Record Revenue and Profitability for Aviation
Segment
Business Transformation Accelerates
VSE Corporation (NASDAQ: VSEC; “VSE”, or the “Company”), a
leading provider of aftermarket distribution and repair services,
announced results for the fourth quarter and full year 2023.
MANAGEMENT COMMENTARY
“We completed 2023 with outstanding fourth quarter and full year
financial results,” said John Cuomo, President and CEO of VSE
Corporation. “Our businesses once again delivered strong
above-market revenue growth and improved profitability. Our
Aviation segment reported record revenue and Adjusted EBITDA driven
by strong program execution, an expansion of our distribution
product lines and repair capabilities, and contributions from
recent acquisitions. Our Fleet segment continued to diversify its
customer base and reported record revenue, driven by strong growth
in commercial sales and solid contributions from legacy customers.
I want to thank the VSE team for delivering yet another year of
outstanding performance.”
Mr. Cuomo continued, “VSE enters 2024 well positioned for a
successful year, supported by robust end-market activity and
bolstered by new business wins and recently announced strategic
actions and acquisitions. 2024 is a year of growth and execution as
we focus on acquisition integration, implementation of new
programs, entry into new geographies, and the continued execution
of our strategic transformation plan. Our unwavering commitment to
our employees, customers, and suppliers, sets our businesses apart
and will continue to fuel our success in 2024 and beyond.”
“VSE completed 2023 meeting previously shared expectations,
capping another great year of above market revenue growth and
increased profitability. Our Aviation and Fleet segments delivered
record revenue and improved profitability while generating $43
million of operating cash flow and $30 million of free cash flow in
the second half of the year. We will build on this strong
foundation in 2024 with new investments in recently awarded
contracts, the integration and launch of newly acquired businesses,
and the recently announced acquisition of Turbine Controls, Inc.,”
said Steve Griffin, Chief Financial Officer. “Our 2024 guidance
reflects the compelling opportunities across both of our business
segments where our differentiated go-to-market strategy positions
us to deliver above-market revenue growth, improved profitability,
and a strong return on capital.”
FOURTH QUARTER 2023 RESULTS(1)
(As compared to the Fourth Quarter 2022)
- Total Revenues of $235.3 million increased 37%
- GAAP Net Income of $12.8 million increased 62%
- GAAP EPS (Diluted) of $0.82 increased 32%
- Adjusted EPS(2) (Diluted) of $0.85 increased 31%
- Adjusted EBITDA(2) of $31.4 million increased 46%
FULL-YEAR 2023 RESULTS(1)
(As compared to the Full-Year 2022)
- Total Revenues of $860.5 million increased 29%
- GAAP Net Income of $43.2 million increased 62%
- GAAP EPS (Diluted) of $3.04 increased 46%
- Adjusted EPS(2) (Diluted) of $3.31 increased 45%
- Adjusted EBITDA(2) of $113.8 million increased 45%
(1) From continuing operations
(2) Non-GAAP measure, see additional
information at the end of this release regarding non-GAAP financial
measures
STRATEGIC UPDATE
- TURBINE CONTROLS ACQUISITION: VSE entered into a
definitive agreement to acquire Turbine Controls Inc. ("TCI"), a
leading provider of aftermarket maintenance, repair and overhaul
(“MRO”) support services for complex engine components, as well as
engine and airframe accessories. VSE will acquire TCI for a total
consideration of approximately $120 million, comprising $110
million in cash and $10 million of common shares of the Company,
subject to working capital adjustments. The acquisition is expected
to close in the second quarter of 2024, subject to customary
closing conditions.
- FEDERAL AND DEFENSE DIVESTITURE: VSE announced the sale
of substantially all of its Federal and Defense segment (“FDS”)
operating assets. The FDS sale was completed in two separate
transactions with two buyers for a total cash consideration of
$44.0 million, which included $10.0 million as an estimated net
working capital adjustment (subject to post-closing adjustments).
Associated with the sale of FDS, VSE will cease use of the one
remaining non-core FDS facility by the second quarter of 2024.
During the first quarter of 2024, the Company is expecting to
record one-time transaction expenses between $6 and $8 million,
including non-recurring fees and costs in support of these
transactions and employee severance and benefit related expenses.
Additionally, the Company is expecting to record a $6 million
non-cash charge including an impairment related to the asset not
included in the sale.
- CORPORATE COST RESTRUCTURING: The Company is considering
a corporate restructuring plan and headquarters relocation, which
could result in certain adjustments to the Company's consolidated
financial statements ranging between $18 to $23 million throughout
2024 depending on the resolution of certain contract and leasing
agreements. The Company’s evaluation may include a facilities
consolidation strategy to sublease, early terminate, or abandon its
headquarters, and would be designed to reduce centralized corporate
costs.
- FLEET SEGMENT STRATEGIC REVIEW: VSE initiated a process
to explore and evaluate strategic alternatives involving the Fleet
segment. The Company has not set a definitive timetable for the
completion of the review, and there can be no assurances that it
will result in a transaction.
BALANCE SHEET OPTIMIZATION
In December 2023, the Company amended and extended its credit
agreement, providing for an increase of approximately $122 million
on its term loan and an extension of the maturity date by one year
to October 2026.
SEGMENT RESULTS
Aviation segment revenue increased 43% year-over-year to
a record $153.7 million in the fourth quarter 2023. The
year-over-year revenue growth was attributable to strong program
execution on new and existing distribution awards, an increase in
maintenance, repair and overhaul (“MRO”) activity, and
contributions from the acquisition of Desser Aerospace. Aviation
distribution and repair revenue increased 41% and 49% respectively,
in the fourth quarter versus the prior-year period. The Aviation
segment reported operating income of $18.8 million in the fourth
quarter, compared to $12.3 million in the same period of 2022.
Segment Adjusted EBITDA increased by 52% in the fourth quarter to
$23.9 million, versus $15.8 million in the prior-year period,
driven by strong execution on distribution programs, MRO market
share gains, improved pricing and product mix, increased operating
leverage, and contributions from the Desser Aerospace acquisition.
Adjusted EBITDA margin was 15.6%, an increase of approximately 90
basis points compared to the prior year.
Fleet segment revenue increased 26% year-over-year to
$81.6 million in the fourth quarter of 2023. Revenue from
commercial customers increased 72% on a year-over-year basis,
driven by strong growth in e-commerce fulfillment and commercial
fleet sales. Commercial revenue represented approximately 52% of
total Fleet segment revenue in the fourth quarter, compared to 38%
in the prior year period and represented the first quarter in
segment history of greater than 50% of revenue from Commercial
customers. Revenue from the United States Postal Service (USPS)
declined approximately 3% on a year-over-year basis in the fourth
quarter, driven by mix of fleet vehicles within the installed base.
The Fleet segment reported operating income of $9.0 million in the
fourth quarter, compared to $5.6 million in the same period of
2022. Segment Adjusted EBITDA increased 24% year-over-year to $9.8
million, while Adjusted EBITDA margin was 12.0%, a decline of 20
basis points versus the prior-year period, primarily driven by
customer and product mix.
FINANCIAL RESOURCES AND LIQUIDITY
As of December 31, 2023, the Company had $216 million in cash
and unused commitment availability under its $350 million revolving
credit facility maturing in 2026. As of December 31, 2023, VSE had
total net debt outstanding of $422 million and $114 million of
trailing-twelve months Adjusted EBITDA. The Company generated $20
million and $(41) million of Free Cash Flow for the fourth quarter
and full year 2023, respectively.
GUIDANCE
VSE is reaffirming its full year Aviation segment guidance:
- Aviation segment full year 2024 revenue growth of 24% to 28%,
as compared to the prior year.
- Aviation segment Adjusted EBITDA margin expected to be between
15% and 16%.
As previously updated, VSE Fleet segment guidance is as
follows:
- Fleet segment full year 2024 revenue growth of 13% to 17%, as
compared to the prior year.
- Fleet segment Adjusted EBITDA to increase 8% to 12%, as
compared to the prior year.
FOURTH QUARTER AND FULL YEAR RESULTS
Three months ended December
31,
For the years ended December
31,
($ in thousands, except per share
amounts)
2023
2022
% Change
2023
2022
% Change
Revenues
$
235,325
$
171,988
36.8
%
$
860,488
$
669,448
28.5
%
Operating income
$
25,319
$
15,941
58.8
%
$
87,996
$
53,604
64.2
%
Net income from continuing operations
$
12,834
$
7,916
62.1
%
$
43,152
$
26,659
61.9
%
EPS (Diluted)
$
0.82
$
0.62
32.3
%
$
3.04
$
2.08
46.2
%
SEGMENT RESULTS
The following is a summary of revenues and operating income
(loss) for the three and twelve months ended December 31, 2023 and
December 31, 2022:
Three months ended December
31,
For the years ended December
31,
($ in thousands)
2023
2022
% Change
2023
2022
% Change
Revenues:
Aviation
$
153,701
$
107,178
43.4
%
$
544,020
$
408,112
33.3
%
Fleet
81,624
64,810
25.9
%
316,468
261,336
21.1
%
Total revenues
$
235,325
$
171,988
36.8
%
$
860,488
$
669,448
28.5
%
Operating income (loss):
Aviation
$
18,771
$
12,327
52.3
%
$
71,168
$
36,416
95.4
%
Fleet
8,973
5,625
59.5
%
31,257
23,911
30.7
%
Corporate/unallocated expenses
(2,425
)
(2,011
)
20.6
%
(14,429
)
(6,723
)
114.6
%
Operating income
$
25,319
$
15,941
58.8
%
$
87,996
$
53,604
64.2
%
The Company reported total capital expenditures in the fourth
quarter and full year 2023 of $7.9 million and $18.7 million,
respectively.
NON-GAAP MEASURES
In addition to the financial measures prepared in accordance
with U.S. Generally Accepted Accounting Principles (GAAP), this
earnings release also contains non-GAAP financial measures. These
measures provide useful information to investors, and a
reconciliation of these measures to the most directly comparable
GAAP measures and other information relating to these non-GAAP
measures is included in the supplemental schedules attached.
NON-GAAP FINANCIAL INFORMATION
Reconciliation of Adjusted Net Income and Adjusted EPS to Net
Income
Three months ended December
31,
For the years ended December
31,
($ in thousands)
2023
2022
% Change
2023
2022
% Change
Net income from continuing operations
$
12,834
$
7,916
62.1
%
$
43,152
$
26,659
61.9
%
Adjustments to net income from continuing
operations:
Non-recurring professional fees
—
—
—
%
300
—
—
%
Debt issuance costs
175
—
—
%
441
—
—
%
Acquisition, integration and restructuring
costs
610
517
18.0
%
4,410
1,279
244.8
%
Russia/Ukraine conflict (1)
—
—
—
%
—
2,335
(100.0
)%
13,619
8,433
61.5
%
48,303
30,273
59.6
%
Tax impact of adjusted items
(196
)
(129
)
51.9
%
(1,286
)
(902
)
42.6
%
Adjusted net income from continuing
operations
$
13,423
$
8,304
61.6
%
$
47,017
$
29,371
60.1
%
Weighted average dilutive shares
15,804
12,862
22.9
%
14,185
12,828
10.6
%
Adjusted EPS (Diluted)
$
0.85
$
0.65
30.8
%
$
3.31
$
2.29
44.5
%
(1) Adjustment represents a non-cash
charge recorded to reduce the carrying amount of accounts
receivable and inventory related to the Russia/Ukraine military
conflict.
Reconciliation of Consolidated EBITDA and Adjusted EBITDA to
Net Income
Three months ended December
31,
For the years ended December
31,
($ in thousands)
2023
2022
% Change
2023
2022
% Change
Net income from continuing operations
$
12,834
$
7,916
62.1
%
$
43,152
$
26,659
61.9
%
Interest expense
9,278
5,588
66.0
%
31,083
17,893
73.7
%
Income taxes
3,207
2,437
31.6
%
13,761
9,052
52.0
%
Amortization of intangible assets
3,635
3,812
(4.6
)%
14,378
15,735
(8.6
)%
Depreciation and amortization
1,880
1,312
43.3
%
6,749
5,291
27.6
%
EBITDA
30,834
21,065
46.4
%
109,123
74,630
46.2
%
Non-recurring professional fees
—
—
—
%
300
—
—
%
Acquisition, integration and restructuring
costs
610
517
18.0
%
4,410
1,279
244.8
%
Russia/Ukraine conflict (1)
—
—
—
%
—
2,335
(100.0
)%
Adjusted EBITDA
$
31,444
$
21,582
45.7
%
$
113,833
$
78,244
45.5
%
(1) Adjustment represents a non-cash
charge recorded to reduce the carrying amount of accounts
receivable and inventory related to the Russia/Ukraine military
conflict.
Reconciliation of Segment EBITDA and Adjusted EBITDA to
Operating Income (Loss)
Three months ended December
31,
For the years ended December
31,
($ in thousands)
2023
2022
% Change
2023
2022
% Change
Aviation
Operating income
$
18,771
$
12,327
52.3
%
$
71,168
$
36,416
95.4
%
Depreciation and amortization
5,064
3,143
61.1
%
16,080
12,701
26.6
%
EBITDA
23,835
15,470
54.1
%
87,248
49,117
53.4
%
Acquisition, integration and restructuring
costs
86
281
(69.4
)%
126
668
(81.1
)%
Russia/Ukraine conflict (1)
—
—
—
%
—
2,335
(100.0
)%
Adjusted EBITDA
$
23,921
$
15,751
51.9
%
$
87,374
$
52,120
67.6
%
Fleet
Operating income
$
8,973
$
5,625
59.5
%
$
31,257
$
23,911
30.7
%
Depreciation and amortization
848
2,055
(58.7
)%
5,300
8,666
(38.8
)%
EBITDA
9,821
7,680
27.9
%
36,557
32,577
12.2
%
Acquisition, integration and restructuring
costs
—
236
(100.0
)%
158
590
(73.2
)%
Adjusted EBITDA
$
9,821
$
7,916
24.1
%
$
36,715
$
33,167
10.7
%
(1) Adjustment represents a non-cash
charge recorded to reduce the carrying amount of accounts
receivable and inventory related to the Russia/Ukraine military
conflict.
Three months ended December
31,
For the years ended December
31,
($ in thousands)
2023
2022
% Change
2023
2022
% Change
Adjusted EBITDA
Summary
Aviation
$
23,921
$
15,751
51.9
%
$
87,374
$
52,120
67.6
%
Fleet
9,821
7,916
24.1
%
36,715
33,167
10.7
%
Adjusted Corporate expenses (1)
(2,298
)
(2,085
)
10.2
%
(10,256
)
(7,043
)
45.6
%
Adjusted EBITDA
$
31,444
$
21,582
45.7
%
$
113,833
$
78,244
45.5
%
(1) Includes certain adjustments not
directly attributable to any of our segments.
Reconciliation of Operating Cash to Free Cash Flow
Three months ended December
31,
For the years ended December
31,
($ in thousands)
2023
2022
2023
2022
Net cash provided by (used in) operating
activities
$
27,942
$
12,257
$
(21,829
)
$
8,051
Capital expenditures
(7,871
)
(3,796
)
(18,666
)
(11,212
)
Free cash flow
$
20,071
$
8,461
$
(40,495
)
$
(3,161
)
Reconciliation of Debt to Net Debt
For the years ended December
31,
($ in thousands)
2023
2022
Principal amount of debt
$
433,000
$
288,610
Debt issuance costs
(3,656
)
(2,310
)
Cash and cash equivalents
(7,768
)
(305
)
Net debt
$
421,576
$
285,995
Net Leverage Ratio
For the years ended December
31,
($ in thousands)
2023
2022
Net debt
$
421,576
$
285,995
TTM Adjusted EBITDA
$
113,833
$
78,244
Net Leverage Ratio
3.7 x
3.7 x
TTM Adjusted EBITDA Proforma(1)
$
124,304
$
78,244
Proforma Net Leverage Ratio
3.4 x
3.7 x
(1) TTM Proforma Adjusted EBITDA includes
pre-acquisition portion of EBITDA for the trailing twelve months
that is not included in historical results.
The non-GAAP Financial Information set forth in this document is
not calculated in accordance with GAAP under SEC Regulation G. We
consider Adjusted Net Income, Adjusted EPS (Diluted), EBITDA,
Adjusted EBITDA, net debt and free cash flow as non-GAAP financial
measures and important indicators of performance and useful metrics
for management and investors to evaluate our business' ongoing
operating performance on a consistent basis across reporting
periods. These non-GAAP financial measures, however, should not be
considered in isolation or as a substitute for performance measures
prepared in accordance with GAAP. Adjusted Net Income represents
Net Income adjusted for acquisition-related costs including any
earn-out adjustments, loss on sale of a business entity and certain
assets, gain on sale of property, other discrete items, and related
tax impact. Adjusted EPS (Diluted) is computed by dividing net
income, adjusted for the discrete items as identified above and the
related tax impacts, by the diluted weighted average number of
common shares outstanding. EBITDA represents net income before
interest expense, income taxes, amortization of intangible assets
and depreciation and other amortization. Adjusted EBITDA represents
EBITDA (as defined above) adjusted for discrete items as identified
above. Net debt is defined as total debt less cash and cash
equivalents. Free cash flow represents operating cash flow less
capital expenditures.
CONFERENCE CALL
A conference call will be held Thursday, March 7, 2024 at 8:30
A.M. EST to review the Company’s financial results, discuss recent
events and conduct a question-and-answer session.
A webcast of the conference call and accompanying presentation
materials will be available in the Investor Relations section of
VSE’s website at https://ir.vsecorp.com. To listen to the live
broadcast, go to the site at least 15 minutes prior to the
scheduled start time to register, download and install any
necessary audio software.
To participate in the live teleconference:
Domestic Live:
(844) 826-3035
International Live:
(412) 317-5195
Audio Webcast:
https://viavid.webcasts.com/starthere.jsp?ei=1654757&tp_key=69cc389df7
To listen to a replay of the teleconference through March 21,
2024:
Domestic Replay:
(844) 512-2921
International Replay:
(412) 317-6671
Replay PIN Number:
10186239
ABOUT VSE CORPORATION
VSE is a leading provider of aftermarket distribution and repair
services. Operating through its two key segments, VSE significantly
enhances the productivity and longevity of its customers'
high-value, business-critical assets. The Aviation segment is a
leading provider of aftermarket parts distribution and maintenance,
repair, and overhaul (MRO) services for components and engine
accessories to commercial, business, and general aviation
operators. The Fleet segment specializes in part distribution,
engineering solutions, and supply chain management services catered
to the medium and heavy-duty fleet market. For more detailed
information, please visit VSE's website at www.vsecorp.com.
Please refer to the Form 10-K that will be filed with the
Securities and Exchange Commission (SEC) on or about March 7, 2024
for more details on our fourth quarter and full year 2023 results.
VSE encourages investors and others to review the detailed
reporting and disclosures contained in VSE’s public filings for
additional discussion about the status of customer programs and
contract awards, risks, revenue sources and funding, dependence on
material customers, and management’s discussion of short- and
long-term business challenges and opportunities.
FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking statements. These
forward-looking statements, which are included in accordance with
the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, may involve known and unknown risks,
uncertainties and other factors that may cause VSE’s actual results
and performance in future periods to be materially different from
any future results or performance suggested by the forward-looking
statements in this document. Although we believe the expectations
reflected in such forward-looking statements are based upon
reasonable assumptions, we can give no assurance that actual
results will not differ materially from these expectations.
“Forward-looking” statements, as such term is defined by the SEC in
its rules, regulations and releases, represent our expectations or
beliefs, including, but not limited to, statements concerning our
operations, economic performance, financial condition, the impact
of widespread health developments, such as the ongoing COVID-19
outbreak, the health and economic impact thereof, and the
governmental, including federal contractor vaccine mandates,
commercial, consumer and other responses thereto, growth and
acquisition strategies, investments and future operational plans.
Without limiting the generality of the foregoing, words such as
“may,” “will,” “expect,” “believe,” “anticipate,” “intend,”
“forecast,” “seek,” “plan,” “predict,” “project,” “could,”
“estimate,” “might,” “continue,” “seeking” or the negative or other
variations thereof or comparable terminology are intended to
identify forward-looking statements. These statements, by their
nature, involve substantial risks and uncertainties, certain of
which are beyond our control, and actual results may differ
materially depending on a variety of important factors, including,
but not limited to, supply chain delays and disruptions, risk
related to our work on large government programs, our ability to
successfully integrate recently acquired businesses, our ability to
successfully divest businesses, risk related to future business
conditions resulting in impairments, risk related to the intense
competition in our industry, risk related to the performance of the
aviation aftermarket, global economic and political conditions,
prolonged periods of inflation and our ability to mitigate the
impact thereof, challenges related to workforce management or any
failure to attract or retain a skilled workforce, our dependence on
third-party package delivery companies, our compliance with number
government rules and regulations, including environmental and
pollution risks, risks related to technology security and
cyber-attack, risks related to our outstanding indebtedness, risks
related to market volatility in the debt and equity capital
markets, and the other factors identified in our reports filed or
expected to be filed with the SEC including our Annual Report on
Form 10-K for the year ended December 31, 2023. All forward-looking
statements made herein are qualified by these cautionary statements
and risk factors and there can be no assurance that the actual
results, events or developments referenced herein will occur or be
realized. Readers are cautioned not to place undue reliance on
these forward-looking-statements, which reflect management’s
analysis only as of the date hereof. We undertake no obligation to
update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes to
future operating results.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240306772315/en/
INVESTOR CONTACT
Michael Perlman VP, Investor Relations & Treasury T: (954)
547-0480 M: (561) 281-0247 investors@vsecorp.com
VSE (NASDAQ:VSEC)
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