Q1 2024 VSE Corp Earnings Call

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Operator: Greetings, and welcome to the VSE Corporation first quarter 2024 results conference call. At this time, all participants are in a listen only mode. A brief 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. It is now my pleasure to introduce your host, Michael Perlman, Vice President of Investor Relations and Treasury. Thank you, Michael. You may begin.

Greetings and welcome to the V. F Corporation first quarter 2024 results conference call. At this time all participants are in a listen only mode. A brief 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.

This conference is being recorded it is now my pleasure to introduce your host Michael Perlman, Vice President Investor Relations and Treasury. Thank you Michael you may begin.

Michael Perlman: Thank you, Devin. Welcome to VSE Corporation's first quarter 2024 results conference call. We will begin with remarks from John Cuomo, President and CEO. Also on the call this morning are Steve Griffin, Chief Financial Officer, and Tareng Sharma, VP, Controller, and Head of Corporate Development.

Michael Perlman: Thank you Devin welcome to Vse Corporation's first quarter 'twenty 'twenty. Four result conference call. We will begin with remarks from John Cuomo, President and CEO and also on the call. This morning are Steve Griffin, Chief Financial Officer, and terrain Sharma, VP controller and head of corporate development.

Michael Perlman: The presentation we are sharing today is on our website, and we encourage you to follow along accordingly. Today's discussion includes 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-gap financial measures in our presentation.

Michael Perlman: The presentation. We are sharing today is on our website and we encourage you to follow along accordingly.

Michael Perlman: Today's discussion contains forward looking statements about future business and financial expectations actual results may differ significantly from those projected in states forward looking statements due to various risks and uncertainties, including those described in our periodic reports filed with the SEC.

Michael Perlman: Except as required by law, we undertake no obligation to update our forward looking statements.

Michael Perlman: We're 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.

Michael Perlman: 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.

Michael Perlman: Where available, the appropriate gap 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 would like to turn the call over to John.

John A. Cuomo: Good morning. Thank you for being a part of today's first quarter conference call. Today, we share not only the exceptional performance of our first quarter but also the remarkable strides our teams are making in executing our operational and strategic plan. As I mark my fifth year with VSE, it's truly exciting to witness our story and vision translating into such strong results. Let's begin on slide three, where I will provide an update on our Q1 performance. In the first quarter, we delivered company-wide revenue growth of 28 percent.

John A. Cuomo: Good morning, Thank you for being a part of today's first quarter conference call.

John A. Cuomo: Today, we shared not only the exceptional performance of our first quarter, but also the remarkable strides our teams are making in executing our operational and strategic plan.

John A. Cuomo: As a mark my fifth year with Vse, it's truly exciting to witness our story and vision translating into such strong results.

Speaker Change: Let's begin on slide three where I will provide an update on our Q1 performance.

Speaker Change: In the first quarter, we delivered company wide revenue growth of 28%. This included both record revenue and record profitability for our aviation segment.

John A. Cuomo: This included both record revenue and record profitability for our aviation sector. The strong aviation revenue growth was driven by balanced results from both our distribution and MRO revenue channels. Distribution revenue growth was driven by expansion of existing OEM partnerships and strong execution of both new and existing programs. MRO revenue growth was driven by market share gains and expanded repair capabilities in products, both supported by strong and market activity. The aviation segment's record profitability and 17% adjusted EBITDA margins were driven by contributions from new distribution programs, MRO market share gains, and our new fuel control program.

Speaker Change: The strong aviation revenue growth was driven by balanced results from both our distribution and MRO revenue channels.

Speaker Change: Distribution revenue growth was driven by expansion of existing OEM partnerships and strong execution are both new and existing programs.

Speaker Change: MRO revenue growth was driven by market share gains and expanded repair capabilities and product offerings.

Speaker Change: All supported by strong end market activity.

Speaker Change: The aviation segment's record profitability and 17% adjusted EBITDA margin was driven by contributions from new distribution programs MRO market share gains and our new fuel control program.

John A. Cuomo: During the quarter, sleep segment revenue was up 5%, driven by increased sales volume from e-commerce customers and fulfillment partners, supported by disciplined volume expansion at our Memphis Distribution Center and expanded product offerings supporting new and existing customers within our commercial sales channels. This growth was partially offset by a decline in revenue from the United States Postal Service driven by their implementation of a new Fleet Management Information System, which has resulted in a temporary slowdown in maintenance-related activities and, therefore, parts usage.

Speaker Change: During the quarter sleep segment revenue was up 5% drip.

Speaker Change: Driven by increased sales volume from e-commerce customers and fulfillment partners supported by disciplined volume expansion at our Memphis distribution center and expanded product offerings, supporting new and existing customers within our commercial sales channel.

Speaker Change: This growth was partially offset by a decline in revenue from the United States Postal service driven by their implementation of a new fleet management information system, which has resulted in a temporary slowdown in maintenance related activities and therefore, our parts usage.

John A. Cuomo: Now let's move to slide three, where I will provide an update on our strategic initiatives and program implementation. First, in April, we announced the closing of our previously announced acquisition of Turbine Controls, or TCI, a leading provider of aviation aftermarket maintenance repair and overhaul services, specifically supporting complex engine components and engine and airframe accessories. The acquisition of TCI is a strategic win for VSE and highly complementary to our existing MRO. TCI's 45-year track record of excellence in customer service, industry-leading MRO capabilities, and focus on OEM partnerships is 100% aligned with VSE's commitment and long-term strategy to provide world-class OEM support. Their partnership with industry-leading Tier 1 OEMs provides both near and long-term growth opportunities.

Speaker Change: Now, let's move to slide three where I will provide an update on our strategic initiatives and program implementation.

Speaker Change: First in April we announced the closing of our previously announced acquisition of turbine controls or T. C. I.

Speaker Change: A leading provider of aviation aftermarket maintenance repair and overhaul services, specifically supporting complex engine components and engine and airframe accessories.

Speaker Change: The acquisition of PCI is a strategic win for vse and highly complementary to our existing MRO business G.

Speaker Change: Gci's 45 year track record of excellent customer service industry, leading MRO capabilities and focus on OEM partnerships is 100% aligned with V. S. He's commitment our long term strategy to provide world class OEM support.

Speaker Change: Their partnership with industry, leading tier one Oems provides both near and long term growth opportunities.

John A. Cuomo: We welcome them to the VSE family and look forward to immediate contributions from them. Second, I'd like to provide an update on aviation program execution and recent acquisitions. In the fourth quarter, we announced the expansion of our Pratt & Whitney Canada distribution agreement to now support Europe, the Middle East, and Africa. The program launch remains on track with the recent opening of a new distribution facility in Hamburg, Germany, and the initial shipments to local customers have happened in the first quarter.

Speaker Change: Welcome them to the Vse family and look forward to immediate contributions from the team.

Speaker Change: Second I'd like to provide an update on aviation program execution and recent acquisitions.

Speaker Change: In the fourth quarter, we announced the expansion of our Pratt <unk> Whitney Canada distribution agreement to now support Europe Middle East and Africa.

Speaker Change: The program launch remains on track with the recent opening of a new distribution facility in Hamburg, Germany, and the initial shipments to cut to a local customers have happened in the first quarter.

John A. Cuomo: Next, the launch of our new fuel control program, also announced in the fourth quarter, is outpacing early expectations and is expected to drive incremental margin. This is a new revenue channel and capability for VSE. The leadership team managing this program continues to deliver outstanding work as they transition this program from Honeywell and work closely with the engine OEMs and aftermarket customers on the program implementation. Additionally, the expansion of our existing Kansas facility will become the future center of excellence for this fuel control program and is on track to be operational before year-end.

Speaker Change: Next the launch of our new fuel control program also announced in the fourth quarter is outpacing early expectations and is expected to drive incremental margin opportunities.

Speaker Change: This is a new revenue channel and capability for Vse.

Speaker Change: Our leadership team managing this program continues to deliver outstanding work as they transition this program from Honeywell and work closely with the engine Oems and aftermarket customers on the program implementation.

Speaker Change: Additionally, the expansion of our existing Kansas facility will become the future Center of excellence for this fuel control program and is on track to be operational before year end.

John A. Cuomo: The integration of DESER aerospace is in process, remains on track to be completed over the next 12 months, and it's expected to drive additional revenue and margins. In addition to the execution and implementation work above. During the quarter, we were awarded new business by entering a renewal and significant expansion of a 10-year, $175 million agreement supporting an engine accessories OEM. Finally, in February, we entered into multiple agreements to sell the Federal and Defense Segment Act.

Speaker Change: The integration of desert Aerospace and process remains on track to be completed over the next 12 months.

Speaker Change: And it is expected to drive additional revenue and margin expansion.

Speaker Change: In addition to the execution and implementation work of Bob.

Speaker Change: During the quarter, we were awarded new business by entering a renewal and significant expansion of a 10 year $175 million agreement supporting an engine accessories OEM.

Speaker Change: Finally in February we entered into multiple agreements to sell the federal and defense segment assets. This transition work is on schedule to be completed in the second quarter.

John A. Cuomo: This transition work is on schedule to be completed in the second quarter. Before I turn the call over to Steve for an update on our financial performance, I would like to address our leadership team transition. Steve Griffin, our CFO, will be leaving VSE to pursue an opportunity outside of the aerospace industry. He will remain with the company through the end of the month and then serve as a consultant and advisor to ensure a seamless transition of his responsibilities.

Speaker Change: Before I turn the call over to Steve for an update on our financial performance I'd like to address our leadership team transition.

Speaker Change: Steve Griffin, our CFO will be leaving V. S E to pursue an opportunity outside of the aerospace industry.

Stephen D. Griffin: He will remain with the company through the end of the month and then serve as a consultant and advisor to ensure a seamless transition of his responsibilities.

John A. Cuomo: I want to take a moment to express my personal gratitude to Steve. He is a partner to me in every sense of the word during this first transition of this VSE transformation story. His contributions, exceptional leadership, strong business, and market expertise have been invaluable to us. It's funny sitting in front of him while I talk about this.

Speaker Change: I want to take a moment to express my personal gratitude to Steve.

Stephen D. Griffin: He is a partner to me in every sense of the word during this first transition of this V. S E transformation story.

Stephen D. Griffin: Its contribution exceptional leadership strong business and market expertise has been invaluable to me.

Stephen D. Griffin: It's funny sitting in front of them I talked about I wish him his wife and their three children all the best as they moved to Boston and embark on their next journey.

John A. Cuomo: I wish him, his wife, and their three children all the best as they move to Boston and embark on their next journey. Tarang Sharma, VSE's current Vice President and Controller and Head of Corporate Development, has been appointed Interim CFO, effective May 27. Terrain joined VSE in 2015 and has been instrumental in all aspects of our business transition. She has been by my side since day one when I joined five years ago. The VSE board and I have full confidence in Terang and his ability to lead VSE's financial operation. With that, I now turn the call over to you, Steve, to discuss our financial performance.

Stephen D. Griffin: Drank Sharma Vse's current Vice President controller, and head of corporate development has been appointed interim CFO effective may 27.

Stephen D. Griffin: Jerome joined Vse in 2015, it had been instrumental in all aspects of our business transformation trying has been by my side since day, one when I joined five years ago, The DST Board and I have full confidence and drank and his ability to lead <unk> financial operations with that I'll now turn the call over to you Steve to discuss our financials.

Stephen D. Griffin: Performance.

Stephen D. Griffin: Thank you, John. Working with you and the VSE leadership team in the support of the partners and shareholders of VSE has been an honor, and I'm extremely proud to have been a part of such a talented team that was able to accomplish this strategic pivot of a 60-year-old company. It's a difficult personal decision for me to leave VSE. I'll be joining another public company in the health care industry based in the Boston area to be closer to my family.

Stephen D. Griffin: Thank you John and working with you in the Vse leadership team and the support of our partners and shareholders. A BSC has been an honor and I'm extremely proud to have been a part of such a talented team that was able to accomplish this strategic pivot of a 60 year old business. It is.

Speaker Change: Difficult personal decision for me to leave Vse I'll be joining another public company in the health care industry based in the Boston area.

Speaker Change: To be closer to my family, but I look forward to following the companys future successes and I'm confident the Trang, Michael and the entire finance team is ready to support the next phase of growth John It's been a real honor being your partner in this transition.

Stephen D. Griffin: But I look forward to following the company's future successes, and I'm confident that Terang, Michael, and the entire finance team are ready to support the next phase of growth. John, it's been a real honor being your partner in this transition.

Stephen D. Griffin: Now let's turn to slides five and six of the conference call materials, where I'll provide an overview of our first quarter financials. VSE generated $242 million of revenue in the quarter, an increase of 28%, led by an increase in aviation revenues of 43% and fleet revenues of 5%. Adjusted EBITDA of $32 million increased 37%, or $9 million, compared to the first quarter of 2020. Aviation drove this growth, up $9 million compared to the same period in the prior year. Adjusted net income increased 51% to $14 million, and adjusted diluted earnings per share increased 23% to $0.87 per share. Now, turning to slide 7, we'll cover our aviation segment's first quarter results in more detail.

Speaker Change: Now, let's turn to slides five and six of the conference call materials, where I'll provide an overview of our first quarter financial performance.

Speaker Change: Vse generated $242 million of revenue in the quarter, an increase of 28% led by an increase in aviation revenues of 43% and fleet revenues of 5%.

Speaker Change: Adjusted EBITDA of $32 million increased 37% or $9 million compared to the first quarter of 2023 80.

Speaker Change: Aviation drove this growth up $9 million compared to the same period in the prior year.

Speaker Change: Adjusted net income increased 51% to $14 million and adjusted diluted earnings per share increased 23% to <unk> 87 per share.

Speaker Change: Now turning to slide seven we'll cover our aviation segment's first quarter results in more detail.

Stephen D. Griffin: Revenue increased 43% compared to the first quarter of 2023 to a record $162 million. Both distribution and MRO businesses were strong contributors, up 38% and 58%, respectively. The 38% increase in distribution revenue was driven by strong execution of legacy OEM programs, the ramp-up of new OEM programs, including the Pratt and Meeha and Pratt Asia Pacific programs, and the contributions from the Dessert Acquisition. The 58% increase in MRO revenue was driven by the addition of new repair capabilities, market share gains, and improved throughput across our MRO facilities, as well as contributions from the DESER acquisition.

Speaker Change: Revenue increased 43% compared to the first quarter of 2023 to a record $162 million.

Speaker Change: Both distribution and MRO businesses were strong contributors up 38% and 58% respectively.

Speaker Change: The 38% increase in distribution revenue was driven by strong execution of legacy OEM programs the.

Speaker Change: The ramp up of new OEM programs, including the EMEA and Asia Pacific programs and the contributions from the Desert acquisition.

Speaker Change: The 58% increase in MRO revenue was driven by the addition of new repair capabilities market share gains and improved throughput across our MRO facilities and contributions from the desert acquisition.

Stephen D. Griffin: Excluding recent acquisitions, aviation segment revenue increased by approximately 20% compared to the prior year. Aviation Adjusted EBITDA increased by 46% in the quarter to $28 million, while Adjusted EBITDA margins increased by 30 basis points to 17%, both record results.

Speaker Change: Excluding recent acquisitions aviation segment revenue increased by approximately 20% compared to the prior year.

Speaker Change: Aviation adjusted EBITDA increased by 46% in the quarter to $28 million, while adjusted EBITDA margins increased by 30 basis points to 17% both record results.

Stephen D. Griffin: This record profitability level was driven by operating leverage and productivity from the distribution program, Mark Emero, the market share game, and the cost savings generated from the Fuel Control Licensing Program. Margin was partially offset by increased costs for our new European distribution facility and facility expansions in Kansas supporting future fuel control programs. For the full year 2024, we are increasing our revenue growth and adjusted EBITDA margin expectations for the aviation segment. Full year 2024 revenue growth is now expected to be between 34 and 38 percent, up from 24 to 28 percent. This higher range reflects the expected contributions from the recent TCI acquisition, which is anticipated to contribute between $55 and $60 million of revenue in VSE's fiscal year.

Speaker Change: This record profitability level was driven by operating leverage and productivity from new distribution programs.

Speaker Change: Mark MRO market share gains.

Speaker Change: And the cost savings generated from the fuel control licensing program.

Speaker Change: Margins were partially offset by increased costs for our new European distribution facility and facility expansions and Kansas supporting future fuel control program.

Speaker Change: For the full year 2024, we are increasing our revenue growth and adjusted EBITDA margin expectations for the aviation segment.

Speaker Change: Full year 2020 for revenue growth is now expected to be between 34, and 38% up from 24% to 28%.

Speaker Change: This higher range reflects the expected contributions from the recent PCI acquisition, which is anticipated to contribute between 55 and $60 million of revenue and Vse's fiscal year.

Speaker Change: We are also increasing our 2020 for full year adjusted EBITDA margins, which were previously expected to be between 15, and 16% and are now expected to be between 15, and a half and 16, 5% as we realized stronger than anticipated cost synergies from recent acquisitions, including the.

Stephen D. Griffin: We are also increasing our 2024 full-year adjusted EBITDA margins, which were previously expected to be between 15 and 16 percent, and are now expected to be between 15 and a half and 16 and a half percent as we realize stronger than anticipated cost synergies from recent acquisitions, including the fuel control program. Now turning to slide 8 for our fleet segment's first quarter results. In the first quarter, fleet segment revenue increased 5% to $79 million, driven by solid growth in e-commerce fulfillment and commercial fleet sales, partially offset by lower USPS revenue.

Speaker Change: Fuel control program.

Stephen D. Griffin: Commercial revenue was $45 million in the first quarter, an increase of 37% compared to the prior year. Commercial revenue now represents 56% of total fleet segment sales as compared to 43% in the prior year period. USPS revenue declined approximately 19% compared to the first quarter of last year, which is included within our other government channels. When we started this year, we anticipated a low double-digit decline in USPS revenue. However, their recent decision to migrate all locations to a new fleet management system in 2024 has resulted in a temporary impact due to lower repair activities at the USPS site.

Speaker Change: Now turning to slide eight for our fleet segment's first quarter results.

Speaker Change: In the first quarter fleet segment revenue increased 5% to $79 million driven by solid growth in e-commerce fulfillment and commercial fleet sales, partially offset by lower USPS revenue.

Speaker Change: Commercial revenue was $45 million in the first quarter, an increase of 37% compared to the prior year.

Speaker Change: Commercial revenue now represents 56% of total fleet segment sales as compared to 43% in the prior year period.

Speaker Change: USPS revenue declined approximately 19% compared to the first quarter of last year, which is included within our other government channel.

Speaker Change: When we started this year, we anticipated a low double digit decline in USPS revenue.

Speaker Change: However, their recent decision to migrate all locations to a new fleet management system. In 2024 has resulted in a temporary impact.

Speaker Change: Due to lower repair activities at the U S. P S sites.

Stephen D. Griffin: Of the approximate 300 vehicle maintenance facilities in the U.S., roughly 100 went live in the new system in the first quarter, and we expect approximately 100 more in each of the next two and third quarters. As fewer transactions and maintenance activities are temporarily occurring at the sites upon Go Live, we are forecasting lower sales during the second and third quarters, with recovery beginning in the fourth quarter. We remained well positioned to support all USPS vehicle types.

Speaker Change: Of the approximate 300 vehicle maintenance facilities in the U S. Roughly 100 went live in the new system in the first quarter and we expect approximately 100 more in each of the next second and third quarters.

Speaker Change: As fewer transactions and maintenance activities are temporarily occurring at the sites. Upon go live we.

Speaker Change: We are forecasting lower sales during the second and third quarter with recovery beginning in the fourth quarter.

Speaker Change: We remained well positioned to support all USPS vehicle types, we have not seen a decline in market share and we believe this is temporary.

Stephen D. Griffin: We have not seen a decline in market share, and we believe this is temporary. This work, and therefore revenue, will recover, and we remain committed to supporting all of their vehicles and facilities during this transition and the recovery to come. Moving on to fleet profitability, segment-adjusted EBDA decreased 7% to $8 million, driven by the decline in USPS sales volume. The Adjusted EBITDA margin was down 130 basis points to 10%, driven by an increased mix of commercial customers.

Speaker Change: This work and therefore revenue will recover and we remain committed to supporting all of their vehicles and facilities. During this transition and the recovery to come.

Speaker Change: Moving onto fleet profitability.

Speaker Change: Segment, adjusted EBITDA decreased 7% to $8 million driven by the decline in U S. P. S sales volume.

Speaker Change: Adjusted EBITDA margin was down 130 basis points to 10% driven by an increased mix of commercial customers.

Stephen D. Griffin: For the full year 2024, we are revising our fleet segment revenue growth to zero to 5% compared to the prior year. Full year 2024 USPS revenue is now anticipated to be down 30-35%, and we expect second and third quarter revenue to be down 40-45% year-over-year, with recovery beginning in the fourth quarter. This will be offset by a 40% increase in commercial sales for the full year. We are also updating the fleet segment's profitability guidance, providing an adjusted EBITDA margin range of 6 to 8 percent, driven by the decline in USPS revenue and an increased mix of commercial customers, with the second and third quarters towards the lower end of this range.

Speaker Change: For the full year 2024, we are revising our fleet segment revenue growth to zero to 5% compared to the prior year.

Stephen D. Griffin: Full year 2024 U S. P. S revenue is now anticipated to be down 30% to 35% and we expect second and third quarter revenue to be down 40% to 45% year over year with recovery beginning in the fourth quarter.

John Cuomo: This will be offset by a 40% increase in commercial sales for the full year.

Stephen D. Griffin: We are also updating the fleet segments profitability guidance, providing an adjusted EBITA margin range of 6% to 8% driven by the decline in U S. P. S revenue and an increased mix of commercial customers with the second and third quarters towards the lower end of this range.

Stephen D. Griffin: This year, we will remain focused on driving year-over-year revenue growth as we scale our Memphis e-commerce distribution facility, add new customers to the commercial fleet list, and increase our market share and product offerings on the new vehicle platforms being introduced by the USPS while managing through their ERP conversion. Turning to slide nine.

Speaker Change: This year, we will remain focused on driving year over year revenue growth as we scale, our Memphis E Commerce distribution facility.

Speaker Change: Add new customers to the commercial fleet list and.

Stephen D. Griffin: And increase our market share and product offerings on the new vehicle platforms being introduced by the USPS, while managing through their ERP conversion.

Stephen D. Griffin: Turning to slide nine.

John A. Cuomo: In the first quarter, we used $79 million of operating cash flow, primarily driven by the initial provisioning of inventory supporting the Pratt & Whitney Canada European Distribution Award, the timing of outflows for recent inventory purchases, and the effects of the sale of our federal and defense business. Total Net Debt Outstanding at Quarter End was $471 million. Pro forma Net Leverage, which includes the trailing 12-month results from prior acquisitions, was 3.7 times. Following the completion of the TCI acquisition in April, our pro forma net leverage ratio increased to approximately 4.1 times.

Stephen D. Griffin: In the first quarter, we used $79 million of operating cash flow, primarily driven by the initial provisioning of inventory supporting the Pratt <unk> Whitney Canada European distribution award the timing of outflows for recent inventory purchases and the effects of the sale of our federal and defense segment.

John A. Cuomo: Total net debt outstanding at quarter end was $471 million.

John A. Cuomo: Pro forma net leverage which includes the trailing 12 month results from prior acquisitions was three seven times.

John A. Cuomo: Following the completion of the TCA acquisition in April our pro forma net leverage ratio increased to approximately four one times pro forma net leverage is expected to be below four times by the end of this year driven by free cash flow generation in the second half of the year.

John A. Cuomo: Proforma Net Leverage is expected to be below four times by the end of this year, driven by free cash flow generation in the second half of the year. With that, I'll now turn it back over to John.

John A. Cuomo: With that I'll now turn it back over to John.

John: Thank you Steve.

John A. Cuomo: I would like to conclude our prepared remarks by reviewing our 2024 priorities on slide 10. As previously communicated, 2024 is a year of execution.

John: I would like to conclude our prepared remarks by reviewing our 2024 priorities on slide 10.

John A. Cuomo: As previously communicated 'twenty 'twenty four is a year of execution let's.

John A. Cuomo: Let's begin with our aviation segment. First, our Pratt-Urach program implementation is accelerating, and our new Hamburg, Germany, distribution center is open and shipping products. We are preparing for what's next for that facility with additional product lines to be added, beginning with tires from our desert acquisition in the third quarter of twenty twenty four. Second, a primary focus is the launch and transition of our newly acquired fuel controls program, where we became the licensed manufacturer for over 340 unique fuel controls spanning 120 platforms, serving both business and general aviation and rotocraft. This transition is outpacing early expectations and is expected to contribute an additional And third, is the integration of DESER Aerospace.

John: Let's begin with our aviation segment first our Europe program implementation is accelerating and our new Homburg, Germany distribution Center is open and shipping products.

John A. Cuomo: We are preparing for what's next for that facility with additional product lines to be added beginning with tires from our Dessau acquisition in the third quarter of 2024.

John A. Cuomo: Second our primary focus is the launch and transition of our newly acquired fuel controls program.

John A. Cuomo: Where we became the license manufacturer for over 340 unique fuel controls spanning 120 platforms, serving both the business and general aviation and rotorcraft markets.

John A. Cuomo: This transition is outpacing early expectations and is expected to contribute an additional $7 million of EBITDA in this year and $14 million in 2025.

John A. Cuomo: And third is the integration of desert Aerospace. This integration is in process and includes a full system process go to market and organizational integration. We expect the integration to be completed over the next 12 months. We are also excited to begin planning integration activities for our recently announced <unk> acquisition.

John A. Cuomo: This integration is in process and includes a full system, process, go-to-market, and organizational integration. We expect the integration to be completed over the next 12 months. We are also excited to begin planning integration activities for our recently announced TCI acquisition, moving to our fleet sector. We remain focused on our organic growth and customer diversification strategy and plan to drive commercial growth as we continue to scale our new distribution and e-commerce fulfillment. Regarding the USPS, we will continue to support both legacy and new vehicles while we manage this temporary disruption in activity brought on by their new system conversion.

John A. Cuomo: Moving to our fleet segment.

John A. Cuomo: We remain focused on organic growth and customer diversification strategy and plan to drive commercial growth as we continued to scale, our new distribution and E Commerce fulfillment center.

John A. Cuomo: Regarding the USPS, who will continue to support both legacy and new vehicles, while we manage this temporary disruption in activity brought on by their new system conversion, we are and will continue to be ready for that recovery later this year.

John A. Cuomo: We are and will continue to be ready for their recovery later this year. In summary, we are very proud to report company-wide revenue growth of 28% to start the year. This included both record revenue and record profitability for our aviation system. We remain focused on executing our growth and strategic initiatives to support delivering another year of above-market revenue growth and improved profitability within our aviation business. We are committed to scaling our commercial fleet business and managing through the near-term and temporary challenges within the USPS.

John A. Cuomo: In summary, we are very proud to report company wide revenue growth of 28% to start the year.

John A. Cuomo: This included both record revenue and record profitability for our aviation segment.

John A. Cuomo: We remain focused on executing our growth and strategic initiatives to support delivering another year of above market revenue growth and improved profitability within our aviation segment.

John A. Cuomo: We are committed to scaling our commercial fleet business and managing through the near term and temporary challenges within the USPS.

John A. Cuomo: In addition, a key focus for the remainder of the year is strong balance sheet management and generating solid second half of the year free cash flow. And finally, we remain committed to driving our strategic transformation forward. This includes finalizing the divestiture transitions for the federal and defense segment, repositioning our corporate headquarters, and evaluating strategic options for the police department. Thank you again, Steve, and thank you to the amazing VSE team for what they do each day to support all of our stakeholders and for a great start to 2020. Operator, we are now ready for the question and answer portion of the call.

John A. Cuomo: In addition, a key focus for the remainder of the year as strong balance sheet management and generating solid second half of the year free cash flow.

John A. Cuomo: And finally, we remain committed to driving our strategic transformation forward.

John A. Cuomo: [noise] includes finalizing the divestiture transitions for the federal and defense segment repositioning, our corporate headquarters and evaluating strategic options for that fleet segment.

John A. Cuomo: Thank you again, Steve and thank you to the amazing Vse team for what they do each day to support all of our stakeholders and for a great start to 2024.

John A. Cuomo: Operator, we are now ready for the question and answer portion of the call.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: Thank you we will now be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star.

Operator: One moment, please, while we poll for questions. Our first question comes from the line of Ken Herbert with RBC Capital Markets. Please proceed with your question.

Operator: One moment, please while we poll for questions.

Operator: Our first question comes from the line of Ken Herbert with RBC Capital markets. Please proceed with your question.

Kenneth George Herbert: Yeah, hi, good morning, John and Steve. And Steve, let me just be the first to congratulate you on the new opportunity. Thank you, Ken. I appreciate that.

Kenneth George Herbert: Yeah, Hi, good morning, John and Steve and Steve Let me just be the first to congratulate you on the on the new opportunity.

Kenneth George Herbert: Ken I appreciate that.

John A. Cuomo: Yeah, hey, maybe really nice margins in the aviation segment. Can you just talk about the pace from here relative to the full year guide? Because it implies somewhat of a bit of a step down through the remainder of the year. And I'm just wondering if there's anything specific we should keep in mind regarding the segment and the margin progression, or maybe just, you know, just one quarter, and how much conservatism could be built into the expectations for segment margins there.

Speaker Change: Yeah, Hey.

Kenneth George Herbert: Well, maybe really nice margins in the aviation segment can you just talk about the cadence from here relative to the full year guide because it implies somewhat of a bit of a step down through the remainder of the year and I'm. Just wondering if theres anything specific we should keep in mind regarding the segment in the <unk>.

John A. Cuomo: Arjun progression or maybe just you know, it's just one quarter and how much conservatism could be built into the expectations for segment margins there.

Stephen D. Griffin: Yeah, I appreciate the question, Ken. I mean, it does bounce around quarter by quarter, and if you look at last year, we do tend to start at the higher end for the first quarter. You know, there are some pricing initiatives at the OEM level that we're able to take advantage of in terms of when inventory is purchased and when it actually hits the market. So I do think that this makes sense relative to how the businesses perform seasonally as compared to prior years.

Stephen D. Griffin: But I want to reemphasize that, you know, the start to the year and the increase in the margin guidance for this business demonstrates it has a strong runway to go and certainly continues to exceed our expectations from multiple different contributing factors.

Kenneth George Herbert: Okay, no, that's great. And it sounds like, based on the commentary on where leverage could get to by the end of the year, below four times, that cash generation this year should accelerate in the second half of the year, but maybe how do we think about the full year free cash flow expectations?

Stephen D. Griffin: Yeah, I think you're right. We're going to continue to guide to strong second half free cash flow dynamics, again, similar to last year as to the margin question. The first half of the year obviously has the cash outflow for the larger program that we're launching in Europe, and then we'll start to drive some very strong free cash in the second half of the year, and that will be what drives leverage down.

Kenneth George Herbert: And just finally, John, you've obviously got a lot of plates up in the air and a lot of initiatives you're pursuing now. And then, of course, you layer on top of it a CFO search. What do you think about, though, new investment opportunities? And I just wanted to preface this by saying that there's still substantial disruption in the aviation marketplace, and there could still be unique opportunities that present themselves. How do you plan to balance this year, your time around, obviously, execution and maximizing the investments relative to potential new opportunities that could emerge?

Stephen D. Griffin: The amount of of place up in the air and and a lot of initiatives you pursuing now and then of course, you're a mirror on top of it a cfo's search how do you think about though new investment opportunities and I just wanted to preface this by they're still substantial disruption in the aviation marketplace. There still could be unique opportunities that present themselves. How do you plan to balance.

Kenneth George Herbert: This year your time around obviously execution and maximizing the investments relative to potential new opportunities to could emerge yeah.

John A. Cuomo: Yeah, it's a great question. You know, I would say our core DNA of the business is solid execution. Ben Thomas, who, you know, is the president of our aviation business, is an extremely strong, competent leader in terms of execution. So he is managing the day-to-day in the aviation business and running all the execution projects. When I look at acquisitions, there are some that have a real strong need for integration up front, and some that can operate a little bit more like a standalone because the synergies are less, but the opportunities to grow are greater. We felt that with TCI.

Kenneth George Herbert: Yeah. That's a great question, you know I would say our core DNA of the business solid execution been Thomas who is the president of our aviation business is an extremely strong competent.

John A. Cuomo: Leader in terms of execution. So he is managing the day to day in the aviation business and running all of the execution projects. When I look at acquisitions. There are some that have a real strong need for integration upfront and some that can operate a little bit more like a stand alone because the synergies or less but the opportunities to grow or greater we've.

John A. Cuomo: So it's an outstanding business. It's an A plus asset that has great growth opportunities and doesn't need a lot of day one, you know, influence and integration work from us. So I'd say where we kind of will continue to look at opportunities is really looking at the capacity of the team and saying, you know, where do we have capacity to support new opportunities? And if not, are there opportunities like TCI where we can, you know, they can operate as a standalone until we're ready and still be able to take advantage of what's around in the market?

John A. Cuomo: Felt that with T. C. I. So it's outstanding business, it's an eight plus asset that.

John A. Cuomo: Has great growth opportunities and doesn't need a lot of day one.

John A. Cuomo: Influence and integration work from us So I'd say, where we kind of we will continue to look at opportunities is really looking at the capacity of the team and saying you know where where do we have capacity.

John A. Cuomo: To support you know new opportunities and if not are there opportunities like T C I, where.

John A. Cuomo: We can you know, they're essentially can operate as a stand alone until we're ready and and still be able to take advantage of what's around in the market I see the same thing that you do there's a lotta disruptions, we do think there'll be a tremendous amount of deal activity in in the back end of this year and early next year. So we remain very open to the opportunities but.

John A. Cuomo: I see the same thing that you do. There are a lot of disruptions. We do think there'll be a tremendous amount of deal activity in the back end of this year and early next year. So we remain very open to the opportunities, but as always, the level of discipline that we'll bring will be very prudent.

John A. Cuomo: As always the level of discipline that will approach will be very prudent.

Kenneth George Herbert: Perfect. Thanks, John. I'll pass it on there.

Speaker Change: Perfect, Thanks, John and I'll pass it back there.

Operator: Thank you. Our next question comes from the line of Jeff Van Sinderen with RBC Capital Securities. Please proceed with your question.

Speaker Change: Thank you. Our next question comes from the lineup.

Speaker Change: Wondering with RBC capital Securities. Please proceed with your question good.

Speaker Change: Morning, Jeff.

Jeffrey Wallin Van Sinderen: Good morning. Yeah, it's with B. Reilly. So let me just say that Steve, disappointed to see you lead, but obviously wish you the best in your future endeavors. I just wanted to, if we could circle back a minute to the USPS situation, I guess maybe anything else you can help us to sort of characterize specifically what they're doing now with their new management system, I guess it is, and how that's disrupting maintenance, and then maybe you can touch on also what you're seeing as they're migrating, or I guess starting to migrate to their new platform, and then any shift in expectation there, if there is any. Yeah.

Speaker Change: Good morning, Yeah, it's would be Riley.

Jeffrey Wallin Van Sinderen: So let me just say that I'm disappointed if you leave but obviously wish you the best in your future endeavors.

Jeffrey Wallin Van Sinderen: Just wanted to if we could circle back a minute to the U S. P S situation.

Jeffrey Wallin Van Sinderen: I guess, maybe anything else you can help us to sort of characterize specifically, what they're doing now with their new management system I guess, it is and how about disrupting maintenance and then maybe you can touch on also what you're seeing is they're migrating or I guess starting to migrate to their new <unk>.

Jeffrey Wallin Van Sinderen: <unk> and then any shift in expectation there if there is any yeah.

Stephen D. Griffin: Yeah, I appreciate the question. Obviously, it's a disruption to the business in the near term. When you go through an ERP transition, there are always some bumps, and you do always expect some level of disruption. And we had initially guided the forecast down. Obviously, we are taking guidance down further based on further disruptions. You can look at it as almost like a kitchen crashing in a restaurant in terms of how the operational flow is really complicated at this point in time.

Speaker Change: Yeah I appreciate the question, obviously, it's a disruption to to the business in the near term.

Stephen D. Griffin: When you go through any ERP transition, there's always some bumps and you do always expect some level of disruption in we had initially guided the forecast down I you know.

Stephen D. Griffin: Obviously, we are taking guidance down further based on further disruptions you can look at it is almost like a a kitchen crashing in a restaurant in terms of how the operational flow is is really.

Stephen D. Griffin: The positive is that this is not a traditional PO purchase order model. We have inventory on consignment at more than 300 Postal Service locations, and we're very embedded in their systems and processes, which is why it's a more complicated process as they implement their new ERP system.

Stephen D. Griffin: Is complicated at this point in time. The positive is this is not a traditional P. L purchase order model, we have inventory on consignment at more than 300 postal service locations and we're very embedded in their systems and processes, which Y which is why it's a more complicated process as they implement their.

Stephen D. Griffin: Once all the kinks are worked out, we do expect maintenance activity to improve, and therefore part usage to improve. And what we have is essentially a requirements contract. So once we have a part on contract, if they need it, they're purchasing it from us. So obviously, the requirements have decreased as they're going through the implementation. They have made the decision to go full forward rather than fixing and making sure the sites work really well before they bring new sites live.

Speaker Change: Ooh ERP system.

Stephen D. Griffin: Once you know all the Kinks are worked out we do expect.

Stephen D. Griffin: This activity to improve and therefore part usage to improve and what we have is essentially a requirements contract. So you know kind of once we have a part on contract if they need it they are purchasing it from us.

Stephen D. Griffin: So obviously the requirements of decreases are going through the implementation. They had made the decision to go full forward rather than fixing and making sure. The sites work really well before they bring new sites lie they are still bringing sites alive, which is why the we have the near term impact. So our anticipation is they'll finish the integrate.

Stephen D. Griffin: They are still bringing sites live, which is why we have the near-term impact. So our anticipation is they'll finish the integrations, and then the work and the processes will start to improve towards the back end of the year. And with that, you'll start to see the recovery and the revenue recovery that goes along with it.

Stephen D. Griffin: <unk> and then the work and the processes will start to improve towards the back end of the year and with that you'll start to see the recovery and the revenue recovery that goes along with that.

John A. Cuomo: Okay, great. And then, if we could just turn to the TCI acquisition, congratulations on closing that. Maybe you could just speak to your, I guess, initial thoughts on the process of integrating and maybe the timeline there.

Speaker Change: Okay, Great and then if we could just turn to the <unk> acquisition. Congratulations I clothing that maybe you could just speak to your I guess your initial thoughts on on the process of integrating and and maybe the timeline there.

John A. Cuomo: Yeah, so aligned with the question that Ken just asked, it's an asset that's a really strong kind of A-plus asset that I'd say there's a little bit of work we're doing, but not a tremendous amount of near-term integration. So the bigger opportunities we look at are sitting with some of their large OEM partners who have problems that they need to have solved and what we call backshop work that we can do for them, and making sure we've got capacity to support that work, and we've got the capabilities to support that work. So we're spending much more time on how to grow that business because it's such a strong business. You know, it's really fun.

Speaker Change: Yeah. So you know aligned with the question that can just asked it's an asset that's a real strong kind of eight plus assets and I'd say you know, there's a little bit of work, we're doing but not a tremendous amount of near term integration. So the bigger opportunities. We look at is sitting with some of the large OEM partners, who have you know problem is that they need to solve them.

John A. Cuomo: What we call back shop work that we can do for them and making sure. We've got capacity to support that work and we've got the capabilities just support that work. So we're spending much more time on how to grow that business because it's such a strong business. You know, it's it's fun, we acquired the business three weeks ago and in the first week. They received you know a supplier will keesa pirate work from college.

Jeffrey Wallin Van Sinderen: We acquired the business, you know, three weeks ago, and in the first week, they received a supplier or key supplier award from Collins. So, nice to see, you know, very strong relationships, and the goal is just to leverage those and grow. That's really where the near-term focus will be for DCI.

Jeffrey Wallin Van Sinderen: So nice to see you know very strong relationships and the goal is just to leverage those and grow that's really where the near jumped focus will be for <unk>.

Jeffrey Wallin Van Sinderen: Okay, great. Thanks for taking my questions. I'll take the rest offline.

Speaker Change: Okay, great. Thanks for taking my questions I'll take the rest of <unk>.

Jeffrey Wallin Van Sinderen: Extra.

Operator: Thank you. Our next question comes from the line of Louis DiPalma with William Blair. Please proceed with your question. John.

Speaker Change: Thank you. Our next question comes from the lineup limited with William Blair. Please proceed with your question.

Michael Louie D DiPalma: John, Steve, Michael, and Terang. Good morning. And Steve, you were instrumental in VSE's transformation as both a CFO and also with your deep aerospace industry knowledge and a pleasure to work with. And your new company is lucky to have you. And Terang, congratulations on your new role. Thank you, Louie. Yeah, thank you, Louie. John, you mentioned how the $175 million new 10-year agreement was an expansion. Did the scope... change upon renewal and, in general, for renewals right now? Are you pushing to add distribution capabilities to the OEMs and in Europe via the new Hamburg facility and also Asia and have, like, the Pratt and Whitney Canada anchor facilities in those regions? Has that led to more business development activity?

Michael Louie D DiPalma: John Steve Michael <unk>, Good morning, and Steve you were instrumental N N V. At these transformations.

Michael Louie D DiPalma: A C F O and also your deep aerospace industry knowledge and a pleasure to work with and your your New company is lucky to have you entering congrats on your new raw.

Speaker Change: Thank you yeah. Thank you Ah.

Michael Louie D DiPalma:

Michael Louie D DiPalma: John You mentioned, how the 175 million dollar New 10 year agreement was an expansion did the scarp chain.

Michael Louie D DiPalma: Change upon renewal and in general are renewables right now are you pushing too.

Michael Louie D DiPalma: Add distribution capabilities to the Oems and in Europe via the new Hamburg, <unk> and also.

Michael Louie D DiPalma: Asia and have like the Pratt and Whitney Canada anchor like facilities in those regions have that led to more business development activity.

John A. Cuomo: Yeah, so a couple of questions there. First, yes, we don't have a lot of contracts up for Recompete this year. So that's one of the few.

John: Yeah. So a couple of questions in their first yes. So we don't have a lot of contracts up for Recompete. This year. So that's one of the very few this is actually a very quiet year in terms of renewals, which is not a bad thing. So we were very pleased to see it early renewal on that program and that is an expanded scope of work so.

John A. Cuomo: This has actually been a very quiet year in terms of renewals, which is not a bad thing. So we were very pleased to see an early renewal on that program, and that is an expanded scope of work.

John A. Cuomo: If you think back you know I've been here for about five years, we have COVID-19 kind of in the middle of it as we sign these programs three or five years ago that are now coming up for renewal, we've really proven ourselves with these OEM partners and customers in the market. So not only do we feel very confident in our ability to get these renewals across the finish line, but we feel pretty confident.

John A. Cuomo: So if you think back, you know, I've been here for about five years, COVID was kind of in the middle of it, as we signed these programs three or five years ago that are now coming up for renewal, we've really proven ourselves with these OEM partners and customers in the market. So not only do we feel very confident in our ability to get these renewals across the finish line, but we feel pretty confident in our ability to expand the scope.

John A. Cuomo: Sent in our ability to expand scope is a great opportunity for share gain with regard to our expanded facility Humburg that was an agreement that we signed in the fourth quarter of last year I think in record time, we have a lease signed an outside of the U S facilities stood up and park shipping within you know under 100 days. So we want to make sure that program estate.

John A. Cuomo: It's a great opportunity for share gain. With regard to our expanded facility, you know, Hamburg, that was an agreement that we signed in the fourth quarter of last year. I think in record time, we have a lease signed outside of the US facility stood up and part shipping within, you know, under 100 days. So we want to make sure that program is stable. It's a very, very, very fluid program in terms of the number of aircraft on ground products that we ship out the door.

John A. Cuomo: <unk>, that's a very very very of fluid program in terms of the number of aircraft on ground products that we ship out the door. So I Wanna make sure that performance remains very high before we add products, but we are seeing definitely more opportunities in the European region, and you'll continue to see that it's a big growth focus for us.

John A. Cuomo: So I want to make sure that performance remains very high before we add products. But we are definitely seeing more opportunities in the European region. And you'll continue to see that it's a big growth focus for us as we get into 2025. But with the Dessert acquisition, which just has a UK distribution site, and because of Brexit, it's a little bit more constrained at this point, we will be putting some of that product with those OEMs in that facility towards the back end of the year and see a lot more both business and general aviation and commercial opportunities to come in Europe.

John A. Cuomo: As we get into 2025, but with a desert acquisition, which just has a U K distribution site and because of the Brexit, it's a little bit more constrained at this point, we will be putting some of that product with those Oems in that facility.

John A. Cuomo: Towards the back end of the year and see a lot more both business in general aviation or commercial opportunities to come just beginning in Europe.

John A. Cuomo: Great. Thanks, John.

Speaker Change: Great Thanks, John and from an aftermarket industry perspective.

John A. Cuomo: Boeing's production has significantly increase.

John A. Cuomo: Increased.

John A. Cuomo: And from an aftermarket industry perspective, Boeing's production has significantly increased. Do you continue to see aftermarket demand as being particularly hot right now? Has it subsided from last year, which was also very strong? And do you, in general, continue to see a lot of, you know, visibility in terms of, you know, the long term demand?

Speaker Change: Do you continue to see aftermarket demand as being particularly <unk>.

John A. Cuomo: <unk> right now hasn't subsided from from last year, which was also.

John A. Cuomo: Very strong and two in general continue to see.

John A. Cuomo: A lot of visibility in terms of now the along the longterm demand.

John A. Cuomo: Yeah, I tend to, you know, aftermarket demand is something that a customer calls you the day before they need a part or after they need it for an order. So there's not a tremendous amount of backlog like you have with an OEM business.

John A. Cuomo: Yeah, I tend to you know I mean after market demand is something that you know a customer calls you the day before they need apart or the or after they needed. It for an order. So there's not a tremendous amount of backlog like you have within a week on business. So you know there's a lot of data points out there and I tend to be a little bit more conservative and how far out we look what I would say is this is somewhat of a unique mark.

John A. Cuomo: So, you know, there are a lot of data points out there, and I tend to be a little bit more conservative in how far out we look. But, what I would say is this is somewhat of a unique market where I think we can see, you know, a horizon into 2025 that is still as robust of a market as we are experiencing today. So the market, I'd say, you know, with puts and takes, is as robust as it was last year.

John A. Cuomo: Where I think we can see that you know.

John A. Cuomo: Ah horizon into 2025 that is still as robust of a market as we are experiencing today. So the market I'd say you know with puts and takes is as robust as it was last year I say puts and takes any of cargo down a bit compared to a commercial about commercial and narrowbody remains very very strong.

John A. Cuomo: I say puts and takes, you know, cargo down a bit compared to commercial, but commercial, in that real body, remains very, very strong and probably a little stronger than last year. So all in all, we think 2023 was a strong year, 2024 will continue to be a strong year, and we anticipate 2025 being a strong commercial year as well.

John A. Cuomo: And probably a little stronger than last year. So all in all we think 20 twenty-three was a strong year 2024 will continue to be a strong year and we anticipate 2025 being a strong commercial year as well.

John A. Cuomo: Great, and do you, does your exposure, you know, with Pratt & Whitney Canada, obviously a big customer, remains skewed more towards business and general aviation? And over time, do you expect your commercial aviation exposure to grow? Yeah, I mean, Pratt & Whitney can

Speaker Change: Great and do you does your exposure you know <unk> Pratt and Whitney, Canada, obviously, a big customer does it remain.

John A. Cuomo: Skewed more towards business in general aviation and over time do you expect your commercial aviation exposure to grow.

John A. Cuomo: Yeah, I mean, Pratt & Whitney Canada is a business and general aviation and rotorcraft company. There's a little bit of regional work in there, but if you look at their engine portfolio, it does not support commercial. You've got Pratt U.S. in Hartford that really does all the commercial work. TCI is a very large partner with Pratt on their type of work. So the Pratt Canada work is never going to have a commercial component.

John A. Cuomo: I mean, you're probably going to Canada. It is what.

John A. Cuomo: What they do only his business in general aviation Rotorcraft, there's a little bit of regional work in there, but it but if you look at their engine portfolio. It does not support commercial you've got U S and in Hartford that really does all the commercial work T. C. I, it's a very very large partner with Pratt on their type of work. So the Prat, Canada work is never going to have a commercial component to it.

John A. Cuomo: Right.

John A. Cuomo: Um, but for now, I think TCI has a lot more commercial exposure, right? And should, I guess, more acquisitions in the future give you the opportunity to expand that commercial work? Yeah.

John A. Cuomo: But for <unk> T C. I a has a lot more commercial exposure right and <unk> I guess more acquisitions in the future give you an opportunity to expand that commercial work. Yeah. I mean, what was attracted to us and T. C. I was number one we you know we start with culture and strategy there.

John A. Cuomo: Yeah, I mean, what was attracted us to TCI was number one, you know; we start with culture and strategy. They're OEM-centric in what they do, and their culture of excellence and how they support their end-user customers are at the highest levels. So that was the most attractive part to us. But then, as I look at the balance of our business in terms of diversification between business and general aviation, commercial, distribution, and MRO, they are more MRO focused, and, you know, and they are more commercial focused, which is a shift that, you know, our business, because of the large distribution programs, the business in general aviation we signed, our business is skewed a little bit more So this helps provide a really nice balance the other way, both in terms of the customer base as well as the revenue channel. Great.

John A. Cuomo: <unk> and what they do and their culture of excellence and and how they support their end user customer is at the highest levels. So so that was the most attractive park to us, but then as I look at the economic you know at the balance of our business in terms of diversification between business in general aviation or commercial distribution and MRO. They are more MRO focused and you know and they are more.

John A. Cuomo: Commercial focus which is a shift that you know our business because of the large distribution programs a business in general aviation, we signed our business is skewed a little bit more that way. So this helps to provide a really nice balance the other way both in terms of customer base as well as revenue channel.

Michael Louie D DiPalma: Great, excellent. Thanks, John, Steve, Mike, and Turing.

Speaker Change: Alright excellent <unk> <unk>.

Michael Louie D DiPalma: Thankfully.

Operator: Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. Our next question comes from the line of Josh Sullivan with the Benchmark Company. Please proceed with your question.

Speaker Change: Thank you as a reminder, ladies and gentlemen, if he would like to ask a question. Please press star one on your telephone keypad.

Operator: Next question comes from the lineup Josh Sullivan with the Benchmark Company. Please proceed with your question.

Joshua Ward Sullivan: Hey, good morning, John, and Steve. I'll reiterate the thoughts here for Steve, and good luck in your new endeavors. Thank you.

Joshua Ward Sullivan: Okay. Good morning, John C O rewrite the thoughts here for Steven and good luck in your new endeavors. Thank you.

John A. Cuomo: You know, John, you've executed on several large strategic pieces here in aviation in relatively short time, Duster, TCI, etc. You know, you did mention there that, you know, you think the aftermarket is still, you know, attractive and will be for the next several years. But, you know, the organic underlying growth rate in aviation this year, any changes, you know, by bucket and MRO distribution services or by BizJet or commercial

Joshua Ward Sullivan: You're trying to execute it on several large strategic pieces here in aviation relatively short time, <unk> <unk> et cetera.

John A. Cuomo: You did mention there that you know you think the after market is still attractive and will be for the next several years, but you know the organic underlying growth rate in aviation. This year any changes by bucket and MRO distribution services or by this jerk or commercial.

John A. Cuomo: No, I mean, actually, I mean, what I think is really nice, and that was kind of broken into the script last night, again, is the balance of the business. You know, we break our business down, and we have our daily, you know, kind of flash reports and do our business reviews, which is really nice to see how much green there is on these pages when we do business reviews. Within within, you know, obviously, there's some puts and takes, like I mentioned a minute ago, some of the cargo stuff is a little down.

John A. Cuomo: No I mean actually I mean, when I <unk>, when it's really nice and and that was kind of broken into the script last night again is the balance of the business you know we break our business down and we have our daily you know kind of flash reports into our business reviews, what's really nice is how much screen. There is on these pages when we do business reviews within a within you know the.

John A. Cuomo: Obviously, that's important takes like I mentioned a minute ago. Some of the cargo stuff is little down, but when I look inside of each of the business units inside of aviation. There's just so much strong performance a nice balanced growth across the board you know, we're not really you know you're seeing a slowdown in the business in general aviation market either there's you know is it is it is robust.

John A. Cuomo: But when I look inside of each of the business units inside of aviation, there's just so much strong performance and nice balanced growth across the board. You know, we're not really, you know, seeing a slowdown in the business in general aviation market either. Is it as robust of a growth rate as we saw 18 months ago? No, but it's still very, very healthy and growing. So right now, with the exception of cargo, a fair amount of balance in terms of growth across both customer base and revenue channels and capabilities.

John A. Cuomo: A growth rate as we saw 18 months ago, no, but it's still a very very healthy and growing market.

John A. Cuomo: So right now we're seeing with the exception of cargo a fair amount of Ah balanced in terms of growth across both customer base and revenue channels and capabilities.

John A. Cuomo:

John A. Cuomo: And then just as far as the transition with Honeywell and the fuel control side, you know, where are you outpacing expectations you mentioned in the comments, and then has it taken any more resources where maybe you thought it wouldn't?

John A. Cuomo: And then just as far as the transition with Honeywell and the fuel control side, you know where are you outpacing expectations you mentioned, there and the the comments and then and then taking.

John A. Cuomo: Taking any more resources <unk>, maybe you thought it wouldn't you.

John A. Cuomo: Yeah, I think, I mean, first of all, I'm just ecstatic about the team we've been able to bring forward because it's a new capability for us. And, you know, we had said that there would be some cost before revenue and earnings as we start to ramp up because we needed to bring on a new team. And I just, I can't say enough about the strength and the quality of the team that Ben Thomas has brought in to run this business.

Speaker Change: Yeah, I think I mean first of all I'm just ecstatic about the team we've been able to bring forward because it's a it's a new capability for US and you know we had said that there'll be some cost before before the revenue and earnings as we start to ramp up because we needed to bring on a new team and I'm, just I I can't say enough about the strength and the quality of the team.

John A. Cuomo: So the transition, you know, it's slow and methodical the way it should be. But, you know, that is on or ahead of schedule. The relationships with both the OEM that we're transitioning from and the OEM partners that we have are extremely solid. And then the financial performance is performing above our model.

John A. Cuomo: Ben Thomases brought on to run this to run this business. So the trends the transition you know, it's slow and methodical the way it should be but you know that is his honor ahead of plan the relationships with both of them that were transitioning from in the partners that we have is extremely solid and then the fire.

John A. Cuomo: Natural performances performing above our model at this point.

John A. Cuomo: And then just to be clear on the US, the new US post office system: once we're back to, you know, the fourth quarter, or I guess maybe beyond that, when we're back to, you know, normal rates, is there any change in the margin profile you expect?

John A. Cuomo: And then just to be clear on the other <unk> the new U S. Post office system is once we're back to the fourth quarter or it gets moved beyond that when we're back to.

John A. Cuomo: Normal rates is there any change in the <unk> margin profile you expect.

John A. Cuomo: No, it's a great question. You know, I think we still continue to look at their new vehicle deployment and, you know, and what that looks like. There's not a tremendous number of new vehicles being deployed over the next 12 to 18 months. So we're really just, we just need to get the recovery back and the systems back up and running. So we'll do everything that we can; you know, customers go through ERP transitions all the time and have a level of What's the right word? complication as they do so. I think this one, you know, happens to be a little larger because of the number of actual locations.

Speaker Change: We know it is a great question you know I think we still continue to look at their new vehicle deployment, and you know and what that looks like there's not.

John A. Cuomo: A tremendous amount of new vehicles being deployed over the next 12 to 18 months.

John A. Cuomo: So we're really just so we just we just need to get the recovery back in the system is back up and running so we'll do everything that we can you know customers go through ERP transitions, all the time and have a level of.

John A. Cuomo: With the right word <unk> complication as they do so I think this one you know it happens to be a little greater because of the number of actual locations and the positive is the complexity of the process and I say the positive of that which means how embedded we are in their process. So we just need to arrive this out with them and support.

John A. Cuomo: And the positive is the complexity of the process. And I say the positive of that because it means how embedded we are in their process. So we just need to ride this out with them and support them, and wait for recovery.

John A. Cuomo: With them and wait for the recovery.

John A. Cuomo: And I guess I'll just end on, you know, on the commercial side, some nice growth there in the fleet, any, any new comments on the Memphis facility ramp up or any, any new endeavors there? Yeah.

Speaker Change: And I guess I'll just end up.

Speaker Change: On the commercial side, you know somebody <unk>, you know any any new comments on the Memphis facility ramp up or any any new endeavors. There yeah, I'm actually feeling even more bullish about the opportunity said and the ramp up we have a new leader in place. There was just again really I mean, it it starts with talent in our business, whose really.

John A. Cuomo: Yeah, I'm actually feeling even more bullish about the opportunity set and the ramp up. We have a new leader in place there who's just, again, really, I mean, it starts with talent in our business who's really doing an outstanding job.

John A. Cuomo: Doing it outstanding job you know, we had launched that site with a few of our you know we call them fulfillment partners, So where we put our inventory on others websites. So not just our own website and what I'm excited about is not only the continued growth with our current partners, but hopefully in the in the <unk>.

John A. Cuomo: You know, we launched that site with a few of our, we call them fulfillment partners, so where we put our inventory on others' websites, so not just our own website. And what I'm excited about is not only the continued growth with our current partners, but hopefully, in the third quarter, I'd say, we'll have revenue from a very large new partner, and we'll share more details of that coming forward. So we still see just, honestly, I say unlimited in a real way, just a tremendous amount of positive upside as we continue to grow and scale that business.

John A. Cuomo: Third quarter I'd say, we'll have revenue from a very large new partner will share more details of that comment coming forward. So we still see just honestly I I say unlimited in a real way the they'd just a tremendous amount of positive upside as we continue to grow in scale that business.

Joshua Ward Sullivan: Great, thank you for your time.

Speaker Change: Great. Thank you for the time.

Speaker Change: Thank you Jeff.

Operator: Thank you. Our next question comes from the line of Michael Ciarmoli with Cruise Securities. Please proceed with your question.

Speaker Change: Thank you. Our next question comes from a long line of Michael Sierra Molly with Crows Securities. Please proceed with your question.

Michael Frank Ciarmoli: Hey, good morning guys. Congratulations on the results and, Steve, it has been a pleasure working with you. Congratulations. Wish you all the best and welcome to Rank. Thank you.

Michael Frank Ciarmoli: Hey, good morning, guys. Congrats on the results and Steve been a pleasure working with you. Congrats wish you wish you all the best and welcome correct.

John A. Cuomo: Hey, John or Steve, just to put a finer point on this, I can come up with a scenario where maybe your old organic growth in aviation, 24 to 28%, comes down a little bit. Did you make any changes to the organic growth assumptions? I know you called out 55 to 60 million for TCI; sounds like cargo is a little softer. We've seen some guys report, you know, the business jet aftermarket a little bit softer, but I'm just trying to understand if anything changed with the underlying organic and aviation.

Speaker Change: Thank you.

Michael Frank Ciarmoli: Hey genre, Steve just to put a fire point on this I I could come up with a scenario where maybe the your old organic wrote them aviation, 24% to 28% comes down a little bit are you did you make any changes to the organic growth assumptions mine are ya.

John A. Cuomo: You call about 55 to 60 million of T. C. I sounds like Carlos a little softer we've seen some guys report you know finished yet aftermarket a little bit softer, but I'm just trying to understand if anything changed with the underlying organic in aviation.

John A. Cuomo: Nope, nothing has changed. So we can dive into it.

Speaker Change: Nope nothing has changed.

Speaker Change: So I, we can but I would say nothing has changed on our expectations. If you just look at the first quarter of 20 per cent organically and when we compare that to what we put out of the Investor day last year in November that's stronger than will be anticipated.

John A. Cuomo: But I would say nothing has changed in our expectations. If you just look at the first quarter, up 20% organically. And when we compare that to what we put out at investor day last year in November, that's stronger than we'll be in.

Michael Frank Ciarmoli: Okay, okay, perfect. And then just a point of clarification on fleet. You talked about down 40%. Was that just postal, assuming it wasn't the whole segment right for 2Q and 3Q?

Speaker Change: Okay. Okay, perfect and then just point of clarity on fleet you you talked about down 40% was that just postal assuming and not the whole second <unk>.

Stephen D. Griffin: Correct, it's just postal, and it's down 40 to 45% in the second and third quarter, respectively, so we'll see what those go like.

Michael Frank Ciarmoli: Correct. It's just post okay and is down 40% to 45% in the second and third quarter effectively associate with those go I've got.

Michael Frank Ciarmoli: Got it. Okay. And then, John, just back to aviation.

Speaker Change: Got it Okay, and then John just packed aviation you called it out share gains from from MRO I mean, obviously, there there's tight capacity in the marketplace can you can you dig a little deeper there I mean are there certain repair capabilities that you're taking share from us.

Michael Frank Ciarmoli: Some of this coming from just M&A and disruption in the marketplace is there is there are more runway there for you guys to pick up sure and and you know maybe even I guess not only the capabilities, but what specific market segments.

John A. Cuomo: You called it out, share gains from MRO. I mean, obviously, there's tight capacity in the marketplace. Can you dig a little deeper there? I mean, are there certain repair capabilities that you're taking share from? Is some of this coming from just M&A and disruption in the marketplace?

John A. Cuomo: Yeah, I think there are a couple of things. First of all, I think you talk to anybody, you know, the world. I tell my team, you know, enjoy the times now.

John: Yeah, I use a couple of things I think first of all I think he'd talk to anybody world. The World I tell my team you know enjoy the times now we're all doing well the market's doing well. We're we're taking shares a couple of different paths number one let's talk about some OEM work, that's being offset so we've got new capabilities with OEM authorized avionics that is.

John A. Cuomo: Predominantly on the 737, Max and that's a really strong capability for us.

John A. Cuomo: Call that a share gain or do you how would you describe it more of a an OEM authorizing their first U S partner to support this program because it's gonna really continue to ramp. So we see that's just that's new and you know revenue is just beginning and we see a tremendous amount of opportunity there I'd say when you look.

John A. Cuomo: We're all doing well. The market is doing well. We're taking shares on a couple of different paths. Number one, let's talk about some OEM work that's being offset. So we've got new capabilities with OEM-authorized avionics that are predominantly on the 737 max, and that's a really strong capability for us. So I don't know if I'd call that a share gain or, Steve, how would you describe it, more of an OEM authorizing their first U.S. partner to support this program because it's going to really continue to ramp up.

John A. Cuomo: So we see that that's just, that's new, and revenue is just beginning, and we see a tremendous amount of opportunity there. I'd say when you look inside of our shops, you know, our fuel shop, and our hydraulics, pneumatics, and avionics, you know, I'd say there are gains in different areas with different customer types. And then the last thing I'd add is, you know, our sales. The Southwest program where we have, where we're supporting their 737 retirements, is providing additional opportunities for us.

John A. Cuomo: Inside of our shop, our fuel shop in our hydraulics pneumatics, an avionics meant.

John A. Cuomo: Say, there's there's there's gains in different areas with different customer types.

John A. Cuomo: And then the last thing I'd add is you know our southwest program, where we have or supporting their 737 retirements is providing additional opportunity for us. So as we help them tear download 737 and helped to monetize the product the parts that are on that those aircraft.

John A. Cuomo: So as we help them tear down those 737s and help them monetize the product, the parts that are on those aircraft, many of those need to come in for repair, and that is providing additional repair opportunities for our repair shop.

John A. Cuomo: Many of those need to come in for repair it is providing additional repair opportunities for a repair shop. So what I mean by all of this is you're seeing buckets all over the place. It. It it's not just one platform or one program. It's really just again nice consistent growth across our business and our business a jet.

John A. Cuomo: So what I mean by all of this is you're seeing buckets all over the place. It's not. It's not just one platform or one program.

John A. Cuomo: It's really just, again, nice, consistent growth across our business, and our business in the general aviation business is performing very well. You know, I was looking at some numbers yesterday on the markets. Obviously, it's not as robust as you saw two years ago in terms of growth. But I'd say it's plateauing at a very, very high rate and continues to stay pretty stable there. And you do see some months of growth.

John A. Cuomo: [noise] aviation businesses is performing very well you know I was looking at some numbers yesterday of you know in the markets. You know obviously this it's not as robust as you saw two years ago in terms of growth, but I'd say, it's it's it's <unk> at a very very high rate and continues to stay pretty stable there.

John A. Cuomo: And you do see some months of Grove, so not a lot of capacity in that market. So we do and look look out and feel at that market still has a pretty good run away in terms of us being able to fill our capacity based on the demand profiles of our customers.

John A. Cuomo: So not a lot of capacity in that market. So we do look out and feel that that market still has a pretty good runway in terms of us being able to fill our capacity based on the demand profiles of our community. Got it, got it.

Michael Frank Ciarmoli: The last one I had, you put up some really good EBITDA margins in the aviation segment in the quarter, and I think you called out that there were some higher costs there. You know, can you kind of quantify some of those costs? I guess startup costs and, you know, others and, you know, maybe what was that drag? And does that continue? Or, you know, does that give you a kind of opportunity to even push these margins higher once you get past some of those initial costs?

Speaker Change: Got it got it last one I had I mean, you you put up some really good EBITDA margins in in the aviation segment in the quarter and I think you you called out that there were some higher cost. There you know can you can you kind of quantify some of those cough I guess startup cough.

Michael Frank Ciarmoli: <unk> and others and you know maybe what was that drag and does that does that continue or does.

Michael Frank Ciarmoli: Does that give you kind of opportunity even pushed these margins higher once you get past some of those initial cost.

John A. Cuomo: Yeah, maybe I'll start and then I'll hand it over to Terang. I'd say, you know, the costs are not material enough to call out and specify in terms of numerical values, Mike, but what I'd say is, I think the reason why we do call them out is that it does represent an opportunity for further margin expansion in the years ahead as we gain full scale, you know, in 25 and 26. We previously communicated that margin rates should continue to go higher and inflect higher. Terang, is there anything else you want to add in terms of margin?

Michael Frank Ciarmoli: Yeah, maybe I'll start and then I'll hand it over to Terang. I'd say, you know, the costs are not material enough to call out and specify in terms of numerical values, Mike, but what I'd say is, OK.

Speaker Change: Yeah, maybe I'll start and then I'll hand, it over to crying I'd say you know the costs are not material enough to call out and specify in terms of numerical values, Mike, but what I say is okay think what the the reason why we do call. It out is it does represent an opportunity for further margin expansion in the years ahead as we gain full scale you know in the in 25 and 46, we previously communicated that margin rates.

Terang: Should continue to go higher and in fact higher trying to you is there anything else you Wanna add in terms of our dynamics on a year, yeah, I certainly want to add the the the the question associated with the variability of our margin and starting out with a quarter at a high high margin rate one of the things. That's kinda built in here is the CCI margins are at a slightly lower than our margin.

Terang: Margin run right, so you'll see that impact as we continue on throughout the year.

John A. Cuomo: Okay. And I'll give you a qualitative answer.

Speaker Change: Okay Yeah.

Terang: Yeah, and I'll give you and I'll give you the qualitative answer it's all gonna depends on mix so within our in our business. We've obviously got some extremely high margin work and then some lower margin work now is on the positive and as I look at some of the opportunities that we have out there some MRO.

John A. Cuomo: It's all going to depend on the mix. So within our business, we've obviously got some extremely high-margin work and then some lower-margin work. Now, on the positive side, as I look at some of the opportunities that we have out there, some MRO growth that I see ahead, it's in the higher margin area. The second thing that I would highlight is that our Honeywell Fuel Controls Program is more of a margin driver than a revenue driver. And as that continues to ramp up, we'll continue to see opportunities there. Got it.

John A. Cuomo: Wrote that I see ahead is in the high margin higher margin area. The second thing that I would highlight is that our Honeywell appeal controls program is is more of a margin driver than a revenue driver and woke as that continues to ramble continue.

John A. Cuomo: The opportunities there [noise].

John A. Cuomo: Is there an opportunity for TCI margins to become in line with the segment average or historicals, or will that be kind of permanently a bit lower?

Speaker Change: Got it is there an opportunity for for T. C I margins to become in line with with the segment average or historical or will that be kind of permanently a bit lower.

John A. Cuomo: I think maybe we'll give ourselves some time to kind of understand the business a bit better, and maybe you can answer that in the future. Got it. Good stuff.

Speaker Change: I think maybe we will give us some time to kind of understand the business of it back up and entered that in the summertime.

Michael Frank Ciarmoli: Got it. Good stuff. Thanks, guys. Appreciate it.

Speaker Change: Got it good stuff. Thanks I appreciate it.

Speaker Change: Thank you.

John A. Cuomo: Thank you. There are no further questions at this time. I'd like to turn the floor back over to Mr. Cuomo for closing comments.

Speaker Change: Thank you there are no further questions at this time I'd like to turn the floor back over to Mr. Oklahoma for clothes in common.

John A. Cuomo: Thank you all for your continued support of VSE. We very much appreciate it and look forward to speaking with you in July during our second quarter earnings call. Have a great rest of your day. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

John A. Cuomo: Thank you all for your continued support a V. A Z we very much appreciate it and look forward to speaking with you in July during our second quarter earnings call have a great rest of your day.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

John A. Cuomo: This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.

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