VSE (US:VSEC)2020-08-02 10:14Financial Data and Key Metrics Changes - VSE reported total revenue of $168.7 million, a decrease of 10.8% year-over-year, primarily driven by declines in the Aviation and Federal & Defense segments [19][25] - Adjusted net income was $6.6 million, or $0.60 per diluted share, with adjusted EBITDA of $17.2 million, down 27.1% year-over-year [20][25] - Free cash flow generated was $14.9 million, a significant increase from a negative $2.7 million in the prior year period, contributing to over $13 million in debt reduction [18][25] Business Line Data and Key Metrics Changes - Aviation segment revenue declined 31% year-over-year to $32.2 million, impacted by lower commercial aviation activity [8][28] - Fleet segment revenue increased 32.4% year-over-year to $71.2 million, with commercial sales growing by 67% [30][12] - Federal & Defense segment revenue decreased 18.7% year-over-year to $65.3 million, but operating income increased by 33% [32][26] Market Data and Key Metrics Changes - Revenue from core commercial customers fell 32% year-over-year to $40.2 million, while revenue from Federal & Defense customers was relatively flat, down 1% year-over-year [19][20] - Total Federal & Defense segment bookings decreased 37.5% year-over-year to $45 million, with a decline in funded backlog attributed to the expiration of a large contract [33][34] Company Strategy and Development Direction - The company is focused on new business development, reporting $116 million in new awards in the Federal & Defense Services Group, up from $32 million in the first half of 2019 [10] - VSE is rightsizing its business and cost structure, expecting to remove approximately $13 million in annualized costs by the end of Q3 2020 [14][15] - The company aims to concentrate on higher growth components and engine accessory MRO and parts distribution to support the Commercial and Business Aviation markets [16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to emerge stronger from the current crisis, emphasizing a balanced customer product and service portfolio [40] - The company anticipates sequential quarter-over-quarter growth in the aviation segment revenue and earnings during Q3 2020 compared to Q2 [21][55] - Management highlighted the importance of maintaining balance sheet discipline while continuing to pay dividends and preserve capital for high-return growth opportunities [17][36] Other Important Information - The company completed the sale of assets related to CT Aerospace for full book value, aligning with its strategic focus on higher-margin businesses [16] - As of June 30, 2020, VSE had $184 million in cash and unused commitments available under its revolving credit facility [35] Q&A Session Summary Question: Update on Aviation trends and recovery - Management noted that MRO businesses benefited from backlog in April, with recovery trends improving in June and July, particularly in general aviation [44][45] Question: Inventory and product velocity in the marketplace - Management indicated that most inventory is OEM proprietary and not heavily stocked by customers, reducing destocking risks compared to competitors [48] Question: New bookings and bidding activity in Federal & Defense - Management highlighted a 30% increase in contract bidding activity and emphasized revitalizing the team to enhance capabilities and win more business [49][50] Question: Competitive environment in Aviation - Management observed opportunities arising from competitors focusing on core businesses, allowing VSE to gain market share in distribution [61] Question: E-commerce growth in Fleet segment - Management attributed growth in the Fleet segment to solid execution and a shift towards e-commerce fulfillment strategies [64] Question: Impact of USPS funding on business outlook - Management expressed confidence in the relationship with USPS, noting it remains a significant customer, contributing approximately 22% of consolidated revenue [83]