VSE (US:VSEC)2021-10-31 06:00Financial Data and Key Metrics Changes - VSE Corporation reported total revenue of $200.6 million in Q3 2021, a 27% increase year-over-year, excluding a nonrecurring pandemic-related PPE order from the previous year [24] - Adjusted EBITDA for the quarter increased by 19% year-over-year to $20.4 million, with an adjusted EBITDA margin of just under 11% [25][26] - Adjusted net income rose by 42% compared to the prior year period [8] Business Line Data and Key Metrics Changes - The aviation segment revenue increased by over 100% year-over-year to a record $73.1 million, driven by new program execution and contributions from a global parts acquisition [10][24] - Fleet segment revenue grew by 6% year-over-year, with commercial revenue increasing by 66% [17][29] - Federal and Defense Services segment revenue increased by 2% year-over-year, supported by new program wins and the HAECO Special Services acquisition [31] Market Data and Key Metrics Changes - Aviation distribution revenue was nearly 190% above the prior year and more than 90% above Q2 2021 [11] - Federal segment backlog increased by 23% year-over-year, indicating strong business development activities [18][31] Company Strategy and Development Direction - The company is focusing on higher-margin verticals and has a strong pipeline of new business development activities, including long-term contracts and program extensions [20][21] - VSE is committed to mitigating risks from supply chain disruptions and cost inflation while maintaining revenue and margin forecasts [19] - The company aims to achieve net leverage of approximately 2.5x by year-end 2022 through improved EBITDA generation and debt reduction [22][33] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery of the aviation segment and the overall business, with expectations for continued growth in EBITDA margins [40][42] - The company is actively managing supply chain risks and inflationary pressures, particularly in the fleet business [44][60] - Management noted that while the commercial MRO business is recovering slowly, the business and general aviation segment is performing well [62] Other Important Information - The company has $117 million in cash and unused commitment availability under its credit facility, with total net debt outstanding of $294 million [32] - VSE is evaluating smaller, complementary acquisitions while being mindful of net leverage [22] Q&A Session All Questions and Answers Question: Can you provide more color on the aviation segment's mix of business jet versus commercial? - The aviation business has skewed more towards business and general aviation, particularly in distribution, over the last 12 months [37] Question: What is the opportunity for new contract wins to impact EBITDA margins? - The adjusted EBITDA margin for the aviation segment was 10%, with expectations for sequential growth as new programs are introduced [40] Question: Are there any concerns regarding supply chain impacts on the distribution business? - The company is seeing inflation and labor costs but has taken actions to mitigate risks, including aggressive inventory purchases [44] Question: What is the organic growth rate in aviation excluding the global parts acquisition? - The organic growth rate in aviation was approximately 26% from Q2 to Q3, excluding the global parts business [48] Question: How do you view the labor situation in relation to federal contracts? - The company is working through labor impacts due to vaccination mandates and is focused on attracting top talent [90]