VSEC - Earnings call transcript Q2 2022

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Operator

Greetings, and welcome to VSE Corporation’s Second Quarter of 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I’d now like to hand over to your host, Mr. Noel Ryan of Investor Relations. Please go ahead.

Noel Ryan

you. Thank Corporation's Results VSE Call. Quarter Second to Conference XXXX Welcome and are Cuomo; Griffin. Leading today President CEO, Steve the call Officer, our John Financial and Chief 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 due risks the may results described periodic filed with statements in from risks and in today's those our Actual various projected uncertainties, SEC. significantly forward-looking differ to including the reports forward-looking no as statements. required our by to Except undertake obligation we update law;

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

John Cuomo

and joining to Noel, Thank everyone the us call you, welcome today. on

Let's the all Slide half reported two year-over-year led in finished broad-based with VSE Aviation, of including the in XXXX conference the of our begin by call record three revenue than a revenue first quarters growth more decade, quarter. on which in second segments, strongest materials. of

of While inflation customer-centric market. our value the supply and VSE continued to in products the macro cost and steady environment strength and team for progress on our proposition, resiliency remains chain labor and continue disruptions, the challenging, the given services the make constraints, demand we highlighting

net year-over-year profitability. adjusted increased increased in year. acquired MRO effective income and growth our XX% the adjusted quarter on by of XX% second awarded implementation by integration businesses. programs Total quarter, year-over-year, revenue year-over-year versus distribution XX% plan executed prior with and and strong strong the further in together highlights our delivering EBITDA second We successful Our performance increased of by revenue recently recently

strategic our creation initiatives by advance shareholders. drive business that position transformation, our on-going to three long-term value guided us for continue We to

market First, we and are building product and sustainable revenue execution, expansion. channels capability new share gain program through

Second, of recent continuous profitable legacy and are and outstanding and map, and expansion customer our product distribution highlighting execute our we demonstrates and And initiatives we end support start chain developing service across through our growth road building Aviation relationships services transportation core as substantial operations third, as optimize progress the long-term our with investments, to our offerings. these platform scale markets. business on with I'll market-leading results continue transformation improve we programs and service remain a focused we our and on aftermarket quarter improvement. drive and depth higher revenue of segment. channels supply margin by to on-going phase next customer company's breadth growth strategic our The MRO parts to strong second progress in the and

mix program year-over-year, basis Aviation market. over of while market segment the by reported revenue, growth Parts both Our results XX.X%, activity. commercial new Global adjusted segment and increased revenue supported million of MRO repair growth, representing from and revenue contributions XX% within implementations general Xth XXX% increased quarter year-over-year an Distribution organic the the increased in our second higher-margin and by XXX business $XXX aviation and businesses consecutive record recovery our Distribution revenue growth by driven across to highlighted and quarter EBITDA continued sequential on-going acquisition. Aviation points MRO by year-over-year, revenue with of increased

than expectations. from customers initial the integration Commercial to and track and are our of XXXX launched which and Global revenue quarter, and new the team Aviation X,XXX activity experienced pre-COVID and levels further distribution years, growth will our air on to we performing in XXX Aviation today. General General continue recovers travel to acquisition unique commercial programs. Over Business in commercial Aviation MRO successfully the more Parts few new to expanded we levels. programs market-focused base with growth in These in last Business recover, our activities, customer travel and Also, as programs beyond air contribute incremental are ahead XXXX customers

and Fleet XX% Postal with to Fleet sales, growth our the Turning U.S. contributions commercial segment. in the quarter, fleet together Service. strong increased with driven steady revenue second year-over-year from by fulfillment customers e-commerce

quarter, heavy We second continue total up by distribution basis revenue to increased parts Commercial year-over-year at demand XX% the of e-commerce and XX% segment fulfillment on the commercial in duty of fleets experience our and aftermarket servicing XXXX. a in across revenue more strong period, from for representing medium channels. XX% end than the

increased growth commercial anticipate vehicles. operational meet off-the-shelf spending and within USPS to in spending, year-over-year as to chain supply demand. ahead, we customer including Also, on and growing fleet channels, expand commercial quarter given our increased this continue we consistent second further on basis Looking both sequential revenue the the capabilities

and with Federal our total the year-over-year to Federal by mix the military by revenue in versus increased as Defense comprises XXXX. second of quarter on legacy versus a price and and now cost sales of Turning federal quarter plus Navy fixed supported prior of second U.S. plus. focus In foreign revenue Defense programs. we Federal the XX% XX% levels, margins an contract XXXX, shift year the from increased program in Cost declined optimizing segment segment. X% driven to basis, in growth Defense on our

part of detail, our shares moment more long-term to Directors our Before for announce additions I'd in to to performance the like as plan. VSE two recent a take quarter of financial Steve succession the Board

this Anita shareholders. world-class executives chapter at transformation. incoming directors during to Johnson to Both Board and Lloyd We long-term with are to are of welcome delivering next value commercial VSE of committed accomplished and public for experience growth the companies Britt decades excited respected,

and We are to integral they valuable business provide our will confident transformation. perspectives, continued diverse

on and transformation strategy. team, VSE for delivering the support first our resiliency OEM and products strong the the results first and record-setting proud of of demand execution demonstrate business for XXXX am strength they how and for our the Our multiyear results. partners strong I customers our half and team, and half of our and services

to the second of we focus serve. review integration gains strong build look for over program business continued will call a intend a of this the financial I market to and year, on with new support momentum we fragmented now we in share performance. half the execution, of to our Steve the As turn markets detailed growing upon

Stephen Griffin

John. Thanks,

to revenue turn year the in and versus prior million second overview second Slides the period. of in the materials for reported XX% of conference our five Now $XXX.X let's performance. increase quarter, VSE of call an four quarter an

by new revenue our revenue, execution, $XXX within segments. ever, in its of e-commerce and three by year-over-year combination grew and growth was Aviation driven fulfillment Defense & quarter revenue. fleet partially all a quarter our Business Second continued a contract commercial in by and completion. the generated U.S. segment Fleet Federal General gains growth of market U.S. and strong supported highest commercial operating by growth offset share Army market Aviation recovery. million was program driven programs, of Navy

across segment in the on Defense compression Aviation increase EBITDA $XX.X generated rate EBITDA to Adjusted expansion the of X.X% quarter year-over-year second quarter XX% offset margin a adjusted During segment. the of margin within the margin as we basis. of Federal million, decreased an second XXXX, &

are pre-pandemic recent and below repair to half strong Aviation and in levels. recover is levels, commercial up XXXX. second the above approximately awards XX% revenue we excluding our businesses repair, our led result and increased as levels pre-COVID market XXX% a $XX.X first Aviation quarter. Consistent of of six. distribution MRO from is and trends pre-pandemic revenue, grew approximately second levels new Slide year-over-year levels, is $XXX while expect a pre-COVID General acquisition, year-over-year XX%, and to by to X% million are by of repair MRO the with and our million respectively. contribution and in anticipate of XXX% segment XXX% to Both below recovery Business recent Commercial Distribution expectations, revenue Turning revenues commercial continue Total program approximately Parts XXXX Global quarter MRO on which above basis, moderate pre-pandemic execution.

integrated aviation Avionics business Aviation Looking ahead, invest adjusted for airline. continue and MRO our major our capabilities This increased increased more agreement by EBITDA year-over-year product including Aerospace repair end-of-life is Honeywell of expand XXX base XXX% in U.S. will a across supporting year-over-year aircraft points of XXX we general than customers. support our solutions to to business announced EBITDA recently commercial by and growing margins solutions in XX.X%. basis new in adjusted and capabilities to new a while

We maintain together XX%, margin of the continue in of year-over-year longer-term anticipate the target. adjusted approximately by mid-teen to an half the segment, Within to during MRO with quarterly second mix of recovery. revenue Aviation driven XXXX, EBITDA rate adjusted we XX% EBITDA our growth

increased XX% revenue. Commercial the year by seven. period, higher represent the year revenues versus fulfillment increased a given prior were XX% the while flat the basis. revenues $XX period of commercial million increase on higher up year-over-year mix period, Segment-adjusted Fleet Turning revenue. in XX% quarter, revenue. to an now X% were versus and Slide remained segment $X.X of year versus of prior e-commerce margins of segment relatively XX% commercial total second USPS revenue adjusted EBITDA the million and prior driven EBITDA

Department growth with revenue of year-over-year flat modestly higher we offset the year, USPS quarterly continue and to to flat Defense of revenue. the remainder anticipate lower For to commercial modestly as is

expect drives as strategic approximately as We initiative. on this Fleet's dollar EBITDA higher to a contribution be focused driving EBITDA XX% to revenue diversification year-over-year remain We rate adjusted XX%. key segment

of year-over-year Army. the by of U.S. prior XX% with a & on basis Federal X.X%, a the Adjusted a second partially contract million eight. & with to line contracts, a adjusted Slide margins Defense quarter, $X.X in Federal XXX the to higher segment year-over-year Turning was points driven basis by mix declined revenue X% U.S. of Navy basis decline EBITDA cost-plus a given EBITDA in communications. year-over-year. increased on growth, Defense expiration offset

as under of contract the relatively year-over-year For remainder expiration our U.S. awards to new a offset quarterly the year, of anticipate flat program Army. the NAVSEA revenue we the with continue

adjusted by be Federal contract the X%, awards. mix versus price rate to driven EBITDA fixed expect We approximately to of X% plus & cost Defense's

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

approvals. million Our existing customary commitment lender to provision, credit includes $XXX a facility subject accordion

up Aviation used first of we $X.X timing cash to distribution of by the the million support completion in of million awards quarter primarily quarter, the driven $XX inventory expected, purchases sales. from As in XXXX and new

of structure of our Parts acquisition. exposure remainder of Looking rate the net swaps capital the we look upcoming interest Day following excludes Adjusted the coming $XXX of full million flow At of our of existing second the the to for the trailing this interest outstanding EBITDA X.X EBITDA in quarter, million. the fourth for over interest Subsequent year. question-and-answer sequential was the first conclusion at in Investor quarter for our the more ready positive our to from in XX% the we and total the for portion years. $XX.X July which second to Operator, outstanding Global in of to At leverage expiration rate was our mitigate XXXX swaps executed maintain year. and net end times. debt are free and rate million outlook approximately of will improvements forward cash we of sharing the XX now evaluate quarter flow expect the quarter the We continuously call. free the $XXX of we equivalent debt, starting serve cash XXXX, quarter, year forward previous XXXX, of contributions and second to completion had months

Operator

Herbert [Operator of RBC Ken Capital Instructions] comes Markets. The first question from

Kenneth Herbert

Steve. and Nice John quarter. morning, Good

John Cuomo

Good morning.

Kenneth Herbert

little sounded you're that Hey a sounds if are John, little it the what on into you business the you of like bit bit to Aviation this repair the on a on the comments can more you as on in from dig the you a jet wasn't but But the still the was repair on quarter tends it in much the pace looks margin I side on commercial could in seeing a like how quarter. there? just look side saw business. market that second the cautious the the business little higher in starting recovery, commentary an as saw side. be and deeper of half inflection know business, repair commercial bit the and what It to

John Cuomo

yes, the -- we improvement and mean commercial both saw revenue Aviation repair I the Yes. Ken, in and and Business businesses. we General increase

the So the very and we still recovery is are feeling bullish happening, about future.

little executed have us the labor, year-over-year we think we've around other well, look as at new the than fully I growth, the a of business how hiring that excellence size definitely in as pipeline business look the have making growth and a doubling opportunities ahead to operational at been and the in we're well. growing when a more of and the we the and requires that programs issues the we support year, sure that when staffed cautious business lot of and more of

bit Commercial been breakout as So little on of as put don't SG&A too any But... want on a more more slower color share you commercial is of we recover, BG&A. which more we have MRO side has we're know definitely well much the It on to I cautious business. do the cautious been slightly to why margins. Steve, detail. versus the kind

Stephen Griffin

We are B&GA. Ken. did think speaking, of translate generally that strong but generation to necessarily, split through Aviation repair. we we right, could for at commentary, I based And pent-up coming significant first end provide Yes, the on of the see General Business quarter the in into some demand and helped see that the strength don't you revenue

pointed in market space, you I see execution some continue recovery, think we're we pleased know, that But uncertainty out. that in just but there's generally with as as commercial John to the quarter. the

Kenneth Herbert

No, great. your are segment? you B&GA growth could it that in that's there giving start seen that the you Is from we've market pause Yes. anything Or customers seeing moderate? imply anything may to that the within looks

John Cuomo

in little I tend more be see than the market. customer and see I That said, read we I No. to continue you robust a to see you what a backlog trends the mean the conversations. that cautious when we in and few -- we market. activity, had pretty

Kenneth Herbert

final a distribution some relative a one Anything are into or or just of you're that so acquired, of place, distribution year any to And quarters these With material put the then, in around plan? Global agreements performing Great. how positive the Parts either that's surprises with course, Okay. you've question. and now Or few these? you've agreements, those or on negative? with

John Cuomo

as improved, feedback and of to of a at integration low track look be well size market-leading Yes. year-to-date. I build into out platforms That at Monday our as Global distribution customer look as Whitney mean, while much business, how as of & in of Pratt we year year, larger how we When am plan, a inventory We're the actually, we we the our availability. Canada enough deal of anniversary multiple I agreement -- team to can't integration that a able our I were multiple. distribution the a results performed QX self-sourced was stress appreciate the that proud other terms a distribution question. And well Parts we last When essentially at exactly acquisition. was business, when the it and the of having to compared full it's tremendously I just how agreements expectations. amazing our for it's in doubled of distribution terms on few but operational performed we've exceeded plan performance business system launched how our above full both

So came well far, is thesis above with we and And responding everything market, of in really in we is performing the gaps -- to the plan. there really market were where it. some a

Kenneth Herbert

well thank you Alright, very great. much. That’s

John Cuomo

Thanks Ken.

Operator

Truist. of from comes question Michael Ciarmoli next Our

Michael Ciarmoli

talking other maybe MRO, margin morning pickup there you just good first of down higher getting are kind Nice which where here the Aviation, But half you impacting back in and Is in a at you higher Are don't the of, the MRO could Hey Maybe be that is else, assuming anything you the well. guys. implies term half? I'm about SG&A. anything and to in were. Ken's dynamic think taking go longer I question margin. XQ that Thanks in obviously, hinted the kind to times, comment results any pieces questions. step as the for just of any on at looking on John, second from step kind back second moving the a dynamic. also second revenues half? the XQ just labor, margin the take they margin might

John Cuomo

at the this day, at is the what's end I of drive point. Sure. the margin mix mean to going

As say side, on the that. of are -- of margin. let the the a a mix focus the and as Steve, you're I to any would down decreasing But SG&A add half into of we excellence I But year. see want percentage color right add MRO sales, on get you'll see think that we XXXX big and to expecting beyond, not operational in back a drive kind now, of step going that. me you

Stephen Griffin

Yes. reference continue quarter that mix dynamic there. during highlighted you for business growth. make we the to investments did No, John, we the think, And I then in first

with can see the terms second of you execution top in strong think quarter line. I results the on

We some continue dynamics announced make first there's help organically. I the We'll the think as necessarily launch some we quarter. programs, anything previously growth to that else that to see in But opportunities to, to which our investments grow new out. to referred call of we generate don't John besides

Michael Ciarmoli

Okay. way of about get may to costs And that right just can guys organic the that will be on think how extra sort the those ramped you investments, up? while think margin investments of some Is these we be carrying impacted?

John Cuomo

Absolutely.

labor. got to traditionally equipment, is the testing SG&A, agreement you get South we MRO signed give testing -- inventory got a in but We've I'll out running. work, our our a equipment. in we've of you look was and avionics at -- got do that to -- an XX-year at authorized look first We've not you bull capability facility So facility which got we've independent real Florida, so -- up a business

want we we on and on pass overly being those at cautious the the SG&A opportunities opportunities the don't when growth by front. look ahead, to So

So perform, continue to said, make aggressive to to And sure and that to the been like proposition market can Steve, sure more able to user make a that we've customer, value that above-market want little be are this color? we we is I bit performance. any on in staff our we end based there. other

Stephen Griffin

think you it all. hit I

John Cuomo

Mike. Thanks,

Michael Ciarmoli

Just one as well. other one

Just looking with are pretty mean guess backlog, visibility in profits corporate you always activity. technical and B&GA, that a the I we're much do here, there's and the segment? term? trends now been mentioned recession you you mean I I that the activity. have backlog to tight jet in correlation at -- biz a the specific how longer

John Cuomo

No. an it's I business. mean aftermarket

a So the that way cautious think plus. you you're at let's not the, there? trends in out at That bust market. growth business see look bit end little started level look and The not that at look think I'm of There's the correct. XXXX, to I in forecast Aviation of do more XXXX, tremendous general do the look after the we back continuing will see We that has have a XXXX Steve, of the else trends. backlog to the perform we I market. we visibility. XXXX the of kind as like, anything do are When perform. and that rates a caution say, year than of said, boom we at the double-digit you

Stephen Griffin

you hit think it. I

Michael Ciarmoli

[Indiscernible] guys. Thanks

Operator

The you. DiPalma question Blair. Thank from of comes William next Louie

Louie DiPalma

John and morning. Steve, good

John Cuomo

are Hey Louie, you? how

Stephen Griffin

Good Louie. morning

Louie DiPalma

growth driver continues for revenue announced this Avionics you that April? new quarter? Aviation growth, contract the be Honeywell key in Aviation your Was to John that in and Steve, Your robust. revenue Was

Stephen Griffin

late really actually, next early until first maybe to program generate year revenue year. Louie, but more quarter start we announced in that that probably the this won't

doesn't quarter. to results the necessarily strong it contribute this So

the this I Global excellent too really well results programs, the would business. as implementation think within quarter Parts we success of what as new is strong the attribute

solutions that to a operating the high level managing continue at same at in We finding for as efficiency teams of new very well terms the product customers. as of see are our time

exist optimizing with the very well VSE programs pleased of legacy we're Aviation those programs within implementation that So as beforehand. as the

Louie DiPalma

programs Great. Stephen, were . that guess, new Aviation? in of those, the revenue drivers what were I some key

Stephen Griffin

Canada announced one last engine large I last three Triumph auxiliary deal Whitney unit being Pratt that being deal, the program. to the year, would second point the programs back actuation & being the power we the Pratt one & and accessories the Canada then Whitney

sales programs that, commercial integration All are terms leads, now opportunities strength I to the implementation. line. those sales of Parts the And that and contribute and some combined with to full helping on Global think synergies then drive to helped at the in of top

Louie DiPalma

that -- other and Great. you growth Whitney And Or from are those like when in parts is the I continued Canada programs programs? capped should somewhat years & does programs implementation, future mean there growth Pratt at mentioned? like that the be that mean those quarters for engine accessory and full

John Cuomo

you're see that I you're not once fully growth today. ramped, they're mean the Yes. going to seeing rates

market. with grow You'll see the us

gain in see You'll volume. ability wallet, programs. those and there's additions gentle grow, the as some kind intend kind have us of And sales add-ons and we around of then share to core terms price of both of

is see the same strategy a you growth that just pace beyond there full growth rate. So at won't implementation be It the implementation. the

Louie DiPalma

improves? referenced Thanks, you the very And talked deals how staffing some even to Steve is are John, large. certain you about until certain I pipeline now, environment partnerships related is or turning there Right the staffing. think down John. deferring caution And how

John Cuomo

see been wouldn't further the and our say our in we've business that Again, us even in little support I holding back. both ahead. have to front staffing growth No, more in a Aviation that we Fleet the is we us growth aggressive, business and bit of

at looking are We capacity.

and COVID, in created on, I'd say in but we During just we sure of XXXX not the growth we're -- centers got still getting watching scale but businesses. wouldn't to working I handle handle us we're we've I down the that can drive will ready our beyond. few excellence future. that that But scale capacity to turning help that of we say a make that wouldn't are business, all today,

Louie DiPalma

Southwest its deliveries is any the for year. that Boeing this it this final That how impact Would Southwest How program makes reduced your program that And have on for XXX Southwest sense. with expects morning one ramps? announced one. MAX progressing?

John Cuomo

It forecast does. out the program not We for near didn't purposely a forecast the put term. in put a big that on did large and market

Although year. we going is aircraft that retire that believe of program. anticipate during to will the be don't life that We this about the XXX-or-so robust

a new of terms there need delivery. aircraft to retirements, out You uncertainty aircraft level in of just deliveries there's support and

So we is forecast aircraft. until -- allow XXXX, our relatively for going and deliveries to retire will in, conservative to extremely even program know come we those the on XXXX, that them are that for speaking,

change how level to no So any of that of our conservatism forecast. a program. But again, at look around we

Louie DiPalma

jump Thanks. Great. in back queue. I’ll the

John Cuomo

Thanks Louie.

Operator

next of The Austin question Moeller from comes Canaccord.

Austin Moeller

and quarter. John morning, Good nice Steve,

John Cuomo

Good you. morning. Thank

Austin Moeller

first my use USPS right? in was like that get So expect on contract Northrop better anticipated LLVs vehicle vehicles potential fleet question Do now fleet of you the we relatively to just here, diverse the the on if the pushed forward, perform USPS strong. the performance given going Oshkosh the and than just business, may extension the see

John Cuomo

Yes.

based cycle, the obviously of the for are same both X And that LLD strong we fleet more longer today. to the now, get to that of But in play extended. new of vehicles a for domain postal do. do that's the the you commercial delivery the -- some share on a them well as going in to with that the transition we will vehicle. have that's that LMVs as complete vehicles probably being and public inability their -- being include on which we delivery mix well XX to that as from anticipate as that's will the service market fleet longer-term I think they're off-the-shelf communication the years be have very a USPS We when anticipating based on see vehicles

on start vehicle types customer well. as products revenue seeing they're they within grow start vehicle the uses as able by well We how USPS to additional starting start be we're age we vehicles. Number gains to we're two out, to fleet, the penetrate as the out. also one, are reasons. with age to for types to seeing understand as And market to other share starting

yes, So a USPS. was strong quarter for it very the

Operator

Van comes from Sinderen Riley. Thank you. The next Jeff B. question Sir of

Jeff Van Sinderen

Good morning everyone.

me as well. my Let add congratulations

MRO market more follow-up share relevant you're to looks there segment. a taking share. that good the latest like market What's thinking on what there, in inning momentum in Just It on B&GA taking pretty building segment? we're your

John Cuomo

In MRO so about me talk let share the businesses just at a generally -- gains. high level

of program It's XX we MRO win execution than high new launched you XX about before a see until programs is little as capability So months. gain share a months see could or is wrap. It even from different kind revenue a you as when be these and distribution up MRO running. General a and long Commercial gains, testing and the have in share where gains see both capability to get as the still we program for like and distribution ahead the as We Business both a in runway share well and Aviation.

space BG&A when a realization MRO realization. space versus win upside capability of revenue of a distribution, of we tremendous as revenue quicker a But in and commercial in terms Just want still in a see announced MRO both the terms though the share expansion. the difference win kind the to we in in

Jeff Van Sinderen

on touched I then more being And labor. aggressive on you Great. Okay. know

Just in seeing and to for rates, terms changes that. to labor Are there of change any that you're better of kind back latest wanted or worse there? availability, any labor circle the

John Cuomo

the I you most would that And of look turnover has in some it of of is building difference on of Part a say building our our the of if winning culture. growth lower there's a be a team what building our corny, change have prior at times. Aviation market seen to I where want believe we're people experienced in no the and we've recent from Fleet sound or what may the segments like culture team. little than kind but segment, quarters. actually material we And

Jeff Van Sinderen

increases update any availability just on near price handling you're good. how how evolve? term. in chain, Okay, maybe the then And supply on And then update seeing you're

John Cuomo

us long-term the we'll I'll We do lot chain. pricing price adjust aftermarket ability and I price about a first, contracts, end an amend change then to of user and business. a we're price to quickly have pretty pricing and talk Yes, give that fixed customers. not perspective, talk about does supply mean from

supply look we at supply we As at seesaw. it's like kind look two, of chain, chain a and

opportunities You then you and look look out at the come that the those can risks. at risk of

we So sure when working inventories we've on to support as sufficient future demand are you both got capital look the the well really shelf at usage, we the current that demand our as making anticipate.

mentioned set life one The try as repair metrics, performed see extend not we in you to opportunity typically business and assets, overhaul and repair assets. up based kind that during specifically earlier or transportation and businesses of we the on at well. a of maintenance has Somebody quite people are look distribution spend recessions recession the goes our as

So support of our as to as XXXX well well we the pretty as as strong back position XXXX terms positioning -- of of XXXX end the ourselves -- both back are end XXXX. inventory in

Jeff Van Sinderen

Okay, luck. great. of and best Thanks for taking my questions,

John Cuomo

Thank you.

Stephen Griffin

you. Thank

Operator

have we of a Herbert Ken follow-up from Market. RBC Next, Capital

Kenneth Herbert

follow or John taking Thanks the Steve. up. for

the positive cash nice a the free quickly, back for recovery the Just flow in half. pretty guide year implies

upon And had in the how in the much How should first flow Are we there? cadence the third the you about cash from quarter? quarter? cash to improvement You've quarter. it sequentially a is dependent positive the second fourth nice of think the

John Cuomo

improvement we've iterated What flow question. good cash expect from you is sequential should here free that here. a It's

I might to the be year. investments then that it's be year-end, And kind to organic a dynamic similar last of of being the second for inventory the third of some out guidance candidly positive towards barring year, that our quarter could would flow think free it's as head we when quarter. that cash see that to for positive lead any reiterate what that a quarter, this somewhat sort we first the flow cash the strategic, might in. of But that play that expect we where and level So in intuitively payables we're we major imply of you saw the in kind do forward move of in stocking dynamic is industries free

focus to of guide. see do reiterate more around but cash tend So you we that second flow, half a

Kenneth Herbert

sort plans there the about -- about as provide of and It rates? you some Okay. or of risk terms the strategy there That's we do on the good Is half cover like -- anything Steve, other in else to on job great. the can you how did the And potential of of looks hedging well to the half of think hedging. debt. debt

Stephen Griffin

Yes.

as we'll the do about you this fourth quarter to half further year be provide the Day, in in we'll and think second did the debt. we our Analyst updates first, for that I able So getting hedge half of together to for be because generate to able be stronger now, the comfortable, more discussion. feel provide the might that that when especially very XX% free we flow we of in guidance cash year. bit half with I obviously, second hedge, we get Right a

we're balance you in the As close line and flow of in reduce it But to that's where to we pretty think to mean, with relates be expense. interest what not there rate of in our to third on it how I quarter portion that be affects should I think second rate the thereabouts risk, hedged. obviously We expect expect terms at in our anticipate the free saw the debt quarter. P&L also interest in fourth remainder you interest the expect debt therefore, improve But positive can do rate our net-net, higher to I cash do quarter. interest we

Kenneth Herbert

Excellent. Perfect. you. Thank

Stephen Griffin

Thanks, Ken.

Operator

Michael have Truist. we a Next, of follow-up from Ciarmoli

Michael Ciarmoli

have The what Russia for charge related Hey thanks it. so was $X.X specifically housekeeping. million just there Steve, missed and to? write-down guys. or the I Ukraine, may

Stephen Griffin

purchased of would of is some Russia. had one reserve the that recent tied as that items. it general, two some those small to outstanding we slice Yes, ag we on items, as felt for to a in on business sanctions, receivables. we most a was the is that. the of the appropriate And market of inventory had take as There had is obviously I say we And given risk specific some no a well, bit that news of either further well them. both with there is

Michael Ciarmoli

flow, inventory cash just, going on receivables a thinking looking guess, half free chain second significantly. pretty investment. Okay, got receivable that Do working accounts it. up anything And working tailwind, capital half? I at about obviously, But supply capital second and we or get with just then

Stephen Griffin

working to standpoint. expect tailwind a capital of we a think see elements I from Yes, some

I of be from amount that capital that to you're the Now I we accounts do our a -- about. seeing working collectability standpoint, of from say growth to nothing expect would business. the within the grow nature with caution would there's business, receivable just by concerned

to half of as the benefit. down business working capital as as think of second little a bit look more a you'll a I well the bit So you see of the year, the fall contribution of EBITDA

Michael Ciarmoli

Got Thanks it. guys. Perfect.

Stephen Griffin

Mike. Thanks,

Operator

Austin Thank from follow-up a Canaccord you. Ingenuity. have of Moeller we Next,

Austin Moeller

my taking for Thanks questions.

a been next activity from but of do in greater MRO? hasn't a we slowdown jet aircraft in question, see into that offset commercial you be think by that yet realized business on sort pent-up You do prior might year, touched this that, that demand if

John Cuomo

Yes.

to continue I the within we speak. at diversity the so to look businesses, of businesses think

different I we we look all business of look made that types different when a types general tip-to-tail that all we of grow we bit wallet. a see approach, types when to think of of to airplane So share of of all of touching kind inside continue sense, and and aircraft, the that users, parts of are lot aviation, opportunities inside on different of

if within slower to existing of will rate be growth wallet a that. kind see our there next kind for share we customers first, gain of of opportunities So year, combat

any have expect concerns other the help commercial aviation. general business to in we both business -- we of kind of the absolutely, Second, the in and in gain sets front the share counterbalance us and opportunity

Austin Moeller

Okay. the detail for Great. Thanks John.

Operator

closing CEO, I have remarks. would session. we reached of President gentlemen, Mr. turn Cuomo, and end for now his the the call Ladies over question-and-answer and the John to

John Cuomo

We the will call that day. Have seeing third a of joining That shortly. for Investor quarter, you to look on quarter, in great again announce Thanks early call. if Day our be and our Thanks, not many everybody, for third support. late the fourth our forward we'll at earnings today. quarter

Operator

may concludes Thank your conference. now for lines. and you your you. today's you disconnect participation, Thank This

VSE (VSEC) 30 Jul 222022 Q2 Earnings call transcript