Slide 1: VSE Corporation Earnings Presentation Second Quarter 2020
VSE Corporation Earnings Presentation Second Quarter 2020 30 July 2020
Slide 2: Forward-Looking Statements
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 oth
Slide 3: Update on Key Strategic Priorities
UPDATE ON KEY STRATEGIC PRIORITIES New business development, divestiture of non-core assets, targeted cost reductions and capital discipline Business Development Aviation Asset Divestitures Cost Reductions Capital Discipline > Federal & Defense: 1H:20 > In 2Q20, completed the sale of > As previously
Slide 4: 2Q20 Consolidated Performance
2Q20 CONSOLIDATED PERFORMANCE COVID-related softness in Aviation segment offset relative stability in government businesses > Total Revenue: $168.7 million (10.8% y/y); excluding Prime Turbines (6.8%) Total Revenue > Commercial Customer Revenue: $40.2 million (32% y/y) > Government Customer Revenue:
Slide 5: GAAP Financial Summary
GAAP FINANCIAL SUMMARY 2Q20 and TTM(1) – Y/Y Comparisons Performance Update Total Revenue Operating Income (Loss) ($MM) ($MM) > Total revenue, less Prime $57.0 $709.0 $739.7 Turbines, was $168.7 million 2Q20, versus $181.1 million in $16.4 $19.1 the same period of 2019, a ($21.9) decrease of 6.8% on
Slide 6: Non-GAAP Financial Summary
NON-GAAP FINANCIAL SUMMARY 2Q20 and TTM – Y/Y Comparisons Adjusted Net Income Adjusted Diluted Earnings Per Share Non-GAAP Performance Update ($MM) ($ Per Share) $36.1 $38.9 $3.51 $3.29 > Adjusted Net Income (36%) y/y in 2Q10 and +7% on a TTM basis $10.3 $0.93 > Adjusted EBITDA (27%) y/y in $6.6 $0.
Slide 7: 2Q19 vs. 2Q20 Performance Bridge
2Q19 vs. 2Q20 PERFORMANCE BRIDGE Y/Y Comparisons Total Revenue Bridge Revenue Variance Analysis ($MM) $189.1 ($22.8) > Aviation: Lower revenue ($15.0) $17.4 $168.7 passenger miles at major airline customers resulted in lower demand for aftermarket part supply and MRO support > Federal & Defense: Imp
Slide 8: Aviation
AVIATION Aviation Segment Revenue Declined 31% Y/Y Due to Impact of COVID-19 Aviation Segment Revenue Aviation Segment Operating Income (Loss) Segment Performance Update ($MM) ($MM) Aviation Segment Revenue, as Reported Aviation Operating Income, as Reported > Strategic Focus: Building Aviation Oper
Slide 9: Fleet
FLEET Commercial Sales +67% Y/Y in 2Q20 Fleet Segment Revenue Fleet Segment Operating Income Segment Performance Update ($MM) ($MM) Fleet Segment Revenue, as Reported > Strategic Focus: Commercial Fleet Segment Op Income, as Reported fleet and e-Commerce market Fleet Segment Revenue, Less COVID PPE
Slide 10: Federal & Defense
FEDERAL & DEFENSE 2Q20 and TTM – Y/Y Comparisons Federal & Defense Segment Revenue Federal & Defense Segment Operating Income Segment Performance Update ($MM) ($MM) > Strategic Focus: Segment is $317.5 $295.8 performing to internal forecast. “Shrink to Grow” and “Keep the $21.4 Core” focus in 2020,
Slide 11: Maintaining Balance Sheet Optionality
MAINTAINING BALANCE SHEET OPTIONALITY $184 Million of Availability on Lending Facilities; 3.0x Net Leverage Ratio Balance Sheet Update (6/30/20) Free Cash Flow Total Net Debt ($ MM) ($ MM) $31.6 > Debt Reduction: Reduced debt $278.3 outstanding by $13 million q/q in 2Q20 given strong free cash $19.0
Slide 12: Appendix
10 7 | VSE APPENDIX CORPORATION
Slide 13: GAAP to Non-GAAP Reconciliations: Adjusted Net Income and EPS
GAAP TO NON-GAAP RECONCILIATIONS Adjusted Net Income and Adjusted EPS (Diluted) (in thousands) Three Months Ended June 30, 2020 2019 % Change Net Income ($22,624) $9,898 (329)% Adjustments to Net Income: Acquisition and CEO transition costs — 505 Earn-out adjustment (1,700) — Loss on sale of a busin
Slide 14: GAAP to Non-GAAP Reconciliations: EBITDA
GAAP TO NON-GAAP RECONCILIATIONS EBITDA and Adjusted EBITDA (in thousands) Three Months Ended June 30, 2020 2019 % Change Net Income ($22,624) $9,898 (329)% Interest expense 3,072 3,398 (10)% Income taxes (2,358) 3,120 (176)% Amortization of intangible assets 4,464 4,980 (10)% Depreciation and other
Slide 15: GAAP to Non-GAAP Reconciliations: Segment EBITDA
GAAP TO NON-GAAP RECONCILIATIONS Segment EBITDA and Adjusted EBITDA (in thousands) Three Months Ended June 30, 2020 2019 % Change Aviation: Operating Income ($34,387) $5,204 (761)% Depreciation and Amortization 2,472 3,189 (23)% EBITDA ($31,915) $8,393 (480)% Earn-out adjustment (1,700) — Loss on sa
Slide 16: GAAP to Non-GAAP Reconciliations: Net Leverage Ratio
GAAP TO NON-GAAP RECONCILIATIONS Net Leverage Ratio (in thousands) June 30, 2020 2019 Principal amount of debt $263,075 $280,944 Less: Debt issuance costs (2,959) (1,868) Less: Cash and cash equivalents (213) (760) Net Debt $259,903 $278,316 TTM Adjusted EBITDA(1) $87,754 $83,452 Net Leverage Ratio
Slide 17: Corporate Overview
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Slide 18: Corporate Profile
CORPORATE PROFILE Pure-Play Aftermarket and MRO Services Company Providing 2019 2019 Aftermarket Revenue Adj. EBITDA Services $750+M since 1959 $90+M Public Company Active Worldwide Employees NASDAQ: Customers Facilities ~2,100 VSEC 6,200+ 55+ 18 R A I S E T H E B A R
Slide 19: Diversified Revenue Mix
DIVERSIFIED REVENUE MIX AVIATION FLEET FEDERAL & DEFENSE Distribution & MRO Services Distribution & Fleet Services Logistics & Sustainment Services » Aftermarket repair and distribution » Aftermarket support, parts supply, » Aftermarket maintenance, repair and services to commercial, cargo, inventor
Slide 20: Strategic Overview: Our Unique Value Proposition
STRATEGIC OVERVIEW Our Unique Value Proposition Pure-Play Aftermarket Technical Expertise Independent, focused parts and Team of industry experts with technical and services provider transportation asset repair experience Customer- & Supplier-Centric Agile Ability to offer bespoke offerings to Lean
Slide 21: Corporate Leadership Team
CORPORATE LEADERSHIP TEAM John Cuomo Robert Moore Chad Wheeler Tom Loftus Elizabeth Huggins President and CEO President, President, COO, Chief Financial Officer VP of Strategy, Chief of Federal & Defense Wheeler Bros., Inc. Staff Services More than 20 years of More than 25 years of More than 3
Slide 22: Investment Opportunity
INVESTMENT OPPORTUNITY Diversified Aftermarket/MRO Play with Stable End-Market Exposure Experience Leadership Balance 60+ years of aftermarket experience CEO from KLX-Boeing, public- Stable, balanced customer mix; and service excellence supporting company experienced growth leader; ~60% government r
Slide 23: Growth Strategy
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Slide 24: Strategic Overview: Roadmap for Growth
STRATEGIC OVERVIEW Roadmap for Growth Organic Growth Factors Inorganic Growth Requirements Increase market penetration of new/existing accounts Focused, disciplined acquisition strategy targeting: Geographic expansion outside North America Product, customer, service or geographic expansion T
Slide 25: Aviation Segment Overview
AVIATION SEGMENT OVERVIEW AVIATION Key Customers Providing aftermarket MRO and distribution services to commercial, cargo, business and general aviation, military/defense and rotorcraft customers globally. Offerings include: 1. Parts distribution and supply chain services 2. Component and engine acc
Slide 26: Aviation Segment Growth Factors
AVIATION SEGMENT >> MRO CAPABILITY DEVELOPMENT New MRO offerings to support broadest range of aircraft components and engine accessory repair; specifically in fuel and hydraulics, engine components and accessories, interiors, auxiliary power units (APU), avionics >> DISTRIBUTION PRODUCT EXPANSION GR
Slide 27: Fleet Segment Overview
FLEET SEGMENT OVERVIEW FLEET (formerly Supply Chain Management Group) Key Customers Providing parts, sourcing, inventory management, e-commerce fulfillment, logistics, supply chain management and other services to federal and commercial aftermarket truck and fleet owners. Offerings include: 1. High-
Slide 28: Fleet Segment Growth Factors
FLEET SEGMENT >> CUSTOMER DIVERSIFICATION Expansion of commercial customer base to support new medium to large, high-duty cycle fleet customers >> SHARE OF WALLET EXPANSION Product expansion to existing Just-in-Time clients GROWTH >> MAINTAIN THE CORE FACTORS Continue to support USPS fleet and DoD v
Slide 29: Federal & Defense Segment Overview
FEDERAL & DEFENSE SEGMENT OVERVIEW FEDERAL & DEFENSE (formerly Federal Services Group) Key Customers Providing aftermarket maintenance, repair and overhaul (MRO) and logistics services to improve operational readiness and the useful life of military vehicles, marine vessels and aircraft for the U.S.
Slide 30: Federal & Defense Segment Growth Factors
FEDERAL & DEFENSE SEGMENT >> INVESTMENT Expand core business development and contracting solutions to increase share of budget with current and new customers >> LEVERAGE CORE COMPETENCY Expand base operations support for U.S. Air Force, U.S. Army and U.S Navy >> MARKET EXPANSION GROWTH Increase mili
Slide 31: Why We Win: Aviation Segment
AVIATION SEGMENT >> INDEPENDENCE Niche single-source aftermarket focus with only repair and distribution capabilities >> AGILITY Organization structure provides rapid response, reliable support and bespoke WHY WE support for customers and OEM supplier partners WIN >> TECHNICAL EXPERTISE Distribution
Slide 32: Why We Win: Fleet Segment
FLEET SEGMENT >> UNIQUE MARKET OFFERING Stocking Distributor + Technology Solutions + Consigned Parts Provider >> NICHE CUSTOMER FOCUS Medium to large, high-duty cycle, delivery and vocational fleets; 500,000 stocking SKUs and 700+ manufacturers represented WHY WE >> PROPRIETARY INVENTORY MANAGEMENT
Slide 33: Why We Win: Federal & Defense Segment
FEDERAL & DEFENSE SEGMENT >> PAST PERFORMANCE 60+ year history of program execution and past performance across all land, sea and air transportation platforms >> INDUSTRY EXPERTISE Technical, subject matter-experienced team with extensive repair knowledge to support difficult-to-maintain assets WHY
Slide 34: Vek
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