

[Jeremy Wensinger, executive]

Please turn to Slide 10. I'd like to close with some observations in what I believe are opportunities for V2X to achieve its next stage of growth and drive additional value. First, at $4 billion in revenue, V2X has the size and scale to compete in its core markets. Additionally, our global footprint spanning over 50 countries, is an extremely important differentiator in the markets served by V2X. The infrastructure, people, processes and expertise to operate on a global level is a [ discriminator ] and one that is not easily replicated.



Second, from a capability perspective, V2X is aligned to well-funded federal budgets, including the largest component of the DoD spending at over $300 billion annually. Furthermore, V2X is positioned in key theaters, such as the Pacific and Middle East, where missions matter and are receiving strong funding support from the DoD. For example, the DoD has requested $9.9 billion in government fiscal year '25 as part of the Pacific Deterrence Initiative, which is up approximately 60% from the amount appropriated in government fiscal year '23.



Third, V2X has solid past performance in all aspects of its business with operational intimacy that provides excellent insight into how missions are evolving. This allows V2X to be ready to support emerging requirements with the critical agility V2X is known for and that is required in the missions we support. In terms of opportunities, the market is rapidly evolving, and V2X is in a great position to accelerate technology insertion, such as artificial intelligence and machine learning into the missions we support. We are inserting this technology into our bids today as differentiators.



As a trusted partner, V2X can leverage operational know-how and technology to create a better customer experience and enhanced outcomes. You will hear me speak more about it in the future, how we are inserting these technologies into operations. The depth and breadth of the V2X portfolio is differentiated and we have an excellent opportunity to do more with our capabilities. V2X has a robust set of solutions I think further leveraged to pursue new opportunities. A great example was the recent large readiness award, which utilized the full power of the organization. We are in the early stages of what we can achieve and see multiple opportunities to build on this win. Our new business pipeline will continue to reflect the opportunity presented by the combination of our capabilities.



As you heard me discuss earlier, V2X is at the front end of several large new business wins, and we will incorporate operational excellence that ensures that these programs are set up for long-term success. We will build on our past practices to enhance overall performance on new and existing programs.



Finally, I believe one of V2X's greatest opportunities is as we move from the chapter of integration to the chapter of optimization and performance excellence. It will be my priority to leverage my experience across 30-plus integrations to refine our business and processes in order to drive value and take advantage of our global footprint and scale. In conclusion, V2X has great momentum, and I believe there is substantial opportunity to build upon our strong performance. The core of our foundation remains our employees and our commitment to deliver differentiated solutions to ensure customer mission success.



Now I'd like to open the call to questions. Operator?

[Operator]

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Joe Gomes with Noble Capital.

[Joseph Gomes, analyst]

So Jeremy, welcome aboard. Nice to finally meet you even telephonically. Just wondering, it's been 2 months now -- maybe give us what your initial impressions are, what you see, what you like, where you think some of your focus needs to go here? I get it, obviously, it's only been 2 months, but just trying to get your initial impressions.

[Jeremy Wensinger, executive]

I think the first impression I would give you is I'm genuinely impressed with the people. I said it in the last part of the earnings there just a minute ago. These are some very impressive people doing, very impressive work around the globe. It is a lot more complex than I probably thought when I walked in the door. I had the opportunity to meet with the management team in our Indianapolis facility and got to meet them in person, the people who lead the businesses; genuinely impressed with them. They have demonstrated performance; they have demonstrated the ability to take that performance and generate new wins and revenue growth. So, I've been impressed and I think there's a lot to build on.



And I think as I look at where we're focusing our efforts, the efforts are around execution, performance excellence and driving what I would say is coming out of integration, having the opportunity to look at optimization with really a couple of lenses. I think any time you come out of integration and you really have a chance to look at what is now the company, we see the opportunity to take the broader portfolio to the fight and I think you see that with the most recent award for readiness. That was the combination of the company coming together that would not have been possible without the companies being acquired. So, I think you will see us take more of that and move forward, and it will start manifesting itself in the [ Port Finda ] pipeline as we think about the total capabilities of the company and dragging them into these new opportunities. But candidly, I am genuinely impressed with the talent in the company, genuinely impressed with the overall ability to execute a very difficult portfolio of programs, and they do it flawlessly. And I've been just thrilled to be here and thrilled with the people that have welcomed me so far.

[Joseph Gomes, analyst]

Just one of the things that the past couple of quarters has been somewhat questionable partly due to the continuing resolution was kind of the awards pace. And obviously, we've seen the awards that you guys are winning, but as you look at the overall picture, is the pace of awards coming out as you guys expected? Or is it maybe still a little bit kind of slower just given the impact from last year's continuing resolution?

[Shawn Mural, executive]

Yes, so in the quarter, we had a book-to-bill that was right around 0.7, very consistent with what we saw in Q1. So when we think about year-to-date, we're looking at about $1.5 billion in awards. So we absolutely saw a continuation of that, I'll say, muted environment. With a number of the things that we announced here today, obviously, we expect that to pick up in the back half of the year.

[Joseph Gomes, analyst]

You didn't talk about pipeline here. I think the last quarter was a $25 billion kind of pipeline, some near term, some longer term, obviously. Can you give us any color on what the pipeline stood at the end of the quarter?

[Jeremy Wensinger, executive]

I don't think there was any material change in the pipeline. I think if you think about the duration for which most of the programs are acquired, you start 18 to 24 months in advance, you work it through the pursuit phase, that pursuit ends up being culminated in RFP. And as Shawn just spoke, post RFP can be subject to a lot of constraints. And as you just said, CR being one of them. But there's no real material change in the pipeline. What I'm more excited about, Joe, candidly, is what the pipeline is going to start looking like as we have the opportunity now coming out of integration. And candidly, I'll be honest, there's a lot of fog in integration, right?



You're working very diligently to get all the systems up and running, getting everybody in a position to be able to execute the business without impacting our customer. This team did a remarkable job of not impacting customers, not impacting missions, not impacting employees. That part of integration was exceptionally well done. Now the real opportunity is taking everything that we now see that's horizontally across the company and putting it together in a way that it will start to show itself in pursuits that previously weren't in the pipeline because of the desperate companies, but now as one company, that you will start seeing that pipeline reflect the combination of the company's capabilities as we pursue that going forward. So I'll talk more about it in the fall time frame. But right now, the pipeline remains pretty consistent with what you've seen in the past. I'm more excited about what it's going to look like in the future.

[Operator]

Our next question comes from Tobey Sommer with [ SunTrust ].

[Tobey Sommer, analyst]

I wanted to ask your question about the forward outlook with the slightly better revenue growth, but holding the profit metrics in line. What are the puts and takes in that from your perspective that are restraining the profit metrics from accompanying the higher expected revenue?

[Shawn Mural, executive]

Yes. I think, Tobey, some of it's the contingency support that we do around the globe, right? So in the quarter, we saw good strong continued growth in the Middle East, I think, 29% and similarly in Asia Pacific. And those things -- that type of workforce tends to bring with it a lower margin. So we're seeing the top line revenue, of course, flow through. And it's a bit more -- like I said, lower margin programs that deliver some of that.

[Tobey Sommer, analyst]

If I could ask you to comment on the contract awards that you've already won in the -- I guess, in the current quarter and maybe the quantity and extent of contract decisions that you expect in this final fiscal quarter of your customers because just trying to get a sense for how much you already have in the bag and what a book-to-bill would look like if we were to ask for one today for the quarter and maybe what your expectations is for what is seasonally a pretty strong one.

[Shawn Mural, executive]

Yes. I think for the -- I'd say it this way, for the total year as opposed to the absolute quarter because there's always timing affected with definitization, that sort of stuff like we mentioned, I think we're encouraged with some recent, I'd say that we're right around 1.0 book-to-bill for the year is what we're expecting. Obviously, back half weighted in terms of some of those things.

[Tobey Sommer, analyst]

Okay. And then anything that -- for the revenue outlook being slightly faster growth -- anything that we should consider that might taper off? Just trying to get some color there as we look to model next year, how we should think about exiting this year at a better clip.

[Shawn Mural, executive]

Yes. So I'll go back to what we said kind of as we came into the year. So programs like [ T1A and KC-10 ], they wind down actually this quarter, really. So that activity will be largely behind us. And then you're seeing some mix with some of the transition activities that we just talked about. Those tend to be a little bit more gradual, I'll say, F-5, I mentioned the ATSS award that we're executing now, but it's still being definitized. So I think those are some of the things that we expect a ramp here, but it will be somewhat modest in the back half of this year.

[Tobey Sommer, analyst]

And last one for me. Do you have any significant protests or recompetes for us to consider either currently or over the next several quarters?

[Shawn Mural, executive]

Protests, I mean the big one was the one that we announced earlier today on the F-5 that we're in transition on. There's no other items that are in protest that we're waiting on adjudication on for the balance of the year. Relative to recompetes, nothing in the back half of this year that is material in nature.

[Operator]

Our next question comes from Ken Herbert with RBC Capital Markets. Please go ahead.

[Kenneth Herbert, analyst]

Yes good morning. Jeremy and Shawn and Mike. Maybe, Jeremy, I just wanted to first drill down into some of your comments on sort of the optimization. As you think about that transition now and as you think about those opportunities, can you maybe provide a little more granularity, I can appreciate you've only been there a few months, but a little more granularity beyond contract mix, maybe where you might see sort of opportunity for better margin performance or maybe different priorities in terms of investing in areas of growth with better margin opportunities as you look out, not just in the second half of this year, but then certainly into next year as well.

[Jeremy Wensinger, executive]

Happy to. And thanks for joining the call. I appreciate the question, Ken. I think when I think about optimization, it is -- it comes down to giving our local teams the information that allows them to optimize performance, whether that is through the supply chain, whether it's through staffing and recruiting, whether it's through the -- just the ability to have information at their fingertips that allows them to optimize the performance on the program. And as I tried to say, as you come through integration, you're really focused on the kind of the nuts and bolts of getting everything put together. But when you come out of that, then it comes down to how do I put visualization tools in front of them? How do I put process in front of them? How do I put procedures in front of them that allow us to have commonality across the platform? And where this really gets to -- you get leverage on this is program managers looking across the organization are operating their programs consistently within the V2X way. And as they do that, that capability starts to travel easily horizontally across the company. And so optimization to me is about giving the local teams the things they need to execute their program successfully without having to worry about systems or a lot of things you bump into an integration. How do I have any hiccups in the supply chain as I implemented the ERP system. Anything that would impact their ability to execute kind of get washed behind you. And now you're starting to really focus on giving them everything they need to be successful at the program level that takes the program to the next level, whether it's on margins or whether it's on flexibility, whether it's on readiness, whatever it is, it allows them much more focused on that mission success.



With regards to new business, I think we'll spend some time in this call talking about what I just said, which is now that as you come into that optimization and you're seeing the fact that we are an engineering company, we are a company that has a strong global footprint. That -- those 2 things become differentiators and how we're going to leverage those in terms of the mix of our pipeline is what we're going to spend time on this fall as we talk about the strategy of the company going forward and then the resulting margin impact associated with that. Hope that helps.

[Kenneth Herbert, analyst]

Yes, Jeremy. That's very helpful. And it looks like the revised or the guidance today implies a nice sort of step-up in margins from first half to second half. I'm guessing that's a lot of that is mix. But then as you think about the progression in the next year, is it too premature? Can we at least think 2025 is some improvement off margins this year, maybe not quite back to the 8% level, but can you give any early indications on sort of how you think the progression continues beyond second half of this year?

[Shawn Mural, executive]

Yes. I'd say this. Relative to the margins, the first half played out almost exactly like we thought it would. I think we had said coming into the year about 45% in the first half, 55% in the back half. Is at what you're seeing play out. There is some seasonality to it in terms of productivity improvements, contract actions, things of that nature that we tend to see. We're seeing those in the back half of this year. It would be early, obviously, to talk about 25%. I don't know that I would think that it would be the beginning of '25, probably not on par with where we would end 2024, right, again, due to that seasonality of some of those nonrecurring type things that we get.

[Kenneth Herbert, analyst]

That's great. Thanks Shawn and then I said just finally, on the free cash, really nice. I think the outlook for -- again, for some improvement there. Maybe, Shawn, if you can just walk through some of the puts and takes as we think about the free cash in the second half of this year to get you down below the 3x exiting the year.

[Shawn Mural, executive]

Yes. Yes. Great. I'd say this. So we have had a couple of impacts in the second quarter, specifically relative to, I'll say, receipt timing -- so we did -- I did talk about in the prepared remarks a system implementation that we deployed that had a modest impact. We've also seen a little bit of changes in the payment cycles from certain customers that we expect to get kind of on track in the back half the team is doing what you would expect everybody to do, which is working through those definitization, the startups, which, of course, also consume some working capital. We'll be out of that here in the second half of the year and expect to meet our commitments.

[Operator]

Our next question comes from Trevor Walsh with Citizens JMP.

[Trevor Walsh, analyst]

Jeremy, maybe starting with you, Shawn mentioned the different contingency support revenues coming in and that sounds like it's fairly broad-based kind of from a geo perspective. I'd just be interested to hear your take on just broadly the geopolitical environment and where you see kind of areas where you can better serve customers just based on kind of where you may be reading your tales to kind of see things going and how you maybe adjust or reposition resources assets to kind of, again, deal with some of the different complexities in the world, if you will?

[Jeremy Wensinger, executive]

No. Thank you. And I appreciate the question, and thanks for joining the call. I think what I was -- when I gave the remarks earlier, I think it's important for you to understand that, that global footprint is a true differentiator. And we are -- and if you look at where the government spends its money on that $300 billion plus, we are absolutely aligned with that. And if you think about the INDOPACOM move and our existing footprint and into PACOM, as the 2 areas where you hear the most in the news are the 2 areas where we have key differentiation, Middle East and into PACOM. Those areas afford us a tremendous amount of flexibility to be reactive to customer needs on a real-time basis. And so as the government continues to look at its footing and where it needs to spend time in its calories, we are well aligned with those funding profiles. The key for us is what I keep coming back to, which is bringing the entirety of the company to bear for our customer. And as we look at optimization, it is going to be 100% around bringing the entirety of the company to that customer and making them aware of what is available within the company so that when they have emissions of consequence, we are ready to serve them in a way that the presence allows us to be reactive and responsive to those needs.

[Trevor Walsh, analyst]

Maybe switching gears a little to the GMR contract. Can you -- you mentioned in your prepared remarks about some optimization around the unit itself around kind of size and whatnot. Can you maybe just if you're able to give us a little bit more detail there? And then maybe in the context of where you see -- obviously, it's starting with the Army, but just where you see that expanding out to the other components, especially given you mentioned Jet V2 kind of in the context there. Just give me your outlook on that particular contract or that would be great.

[Jeremy Wensinger, executive]

Sure, happy to. I mean I'm excited that we have a toehold on Jet V2. I think that is -- you hear about it a lot. This is a proven capability, which I'm excited about. But think about it, it's past does it work face. It's past the study phase, which is wonderful. We're now into what I would call like LRIP, right? You're in that phase where you're putting it in the vehicles, you're demonstrating it over and over again that this is a -- it's solving a problem that our customers have real time. Our next goal is to move this program to a program of record. And as it moves to a program of record, it then unleashes the fact that you have hundreds of thousands of these vehicles and aircraft that will benefit from this capability. Our goal during this time frame is to continue to work the form factor, which comes down to size, power and weight within that unit, and we will continue to invest very consistently with what we've invested in the past to continue to enhance that asset and that capability to be ready for it when it comes -- becomes that program of record and becomes that opportunity for them to truly implement a Jet V2 solution.

[Trevor Walsh, analyst]

Maybe just one last one for you, Shawn. Can you just give us -- I appreciate the color that you gave kind of in the call back in the prepared remarks rather around some of the contracts associated with the backlog and kind of where those are coming in kind of in this current 3Q. But just overall, just maybe give us some color on how you think backlog should track for the balance of the year in terms of whether it's on a sequential growth basis or year-over-year? Or just first half, second half compare, just give us a little bit of some guardrails, that would be helpful.

[Shawn Mural, executive]

I think we expect, I'll say, the book-to-bill to end right around 1, the readiness award that we talked about is kind of a binary activity set, Trevor, meaning when things get put on contract, and that contract will ramp in the back half of 2025. So very modest bookings anticipated this year for that activity set. The other things that you'll see added to backlog and grow are the other awards that we mentioned, we've got a couple -- we expect the teams do a wonderful job. Jeremy mentioned our footprint around the globe in both INDOPACOM and the Middle East. I'd be remiss if I didn't highlight again in the quarter, we had over $500 million of on-contract growth -- there are some other activities that we'll expect in the back half of the year to continue to do that takes advantage of the distributed network we have around the globe to meet our customers' needs. And so we'll continue to see those things as well as some of the activities that we highlight today. So I do expect bookings to increase specifically in Q3 and then obviously in Q4.

[Operator]

[Operator Instructions] Our next question comes from Bert Subin with Stifel.

[Bert Subin, analyst]

Maybe just to kick off, I just want to better understand some of the comments on the sequential progression in margin relative to what's been happening in the Middle East. So you saw 29% growth in the quarter. I think that's after 22% in the first quarter, and that's been a large part, I think, of what's been driving margin lower is just higher mix of cost-plus work in the region. Do you expect that to slow materially in the second half and then that becomes margin accretive? Or do you expect that to continue to grow similarly and it just gets aided by other contract actions?

[Shawn Mural, executive]

Yes. I think the latter is exactly the way to think about it, right? I mean so the situations are ever evolving as we watch the news and that sort of stuff. So it would be premature to try to predict any of those things. We're focused on what we can control in terms of outcomes that we deliver. And so yes, I think about it as maybe a little bit from you did on some of that 29% growth sequentially. But the contract actions, productivity improvements, Jeremy talked about moving into optimization, that's something that we're carrying forward to all of the programs and the cadence around the enterprise and so expect to drive improvements from those things here in the back half of the year.

[Bert Subin, analyst]

And just a follow-up on the next-generation readiness contract, can you give us a little more color there? Is this the warfighter readiness contract that was put out to bid? Or is that an incremental opportunity? And then is this a multi-award contract so we should be looking for you to win task orders under this as you get further into the process.

[Shawn Mural, executive]

Yes. So we're not at liberty to name the contract right now, Bert. It is a single award that we're off kind of working through with the customer. And when we can talk more about it, we will. We wanted to highlight it today because it is so notable, of course, and we're very excited to support the customer as we go forward.

[Jeremy Wensinger, executive]

And I think the other reason we referenced it is it is a perfect example of a program that would not have been available to the companies individually. But now with the combination of the companies became very addressable and the wind shows that. And so that was the purpose of highlighting it today.

[Bert Subin, analyst]

And then just one more for you, Shawn, on the interest expense side of things. Can you just help us understand that better? I think you said you did $52 million in cash interest in the first half, and you're guiding to $60 million in the second half, which would be like a 9% to 10% interest rate, but you're -- it sounds like based on where your term structure is, you're below that. What's going on the interest side? And where should that settle out?

[Shawn Mural, executive]

Yes. I think we're right around -- so the -- I think the interest expense right around $8.2 million with the refinancing that we did, $8.2-$8.3 million somewhere in there, Bert specifically. So I think the team has done a wonderful job with continuing to restructure the debt and the financing and you see a little bit in the assumptions that we've changed about $5 million reduction in interest expense for the total year. I think it's down to $111 million for the total year. I'll also remind you there are some of the markup fees that are in there, which could be one of the deltas or is the delta to what you're seeing.

[Bert Subin, analyst]

And just one more, Jeremy, for you. You talked about going from sort of integration to optimization phase. I appreciate you've sort of only been on board about 2 months at this point. But maybe as you've gotten up to speed at V2X, what do you see as maybe the #1 area for improvement as you go into the next chapter.

[Jeremy Wensinger, executive]

I really do think that the opportunity for us is on the execution side. It is really giving the programs at the local level, the visibility into metrics and performance levers that they have to improve the overall execution at that level. When you're -- like I said, when you're going through integration, it is a lot more blocking and tackling. And when you move into optimization, it is more about visualizing data, allowing people to have seamless access to all the information required for execution and also it flows the other way, too. we start to have a better understanding of everything that we are doing and looking at capabilities that might travel from one location to another location because during integration, you're not thinking about that, you're thinking about, like I said, the blocking and tackling. And now information flows both directions. The ability to give them everything they need at the local level to optimize execution. It allows us to see where we have differentiators that can be applied to the pipeline. And that's where the biggest opportunity for us, I think as I move forward is looking at that pipeline, shaping that pipeline for the company we are today, not the companies that came together that were desperate.

[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.

[Jeremy Wensinger, executive]

Megan, thank you for [ porting ] this today. And thank you, everybody, for coming on to the call today. I'm excited to be here. The welcome has been exceptionally warm, and I'm just excited to have the opportunity to be with this team and drive this company forward, and thank you for your questions today, and I look forward to working with you as we go forward. Thanks.