VSE Corporation

Greetings and welcome to BSE Corporation's second quarter of 2022 Earnings Conference Call. At this time, all participants are in listening mode. The question and answer session will follow the formal presentation. If anyone should require assistance, you're welcome to press star and zero on your telephone keypad. As a reminder, this conference is being recorded. I'd now like to hand over to your host, Mr. Nathaniel Ryan of Investor Relations. Please go ahead.

Thank you. Welcome to VSE Corporation's second 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 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. With that, I would like to turn the call over to John Cuomo for his prepared remarks. John?

Thank you, Noel, and welcome to everyone joining us on the call today. Let's begin on slide three of our conference call materials. BSE finished the first half of 2022 with two of the strongest revenue quarters in more than a decade, led by broad-based year-over-year growth in all segments, including aviation, which reported record revenue in the second quarter. While the macro environment remains challenging, given continued supply chain disruptions, cost inflation, and labor constraints, We continue to make steady progress on our customer-centric value proposition, highlighting the strength and resiliency of the VSE team and the demand for our products and services in the market. Our strong second quarter performance further highlights our successful implementation of recently awarded distribution and MRO programs, together with our effective integration of recently acquired businesses. We executed on plan in the second quarter, delivering strong year-over-year growth in revenue and profitability. Total revenue increased by 38% year-over-year, adjusted EBITDA increased by 21% year-over-year, and adjusted net income increased by 25% versus the prior year. We continue to advance our ongoing business transformation, guided by three strategic initiatives that position us to drive long-term value creation for our shareholders. First, we are building sustainable revenue channels through new program execution, market share gain, and product and capability expansion. Second, we remain focused on margin expansion and profitable growth as we drive scale with our recent and ongoing investments and improve our supply chain and operations through continuous improvement. And third, we are building on our strong legacy programs and our long-term customer relationships to optimize our core revenue channels with outstanding customer service and depth and breadth of product and service offerings. The company's second quarter results demonstrate substantial progress across these strategic initiatives as we continue to execute the next phase of our business transformation roadmap. developing a market-leading aftermarket parts distribution and MRO services platform to support higher growth transportation and markets. I'll start by highlighting the progress in our aviation segment. Our aviation segment reported record results in the second quarter with $105 million of revenue, highlighted by organic revenue growth across both our distribution and MRO businesses, and contributions from our global parts acquisition. Distribution revenue increased 177% year-over-year, representing the eighth consecutive quarter of sequential revenue growth, while MRO revenue increased 37% year-over-year, supported by ongoing commercial market recovery and continued growth within the business and general aviation market. Aviation segment adjusted EBITDA increased by over 293 basis points year-over-year to 11.4%, driven by new program implementation and an increased mix of higher margin repair activity. Over the last few years, the aviation team successfully launched new business and general aviation market-focused programs. These programs expanded our business and general aviation customer base from 100 customers in 2020 to more than 3,000 unique customers today. Also, we are on track with our global parts acquisition integration activities, and our new programs are performing ahead of initial expectations. Commercial air travel levels continue to recover, and we experienced incremental growth in commercial distribution and MRO activity in the quarter, which will contribute to further revenue growth in 2023 and beyond. as commercial air travel recovers to pre-COVID levels. Turning to our fleet segment, fleet revenue increased 12% year-over-year in the second quarter, driven by strong growth with commercial fleet customers and e-commerce fulfillment sales, together with steady contributions from the U.S. Postal Service. We continue to experience strong demand for aftermarket parts servicing medium- and heavy-duty fleets across our commercial distribution and e-commerce fulfillment channels. Commercial revenue increased by more than 48% on a year-over-year basis in the second quarter, representing 40% of total segment revenue in the period, up from 10% at the end of 2019. Looking ahead, we anticipate further growth within commercial channels as we continue to expand operational and supply chain capabilities to meet this growing demand. Also, our USPS revenue increased on both the sequential and year-over-year basis in the second quarter, giving consistent customer spending, including increased spending on commercial off-the-shelf fleet vehicles. Turning to our federal and defense segment, federal defense revenue increased 3% on a year-over-year basis, supported by growth in the foreign military sales program with the U.S. Navy, as we focus on optimizing legacy programs. In the second 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. Cost plus now comprises 48% of total federal revenue versus 31% in the second quarter of 2021. Before Steve shares our financial performance for the quarter in more detail, I'd like to take a moment to announce two recent additions to the VSE Board of Directors as part of our long-term succession plan. We are excited to welcome Anita Britt and Lloyd Johnson to the VSE Board during this next chapter of growth and transformation. Both incoming directors are accomplished executives with decades of commercial experience at respected world-class public companies committed to delivering long-term value for shareholders. We are confident they will provide diverse and valuable perspectives integral to our continued business transformation. Our results for the first half of 2022 demonstrate the strength and resiliency of the VSE team and the demand for our products and services and strong execution on our multi-year business transformation strategy. I am proud of our team, how they support our customers and OEM partners, and for delivering strong and record-setting first half results. As we look to the second half of the year, We intend to build upon this momentum with a strong focus on program execution, market share gains, and new business integration in continued support of the growing fragmented markets we serve. I will now turn the call over to Steve for a detailed review of our financial performance.