VSE (VSEC) 27 Jul 232023 Q2 Earnings call transcript

Welcome to the VSE Corporation Second Quarter 2023 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Michael Perlman. ahead. go Please

to call. welcome President second XXXX Officer. quarter CEO; Thank the VSE call conference Financial Chief Leading Steve Cuomo, today results and you, Griffin, Corporation's are and John

and sharing presentation SEC. to today's significantly about including from may reports you accordingly. uncertainties, future today The and along various statements are is our due expectations. we with follow forward-looking website contains filed discussion in in differ financial described those forward-looking our on to Today's business projected encourage and statements risks risks results we Actual periodic the

Except we update required no the obligation as to by law, forward-looking statements. undertake

posted We discussion financial are incorporated where progress, into to in our non-GAAP is All measures presentation year-over-year noted. reconciliations our in percentages presentation. on The refer except website. today's are financial appropriate where our GAAP which using available,

November of conclusion the scheduled remarks, in will Federal due moved beginning to reminder, our Defense a forward We of to welcoming segment, look second to which York business contact Investor the you As shared our open been to with announced line Please City At business details will XXth, virtually. prepared for XXXX the be soon. in Day has me questions. quarter for questions. results any and segment. of exclude operations, sale discontinued first our broadcast the New More the we XXXX,

to John. With that, over to call like I'd the turn

everyone, and Michael. Welcome for our today. Thank you you, joining call thank

and record and in in quarter, contributions the highlighted segments. growth The XX% second aviation driven our quarter company revenue, by grew which was both by fleet

attractive the performance I We both conditions business for supported revenue in second where setting in and delivered exceptional the performance slide on growth double-digit another with begin will fleet our provide and segments. profitability setting Operational three, segment. year. aviation an an improved quarter, our market stage the and record of Let's performance update

the increased quarter. XX% segment in revenue Aviation

OEM across activity was MRO distribution increased of strong capabilities. robust driven commercial pricing. by gains, end activity, share product increase We was new to expanded all and increase market by XX% quarter. revenue existing portfolio aviation an Aviation channels. continue and service market This supported see partnerships, of improved The the expansion in flight revenue additions,

a investment the fleet segment quarter. segment was launched facility. the installed The United by including increased also total by in Service distribution from growth quarter revenue all in demand the the increased our base in Memphis quarter. USPS of at XX% the increased legacy revenue was within States revenue and Fleet supported experienced vehicles The channels the record the contributions revenue growth second throughput led segment, Postal USPS from continued fleet. the of recently

increased product all to the in base. on USPS for spend installed vehicles, see the We segment offerings both and continue newer as expands fleet legacy vehicles

supports million support our flexibility accelerating now optimizing slide liquidity and productive four future balance quarter net and Moving equity sheet sheet stock. growth follow-on continue from announcements deleveraging and we offering, offering a oversubscribed to Last the strategic we completed our commitments and advance The to our recent as business the an week, our proceeds been updates. strategy. $XXX and in transformation It's opportunities. to balance increases improving of current

appeal the segment. announced achievement the of sell our we will MRO and VSC investment drive Early in aftermarket and and serving certain one This million by for and and transaction capabilities, focused high subject broader profile, consideration total to to the compelling to aftermarket repositioning, this With signing is federal business out and earn a up second services to of with The a agreement now aviation $XX growth includes segment quarter, margin of deeper value $XXX milestones. investor an business definitive distinct the repositioning million creates a cash base. of our pure defense XXX% business, play aftermarket. which and fleet to a long-term high shareholder distribution

progressing the Supporting or in of XXXX transaction The of late preclosing closing and to sale work transition early the XXXX. this FDS well. related is

July wheel Lastly, completed acquisition repair. we brakes a is a distributor aftermarket tubes, component services. Aerospace, provider independent MRO distribution capabilities a Desser global specialty leading services provider, X, of aircraft Desser tires on the MRO and and batteries, and and of a Aerospace brake world's for leading the like and global of solutions distributor

integration business in operation, provide and supports U.S. aviation capital our high the enhancing we businesses also and in forward for ahead. commercial, to updates and MRO geographic the a locations United value diverse is aftermarket. customers. expansion strategy with Kingdom highly performance tail kit global quarters and segments, VSE's allocation growth service general sharing family international across growth Australia, the Desser attractive activities of with starting on consistent immediately and begin and a This the their platform industry's in the aftermarket U.S., and aviation, acquisition to aircraft fragmented investment military priorities. serve base be markets. will and look all Desser’s and including customer We'll in acquisition return aftermarket The distribution

Let's slide now to move five.

and increase in prior income, to we EBITDA, adjusted in $XXX a XX% increase highlighted mentioned, record the in a delivered quarterly revenue, As by results a increase compared million year. as net XX%

and Our revenues increase record general aviation through Aviation another $XXX and growth distribution both commercial quarter and both XX% customers balanced channel. with with of million, a business sales posted yet and across MRO year-over-year segment

another XXX basis versus adjusted Aviation prior Adjusted segment margin EBITDA adjusted segment increased record year, $XX of versus increased year. for points company's year-over-year by business total this XX% quarter XX% this adjusted represented the EBITDA for Aviation approximately quarter million last EBITDA of for segment by segment. to XX.X%. second yet XX% the EBITDA

and commercial to record in EBITDA contributions end driven States XX% growth growth driven revenue million, United adjusted recorded also segment sales all quarter solid the fleet by XX%, the Fleet across Service. from Our increasing segment markets. Postal increased $XX by

and material sheet that I'm shape. accelerated see and taking balance acquisition, to quarter and all segment aviation aftermarket quarter. the It's VSE pleased service announcement and been the really story both repositioned XXXX, transformation we growth an a of of efforts in We’ve company revenue with the divestiture record we outstanding recorded while first-half levels and earnings industry maintaining and of our deleveraging customer the the support. optimized leading our very

detailed now performance. to will turn I second quarter the call Steve a for financial over of review Steve? our

John. Thanks,

of segments and moving to only I quarter reflect periods for the is and begin, I comments now the the to want and The held Before operations Federal about as results movement discontinued sale. prior forward. earlier segment Defense for Michael’s repeat fleet the aviation it

turn the our an call six second of seven I'll slide materials, to and performance. now provide quarter conference overview of

driven fleet period. We million and share revenue mentioned John reported in As end revenue recorded earlier, an prior offerings, market XX% of the in versus by all both increase and our and capabilities expanded record $XXX second of gains, our robust quarter, markets. demand we aviation segments, year of across the

sales of strong reported of market higher Service. driven strong and contributions segment and with aviation record increased execution all United growth program Aviation customer by e-commerce to gains. awards, and supplier have commercial existing new quarter, Fleet relationships supported fleet business another together and strengthen from which distribution by led and general MRO commercial share fulfillment the States activity was and Postal

EBITDA an million of discontinued XX%, adjusted corporate growth from net and million by Adjusted increase $XX the operations. GAAP of million and EBITDA $XX impact generated offset aviation and accounting respectively, and XX% and expenses respectively. adjusted income, fleet $X.X partially from grew million We $X.X on by

capabilities a cover record our distribution eight. second slide to Revenue grew, XX% and customer to Distribution XX% expansion mix Aviation benefit commercial and We'll MRO customers. and million. existing scale turning new our to $XXX new XX%, existing both and respectively. increased expanded flight Both into portfolio the versus OEM activity Now by from year pricing. continues improved segment in driven last services markets of and and higher was the to businesses programs, results. MRO growth up quarter and

million, the MRO year was by improvement our EBITDA basis XX% we robust our programs from margins our for to Aerospace driven acquisition XX% product our XX% strong XX% to growth, Desert adjusted points Aviation mix in account increased and to by range profitability full EBITDA recent quarter in new guidance increased revenue revenue distribution of to the to price. Within The by $XX favorable while adjusted scaling XX.X%. XX% Aviation and and segment, first-half XXXX to increasing are XXX results.

million We XXXX. estimate $XX will approximately of second-half of Desser revenue contribute in the

provided margins We anticipated the expect range of higher of full-year be modestly the margins strong XX% by the previously are the to segment XX% acquisition. Desser impact as adjusted EBITDA of offset end to at

Total XXX e-commerce sales, commercial by fulfillment, revenue slide Now XX% along increased increased period versus segment the and quarter, was USTS the with of point of fleet demand. an increase nine. the revenue, growth second now turning million to XX% strong $XX year represent to in fleet commercial in a increase same in basis total $XX million, prior revenue period driven year. Fleet the over XX% prior segment

year-to-date quarter, on for to by $XX by and $XX revenue In we year. grew the has of $XX track million incremental as grown the an remain revenue million commercial deliver million commercial

approximately for last fleet up supporting demand quarter demand aftermarket second has USPS of products Postal year, XXXX, government other Service our by the initial Postal U.S. of versus driven is within the expectations channel. our XX% exceeded was which revenue types. service for included all

driven our we by was in Memphis quarter was versus Segment as driven an customer EBITDA margin XX% throughput EBITDA and XX newly the distribution mix adjusted launched XXX million, facility. sales by increase points down at to $XX Adjusted basis basis to points XX.X%, increased increased first have volume. up

XX% to driven the the our are contributions results For XX% XX% States higher-than-anticipated XX% Service. increasing Postal from from and growth first-half to strong full-year by year-over-year, we United expectation revenue XXXX, to

XX%. maintaining are margin range guidance to XX% our of EBITDA adjusted We

in the Turning million to million and $XX $XXX At of credit we unused facility. second availability slide our XX. cash under had end quarter, the commitment

million used growth our our the of operating facility. $XX by we For cash support $XX million to investments flow of Memphis previously and cash free flow, inventory distribution commercial driven on announced quarter,

the net end million. positive investments the $XXX investments. had the free trailing cash associated outstanding and At flow debt we of of $XXX of total the facility expect of million XX-months of launching have second any with EBITDA quarter, As future of completed to inventory the and adjusted this quarter, fund approximately initial we end

the at times was the second X.X quarter. of end leverage Net

the ratio offset of Desser net expect from be quarter. cash partially the X.X in positive by EBITDA common end times offering, by flow of acquisition stock the and the the free growing below proceeds We adjusted announced This is third driven leverage Aerospace. quarter, the recently upcoming by to

cash our second-half XXXX. of for also are in flow the free We maintaining positive outlook

hedges. outstanding In the early total, flow offering, fixed of swap. next footing we profile $XXX million floating the existing The conjunction cash a to of have along provide secondary growth July, our with we recent facility executed the a in amendments with leg second-half rate and and Desser In outperformance. solid $XXX for now to acquisition debt market interest million improving

With for that, I'll over his to it John turn now final remarks. back

ahead Thanks, opportunities like segment and prepared business. remarks Steve. would for for our to our the our by priorities the Aviation I reviewing conclude and Fleet

Our performance focus the of growth businesses. these two driving operating enhancing on remains sustainable, profitable while

Please priorities. advance to slide XX to review near-term our

and and of sale business Defense business the complete First, segment. Federal the separation

both precision with provides product fuel offering. base comprehensive acquisitions. a our and Desser integrate Second, This and our customer services aerospace more

investment greater remains processes supplier source and into provide services and with for combined for fully systems, value products strategy organization integrate one structure drive integration one and customers assets and Our our shareholders. synergies where to returns we and

We our sharing the bespoke customer and addresses XXXX remain distribution aviation both to Third, focused our underserved growth and aftermarket. pipeline. forward on within expand opportunities of approach more high-growth portions look unique a We capabilities solutions-oriented about organic demand. our that MRO offering supplier full-service product and

launched commercial growth at management. fleet to This cash customer address And revenue disciplined the while center robust and free by scale continuing programs cash to finally, flow Fourth, within newly e-commerce and legacy driven fulfillment demand. XXXX fleet distribution business. drive deliver includes second commercial grow our supporting our quarter

We the work are our transformation advance story. business made of progress incredibly and to proud

and business including announced our sheet and acquisition of the a the our segments we of Defense revenue and and the efforts segment, the spoke, improved profitability repositioning Since Federal and and raise record of deleveraging strong support we to another Aerospace, oversubscribed last divestiture both company, optionality. of for equity balance quarter Desser closing

our for our and Our against We customers, each sharing next Day our supporting teams very enter execute teams. strategic our thankful I to as continue and performance our operating look of suppliers growth. of flawlessly forward other. November outstanding to plans, Investor VSE ahead what's VSE we chapter am for the and

ready for now are the question-and-answer Operator, portion we call. of our

Thank you.

will session. now question-and-answer be a We Instructions]. conducting [Operator

of please go question ahead. Herbert The RBC, Ken first is from

Steve. Yes, John morning. all activities. the recent good congrats on and Yes,

you. Thank

Thanks.

ask, in Steve, versus the guidance the associated wanted to of and I know going But first excluding to costs down or implies we John sequentially the called in bit on a comment out Aviation, second-half the that I maybe incremental within of you else little with in integration anything margins a sort Desser. ex-Desser on about there how is the a business the the do Desser, that Or margins? could business headwind bit second-half? be you'd think first-half.

I performing think the very business is well.

business the same. As look the mid-teens second-half, expect we longer-term continues from you the margins. see to the be towards quarter range be can that at the around of we second results, When to

to the we associated I pricing which year. we both gave, the we're guiding can favorability the moderates second-half the point think you And strength it's in in the towards getting I you're the believe of think do and But of us the benefited that the business. some some still second think see demonstrating end that degree quarter. first at I guidance that the we seen of start to the And that year. range, of the just is, high has question with have is

currently of between past, weighted even think And helpful. I think repair being Should that's margin you've of a maybe split goal? about sort towards get think split And still an past, how recent the rough even in you've distribution. No, we sort is Obviously, talked those time. the distribution about know that long-term I over about roughly do maybe the know the you ideal in to the And providing better path repair. and I about profile you're activities to more back levels? talked

offerings wouldn't share we longer-term it to but work amount look small make repair in I product us want Yes, of as as -- then the look opportunities A supply them of strategies, it I Day balance think able And we a our have to to OEM both and XX-XX, and and organic to November is wouldn't terms for to support in a that see We look, that exchange rotable look that supply you'll be would new network. be first we I say of the Ken. -- on. distribution. base. for our something strong I base, inorganic position at Investor authorized focus and at kind

the want kind Steve, growth add other at mid- of long-term look should in opportunities you So to and that any segment. color you or there?

Yes.

We the you to I of longer respective referenced. think, see higher on have rates that in that John benefit it. so balance the margin that Ken, business, hit MRO just does do than term it

a in we Great. And could, of free sort do the just How finer I if relative point finally, third on fourth about think quarter guidance framework? quarter second-half to cash. that

get would I the as we'll weighted as we the see We the how out. But towards say heavily quarter. but know, probably fourth you specifics, of the played quarter, things towards haven't given more end

free launched is the expect the to associated so we are now be more see that to on we we around that flow, program strong [Indiscernible], give time as the with quarter. investments we'll cash Asia fourth quarter, well you get the punchline our inventory guidance third by and with the think reporting because complete able as newly I

it quarter. you, back pass I'll Great, Steve, thanks a great

Ken. Thanks,

William we Blair. The Please Louie go is next question DiPalma have from of ahead.

John, morning. good Stephen Michael, and

Good morning, Louie.

Louie. morning, Good

and Aviation recent their momentum. continued fleet

from other market here. major fragmented. a and scale perspective, gained the picture will to advantage With described you is and as is a the that From having still scale scale aviation more Desser you parts a smaller acquisitions, allow differentiate big a precision players fuel global deal highly in aftermarket, you that big

It Louie. is,

think about their being critical. support aftermarket For position in number think the through to global OEM a of a large the that of reasons, global a markets in needs Their market. support and is us to aftermarket footprint one the and customer us to -- are global their wants

of that's element one So scale.

level line. are on Pratt products exclusivity piece add tangential buy coming of you're Canada those opportunity as part, that buyers those to to product other I would same looking for as or that similar have VSE for we & extra The customers well. engine is, an It's Whitney for products

scale our products, of So those that offer supports demand. the to ability and some again, that customer

chapter. So and support in scale to both growth well grow will important next we be as as continues improvement continue margin above-market of increased to kind business the revenue as the

of fairly aviation you. that in deal the have some overlap Wencor is in the Great. process besides in And fairly implications VSE it a May, this premium with announced large HEICO Wencor on Does any transaction. acquiring valuation? has

-- I like the valuation with -- start valuation think I Wencor, from Well, think businesses aftermarket market a the others. services what thinks like I the let's and value, perspective, VSE validates from about mean a it

future. a that's validating building you're So as the business for

I think they it great and puts great together. business, a -- put it's two businesses

a in businesses of Our capabilities. both MRO of have our level distribution and some similarity

HEICO those the both have compared the large PMA where say a to of business, are business the is level and we biggest centricity. OEM their Wencor a would difference is our to the of differentiator two I -- business them portion

DSD the So it -- of as partner. to businesses market two continues continues an to in differentiate focused OEM-centric the those combination

the mentioned for the interest think Stephen, entered swap for And about you rate that we you July. Great. the interest into rest with the modeling How for cash year? should of swap

primarily going improve. to are going obviously quarter see day, than we that last change by the by interest improvement, don't rate that modest from higher cash some interest that an Well, the is were they say, somewhat relative much all the year. to I fact consistent expect rates flow just where I the would cash much, but end fact second the the the be at of think declining to is to driven rate to the free the perspective,

the So driven cash slightly free improved, cash flow the business. dollar-wise, by in

time one. fuel final and for one And the the is precision integration there? good. synergies Sounds line What potential

We've integration remainder integration. relative the facility. I this of a and the On capability will as not Yes. going back the completed we a middle it's of the realize basis, are but niche it's material, at we'll to of niche great to the And keep are said, cost that year. plan facility. realized the we're a It year. some synergies. business. be mean There some nice MRO the in them we added end It's

Great. Thanks.

Louie. Thanks,

question have from Securities. Sinderen Van Riley of go next Jeff B. is we The Please ahead.

Good morning. Jeff.

everyone. metrics strong on morning, Good My your congratulations fronts. progress and all on

you. Thank

Kind think the multipart Can us question. little of you international multiple [Indiscernible] paid? the give just a touch I then you revenue maybe contribution business. on of detail there as a metrics, mentioned second-half you that grow maybe And more opportunity plan. on EBITDA

Sure. about to on want Steve, the you international. the financials, do talk I'll talk strategy and about

guidance expected from this the for at million the associated of Yes. I said of about business, the total in revenue half $XX modestly year, Desser range the a say end given second we in the that would of with range Jeff, implied lower the we've guidance they're of margins the business.

So that for revenue use approximation can you the that EBITDA. multiply get then to margin you rate and that and an

want share well expansion to cost at to I bit opportunities look the from drive of this below what math. you it look top John, of do for perspective kind it is a XX revenue you at do trading about as multiple we around right at synergy opportunity? And as the You're when we more a international times us business, is think revenue line where one market as when synergy. sort with that

believe acquisition. these Yes. I good in businesses with I'm acquirers first, markets. pleased the of mean, Jeff, We we're

a driving that as synergy that we below-market integrate of what well, believe returns number in us multiple is very We situation solid business. we will putting drive as off multiple

as both an back also And From the more and perspective, company Europe very has in they large for international end year, have a we for The the well. a of is but at see and about we facility domestic U.K. VSE international today, Continental in grow the MRO in leverage XXXX how expansion. we'll opportunities Desser it distribution speak probably facility look and team more we'll what

that So when Steve well model very a were and U.K., businesses things pleased ago do even do have the in and the two there, as post-closing what over thesis with. you're Desser between obviously team. we you to diligence, about you and great coming you VSE can as confidence level with we and I have out a week a forward It's stronger together and the believe of both

to Okay. a Great hear. then PS shift U.S. if could And for minute. to outlook we the

the of the is think and is you Just sustainable? there wondering growth outlook what you if kind if

we've period a one, think We share, we of few dynamics you relatively the to changed. installed have base. a is continued over it's business A flat. of -- model time have kind larger Number

base has of vehicles increased, new the and board parked repaired actually well. weren't installed vehicles came being they're as which on So vehicles as means

next-generation in vehicle, no The next will second end starting a be delivery there thing year. anticipating originally planned. the of slow ramp-up is as deliveries we're the And year this back

of the the believe current revenue and profitability we business remain. will So

We any anticipated. say, but ‘XX guidance at levels growth, new as stability haven't terms these in further or given I'd of

And if squeeze I one just more Okay. on in FDS. then could

you the terms earn-out? contracts you Just that can impact would milestone us anything update on wondering if in of touch on the can or there's anything

here actions can is this and and the updates, at level update quarter, I need as I award step We is of the hoping happen recompetes the on hoping recompetes in conditions What closing now. that some call of tell kind for on are all of so close. we can that in have plan the award on are third share as Yes. and we say it of of to point, waiting any it's can we you -- dates work the quarter. update but it's skepticism and it's submitted. don't to with We're you, based a done that

conditions. said we've again, are not regulatory And closing traditional these

step assets bringing the we've if transfer that that to confident progressing plan a have security not closing We with of time and we about line kind up little over, stand shared, are clearance forward. our feeling but on a the facility

questions continued my Excellent. taking right. Thanks All for success. and

Thanks, Jeff. support. Appreciate the

of Please go is [Operator Instructions] Our Securities. Osterland ahead. next Peter question from Truist

morning. good questions. Hey, Thanks the for taking

that becomes So Are any as you of of there heading first, signs the focused segment terms are heavily more half does seeing from impact customer does in value continuing business? conversations back underlying event into prospects year? how the e-commerce, weakness on soften, the demand? that fleet demand or your to the what of in share proposition And just that market in your for take

for the looking Yes. me Steve I'm smiling question. at as you across asked

have performance We the opposite has be problem. perfect. Demand is to but so strong,

So think up ecosystem I for how The the always describe e-commerce on it something is to it investors and business-to-business business-to-consumer time. very and order about high. you if you Amazon, on expectation both shows of and

up quarter stood a and the from it of seeing consistent first new warehouse with output new in we facility, the are ERP month-over-month system, management stocked increases system, in So inventory year, facility. new we that

large is right very, out very, we very So opportunity in, now, there there. the we set are work take and a controlling

is later one is other seeing Number transition this in to from reasons. game e-commerce. two industries late For than the you're a brick-and-mortar

our support these is there demand to and of second we're fulfillment for large have of believe our we ability better terms size that The than products. partners in out most a scale positioned the number businesses do to

So at the issue is or this say I'd not demand that point. discussion

conversion? you the Do targets of in but there? can impact any it's acquisition thinking long-term integrating have for cash early I then flow company And stages the the how about understand acquisition, does share Excellent. the how free Desser you that you're

may We've back Desser the cash flow. of through and what some opportunities flow say go strong this targets year. back of I the combined But We free long-term sure into all. cash some change year around kind business. vision capability smaller and not the investments we expect of in is and the half in the invested BSE doesn't at to We're quite generate free half our expectation of to this heavily would use make our businesses business, in expansionary

year. So back that the flow free our for the half expectations necessarily of offset cash in strong wouldn't

Investor the at We’ll Day. give longer November term guidance

helpful. cash any That's free be that then around expecting color just Is above flow Or could your the would Okay. on you positive could be in Just be just cash helpful. And you meaningful? target free are commentary flow the to breakeven? more share there second-half.

We strong to aviation I both necessarily, and free cash specific sure haven't positive. have a expecting cash say, discussion fleet. expect third When the positive. quarter, both but I'm free We're we'll target would quarter, get dollar to fourth expecting say flow $X from I not given it about but we we a sides, similar when be flow, strong the

taking Alright. the Thanks for questions.

you. Thank

There for comments. time. to over this like I are questions John no further the back go turn to floor at Cuomo closing would Please ahead.

at Thank you you speaking continued you November many us for Investor your support. today Have our October to great forward look joining and seeing of in and I appreciate Day. you with a day.

for your You may disconnect Thank participation. your lines time. you at this