VSE Aviation expands Honeywell relationship
with new agreement to manufacture, repair, and sell over 300 unique
Honeywell fuel control systems and subcomponents.
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 it has entered into an asset purchase and
perpetual license agreement with Honeywell International Inc.
(“Honeywell”) to exclusively manufacture and support certain of
Honeywell’s fuel control systems on four key engine platforms
through its VSE Aviation business.
Under the terms of the agreement, VSE Aviation acquired certain
contracts, equipment, and inventory from Honeywell and will utilize
the acquired assets and the license to exclusively manufacture,
manage aftermarket distribution, and repair more than 340 unique
Honeywell fuel control systems. VSE Aviation will support three
in-production engine platforms manufactured by Rolls Royce and
Pratt & Whitney Canada (P&WC), including P&WC PT-6
engine variants. These systems and subcomponents will support more
than 20,000 in-service aircraft powered by these engines, spanning
over 120 platforms in the business and general aviation (B&GA)
and rotorcraft markets.
This new agreement expands VSE Aviation’s existing capabilities
supporting Honeywell’s fuel control systems and associated
subcomponents. Since 2015, VSE Aviation has served as the exclusive
distributor of these products. In addition, VSE Aviation has a
long-established and successful history as an MRO provider to
support these fuel control systems. Through this new agreement, VSE
expands the relationship to become the licensed manufacturer with
perpetual rights to the intellectual property of these
components.
MANAGEMENT COMMENTARY
“VSE Aviation has a long history of supporting Honeywell fuel
control systems and subcomponents as both a distributor and MRO
service provider. We believe this new asset purchase and license
agreement significantly strengthens our existing, long-term
relationship with Honeywell and is a testament to the value of our
differentiated OEM-focused value proposition. We expect this
agreement to provide long-term, sustainable revenue and an improved
mid-term EBITDA margin outlook for VSE Aviation from these critical
and highly technical aircraft components and associated
intellectual property,” stated John Cuomo, President and CEO of VSE
Corporation.
“We are incredibly excited to secure this licensing agreement
with Honeywell because it enables VSE to help extend the life of
several marquee engine platforms,” stated Ben Thomas, President of
VSE Aviation. “We intend to drive improved performance for both the
engine manufacturers and their operators, deliver more value from
the engineering and supply chain of these components, and
strengthen our partnership with Honeywell.”
AGREEMENT TERMS AND FORWARD GUIDANCE
VSE acquired the perpetual license and asset for $105 million.
The purchase price also included $12 million of existing inventory.
The Company expects to lower its net working capital requirements
by approximately $10 million ratably throughout 2024 through lower
inventory costs. This more favorable product cost, offset partially
by production expenses, is expected to contribute approximately $7
million and $14 million of additional EBITDA in 2024 and 2025
respectively, and is not expected to have a material effect in the
fourth quarter of 2023.
The Company funded the purchase through a drawdown on its
existing credit facility. VSE anticipates its net leverage ratio to
be below 4.0 times at the end of the third quarter and improving by
the end of the year, when including the trailing twelve-month
results from prior acquisitions and the recent purchase of the
Honeywell fuel control license.
The Company is also increasing full year 2023 revenue and
Adjusted EBITDA guidance for its Aviation segment, reaffirming full
year 2023 revenue and Adjusted EBITDA guidance for its Fleet
segment, and maintaining second half 2023 free cash flow
guidance:
- Aviation segment full year 2023 revenue guidance is increasing
from 25 to 30% to 30 to 35% growth, as compared to the prior
year
- Aviation segment full year 2023 Adjusted EBITDA margin guidance
is increasing from 13 to 15% to 14 to 16%
- Fleet segment is maintaining its full year 2023 revenue
guidance of 20 to 25% growth, as compared to the prior year
- Fleet segment is maintaining its Adjusted EBITDA margin
guidance of 11 to 13%
- The Company maintains its outlook of positive free cash flow in
the second half of 2023
ADVISORS
Jones Day served as legal advisor to VSE Corporation.
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.
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INVESTOR CONTACT Michael Perlman VP, Investor Relations
& Communications T: (954) 547-0480 investors@vsecorp.com
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