VSE Corporation

Greetings and welcome to the VSC 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Noel Ryan, Investor Relations. Thank you, Noel. You may begin.

Thank you. Welcome to VSE Corporation's first quarter 2021 results conference call. Leading the call today are President and CEO John Cuomo and Chief Financial Officer Steve Griffin. The presentation we are sharing today is on our website and we encourage you to follow along accordingly. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC. Except as required by law, we undertake no obligation to update our forward-looking statements. We are using non-GAAP financial measures in our presentation. The appropriate GAAP financial reconciliations are incorporated into our presentation where available, which is posted on our website. All percentages in today's discussion refer to year-over-year progress, except where noted. At the conclusion of our prepared remarks, we will open the line for questions. And with that, I would like to turn the call over to John Cuomo for his prepared remarks.

Thank you, Noel. Welcome, everyone, and thank you for taking the time to join our call today. Let's begin on slide three of our conference call material. During the first quarter, we continued to successfully advance our business transformation. We had strong progress through organic market share gains, including new wins in all three of our business segments, expanding our products and service offering as well as inorganic growth from our HACO special services acquisition. Our change management and business transformation initiatives have begun to yield tangible results as evidenced by these new business wins, expanded relationships with commercial and government customers, and improved organizational and operational efficiency. We generated sequential revenue growth across all three business segments during the first quarter, while achieving another consecutive quarter of profitability. Recovery in aviation remains ongoing. Aviation segment revenue grew 15% on a quarter-over-quarter basis, outpacing the market recovery, and represented our third consecutive quarter of growth in the segment. Aviation distribution revenue returned to pre-pandemic levels during the first quarter. Turning now to slide four. Earlier this month, our aviation segment announced a major engine accessories and distribution agreement, building on our partnership with one of the leading global aircraft engine manufacturers serving the business and general aviation market. Under the terms of this $1 billion 15-year agreement, VSC will be the distributor for more than 6,000 flight-critical engine components. We expect to service more than 5,000 U.S.-based aircraft with on-demand flight-critical components on a 24-7 basis to support scheduled line maintenance and aircraft on-ground events. This agreement is transformational for VSC Aviation for a number of reasons. It affords us the opportunity to deal directly with a large base of business jet owners, operators, and maintenance providers, supplying critical engine components and on-demand part and repair solutions, which further advances our business and general aviation market focus strategy. This direct-to-consumer approach will position us to provide complementary product and service offering that support long-term market share gains within this attractive customer vertical. Once this program is implemented, there will be new cross-selling opportunities within the fragmented and underserved business jet market. Second, this agreement significantly expands our scope of services to include more than 100 business and general aviation and regional aviation engine platforms. With this OEM partnership, We intend to expand our existing business and general aviation repair capabilities to service additional engine accessory exchange units. Finally, the agreement provides long-term contract revenue at attractive margins consistent with our strategic focus on building a pipeline of higher value flight critical business. We currently expect program revenue from the agreement to be approximately $12 million in 2021 and $45 million in 2022. Once fully implemented, this program is anticipated to generate more than $60 million in annual revenue. Implementation work is underway and initial deliveries under the program will begin in June of this year. On a strategic level, this agreement is similar to the acquisition of a new business, one that requires full integration into our existing operations. However, Unlike a new business acquisition where integration, customer, and supplier risk is always a factor, this agreement brings a stable, long-term relationship with a major engine OEM through 2036. Additionally, it's a transaction with strong historical financials and a low risk profile. BSD Aviation was selected for this agreement because of our unique business and general aviation market focus and value proposition that combines proven distribution capabilities and experience managing complex global supply chain for highly technical products, together with our extensive business and general aviation MRO capabilities. I want to take a moment to recognize the aviation team for its many efforts in winning this contract, and I look forward to building upon the current momentum evident in this business. Turning to a review of our fleet segment. Fleet revenue increased approximately 3% in the first quarter, driven by continued growth in commercial fleet demand and our e-commerce fulfillment business. Total commercial revenue, which excludes U.S. Postal Service and government-related revenue, increased 64% on a year-over-year basis in the first quarter of 2021, driven by increased sales in the e-commerce fulfillment and commercial fleet channels. Commercial revenue represented 26% of total fleet revenue in the first quarter of 2021 versus 17% in the prior year period. Testimony to our customer diversification strategy for this segment. Our federal and defense business had a solid quarter with revenue up about 1% versus the prior year as new wins served to offset previously announced contract expirations. In April, FDS announced $37 million in combined new contract awards with the U.S. Air Force and an allied foreign military, as the business continues to make steady progress on filling its pipeline with new multi-year contracts. These contract awards reflect the continued execution of our federal and defense segments vehicle and aviation MRO strategy introduced last year, one that emphasizes multi-year growth and higher margin segment backlogs. We are pursuing additional niche MRO opportunities as we leverage our technical expertise and proven project management capabilities with new and existing customers. As mentioned last quarter, we closed on the acquisition of HACO Special Services, or HSS, on March 1st. In the first 60 days since closing the transaction, the integration of this business has moved forward quickly and seamlessly, with the 275 HSS team members performing ahead of plan as part of the VSE family. We currently anticipate this business, which historically has achieved an operating margin profile above that of the federal and defense segment average, will be a strong contributor to revenue and profit for this segment. I will now turn it over to Steve Griffin for a review of our financials.