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Revenue | 3 Months Ended
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Mar. 31, 2023
Revenue from Contract with Customer [Abstract] |
Revenue | REVENUE Performance Obligations Performance obligations represent firm orders by the customer and excludes potential orders under indefinite delivery and indefinite quantity (IDIQ) contracts, unexercised contract options and contracts awarded to us that are being protested by competitors with the U.S. Government Accountability Office (GAO) or in the U.S. Court of Federal Claims (COFC). The level of order activity related to programs can be affected by the timing of government funding authorizations and their project evaluation cycles. Year-over-year comparisons could, at times, be impacted by these factors, among others. Contracts are often modified to account for changes in contract specifications and requirements. If the modification either creates new enforceable rights and obligations or changes the existing enforceable rights and obligations, the modification will be treated as a separate contract. Our contract modifications, except for those to exercise option years, have historically not been distinct from the existing contract and have been accounted for as if they were part of that existing contract. The Company's performance obligations are satisfied over time as services are provided throughout the contract term. We recognize revenue over time using the input method (e.g., costs incurred to date relative to total estimated costs at completion) to measure progress. Our over-time recognition is reinforced by the fact that our customers simultaneously receive and consume the benefits of our services as they are performed. For most U.S. government contracts, this continuous transfer of control to the customer is supported by contract terms that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process. This continuous transfer of control requires that we track progress towards completion of performance obligations in order to measure and recognize revenue. The Company's contracts are multi-year contracts and typically include an initial period of one year or less with annual one-year (or less) option periods. The number of option periods varies by contract, and there is no guarantee that an option period will be exercised. The right to exercise an option period is at the sole discretion of the U.S. government when we are the prime contractor or of the prime contractor when we are a subcontractor. We expect to recognize a substantial portion of our performance obligations as revenue within the next 12 months. However, the U.S. government or the prime contractor may cancel any contract at any time through a termination for convenience or for cause. Substantially all of our contracts have terms that would permit us to recover all or a portion of our incurred costs and fees for work performed in the event of a termination for convenience. Performance obligations as of March 31, 2023 and December 31, 2022 are presented in the following table:
|  | March 31, |  | December 31,
(In millions) |  | 2023 |  | 2022
Performance Obligations |  | $ | 3,425 |  |  | $ | 2,997 |
We expect to recognize approximately 62% of the performance obligations as of March 31, 2023 as revenue in 2023 and the remaining 38% during 2024. Contract Estimates The impact of adjustments in contract estimates on our operating income can be reflected in either revenue or cost of revenue. Cumulative catch-up adjustments for the three months ended March 31, 2023 and April 1, 2022 increased operating income by $13.1 million and $0.6 million, respectively. For the three months ended March 31, 2023 and April 1, 2022, the cumulative catch-up adjustments to operating income increased revenue by $13.9 million and $0.6 million, respectively. Revenue by Category Generally, the sales price elements for our contracts are cost-plus, cost-reimbursable or firm-fixed-price. We commonly have elements of cost-plus, cost-reimbursable, time-and-materials and firm-fixed-price contracts on a single contract. On a cost-plus contract, we are paid our allowable incurred costs plus a profit, which can be fixed or variable depending on the contract’s fee arrangement, up to funding levels predetermined by our customers. On cost-plus contracts, we do not bear the risks of unexpected cost overruns, provided that we do not incur costs that exceed the predetermined funded amounts. Most of our cost-plus contracts also contain a firm-fixed-price element. Cost-plus contracts with award and incentive fee provisions are our primary variable contract fee arrangement. Award fees provide for a fee based on actual performance relative to contractually specified performance criteria. Incentive fees provide for a fee based on the relationship between total allowable and target cost. On most of our contracts, a cost-reimbursable element captures consumable materials required for the program. Typically, these costs do not bear fees. On a time-and-materials contract, we are reimbursed for labor at fixed hourly rates and generally reimbursed separately for allowable materials, costs and expenses at cost. For this contract type, we bear the risk that our labor costs and allocable indirect expenses are greater than the fixed hourly rate defined within the contract. On a firm-fixed-price contract, we agree to perform the contractual statement of work for a predetermined contract price. A firm-fixed-price contract typically offers higher profit margin potential than a cost-plus contract, which is commensurate with the greater levels of risk we assume on a firm-fixed-price contract. Although a firm-fixed-price contract generally permits us to retain profits if the total actual contract costs are less than the estimated contract costs, we bear the risk that increased or unexpected costs may reduce our profit or cause us to sustain losses on the contract. Although the overall scope of work required under the contract may not change, profit may be adjusted as experience is gained and as efficiencies are realized or costs are incurred. The following tables present various revenue disaggregations. Revenue by contract type for the three months ended March 31, 2023 and April 1, 2022 is as follows:
|  | Three Months Ended |  |
|  | March 31, |  | April 1, |  | % |  |  |  |  |  |
(In thousands) |  | 2023 |  | 2022 |  | Change |  |  |  |  |  |
Cost-plus and cost-reimbursable |  | $ | 523,030 |  |  | $ | 311,094 |  |  | 68.1 | % |  |  |  |  |  |
Firm-fixed-price |  | 385,112 |  |  | 128,004 |  |  | 200.9 | % |  |  |  |  |  |
Time-and-materials |  | 35,318 |  |  | 17,373 |  |  | 103.3 | % |  |  |  |  |  |
Total revenue |  | $ | 943,460 |  |  | $ | 456,471 |  |  |  |  |  |  |  |  |
Revenue by geographic region in which the contract is performed for the three months ended March 31, 2023 and April 1, 2022 is as follows:
|  | Three Months Ended |  |
|  | March 31, |  | April 1, |  | % |  |  |  |  |  |
(In thousands) |  | 2023 |  | 2022 |  | Change |  |  |  |  |  |
United States |  | $ | 548,770 |  |  | $ | 167,980 |  |  | 226.7 | % |  |  |  |  |  |
Middle East |  | 281,121 |  |  | 235,754 |  |  | 19.2 | % |  |  |  |  |  |
Asia |  | 64,317 |  |  | 16,206 |  |  | 296.9 | % |  |  |  |  |  |
Europe |  | 49,252 |  |  | 36,531 |  |  | 34.8 | % |  |  |  |  |  |
Total revenue |  | $ | 943,460 |  |  | $ | 456,471 |  |  |  |  |  |  |  |  |
Revenue by contract relationship for the three months ended March 31, 2023 and April 1, 2022 is as follows:
|  | Three Months Ended |  |
|  | March 31, |  | April 1, |  | % |  |  |  |  |  |
(In thousands) |  | 2023 |  | 2022 |  | Change |  |  |  |  |  |
Prime contractor |  | $ | 879,179 |  |  | $ | 427,093 |  |  | 105.9 | % |  |  |  |  |  |
Subcontractor |  | 64,281 |  |  | 29,378 |  |  | 118.8 | % |  |  |  |  |  |
Total revenue |  | $ | 943,460 |  |  | $ | 456,471 |  |  |  |  |  |  |  |  |
Revenue by customer for the three months ended March 31, 2023 and April 1, 2022 is as follows:
|  | Three Months Ended |  |
|  | March 31, |  | April 1, |  | % |  |  |  |  |  |
(In thousands) |  | 2023 |  | 2022 |  | Change |  |  |  |  |  |
Army |  | $ | 390,503 |  |  | $ | 280,113 |  |  | 39.4 | % |  |  |  |  |  |
Navy |  | 292,690 |  |  | 75,217 |  |  | 289.1 | % |  |  |  |  |  |
Air Force |  | 129,981 |  |  | 61,474 |  |  | 111.4 | % |  |  |  |  |  |
Other |  | 130,286 |  |  | 39,667 |  |  | 228.4 | % |  |  |  |  |  |
Total revenue |  | $ | 943,460 |  |  | $ | 456,471 |  |  |  |  |  |  |  |  |
Contract Balances The timing of revenue recognition, billings, and cash collections results in billed and unbilled accounts receivable (contract assets) and customer advances and deposits (contract liabilities) on the Condensed Consolidated Balance Sheets. Amounts are billed as work progresses in accordance with agreed-upon contractual terms at periodic intervals (e.g., biweekly or monthly). Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, we may receive advances or deposits from our customers before revenue is recognized, resulting in contract liabilities. These advance billings and payments are not considered significant financing components because they are frequently intended to ensure that both parties are in conformance with the primary contract terms. These assets and liabilities are reported on the Condensed Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. As of March 31, 2023 and December 31, 2022, we had contract assets of $559.3 million and $487.8 million, respectively. Contract assets primarily consist of unbilled receivables which represent rights to consideration for work completed but not billed as of the reporting date. The balance of unbilled receivables consists of costs and fees that are: (i) billable immediately; (ii) billable on contract completion; or (iii) billable upon other specified events, such as the resolution of a request for equitable adjustment. Refer to Note 5, Receivables for additional information regarding the composition of our receivable balances. As of March 31, 2023 and December 31, 2022, our contract liabilities, included in other accrued liabilities in the Condensed Consolidated Balance Sheets, were $73.1 million and $76.4 million, respectively.

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- Definition The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -URI https://asc.fasb.org/topic&trid=49130388 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 10 -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130551-203045 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 13 -Subparagraph (b)(2) -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130556-203045 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130554-203045 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 9 -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130550-203045 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (e) -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130554-203045 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130554-203045 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (d) -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130554-203045 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 15 -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130558-203045 Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (c) -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130554-203045 + Details
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