Form 8-K VSE CORP For: Apr 28
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VSE Corporation Announces First Quarter 2021 Results
ALEXANDRIA, Va., April 28, 2021 - VSE Corporation (NASDAQ: VSEC, VSE, or the Company), a leading provider of aftermarket distribution and maintenance, repair and overhaul (MRO) services for land, sea and air transportation assets supporting government and commercial markets, today announced results for the first quarter 2021.
FIRST QUARTER 2021 RESULTS
(as compared to the First Quarter 2020)
▪Total Revenues of $165.0 million declined 7.0%
▪GAAP Net Income of $5.1 million increased 53.4%
▪Adjusted Net Income of $5.3 million declined 45.6%
▪Adjusted EBITDA of $15.6 million declined 31.5%
For the three months ended March 31, 2021, the Company reported total revenue of $165.0 million, versus $177.4 million for the same period ended 2020. The Company reported adjusted net income of $5.3 million or $0.44 per adjusted diluted share, compared to $9.8 million or $0.89 per adjusted diluted share in the prior-year period. Adjusted EBITDA declined to $15.6 million in the first quarter 2021, versus $22.7 million for the same period in 2020.
Fleet segment revenue increased 2.9% on a year-over-year basis, as growth in commercial fleet and e-commerce fulfillment offset a slight decline in U.S. Postal Service-related revenue. For the first quarter, Federal and Defense segment revenue was essentially flat on a year-over-year basis, as new contract wins offset the previously announced completion of a DoD program. Aviation segment revenue, excluding the previously divested Prime Turbines and CT Aerospace assets, declined 12.0% on a year-over-year basis in first quarter 2021, as lower airline revenue passenger miles resulted in reduced commercial MRO activity. During the first quarter, Aviation segment revenue increased 15.1% when compared to fourth quarter 2020, representing the third consecutive quarter of sequential segment growth. Aviation segment performance was driven by continued market share gains within the Company’s parts distribution business, together with improved business and general aviation (B&GA) customer demand. VSE Aviation distribution revenue returned to pre-pandemic levels during first quarter 2021, up 13.1% as compared to fourth quarter 2020. VSE Aviation MRO revenue increased 18.1%, compared to fourth quarter 2020.
VSE invested nearly $35 million in new inventory during first quarter 2021 to support recent aviation program wins. These program wins include previously announced distribution agreements with global OEMs to support engine auxiliary power unit (APU), avionics, landing gear and telecommunications products.
STRATEGY UPDATE
VSE continued to execute on its multi-year business transformation plan during the first quarter. The management team remains focused on accelerating business transformation with new development initiatives, product and service line expansions, bolt-on acquisitions, and disciplined balance sheet management.
▪Aviation segment new $1 billion engine accessories distribution agreement. In March 2021, VSE announced that it has entered into a 15-year distribution agreement valued at approximately $1.0 billion with a global aircraft engine manufacturer. Under the terms of the agreement, VSE will be the provider for more than 6,000 flight-critical components used in more than 100 business and general aviation (B&GA) and regional jet engine platforms. VSE will support customers with new and exchange components. VSE will service more than 5,000 U.S.-based aircraft with on-demand, flight-critical components on a 24/7 basis to support AOG (aircraft on-ground).
▪Federal and Defense segment new contract awards. In April 2021, the Company announced approximately $37.5 million in combined new contract awards with the United States Air Force and a U.S. Government foreign ally, respectively. Revenue related to both of these contract awards is anticipated to commence in the second quarter of 2021. These contract awards reflect the continued execution of Federal and Defense segment’s vehicle and aviation MRO strategy introduced last year, one that emphasizes multi-year growth in higher-margin segment backlog.
▪HAECO Special Services (HSS) acquisition and integration. On March 1, 2021, VSE acquired HAECO Special Services, LLC (HSS) from HAECO Airframe Services, LLC, a division of HAECO Americas (HAECO), in an all cash transaction. HSS is a leading provider of fully integrated MRO support solutions for military and government aircraft. HSS offers scheduled depot maintenance, contract field deployment and unscheduled drop-in maintenance for a U.S. Department of Defense contract, specifically for the sustainment of the U.S. Air Force KC-10 fleet. Since March 1, 2021, HSS contributed $3.2 million of revenue to VSE’s first quarter 2021 consolidated results. Integration activity is underway, and HSS will be integrated into VSE’s Federal and Defense segment as part of the aircraft maintenance and modernization business unit.
▪Fleet segment organic revenue growth in commercial end-markets. Total commercial revenue, which excludes U.S. Postal Service and Government-related revenue, increased 63.6% on a year-over-year basis in first quarter 2021, driven by increased sales in the e-commerce fulfillment and commercial fleet channels. Commercial revenue represented 26.4% of total Fleet revenue in first quarter 2021, versus 16.6% in the prior-year period.
MANAGEMENT COMMENTARY
“We continued to leverage our unique value proposition across niche, high-value market verticals during the first quarter of 2021, while advancing our business transformation strategy through a combination of both organic and inorganic growth,” stated John Cuomo, President and CEO of VSE Corporation. “Our change management and business transformation initiatives have begun to yield tangible results, as evidenced by new business wins, expanded relationships with commercial and government customers, and improved organizational efficiency.”
“We remain highly focused on growing a backlog of higher-margin, multi-year contracts that position us to cross-sell our products and services into new and existing markets,” continued Cuomo. “Within our Aviation segment, we recently announced a $1 billion, 15-year agreement with a major engine manufacturer with the potential to generate approximately $60 million in annual revenue upon full implementation. This transaction significantly expands our customer base across more than 100 B&GA and regional aviation engine platforms, while providing stable, long-term contract revenue. Within our Federal and Defense segment, we recently announced more than $37 million in new contract awards with the both the U.S. Air Force and a U.S. Government foreign ally. In our Fleet segment, we continue to generate strong organic growth in commercial revenue. Collectively, these new wins reflect a sharpened organizational focus on new business development, while further validating our go-to-market strategies.”
“Aviation segment revenue within distribution returned to pre-pandemic levels during the first quarter, ahead of our market peers, supporting our third quarter of sequential revenue growth in the segment,” continued Cuomo. “While revenue passenger miles remain below historical levels, we anticipate that an increase in B&GA and commercial domestic travel will lead the recovery, creating new opportunities for our business as traffic levels improve into 2022.”
“VSE remains well-capitalized to support the ongoing growth of the business,” stated Stephen Griffin, CFO of VSE Corporation. “While our recently announced business wins will require working capital investments in new inventory during 2021, we anticipate significant returns on these investments in 2022 and beyond. Disciplined balance sheet management remains a priority for us and we anticipate that we will end 2021 in a similar leverage position as compared to 2020. We are targeting a long-term net leverage ratio of 2.5x.”
SEGMENT RESULTS
AVIATION
Distribution & MRO Services
VSE’s Aviation segment provides aftermarket MRO and distribution services to commercial, cargo, business and general aviation, military/defense and rotorcraft customers globally. Core services include parts distribution, component and engine accessory MRO services, rotable exchange and supply chain services.
VSE Aviation segment revenue, less contributions from Prime Turbines (divested February 2020) and CT Aerospace (divested June 2020), decreased 12.0% year-over-year to $44.4 million in the first quarter 2021. The year-over-year revenue decline was attributable to the adverse impact of the COVID-19 pandemic on commercial air traffic, resulting in lower customer demand. The Aviation segment recorded an operating loss of $0.3 million in the first quarter, versus an operating loss of $1.9 million in the prior-year period. Segment Adjusted EBITDA decreased to $2.2 million in the first quarter 2021, versus $7.9 million in the prior-year period.
FLEET
Distribution & Fleet Services
VSE's Fleet segment provides parts, inventory management, e-commerce fulfillment, logistics, supply chain support and other services to support the commercial aftermarket medium- and heavy-duty truck market, the United States Postal Service (USPS), and the United States Department of Defense. Core services include parts distribution, sourcing, IT solutions, customized fleet logistics, warehousing, kitting, just-in-time supply chain management, alternative product sourcing, engineering and technical support.
VSE Fleet segment revenue increased 2.9% year-over-year to $54.7 million in the first quarter 2021. Revenues from commercial customers increased approximately $5.6 million or 63.6%, driven by growth in commercial fleet demand and our e-commerce fulfillment business. Operating income declined 16.9% year-over-year to $5.7 million in the first quarter 2021 due to sales mix and related factors. Segment Adjusted EBITDA declined 15.6% year-over-year in the first quarter 2021 to $8.1 million.
FEDERAL & DEFENSE
Logistics & Sustainment Services
VSE's Federal and Defense segment provides aftermarket MRO and logistics services to improve operational readiness and to extend the life cycle of military vehicles, ships and aircraft for the U.S. Armed Forces, federal agencies and international defense customers. Core services include base operations support, procurement, supply chain management, vehicle, maritime and aircraft sustainment services, IT services and energy consulting.
VSE Federal and Defense segment revenue declined 0.4% year-over-year to $65.9 million in the first quarter 2021, as new contract awards served to offset previously announced contract expirations. Operating income increased 2.1% year-over-year to $5.0 million in the first quarter, while Adjusted EBITDA increased 2.0% year-over-year to $5.8 million in the period, due to a less favorable contract mix.
VSE Federal and Defense segment first quarter bookings declined 6.0% year-over-year to $63 million. Funded backlog declined 6.5% year-over-year to $188 million. The decline in funded backlog was attributable to the expiration of a contract in the first quarter 2020 and the delay of new business awards. The Company continues to focus on revitalizing this business by leveraging its improved technical competencies to capitalize on higher margin growth as evidenced in recent wins announced in April 2021.
FINANCIAL RESOURCES AND LIQUIDITY
As of March 31, 2021, the Company had $167 million in cash and unused commitment availability under its $350 million revolving credit facility maturing in 2023. The Company’s existing credit facility includes a $100 million accordion provision, subject to customary lender commitment approvals. As of March 31, 2021, VSE had total net debt outstanding of $254 million and $68.1 million of trailing-twelve months Adjusted EBITDA.
FIRST QUARTER RESULTS
| (in thousands, except per share data) | ||||||||||||||||||||
| Three months ended March 31, | ||||||||||||||||||||
| 2021 | 2020 | % Change | ||||||||||||||||||
| Revenues | $ | 164,981 | $ | 177,418 | (7.0) | % | ||||||||||||||
| Operating income | $ | 9,603 | $ | 9,734 | (1.3) | % | ||||||||||||||
| Net income | $ | 5,111 | $ | 3,332 | 53.4 | % | ||||||||||||||
| EPS (Diluted) | $ | 0.42 | $ | 0.30 | 40.0 | % | ||||||||||||||
FIRST QUARTER SEGMENT RESULTS
The following is a summary of revenues and operating income (loss) for the three months ended March 31, 2021 and March 31, 2020:
| (in thousands) | Three months ended March 31, | |||||||||||||||||||
| 2021 | 2020 | % Change | ||||||||||||||||||
| Revenues: | ||||||||||||||||||||
| Aviation | $ | 44,371 | $ | 58,080 | (23.6) | % | ||||||||||||||
| Fleet | 54,747 | 53,204 | 2.9 | % | ||||||||||||||||
| Federal & Defense | 65,863 | 66,134 | (0.4) | % | ||||||||||||||||
| Total Revenues | $ | 164,981 | $ | 177,418 | (7.0) | % | ||||||||||||||
Operating Income (Loss): | ||||||||||||||||||||
| Aviation | $ | (332) | $ | (1,880) | (82.3) | % | ||||||||||||||
| Fleet | 5,741 | 6,906 | (16.9) | % | ||||||||||||||||
| Federal & Defense | 5,025 | 4,924 | 2.1 | % | ||||||||||||||||
| Corporate/unallocated expenses | (831) | (216) | 284.7 | % | ||||||||||||||||
| Operating Income | $ | 9,603 | $ | 9,734 | (1.3) | % | ||||||||||||||
The Company reported $2.1 million of total capital expenditures for three months ended March 31, 2021.
NON-GAAP MEASURES
In addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), this earnings release also contains Non-GAAP financial measures. The reasons why we believe these measures provide useful information to investors and a reconciliation of these measures to the most directly comparable GAAP measures and other information relating to these Non-GAAP measures are included in the supplemental schedules attached.
NON-GAAP FINANCIAL INFORMATION
Reconciliation of Adjusted Net Income and Adjusted EPS to Net Income
| (in thousands) | Three months ended March 31, | ||||||||||||||||||||||
| 2021 | 2020 | % Change | |||||||||||||||||||||
| Net Income | $ | 5,111 | $ | 3,332 | 53.4 | % | |||||||||||||||||
| Adjustments to Net Income: | |||||||||||||||||||||||
| Acquisition related costs | 310 | — | — | % | |||||||||||||||||||
| Earn-out adjustment | — | 301 | — | % | |||||||||||||||||||
| Loss on sale of a business entity and certain assets | — | 7,536 | — | % | |||||||||||||||||||
| Gain on sale of property | — | (1,108) | — | % | |||||||||||||||||||
| 5,421 | 10,061 | (46.1) | % | ||||||||||||||||||||
| Tax impact of adjusted items | (78) | (236) | — | % | |||||||||||||||||||
| Adjusted Net Income | $ | 5,343 | $ | 9,825 | (45.6) | % | |||||||||||||||||
| Weighted Average Dilutive Shares | 12,172 | 11,101 | — | % | |||||||||||||||||||
| Adjusted EPS (Diluted) | $ | 0.44 | $ | 0.89 | (50.6) | % | |||||||||||||||||
Reconciliation of Consolidated EBITDA and Adjusted EBITDA to Net Income
| (in thousands) | Three months ended March 31, | ||||||||||||||||||||||
| 2021 | 2020 | % Change | |||||||||||||||||||||
| Net Income | $ | 5,111 | $ | 3,332 | 53.4 | % | |||||||||||||||||
| Interest Expense | 3,030 | 3,486 | (13.1) | % | |||||||||||||||||||
| Income Taxes | 1,462 | 2,916 | (49.9) | % | |||||||||||||||||||
| Amortization of Intangible Assets | 4,288 | 4,723 | (9.2) | % | |||||||||||||||||||
| Depreciation and Other Amortization | 1,360 | 1,521 | (10.6) | % | |||||||||||||||||||
| EBITDA | 15,251 | 15,978 | (4.6) | % | |||||||||||||||||||
| Acquisition related costs | 310 | — | — | % | |||||||||||||||||||
| Earn-out adjustment | — | 301 | — | % | |||||||||||||||||||
| Loss on sale of a business entity and certain assets | — | 7,536 | — | % | |||||||||||||||||||
| Gain on sale of property | — | (1,108) | — | % | |||||||||||||||||||
| Adjusted EBITDA | $ | 15,561 | $ | 22,707 | (31.5) | % | |||||||||||||||||
Reconciliation of Segment EBITDA and Adjusted EBITDA to Operating Income
| (in thousands) | Three months ended March 31, | ||||||||||||||||||||||
| 2021 | 2020 | % Change | |||||||||||||||||||||
| Aviation | |||||||||||||||||||||||
| Operating Income (Loss) | $ | (332) | $ | (1,880) | (82.3) | % | |||||||||||||||||
| Depreciation and Amortization | 2,554 | 3,066 | (16.7) | % | |||||||||||||||||||
| EBITDA | 2,222 | 1,186 | 87.4 | % | |||||||||||||||||||
| Earn-out adjustment | — | 301 | — | % | |||||||||||||||||||
| Loss on sale of a business entity and certain assets | — | 7,536 | — | % | |||||||||||||||||||
| Gain on sale of property | — | (1,108) | — | % | |||||||||||||||||||
| Adjusted EBITDA | $ | 2,222 | $ | 7,915 | (71.9) | % | |||||||||||||||||
| Fleet | |||||||||||||||||||||||
| Operating Income | $ | 5,741 | $ | 6,906 | (16.9) | % | |||||||||||||||||
| Depreciation and Amortization | 2,340 | 2,672 | (12.4) | % | |||||||||||||||||||
| EBITDA and Adjusted EBITDA | $ | 8,081 | $ | 9,578 | (15.6) | % | |||||||||||||||||
| Federal & Defense | |||||||||||||||||||||||
| Operating Income | $ | 5,025 | $ | 4,924 | 2.1 | % | |||||||||||||||||
| Depreciation and Amortization | 754 | 739 | 2.0 | % | |||||||||||||||||||
| EBITDA and Adjusted EBITDA | $ | 5,779 | $ | 5,663 | 2.0 | % | |||||||||||||||||
Reconciliation of Operating Cash to Free Cash Flow
| Three months ended March 31, | ||||||||||||||
| (in thousands) | 2021 | 2020 | ||||||||||||
| Net cash (used in) provided by operating activities | $ | (36,367) | $ | 6,758 | ||||||||||
| Capital expenditures | (2,109) | (724) | ||||||||||||
| Free cash flow | $ | (38,476) | $ | 6,034 | ||||||||||
Reconciliation of Debt to Net Debt
| March 31, | December 31, | |||||||||||||
| (in thousands) | 2021 | 2020 | ||||||||||||
| Principal amount of debt | $ | 255,635 | $ | 253,461 | ||||||||||
| Debt issuance costs | (2,072) | (2,368) | ||||||||||||
| Cash and cash equivalents | (347) | (378) | ||||||||||||
| Net debt | $ | 253,216 | $ | 250,715 | ||||||||||
The non-GAAP Financial Information set forth in this document is not calculated in accordance with U.S. generally accepted accounting principles ("GAAP") under SEC Regulation G. We consider Adjusted Net Income, Adjusted EPS (Diluted), EBITDA, Adjusted EBITDA, net debt and free cash flow as non-GAAP financial measures and important indicators of performance and useful metrics for management and investors to evaluate our business' ongoing operating performance on a consistent basis across reporting periods. These non-GAAP financial measures, however, should not be considered in isolation or as a substitute for performance measures prepared in accordance with GAAP. Adjusted Net Income represents Net Income adjusted for acquisition-related costs including any earn-out adjustments, loss on sale of a business entity and certain assets, gain on sale of property, and related tax impact. Adjusted EPS (Diluted) is computed by dividing net income, adjusted for the discrete items as identified above and the related tax impacts, by the diluted weighted average number of common shares outstanding. EBITDA represents net income before interest expense, income taxes, amortization of intangible assets and depreciation and other amortization. Adjusted EBITDA represents EBITDA (as defined above) adjusted for discrete items as identified above. Net debt is defined as total debt less cash and cash equivalents. Free cash flow represents operating cash flow less capital expenditures.
CONFERENCE CALL
A conference call will be held Thursday, April 29, 2021 at 8:30 A.M. ET to review the Company’s financial results, discuss recent events and conduct a question-and-answer session.
A webcast of the conference call and accompanying presentation materials will be available in the Investor Relations section of VSE’s website at https://ir.vsecorp.com. To listen to a live broadcast, go to the site at least 15 minutes prior to the scheduled start time in order to register, download, and install any necessary audio software.
To participate in the live teleconference:
Domestic Live: (877) 407-0789
International Live: (201) 689-8562
Audio Webcast: http://public.viavid.com/index.php?id=144084
To listen to a replay of the teleconference through May 31, 2021:
Domestic Replay: (844) 512-2921
International Replay: (412) 317-6671
Replay PIN Number: 13718038
ABOUT VSE CORPORATION
VSE is a leading provider of aftermarket distribution and repair services for land, sea and air transportation assets for government and commercial markets. Core services include maintenance, repair and overhaul (MRO) services, parts distribution, supply chain management and logistics, engineering support, and consulting and training services for global commercial, federal, military and defense customers. VSE also provides information technology and energy consulting services. For additional information regarding VSE’s services and products, visit us at www.vsecorp.com.
Please refer to the Form 10-Q that will be filed with the Securities and Exchange Commission (SEC) on or about April 29, 2021 for more details on our first quarter 2021 results. Also, refer to VSE’s Annual Report on Form 10-K for the year ended December 31, 2020 for further information and analysis of VSE’s financial condition and results of operations. VSE encourages investors and others to review the detailed reporting and disclosures contained in VSE’s public filings for additional discussion about the status of customer programs and contract awards, risks, revenue sources and funding, dependence on material customers, and management’s discussion of short- and long-term business challenges and opportunities.
FORWARD LOOKING STATEMENTS
This document contains certain forward-looking statements. These forward-looking statements, which are included in accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, may involve known and unknown risks, uncertainties and other factors that may cause VSE’s actual results and performance in future periods to be materially different from any future results or performance suggested by the forward-looking statements in this document. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that actual results will not differ materially from these expectations. “Forward-looking” statements, as such term is defined by the Securities Exchange Commission (the “SEC”) in its rules, regulations and releases, represent our expectations or beliefs, including, but not limited to, statements concerning our operations, economic performance, financial condition, the impact of widespread health developments, such as the ongoing COVID-19 outbreak, the health and economic impact thereof, and the governmental, commercial, consumer and other responses thereto, growth and acquisition strategies, investments and future operational plans. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “forecast,” “seek,” “plan,” “predict,” “project,” “could,” “estimate,” “might,” “continue,” “seeking” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. These statements, by their nature, involve substantial risks and uncertainties, certain of which are beyond our control, and actual results may differ materially depending on a variety of important factors, including, but not limited to, the uncertainty surrounding the ongoing COVID-19 outbreak and the other factors identified in our reports filed or expected to be filed with the SEC including our Annual Report on Form 10-K for the year ended December 31, 2020. All forward-looking statements made herein are qualified by these cautionary statements and risk factors and there can be no assurance that the actual results, events or developments referenced herein will occur or be realized. Readers are cautioned not to place undue reliance on these forward looking-statements, which reflect management's analysis only as of the date hereof. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.
INVESTOR CONTACT
Noel Ryan
(720) 778-2415
investors@vsecorp.com
VSE Corporation and Subsidiaries
Unaudited Consolidated Balance Sheets
(in thousands except share and per share amounts)
| March 31, | December 31, | ||||||||||
| 2021 | 2020 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 347 | $ | 378 | |||||||
| Receivables, net | 63,552 | 55,471 | |||||||||
| Unbilled receivables, net | 43,694 | 22,358 | |||||||||
| Inventories, net | 282,771 | 253,422 | |||||||||
| Other current assets | 29,169 | 23,328 | |||||||||
| Total current assets | 419,533 | 354,957 | |||||||||
| Property and equipment, net | 38,318 | 36,363 | |||||||||
| Intangible assets, net | 105,914 | 103,595 | |||||||||
| Goodwill | 238,126 | 238,126 | |||||||||
| Operating lease right-of-use asset | 22,181 | 20,515 | |||||||||
| Other assets | 29,016 | 26,525 | |||||||||
| Total assets | $ | 853,088 | $ | 780,081 | |||||||
| Liabilities and Stockholders' equity | |||||||||||
| Current liabilities: | |||||||||||
| Current portion of long-term debt | $ | 21,316 | $ | 20,379 | |||||||
| Accounts payable | 73,816 | 72,682 | |||||||||
| Accrued expenses and other current liabilities | 50,882 | 45,172 | |||||||||
| Dividends payable | 1,142 | 995 | |||||||||
| Total current liabilities | 147,156 | 139,228 | |||||||||
| Long-term debt, less current portion | 232,247 | 230,714 | |||||||||
| Deferred compensation | 17,186 | 16,027 | |||||||||
| Long-term lease obligations under operating leases | 23,673 | 22,815 | |||||||||
| Deferred tax liabilities | 16,523 | 14,897 | |||||||||
| Other long-term liabilities | 2,000 | 83 | |||||||||
| Total liabilities | 438,785 | 423,764 | |||||||||
| Commitments and contingencies | |||||||||||
| Stockholders' equity: | |||||||||||
| Common stock, par value $0.05 per share, authorized 15,000,000 shares; issued and outstanding 12,691,570 and 11,055,037, respectively | 635 | 553 | |||||||||
| Additional paid-in capital | 85,296 | 31,870 | |||||||||
| Retained earnings | 329,064 | 325,097 | |||||||||
| Accumulated other comprehensive loss | (692) | (1,203) | |||||||||
| Total stockholders' equity | 414,303 | 356,317 | |||||||||
| Total liabilities and stockholders' equity | $ | 853,088 | $ | 780,081 | |||||||
VSE Corporation and Subsidiaries
Unaudited Consolidated Statements of Income
(in thousands except share and per share amounts)
| For the three months ended March 31, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| Revenues: | ||||||||||||||
| Products | $ | 78,580 | $ | 76,342 | ||||||||||
| Services | 86,401 | 101,076 | ||||||||||||
| Total revenues | 164,981 | 177,418 | ||||||||||||
| Costs and operating expenses: | ||||||||||||||
| Products | 70,712 | 65,527 | ||||||||||||
| Services | 80,340 | 90,758 | ||||||||||||
| Selling, general and administrative expenses | 38 | 248 | ||||||||||||
| Amortization of intangible assets | 4,288 | 4,723 | ||||||||||||
| Total costs and operating expenses | 155,378 | 161,256 | ||||||||||||
| 9,603 | 16,162 | |||||||||||||
| Loss on sale of a business entity and certain assets | — | (7,536) | ||||||||||||
| Gain on sale of property | — | 1,108 | ||||||||||||
| Operating income | 9,603 | 9,734 | ||||||||||||
| Interest expense, net | 3,030 | 3,486 | ||||||||||||
| Income before income taxes | 6,573 | 6,248 | ||||||||||||
| Provision for income taxes | 1,462 | 2,916 | ||||||||||||
| Net income | $ | 5,111 | $ | 3,332 | ||||||||||
| Basic earnings per share | $ | 0.42 | $ | 0.30 | ||||||||||
| Basic weighted average shares outstanding | 12,076,509 | 11,000,204 | ||||||||||||
| Diluted earnings per share | $ | 0.42 | $ | 0.30 | ||||||||||
| Diluted weighted average shares outstanding | 12,171,828 | 11,100,506 | ||||||||||||
| Dividends declared per share | $ | 0.09 | $ | 0.09 | ||||||||||
VSE Corporation and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
(in thousands)
| For the three months ended March 31, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| Cash flows from operating activities: | ||||||||||||||
| Net income | $ | 5,111 | $ | 3,332 | ||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
| Depreciation and amortization | 5,944 | 6,475 | ||||||||||||
| Deferred taxes | 1,457 | 1,592 | ||||||||||||
| Stock-based compensation | 1,415 | 897 | ||||||||||||
| Loss on sale of a business entity and certain assets | — | 7,536 | ||||||||||||
| Gain on sale of property and equipment | — | (1,127) | ||||||||||||
| Earn-out obligation fair value adjustment | — | 301 | ||||||||||||
| Changes in operating assets and liabilities, net of impact of acquisitions: | ||||||||||||||
| Receivables | (2,787) | (163) | ||||||||||||
| Unbilled receivables | (17,341) | (2,041) | ||||||||||||
| Inventories | (28,910) | (8,255) | ||||||||||||
| Other current assets and noncurrent assets | (10,306) | 2,777 | ||||||||||||
| Accounts payable and deferred compensation | 1,051 | 395 | ||||||||||||
| Accrued expenses and other current and noncurrent liabilities | 7,999 | (4,961) | ||||||||||||
| Net cash (used in) provided by operating activities | (36,367) | 6,758 | ||||||||||||
| Cash flows from investing activities: | ||||||||||||||
| Purchases of property and equipment | (2,109) | (724) | ||||||||||||
| Proceeds from the sale of property and equipment | 14 | 2,424 | ||||||||||||
| Proceeds from payments on notes receivable | 412 | 427 | ||||||||||||
| Proceeds from the sale of a business entity and certain assets | — | 20,700 | ||||||||||||
| Cash paid for acquisitions, net of cash acquired | (14,785) | — | ||||||||||||
| Net cash (used in) provided by investing activities | (16,468) | 22,827 | ||||||||||||
| Cash flows from financing activities: | ||||||||||||||
| Borrowings on loan agreement | 146,431 | 131,148 | ||||||||||||
| Repayments on loan agreement | (144,257) | (127,692) | ||||||||||||
| Proceeds from issuance of common stock, net of underwriters' discounts and issuance costs | 52,017 | — | ||||||||||||
| Earn-out obligation payments | — | (31,701) | ||||||||||||
| Payments of taxes for equity transactions | (390) | (543) | ||||||||||||
| Dividends paid | (997) | (988) | ||||||||||||
| Net cash provided by (used in) financing activities | 52,804 | (29,776) | ||||||||||||
| Net decrease in cash and cash equivalents | (31) | (191) | ||||||||||||
| Cash and cash equivalents at beginning of period | 378 | 734 | ||||||||||||
| Cash and cash equivalents at end of period | $ | 347 | $ | 543 | ||||||||||
F irst Quarter 2021 Results Conference Cal l April 2021
R A I S E T H E B A R 2 This presentation contains statements that, to the extent they are not recitations of historical fact, constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Exchange Act. All such statements are intended to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and includes this statement for purposes of such safe harbor provisions. “Forward-looking” statements, as such term is defined by the SEC in its rules, regulations and releases, represent VSE Corporation’s (the “Company”) expectations or beliefs, including, but not limited to, statements concerning its operations, economic performance, financial condition, growth and acquisition strategies, investments and future operational plans. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “forecast,” “seek,” “plan,” “predict,” “project,” “could,” “estimate,” “might,” “continue,” “seeking” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. These statements speak only as of the date of this presentation and the Company undertakes no ongoing obligation, other than that imposed by law, to update these statements. These statements appear in a number of places in this presentation, and relate to, among other things, the Company’s intent, belief or current expectations with respect to: its future financial condition, results of operations or prospects; our business and growth strategies; and our financing plans and forecasts. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may differ materially from those contained in or implied by the forward-looking statements as a result of various factors, some of which are unknown, including, without limitation the factors identified in the Company’s reports filed or expected to be filed with the SEC including its Annual Report on Form 10-K for the year ended December 31, 2020. Forward-Looking Statements Non-GAAP Financial Measures In addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), this document also contains Non-GAAP financial measures. We consider Adjusted Net Income, Adjusted EPS (Diluted), EBITDA, Adjusted EBITDA, trailing-twelve month Adjusted EBITDA, net debt and free cash flow (FCF) as non-GAAP financial measures and important indicators of performance and useful metrics for management and investors to evaluate our business’s ongoing operating performance on a consistent basis across reporting periods. Adjusted Net Income represents Net Income adjusted for discrete items. Adjusted EPS (Diluted) is computed by dividing net income, adjusted for the discrete items and the related tax impacts, by the diluted weighted average number of common shares outstanding. EBITDA represents net income before interest expense, income taxes, amortization of intangible assets and depreciation and other amortization. Adjusted EBITDA represents EBITDA adjusted for discrete items. Net debt is defined as total debt less cash and cash equivalents. Free cash flow represents operating cash flow less capital expenditures. Net leverage ratio is calculated as net debt divided by trailing twelve month Adjusted EBITDA. The reasons why we believe these measures provide useful information to investors and a reconciliation of these measures to the most directly comparable GAAP measures and other information relating to these Non-GAAP measures are included in the supplemental schedules attached.
R A I S E T H E B A R 3 EXECUTIVE SUMMARY First Quarter 2021 Aviation Segment: Transformational New Agreement Announced $1 billion 15-year engine accessories distribution agreement win in April 2021 – another partnership with a major global OEM Fleet Segment: Commercial Growth & Customer Diversification Commercial fleet diversification strategy and commercial growth success; +64% revenue y/y in 1Q’21 Federal & Defense Segment: Organic Growth Announced $37.5 million in new contract award commitments in April 2021 Inorganic Growth: HAECO Special Services (HSS) Acquisition HSS acquisition supports higher-margin aircraft modernization and sustainment MRO within Federal & Defense segment. Acquisition performance ahead of initial plan; Acquisition closed March 1, 2021. Capital Deployment to Support New Program Wins in 2021 For the full-year 2021, the company currently anticipates continued inventory investment to support revenue and margin capture in 2022+, which includes $56 million to support the new engine accessories OEM program win within Aviation segment. Execution on Growth Strategy Combination of market share gains across all segments, together with first month of revenue contribution from HSS acquisition Operational & Profit Execution Across All Segments Generated positive Adjusted EBITDA across all three segments in 1Q’21; reported GAAP net income of $5.1 million and adjusted net income of $5.3 million, $0.44 per diluted share Outpacing Aviation Recovery Continues, Led by Aviation Distribution Third consecutive quarter of sequential revenue growth within Aviation segment; +15% q/q, driven by new business wins. Distribution and improved B&GA demand lead the recovery. Accelerating Higher-Margin Capability Expansion in Federal & Defense Focused on building MRO and technical capabilities within higher margin niche markets; HSS accelerates this strategy Fleet Revenue Growth Driven by Commercial Sales Commercial was 26% of Fleet revenue in 1Q’21 vs. 17% in 1Q’20; USPS revenue down less than 7% y/y; near flat on a q/q basis Continued Business Transformation through Market Share Gains, Expanded Service Capabilities & Inorganic Growth Business Transformation Update as of April 29, 2021 First Quarter 2021 Key Performance Highlights
R A I S E T H E B A R 4 $1 BILLION ENGINE ACCESSORIES AGREEMENT 15-year agreement anticipated to generate ~$60 million annually upon full implementation Transformational Agreement Supports Organic Growth Strategy & Reflects Continued B&GA Market Focus Agreement Overview At $60 million annually, represents ~35%+ increase in 2020 VSE Aviation revenue Key Strategic Benefits Leveraging our unique value proposition across both Distribution & MRO Long-term, Transformational Distribution Agreement 15-year distribution agreement valued at approximately $1 billion over the life of the contract with a global aircraft engine manufacturer commencing in 2Q’21. Serving More than 100 B&GA Engine Platforms VSE Aviation will be the distributor for more than 6,000 flight-critical components used in more than 100 business and general aviation (B&GA) and regional aviation engine platforms. VSE will support customers with both new and exchange components. Installed Base of More than 5,000 U.S.-based Aircraft VSE will service 5,000+ U.S.-based aircraft with on-demand, flight-critical components to support scheduled line maintenance and AOG (aircraft on-ground) events. Stable Contractual Revenue through 2036 VSE expects program revenue to be approximately $12 million in 2021 and $45 million in 2022. Once fully implemented, the program is estimated to generate ~$60+ million in annual revenue. Directly Servicing Business & General Aviation Customers VSE Aviation will be the first point of contact for B&GA owners, operators and maintenance providers, supplying critical engine components and on-demand part and repair solutions. Significant Opportunity to Cross-sell Complementary Offerings This agreement positions VSE to provide complementary product and service offerings, supporting long-term market share gains within attractive B&GA customer verticals. Leveraging Existing VSE Expertise in Parts Distribution and MRO VSE Aviation is a well-established leader in engine accessory repair and technical proprietary parts distribution. This agreement significantly expands the Company’s service of both new and existing engine platforms. This OEM partnership expands VSE’s repair capabilities to service additional engine accessory exchange units.
R A I S E T H E B A R ▪ 1Q’21 revenue of $165M decreased (3)% y/y (1) ▪ Q/Q revenue growth across all segments: Aviation +15%, Federal & Defense +15%, Fleet +1% ▪ Continued investment in Distribution and MRO capabilities to gain market share and execute on organic growth strategy 5 VSE FINANCIAL SUMMARY ($ in millions except EPS) 1Q’21 1Q’20 4Q’20 vs 1Q’20 vs 4Q’20 Revenue $165.0 $177.4 $150.0 (7)% 10% Adjusted EBITDA $15.6 $22.7 $17.3 (31)% (10)% Adjusted EBITDA % 9.5% 12.8% 11.5% (3.3)pts (2.0)pts Operating Income $9.6 $9.7 $11.9 (1)% (19)% Net Income $5.1 $3.3 $6.0 55% (15)% Adjusted Net Income $5.3 $9.8 $5.8 (46)% (9)% Diluted EPS $0.42 $0.30 $0.54 40% (22)% Adjusted Diluted EPS $0.44 $0.89 $0.52 (52)% (15)% 3rd Consecutive Quarter of Revenue Growth; Continued Progress on Growth Plans with New Wins & Program Launches (1) Excluding the 2020 revenue related to Prime Turbines/CT Aerospace divestitures, revenue is $165.0 million in 1Q’21, versus $169.5 million in the same period of 2020
R A I S E T H E B A R 6 CONSOLIDATED PERFORMANCE BRIDGE Aviation FDS Fleet 4Q’20 1Q’21 Corporate Revenue Adj. EBITDA Aviation FDS Fleet 1Q’20 1Q’21 Corporate $5.8 $8.5 $0.7 $150.0 $165.0 - $0.9 ($2.7) ($0.4) $17.3 $15.6 $0.5 ($13.7) ($0.2) $1.5 $177.4 $165.0 - ($5.7) $0.1 $(1.5) $22.7 $15.6 - Q/Q comparisons: ▪ Aviation segment revenue and profit increased, with three quarters of sequential growth supported by execution of market share gains and recovery in business and general aviation market ▪ Federal & Defense (FDS) segment revenue increase driven by Department of Justice program and HSS acquisition, with profit declines due to contract mix ▪ Fleet segment revenue growth supported by higher sales in commercial fleet and e- commerce fulfillment, offset by slight decline in U.S. Postal Service and DoD-related revenue Adj. EBITDA Margin % +0.1 pts (2.1) pts (0.3) pts 11.5% 9.5% +0.3 pts (2.4) pts +0.1 pts (1.0) pts 12.8% 9.5% - Y/Y comparisons: ▪ Aviation revenue and profit decline driven by COVID-19 impact on global revenue passenger miles ▪ Federal & Defense (FDS) lower revenue driven by completion of previously announced expiring programs with progress on new capabilities in MRO to maximize portfolio profitability ▪ Fleet growth driven primarily by commercial fleet and e-commerce fulfillment offset by a slight decline U.S. Postal Service and DoD-related revenue
R A I S E T H E B A R ▪ 1Q’21 Aviation revenue increased +15% sequentially, led by growth in Distribution business ▪ Excluding the contribution of Prime Turbines and CT Aerospace divestitures, 1Q’21 revenue decreased (12)% versus same period of 2020 ▪ Announced a ~$1 billion exclusive, life-of-program distribution agreement, expanding into engine accessory distribution with B&GA customers 7 AVIATION SEGMENT ($ in millions) 1Q’21 vs 1Q’20 vs 4Q’20 Revenue $44.4 (24)% +15% Revenue, less divestitures (1) $44.4 (12)% +15% Adjusted EBITDA $2.2 (72)% +61% Adjusted EBITDA % 5% (8.6) pts +1.5 pts Operating Income $(0.3) +82% +60% Revenue by Type: Distribution Adjusted –(1) $26.1 +18% +13% Repair Adjusted –(1) $18.3 (34)% +18% (1) Excludes 2020 revenue related to Prime Turbines/CT Aerospace divestitures 3rd Consecutive Quarter of Revenue Growth & New Program Wins; Distribution at Pre-Pandemic Revenue
R A I S E T H E B A R ▪ 1Q’21 revenue increased +1% sequentially, driven by commercial fleet revenue growth ▪ Y/Y revenue increases supported by commercial fleet and ecommerce fulfillment business, +64% y/y ▪ Margin impacted by sales mix and investment in commercial fleet sales infrastructure 8 FLEET SEGMENT ($ in millions) 1Q’21 vs 1Q’20 vs 4Q’20 Revenue $54.7 +3% +1% Adjusted EBITDA $8.1 (16)% (5)% Adjusted EBITDA % 14.8% (3.3) pts (1) pts Operating Income $5.7 (17)% (7)% Revenue by Customer: Other Government $37.2 (7)% -% DoD $3.1 (33)% (19)% Commercial $14.4 +64% +12% Customer Diversification Progress & Growth in Commercial Fleet Revenue
R A I S E T H E B A R ▪ 1Q’21 revenue increased +15% sequentially, led by strong revenue performance on U.S. Department of Justice program and HSS acquisition ▪ Awarded ~$37.5M in combined new contracts to provide on- demand MRO services to U.S. and allied foreign militaries, expanding capabilities in the higher-margin technical services market ▪ Expanding market focus and strategic position to grow backlog 9 FEDERAL & DEFENSE SEGMENT ($ in millions) 1Q’21 vs 1Q’20 vs 4Q’20 Revenue $65.9 -% +15% Adjusted EBITDA $5.8 +2% (32)% Adjusted EBITDA % 8.8% +0.2 pts (6) pts Operating Income $5.0 +2% (36)% Contract Backlog: Bookings $63 (6)% (16)% Backlog $188 (7)% +3% Focus on Backlog Building, Expanding Service Capabilities & Profitability Enhancement
R A I S E T H E B A R ▪ 1Q'21 capital allocation priorities include investments for new Aviation segment program launches. Inventory investments in Aviation Distribution programs for 1Q’21 include: ▪ Engine Accessories: $20 million ▪ Auxiliary Power Unit: $10 million ▪ Landing Gear: $5 million ▪ Strong liquidity profile with $167M cash and unused commitment availability under $350M revolving credit facility due 2023 ▪ Maintaining long-term target of 2.5x net leverage ratio; Anticipating FY’21 ratio to be in line with FY’20 10 BALANCE SHEET OPTIONALITY ($ in millions) 1Q’21 1Q’20 4Q’20 Net Debt $253 $273 $251 Free Cash Flow $(38.5) $6.0 $(0.9) Net leverage ratio 3.7X 2.9X 3.3X Unused Commitments $167 $176 $175 Inventory Investments Supporting New Distribution Program and Future Revenue/Margin
R A I S E T H E B A R 11 INVESTMENT OPPORTUNITY Unique pure-play independent aftermarket services company poised for growth Strategic Market Positioning, Strong Growth Strategy, Proven Execution Experience MISSION-CRITICAL AFTERMARKET SERVICES CULTURAL TRANSFORMATION DRIVING GROWTH STRONG CUSTOMER RELATIONSHIPS NEW EXPERIENCED MANAGEMENT TEAM FRAGMENTED END-MARKETS WELL-BALANCED BUSINESS SEGMENTS
APPENDIX 12
R A I S E T H E B A R VSE Senior Leadership 13 VSE EXECUTIVE TEAM John Cuomo President and CEO • 19+ years of aerospace distribution and services market industry experience • Appointed Chief Executive Officer and President of VSE Corporation in April 2019 • Previously served as Vice President and General Manager of Boeing Distribution Services and Group President, KLX Aerospace Solutions Stephen Griffin Chief Financial Officer • 10+ years of senior finance leadership, most recently as CFO for GE Aviation Engine Services • Appointed CFO of VSE Corporation in November 2020 • Manages the financial and accounting operations for the consolidated corporation Chad Wheeler Group President, Wheeler Fleet Solutions Robert Moore Group President, Federal & Defense Services Ben Thomas Group President, Aviation Krista Stafford Chief Human Resources Officer Background & ResponsibilitiesBackground & Responsibilities
R A I S E T H E B A R 14 INVESTMENT HIGHLIGHTS 3 Distinct End Markets ~$25M Adj. Net Income ~2,200 Employees ~$649M Revenue 60+ Years Aftermarket Services Pure-play independent aftermarket service provider with strong organic & inorganic growth opportunities ~$68M Adj. EBITDA Global provider of aftermarket distribution, maintenance, repair, and overhaul (“MRO”), and other services Fragmented end-markets provide for market share capture and high return acquisition opportunities Strong customer/supplier relationships with embedded services enhance long-term opportunities and revenue stability Cultural transformation driving higher margin sustainable growth Balanced commercial and defense customer base provides resilience through economic and market cycles Note: Figures above reflect TTM 3/31/21
R A I S E T H E B A R AVIATION FLEET FEDERAL & DEFENSE DIVERSIFIED REVENUE MIX 15 Distribution & MRO Services » Aftermarket repair and distribution services to commercial, cargo, general aviation, military/defense and rotorcraft customers globally » Supply chain & parts distribution » Maintenance, repair & overhaul (MRO) services » Component & engine accessory maintenance » Rotable exchanges & sales Distribution & Fleet Services » Aftermarket support, parts supply, inventory management, e-commerce fulfillment for medium- and heavy-duty truck/fleet owners » Customized fleet logistics » Parts distribution & warehousing » Just-in-Time supply chain management » Kitting; alternative product sourcing » Engineering & technical support Logistics & Sustainment Services » Aftermarket maintenance, repair and overhaul (MRO) and logistics for military vehicles, ships and aircraft for federal and defense agencies » Base operations support (BOS) » Procurement & supply chain management » Aircraft, vehicle & marine sustainment services » IT services & Clean Energy consulting 100% Aftermarket Services
R A I S E T H E B A R BALANCED AFTERMARKET BUSINESS SEGMENTS 16 100% aftermarket services supporting critical link between OEMs & end-users Diverse End Markets Deliver Tailwinds for Growth ( $ and % TTM 3/31/21 Revenue) $243.7M 38% Fleet Distribution & Fleet Services $151.2M 23% Aviation Distribution & MRO Services Federal & Defense Logistics & Sustainment Services $254.1M 39%
R A I S E T H E B A R 17 UNIQUE VALUE PROPOSITION Differentiation drives market share gains, long-term sustainable revenue & margin expansion End-User and OEM-Centric Ability to offer bespoke solutions to support critical link between end-users and Original Equipment Manufacturers (“OEMs”) Agility Lean operating model and decentralized business units support on-demand customer requirements Pure-Play Aftermarket Uniquely positioned in the market as independent parts and services provider Transportation Asset Experience Support for land, sea, and air transportation assets to new-generation platforms, legacy platforms and end-of-life assets Performance Experience 60+ year history of proven performance and aftermarket service excellence Proprietary Technology Proprietary software and solutions provide embedded customer offerings and key decision- making data to drive customer benefits
R A I S E T H E B A R 18 KEYS TO SUCCESS FOR VSE IN 2021 AVIATION FLEET FEDERAL & DEFENSE ▪ Continue to outpace market recovery and expand operating margins ▪ Execute on recently awarded distribution agreements ▪ Expand MRO capabilities and partnerships to capture incremental share ▪ Drive above-market commercial growth from fleet customers, products and services ▪ Accelerate eCommerce proprietary technology and eCommerce fulfillment sales ▪ Integrate HAECO Special Services (HSS), realizing synergies and full transaction potential ▪ Build strong backlog from core capabilities and expanded supply chain, logistics and aircraft maintenance and sustainment offerings ▪ Expansion of higher-margin offerings and margin expansion
R A I S E T H E B A R Representative Customers 19 AVIATION SEGMENT OVERVIEW MRO Capability Development • New MRO offerings to support range of components and engine accessory repairs including: fuel and hydraulics, engine components and accessories, interiors, auxiliary power units, and avionics Distribution Product Expansion • New proprietary OEM product additions to support aftermarket landing gear, airframes, engine accessories, avionics, and interiors International Expansion • Expansion in core aerospace markets for MRO and distribution Business and General Aviation (B&GA) • Ability to support underserved B&GA market niche with proprietary part distribution and component and accessory MRO Refocused Strategy: Higher growth, higher-margin commercial and B&GA distribution and MRO Growth Drivers ✓ Commercial and business & general aviation proprietary product distribution ✓ Supply chain & logistics services ✓ Landing gear market specialist ✓ Component & engine MRO services ✓ Rotable exchanges and sales Key Capabilities
R A I S E T H E B A R 20 FLEET SEGMENT OVERVIEW Commercial Customer Diversification • Expansion of commercial customer base to support new medium to large, high-duty cycle fleet customers Wallet Share Expansion • Product expansion to existing just-in-time clients E-commerce • Customized technology platform to support class 4-8 vehicles parts E-commerce Fulfillment • Inventory sales through 3rd-party channels Product Expansion • Addition of both new product offerings and growth in private label product Refocused Strategy: High growth Class 4-8 commercial distribution and e-commerce ✓ High-duty cycle, Class 4-8 (medium to heavy) vehicle parts distribution ✓ Just-in-time supply chain management ✓ E-commerce & e-commerce fulfillment ✓ Customized fleet logistics & IT solutions ✓ Technical support, engineering, sourcing, warehousing & kitting ✓ Private label products Representative CustomersGrowth DriversKey Capabilities
R A I S E T H E B A R 21 FEDERAL & DEFENSE SEGMENT OVERVIEW Market Expansion • Increase military aviation services with products, supply chain and repair services Capability Development • Broaden DoD logistics and supply chain offering to support underserved market demand International Growth • Utilize success in foreign markets to support foreign military sales opportunities Consulting/Technical Expansion • IT and Clean Energy consulting services growth Leverage Core Competency • Expand base operations support for U.S. Air Force, U.S. Army and U.S. Navy ✓ Transportation asset MRO services ✓ Base operations support ✓ Transportation & freight services ✓ Logistics, procurement & supply chain support ✓ Engineering & technical solutions ✓ IT & Clean Energy consulting services Refocused Strategy: Higher margin, differentiated supply chain, MRO and technical services Representative CustomersGrowth DriversKey Capabilities
R A I S E T H E B A R 22 GAAP TO NON-GAAP RECONCILIATIONS Adjusted Net Income and Adjusted EPS (Diluted) (1) Calculation uses an estimated statutory tax rate on non-GAAP tax deductible adjustments. In thousands (except per share data) 1Q2020 2Q2020 3Q2020 4Q2020 1Q2021 Net income (loss) $ 3,332 $ (22,624) $ 8,108 $ 6,013 $ 5,111 Adjustments to Net Income (Loss): Acquisition related costs — — — — 310 Executive transition costs — — — 1,026 — German facility closure costs — — — 1,132 — Earn-out adjustment 301 (1,700) (1,695) (2,447) — Loss on sale of business entity and certain assets 7,536 678 — — — Gain on sale of property (1,108) — — — — Severance — 739 — — — Goodwill and intangible impairment — 33,734 — — — 10,061 10,827 6,413 5,724 5,421 Tax impact on adjusted items (1) (236) (4,230) 423 70 (78) Adjusted Net Income $ 9,825 $ 6,597 $ 6,836 $ 5,794 $ 5,343 Weighted Average Diluted Shares 11,101 11,041 11,100 11,141 12,172 Adjusted EPS (Diluted) $ 0.89 $ 0.60 $ 0.62 $ 0.52 $ 0.44
R A I S E T H E B A R 23 GAAP TO NON-GAAP RECONCILIATIONS EBITDA and Adjusted EBITDA In thousands (except per share data) 1Q2020 2Q2020 3Q2020 4Q2020 1Q2021 Net income (loss) $ 3,332 $ (22,624) $ 8,108 $ 6,013 $ 5,111 Interest expense, net 3,486 3,072 3,530 3,408 3,030 Income taxes 2,916 (2,358) 2,547 2,493 1,462 Amortization of intangible assets 4,723 4,464 4,158 4,159 4,288 Depreciation and other amortization 1,521 1,231 1,351 1,471 1,360 EBITDA 15,978 (16,215) 19,694 17,545 15,251 Acquisition related costs — — — — 310 Executive transition costs — — — 1,026 — German facility closure costs — — — 1,132 — Earn-out adjustment 301 (1,700) (1,695) (2,447) — Loss on sale of business entity and certain assets 7,536 678 — — — Gain on sale of property (1,108) — — — — Severance — 739 — — — Goodwill and intangible impairment — 33,734 — — — Adjusted EBITDA $ 22,707 $ 17,236 $ 17,999 $ 17,256 $ 15,561
R A I S E T H E B A R 24 GAAP TO NON-GAAP RECONCILIATIONS Segment EBITDA and Adjusted EBITDA In thousands 1Q2020 2Q2020 3Q2020 4Q2020 1Q2021 Aviation Operating Income (Loss) $ (1,880) $ (34,387) $ 1,586 $ (833) $ (332) Depreciation and Amortization 3,066 2,472 2,493 2,667 2,554 EBITDA 1,186 (31,915) 4,079 1,834 2,222 Executive transition costs — — — 322 — German facility closure costs — — — 1,132 — Earn-out adjustment 301 (1,700) (1,695) (1,905) — Loss on sale of a business entity and certain assets 7,536 678 — — — Gain on sale of property (1,108) — — — — Severance — 382 — — — Goodwill and intangible impairment — 33,734 — — — Adjusted EBITDA $ 7,915 $ 1,179 $ 2,384 $ 1,383 $ 2,222 Fleet Operating Income $ 6,906 $ 7,014 $ 6,589 $ 6,150 $ 5,741 Depreciation and Amortization 2,672 2,572 2,378 2,361 2,340 EBITDA and Adjusted EBITDA $ 9,578 $ 9,586 $ 8,967 $ 8,511 $ 8,081 Federal and Defense Operating Income $ 4,924 $ 6,772 $ 6,746 $ 7,868 $ 5,025 Depreciation and Amortization 739 649 638 604 754 EBITDA 5,663 7,421 7,384 8,472 5,779 Severance — 112 — — — Adjusted EBITDA $ 5,663 $ 7,533 $ 7,384 $ 8,472 $ 5,779
R A I S E T H E B A R 25 GAAP TO NON-GAAP RECONCILIATIONS Balance Sheet (1) TTM Adjusted EBITDA is defined as Adjusted EBITDA for the most recent twelve (12) month period Reconciliation of Operating Cash Flow to Free Cash Flows Three Months Ended In thousands 31-Mar-20 30-Jun-20 30-Sep-20 31-Dec-20 31-Mar-21 Net cash provide by operating activities $ 6,758 $ 16,050 $ 12,427 $ 526 $ (36,367) Capital expenditures (724) (1,104) (1,128) (1,471) (2,109) Free Cash Flow $ 6,034 $ 14,946 $ 11,299 $ (945) $ (38,476) Reconciliation of Debt to Net Debt Three Months Ended In thousands 31-Mar-20 30-Jun-20 30-Sep-20 31-Dec-20 31-Mar-21 Principal amount of debt $ 276,256 $ 263,075 $ 252,685 $ 253,461 $ 255,635 Debt issuance costs (2,556) (2,959) (2,664) (2,368) (2,072) Cash and cash equivalents (543) (213) (551) (378) (347) Net Debt $ 273,157 $ 259,903 $ 249,470 $ 250,715 $ 253,216 Net Leverage Ratio Three Months Ended In thousands 31-Mar-20 30-Jun-20 30-Sep-20 31-Dec-20 31-Mar-21 Net Debt $ 273,157 $ 259,903 $ 249,470 $ 250,715 $ 253,216 TTM Adjusted EBITDA (1) 93,646 87,754 81,036 75,198 68,052 Net Leverage Ratio 2.9x 3.0x 3.1x 3.3x 3.7x
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