VSE Corporation (VSEC) Earnings Call Transcript & Summary

Good morning, and welcome to VSE Corporation's 2021 Annual Meeting of Stockholders. I would now like to introduce the first presenter, Tom Kiernan.

Thank you, and good morning. 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 for our virtual meeting. We have provided electronic versions of our 2020 Annual Report, 2021 Proxy Statement and an amendment to our 2021 proxy, the 2020 Annual Meeting minutes, a list of registered shareholders as of the record date of this meeting, and today's agenda, in the participant web portal for this meeting. Now I'd like to introduce the Chair of VSE's Board of Directors, General Ed Eberhart.

Thank you, Tom. Good morning, and welcome. As the Chair of VSE Corporation's Board of Directors, I will chair this annual meeting of the stockholders at VSE Corporation. And Tom Kiernan, VSE's Secretary, 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. During the meeting, stockholders who have registered using the control number as printed on your proxy vote card will have the opportunity to submit questions in writing by typing the question into the designated field on the web portal and then clicking Submit. Though we may not be able to answer every question, we will do our best to provide a response to as many as possible in the time allotted. 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 to this year's meeting, it is now shortly after 10:00 a.m. Eastern Standard Time on May 5, and this meeting is officially called to order. Before we begin the formal portion of the meeting, I would like to introduce John Cuomo, our CEO and President, and invite him to say a few words.

Thank you, General Eberhart. Welcome stockholders, VSE employees and guests. I'm John Cuomo, VSE's President and CEO. Thank you for joining us today. It's a privilege to lead this business, and I'm enthusiastic about the future of VSE.

Thank you for those words, John, and thank you for your leadership. I would also like to introduce the other directors and management team. Online with us today are Board members Mark Ferguson, Calvin Koonce, Jim Lafond, Jack Potter, Jack Stultz and Bonnie Wachtel. Representing VSE's management team, we have John Cuomo and Tom Kiernan. The following is our agenda for the meeting. First, during the formal portion of the meeting, we will consider and vote on 6 matters submitted to the shareholders in VSE's Proxy Statement dated April 2, 2021, namely: electing 8 directors for the ensuing year; to approve an increase in the number of authorized shares of common stock; to ratify the appointment of Grant Thornton LLP as VSE's independent registered public accounting firm; to approve the compensation of our named executive officers; to approve an advisory vote on the frequency of the advisory vote to approve named executive officer compensation; and lastly, to approve the VSE Corporation 2021 Employee Stock Purchase Plan. Then John Cuomo will speak on behalf of the leadership team. 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 March 17, 2021, are entitled to vote at this meeting. Each share of VSE common stock held on the date of record is entitled to 1 vote with respect to all matters specified in the Notice of Meeting. Any shareholder who has not yet voted or wishes to change their vote, may do so by clicking on the Voting button on the web portal and following the instructions there. 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 this meeting.

I have a copy of the Notice of the Meeting dated April 2, 2021, and my affidavit as VSE's 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 the affidavit as to the mailing thereof and the record of the company's 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 through the meeting web portal. The Inspector of Election will now report the number of shares present in person and by proxy, and will report whether a quorum is present at the meeting.

VSE had 12,691,570 shares outstanding as of the close of business on March 17, 2021, the record date for the meeting. 11,047,638 shares are present at the meeting in person or by proxy, constituting about 87% 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. A copy of the minutes of the meeting are available in the Meeting Materials portion of the Annual Meeting platform. VSE's 2020 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, 2020, together with the company's current Proxy Statement, which discusses the matters to be voted on at this meeting, have all been distributed to the stockholders. All matters which are required to be presented are contained therein. Accordingly, without objection, we refer you to the Annual Report, Form 10-K and Proxy Statement. And I direct that these materials be incorporated by reference in the meeting 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 their 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 Meeting is the election of directors of VSE. Management's slate of nominees for directors consists of the 8 persons named in this 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? There are no further nominations. I will now call upon the Inspector of Election to report the results of the voting received by proxy.

An average of 9,797,414 shares or 95.7% were voted for management's slate of nominees for director, with an average of 439,380 shares or 4.2% 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 VSE's charter to increase the number of authorized shares of common stock from 15 million shares to 50 million shares. The proposed amendment would leave us with 37,308,430 shares of common stock authorized and unissued as of the record date. The amendments were approved by the Board in March 2021 and are subject to the approval of our stockholders. I now call on the Inspector of Election to report the results of the voting received by proxy and electronically.

With respect to the proposal, approved -- to approve amendments to VSE's charter to increase the number of authorized shares of common stock from 15 million shares to 50 million shares, 5,199,728 shares or 41% of all outstanding shares were voted to approve the amendments; 5,822,566 shares or 46% were voted against the amendments; and 25,794 shares abstained from voting.

In accordance with the Inspector's report, I declare that the proposed amendments to VSE's charter to increase the number of authorized shares has not been approved by our stockholders. Our third item of business is to ratify the appointment of Grant Thornton LLP as VSE's independent registered public accounting firm for the year ending December 31, 2021. I now call on the Inspector of Election to report the results of the voting received by proxy and electronically.

With respect to the proposal to ratify the appointment of Grant Thornton LLP as VSE's independent registered public accounting firm, 10,989,850 shares or approximately 99.7% were voted to approve the ratification; 28,799 shares were voted against ratification; and 28,989 shares abstained from voting.

In accordance with the Inspector's report, I declare that Grant Thornton LLP will serve as VSE's independent registered public accounting firm for the year ending December 31, 2021. Our fourth item of business is to approve on a nonbinding advisory basis the compensation of our named executive officers. 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 and the Human Resources Committee, and neither the Board nor the committee will be required to take any action as a result of the outcome of the vote of this proposal. The committee will, however, consider the outcome -- carefully consider the outcome of the vote when considering future executive compensation arrangements. I now call on the Inspector of Election to report the results of the voting received by proxy and electronically.

With respect to the proposal to approve the advisory resolution on the company's executive compensation, 7,800,661 shares or 76.4% were voted to approve the resolution; 2,410,576 shares were voted against resolution approval; and 22,558 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. Our fifth 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 the executive compensation. You have the option to vote for any 1 of the 3 options, or to abstain on the matter. I now call on the Inspector of Election to report the results of the voting received by proxy and electronically.

With respect to the proposal on the frequency of advisory votes on the company's executive compensation, 9,485,284 shares or 93% advised the vote should occur every year; 6,845 shares advised the vote should occur every 2 years; and 690,507 shares advised the vote should occur every 3 years; while 54,159 shares abstained from voting.

In accordance with the Inspector's report, I declare that an advisory stockholder vote on executive compensation will occur once every year. Our sixth and final item is to approve the VSE Corporation 2021 Employee Stock Purchase Plan. The plan was approved by the Board of Directors on March 3, 2021, and is subject to stockholder approval. The Employee Stock Purchase Plan will reserve 500,000 shares of common stock, par value $0.05 per share, of VSE stock for issuance under the plan. I now call on the Inspector of Election to report the results of the voting received by proxy and electronically.

With respect to the proposal to approve the VSE Corporation 2021 Employee Stock Purchase Plan, 10,114,952 shares or approximately 98.8% were voted to approve the resolution; 114,575 shares were voted against resolution approval; and 7,268 shares abstained from voting.

In accordance with the Inspector's report, I declare that the VSE Corporation 2021 Employee Stock Purchase Plan is approved. There being no further business to come before the meeting, the 62nd Annual Meeting of the Stockholders of VSE Corporation is now adjourned. I will now turn the meeting over to John Cuomo, our CEO, who will take a few moments to discuss the current state of our business operations. We will then open the floor to questions. Please, John.

Thank you, General Eberhart. Thanks, everybody, for making the time for us today. While 2020 was a year defined by the COVID-19 pandemic and our decisive response to changing market conditions, it was also a year of change and progress, to focus on culture, process, strategy, systems and organization. 2020 was truly a transformational year for VSE. Throughout the year, we expanded our product and service focus to include new, higher-value lines of business. We improved operational efficiency, and we positioned the business to succeed ahead of the pending recovery in commercial air traffic and other post-pandemic markets. We also demonstrated the ability of our business to quickly adapt to changing end market demand and build backlog with new business wins, all while delivering continued profitability and a consistent cash dividend to shareholders during a year defined by the pandemic. During 2020, we actively executed on our multiyear business transformation plan that includes new business and key account growth, expansion of product and service offerings, process and system improvement, focus on margin expansion and free cash flow generation, and people, culture and organizational development. We redefined our strategic vision for each business segment with a focus on higher-margin, differentiated product and service offerings for our aftermarket customers. We tested those offerings in the market and adapted our strategies to meet the demands of our customers, suppliers and markets. Our business segment strategies are now as follows. For our Federal and Defense segment, we will maintain core competencies and base operation support programs while simultaneously pursuing higher-margin, differentiated supply chain and technical services, specifically with a focus on growing our land services and aircraft maintenance and modernization divisions. For our Fleet segment, we will continue to focus on stable margin and free cash flow from the USPS customer while expanding further into high-growth, market-disrupting Class 4 through 8 commercial distribution, proprietary just-in-time supply chain management and e-commerce solutions. And for our Aviation segment, we will continue to outpace the market recovery while pursuing high-growth, higher-margin commercial and business and general aviation proprietary part distribution and component and accessory MRO. Looking ahead, our task is clear. We will focus on strategy execution, organic and inorganic growth, margin expansion and sound capital deployment. I'm excited about the opportunities in front of us and want to thank our VSE team members for their dedicated -- their dedication to our customers, suppliers and each other, specifically during 2020. I'm confident in our ability to drive long-term value for our shareholders and believe 2021 will be one of the most exciting periods in the more than 60-year history of VSE. We are already off to a great start. Thank you for your continued trust in VSE. I now turn it back over to you, General Eberhart.

Thank you, John, and also thank you to your leadership team. At this time, I would like to address any questions from shareholders. As a reminder, only validated shareholders who registered during the control ID -- using the control ID printed on their proxy vote card may submit questions through the designated field on the web portal.

There are no questions at this time.

Realizing that there are no questions, I would again like to thank you for attending the Annual VSE Stockholders Meeting. Thank you. Have a great day.

Thank you. VSE Corporation's 2021 Annual Meeting of Stockholders has now come to an end. Thank you for attending. You may now disconnect.