VSEC - Earnings call transcript Q2 2020

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Operator

Greetings. Welcome to the VSE Corporation Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I will now turn the call over to Mr. Noel Ryan, Head of Investor Relations. you. Thank

begin. now may You

Noel Ryan

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

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

John Cuomo

Thank time you you, to thank Noel. the Welcome for join taking everyone and today. our call

long as one known be of halfway will and now that are challenge resilience. year We the through great

specifically and macroeconomic lows. uncertain more During which conditions of to in traffic a historic commercial period one air fell

initiatives. both adjusted million flow strong market VSE dividend $XX.X market within cash continuing Our business cost the a reduce debt and series quarterly the team with quarter. of to of conditions, dynamics development divestitures evolving of reductions free EPS and pay quickly $X.XX to targeted our new delivered and rapidly adapted Despite

opportunities new led our market where to forecast strategy. our sees focused pandemic, results second on execute about a VSE culture continue first during internal one to we and only our not the exceeded business being Our quarter global to responding but

effects This As quarter which COVID-XX expected, in second pandemic particularly our results reported ongoing the our divestiture. combined by stable revenue partially year-over-year excluding of segment of represented impacted our total within a about government comparatively on XX% decline from by of the the demand impact the activity aviation prime who were offset in Aviation was customers turbines basis second the revenue commercial decline a XX% quarter. in

to now of the call Turning conference three presentation. slide

Before to specifically our our on with we to move execute results, taken begin update. second update into I'd this the of an actions strategy on and review strategy corporate a like quarterly since detailed quarter our last

priority business New of operating development the remains segments. our all top across

This our awards new of Group During and our driven XXXX. expansion the the up reported of Federal first half was in half first $XXX Defense existing of from offerings successful customers. XXXX, by Services of suite million new capability million both $XX & in to

During year-over-year XX% additions. increase commercial growth second e-commerce driven new building increased contract the consistent pipeline first strong our quarter, in focus a XXXX by and by the segment, a when customer half growing of our commercial fleet during activity management Within with business reported of half fleet to of compared we sales XX% our on first contracts. government bidding we the in XXXX,

new Although, our better continued business we've by demand. peers Aviation perform despite take softness in than positioning air impacted to our has travel, to segment in decline industry us a been near-term wins through share

development from As Honeywell. our are already the we business seeing second announced results by XXXX, to of the recently evidenced with as half distribution efforts we look agreement

the our of in remain business we products environment. from business on with general Together focused in development, current that distribution in also have the month engaged already structure new aviation We demand supporting July. rightsizing with agreement business with and our cost customers

disclosed last mainly XXXX. end approximately we the Aviation the by expect the in third costs As of remove $XX million within quarter, segment quarter annualized to

$X expect integrate progressed actions. our and We units second go-to-market distribution leading in services. benefit during to approximately our units back quarter, half realize XXXX Further to of with entities to seven serve cost the Aviation plan reduce two the including million we reduction business from business and from MRO our these both in market that

strategic we As centers business higher greater margin of part or while assets. into three divesting Consistent entry, process and of with asset of rightsize work the continue this we in with to closed consolidated portfolio barriers non-core our of excellence focus facilities. program, to our exiting on

second assets acquisition engine the and CT Aerospace insurable completed of a quarter, the sale inventories. and leasing spare of to related During we provider part

sold value. we the these full book assets Importantly, for

go-to-market Aviations ahead markets. MRO component and higher and and Business the to accessory Aviation on strategy distribution parts engine growth General will Looking support Commercial concentrate and

return while growth balance Finally, help opportunities. discipline preserve highly quarterly sheet we and remain to on continuing capital to focused maintaining pay high dividend fund our

consistently our high conversion. cash we low the of achieve intensity free capital Given flow business,

period. level years. resulted quarter, During cash million million debt reduction in brining a from growth generated $XX million our more flow a to we than prior the second year-over-year in debt in up in This quarter year $X.X cash free in negative nearly $XX.X free during the net two flow lowest the generation

million share for the down total down relatively with $XXX.X adjusted $X.X $XX.X for X% adjusted of of is XX.X% total Federal our to and adjusted VSE We our in total ended customers to Moving & flat Defense year-over-year. of Revenue was down with to Revenue year-over-year XX.X% to due core reported slide or million net commercial $XXX.X income quarter million year-over-year. from the EBITDA revenue the down diluted year-over-year customers quarter. $XX.X primarily Aviation XX% million million softness segment. from four, $X.XX

anticipate as For a during the quarter. versus aviation third as quarter-over-quarter a the to revenue the XXXX, quarter at the growth is recovering and June business customer sequential commercial segment whole, currently rate revenue level. We compared second of healthy in earnings

market. positioning share again results, to macroeconomic Aviation progress strong recovery to offset I each our an respect new our after with us challenges, business the facing reporting across leverage make Aviation am wins industry. what be we to continue pleased multi-year gradual particularly quarter with to development in second given as expect the will We segments, the of

While linear significant business work higher in us, markets the and more have ahead we as over ago, we of company to it was the scalable us win repositioned a than have months positioning XX margin long-term.

full for more the Loftus expect second We flow over turn to free both the profitable I Thomas to our XXXX. that, be With cash our detail. performance and to CFO, call in discuss positive financial quarter year

Tom Loftus

John. Thanks,

primarily revenue million, Aviation driven our Defense Federal in Segments. X, slide $XXX.X quarter decreases of & to our Turning second and by XX.X% decreased year-over-year,

our up XX-months, or trailing the $XX.X For X.X%. revenue was million

As trailing million, was illustrated total approximately adjusted on parts adjusted in EBITDA well by year-over-year impacted Aviation and up MRO miles, slide for pandemic, our lower was resulted X as million, $XX as our which $XX.X in X% XX% was global In support. segment EBITDA supply revenue QX XX-months passenger year-over-year. the aftermarket adversely and of X, our demand face down lower

our in of revenue the Additionally, January Federal segment Defense due & Defense completion from XXXX. decreased to of with a Department contract the

to adjusted the full PPE and for we both non-recurrent of benefited a $XX.X segment year XXXX. customer. challenges Fleet Despite from COVID million Our revenue net expect supplies order cash the we've income free be from a related this flow experienced government for from quarter, positive

operating each starting Now, segments with slide discuss of three X. I the will

Turbines, XX% revenue the Aviation to quarter. of sale segment the Excluding declined $XX.X Prime year-over-year second in million

a in charges decrease Our decreased million in on Adjusted $XX.X precipitated the components of operating CT period by revenue to EBITDA million decline XXXX. primary Aerospace of and XXXX the quarter of $XX.X decreased million profits and the $XXX,XXX The loss same for were income year. sale the to assets second pandemic. quarter of $X.X the of of approximately prior non-cash the second of impairment compared the

the income Turning to to from decreased or Revenues impact revenue million a million had second $X.X $XX.X $X.X million. strategy on slide second revenue year-over-year the order, in quarter, quarter in $XX.X million. adjusted in segment $X.X of on basis. successfully on segment with non-recurring margin. $X customer second year-over-year to while a customer, our This million government a fleet year-over-year year-over-year execute an quarter approximately EBITDA decreased segment from XX% increased growing PPE to Fleet X% from million the adverse commercial diversification X, continues XX.X% its to operating

In order, year-over-year expiration to the to January million. revenue to $XXX in year-over-year XX.X% attributable backlog of declined to the adjusted segment was of XX% total contract $X.X channel $XX emphasis focus with the army & awards. developing funded on XX.X Federal year-over-year increased continues decline quarter, $XX.X this Excluding increased bookings of backlog large million, customer million. XX.X for The EBITDA the activity second margin in on and the one-time segment for the business declined to was new in second in decreased year. this to in new while funded Defense Federal XX, business XX% QX year-over-year & revitalizing a segment the The million. Defense quarter. $X.X and year-over-year million Adjusted slide delays quarter total operating growing to income current EBITDA On company in backlog But XXXX. XX.X an

to announcement in far off the third million July. of The in strong recent start with so is new a bookings quarter $XX

January revolving XX, slide matures June commitment to credit XXXX. unused had and million available XXXX, $XXX under $XXX of cash that Turning in XX, we in million as our facility

the ended and with facility Our net $XXX XXX quarter of million debt accordion We total XX-months provision. $XX existing includes trailing outstanding adjusted EBITDA. credit million

liquidity economic highlighted the highly current earlier, and John remain despite reduction we environment, for As debt conservation XXXX. focused on

Under environment. of to covenant the will our XXth, allow economic group. agreement, June which successfully operate the existing through successfully provides our with on amended amendment terms we us amended the flexibility, current loan Lastly bank loan agreement financial the

We turn to amend times. back ensure healthy over made With were that, during decision these it conservative cushion debt agreement to I'll Importantly to and a John. approach to required. amendments not these the the uncertain

John Cuomo

our Tom. I'd like ongoing VSE. closing, In and you, to their for employees thank investors of support Thank

for great of year. proud capitalize the Against on new teams strong adversities, of during market the market first find growth. am a periods creating while uncertainty, I During profitable this the VSE accomplished what half opportunities way businesses inefficiencies of to

We times portfolio and balanced balance to customer strong are our product sheet. manage and for service through well-positioned challenging a vision long-term a with growth solid

now emerge Operator, answer for in question to crisis ability the are better ready portion confident our the profitable in and and positioned call. markets. of we stronger, from are current more our We our even

Operator

this you. first time, Instructions] Michael your of question. a the conducting session. be SunTrust. state Please from with question line Ciarmoli we comes Thank question-and-answer [Operator Our At will

Michael Ciarmoli

you looked Hey, have good industry been update think trends a you little morning, sort maybe sort before see on seems the the operating did Fleet? and you a May give the guys. benefited given the flying what It June, of Nice might from do results Aviation, of April weekends environment. What on that just bit better can work. current John like just reduced here the repair backlog like. us and given gets into of and it an across hours utilization of

John Cuomo

Thanks, Mike.

Let it distribution. by me break and out MRO

So, if definitely look in MRO April. in our MRO businesses we we from at some benefited backlog

a upfront of bit So a definitely we little had benefit a there.

little to represented a although, bottom business So break be that look there, recovery of if position July levels, the from general MRO our far early in I trends, is a for further, June us appear in at really if really May and we're aviation, pre-COVID you holding. revenue end up, June

were the so revenues had MRO, we do looking that of a see have we're ship, the start we decline bottom recovery end virtually will as in recovery to kind we July, From quarter. being July more of a coming of for book bode the we distribution April the stronger commercial June, the just somewhat our towards backlog which at increase to a slower, really starting August. and little organic that in to but inputs there in short all business, see month For

drill business, and there that in seeing of the April, July for benefit as business in that are in we So consistent backlog June was improvement and month of no well.

Michael Ciarmoli

of guess you to a I think, there across standpoint the the Got seeing a specifically that you inventory think bit to to do it's aviation, you is at out what guess I an biz of, distribution commercial it. going move in destocking sort guys Do inventory there product on And up, inventory to marketplace. some I for lot going it be even customers on are be from were for look like, you cash? sequentially there if jet then in velocity happens little side, harder convert of the your to and that general the

John Cuomo

it much of some A rescheduling obviously do with thing on much comes beyond that work couple first, is receive the of proprietary this we of pushing most part-centric QX. trending out we – in inventory amount as in that it to here that hand, stock manufacturers inventory, commitments, it's in OEM is things, did so amount based and with products higher really the business have quarter, in we when into have inventory the of as possible significant the were our the we quarter trends traditionally a significant that, heavily. on there some customers did very The good not – XXXX heavily

So other what and competitors and that we are out lot of risk is of the regardless the or of a they have of less our sitting on much than not trend faster destocking should there. many means recover suppliers inventory

Michael Ciarmoli

you're wins like here shifting getting quickly there Federal, July, you then about more new guys it's the new into bookings out and the talked to it. sounded the marketplace. in Got some And just

number on our what else with XX% more helping or was what aside attracting kind is else you threw about the you talk think is business, what maybe the guys? bidding your focusing else win maybe blanketing I do your up this customers can proposition bidding out value of pipeline, from you activity market activity, you

John Cuomo

Yeah.

it's former it's little investment. really segment a with three So on of business, focused these lack suffered the creating leadership as that business business the bit that aftermarket a a

maintenance at the was of competencies phase out revitalizing capabilities getting making in technical overhaul inside Phase type the sure the such team we core capabilities of when kind next have tremendous and and team, one and were we we three in look strategy the marketplace. other So that over the those years repair engineering,

and bidding was more sure operations first So it of win work, candidly, make that work phase to taking just the all about the we're more. these and sustainment

propositions. phase second it The extending those of is now value

on team, dive us Specifically, deeper new will in doing that the months chain focus leader next ours. you'll focus in core we capability to the over will you restructure the that quarter, a see us that nine team a and see supply six on much brought a be and of

program the other and the in we and initiative work, sustainment programs, we on type for traditionally live went in armed that of are officially that aircraft July just the maintenance that flying even the for vessel forces launched the and more we army earlier work to one On had in aircraft win we sustainment month year Air and kind focus Jacksonville. and Naval were the that of on naval greater Force

Michael Ciarmoli

provide color a off growth give fall could of even can is or Got one, I about give it. year. going Perfect. And the profitability you're not trend And give anything one-time going I'm you're obviously, the maybe as not exiting of you the kind to us know perspective? some talk but then, fleet to you standpoint, a you from have from to going the any last other assuming on order I know XQ XQ revenue else directionally of did you're improving guidance, or

John Cuomo

what kind year. of breakout to revitalize segments consistently kind a you core build shrink the of said mean, keep we've – the grow Group Federal this and the if and was I business that is this a that,

customer on in customers strong the on we with to and growth. quarter but our and so didn't less commercial diversifying strong is we our the So with strong demand, really actually plan perspective, in back they internal a ability little customers, we focus to quarter we that internal just-in-time that year. to front achieve terms that that to that customers continue base, of and and continue bit of business our e-commerce our had of get fleet to throughout expect plan half focus a From was a the performing as have

QX revenue that We earnings guidance. third and in as this right that to we is of one perspective, a else comfortable side performance comfortable breaking side sure the sequential non-e-commerce I in everybody aviation feel are over business, and we and an will but see commercial a start I this the saying a to quarter-over-quarter at if point, time which at better market say quarter from both think with the out now the QX, seeing I'm growth that quarter, are we're by then that not you think

Michael Ciarmoli

jump guys Got in queue back it. thanks. That's helpful. the I'll

John Cuomo

Okay. Thanks, Mike.

Operator

question question. Benchmark. with proceed your from Sullivan Joshua next of The Please Our comes line with the

Joshua Sullivan

Hey, John, good morning here. nice quarter

John Cuomo

Joshua. Thanks,

Joshua Sullivan

can talk looking at the you segment, are seeing share about Aviation point? picking Just you you at -- up struggling competitive the market them this environment, competitors from

John Cuomo

I of their of our break financial organically of the where distribution distribution from opportunities that's are distribution creating aftermarket Yeah, but be segment we're that into if some the an a some play core invest and businesses, seeing I business some play the out players of in that in I distribution position perspective, in new market, opportunities us. business more competitors on for businesses. are MRO, We're mean, are whether type on other pure seeing we core kind seeing OEM who think focusing aftermarket traditional or opportunities, the also to their and Aviation

those exists of has again well bit as for in some a businesses, September well. opportunity which businesses, will of strategy, as where see right as some extend that perspective, support rotable So to through from parts investment perspective, slower recover a is MRO was -- little decrease now. is a a but to see market of we are little market created Aviation on the biggest distribution the it's that going we the creating some share CARES there is that's to is trading a business From the and businesses, change business technical there us at the some bit we support there in opportunity still in segment Act commercial those fragmented of of smaller a side. us little opportunity Where short MRO seeing the for end really those of talent that on which be

Joshua Sullivan

And tough uptick segment, then, just really or by product what the is here? year-over-year growth some just driven the e-commerce was it sounds that's trends there, it -- like driving it on any growth the like on driving that impressive was fleet particular offering, side commercial within sounds that e-commerce

John Cuomo

on the No, e-commerce time We're as just play physically just we and it's of. brick-and-mortar -- stronger strategy, in e-commerce so there there how is call the really that. do as will a around out benefit people saw consumers predominantly solid that shift team getting focus internal by from e-commerce weren't bit we predominantly route COVID space think fleet down we we that strategy is because around in what a believe quarter, not our benefited in going execution and well e-commerce the be on from strategy thoughts help fulfillment and we the going that commercial little to of

Joshua Sullivan

leadership, Got it. does the funding feeling some some now And the right new funding outlook of that going mechanics that on then all exposed post this office are new there. just there? in How at are how on for your about you that change and you're

John Cuomo

commercial in USPS on have and We're the full more the seeing onset that commercial controlled that are approach any program see we coming is program, I our a happy slightly relationship that hand we're the controlled, from expected. we the We're with USPS the right as nature. seeing is pressures very new content of It's effectively and leader. doesn't about are of inventory. supply activity -- maintenance to on benefit it's the on mean, costs funding with chain is XXX,XXX through, part demand see vehicles that's cost just-in-time the consignment a a XX% manage of the where lower in

and some type for that Postmaster he the believe transformation. we into commercial expansion more wants of do we forward program see that that curve moves with opportunities to ahead a the potential So where Postal as of take of opportunities business other partnership Service the in we're new General with

Joshua Sullivan

that and B, checks And noticable just on on your about C airlines about with pipeline D trends Aviation, one are right one any last think A, and replacement parts we exposure can now? to how thinking you comment as

John Cuomo

I think things. that a of couple

today, but share we perspective. not think have not in strong from our positions we market a markets I from yet of market a kind perspective, where -- large we're

part to terms we're So businesses think the this see applies see better and feel and our relates then We wallet of our smaller out business. kind are expansion bit strength and same We're some existing where to COVID really we competitors business MRO XX% the to we of that well financial not down of try and to plus mentioned the a like where and demand on kind the faster. break of scale side, outperforming capability and position what it rather a to we do We positioned share support the of little to aggressively industry focusing that -- we're is through of smaller out sales than that players those What on down in of do more I our us to customers. because ourselves fragmented we're earlier logic how business capitalized there. actually very the part expansion. still very the support best our going come the little of

So the And there do at with in business has and that model wallet seen expansion. is that we in through building point of plateau. capability and come grow we've expansion that to the our that that still a this bottom how assume product "recovery" share is and we're some plateau way

strategy. kind of approaching way the it's we're the So that

Joshua Sullivan

And thank it. again, you Got Nice for the quarter. time.

John Cuomo

Josh. Thanks

Thomas Loftus

Thanks Josh.

Operator

next comes Please Ciarmoli Our Michael SunTrust. the of from your with question line proceed question. with

Michael Ciarmoli

can for what was percentage disclose you taking quarter? Postal guys. the -- follow-up the Hey. the of John, Service just Thanks in

John Cuomo

they federal if to I the largest don't that the federal traditionally you'll disclose that's of kind continue down part and have the see kind specific space, don't Q, our in of but of We customer. customer break be you the know, handy.

Michael Ciarmoli

like Are that two-year inventory you requirements? little relationship VSE more give a on this has then, -- there portion connectivity, a spending competitively? in of, can pretty seems that sat-comm distribution And a more then, a and I bit nature Did there. to a deal? know going just a sort which from there, a bit lot little Honeywell if announcement sure color are And sounds offerings it a not expect had revenue it. maybe know there and I'm with to any discretionary those that? be we upfront I It but lengthy of little win standpoint? you on long this had just and tied is of nice color Can more really Got exclusive. you like what you maybe

John Cuomo

Sure. really year first, when till mine with had about strong came strong. into is Honeywell's I them mean, relationships past back the Honeywell, ago, relationship had I I -- I've VSE customer as in a XXXX. well. was my life the with large

deal So, July. term continue worth near happy with that wasn't to immediate revenue the very $XX This We've a of competitive relationship we specific The was seen the term. million the It over about expanded already in partnership. this contract. a offering. month is

discretionary, it's it's aviation XXXX. business general planned on in market Although, platforms the are XXXX where and upgrades for

already see it or we're be we the do in won't period, purchases internal this over over the line up, term. flat as from month for of it three in exceeding scaling revenue July, but and probably off four an kick it the So perspective scale inventory kind forecast will of we a our

Michael Ciarmoli

the material. Obviously, coming to retirements wave thinking But there you How standpoint, is if guys don't trying Is think an pretty neutral and more a going to traffic is just maybe, of as probably, and parts opportunity are old is to net MRO. is from guys? it of accessory there your serviceable to what's this, certain much really off in customers? bit about just are a out you that think trading. Last to or planes, your little likely big the products coming risk? that? more participate a if it from be USM increase repair opportunity, in there about mean, you this Okay. about pertains commercial here, is used one it it I a an But of for we

John Cuomo

there's are see USM in we impact in opportunities would through mean, kind MRO neutral the up, see for shop. perspective. competitive from our less some team's a portion ability such of we our out Yes. I perspective, where FAA certified of tag – that's in an probably to even the probably than our But, where application pools be an parks some rounding mean to do it's consistent there need a From there, do us. of me, routable the net out mean, I even X% XXXX of business. you're small it's from refreshed that I

we see say, par, I net probably would So some opportunities, but neutral. it's on

Michael Ciarmoli

guys. Okay. Cool. Thanks

Thomas Loftus

Hey, XXXX and Mike, is just if year. one-time for follow-up We of about for in that consolidated with number exclude it's XX% USPS. USPS last the disclosed on revenue the you -- XX-K, your on question that order, consistent it's

Michael Ciarmoli

perfect. Okay, Thank you.

John Cuomo

Thanks Mike. End of Q&A

Operator

closing would end call have we our I turn Gentlemen, for question-and-answer to and Ladies to And session. of the reached like remarks. the the back over Mr. Cuomo John

John Cuomo

We support to connecting today. safe everybody great of look Stay you. Have Thanks call. for your your on our you next and VSE. with a time appreciate and Great. interest we forward day. Thank quarterly

Operator

This concludes today's teleconference.

have this you now time. Thank for lines may and your disconnect a at You wonderful participation day. your

VSE (VSEC) 2 Aug 202020 Q2 Earnings call transcript