VSE Corporation (VSEC) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the VSE Corporation Annual Meeting. [Operator Instructions] At this time, it's my pleasure to turn the floor over to Mr. Tom Kiernan. Sir, the floor is yours.

Good morning and welcome to the VSE's 61st Annual Stockholders Meeting. I'm Tom Kiernan, and I serve as the Vice President, General Counsel and Corporate Secretary for VSE Corporation. Thank you for joining us today in our virtual meeting. We have provided electronic versions of our 2019 annual report, 2020 proxy and 2019 annual meeting minutes in the Investor Relations portion of the VSE website at ir.vsecorp.com. Now I'd like to introduce the Chairman of VSE's Board of Directors, General Ed Eberhart. Mr. Chairman, I'll now turn the meeting over to you.

Thank you, Tom. Good morning, and welcome. I know we're all disappointed we have to do this meeting virtually. Of course, that disappointment pales compared to the tragic loss of life we're experiencing globally. But fortunately, we have the technology available to conduct this meeting virtually. And it may, in fact, allow us to be more inclusive and reach a greater number of our stockholders. As the Chair of VSE, I will chair the Annual Meeting of the Stockholders of VSC Corporation. And Thomas -- Tom Kiernan, who has already introduced himself, will serve as Secretary of the meeting. As is our custom, we will conduct the business portion of our meeting first and answer questions at the end of the meeting. [Operator Instructions] Though we may not be able to answer every question, we will do our best to provide a response to as many as possible. If there are any submitted questions pertinent to the meeting that cannot be answered during the meeting due to time constraints, we will publish responses to each appropriate question on the Investor Relations portion of our website as soon as practical. In keeping with the digital approach of this year's meeting, it is now shortly after 10 Eastern Standard Time on May 6, and this meeting is officially called to order. Before we begin the formal portion of the meeting, though, I would like to introduce John Cuomo, our CEO and President, and invite him to say a few words. John?

Thank you, Mr. Chairman. Welcome, stockholders and guests. I'm John Cuomo. I'm honored to have just completed year 1 as VSE's CEO and President. It's a privilege to lead this business even during these trying times, and I remain enthusiastic about the future of VSE.

Thank you, John. I would also like to introduce the other directors and management team. Online with us today, we have our Board members: Mark Ferguson, Calvin Koonce, Jim Lafond, Jack Potter, Jack Stultz and Bonnie Wachtel. Representing VSE's management team, we have John Cuomo, Tom Loftus and Tom Kiernan. I now call this Annual Meeting of Stockholders to order. The following is our agenda for the meeting. First, during the formal portion of the meeting, we will consider and vote on 4 matters submitted to the shareholders in VSE's proxy statement dated April 9, 2020: namely electing 8 directors for the ensuing year; the approval of amendments to the VSE Corporation 2006 Restricted Stock Plan, which would extend its term from May 6, 2021, to May 6, 2027, increased by 500,000 shares of VSE common stock authorized for issuance out of the plan and permit nonemployee directors to elect to receive all or a portion of their annual retainer in VSE common stock; next, the advisory vote on executive compensation; and last, the frequency of advisory votes on executive compensation. Then we will present our management report to stockholders. And finally, we look forward to any questions you may have about VSE. The time and place of this meeting has been fixed by a resolution adopted by the Board of Directors. Stockholders of record as of May -- of March 25, 2020, are entitled to vote at this meeting. Each share of VSE common stock held on record at that time is entitled to 1 vote with respect to all matters specified in the notice of meetings. We have appointed Tom Kiernan, Corporate Secretary, as the Inspector of election to report on the presence of a quorum and on the voting. Will the Secretary please present evidence of the giving of notice of the meeting.

Mr. Chairman, I have a copy of the notice of meeting dated April 9, 2020, and my affidavit as VSE Secretary affirming the due and proper mailing to each stockholder entitled to notice of the meeting.

The Secretary will incorporate a copy of the notice of meeting, together with his affidavit as to the mailing thereof in VSE's minutes -- with the minutes of this meeting. In accordance with Delaware law, a list of stockholders as of the record date has been made available for the examination by stockholders for any purpose germane to the meeting for a period of at least 10 days prior to the meeting. A list of stockholders as of the record date is also available to stockholders during the meeting and can be accessed on your screen. The Inspector of election will now report the number of shares present in person and by proxy. And we'll report whether a quorum is present at the meeting.

Mr. Chairman, VSE had 11,029,169 shares outstanding as of the close of business on March 25, 2020, the record date for this meeting. 8,238,111 shares are present at the meeting or in person by proxy, constituting about 75% of the total shares outstanding. A quorum being a majority of the shares outstanding, a quorum is therefore present.

A quorum being present, the meeting can now proceed to the transaction of business. Without objection, we will dispense with the reading of the minutes of the last annual meeting. Copies of the minutes of the last meeting are available to any stockholder who desires a copy. VSE's 2019 annual report to stockholders, which includes a copy of VSE's Form 10-K with audited consolidated financial statements for the fiscal year ended December 31, 2019, together with the company's current proxy statement, which discusses the matters to be voted on at this meeting, have been distributed to all stockholders as required. All matters which are required to be presented are contained therein. Accordingly, without objection, we will refer you to the annual report, Form 10-K and proxy statement, and I direct that these materials be incorporated by reference in the minutes of this meeting. Voting today is by proxy and electronic ballot. Most of our stockholders have already voted by returning their proxies and their shares are being voted accordingly. Any stockholder who has not voted or who wishes to change his or her vote may do so by clicking on the Vote button on your screen and following the instructions provided. Stockholders who have submitted proxies or have previously voted via the Internet and do not wish to change their vote, do not need to take any further action. Your votes will be counted automatically. At this time, the polls are open for voting on the proposals. The first item of business stated in the notice of the meeting is the election of directors of VSE. Management's slate of nominees for Director consists of the 8 persons named in the proxy statement, namely John Cuomo, Mark Ferguson, Calvin Koonce, Jim Lafond, Jack Potter, Jack Stultz, Bonnie Wachtel and myself, Ed Eberhart. All the nominees are currently serving as Directors of the corporation. Are there any other nominations? Is there any discussion? [Voting]

If there are no further nominations, I call upon the Inspector of election to report the results of the voting received by proxy.

Mr. Chairman, an average of 7,592,019 shares or about 92% were voted for management's slate of nominees for Director with an average of 646,091 shares or almost 8% withheld from voting.

In accordance with the inspector's report, I declare that management's slate of nominees for Director of VSE has been elected. The second item is a vote to approve amendments to our 2006 Restricted Stock Plan to: a, extend the term during which awards can be made under the plan from May 6, 2021 to May 6, 2027; b, increased the VSE stock authorized for issuance under the plan by 500,000 shares; and c, to permit nonemployee directors to elect to receive all or a portion of their annual retainer in VSE common stock. The amendments were approved by the Board on February 27, 2020, upon recommendation of the Compensation Committee and is subject to the approval of our stockholders. Is there any discussion? [Voting]

If there's no further discussion, I call on the Inspector of election to report the results of the voting received by proxy and electronically.

Mr. Chairman, with respect to the proposal to approve amendments to our 2006 Restricted Stock Plan to extend the term, increase the VSE stock authorized for issuance under the plan and permit nonemployee directors to elect to receive all or a portion of their annual retainer fees in VSE stock, 8,153,421 shares or approximately 99% were voted to approve the amendments. 80,502 shares or less than 1% were voted against the amendments. And 4,188 shares abstained from voting.

In accordance with the Inspector's report, I declare that the proposed amendments related to the 2006 restricted stock plan have been approved. The next item of business is to provide an advisory vote on executive compensation. Federal legislation requires that we include a nonbinding advisory stockholders vote on our executive compensation, commonly referred to as say-on-pay. Because the vote is advisory, it will not be binding upon the Board or the Compensation Committee. And neither Board nor the Compensation Committee will be required to take any action as a result of the outcome of the vote on this proposal. Compensation Committee will, however, carefully consider the outcome of the vote when considering future executive compensation arrangements. Is there any discussion? [Voting]

If there is no further discussion, I call on the Inspector of election to report the results of the voting received by proxy and electronically.

Mr. Chairman, with respect to the proposal to approve the advisory resolution on the company's executive compensation, 8,068,049 shares or 98% were voted to approve the resolution. 154,566 shares were voted against resolution approval. And 15,496 shares abstained from voting.

In accordance with the Inspector's report, I declare that the advisory resolution on the company's executive compensation has been approved. The last item is to provide an advisory vote on the frequency of the advisory vote on executive compensation. This is a separate nonbinding stockholder vote to advise on whether the say-on-pay vote should occur every 1, 2 or 3 years. Our Board recommends an annual stockholders vote for the advisory vote on executive compensation. You have the option to vote for any 1 of the 3 options or to abstain on the matter. Is there any discussion? [Voting]

If there is no discussion, I call on the Inspector of election to report the results of the voting received by proxy and electronically.

Mr. Chairman, with respect to the proposal on the frequency of advisory votes on the company's executive compensation, 7,500,751 shares or approximately 91% advised the vote should occur every year. 38,710 shares or 0.5% advised the vote should occur every 2 years. And 692,748 shares or 8.4% advised the vote should occur every 3 years. And 5,902 shares abstained from voting.

In accordance with the Inspector's report, I declare that an advisory stockholders vote on executive compensation will occur once every year. There being no further business to come before the meeting, the 61st Annual Meeting of Stockholders of VSE Corporation is now adjourned. I thank all of you for joining us. I will now turn it over to John Cuomo, our CEO, who will take a few moments to discuss the current state of our business operations. We will then take questions. John?

Thank you, Mr. Chairman. The VSE finished 2019 with strong earnings and a clear vision for 2020 growth. We finished 2019 with revenue up 7.9% and net income up 5.5%. 2020 started equally as strong Q1 2020 results. For the first quarter, revenue was up 4%, adjusted net income was up 32% and free cash flow up $5.6 million year-over-year. Along with our Q1 earnings release last week, we launched a refreshed investor presentation, including an update on our business strategies. That said, as COVID-19 has disrupted the global economy, I'm certain that topic is on top of everyone's mind right now. I thought it would be helpful to provide an update on our current priorities. First, employee safety remains our top priority. Second, supporting our customers remains an equal priority. All of our business units are fully operational, and we are supporting our global customers. Third, our primary focus is on cash and liquidity and aligning our operating expenses with expected demand. We just completed a $13 million cost reduction plan to align business costs with expected revenue decline specifically due to our aviation business. Although we anticipate our aviation segment to be impacted by the global decline in air travel, both our Fleet, our Wheeler business and our federal and defense segments expect to remain relatively stable in the current environment. Last week, during our Q1 earnings release and as I completed my first year with the business, we launched our strategy and shared the detail to our shareholders and to the market. A key component of our strategy comes from organic activity, and those plans remain in place regardless of COVID-19. For VSE, this organic growth will be driven by increased market penetration of current offerings to new customers, specifically in new regions, share gains with existing customers, targeted new product additions, and expanding our repair, logistics and capability service offerings. VSE remains a stable investment opportunity in an otherwise volatile market. Our value proposition is unique and very important during times like these. We have highly technical teams to support all of the transportation assets we help sustain and the parts and repair capabilities we provide. We further specialize in end-of-life assets, which provide for superior customer service and are more important now than ever as customers want to extend the life of their aging assets. Our revenue mix is diversified. It's important to note that approximately 65% of our business is from stable long-term government contracts, and 35% is from commercial customers. That, coupled with our strong balance sheet and ability to generate positive free cash flow in the current year, all help us to weather the storm of the current environment. This strong foundation, together with the strategic opportunities we have for each of our business segments, position us for profitable growth in the year ahead. Thank you, and back to you, Mr. Chairman.

Thank you, John. At this time, I'd like to call for questions from the floor. [Operator Instructions] Only validated shareholders who registered using the control ID printed on their proxy vote card may ask questions and vote during the meeting. Seeing no questions, I would, again, like to thank you for attending the Annual VSC Stockholders Meeting. Thank you, and have a great day.