VSE Corporation

Greetings and welcome to the VSE Corporation third quarter 2022 earnings call. At this time, all participants are in lesson only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press start and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Noel Ryan. Thank you, Sal. You may begin.

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

Thank you, Noel. Welcome to everyone joining us on the call today. As detailed in our third quarter earnings release, our business transformation continues to gain momentum. Recent new business wins and strategic progress across each of our business segments have contributed to continued profitable growth during a period of broader market volatility. Let's now turn to slide three of our conference call material. During the third quarter, revenue, net income, adjusted EBITDA, and free cash flow each increased materially on a year-over-year basis, driven by a combination of new business wins, program execution, and improved demand across our key commercial end market. Total revenues of $242.5 million increased 21% year-over-year driven by growth across all three segments. In the third quarter, both the aviation and fleet segments recorded their highest year-to-date revenue in company history. Third quarter adjusted EBITDA of $24 million was up 12% versus the prior year, driven by contributions from both our aviation and fleet segments. Our aviation segment had another outstanding quarter with revenue of $102 million, up 40%, and adjusted EBITDA up 86% in the third quarter. This segment's strong performance was supported by balanced growth across both commercial and business and general aviation customers and both our distribution and MRO revenue channels. Revenue in our fleet segment increased 7% in the third quarter, driven by growth with commercial and e-commerce fulfillment customers. Commercial fleet revenue increased 23% on a year-over-year basis and now represents 39% of total fleet segment revenue. Fleet segment adjusted EBITDA increased 13% on a year-over-year basis in the third quarter. The EBITDA improvement benefited from commercial fleet growth along with steady contributions from the U.S.