VSE Corp (VSEC) 2023 Q1 法說會逐字稿

Greetings, and welcome to the VSE Corporation First Quarter 2023 Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Perlman, VP of Investor Relations and Communications at VSE Corporation. Thank you, Mr. Perlman, you may begin.

Thank you, and welcome to VSE Corporation's First Quarter 2023 Results Conference Call. Leading the call today are John Cuomo, President and CEO; and Steve Griffin, Chief Financial Officer. The presentation we are sharing today is on our website, and we encourage you to follow along accordingly. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including risks described in our periodic reports filed with the SEC. Except as required by law, we undertake no obligation to update the forward-looking statements. We are using non-GAAP financial measures in our presentation. The appropriate GAAP financial reconciliations are incorporated into our presentation where available, which is posted on our website. All percentages in today's discussion refer to year-over-year progress, except where noted. At the conclusion of our prepared remarks, we will open the line for questions. With that, I'd like to turn the call over to John.

Thank you, Michael. Welcome, everyone, and thank you for joining our call today. Before we begin, I would like to review yesterday's announcement, one that represents a major milestone in our company history. Let's go to Slide 3 of our conference call presentation to review the transaction in more detail. Yesterday, we announced the sale of the Federal & Defense segment. This transaction represents a defining moment for VSE as it streamlines and repositions the business into a 2-segment pure-play aftermarket business, supporting aviation and fleet markets with MRO and distribution capabilities. More specifically, the company entered into a definitive agreement to sell the Federal & Defense business segment to Bernhard Capital Partners for up to $100 million in total cash consideration, including a $50 million cash payment and an earn-out of up to $50 million, subject to the achievement of certain milestones. The transaction is expected to close in late 2023 to early 2024 and is subject to customary closing conditions and approvals, including the creation of a legal entity with appropriate security clearances to support the transition of the business to burn our capital partners. 

The net proceeds from the transaction are intended to be used to reduce borrowings, provide balance sheet optionality and execute strategic inorganic opportunities. The decision to sell the business concludes the strategic review undertaken by the management team and Board of Directors in response to market and business dynamics with the goal of driving shareholder value. With this repositioning, VSE will become a 100% pure-play aftermarket business. This allows us to do 3 things: first, simplify the company to a 2-segment business, aviation and fleet with focused distribution and MRO service offerings. Second, tailored capital allocation strategies to the high-growth Aviation and fleet aftermarket segments to drive long-term shareholder value; and third, deepen operational focus and accountability and increase our agility to meet customer needs. We believe this creates a distinct and compelling aftermarket services investment profile, one which will appeal to a broader and deeper investor base. We have found our Federal & Defense business an outstanding home with Bernhard Capital Partners, a high-quality private equity sponsor, one who will enhance the business strategy and build upon a rich 63-year history of government and defense mission-critical support. 

Let's now move to Slide 4, where I will provide an update on the business and the strong first quarter performance by our Aviation and fleet segments. We are off to a tremendous start to the year as strong market tailwinds, combined with operational execution and service excellence resulted in double-digit year-over-year revenue growth in both our aviation and fleet segments. Within our Aviation segment, we continue to see robust demand across all end markets and particularly strong activity and growth in MRO driven by market share gains and strong flight activity. We also benefited from expanded MRO capabilities and new programs in both our Kansas and Miami repair facilities. During the first quarter, we completed the acquisition of Precision Fuel Components, a provider of MRO services for engine accessories and fuel systems. That business integration is underway with expectation for completion in the second half of this year. We experienced growth and performance excellence within our strategic distribution programs, including the ramp-up of the Asia Pacific geographic expansion of our 15-year distribution agreement with Pratt & Whitney Canada. 

Within our Fleet segment, we opened our new 450,000 square foot distribution and e-commerce fulfillment center in Memphis. This new facility supports growing demand for aftermarket products across our commercial fleet and e-commerce customers. The facility launched in January with both the new IT ERP and a new warehouse management system. Parts are shipping to customers with increased output daily as we drive to scale the business to contribute approximately $50 million in 2023 revenue. The Fleet segment also benefited from strong postal service demand in the first quarter due to the delay in legacy vehicle retirements and an increase in the overall installed vehicle base. Both the aviation and fleet segments continued to gain market share in the fragmented markets in which they serve and to deliver to customers with operational excellence, all while delivering improved results. 

Now let's move to Slide 5. We delivered strong first quarter results, highlighted by a 10% increase in revenue, a 46% increase in net income and an 18% increase in adjusted EBITDA as compared to the prior year. Our Aviation segment posted a record quarter with revenues of $113 million, a 21% increase year-over-year, with balanced growth across both Commercial and Business and General Aviation customer segments and both distribution and MRO revenue channels. Adjusted EBITDA for the segment of $19 million increased by 75% versus the prior year, yet another record for this business segment. Aviation segment adjusted EBITDA margin increased by approximately 510 basis points year-over-year to 16.8%. The Aviation segment adjusted EBITDA represented 72% of total company first quarter adjusted EBITDA versus 49% in the same period in the year prior. Our Fleet segment also achieved record revenue in the first quarter, increasing 12% to $75 million in the first quarter, driven by growth across all end markets. Commercial fleet revenue increased 17% year-over-year and now represents 43% of total fleet segment revenue, a 160-basis point increase over the same period in the prior year as we proactively diversify our customer base. As planned and previously communicated, Fleet segment adjusted EBITDA declined 7% on a year-over-year basis, driven by start-up costs supporting the newly launched distribution facility. Finally, our Federal & Defense segment contributed $67 million of revenue in the first quarter, down 6% as compared to the same period in prior year. Federal & Defense adjusted EBITDA declined primarily due to the continued shift from fixed price to cost plus contracts, along with contract expirations. The strong first quarter results continue to validate and support the VSE strategic shift to higher growth, higher margin commercial MRO and distribution capability offerings. I will now turn the call over to Steve for a detailed review of our financial performance. Steve?

Thanks, John. I will now turn to Slide 6 and 7 of the conference call presentation to provide an overview of our first quarter performance. We had a strong first quarter in both our Aviation and Fleet businesses, driven by increased demand in end markets. We recorded $255 million of revenue, an increase of 10% versus the prior year period. Aviation recorded another record quarter driven by organic growth from the execution of new distribution awards, continued recovery of commercial MRO activities and strength in commercial and business and general aviation end markets. Fleet segment growth was supported by commercial fleet and e-commerce fulfillment together with higher contributions from United States Postal Service. Federal and Defense segment revenue was lower driven by the completion of certain U.S. Army contracts, partially offset by growth in U.S. Navy programs. We generated $26 million and $11 million of adjusted EBITDA and adjusted net income, an increase of 18% and 16%, respectively. 

Now turning to Slide 8. We'll cover our Aviation segment results. Revenue increased 21% versus the first quarter last year to a record $113 million. Both distribution and MRO businesses grew, up 14% and 43%, respectively. Distribution growth was driven by a combination of new business and improved end market activity. MRO benefited from both higher commercial flight activity as it continues to track towards pre-pandemic levels and expanded capabilities in our core repair facilities. Aviation adjusted EBITDA increased by 75% in the quarter to $19 million, while adjusted EBITDA margins increased by 510 basis points to 16.8%. The improvement in profitability was driven by the implementation of new program wins, robust MRO activity and favorable mix and price. Within our Aviation segment, we are narrowing our full year 2023 revenue guidance range from 7% to 15% to 10% to 15%. We are increasing our full year adjusted EBITDA margin guidance from 12% to 14% to 13% to 15%, driven by increased higher-margin product mix, continued MRO activity and strong commercial customer demand. 

Now turning to Slide 9. We Fleet segment revenue increased 12% versus the first quarter last year to $75 million, driven by higher commercial sales and e-commerce fulfillment, along with increased USPS demand. Total commercial revenues were $32.5 million in the first quarter, an increase of 17% versus the prior year period. U.S. Postal Service revenue was up approximately 14% versus the first quarter of last year, which is included within our other government channel. Segment adjusted EBITDA of $8 million decreased by 7% and adjusted EBITDA margin declined by 220 basis points versus the first quarter of 2022. Our profitability was lower as a result of $950,000 of startup-related expenses for our newly launched Memphis, Tennessee facility and higher mix of commercial customers. For the full year 2023, we are reaffirming our revenue growth expectations of 12% to 20% year-over-year, driven by contributions from commercial revenue and the recent Memphis facility launch. We also continue to expect adjusted EBITDA margins to be between 11% and 13% and anticipate margins to continue to be at the low end of the stated range in the first half of the year as we ramp up production at the new Memphis facility. 

Now turning to Slide 10. Federal & Defense segment revenue decreased 6% versus the first quarter of last year, driven by the completion of certain U.S. Army contracts, partially offset by growth in U.S. Navy programs. Federal & Defense adjusted EBITDA of $600,000 in the first quarter was down 83% year-over-year. Adjusted EBITDA margin declined 430 basis points on a year-over-year basis to 1%, driven by contract mix and completions. Between now and the closing of the previously announced sale of the Federal & Defense segment to Bernhard Capital Partners, we remain focused on driving shareholder value and preparing for the carve-out of this business. You should expect to see the business move to discontinued operations as it is held for sale. Between now and the consummation of the transaction, the VSE and BCP teams remain focused on winning new awards to drive longer-term value for the business. 

Turning to Slide 11. At the end of the first quarter, we had $93 million in cash and unused commitment availability under our $350 million credit facility. For the quarter, we used $49 million of operating cash flow and $52 million of free cash flow, driven by previously announced initial inventory investments to support the successful execution of recent aviation distribution awards and commercial growth at our Memphis distribution facility. To date, we have spent $40 million of our estimated $70 million to launch these 2 initiatives and expect the remaining $30 million to be paid in the second quarter. At the end of the quarter, we had total net debt outstanding of $351 million and trailing 12 months of adjusted EBITDA of $96 million. Net leverage was 3.7x at the end of the first quarter. We still anticipate net leverage to approach 4x in the second quarter before improving in the second half of 2023 through improved profitability and free cash flow generation. With that, I will now turn the call back over to John for his final remarks.

Thank you, Steve. As we enter the next phase of VSE's transformation, we are excited about the opportunities for our Aviation and Fleet segments and for all that is ahead for our federal business with Bernhard Capital. Our focus remains on driving sustainable, profitable growth while enhancing the operating performance of these 2 businesses. I would like to conclude our prepared remarks by reviewing our key priorities on Slide 12. First, to complete the sale of the Federal & Defense business. The sale will allow us to simplify our operations and drive even greater focus on addressing the distinct needs of our 2 core businesses, aviation and fleet. During the transition, we plan to ensure a smooth and successful handoff for our employees and customers to burn our capital partners. 

Second, to reposition the business into 2 segments focused 100% on aftermarket distribution and MRO services supporting aviation and fleet customers. Third, to expand our full-service unique product distribution and MRO capabilities within high-growth, underserved portions of the aviation aftermarket. We remain focused on offering a bespoke solutions-oriented approach that addresses every ever-changing needs of our customers. Fourth, to drive commercial growth while supporting legacy programs within our fleet business. This includes scaling our newly launched distribution and e-commerce fulfillment center to address robust commercial fleet customer demand and support both legacy and new U.S. postal service vehicles. And finally, to deliver second half 2023 positive free cash flow, driven by disciplined cash management. I'm incredibly proud of what the team has accomplished and how they serve our global customers each day, and I am excited about all the opportunities ahead. Operator, we are now ready for the question-and-answer portion of our call.

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Our first question comes from Mike Ciarmoli with Truist.

I guess, looking at the strong results, the guidance increase, I guess, what really changed in the last 2 months? And maybe I'll nitpick it a little bit, right? You put up really strong aviation growth and EBITDA margins, but it does seem like the guidance still implies a step down kind of from the current levels. You kind of talked about improving end markets, but maybe just some color on what kind of came through in the quarter and then kind of how you constructed this guidance for the rest of the year? Because it does seem like the margins will definitely kind of step back down, I guess, to that, call it, 13% range or so mid-13s even to get you kind of to that lower end?

Sure. Steve, do you want to talk a little bit about guidance, and then I'll talk about the market?

Sure. So Michael, as you know, when we came out in the first quarter, we did note that we had a more bullish or I'd say, more bearish estimate in terms of end market activity. I think what we've seen through the first quarter is stronger results, including some continued strength in business and general aviation. And then second to that, I would say we've had really strong performance in our MRO shops. I think you can see the near 40% increase in revenue. That increased demand has helped to fuel some of the margin improvements across the business. Last thing I would say that has been a benefit maybe versus our prior expectation is there has been some benefit associated with product mix and price. So as we kind of start the year, we have some opportunity to optimize pricing. That has been a tailwind to us that is going to help the first quarter maybe start to level off as we look towards the second half of the year. And hence, you can see sort of the lower expectations on the margin performance later in the year. That said, still very pleased with the performance of the business and really do look forward to seeing it play out over the course of the year. And then, John, maybe did you want to maybe talk about the strength of the market?

Yes. So from a market perspective, I think that a couple of things. I think the business in general aviation is continuing to perform strong. Our MRO operations are quite robust and backlog is strong and the year started out very strong. As we've continued, we stated over the last 2 years, as we saw commercial MRO start to recover, we would see that margin inflection point in the business. And I think that's why you say what really happened. That's a piece of it. And then candidly, price is a piece of it. I mean I think we were all a show a few weeks ago, and you saw that level of activity and discussion around price, which is something that people don't continue to talk about, but there obviously is an element of that, that drove some of the margin improvement in the quarter.

Got it. And then you called out, I think, in the prepared commentary, just maybe kind of some pickup, expanded capabilities out of Miami and Kansas. Did that contribute meaningfully in the quarter? Or are you picking up share in certain areas with those capabilities?

Yes. More in Kansas, it's share. We've got some work in Miami that launched initially, but I wouldn't say it's material to the quarter yet. You'll start to see more of that pick up back into '23, early into '24, and we announced that at exclusive agreement with Honeywell to repair some avionics. But in our Kansas facility, we did have some share gain and a new program that also helped contribute to the strong quarter.

Got it. And then last one for me, and I'll get out of the way. Steve, you mentioned on the cash. Obviously, we got the inventory investment. It sounds like cash will be under pressure next quarter. But I guess, longer term, as we look out, how are you guys thinking about normalized cash conversion for this business? Obviously, you've got distribution, so you're always going to be investing in carrying inventory. So it might be tough to convert at 100% or better. But how should we sort of calibrate ourselves for longer-term cash conversion in this business?

Yes, I think it's right to point out the distribution nature of the business. And what I would say is this year is an anomaly because if you remember, the $70 million of investment, $50 million of it is tied to the new facility launch for Wheeler, which is very much so something that we will not need to repeat in the future as we grow that business more stably going forward. We haven't necessarily given guidance yet as to what you should imply for longer-term cash flow conversion. But what I would say is that as we start to gain scale, we expect to be able to generate strong free cash flow in the existing investments in the business in the last 3 years of investment, whether it be in the aviation business or in the fleet business, are not indicative of what we expect to do on a go-forward basis because those are such sizable investments. But we will remain opportunistic as we seek opportunities to grow distribution and especially in spaces where we believe we can get strong margin profile going forward.

Our next question comes from Ken Herbert with RBC Capital Markets.

I wanted to maybe first start on the fleet segment. It seems like a bit of an opposite discussion relative to aviation. The guidance implies some gradual margin improvement. How do we think about margins within 3 sequentially into the second quarter, do you see sort of much acceleration there? And then how does this progress through the back half of the year?

Sure thing. So we try to be pretty specific. So you could see where the margin is today and what the associated expenses were for the start-up of the new facility and in the guidance range we've given on that 11% to 13%, we've kind of clearly stated that the second quarter you should expect it to be towards the lower end of that range with improvement towards the back end of the year on the higher end of that range. So that should give you some assumptions to use in terms of how to think about it. And really just behind the math, really, what you're thinking about, Ken, is that new facility, we've got people, we've got new systems that are really just getting started. So getting the training completed, getting our employees really up and running, and then they'll drive scale and drive revenue growth, which allows us to generate stronger earnings profile in the back half of the year. So that's what's going to drive the majority of the margin improvement in the business. And then underlying this sort of is also the notion of commercial versus some of our other government channels in terms of the product mix. But in general, what you're going to see is improvement out of the Memphis facility driving improved margin rates in the back half of the year.

Okay. Very helpful. And as we think about the Memphis facility and the $50 million in sort of incremental revenues. As you think about this facility and the investment longer term, where will you be in terms of utilization out of this facility? How much more upside could there be off the existing footprint into '24 perhaps? And just how do we think about the run rate then exiting the year, considering the investments and the growth you're seeing this year on the facility?

Yes, Ken, I think we talked about this as our Board yesterday. I'd say it's about 20% to 25% of the utilization, and that's without considering weekend and night shifts as well. So we have a tremendous amount of upside. We've really focused on near term, it's about scale. The demand is there. We need to make sure that we can perform specifically when you're dealing with aftermarket e-commerce, most of that is booked and ship same day. So the quality of the performance is important. So what we're doing is, in my prepared remarks I kind of alluded to it, we're really kind of managing the demand and each day focusing on increasing that demand as the teams can handle the work.

That's great. Very helpful. And then just, John, if I could, finally, on Aviation, as you look at the -- either within the business jet GA market or commercial transport and you look at your distribution business, are there any concerns that inventory levels at either airline or fleet levels could be inflated just as a result of a lot of the risk aversion by your customers to the supply chain pressures and disruptions and everything we've seen? And then could we maybe see some risk to some of the distribution volumes if things ever do slow on aviation? Or how would you think about or talk about inventory levels at your customers within aviation?

Yes. I think and it's interesting I had a lot of these conversations with MRO show a few weeks ago. I think for our specific business and our products, we don't see that. We are very focused on higher-end technical products. They're expensive. And our customers are not heavily stocking the products. The second thing is our performance has been so strong and stronger than some of the incumbents in which we've taken the business from that it's also allowed some of our airline and aftermarket customers to destock a little bit and lower their inventory levels. So we don't see that as an issue. Where we need to focus is making sure that the supply chain allows us to continue to get the products and that we're stocked appropriately to manage the demand.

Our next question comes from Louie DiPalma with William Blair.

For you, John, with the Defense division pending sale, are you still interested in any aviation aftermarket services specific for the defense vertical? And does the divestiture also include the HAECO special services assets that you acquired a few years ago?

Yes. So it was HAECO Special Services, not HEICO. But that business is the KC-10 heavy maintenance MRO program and that business with the past performance and the team is part of the Federal and Defense business. So our aviation business today is an MRO and distribution business. We are mostly commercial and business and general aviation. We do support defense customers within our business today. It's not the most core component of our business, but they are customers, and we do continue to expect to serve those markets in our existing aviation business today.

Great. And either for you, John or Steve, should this deal with the potential $50 million or $100 million in proceeds, should it increase your appetite for M&A post close?

Absolutely. As we've previously stated, our fleet business is very focused, as I've just discussed with the last question on scaling that new distribution facility and growing our commercial and e-commerce business, and we see a tremendous pipeline with the organic investment that we've made in that business. But we have a deep pipeline of inorganic opportunities in aerospace, both in distribution and in MRO and finding the right assets important that makes sense for the business, but we do have an active pipeline of potential acquisitions.

Great. And one final one. Is the difference between the $50 million in consideration and the $100 million mostly predicated upon renewing the Navy burn military sales contract? Or are there other important milestones that we should be paying attention to?

Yes, Louie, we're not going to necessarily publicly state all of the different milestones, but I think it is correct to state that the earn-out is tied to milestones associated with new awards. But at this point, I don't think we're ready to share the details of it. We're going to be happy to share more as time progresses here and we work through the process of getting to closing and setting up the entity as John referenced.

Our next question comes from Jeff Van Sinderen with B. Riley Securities.

Maybe you can speak a little bit more about what drove the strength of the USPS business. Do you see a sustainable trend for growth there? And then maybe just comment on the outlook for the new gen vehicle area.

Sure. Yes, the USPS strength, I think, was coupled with 2 things. Number one is the announced delay of the NGDV delivery until 2024. And the size of the fleet has grown and is expected to continue to be a larger fleet. So we look at now the new installed base of vehicles. And for the next call, we'll have a little bit more detail on what we think that number will look like and what the percentage increase will be as we get a little more clarity from the postal service customer. But we do expect the installed base to be increased. We expect retirements to be slower. And we do see, I wouldn't say the sustainable growth trend, but we do see -- again, we've called this business like an annuity type business and we still look at it very much that way. But very pleased to see the strong quarter from the customer as well.

Okay. Good. And then just kind of wanted to get a sense, I guess, of what's left to do on the integration of precision fuel at this point?

So yes, we acquired the business at the end of January. And as we've discussed, our integration model is a fully integrated model. So integrating the core home back office and full system integration. So the systems integrations. We kind of take the first 90 days to learn the business, learn the capabilities, learn how they go to work rather than kind of forcing them into our systems. That work has been done. And I would say probably in the third quarter, you'll see the systems be fully integrated.

Okay. And then I just wanted to circle back and don't mean to press you on this, but just as we think more about potential acquisitions, particularly in the aviation area, now that you've got the FDS decision somewhat behind you. Are you seeing it get easier or harder to come to terms on potential deals? I guess, any thoughts around that?

I believe that the market is more robust than it was a year ago. I think there was an element of waiting for commercial aviation recovery. I also think as a strong public company buyer, someone with a team who has a history both at this company and companies that we've worked on in the past of transacting in a fast and efficient and providing deal certainty in uncertain markets like today, it gives us an advantageous position in this market.

Our next question comes from Josh Sullivan with The Benchmark Company.

Obviously, we hear a lot about tight MRO markets broadly. What do the SEC slots or turnaround times look like between BG&A and commercial aftermarket at this point?

Yes, we don't really slot so much. I mean it's not like a shop, is it in the same way that you might think of a sort of like a whole aircraft or engine coming in because we work on more smaller piece bar components. But turn times, I'd say, are in line with the industry norm. So in a lot of cases, our work can be, in some cases, 15 to 30 days. It's usually within a shop as a time frame. And I'd say that it's continuing to be pretty tight. I mean that's what's driving some of the opportunities we were able to drive. We're driving a lot of throughput through our facility today and hence, the 40% growth that you've seen. But overall, pretty tight, pretty packed in the shops, but turn times are exactly where we'd expect them to be.

And then just on the Memphis distribution facility, maybe where are you ahead of schedule and maybe what's taking a little more thought?

I'd say we're right on schedule. We put a pretty aggressive plan in place. Last year, we realized we were at capacity probably early in the first quarter. So by the second quarter of last year, I think it was actually May, almost 12 months ago, we actually made the decision to launch that facility. We hadn't chosen a location, chose the location a full assessment and study, got the location up and running, 2 new IT systems, stocked it with the inventory and started launching product out the door in January. So it was a pretty aggressive schedule, which the team has done an outstanding job meeting, but I'd say we're right on schedule.

Got it. And then just on the divestiture. How much of a cash usage was the federal business last -- or maybe over the last 12 months?

It's not that big of a cash usage per se. I mean you could look at the overall profitability of the business and just get a sense for how quickly it falls down. It's not that heavy of a balance sheet, certainly by comparison to the fleet business and the aviation business, which obviously carry inventory. So I wouldn't necessarily think of it as a significant drag over the last 12 months or so. We're excited about that business having a really strong partner now with BCP, where they can kind of continue to grow the business or we can also refocus our attention and time and efforts around the 2 higher-margin, higher-growth opportunities in Aviation and Fleet.

And then maybe just one last one. John, as you think about the long-term evolution of the company, divestiture, the federal business, what are the defining hurdles for kind of the optimal VSE assets as you go forward?

Yes. I mean, like on our last page of our deck, we kind of highlighted near-term true priorities. I think the divestiture is really a critical one, getting the business fully divested, putting this is a 63-year-old asset. That was the core of the business with an outstanding team and getting them to that new home that they can go thrive. So that the 2 core businesses can focus, that's the near term, then it's focusing on how do we continue to scale what we have. And the focus is going to be on differentiation. We'll do an Investor Day probably later this year and walk you through more detail on some of our core components of our model. But our core -- what I believe in, and I've kind of manned these businesses, my whole career is being narrow and deep and differentiating is what's going to drive sustainability and continuity of revenue and embeddedness with our customers and suppliers, and it's going to drive the margin expansion that we need in our investors expect. So continue to see us continue to fine-tune that value proposition and what that means in terms of products, services and types of deals that we bring on with the business.

(Operator Instructions) Our next question comes from Michael Ciarmoli with Truist.

Just a clarification. John, I think when you were answering Ken's question, the new facility in Memphis, $50 million, is that at 25% capacity? Did I hear that right? So you've technically got enough throughput there to do $200 million?

I think the $200 million is conservative, what we can put through the shaft.

There are no further questions at this time. So this concludes our question-and-answer session. I would like to turn the floor back over to John Cuomo, President and CEO, for closing remarks.

Thank you to our shareholders for your continued support. Thank you to all the VSE employees. It's a defining moment here, and we'll spend some time with our teams today working through our communication. We appreciate it. Have a great day, and look forward to speaking to you next quarter. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.