V2X Inc
NYSE:VVX
Earnings Call Analysis
Q4-2023 Analysis
V2X Inc
V2X showcased impressive performance by exceeding the $1 billion revenue milestone in the fourth quarter, signifying a 6% year-over-year growth and 4% growth sequentially. This pushed the annual revenue total to $3.96 billion, surpassing the company's own projections.
The Pacific and Middle East regions were key growth engines, witnessing a 31% and 18% year-over-year growth, respectively. Expansion in the Pacific reached a record $71.2 million, demonstrating V2X's ability to capitalize on regional opportunities.
V2X reported robust profitability, with adjusted EBITDA of $82.1 million for the quarter, reflecting a 7.9% margin, and $293.9 million for the year, yielding a 7.4% margin. The company's cash flow performance was strong, resulting in a year-to-date adjusted cash flow from operations of $159.5 million and a net leverage ratio of 3.3x.
The company's engineering, integration, and modernization and sustainment solutions are gaining traction, capturing approximately $70 million in awards for the quarter. V2X highlighted the successful launch of a defense platform, accentuating their innovation and product development strengths.
V2X is optimistic about the Gateway Mission Router 1000 (GMR 1000) and its market prospects. This period also brought a significant $100 million task order with the U.S. Air Force for civil engineering and infrastructure support services in the Middle East.
Demand in key operational regions remains high, with many requirements being met through existing contracts. V2X anticipates new contracts or task orders due to the increased client demand and continued regional engagements.
A strategic planning and investment in foreign military sales has begun to bear fruit, as evidenced by a recent $400 million win for aviation support and training in the Middle East. The FMS portfolio now stands at approximately $700 million, with a promising near-term opportunity pipeline worth around $5 billion.
V2X closed the year with a backlog of $12.8 billion, up from $12.3 billion the previous year. The company boasts a high pipeline of bids submitted, totaling over $9 billion, and is poised to submit a further $15 billion worth of opportunities in the coming 12 months. Moreover, recompetes comprise less than 5% of the revenue mix, indicating strong stability in revenue streams moving into 2024.
In closing, V2X emphasized its robust growth indicators supported by strong backlog, significant recent awards, and limited recompetes, laying a sturdy groundwork for the company's journey through 2024.
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Thank you for joining us for the V2X Fourth Quarter and Full Year 2023 Earnings Conference Call and Webcast. Today's call is being recorded. My name is Maria, and I'll be the operator for today's call. [Operator Instructions] Following management's presentation, I will open the call up for a Q&A session. [Operator Instructions]. As a reminder, this conference is being recorded. And now I'll pass the call over to your host, Mike Smith, Vice President of Treasury, Investor Relations and Corporate Development at V2X. You may go ahead, sir.
Thank you. Good morning, everyone. Welcome to the V2X Fourth Quarter and Full Year 2023 Earnings Conference Call. Joining us today are Chuck Prow, 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, ov2x.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, I would like to turn the call over to Chuck Prow.
Thank you, Mike, and good morning, everyone. Thank you for joining us on the call today. Please turn to Slide 3. Before we get started, I'd like to thank you over 16,000 V2X employees for their contribution and in particular, their performance during the fourth quarter to end 2023 on a high note. I just returned from a trip to the Middle East, visiting our clients and people. The feedback I received from our clients underscore the unwavering service, agility, innovation and technology-enabled solutions that we are delivering in support of their most critical missions. It sits around the clock around the globe commitment to our clients that would drive our continued leadership and growth. Please turn to Slide 4.The transformation of V2X continues organic and inorganic growth, which improves scale, profitability, diversification and capabilities has allowed us to emerge as a leader in the operational segment of the broader federal services marketplace. Our company had purpose-built across an expanded client, contract and geographic footprint to deliver value in this market. Our market has witnessed significant structural changes in recent years and continues to rapidly evolve. We are advancing how missions are operated by leveraging converged and engineered solutions at the intersection of technology and operations. This includes modernization and sustainment support that elongates platform life cycle while enhancing capabilities. These improved outcomes yield greater value for our clients and shareholders while providing greater opportunities for our people. Please turn to Slide 5. Top line momentum extended into the fourth quarter with revenues once again exceeding $1 billion. This resulted in revenue growth of 6% year-over-year and 4% sequentially. Revenue for the full year increased 8% on a pro forma basis to $3.96 billion, which was also ahead of our guidance range. Revenue in the fourth quarter was driven by 31% year-over-year growth in the Pacific and 18% in the Middle East. Our work in the Pacific or into Paycom, continued to expand, reaching $71.2 million, a record for V2X and was particularly impressive given the Talisman Sabre exercises that occurred in the first half of this year. This is a testament to our team's ability to drive on-contract growth while further expanding our services and footprint in the region. Our growth in the Middle East was partially driven by increased scope and services with the Department of State. This expansion builds on our initial work awarded in early 2023 that at the time, represented our most substantive win with state. I recently had the opportunity to meet with our client and team supporting this effort and I'm exceptionally pleased with how we have been able to deliver successful outcomes at speed and ahead of schedule for this critical operations and logistics effort. We remain excited about the opportunity to expand our relationship with this client through our global presence and capabilities that are ideally suited to support state's worldwide missions and strategy. The strong revenue performance in the quarter yielded solid profitability with adjusted EBITDA of $82.1 million or 7.9% margin. For the year, adjusted EBITDA was $293.9 million or 7.4% margin. Cash flow was notable during the quarter, resulting in year-to-date adjusted cash flow from operations of $159.5 million, which was ahead of our guidance range. This strong cash generation equates to a net leverage ratio of 3.3x. Our engineering, integration and modernization and sustainment solutions are gaining momentum with approximately $70 million of awards to V2X in the quarter. Importantly, we recently demonstrated these capabilities through the successful design and fielding of defense platform that leveraged and enhanced existing systems. This effort originally started as an engineering development prototyping effort with a new client and today, as yield is a brand-new product that's designed, produced and sustained by V2X. We see substantial opportunity to further expand our revenue and market presence associated with these capabilities. For example, we continue to be optimistic regarding the growth prospects associated with our proprietary Gateway Mission Router 1000 or GMR 1000. As mentioned on past calls, this family of projects is a fully recognized in cyber-hardened multi-domain router that provides cutting-edge situational awareness. V2X continues to increase its Army footprint by integrating on additional different air and route platforms. During the quarter, we submitted our proposal for a sole-sourced RFP, which includes production for up to 3,000 GMRs. In addition, we are seeing good traction with potential new clients that have acknowledged GMR 1000 capabilities and maturity for other applications. Building on our momentum in the Middle East, I am pleased to announce that during the quarter, V2X was awarded a new task order with the U.S. Air Force valued at $100 million over the next 5 years. Under this award, V2X will provide civil engineering and infrastructure support services to the U.S. Air Force in the region. We are honored to have been selected to support such an important mission and look forward to building on our exemplary service with the Air Force. Additionally, V2X recently achieved a significant milestone, the company's first substantial for military sales win, which provides the aviation support and training to an FMS client in the Middle East. The overall outcome in the region remains elevated and the demand signals from our clients remain heightened. To date, the majority of current requirements are generally being routed to our existing contracts. However, we believe emerging requirements could result in new contracts or task orders. Please turn to Slide 6, where I will demonstrate our recent FMS win and multiyear campaign. Over the past few years, we have methodically planned and invested in our 4 military sales campaign, which is now yielding results. As mentioned, we were recently awarded a long-term aviation support and training contract in the Middle East. The award is valued at approximately $400 million over the next 5 years and was an exceptional win for V2X, representing a culmination over 2 years of planning and engagement. The majority of the award is not included in our fourth quarter backlog as a contract is being definitized. Our team is currently working on transition-related activities and expect to have the contract operating at full run rate in the second half. Importantly, our evolution as a company has been unable to participate in this market. With this new work, the total awarded value of our FMS portfolio is approximately $700 million with accretive margins across 8 countries. Looking ahead, we see a near-term pipeline of FMS opportunities by net approximately $5 billion. As such, we are continuing to invest and pursue opportunities that leverage our geographic footprint, robust partnerships and enhanced capability where V2X CAN deliver differentiated cost-effective solutions. Please turn to Slide 7. Our ability to deliver unique and differentiated solutions is driving momentum in our business that is visible in our leading growth indicators. For example, total backlog at the end of the year was $12.8 billion, up from $12.3 billion last year and provide solid top line visibility moving into 2024. It's important to note that backlog does not include the full performance period of the previously mentioned FMS win or the $458 million F5 anniversary program as the award remained in protest status. Our pipeline of bids submitted stands at over $9 billion, a company high and is up substantially from $6 billion last quarter, reflecting the somewhat muted award environment. Our business development engine is geared to support future backlog and revenue expansion with a $15 billion pipeline of opportunities expected to be submitted over the next 12 months. Finally, our visibility is enhanced by the limited recompete we are facing throughout the year. At the midpoint of our 2024 guidance, recompetes comprise less than 5% of our revenue mix. To summarize, V2X leading growth indicators, strong backlog, notable recent awards and limited recompete provides an excellent foundation and solid visibility moving into 2024. Now I'd like to turn the call over to Shawn for a review of the financials. Shawn?
Thanks, Chuck, and good morning, everyone. Please turn to Slide 8, where I'll discuss our fourth quarter financial results. Performance across all metrics was in line or above our expectations for the quarter. Revenue of $1.04 billion in the quarter represents growth of 6% year-over-year and exceeded our expectations due to exceptional team performance, delivering milestones ahead of schedule, expansion on existing programs and new business. Adjusted EBITDA in the quarter was $82.1 million, delivering a margin of 7.9%. Adjusted EBITDA and the margin increased sequentially as anticipated. Adjusted diluted EPS was $1.22, up 26% from the 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 $28.5 million. Cash interest expense was $26.3 million. The team delivered strong cash flow performance with adjusted operating cash flow of $75.9 million, representing a 195% net income conversion. Please turn to Slide 9, where I'll discuss our full year results. Full year 2023 revenue was $3.96 billion, increasing 8% on a pro forma basis year-over-year. Adjusted EBITDA for the full year was $293.9 million or 7.4% margin compared to $278 million on a pro forma basis in the prior year. Adjusted diluted EPS was $3.74 based on 31.6 million weighted average shares. Interest expense for the year was $122.4 million. Cash interest expense was $113.4 million. Net cash provided by operating activities was $188 million for the year. Adjusted operating cash flow was $159.5 million which exceeded the upper end of our guidance range. The strong performance represents 135% adjusted net income conversion and contributed to a record day sales outstanding of 58 [indiscernible] and liquidity. As mentioned, cash generation was strong and enabled us to reduce total net debt by $137.1 million in 2023. We ended the year with $70.6 million of cash on the balance sheet, excluding $2 million of restricted cash. Net debt was $1.84 billion. Importantly, the net debt-to-EBITDA leverage ratio was 3.3x at the end of the year, which improved notably from 3.7x at the end of 2022 and approximately 4x at merger close. We believe the free cash flow generated by our business supports our ability to continue to delever and achieve a net leverage ratio at or below 3x by the end of 2024. The company's balance sheet and liquidity position remains strong with over $550 million in capacity, which includes approximately $482 million of availability on our revolver. Please turn to Slide 11. We are establishing 2024 guidance as follows: Revenue is expected to be $4.1 billion to $4.2 billion, representing 5% growth at the midpoint. Importantly, guidance at the midpoint assumes approximately 90% of revenue from existing contracts and less than 5% from recompetes. Adjusted EBITDA is estimated at $300 million to $315 million, representing 5% growth at the midpoint. Adjusted diluted earnings per share guidance, $3.85 to $4.20, representing 8% growth at the midpoint. Regarding the cadence we expect throughout the year. Revenue and adjusted EBITDA will ramp sequentially. This reflects the phasing of new business and the previously discussed wind-down and completion of the KC-10 and T1A programs. We expect adjusted net cash provided by operating activities to be $145 million to $165 million. In terms of cadence, cash flow should be in line with our normal seasonal pattern, with cash generation occurring in the second half of the year. Cash interest and other expense is expected to be approximately $116 million. Capital expenditures for the year are estimated to be approximately $30 million and will be first half weighted. Now I'd like to turn the call back over to Chuck.
Thanks, Shawn. Please turn to Slide 12. V2X remains focused on creating value for shareholders. The 4 components by which we plan to achieve this include: one, continued focus on generating top line revenue growth to backlog conversion, on-contract growth and execution of our robust pipeline into new awards in our core markets; two, increasing profit via revenue growth and operating leverage as well as margin improvements through program performance, technology insertion and campaigns; three, continued strong conversion of profit into operating cash flow through disciplined working capital management and low capital intensity. And fourth, utilizing our high recurring cash flow to strengthen our balance sheet and further reduce interest expense and net debt. In conclusion, V2X continues to transform to deliver enhanced capabilities in an expanding market. We have strong momentum, robust backlog, highly aligned pipeline, limited recompete and high free cash generation that provides an excellent fundamental profile to support value creation in 2024. Now I'd like to turn the call over to questions. Operator?
[Operator Instructions] Our first question comes from Tobey Sommer with Truist Securities.
Could you provide some incremental color on the FMS pipeline, including geographic breadth and sort of describing new work versus takeaways from traditional competitors?
Sure. We -- in general, as the name will say, the majority of our FMS pipeline is in CENTCOM and INDOPACOM and to a much lesser degree, I would say, Eastern Europe. The most recent activity that we announced, and so I can't give all the specifics yet was actually a new requirement is something that was not being done before by another provider. It is aerospace, O&M, and I will tell you that it is the combination of rotary wing maintenance as well as facility maintenance. The remainder of the pipeline is really balanced between aerospace, O&M as well as logistics/operations management. And it's a good question. I would just judging from memory here, I would say we're probably about half takeaway and have net new requirement in that FMS pipeline.
Could you describe the timing of the wind down of projects in contracts that we have some airframes being retired. Just thinking about from a modeling perspective, when the sort of most significant headwind to growth?
Yes, I would say -- and Shawn, please feel free to chime in here. So this will be the final year of the wind down for both KC-10 and the T18. It's relatively balanced throughout the year. As we've indicated, we'll see sequential growth to make up for that wind down. So I would say a bit earlier weighted in the year but extending through the full year. Shawn anything to add?
No, exactly. Thanks, Chuck. Yes, we'll grow sequentially throughout the year, Tobey. And I would say it's first half weighted, meaning some of those headwinds as things wind down again as we said and expected.
Okay. A question we get from investors. If PEACE breaks out, which the news doesn't seem to convey as likely anytime in your near term, does the company have activities that would cease and if so, how much revenue is exposed?
I would say if Peace were to break out, that's -- I guess, we can operate for that, I suppose. But by and large, the missions that we're maintaining well, I would largely, if not entirely continue. You always have risk like we saw in Afghanistan a couple of years ago if we were to pull out of a country, we have no indications of that. We often talk about on these calls and when we talk to you and other analysts and investors about OPTEMPO. Today, we do have tailwinds with regards to both revenue and profit generation just because of the raising pace of activities in both CENTCOM, Eastern Europe and you saw in the reported results in INDOPACOM, a lot of activity in INDOPACOM as we mentioned in the prepared remarks, Tobey. We actually had higher revenue in the second half of the year in INDOPACOM although the first half of the year is where the exercise actually occurred. So kind of a long-winded answer to your question. But as the military infrastructure continue to age as the airframes and ground vehicle continue to age, that actually creates more requirements for V2X.
And just quickly, could you elaborate on the GMR 1000 opportunity, including comments on the sort of size and scope of that.
What GMR 1,000 represents is a new suite of capabilities that are really taking hold post the merger. We believe that the untethering of the Indianapolis facility when it was acquired by Vertex and ultimately now part of V2X would create opportunities because of the organizational conflict of interest of being owned by a prime contractor going away. We are, in fact, seeing that. And this whole suite of engineered solutions, GMR 1000 being 1 is our really great engineers and capabilities in Indianapolis working with both new and existing platforms, in this case, a router and hardening those capabilities in such a way that they can be used for new and innovative military emissions. So it's -- as we've mentioned in the prepared remarks, this is actually sole-source bid. We don't know whether or not we've won yet, but with the traction of the GMR 1000 and other engineered solutions is actually progressing very, very nicely.
Our next question comes from Joe Gomes with NOBLE Capital Markets.
Nice quarter. So first question, kind of a little -- a couple of parts to it, but book-to-bill was a little light in the quarter. I'm wondering, is that solely due to the protested and then the foreign contract that is still being definitized or is the continuing resolution, which is going much longer than I think all of us had anticipated. Is that starting to impact we're saying that you have $9 billion in bids waiting for award up from $6 billion at the end of last quarter. Maybe you could talk a little bit about the continued resolution and any impact it's having on you also.
Yes, this is Shawn. Yes. So it's exactly as you pointed out, right? So the pending awards increased $3 billion in the quarter. It's a bit muted environment relative to the case in the cadence of the awards. And nothing of note. I don't think we're concerned about anything, but we are seeing a bit of a slowdown from some of those things we would have liked to have seen them, but it doesn't change our outlook for successfully capturing those -- that work. Chuck, anything else?
No, I think you're right. We -- as always, in continuing resolution, the rate and pace of award is slow, the OPTEMPO that we're seeing, you see that in our revenue and our on-contract growth continues strong. So I think as we move through this year, we will see awards, again, it'll be a little slower than we would like, but we're very confident in our guidance.
Okay. And speaking of the guidance, the adjusted EBITDA margin, if I look at it on the midpoint, it comes to be about 7.4% in '24, it would be flat with 23%. And is that just a kind of a reflection of more of some of these newer contracts just beginning? Or is there anything else behind that fact that it appears to be flat projected year-over-year?
Yes. No, Joe, I'd say it's exactly as you described, right? So some of the programs that are completion, right? So we've said all along our programs as they mature, they tend to move into higher margins. We're seeing the ramp up of new work. We'll continue to mature those things and improve the profitability over time. And so throughout the year, you'll see us do that kind of sequentially when we think about the margin profile of the business over the course of the year. But yes, you're exactly right at the midpoint, we're probably right at the 7.4% there. Yes.
Okay. One more for me on the guidance, and maybe you can kind of give us a little bit of cadence historically or kind of that 45% in the first half, 55% revenue in the second half. But one of the things, Chuck, you had mentioned last year, you benefited in the first and second quarter by the exercises in INDOPACOM. I'm assuming those don't repeat this year. Maybe you can give us a little bit of size the impact they had on Q1 and Q2? And should we still kind of expect that 45-55 split on the guidance?
Yes, I'd say I'd look at it this way. On the top line, Joe, I'd look at slightly less than 50% probably of the revenue in the first half, somewhere right between that 45% and 50% in the first half of the year. And then on the margin profile, and the adjusted EBITDA, I'd probably look at that as being slightly below kind of 45% in the first half, again, consistent with that ramp that we'll see sequentially kind of quarter-by-quarter as we go throughout the year as new work comes on and as the teams mature, our execution. Chuck, anything else?
No, you said it perfectly. Last year, we did benefit from kind of extraordinary activity that happened in the beginning of the year. As you know, you followed us for a while. The first half, second half dynamic has been very consistent going all the way back to [indiscernible]. And again, we feel very comfortable with the guide and we feel very comfortable with the ramp throughout the year.
Our next question comes from Trevor Walsh with Citizens JMP.
Then I'll echo my congrats on a great finish to the year. Similar to the color that you provided on the FMS pipeline. I was wondering, Chuck, maybe if you could do a similar type of run down just on the $9 billion in bids submitted that you had, just generally where that falls within the portfolio of products and how that looks in terms of what the mix is there, if you could.
Yes. No, that's -- thank you for asking the question because we're really thrilled with how we've been able to kind of curate or cultivate our pipeline over the last couple of years. Of that $9 billion, I would say there's a good mix of maybe call it a proportional mix between our core businesses or logistics base management and aerospace O&M. And then the newer converged technology and engineered solution pipeline, we really have a really nice emerging pipeline in our intelligence community business as well. So again, the new capabilities that we have introduced over the last several years are now importantly represented in that pipeline that we discussed, and we're actually thrilled with that progress.
Great. Terrific. You mentioned a newer defense system or platform. I don't know if that's classified or if you're able to give a little bit more detail or just not finalized yet, but just curious how technology-driven that particular project was?
Yes. It is -- we can -- we cannot talk about it. It is finished. It's a wonderful story. It's something -- it's a requirement that went from inception to fielding in under year, and it's highly technical, again, falling back to the engineered solutions that we discussed here during the call and then the prior questions. You can simplify it this way or generalize it this way. We are taking existing platforms, some of them older, some of them more recent. And we are engineering ways for the older platforms to either work together and/or to extend their capabilities. It's a really important part of our business because we can now approach both the military intelligence communities as well as prime contractors with new and different ways of, again, extending life cycles and/or improving capabilities of, in many cases, platforms that have been out there for a long, long time.
Terrific. Maybe one more for me for Shawn. They look like based on the guide that you've got a little bit of an uptick in the CapEx outlook for the year going from about $25 million to $30 million, it looks like from what I can tell in our model. Just curious where the added investment is going or kind of what you see kind of where that spend will be progressing throughout the year?
Yes. No, great question. Thank you. So we had mentioned at the end of last year in the third quarter release that we would -- we thought CapEx would be around $28 million. We came in slightly under that, Trevor. It came in right around $26 million in CapEx for 2023. And so really, what you're seeing is a carryover of that. Think of that as engineering tools. Again, just everything that Chuck just mentioned about the modernization and sustainment capabilities that the business has we're investing in some engineering tools to help ensure that we have that capability, and we enhance it going forward. So that's really all it is, Trevor's timing between years on those investments.
Our next question comes from Stephen Stackhouse with RBC Capital Markets.
I was hoping if you could provide a little bit more detail around the Middle East exposure, maybe how fast can that market grow? And then maybe just even kind of compare contrasting that into INDOPACOM.
Yes, you said, Stephen how are you doing? Did you say you cut out, but you say Middle East exposure?
Yes, I did. Yes.
Okay. So yes, so we -- Middle East is our and it has been historically our largest individual non-bonus area of operation. We've been operating in the region for really 3 decades now. As you undoubtedly know, there is a lot of activity in the Middle East now, and we mentioned in the prepared remarks, the OPTEMPO that is we are, in fact, seeing in the region today is being largely handled through the existing contracts we have in the region, although we did note a new win with the airport, if it will, that will be ramping here as we speak. With regards to additional business, additional orders, we do believe when all the funding situations are finally resolved with regards to the congressional action there are opportunities for new awards. We have several demand signals from our clients that we worked diligently with our clients on. But again, we see OPTEMPO remaining high for the foreseeable future. And again, as the budget resolutions as the budget situation, I should say, are resolved, the opportunity for new orders may in fact arise.
Great. And then maybe just kind of following up there on the budget, maybe just the impact of the CR and kind of what is it factored into the '24 guide? And then maybe also just kind of how importantly kind of the lack of any Ukraine supplemental might be or than what upside that has for the '24 guide as well?
So we have factored in a more muted award scenario for this year, as Shawn indicated in his prepared remarks and the prior question. Having said that, we will see some awards. Our teams continue to do an excellent job with on-contract growth, which is typically provided from existing budgets. And then the reality is that the OPTEMPO remains high. So I think balancing both new awards on contract growth and the realistic -- and the realities, I should say, of the current OPTEMPO gives us confidence in the guide that we've issued here today. I think you mentioned into INDOPACOM, too. There are not exercises named after size scheduled at this point in time because as we've indicated in the past, so they're done on odd years. Having said that, we continue to see several demand signals and a high degree of OPTEMPO in their region. And we continue to provide ways of modernized bases that we're currently operating on such as Kwajalein in the Marshall Islands.
Our next question comes from Bert Subin with Stifel.
I'm on for Bert. I guess you've touched on it, but just to get some more color on it. Just curious about your view on MRO ramp life cycles. You sort of talked about pipeline. But what are you seeing in terms of new awards? How do you then see that impacting or normalizing margins? Just any color you could provide there would be helpful.
As we talked last quarter, the F5 adversary award was an important award. It happens to be fixed price as well. It's still under protest. We will at the resolution of that protest, I assume that we'll get -- be able to start that program here in this year, probably closer to the second half of the year, I would assume. Really the only 2 platforms we have in retirement now we've talked about are the KC-10 and the T18. Both of those are been very predictably winding down. And other than those 2, we have no other -- at this point in time, we have no other known retirements in our portfolio of contracts. -- you add -- was there anything else to your question? Is there anything else that you want to add on that one?
Just the margin impact would be helpful. And then if I could add on to that, I guess, thinking through maybe early days on maybe testing in the Pacific and Atlantic. If you could touch there, too.
Sure. As Shawn indicated, I mean, we'll ramp through the year. The margins on the retiring programs are higher because they're at the end of life cycle. And with such a large percentage of our backlog in the early stages, and we're seeing the predictable ramp in the profit margins post sale and into the base years. And frankly, we're thrilled at the rate and pace that that's occurring. It's just, again, that's such a large quantity of new wins over the last 3 years, which we're thrilled about, frankly. Both Naval Test Wing Pacific and Atlantic are performing exceptionally. I couldn't be more thrilled. I couldn't be more pleased with the team. We're hearing this directly from our clients. We're not talking to ourselves on this. As I'm sure you know because you follow the industry very closely, the development of pilots to be fully capable is a significant measurement for both our Navy and Air Force clients. They can't train pilots quickly enough to meet their needs. And again, we're pleased and privileged to play an important role and again, picking up the pace -- the rate and pace by which pilot can be trained.
Sure. That's helpful. And I guess following up on one of the questions that was asked on INDOPACOM. I was reading that the Pacific excuse me, deterrence initiatives should grow to about 14 bill in FY '24, something around that. And just curious if you think there's upside to that if budgets are appropriate soon? And what do you think that could look like?
I think a way to look at that is the performance that we posted in the second half of the year. The fact that we booked more revenue in the second half of the year than the first half, even though the exercise was in the first half of the year, that is directly attributable to the PTI, Pacific Terrence initiative. Again, the OPTEMPO was high, the budget is a reality because these are, in many cases, new requirements. But again, kind of working through the muted new award environment, but the ability to grow on contract is a good balance and again, a bit a long wood way of answering your question, but we remain very bullish on growth into payout region.
No, that is helpful. And then maybe, Shawn, just one last one for you, just for the models. How are you thinking through interest rates, especially as it's considering the deleveraging process?
Yes. So we've made tremendous progress in deleveraging. We're obviously very focused on that. As we go into '24, you saw where we think we'll be at less than 3 at the end of '24. From an interest expense standpoint, it's comparable to what we had in 2023. We will look at opportunities as interest rates change. And as that leverage ratio comes down. We've taken advantage of improved grid pricing previously. We'll look to do that again kind of as appropriate and improve upon our position as we go throughout the year. The team did a great job. I couldn't be more happy with the cash that was delivered in the quarter, and we'll look to continue to do those things throughout the year.
Congrats on the great quarter, guys, and we'll talk to you next quarter.
[Operator Instructions] It appears that there are no further questions at this time. I would now like to turn the floor back over to Chuck Prow for closing comments.
Thank you very much, and thank you all for your questions. We've just completed what we think to be a very, very solid year, and we look forward to talking to you again at the end of the first quarter, and we may see you all the conferences here in the not too distant future. Talk to you soon. Bye.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.