VSE (VSEC) 7 Mar 242023 Q4 Earnings call transcript

Good morning, and welcome to VSE Corporation Fourth Quarter and 2023 Results Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Michael Perlman, Vice President and Investor Relations and Treasury. Please go ahead.

Megan. you, Thank Corporation's VSE XXXX Conference Results Welcome Fourth Call. to Quarter today Leading Officer. President are and call CEO; Financial Cuomo, Chief John the Griffin, and Steve presentation website, on to today are along we follow encourage you The our accordingly. we sharing and is business forward-looking future financial expectations. Today's discussion about and contains statements obligation due described SEC.Except may results no in statements. we reports with the statements our required forward-looking from risks by and undertake in today's those periodic update Actual various projected uncertainties, as law, significantly forward-looking differ our to to including those filed

We are using non-GAAP in our financial presentation. measures

are available, to into on are the open the John. turn prepared in year-over-year We like appropriate All questions. At for to GAAP where line website. presentation, posted today's our financial that, remarks, reconciliations the is we I except refer would of to the progress, incorporated will which discussion With over percentages our call our noted. conclusion

thank of very speak call Welcome, significant our start you Slide progress and everyone, joining you, the share to materials. and results today and Thank pleased record from both the XXXX X on and business and transformation.Let's Michael. presentation strategy business for on our outstanding am our proud updates I today. to

including platforms, well of centers operates TCI and Controls those as business customer addition we strategy. go-to-market the XX-year of engine base long-term as agreement aligned week, complex accessories. partner-focused OEM family. proposition strategy to overhaul has several of airframe value engine well and industry-leading is including in components, transfer installed engine hydraulic key across a excellence and as presence MRO offering and announced aviation First, last aircraft. aftermarket large support repair with component supporting accessory accessories.This strong capabilities, rotating history VSE's VSE static and X from components capabilities a engine excellence, as The Florida, next-generation a reduction, very oil to or acquire and MRO an and leading pneumatic Turbine fuel TCI, maintenance, gearboxes of a supporting provider and support engine repair TCI's and exciting services, Connecticut OEM accessory

prepared TCI remarks.Next, we VSE capital of $XXX million This sale assets. all of distribution financial important and subject total We marks milestone million, industry common operating aftermarket to expect of million substantially in a his comprised Steve solutions. $XXX completed shares, in an details and a very cash will $XX the of share working to acquire of in execution adjustments. our of shortly and additional of the transformation consideration repair defense to leader VSE's federal for

We are of pleased transformation to find X adjustment. buyers for February, this with a was of business capital chapter completed divestiture includes their of cash total $XX million, a for the FDS consideration transactions and closed $XX which and FDS different in our good working X a separate home estimated assets to team plan.The million

with the we will included down transaction. not Associated FDS one that the either in was of noncore wind remaining the operation sale facility FDS, of

segment. on focus work initiated strategic all explore quarter.And alternatives and evaluate ensure we stakeholders, objectives strategic process strengthen our our balance to We for evaluating by expect best portfolio the the are of finally, long-term our to driving complete we second and transition to for end as announced our on positioned value we sheet, execute to our we a fleet

our President segment Fleet to his has Segment. an like in transition position Chad of year.I'd of both acquisition business controls and Wheeler, distribution and and just additions, year plan for Group services, a record Segment precision to provide the we and Europe, the increase channel, Fleet VSE to to and and award a Aviation strategic Segment and only expanded margin to market-leading the rate.Our to all company-wide product milestone revenue product Aviation offerings Africa reported Pacific, at than fueled later marquee MRO proud MRO Fleet completed Fleet process the with launch this Chad fast-growing update business supported take facilities into the for excellence will including Group years new an recognize continued breadth strong launched with year. very a moment have growth Honeywell more into fuel brand been We highlight. certain President USPS.I'm new fleet begun a support and strong came scaling with strategy Middle and all and year customers; exclusively revenue center, new to a expanded our the from offering as sales, sales business for as Desser XX and Slide thankful across support establishing year, by key in XXXX revenue strategic this in and as business new and executed the growth and successes diversification VSE We realizing growth and volume systems, distribution strategy. aftermarket update new integrated were for solutions record for Fleet wins integration the well ahead integrated and recently, and the prepare by as in automotive higher now build both manufacture improving supporting was segment were acquisitions a of existing I most record capabilities Asia year as a XX%. our technical our acquired in disruptor execution, our expansion overall and and outstanding customers. synergies profitability. how plan driving how performed. of and acquired commercial year-end.We the we an by markets performance. provide already e-commerce where I'm expansion businesses capability together, successful full in and many throughput year. and how this supported X, aftermarket XXXX through has move how shops, changes new also multiple awards, an marking was while record our the Memphis wins, will this for are XX% of XXXX of successful continue how appreciative later early awarded provider Chad OEM a business with with our We products the brought types to customer before driving customer our revenue revenue control many on acquisitions, center and global supporting our a led specialty East MRO his an industry support Aerospace, licensed we a and Supporting for our leadership.Let's We we fully and we distribution e-commerce support fuel key partner geographic MRO VSE we of OEM our team distribution supplier program of increased we on the together the market vehicle and segment partners, to the we manufacturing rights and to partner

We in revenue have XXXX. for turn records now to results-driven profit will culture a our Steve over the and and an broke call I financial performance. on in update

John. Thanks,

to Slides quarter conference financial to of XXXX call materials full our provide and X overview turn an performance. and year of fourth X the Let's

$XXX Aviation Aviation and million of increased share. drove increased generated and of this million to an XX%, XXXX. with quarter the growth.Adjusted million to net drove results. $X earnings Fleet $XX adjusted per $X XX% share increased of versus million million XX% diluted growth of income fourth XX%. per $X.XX increase begin XX% or VSE by in Adjusted and Let's XX% $XX of up fourth $XX of up the million led quarter our revenue Fleet quarter, EBITDA

in of in For both the our Aviation full million $XX by year as revenue, versus grew million, XXXX, associated We'll compared $XX diluted XX% grew Aviation a to segments, cover quarter share for to XX% $XX of we share.Now adjusted increased by was earnings full distribution higher operating corporate and fourth our $XXX quarter primarily per EBITDA expenses a the slightly up turning but with results and were contributors, respectively. $X strong year versus or increased XX% offset the million, to up year segment. fourth $X.XX XX% adjusted million, Both businesses XXXX net XXXX. XX%, segment, to record income Revenue million detail. EBITDA $XXX XX% divestiture. million increase MRO XX% Starting with $X the X. Slide increase and or per was the FDS more and driven increased by reported XX% to $XXX million. growth which Consolidated and Fleet $XXX an million quarter. in XXXX, in Aviation of million Adjusted

year. acquisition as compared opportunities in foundation $XX recent of increased our repair a throughout XXXX, XX% fourth increased the in of strength prior sales.Distribution including programs, Aerospace, acquired in and by the segment geographic region. contributions to quarter of of Aviation set launched the The the new which the million existing quarter generating third strong Pacific ramp-up had was Desser a increased OEM by acquisitions, the a XX%, have revenue program driven from Desser those recent expansion Excluding Asia recently transition share repair throughput of material program gains, as success. new market control captures XX%, impact capabilities, did execution, strong not new revenue fuel from margin by new quarter, improved of for track have programs, Desser. the this for The by MRO important addition remains in and Honeywell and XXXX however, in on product the shops line.MRO driven the acquisition ramp-up VSE new the

increased strong to by existing and increased million, MRO, drive on profitability adjusted expansion. for year-over-year. to increased initiatives revenue operating scale EBITDA margins EBITDA in of Aviation million, to segment. the XX adjusted margins leverage programs, distribution profitability.Now has improvement gains new EBITDA while to led XXXX, full margin record quarter which Contributions of market up improvement basis points XX% XX.X%. within basis the MRO EBITDA XX% We XX% from XXX share continue points the adjusted and to $XX $XX our Aviation in progress footprint, by were increase year Adjusted an on to all $XXX results record and margin the XX.X%, for million drove generated

acquisition between recently our by We recently announced are announced prospects control new end program its of business be as and adjusted fuel the work our impact XX%, full to the expect year announced XXXX associated and recently XXXX additional XX% excited EBITDA acquisition.We increased aviation a growth Turbine We're full and growth reaffirming we build-out Aviation. year with the our through full Desser to Honeywell margins strategic expectations XX% driven strong and about Control, operations. opportunities growth revenue of VSE with expenses the year new of European organic the awards, markets, for XX% alignment of

the XX% compared increase XX% in our generated following X prior revenue in partially segment We quarter as fulfillment update commercial Service expect growth States will Fleet versus XX% is Fleet our vehicles. a last USPS in to versus time EBITDA all total the to VSE our commercial of of first declined support our portion TCI its Postal in to Fleet X% closing year will period of declines our Commercial a in than fourth quarter results. and Commercial the In and represents other fourth year the the aftermarket of have by history vehicle segment, XXXX, remains quarter quarter.Now an $XX fourth of as revenue to expect VSE sales in types. for recognize channel. that closing generate the an $XX approximately in guidance XXXX provide at $XX XX% in customers the EBITDA United full now and year, third revenue revenue prior more offset the and the XX% the our in as November quarter, increased was approximately full compared revenue. fleet revenue million, Fleet e-commerce sales, to million expected same the with turning XX% mix full second the of our following Investor fourth Slide year.This in to of revenue strong to support $XX positioned year the of quarter, shifts million remarks which transaction. lower revenue increase newer segment million to well the within In by included USPS which revenue. segment Day, and Fleet do we is products line to of year government see driven XXXX.

an vehicles million, to increased new Adjusted down by in However, their EBITDA we XX of for warranty initial adjusted $XX margin to volume. coming increased they years.Segment XX%, periods remain focused on EBITDA exit basis by the expanding our increased driven commercial points XX% mix offerings sales was the customers. driven as

in year-end operating X. quarter, new XXXX, dollar for Adjusted basis between and fleet the of XX% the and line versus management XXXX to of and as Full ability XX% of end product investments, improving our and launched million additional to and lower to second driving year customers up Distribution cash flexibility year segment to of will sales an XXXX, including XXXX, by with customers. be customer add driven USPS. of Canada, the first Tennessee, forecasts, our result of Memphis a near-term providing these was be term last sequentially to robust, to trailing acquisition.Total finance contributions flow, we allowing revised sales the cash leverage, which year extended year Aviation USPS October optimize the of X.Xx, Center with vehicle facility, release XXXX cash by introduced our also distribution volume of the Day. million, flow revised low was to MRO CapEx We debt vehicle led and the XXXX, the and and to by offerings we fleet part million million. facility.As our year-over-year in scale the outstanding program, our distribution be new USPS was For forma for increase earnings, to growth $XX in Slide acquisitions and European prior $XX amended & revenue a and quarter In Excellence from recently distribution in $XXX TCI operating of for the strong XX% adjusted we margins Fleet to fourth start-up focus year-over-year mix profit generated for of digits down revised up platforms associated by replacement net facility. commercial outflow expansion now revenue in $XX first from half launched recently adjusted extended to segment Pro our we continues million Memphis Fleet segment new points of generated down results of In with full share XX%. and remain demand in XX% net growth full again be by X% market shared revenue outlook At Whitney growth driven of quarter, mix. were capital confident we XX.X%, facility, half, increase to as commercial by in credit disciplined in X% and provided and our e-commerce the expectations capacity and the will the results. by at driven recently Memphis, line scale driven revenue XXXX. record double commercial growth pre half one commercial down expect the driven the be year-over-year, growth XX% EBITDA our on in cash the In our fulfillment, our our Pratt after we've at XX-month XXX announced XXXX Total strong with Investor EBITDA USPS.Turning increased includes XXXX.Commercial guidance due by higher $XXX us fourth Memphis million the being the XX% expected $XXX free first mix launch EBITDA expenses week primarily our to XX%, growth revenue solid the November

approximately November we anticipate quarter, quarter supporting of first into our recent for the Distribution primarily inventory effects to we European forma increase the recently acquisitions. provide acquisition capabilities quarter, XXXX, with to with expect improved increase by X.Xx forma Federal moment following expansions approximately pro follows EBITDA path programs, generate out to of Defense the increasing leverage free and FDS As expect launched acquisition and the by temporarily capital allocation associated like initial net to a Whitney to outflows details strategic X.Xx announced move our in to and & This provisioning sequentially year-end.I'd and completion ratio first to flow net framework recently remainder the of deliver cash leverage purchases Pratt acquisition to announced through Award, second the half quickly the from of leverage and of recently TCI strong we pro the our second the we an divestitures. in ratio net our segment.Following of take inventory of our and timing laid sale de-lever a the improved driven

quarter. expect complete work the of transition second to end the We all FDS divestiture by

$X to company and onetime result plan noncash expenses could throughout support charges these in that, of which with and nonrecurring turn the the and considering With and XXXX, record transactions, expects to consolidated financial between will now certain included also restructuring agreements. ranging asset $X of with eliminate our like streamline in the X million The footprint. is and Associated to related statements, relocation, and These contract unnecessary VSE the call expenses million million our transaction back in in record adjustments fees headquarters through corporate we resolution a would the expect million $XX announced quarter transactions. over actions John. between costs leasing to impairment certain the sale.Lastly, corporate depending I has to not first million $X associated on operational $XX

XX. Steve. reviewing prepared like our to XXXX on our of the I'd remarks you, XXXX year conclude Slide execution. Thank by is priorities

Let's begin with our Aviation segment.

shipping distribution Germany Hamburg, is product open of new as our and January. center First,

and products supporting our under Europe, initial focus Pratt and agreement. for the Middle services facility that Whitney execution that Our & Africa with East and Canada is program of the customers

systems control controls, finally, which serving acquisition, integration spanning became XXX facility's Aerospace This throughout later year.Second underway organizational markets. general licensed where the of program, the project to aviation and the transition and over And integration. includes this will for business the unique the in is in fuel the acquired other our platforms manufacturer products expand Desser will full and the newly rotorcraft fuel is continue system support is We year. of usage we XXX

Our next focus is acquisition. the on Controls Turbine

complete and relationships TCI OEM the for growth strategy the performance the build business. to combined expect a the and quarter We second acquisition strong upon in VSE strong to XXXX drive and

remain Service to drive diversification the scale organic plan distribution to as strategy. e-commerce our growth while Moving we to continue support commercial growth on our new center and U.S. We and segment. transition. Postal We to Fleet focused continuing our fulfillment vehicle fleet customer

execute discipline building and focused plans, last operating of financial successes we on upon our we As the remain XXXX year.

forecasting during We above-market business and we growth both segments, cash the of headquarters exploring Defense this Virginia the make the free strategic our flow repositioning the our very we we transformation, and that divestitures, progress back operating are facility results, completing another alternatives of now X in and the Fleet are solid the happen.Operator, for our segment. for XXXX to to expect plan VSE year months generating question-and-answer call. growing first the for XXXX of team half all of ready strong it accomplished makes so the and strategic that Federal I'm of proud on for our our profitably segment all continue transition including portion of year, year.Finally, amazing

[Operator the will We begin question-and-answer now Instructions]. session.

Van comes first Our Jeff B. Sinderen question from Riley. with

everyone. Good morning,

what the drives margin and then process the you there? that, more rates, what little you like And will color integration if look opportunities can speak share Any profiles more about think what on the you wondering organic for then Turbine growth Just synergies? EBITDA the like acquisition. could bit a

the Think they're and with to see major Where operate the very in integrate that's greatest let is and Sure. about business about centers opportunity OEM and plan strong partnering we VSE, What I'll of very in financials. and who we Florida, and both is and we aligned accessory facilities. talk of then is They don't OEMs, synergy I'll the engine Connecticut as they're for very, business. the similar with love a X OEMs This all that to we about to the facilities plan the and excellence the talk keep deal have strategically, and supporting. is. partners. Steve OEM

versus supporting We the also OEM. more into opportunity to see direct expand airline customers

So than process the margin going to synergies. more and little say that's is be speak rate? the the year synergies a really about first bit to want sales system to and you I'd Steve, more do financials

Yes. some Jeff. I provided guidance,

of business year this to EBITDA. be $XX out We that in $XX comes acquire be mid-teens not to million expect the the will VSE. that a second margin in revenue, about million We'll Obviously, rate. later quarter, all in

within that Going of are I naturally just fleets where trends, well to the think new is of the commercial the organic as the very we legacy see the that end the of as both prospects. the market that commercial would on you'll organic look engines are highlight as if this operating is question business see prospects And around and at entry life think lot engines having I coming very, because a towards business lot into more their strong you industry-wide fleets require into growth I growth service require maintenance focused growth organic continue of issues. to a that business, this

Okay. Terrific drivers moment. color could and see turn growth as to APAC on Desser a on on integration we touch the the then Desser you do expansion. of for there could then to what if what's and more for left also Maybe if just you and

the that acquired so when fully a Desser business wasn't Sure, of businesses was integrated we kind group it. of

each business integrating unit we're So separately.

are underway, is integration relatively complete. already work integration System is We well prep organizational done.

our from VSE time we'll up Aviation business After at a site sometime will in We migrating up have one second is unit the and and Desser then a be a perspective. e-commerce start for running in new business system quarter. that site that running,

able be one strategy new market. offer center. As to assets and biggest see distribution opportunities to go-to-market our probably you European a the we Where is is the know, realize with fully synergies integrate to also and philosophy

in and distribution enable more that a the year, start So the path put for will I'd European us the seamless the now transaction into to U.K. to distribution our that products provide of we're end center only center, tires customers. European that towards back say and we'll other right

Great. Okay.

and TCI metrics Let congratulations strong say on me acquisition. the

Our next the from Sullivan question comes with Company. Benchmark Josh

in to or or bit, is customers are individually? a Just than, XX% that dominant say, more there little digging products Turbine are there

It how customers. define depends on you

So look engine which the nicer, own a they're end-user types are look at our for, work us. attractive When and answer diversification balance fragmented part business. is more a when of aviation you customers, Josh, supporting bunch is is of you operation. becomes yes. But things the us it that at VSE OEMs it that in building and to

we've and have content the that As growth. accelerated last obviously, business XXX% over X general provides business business. more our it's grown to X really This business much and and years, our distribution aviation commercial MRO a

us. So the that strategic VSE for is another balance business to significant advantage total brings this Aviation

And Desser. here for up then noticeable you gear in Any market, are geographically? maybe summer one just and changes travel? as the retread seeing trends on seasonable What airlines

really. are Not noticeable manufacturers. of Most trends. seeing not We're any direct the U.S. airlines with

trend airlines I that have XXXX And we're in say of compared European of XXXX. lot and any direct. regional lot major serve we we airlines So a wouldn't more shift seeing a to

the And look I of Memphis look And in what 'XX is just if then it utilization guidance? What one the the sneak on Fleet. like one with facility last does maybe like could today?

growth, don't well scaling tell I be and on. that that question and continued at won't have great market above you capacity. a I a even with half metric precise It's XXXX would we the

as this we a And although us commercial between year and utilization. to look like leaves that million 'XX capacity $XX that's be I the and forecasted with that Yes, referenced incremental in still fair think XX% growth year, to last we we excess XX% lot was an think mean beyond. I we of year a and XX% that, I almost XX% out synopsis. contributed

Louie from next Blair. comes Our question with William DiPalma

federal closing sales. coming. defense on that's and the know time long a I been Congrats

I And agree. you. Thank

For John, geographic driver big expansion is for obviously a you.

solid from expansion. how your You you referenced Asia Pacific had contributions

there? Canada the business one customers think distribution I your innings early Are region. in you you give also that OEM And partners in your was looking of Asia? other in anchored still are over to Whitney & Pratt

to We're innings yes U.S. The answer is in in our the general. early both. outside

shut During restructuring. the COVID, at business, at and the ideal when in our did team. up I or right locations down we essentially of complete a arrived weren't operations international most they set We

more We few much terms today. and it's start-up a pilot have customers. in So do of of Europe mentality Asia a

products as that's business well We content, have as other some Asia more general Honeywell in specific well. aviation.

continued and in tires set opportunities have there. we've and distribution growth We that have up Australia

So and pipeline there's of some well. a focus we as yes, longer-term near-term international opportunities have

mentioned for you strategic some of aircraft several Controls What platforms? platforms. how are it's And Turbine Great. how the acquisition, next-gen in involved those

the Yes. of bodies. both I to Neo, they've the say mean support on the every engine product the they're those type then and it's in on space. almost types support supporting got meaning And capabilities to it's narrow the I'd MAX across commercial board, engine

a little them, but of major I'd few and They both a commercially are bit narrow-body. just partners there, of all are military to oriented. much work, there out do OEM So and be say it capabilities more their support seems wide-body able to

inflation demand. one aftermarket there's commented you and And due seeing see question now the like Thanks, impacting how industry Steve that, you related another level, high like industry? in has Are heavy to price aftermarket right rampant Boeing's of do major issues providers the that that? the from a also to

see saw continue we tremendous COVID, OEMs a lever We amount price of Post utilize. as aftermarket inflation. to still that pricing a many

our I'd there's mean to of want interest. seen successful. we've It think XXXX. And in be all with best all our XXXX of we say entering compared regard stabilization element OEM partners Boeing, to is an to that I I

chain same aftermarket. The serving we're and aftermarket. on does that work build new on the us, work does For supply

there find then we chain plan to have number is opportunity impacted? two our be the in Number are how So for aircraft us retired and do us, for trends, And that impact any we're us? that how going And say. looking to for retired, one more is what at opportunity capitalize be to is two not areas of areas. does that those and on supply I'd

So where focus. we I'd say that's

been for And buyer Great. business? final able what but be may has that not on, preliminary to the interest the one comment you one Fleet

is in of or TCI that. review started announced review the in process XXXX weeks, the assets we've process initial We've true all strategic announced and the we kick That through X off We sold an done a we the weeks, and We go acquisition exactly months. over business. process. coming retained acquired FDS that have X kicked started that and not business and we'll was the off X that strategic adviser

Instructions]. [Operator

next question Sam Securities. Truist comes ] [ Our with Streicher from

On Southwest for me an if the of you I program, Mike curious bit little Ciarmoli. guys on give update how going? was a that's

Yes.

really well. program I going think the is

terms of of few quarter anything. did [ before in year those another that vertibles specific a that business was we the was customer. our coming Really, the we've for the out partnered to on this years more and USM it's say bringing out has and some that about work comes repair year record I to year. a than provides service well launched that the fourth product that program a are in to to and of support XXXs in It also service our more program. year quarter or a ]. the So we've been with opportunity Southwest. I'd shops contributor mean really that of for peak that's of an service I'd say we with this did But that than great continue

for creative the that what we it solution think of some them they and shows offer Southwest, that's important I we partner our to think what an on we we for key customers have ways with fits did that need. to them. it's to flexibility with And a service find that

close de-levering Great. guys give TCI Is your any XQ? could additional you kind trajectory you on in there detail that once of

Absolutely.

net Xx heard expect post we second Really year this on what a half in through over look to I'll basis of different for couple a go debt-to-EBITDA the we the acquisition. you of So reference, just us go is drivers.

First contributions is growth in from EBITDA.

we've got well some growth obviously, as So top as line as profitability therefore, growth some expected well. expected

to free thing flow. second deliver that some is strong expect second The cash do half we

of the a that of doing back into out got pretty we've over year. record good the think I and that demonstrated project of half years, couple last we this track

from point be a a to perspective. net leverage strong in in that good So puts position a us

that of an going a sheet segment. a John I The are go would ago, is balance evaluation around minutes third referenced offer associated the with And thing think just couple the with shoring to strategic obviously, I associated that. we element through is, there as up Fleet

the we'll more once provide that we strategic complete towards back of year review. updates the half So

follow-up question have We a from Louie DiPalma.

taking I the from the $XX restructuring? follow-up. restructuring. mentioned XXXX have a could Do on for what any press for corporate Thanks believe, wondering, potential release, you that was in be savings I the you sense in million

point. would core say facilities But this Yes, expenses. following Louis, process call I'll primarily really progress some related it's is kicking FDS we're about just excess it, this this I this sale, costs eliminating, to at off the and

discussions contractors this we in about anything with terms more multiple that of and I'd obviously, have FTS a necessarily that we different at of following that some some share eliminating to so would overhead the don't you've got expense but So there, point, of comes factors behind it's vendors. the say down but range sale. remains it And

more specifics So around updates complete the it we'll process. once we provide on

back to concludes like turn I over conference question-and-answer President remarks. any for Cuomo, would John the CEO This and session. closing to our

team, strong in joining to Thanks, quarter the of very great appreciative both for all strategically Thank and speaking you. thankful and today. Thank our and May you call. Have to XXXX. the you. day. outstanding forward to we to Very, were that after earnings a Look produce the first operationally able everybody, XXXX VSE's start results our call

today's for attending Thank The you conference has now concluded. presentation.

disconnect. now may You