VSEC - Earnings call transcript Q1 2021

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Operator

Greetings, and welcome to the VSE Corporation First Quarter 2021 Conference. 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, Noel Ryan, Investor Relations. Noel. you, Thank

begin. You may

Noel Ryan

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

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

John Cuomo

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

conference materials. call our of three slide on begin Let's

progress had as business our and all quarter, products first organic in growth segments, as strong We the we share acquisition. During Special through offering Services well our transformation. gains, advance continued service expanding successfully our HAECO new from business market to of three wins inorganic including our

grew and wins, evidenced revenue Aviation new first of quarter, in returned transformation yield quarter-over-quarter operational begun all business outpacing efficiency. in to growth profitability. sequential commercial represented growth organizational XX% segments the generated Aviation the customers, basis, tangible remains and distribution another across the have the market quarter three segment business consecutive Recovery Aviation of results, with quarter by as consecutive achieving revenue during during recovery Our quarter. revenue on relationships levels government improved business segment. while first ongoing. a and third change pre-pandemic We and management and these to our expanded initiatives

VSC now general month, announced distributor Turning of leading Earlier slide major for four. flight on partnership this distribution serving the Aviation more with accessories this agreement, components. aviation one XX-year segment agreement the Under to and global be a engine manufacturers market. terms our business $X will aircraft our than in the XXXX the of engine engine building billion, critical

Aviation critical of than VSE basis We maintenance and a expect for demand on This aircraft to with agreement aircraft flight events. reasons. XX/X is on to service transformational support more scheduled components base ground US line XXXX on number a for

First, our general of jet to it operators with further aviation which supplying us part advances owners, solutions, the strategy. and affords deal and business and This opportunity focused directly a critical repair on-demand attractive product business market. within within large providers components opportunities engine new market in Once complimentary phase support fragmented offering provide and gains will long-term underserved the to approach direct-to-consumer service business and market be cross-selling customer is us program share this will maintenance there position ship and implemented, this vertical.

XXX service capabilities to engine than general platforms. intend we to scope this OEM aviation and expands aviation our agreement With this of our to existing regionally business aviation in significantly exchange engine units. additional general accessory repair services business Second, include more expand in partnership,

Once XXXX more critical of on business. from approximately begin to to underway, value in Finally, and will is the this the program is flight this higher into requires building June expect operations. million the and a program anticipated long-term with XXXX. agreement currently initial a one of agreement in $XX is consistent program year. our margins, deliveries implemented, focus provides of We attractive $XX revenue in fully the be $XX at contract pipeline million revenue to acquisition integration business, under work agreement generate level, million this similar in that new Implementation revenue. our On full annual than existing a strategic strategic

a new agreement this relationship major OEM customer with risk where XXXX. a long-term a integration, unlike supplier However, acquisition a through factor, stable business and brings is engine always

low-risk combines with products, take and MRO current a extensive Aviation strong moment in for want chain our capabilities. and I business that VSE because managing with forward agreement was a and winning of highly capabilities, together contract, to Aviation value experience general for momentum market Additionally, its for financials evident complex the recognize focus, historical it's aviation this business general proven selected aviation profile. distribution many a I technical supply to this to transaction proposition efforts unique and our building in this global team the in business. upon look in

commercial and commercial our Turning a this quarter to by of US the Service the and Commercial prior Postal for in XXXX XX% driven Fleet continued total in first the the and approximately strategy excludes driven channels. period, on represented revenue, to customer first the basis Fleet of in segment. which quarter our of growth Fleet revenue demand, by fleet year-over-year our XX% versus segment, sales fleet revenue fulfillment increased diversification of commercial in quarter, fulfillment increased e-commerce XX% increased first X% review government-related year in revenue in a XXXX, business. e-commerce revenue, Total testimony

the introduced multi-year about higher steady award segment In year, Federal multi-year expiration. military, offset million strategy quarter new contract and execution wins contract the served the MRO last backlog. Our and Federal vehicle previously with filling combined on in new that to had with These progress and awards new segments and up as announced Aviation the solid emphasizes business contract versus US and Defense April as make continuous $XX pipeline of allied announced FDS, its margin revenue Force prior foreign year, business to contracts. continues X% Air reflect a one with our Defense growth an

opportunities, expertise niche capabilities as leverage customers. we with project and MRO additional are We and new existing technical our proven management pursuing

segment. As HAECO closed part Special mentioned XX as business, days above on over contributor X. Federal operating closing transaction, and the HSS to Steve this integration moved it a of will first March to of turn of now VSE be we strong historically the ahead family. since team or has average, our seamlessly. and a business the HSS Services last of for the and XXX profit review performing segments Griffin members of the forward anticipate We quarter, margin the the that will revenue currently achieved acquisition of quickly which In an profile on this a Defense financials. plan has I It's for

Steve Griffin

Thanks, John.

$XXX review We for quarter year reported will to of now for down results. our in turn the slide a We of conference quarter, prior first call the first revenue from five period. materials million the X%

XXXX our on year-over-year less revenue the than basis. declined within excluding segment, a X% Aviation However, divestitures

and in particularly slide period. adjusted we propelled MRO wins, sequentially as the segment COVID-XX's Importantly, revenue by outs as revenue expected share in that XXXX. customers XXXX. improve capabilities. Federal our declined VSE drove quarter-over-quarter revenue Versus the passenger Sequentially, favorable on six, the with sequential adjusted market We and the business Defense detail revenue will margins quarter grew the versus we the year On prior walk close margin prior primarily reduction three and growth miles. by XXXX, impact both from new distribution to and This segment contract continue fourth period, compared year basis. adjusted improved our EBITDA XXXX and company a fourth EBITDA expand to rates gains as global existing Aviation profitability both profit was continued throughout by EBITDA of while and fourth all and its anticipate Aviation XX% total driven grew segments segment as quarter margins, quarter our a rate,

first approximately quarter, business basis, pre-pandemic quarter quarter demand Segment while the Turning XX% the business third grew repair Aviation aviation below EBITDA XXXX. basis, seven, and a general segment by increased revenue announced in to segment on sequential was revenue increased sequentially. of XX% revenue slide quarter-over-quarter representing in XX% and sequential levels straight distribution improved growth. both year-over-year Aviation fourth adjusted divestitures. Aviation when our aviation revenue narrow-body a excluding versus previously driven on improved XX%

Commercial segment increased year-over-year commercial revenue XXX% revenue and government Fleet versus revenue Defense up driven the and fourth in X% fulfillment other revenue. a eight, of slide versus increase as work. to by XXXX, XX% the quarter XXXX, increased was the decline Department X% offset e-commerce in Turning higher quarter first the

we absolute dollars believe remain growth lower for on our margin than us. through the markets, given a commercial revenues what on are, While growth USPS focused significant slightly EBITDA in driving opportunity commercial remains business, we average,

revenue for nine, increased was segment year-over-year, flat the Federal Turning to slide and but XXXX. fourth Defense quarter XX%

those from outlined first value-added we such Department Defense and remain revenue year, quarter combination recently higher the business the provided the quarter with a XXXX. to $X benefited the bookings US on March military both orders growing margin contributed million task Consistent within business as in X. of customers. within HSS on we acquired Federal and that First strategy HSS last offerings particularly the segment, acquired HSS focused and by of to of approximately Justice backlog

will engine recent the customer John new accessories slide capital billion the including referenced, programs. new year of support as Turning XX, be to a our purchase inventory period given we to business working significant wins, investment, current agreement $X

million new $XX deals $XX we and to invested quarter, first the announced. During approximately related related support to million to programs, accessories inventory new including the distribution agreement engine previously million in $XX

to program, remainder look press an we disclosed in support investing million new XX anticipate we in the XXXX, engine to the release. new $XX our accessories As inventory of to as additional

of be year flow full we the our in investment XXXX. expect extent the planned negative to new free programs, for Given cash

At us we X.X, EBITDA commitments look $XXX conversion leverage by towards not quarter to will back call business, to business. with these was ahead meaningfully investments. over the that, acquired to of recover into consideration under our John. quarter, Net continue net we the our year we take And as XXXX Aviation we levels does $XXX unused ratio our in increased million period as reap first With XXXX. Aviation However, This recently strong XXXX to replaced benefits accelerate of first cash initial to as the leverage I'll had HSS and turn positioning expect anticipate the metric XXXX, facility. million results. prior end credit return to end we XXXX EBITDA from the cash

John Cuomo

first quarter to capture required results summary, additional while growth the revenue of headwinds. particularly In continuing value sequential business lingering all in the were strong, share across Steve. market. groundwork segments achieve segments, Thanks, pandemic-related We lay our given to higher

acquisition bolt-on aviation awards, winning accreted Our immediately transformational engine business several components. new a while in contract completed leadership general team has a successful including

to forth forward of expect be the continue for XXXX While as growth of as services by proud our team. will a leading the within these announcing significant, high exceptional the what in ahead. Operator, am years build company, portion period will margin look now be investment for additional for call. we I markets this for higher aftermarket value progress foundational we VSE our working ready investments business. our we efforts I put to view question-and-answer are of we capital

Operator

Please [Operator Instructions] Our proceed comes Canaccord. with from Herbert question. with question your first Ken

Ken Herbert

and Good Steve. John morning,

John Cuomo

Ken. morning, Good

Steve Griffin

morning. Good

Ken Herbert

but that. the first Can think the agreement? sort the rest about business of I down about do of agreement you the I on appreciate of about the the that John, - detail this just 'XX? jet implications top how on for the year drop in to of the line signed distribution that on the profile accessories. engine agreement you margin all into back talk wanted Congratulations and ask we

John Cuomo

kind for competitive how reasons, the kind at on Steve, that, I little how guide margin what want bit don't publicly you Ken profile to a it. look of Yeah, mean, of to is. share I would

Steve Griffin

to say in of talked in profile. terms would be that I going line it's long-term about business its with we how

levels. been getting saying about where pretty and we've business think back at to I that pre-COVID public is

up a we've being $XX of - year about and little are fiscal costs running. should and you gone getting with 'XX first, the associated some out think in revenue. I bit business explained more the There million about

ramp about, need going beyond. thinking going not have we're into to meaningful and headed just in program the but to So, it's to XXXX year a contribution

Ken Herbert

the the think more opportunities but predicting the about would And the imagine, helpful. can across with OEMs without what you of we've as agreement, could conversations then like talked, to these, on we marketplace, maybe a now I are similar pipeline that's that but hear should take across we OEMs, specifically the business? pipeline? about when in as share Okay, face time a additional about agreements? talk second, how again, of challenging And now's

John Cuomo

release. the to and last of two do revenue we I Yeah, now significant activity would it's want I all paper three very new to about tremendous Aviation, been in mean, this awards. piece I It's out of of as more the mine earnings have and a our generate business of put pipeline a focused see awards. backlog few the balanced, you'll and awards see about press to the year, but pipeline the with on bit the a I of talking really really executing start yes, along for we visibility right pipeline, on we - build. years mean, forward good And our pipeline the we that these starting feel segments really that a move to building little now. the we're from and say, of start in for focus

they're variety it'll That is as out of about one we it's of say of I the awards balance very So rare a pipeline very announced. that deal. large a would not awards, many there with OEMs. awards. size execution the a feel a But as we are large But just there good do that of be new and

Ken Herbert

Great, thanks.

segments, mind we second from is So Steve, just sequentially first think anything the should finally, across there about keep we in to quarter? here the the as

Steve Griffin

of guidance, the sequentially quarter. Aviation think the I that back the business every given would haven't to, we grow expecting hold year, gotten which we to is but Ken, start we've what Well, we're to obviously,

look broadly So that expect we to expecting And they're the have throughout. businesses, first the said we're we confident looking year, you year. half still terms at to we for think I demonstrated qualitative guidance results as quarter, first that And the going that here three that in all of we're of the in if overall grow quarter in the but just then to the all to grow continue. to our at them second there get

Ken Herbert

pass perfect. Nice Thank you. I'll quarter. it Okay, back there.

John Cuomo

Thanks Ken.

Operator

Thank you.

comes next Please question. Michael with from Ciarmoli Truist. your proceed Our question with

Michael Ciarmoli

results. morning, guys. good Hey, Nice

John Cuomo

Mike. Good morning,

Michael Ciarmoli

taking for thanks And the questions.

Ken to was stay question Just on that asking. last

item contract is just that I think, given well obviously those Obviously, about but XX/XX the acceleration. inventory last quarter, that changes the have free you some seemingly you splits from qualitative guidance, explained, general talked the splits, the only still new EBITDA which flow, but given that as investment, cash EBITDA hold.

Steve Griffin

we second we've Yep, it XX% we're still holding was half, to to by the guidance deal. information first and then driven earlier, predominantly OEM most updated given this gave regards inventory half, that some XX% in

Michael Ciarmoli

was? what for how this think a win John, proposition contract? to I you do Yep. can know, don't deal? Maybe the secure value why Perfect. point question but or enabled and this simple you what guys to us you competition of VSE Was did lot there this

John Cuomo

things. of couple a Sure,

general on predominantly programs and amount as the say, biggest like, and we our It our And history was to the life us that's some strategic in in desire house and as spoken is programs, some we they MRO to were opportunities business including this have people is time and distribution and want the We the and that's and that business with involved. that really and initiatives in offer, accessory to current engine a differentiator work found process. the They're tremendous the as again, DG&A house complex execute. does This through managed shop OEM. the MRO about the others of to a align success about a the well First, customer by competitive these on COVID was wanted aviation, focus There we focused in OEM past, I'd engine aviation type a activity. have that was the that in like the general managing this OEM in Kansas an shop business programs, we support I've will communication. of that of exchanges managing for aftermarket outsource. deal for details months. more in announce coming

long base. there. those in we to to excited think, lines. announced, and general it's our will of And much is from aviation program, it similar program, the deal about of bolt-ons business combination I And get to gear enabled two like and our landing with attach to what differentiate add-on about to more we can itself ourselves customer I that deal and really very the do size really for that we it the and the those access that we've is us, this out deal it me, this OEM, had now So the entire opportunities history it implemented what just the not business, meaning what have for peers we about it everything but love the looks announced once the product we'll

Michael Ciarmoli

- Got wanted about opportunities. cross-sell I a I those ask that's to good it? And segue. wanted

do you call maybe out opportunities operators, this fruit an to owners individual out? or sell elephant hanging or just do think think So low it, going and there these cross play there's of that secured kind contract individual more type how any, you I'll is upsell with you be

John Cuomo

general a definitely - do but strategy, aviation there. Yeah, months us around and not what in this about And customers, and just I are now, more that the see plan the coming pipeline sell of the that as play, OEMs we they strategy. fit see many to are how and deals understand exactly can an pipeline where into and of you'll cross we've the from coming hear around think opportunity, an mentioned, we where we got opportunity business program, to in Ken deals, the when

in is we think product our where you're doing. that calls will nicely say, getting reactive, to of the we're fit line very some what even So now

Michael Ciarmoli

you color levels me, the of that do certainly then just What it. a for aviation. hearing? seeing? What Or Is are and What can provide It there was inventory the What of think? maintenance? the with like kind general sounds of Were leading distribution Last it. you aviation there? one leading of that get I'll a lot the lot Got in low? Got business was distribution way. that nice growth us on the business, out recovery you restocking? of are deferred side you

John Cuomo

is at expensive I done nice Yeah, very one business helps things. mean, of It's the what is a is locations, which it customer product more little product. there amount different it is than It's out the predominantly two Number necessarily our so the product, proprietary past. faster. in not recovery to I've see,

The are second recovery is it's those said, market are wins. see, as business that on execution new that's kind ability we lagging our the starting to business some and the and with new wins. starting we've see we bit more that and outpace was of lot said lot I've obviously, in the a the well. And signs And to positive MRO then coupled the with business normal wins of to little that a a

Michael Ciarmoli

will Thanks, queue. Got guys. Perfect. turn it. the back in I

John Cuomo

Mike. Thanks,

Operator

you. Thank

question Blair. comes Louie proceed Please William DiPalma with from next Our with your question.

Louie DiPalma

Steve, and John morning. good

John Cuomo

Good morning.

Steve Griffin

morning. Good

Louie DiPalma

transformational The engine deal accessories seems an operational perspective. from

will million how or estimated per scale year. $XX scale revenue can You to up

bolt-on cross-selling rate at selling synergies - does potential clear, that additive from the the be to and Just revenue million include run $XX or is cross

Steve Griffin

Yeah, selling additive. as cross

So represents [indiscernible]. that just

Louie DiPalma

estimate general and fraction rate, your deal total are versus now you other million aviation business Got to a aviation segments? jets you. commercial $XX able of and no cargo including like business what run And at is when and this

Steve Griffin

we're continue now what the markets a to bit point. But a to probably generalization details we the said end color business of look about we more start share do prepared earlier, just a the we'll were little we'll look like, we more And share what on as the we well. like as not in on little on little color towards as bit likely, those ready not information. strategy. little share break the and color and year, out bit that MRO back Most to to we're on share distribution more - share at a XXXX, talk I this not more we'll markets the get well, will as business the Yeah, filings

Louie DiPalma

turn. in the sequential good. it switching be that And first Sounds the up Defense makes in and last seems sustainable we stabilized sense. you year? achieved business, to expect a That quickly for to Federal quarter, year's after that rate Is of the has revenue; rest should the for business that step run XX% revenue the

Steve Griffin

Louie. Yeah,

communicated that all So grow in we expect the three you to our year-over-year. of we have out gone first should segments business quarter,

And And that it, a confident feel us sustainable so be I to we're would this in we've it a contracts But saying that at and top to the start line. out. in to of some for though business rate, will that there little in do lumpy here order think that. communicated is we've so expecting recover are move I this I nicely. communicated have sort larger say to think we

Louie DiPalma

Great. Steve. John. Thanks, Thanks,

John Cuomo

Thanks, Louie.

Operator

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

John Cuomo

Great. call in business we Thanks, continued joining forward with second Have the great speaking our you after day. the look a appreciate confidence to today everybody for and July and quarter. our in

Operator

concludes conference. This today's

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

VSE (VSEC) 2 May 212021 Q1 Earnings call transcript