VSE Aviation Awarded $750 Million in New Distribution Agreements

Rhea-AI Summary

VSE Corporation (NASDAQ: VSEC) announces plans to open a new European distribution center in Hamburg, Germany. The VSE Aviation segment has secured 6 new distribution agreements worth approximately $750 million. The agreements, expected to start in Q1 2024, range from 1 to 15 years. The company also plans to open a 45,000 square foot distribution facility in Hamburg in Q1 2023. This move aims to expand global coverage and support for commercial and business aviation distribution aftermarket product lines, including tire, tube, and battery product lines associated with the Desser Aerospace acquisition.

Positive

• VSE Corporation's expansion into Europe, Middle East, and Africa through new distribution agreements with leading manufacturers is expected to significantly boost revenue, with an estimated $25 to $30 million in 2024 and over $50 million in 2025. The move demonstrates the company's commitment to global expansion and customer service excellence.

Negative

• None.

Announces Plans to Open New European Distribution Center in Hamburg, Germany

ALEXANDRIA, Va.--(BUSINESS WIRE)-- VSE Corporation (NASDAQ: VSEC, "VSE", or the "Company"), a leading provider of aftermarket distribution and maintenance, repair and overhaul ("MRO") services for air and land transportation assets for commercial and government markets, announced today that its VSE Aviation segment has been awarded 6 new distribution agreements with several manufacturers for a combined value of approximately $750 million over the term of these agreements. The agreements are expected to begin in the first quarter of 2024, with contract terms ranging between one and 15 years in duration.

VSE Aviation also announced today plans to open a 45,000 square foot distribution facility in Hamburg, Germany. This new facility will open in the first quarter of 2023 and serve as the distribution center of excellence supporting Europe, the Middle East, and Africa. This investment positions VSE Aviation to expand the global coverage and support for its commercial and business and general aviation distribution aftermarket product lines, including the tire, tube, and battery product lines associated with the Desser Aerospace acquisition.

“We are very proud to announce the award of several new commercial and business and general aviation (B&GA) distribution agreements with a number of leading original equipment manufacturers (OEMs), including an expansion of our flagship distribution agreement with Pratt & Whitney Canada,” stated John Cuomo, President and CEO of VSE Corporation. “The expansion of our agreement with Pratt & Whitney Canada supporting Europe, the Middle East, and Africa is the culmination of our successful partnerships and recognition of the service and value our VSE Aviation business provides to the market.”

“VSE Aviation continues to be recognized as a trusted partner within the Aviation aftermarket, and our “tip-to-tail” distribution and product line management offerings continue to resonate with leading OEMs,” stated Ben Thomas, President of VSE Aviation. “We believe OEMs will continue to look for, and be attracted to, VSE Aviation’s highly technical, differentiated solutions that allow us to better support OEM products in the aftermarket.”

Mr. Thomas continued, “We look forward to opening our new Germany distribution Center of Excellence to support our EMEA region customers. The new facility is expected to play a critical role in supporting the expansion of our Pratt & Whitney Canada EMEA agreement and the global expansion of our newly acquired Desser Aerospace business. This facility will better position VSE Aviation to provide world-class customer service and product support to our regional customers in EMEA.”

The distribution agreements include the following:

• A new, 15-year distribution agreement with Pratt & Whitney Canada supporting Europe, Middle East, and Africa, representing a geographic expansion of the two previously awarded distribution agreements covering North America (announced in 2021) and Asia Pacific (announced in 2022). Under the terms of the new agreement, VSE Aviation will provide engine line maintenance spare parts and engine accessory exchange support to engine operators, customers, and maintenance providers located in Europe, the Middle East, and Africa regions. VSE Aviation expects to service 80 unique engine platforms across 85 countries.
• An expansion of an existing agreement with Honeywell to be the sole aftermarket distributor for their JetWave tail-mounted antenna systems in Europe, the Middle East, Africa, and India (“EMEAI”). This agreement represents an expansion of the previously awarded distribution agreement covering fuselage-mounted antenna systems, which was awarded to VSE Aviation in October 2022. VSE Aviation now supports all JetWave satellite communication systems in the EMEAI region.
• A new distribution agreement with a tire supplier, under which VSE Aviation will be the exclusive distributor of retreaded tires for the international regional airline market. This partnership leverages VSE’s acquisition of Desser Aerospace and broadens the solutions that VSE Aviation can provide to customers.
• The expansion of an existing 5-year distribution agreement with a leading manufacturer of starting and ground power batteries. Under the terms of the agreement, VSE Aviation, supported by the recently acquired Desser Aerospace business, will support the distribution of lead-acid batteries across the B&GA market. This agreement is a testament to our successful partnership and integration with our Desser Aerospace team.
• A new distribution agreement with a provider of airframe interior plastic components, including tray tables, seat shrouds, plastic wall and ceiling panels, flooring, lavatory shrouds, and nearly any other product made of plastic throughout the aircraft. This offering further expands VSE Aviation’s tip-to-tail approach to customer product support.

FORWARD GUIDANCE

• These agreements are collectively expected to contribute approximately $25 to $30 million of new revenue in 2024, scaling during a twelve-month transition period, with revenue increasing to more than $50 million in 2025. Working capital requirements to support initial investments are expected to be approximately $30 million beginning in 2024.
• These agreements are not anticipated to have any impact on the fourth quarter 2023 financial results.

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 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 products and services, visit www.vsecorp.com.

FORWARD-LOOKING STATEMENTS

This document contains certain forward-looking statements. These forward-looking statements, which are included in accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, may involve known and unknown risks, uncertainties and other factors that may cause VSE’s actual results and performance in future periods to be materially different from any future results or performance suggested by the forward-looking statements in this document. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that actual results will not differ materially from these expectations. “Forward-looking” statements, as such term is defined by the SEC in its rules, regulations, and releases, represent our expectations or beliefs, including, but not limited to, statements concerning the expected benefits of the agreement with Honeywell, including the anticipated impact on VSE’s operations, economic performance and financial condition. 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, VSE’s ability to achieve the expected benefits of the agreement with Honeywell and the 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, 2022. 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.

NON-GAAP FINANCIAL MEASURES

VSE has presented forward-looking statements regarding net leverage. This non-GAAP financial measure is calculated as net debt divided by adjusted EBITDA, which represents net income before interest expense, income taxes, amortization of intangible assets and depreciation and other amortization, as adjusted for discrete items, including acquisition, integration and restructuring costs, inventory reserve, non-recurring professional fees, contract loss, Russia/Ukraine conflict, earn-out adjustment, loss on sale of business entity and certain assets, gain on sale of property, severance, and goodwill and intangible impairment. The determination of the amounts that are excluded from this non-GAAP financial measure is a matter of management judgment and depends upon, among other factors, the nature of the underlying expense or income amounts recognized in a given period in reliance on the exception provided by item 10(e)(1)(i)(B) of Regulation S-K. VSE is unable to present a quantitative reconciliation of forward-looking net leverage to its most directly comparable forward-looking GAAP financial measure because such information is not available, and management cannot reliably predict all of the necessary components of such GAAP measure without unreasonable effort or expense. In addition, VSE believes such reconciliation would imply a degree of precision that would be confusing or misleading to investors. The unavailable information could have a significant impact on VSE’s future financial results. This non-GAAP financial measure is a preliminary estimate and is subject to risks and uncertainties, including, among others, changes in connection with quarter-end and year-end adjustments. Any variation between VSE’s actual results and the forward-looking financial data set forth above may be material.

View source version on businesswire.com: https://www.businesswire.com/news/home/20231113214827/en/

INVESTOR CONTACT

Michael Perlman

VP, Investor Relations & Communications

T: (954) 547-0480

investors@vsecorp.com

Source: VSE Corporation

FAQ

What are the details of VSE Corporation's new distribution agreements?

VSE Corporation secured 6 new distribution agreements worth approximately $750 million, expected to start in Q1 2024 and ranging from 1 to 15 years in duration. The agreements aim to expand global coverage and support for commercial and business aviation distribution aftermarket product lines.

What are the financial implications of the new distribution agreements?

The agreements are expected to contribute approximately $25 to $30 million of new revenue in 2024, scaling to over $50 million in 2025. Initial working capital requirements to support investments are estimated to be around $30 million beginning in 2024.

What is the purpose of the new distribution center in Hamburg, Germany?

The new 45,000 square foot distribution facility in Hamburg aims to serve as the distribution center of excellence supporting Europe, the Middle East, and Africa, expanding the company's global coverage and support for its aviation distribution aftermarket product lines.

How will the new distribution agreements impact VSE Corporation's market presence?

The new agreements demonstrate VSE Corporation's commitment to global expansion and customer service excellence, positioning the company as a trusted partner within the aviation aftermarket.

What is the expected timeline for the revenue impact of the new distribution agreements?

The agreements are collectively expected to contribute approximately $25 to $30 million of new revenue in 2024, scaling during a twelve-month transition period, with revenue increasing to more than $50 million in 2025.