Revenue
 9 Months Ended
Sep. 30, 2022
Revenue from Contract with Customer [Abstract]  
Revenue
REVENUE
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue in ASC Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. To determine the proper revenue recognition method, consideration is given as to whether a single contract should be accounted for as more than one performance obligation. For most of our contracts, the customer contracts with us to perform an integrated set of tasks and deliverables as a single service solution, whereby each service is not separately identifiable from other promises in the contract and therefore is not distinct. As a result, when this integrated set of tasks exists, the contract is accounted for as one performance obligation. The vast majority of our contracts have a single performance obligation. Unexercised contract options and indefinite delivery and indefinite quantity (IDIQ) contracts are considered to be separate performance obligations when the option or IDIQ task order is exercised or awarded.
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 clauses in the contract 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.
Remaining performance obligations as of September 30, 2022 and December 31, 2021 are presented in the following table:
September 30,December 31,
(In millions)20222021
Performance Obligations$3,362 $1,398 
As of September 30, 2022, we expect to recognize approximately 26% of the remaining performance obligations as revenue in 2022 and the remaining 74% during 2023.
Contract Estimates
Accounting for contracts and programs involves the use of various techniques to estimate total contract revenue and costs. For contracts, we estimate the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognize that profit over the life of the contract.
Contract estimates are based on various assumptions to project the outcome of future events. These assumptions include: labor productivity and availability; the complexity of the services being performed; the cost and availability of materials; the performance of subcontractors; and negotiations with the customer on contract modifications. When the estimates of total costs to be incurred on a contract exceed total estimates of the transaction price, a provision for the entire loss is determined at a contract level and is recognized in the period in which the loss was determined.
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 are driven by changes in contract terms, program performance, customer scope changes, and changes to estimates in the reported period. These changes can increase or decrease operating income depending on the dynamics of each contract. Cumulative catch-up adjustments for the three and nine months ended September 30, 2022 decreased operating income by $1.5 million and increased operating income $5.9 million, respectively. For the three and nine months ended October 1, 2021, the adjustments increased operating income by $2.6 million and decreased operating income by $0.4 million, respectively.
For the three and nine months ended September 30, 2022, the cumulative catch-up adjustments to operating income decreased revenue by $1.7 million and increased revenue by $6.1 million, respectively. For the three and nine months ended October 1, 2021, the cumulative catch-up adjustments to operating income increased revenue by $3.0 million and $1.4 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 and firm-fixed-price contracts on a single contract. On a cost-plus type 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 type 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 type 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 contract. Typically, these costs do not bear fees.
On a firm-fixed-price type contract, we agree to perform the contractual statement of work for a predetermined contract price. A firm-fixed-price type contract typically offers higher profit margin potential than a cost-plus type contract, which is commensurate with the greater levels of risk we assume on a firm-fixed-price type contract. Although a firm-fixed-price type 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.
On a time-and-materials type 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 when our labor costs and allocable indirect expenses exceed the fixed hourly rate specified within the contract.
Revenue by contract type for the three and nine months ended September 30, 2022 and October 1, 2021 is as follows:
Three Months EndedNine Months Ended
September 30,October 1,%September 30,October 1,%
(In thousands)20222021Change20222021Change
Cost-plus and cost-reimbursable$505,743 $338,007 49.6 %$1,172,397 $972,426 20.6 %
Firm-fixed-price416,618 105,619 294.5 %672,970 345,792 94.6 %
Time and material35,795 15,782 126.8 %67,326 46,039 46.2 %
Total revenue$958,156 $459,408 $1,912,693 $1,364,257 
Revenue by geographic region in which the contract is performed for the three and nine months ended September 30, 2022 and October 1, 2021 is as follows:
Three Months EndedNine Months Ended
September 30,October 1,%September 30,October 1,%
(In thousands)20222021Change20222021Change
United States$582,817 $139,357 318.2 %$908,271 $435,717 108.5 %
Middle East261,997 263,257 (0.5)%747,310 761,758 (1.9)%
Europe62,669 34,902 79.6 %143,847 111,604 28.9 %
Asia50,673 21,892 131.5 %113,265 55,178 105.3 %
Total revenue$958,156 $459,408 $1,912,693 $1,364,257 
Revenue by contract relationship for the three and nine months ended September 30, 2022 and October 1, 2021 is as follows:
Three Months EndedNine Months Ended
September 30,October 1,%September 30,October 1,%
(In thousands)20222021Change20222021Change
Prime contractor$886,415 $429,370 106.4 %$1,781,961 $1,272,671 40.0 %
Subcontractor71,741 30,038 138.8 %130,732 91,586 42.7 %
Total revenue$958,156 $459,408 $1,912,693 $1,364,257 

Revenue by customer for the three and nine months ended September 30, 2022 and October 1, 2021 is as follows:
Three Months EndedNine Months Ended
September 30,October 1,%September 30,October 1,%
(In thousands)20222021Change20222021Change
Army$352,923 $304,341 16.0 %$959,792 $869,690 10.4 %
Air Force165,085 63,569 159.7 %295,015 207,565 42.1 %
Navy270,071 52,556 413.9 %410,173 165,391 148.0 %
Other170,077 38,942 336.7 %247,713 121,611 103.7 %
Total revenue$958,156 $459,408 $1,912,693 $1,364,257 
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). 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 fund current operating expenses under the contract. 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 September 30, 2022 and December 31, 2021, we had contract assets of $490.1 million and $240.0 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 (REA). For additional information regarding the composition of our receivables, see Note 5, Receivables. As of both September 30, 2022 and December 31, 2021, our contract liabilities were $80.7 million and $5.5 million, respectively.