VSE (US:VSEC)2024-05-08 21:05markdown [Q1 2024 Performance Overview](index=1&type=section&id=Q1%202024%20Performance%20Overview) [Financial Highlights](index=1&type=section&id=Financial%20Highlights) VSE Corporation reported strong growth in the first quarter of 2024, with total revenues from continuing operations increasing by 28.1% year-over-year to $241.5 million, GAAP Net Income rising by 49.0% to $12.1 million, and Adjusted EBITDA growing by 36.7% to $32.3 million, reflecting robust performance, particularly in the Aviation segment | Metric | Q1 2024 | % Change (YoY) | | :--- | :--- | :--- | | Total Revenues | $241.5 million | +28.1% | | GAAP Net Income | $12.1 million | +49.0% | | GAAP EPS (Diluted) | $0.76 | +20.6% | | Adjusted EBITDA | $32.3 million | +36.7% | | Adjusted Net Income | $13.9 million | +50.2% | | Adjusted EPS (Diluted) | $0.87 | +22.5% | [Management Commentary](index=1&type=section&id=Management%20Commentary) The CEO highlighted record financial results driven by the Aviation segment's 43% revenue growth and record 17% Adjusted EBITDA margins, supported by new distribution and MRO agreements, while the Fleet segment's growth in commercial and e-commerce was offset by a temporary decrease in USPS maintenance activity, with a strategic focus for 2024 on program implementation and execution - The Aviation segment delivered record results, with **43% revenue growth** and record **Adjusted EBITDA margins of 17%** in Q1 2024[2](index=2&type=chunk) - The Fleet segment experienced strong growth in commercial and e-commerce customers, which was offset by a near-term decrease in maintenance activity from the United States Postal Service (USPS)[2](index=2&type=chunk) - The company's 2024 focus is on program implementation and execution, including the expansion of an agreement with Pratt & Whitney Canada for the EMEA region and integrating newly acquired businesses[2](index=2&type=chunk) [Strategic Update](index=1&type=section&id=Strategic%20Update) VSE is advancing its strategic focus on the aviation aftermarket, acquiring Turbine Controls, Inc. (TCI) for approximately $120 million in April 2024 to enhance MRO capabilities, successfully executing new programs, and completing the divestiture of its Federal and Defense segment for $44 million to sharpen its focus on core operations - Completed the acquisition of Turbine Controls, Inc. (TCI) for approximately **$120 million** (**$110M cash**, **$10M stock**) to expand OEM-authorized repair capabilities and increase exposure to the commercial aviation market[5](index=5&type=chunk) - New aviation programs are progressing well: the Pratt & Whitney Canada EMEA program began shipments, and the Honeywell Fuel Controls program is outpacing expectations[5](index=5&type=chunk)[6](index=6&type=chunk) - Completed the sale of the Federal and Defense segment for **$44.0 million** in cash, resulting in a Q1 recognized loss of **$18.7 million** (net of tax) but aligning with the strategy to focus on core aftermarket services[11](index=11&type=chunk) [Segment Performance](index=2&type=section&id=Segment%20Performance) [Aviation Segment](index=2&type=section&id=Aviation%20Segment) The Aviation segment delivered record performance in Q1 2024, with revenue increasing 43% year-over-year to $162.4 million, reflecting 20% organic growth driven by strong execution of distribution awards, increased MRO activity, and contributions from acquisitions, while Segment Adjusted EBITDA grew 46% to $27.7 million, with margins expanding 30 basis points to 17.0% due to favorable mix and MRO growth | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $162.4 M | $113.2 M | +43% | | Organic Revenue Growth | ~20% | N/A | N/A | | Operating Income | $22.3 M | $15.7 M | +42% | | Adjusted EBITDA | $27.7 M | $18.9 M | +46% | | Adjusted EBITDA Margin | 17.0% | 16.7% | +30 bps | [Fleet Segment](index=2&type=section&id=Fleet%20Segment) The Fleet segment's revenue grew 5% year-over-year to $79.2 million in Q1 2024, with a 37% increase in revenue from commercial customers partially offset by a 19% decline from the USPS due to a temporary reduction in maintenance activity during their system transition, resulting in Adjusted EBITDA decreasing 7% to $7.5 million and margins contracting 130 basis points to 9.5% due to customer and product mix shifts | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $79.2 M | $75.4 M | +5% | | Commercial Revenue | 56% of total | N/A | +37% YoY | | USPS Revenue | 44% of total | N/A | -19% YoY | | Operating Income | $6.6 M | $5.9 M | +12% | | Adjusted EBITDA | $7.5 M | $8.1 M | -7% | | Adjusted EBITDA Margin | 9.5% | 10.8% | -130 bps | [Financial Condition and Outlook](index=2&type=section&id=Financial%20Condition%20and%20Outlook) [Financial Resources and Liquidity](index=2&type=section&id=Financial%20Resources%20and%20Liquidity) As of March 31, 2024, VSE had $175 million in available liquidity under its revolving credit facility, with total net debt at $471 million and a pro forma net leverage ratio of approximately 3.7x EBITDA, expected to rise to about 4.1x post-TCI acquisition, with a target to reduce it to below 4.0x by year-end through free cash flow generation - As of March 31, 2024, the company had **$175 million** in cash and unused credit facility availability[9](index=9&type=chunk) - Total net debt was **$471 million**, with a pro forma net leverage of **3.7x EBITDA** at the end of Q1[9](index=9&type=chunk) - Post-acquisition of TCI, pro forma net leverage is expected to be **~4.1x**, with a goal to deleverage to **below 4.0x** by the end of 2024[10](index=10&type=chunk) [Full-Year 2024 Guidance](index=3&type=section&id=Full-Year%202024%20Guidance) VSE updated its full-year 2024 guidance, raising expectations for the Aviation segment with revenue growth guidance increased to 34-38% and Adjusted EBITDA margin guidance to 15.5-16.5%, while lowering Fleet segment guidance to 0-5% revenue growth and 6-8% margin, primarily due to a temporary decline in USPS activity | Aviation Segment FY2024 Guidance | New Guidance | Previous Guidance | | :--- | :--- | :--- | | Revenue Growth (YoY) | 34% to 38% | 24% to 28% | | Adjusted EBITDA Margin | 15.5% to 16.5% | 15% to 16% | | Fleet Segment FY2024 Guidance | New Guidance | Previous Guidance | | :--- | :--- | :--- | | Revenue Growth (YoY) | 0% to 5% | 13% to 17% | | Adjusted EBITDA Margin | 6% to 8% | Not specified | - The Fleet guidance revision is driven by an expected **30-35% full-year decline** in USPS revenue due to their system migration, which is anticipated to be offset by a **~40% increase** in commercial revenue[12](index=12&type=chunk) [Financial Statements and Reconciliations](index=4&type=section&id=Financial%20Statements%20and%20Reconciliations) [Consolidated Financial Results](index=4&type=section&id=Consolidated%20Financial%20Results) This section presents the unaudited consolidated financial statements for VSE Corporation as of and for the three months ended March 31, 2024, including the Consolidated Statements of Income, Balance Sheets, and Cash Flows, providing a detailed view of the company's financial performance and position [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) For Q1 2024, VSE's total revenues from continuing operations grew 28.1% to $241.5 million, operating income increased 44.1% to $24.2 million, and net income from continuing operations was $12.1 million, or $0.76 per diluted share, though a consolidated net loss of $6.6 million was reported due to an $18.7 million loss from discontinued operations related to the FDS sale | (in thousands, except per share data) | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $241,539 | $188,587 | +28.1% | | Operating Income | $24,174 | $16,778 | +44.1% | | Net Income from Continuing Operations | $12,100 | $8,120 | +49.0% | | Diluted EPS from Continuing Operations | $0.76 | $0.63 | +20.6% | | Net (Loss) Income | $(6,611) | $9,117 | N/A | [Consolidated Balance Sheets](index=10&type=section&id=Consolidated%20Balance%20Sheets) As of March 31, 2024, VSE's total assets were $1.34 billion, a slight decrease from $1.35 billion at year-end 2023 primarily due to the divestiture of the FDS segment, with total liabilities decreasing to $724.2 million from $733.6 million, and key asset components including $521.2 million in inventories and $351.1 million in goodwill | (in thousands) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $743,096 | $774,030 | | Total Assets | $1,336,924 | $1,350,338 | | Total Current Liabilities | $223,050 | $286,886 | | Total Liabilities | $724,186 | $733,613 | | Total Stockholders' Equity | $612,738 | $616,725 | [Consolidated Statements of Cash Flows](index=12&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the first three months of 2024, VSE used $79.1 million in cash from operating activities, largely due to changes in working capital, while investing activities provided $33.4 million, driven by $41.1 million proceeds from the FDS segment sale, and financing activities provided $48.3 million, resulting in a net cash increase of $2.6 million for the period | (in thousands) | Three months ended March 31, 2024 | | :--- | :--- | | Net cash used in operating activities | $(79,060) | | Net cash provided by investing activities | $33,408 | | Net cash provided by financing activities | $48,291 | | Net increase in cash and cash equivalents | $2,639 | [Segment Financial Results (Table)](index=4&type=section&id=Segment%20Financial%20Results%20%28Table%29) This table provides a detailed breakdown of revenues and operating income for the Aviation and Fleet segments for the first quarter of 2024 compared to the same period in 2023, highlighting the significant revenue and profit growth in the Aviation segment that drove the company's overall performance | (in thousands) | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | **Revenues:** | | | | | Aviation | $162,383 | $113,235 | +43.4% | | Fleet | $79,156 | $75,352 | +5.0% | | **Total revenues** | **$241,539** | **$188,587** | **+28.1%** | | **Operating income:** | | | | | Aviation | $22,310 | $15,664 | +42.4% | | Fleet | $6,617 | $5,899 | +12.2% | [Non-GAAP Financial Measures and Reconciliations](index=5&type=section&id=Non-GAAP%20Financial%20Measures%20and%20Reconciliations) This section provides reconciliations of GAAP financial measures to non-GAAP measures, which management believes are important indicators of ongoing performance, showing Adjusted Net Income of $13.9 million (up 50.2% YoY) and Adjusted EBITDA of $32.3 million (up 36.7% YoY) for Q1 2024, with tables detailing adjustments for items like acquisition costs and restructuring charges | (in thousands) | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Net income from continuing operations | $12,100 | $8,120 | +49.0% | | **Adjusted net income from continuing operations** | **$13,862** | **$9,227** | **+50.2%** | | **Adjusted EPS (Diluted)** | **$0.87** | **$0.71** | **+22.5%** | | (in thousands) | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Net income from continuing operations | $12,100 | $8,120 | +49.0% | | EBITDA | $29,969 | $22,164 | +35.2% | | **Adjusted EBITDA** | **$32,317** | **$23,639** | **+36.7%** | | (in thousands) | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Aviation Adj. EBITDA | $27,678 | $18,918 | +46.3% | | Fleet Adj. EBITDA | $7,536 | $8,144 | -7.5% | [Other Information](index=8&type=section&id=Other%20Information) [Conference Call Information](index=8&type=section&id=Conference%20Call%20Information) VSE scheduled a conference call for Thursday, May 9, 2024, at 8:30 A.M. ET to discuss its first-quarter financial results, with details for accessing the live webcast and teleconference, as well as replay information, provided in the announcement - A conference call to review Q1 2024 financial results was scheduled for Thursday, May 9, 2024, at 8:30 A.M. ET[26](index=26&type=chunk) - Webcast and presentation materials are available on the Investor Relations section of VSE's website[27](index=27&type=chunk) [About VSE Corporation](index=8&type=section&id=About%20VSE%20Corporation) VSE Corporation is a leading provider of aftermarket distribution and repair services, operating through its Aviation segment, which offers parts distribution and MRO services for various aircraft operators, and its Fleet segment, which provides parts, engineering, and supply chain services for the medium and heavy-duty fleet market - VSE operates through two key segments: Aviation (aftermarket parts distribution and MRO) and Fleet (parts distribution and supply chain services for medium/heavy-duty fleets)[29](index=29&type=chunk) [Forward-Looking Statements](index=9&type=section&id=Forward-Looking%20Statements) This section contains a standard safe harbor statement, advising that the report includes forward-looking statements involving risks and uncertainties, cautioning readers that actual results may differ materially from those projected and that the company does not undertake any obligation to update these statements - The document contains forward-looking statements subject to known and unknown risks, as per the safe harbor provisions of the Private Securities Litigation Reform Act of 1995[31](index=31&type=chunk) - Readers are cautioned not to place undue reliance on these statements, which are based on management's analysis only as of the date of the report[31](index=31&type=chunk)