VSE Corporation

Good morning and welcome to the VSC Corporation fourth quarter and full year 2024 results conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would like now to turn the conference over to Mr. Michael Perlman, Vice President of Investor Relations. Please go ahead.

Thank you. Welcome to VSE Corporation's fourth quarter and full year 2024 results conference call. We will begin with remarks from John Cuomo, President and CEO, followed by financial updates from Adam Cohen, our Chief Financial Officer. 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 those 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. Where available, The appropriate GAAP financial reconciliations are incorporated into our presentation and 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'd like to turn the call over to John. Good morning. Thank you for joining us today for VSE's fourth quarter and full year 2024 conference call. 2024 was a transformative year for VSE, driven by record revenue and profitability in our aviation segment, the acquisition of two commercial aviation aftermarket businesses, and the divestiture of our Federal and Defense Services segment. These strategic actions reinforce our commitment to becoming a pure-play aviation aftermarket company, streamlining our operations to drive sustained growth. Before diving into our results, I want to highlight last week's announcement regarding the sale of our fleet segment business, Wheeler Fleet Solutions to One Equity Partners. This divestiture marks the final step in our strategic transformation into a leading pure play aviation aftermarket parts and services provider. The transaction is valued at up to $230 million, including a $140 million cash payment in closing, a $25 million seller note, and up to $65 million in additional earn-out consideration. The earn-out allows us to participate in Fleet's expected revenue and margin recovery in 2025. The transaction is expected to close in the second quarter of 2025, subject to customary closing conditions. This divestiture and the strategic actions we've taken over the past five years demonstrate our commitment to becoming a pure play aviation aftermarket company. With that, let's begin with an update on the current market environment for our aviation segment. The aviation segment supports both the commercial and business and general aviation aftermarket, with each representing approximately 50% of 2025 aviation segment forecasted revenue. The aviation aftermarket is set for another year of expansion in 2025, with both the commercial and business aviation sectors experiencing continued growth. This momentum is driven by increased global passenger traffic, rising demand for maintenance, repair, and overhaul services, and an uptick in business jet utilization. The commercial aircraft aftermarket's parts and services market is expected to maintain its strong growth trajectory in 2025. Revenue passenger mile forecasts, combined with ongoing supply chain and capacity constraints, indicate another robust year for the sector. As a result, VSE anticipates commercial aftermarket growth for our parts and services to range between 8% and 10% in 2025. The business aviation sector continues to see unprecedented demand, with industry experts projecting that flight hours will remain steady or increase for more than 90% of operators in 2025 as compared to 2024. This outlook, coupled with new market entrants leveraging fractional ownership, leasing, and jet card programs, as well as a projected expansion of the total business aviation fleet, supports VSC's forecast for our business and general aviation market. We anticipate growth of 5% to 6% in 2025 for our products and services in this segment. Therefore, we forecast our combined markets at 6.5% to 8% in 2025 with our plan to outperform these market assumptions. Let's now turn to slide three, where I will provide an overview of our 2024 and year-to-date 2025 highlights, starting with our recent strategic acquisitions in aviation. First, in December, we acquired Kellstrom Aerospace, a leading aftermarket solutions provider specializing in value-added distribution and technical services for the commercial engine market. Kellstrom aligns strongly with our OEM-centric strategy, expanding our presence in the commercial aerospace aftermarket. This acquisition brings new engine-focused customers, additional distribution products, and enhanced MRO and technical service capabilities to VSC Aviation. Integration of Kellstrom's distribution business is underway and is expected to be completed over the next 12 to 18 months. In April 2024, we acquired Turbine Controls, or TCI, further increasing our exposure to the commercial aviation industry. engine component MRO market. This acquisition expanded our repair capabilities and added new OEM relationships. This business performed exceptionally well in 2024, driving well above market revenue growth as they supported their key OEM partners. We remain focused on scaling capacity and deepening partnerships with OEMs in the year ahead. We successfully completed the integration of DESR's U.S. distribution business in 2024, streamlining processes, systems, and organizations, and launching a new go-to-market strategy under the BSE brand. Looking ahead, we plan to integrate DESR's remaining business units in 2025, with the DESR Australia integration already completed in early 2025. Moving on to new program implementation. We opened a new 45,000-square-foot distribution center of excellence in Hamburg, Germany. Initially, this site supported Pratt & Whitney Canada's Europe, Middle East, and Africa distribution and support program, and has since expanded to include tires, tubes, and battery product lines, with additional product lines expected to be expanded in the future. We launched a new OEM-licensed avionic MRO program in 2024, that combined with our distribution program supporting this product line allows us to manage the total life cycle of these products. We also launched our new OEM license manufacturing capability and facility expansion following our acquisition of the Honeywell Fuel Control Program. The program exceeded our initial expectations and was a strong margin contributor in 2024. We plan to fully transition all OEM manufacturing capabilities to our facility in 2025. Now turning to our fleet segment. 2024 was a year of transition as we continued supporting the United States Postal Service following their migration to a new fleet management information system. After reaching a low point in Q3, we began seeing improved maintenance-related repair activity and parts usage in the fourth quarter. We expect this momentum to continue through 2025. With the fleet segment's commercial sales channel, we scaled our Memphis e-commerce fulfillment facility, diversified our customer base, and added new exclusive brands. As a result, our commercial revenue growth continues to outpace the market. At the corporate level, we successfully completed the sale of our federal and defense segment in February 2024, marking a significant milestone in our transition to a pure play aviation business. Finally, we relocated our corporate headquarters to South Florida, co-locating within our aviation segment headquarters and MRO Center of Excellence in Miramar, Florida. This move enhances collaboration with our business partners and employees while also reducing corporate overhead costs. Let's now move to slide four, where I will provide an update on our business segment's full year 2024 performance. For the full year 2024, we delivered both record revenue and record profitability for our aviation segment. Revenue growth was driven by balanced, strong execution on new and existing distribution programs, an expanded portfolio of MRO capabilities, and contribution from recent acquisitions. The aviation segment also reported record profitability driven by distribution program growth the optimization of existing distribution programs, increased throughput at our MRO facilities, support from our new OEM license manufacturing programs, and contributions from recent acquisitions. For our fleet segment, the revenue decline was primarily driven by the USPS transition to a new fleet management information system platform. This resulted in decline in maintenance-related activities and reduced park requirements. maintenance-related repair activity levels began to rebound in the fourth quarter and are expected to continue to improve in 2025. This was partially offset by strong revenue contributions from our commercial customers, driven by growth in both commercial fleet sales and e-commerce fulfillment sales. I will now turn the call over to Adam to discuss the details of our financial performance.