VSE Corporation

Greetings and welcome to the VSE Corporation first quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. The 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. I would now like to turn the call over to Noel Ryan of Investor Relations. Thank you. You may begin.

Thank you, Operator. Welcome to VSC Corporation's first quarter 2022 results conference call. Leading the call today are our 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 materially from the 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 presentations 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. With that, I'd like to turn the call over to John Cuomo for his prepared remarks.

Thank you, Noel, and welcome to everyone joining us on the call today. We are off to a solid start to 2022 with the strongest revenue quarter for VSE in over 10 years, including revenue growth in all segments and the highest revenue on record for our aviation segments. Not only was the first quarter a strong revenue quarter for the business, but one where we delivered growth and adjusted EBITDA and profitability as well. We've started the year strong with a combination of new contract wins and execution excellence on existing legacy programs. Our business transformation continues as we make progress on our team, systems, and processes. We're on track with our integration activity for both legacy BSE businesses and recent acquisitions, which will support our mission of creating scalable businesses able to capture more of their growing end market. Three key strategic focus areas will enable us to deliver value for shareholders. First, we are building long-term, higher-margin, sustainable revenue channels that capitalize on the strength of the VSE assets and enable us to support our customers in growing end markets. Second, we remain focused on growing profits as we drive scale with our recent and ongoing investments and improve our operations through continuous improvement. Third, we are building on our strong legacy customer relationships to strengthen core revenue channels with our industry-leading customer service and breadth of product and service offerings. The company's first quarter results demonstrate substantial progress across these strategic initiatives. I'll start by highlighting some of the progress in our aviation segment. Our aviation segment reported record first quarter results, highlighted by strong organic revenue growth across both our distribution and repair businesses. Distribution revenue has now exceeded pre-pandemic levels for the sixth consecutive quarter, while repair revenue continues to accelerate, supported by ongoing commercial market recovery and share gains within the business and general aviation market. Aviation segment adjusted EBITDA increased by over 600 basis points on a year-over-year basis to 11.6%, driven by an increased mix of higher margin repair activity. While commercial air travel levels continue to recover, we expect 2022 commercial MRO market recovery to be slower than initially anticipated. As we look towards 2023, we see incremental growth in commercial MRO activity, which we contribute to further margin expansion in 2023 and beyond. Within aviation, we continue to build a business and general aviation platform that encompasses a full breadth of products and services, a tip-to-tail approach that builds upon our established MRO capabilities and industry-leading parts distribution business. In March, VSE Aviation, through our Global Parts Group acquisition, was awarded an early renewal of a three-year distribution agreement with a global OEM valued at approximately $180 million. Under the terms of this agreement, we will remain the global distributor for approximately 30,000 airframe parts, serving approximately 1,000 business and general aviation aircraft. The renewal provides for increased multi-year revenue competence through 2025. We believe our customer-focused performance-based culture, depth of experience managing complex supply chains, and proven technical expertise led the OEM to support an early renewal of this important agreement. Also during the first quarter, our aviation segment reached an agreement with Honeywell to provide new commercial OEM-authorized repair capabilities. which will expand service offerings and support both legacy and next generation avionics in commercial markets. As a further example, CSE Aviation Distribution was recently awarded the 2021 Regional Channel Partner of the Year to the Europe, Middle East, Africa, and India markets by Honeywell in recognition of our high performance and service levels, particularly with respect to the Honeywell fuel control product line. We are honored by this recognition and remain committed to building upon this long-standing relationship with Honeywell and other global OEM partners as we grow our scale and expertise across our core commercial and B&GA markets. Turning to our fleet segment, fleet segment revenue increased 22% on a year-over-year basis in the first quarter, driven by strong growth with commercial fleet customers and e-commerce fulfillment sales. together with stable contributions from the U.S. Postal Service. We continue to experience strong demand for aftermarket parts servicing Class IV through VIII vehicles and heavy-duty trucks across both our commercial fleet and e-commerce fulfillment channels. Fleet commercial revenue increased to 42% of segment revenue at the end of the first quarter, up from 10% at the end of 2019, consistent with our multi-year revenue diversification strategy. Our legacy USPS business was flat on both a sequential and year-over-year basis in the first quarter, given consistent customer spending on the LLV and, more importantly, other commercial off-the-shelf fleet vehicles used by the USPS. The USPS's transition from the LLV to its planned next-generation vehicle remains a multi-year process, one that our fleet segment is well positioned to support. Importantly, in addition to the LLV, we continue to support and further develop comprehensive parts solutions for non-LLV vehicles in the USPS fleet, which remain a significant long-term opportunity for us. Looking ahead, we anticipate further growth within commercial channels. While product cost inflation and higher freight costs remain headwinds within this segment, we continue to invest in labor and facilities to fully capitalize on further anticipated commercial demand growth while optimizing growth in EBITDA dollars. Turning to our federal defense segment, revenue increased 8% on a year-over-year basis, supported by contributions from the HACO Special Services Acquisition completed in the first quarter of 2021. In both the fourth quarter of 2021 and the first quarter of 2022, Federal and defense segment margins declined versus prior year levels, driven by an increased shift in our contract mix from fixed price to cost plus contracts. The federal and defense segment continued to build a robust multi-year backlog of new opportunities during the first quarter. Total funded backlog increased by 5% on a year-over-year basis in the first quarter, while bookings increased by 46% in the period, giving increased customer demand stemming from aircraft maintenance and modernization activities, and awards for logistics and distribution services. In March, we were awarded a $100 million 12-month contract by Naval Sea Systems Command, or NAVSEA. CSEA is the current contractor providing foreign military sales, follow-on technical support to NAVSEA. Under the terms of this contract award, and in conjunction with NAVSEA's International Fleet Support Program Office, VSE will continue to support eligible foreign navies with a broad range of aftermarket services. Our first quarter results demonstrate the great progress our teams are making. I am proud of the work of the VSE team, how we supported our customers and partners, and the strong results we produced in the quarter. I will now turn the call over to Steve for a detailed review of our financial performance.