Good morning. And welcome to the VSE Corporation Fourth Quarter Results Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I’d now like to turn the conference over to your host, Noel Ryan, Investor Relations. Please go ahead, sir.

Thank you. And welcome to VSE Corporation's Fourth Quarter 2022 Results Conference Call. Leading the call today are our President and CEO, John Cuomo; and Chief Financial Officer, Steve Griffin. 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 the risks described in our periodic reports filed with the SEC. Except as required by law, we undertake no obligation to update our 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. And with that, I would like to turn the call over to John Cuomo for his prepared remarks.

Thank you, Noel. Welcome everyone, and thank you for joining our call today. 2022 was a defining milestone year in VSE company history. One where we delivered record results and one in which we effectively advanced our multiyear business transformation strategy. During the year, we executed new business awards with industry-leading customer service and strong revenue and profit contributions. We were awarded more than $450 million in new program wins. We added to our portfolio with both new market-leading distribution products and new service and MRO capability offerings. We invested in our businesses with new and upgraded facilities and IT systems to support scalability for future growth. Also, in 2022, we proudly celebrated our 40th year as a Nasdaq listed company and, most importantly, we continue to invest in and upgrade our talented team to drive our company culture. I'm incredibly proud of the VSE team in 2022. All of this culminated in significant year-over-year revenue and profit growth and record full-year revenue for both our Aviation and Fleet segments. We delivered record full-year 2022 results, highlighted by $949 million of revenue, or growth of 26% year-over-year, with 27% growth in adjusted EBITDA and 34% growth in adjusted net income. Our Aviation segment posted an outstanding year with record segment revenues of $408 million or 65% growth over the prior year. Adjusted EBITDA for the segment, up $52 million, increased 145% versus the prior year. Aviation segment adjusted EBITDA margin increased by 420 basis points year-over-year to 12.8%, given a more favorable mix of higher margin repair revenue. Aviation segment adjusted EBITDA represented over 50% of total company 2022 adjusted EBITDA versus 29% in the prior year, supported by balanced growth across both commercial and business and general aviation customers and both distribution and MRO revenue channels. Our Fleet segment also achieved record revenue results in 2022. Segment revenue of $261 million increased 12% compared to 2021, driven by growth within commercial and e-commerce fulfillment customers. Commercial fleet revenue increased 42% on a year-on-year basis and now represents 40% of total fleet segment revenue—a testimony to our successful segment customer diversification strategy. Fleet segment adjusted EBITDA increased 9% on a year-over-year basis. The EBITDA improvement was supported by both commercial fleet growth and contributions from the US Postal Service. Finally, our Federal and Defense segment contributed $280 million of revenue, up 4% over the prior year. Our strong performance in Aviation and Fleet was partially offset by a decline in Federal and Defense adjusted EBITDA, due primarily to the continued shift from fixed price to cost-plus contracts along with contract expirations. In summary, new commercial growth and operational excellence drove record revenue and earnings in 2022. Let's turn to slide 4 for our fourth-quarter update on our key strategic priorities of building sustainable revenue, EBITDA growth and optimizing legacy programs. We made steady progress on each in the fourth quarter. First, new business growth and building sustainable revenue. We recently acquired Precision Fuel Components, a leading MRO provider for engine accessories and fuel systems supporting the business in general aviation and rotorcraft markets. This transaction expands VSE Aviation's specialty distribution and MRO capabilities while positioning us to capitalize on higher margin technical service opportunities. During the quarter, our Fleet segment opened a new e-commerce fulfillment and distribution center in the Memphis, Tennessee area to increase the speed and service quality for aftermarket parts delivery. This investment will support the growing present and future demand for our e-commerce fulfillment and commercial fleet customers. This new facility includes the successful implementation of new ERP and warehouse management systems. We have begun to ship product and expect this new facility to contribute more than $50 million in sales for the fleet segment in 2023. Finally, we are implementing strategies to ensure sustainable long-term growth in our Federal and Defense segment. The efforts of our new leadership and expanded business development teams resulted in an increase of 60% in our new business pipeline to $1.5 billion in total bids submitted and now pending award. Our next strategic priority is growing profit. Our Aviation segment fourth quarter performance resulted in $15.8 million, or an increase of 102% versus the prior year period. Aviation segment adjusted EBITDA represented 69% of total adjusted EBITDA in the fourth quarter versus 44% in the prior period, supported by both balanced growth across commercial and business general aviation customers and both distribution and MRO revenue channels. In the fourth quarter, the Aviation segment delivered the highest adjusted EBITDA margin in more than three years. The Fleet segment also grew adjusted EBITDA in the quarter. The 4% increase was driven by commercial sales growth and stable contributions from the US Postal Service. Our third strategic priority is optimizing legacy programs. During the fourth quarter, our Aviation segment commenced deliveries on the previously announced expansion of our Pratt & Whitney Canada 15-year distribution agreement. As part of this expanded agreement, VSE Aviation now provides engine spare parts and exchange support for accessories to business and general aviation engine customers, operators, and maintenance providers in the Asia Pacific region. The Fleet segment also experienced solid legacy program performance from our USPS customer, including the continued expansion of product offerings supporting all USPS vehicle types. Our Federal and Defense segment continues to effectively support the Naval Sea Systems Command, or NAVSEA, with foreign military sales follow-on technical support which has a funded backlog in excess of $125 million. Last week, we received a six-month extension on our existing bridge contract. Looking ahead, we await a second quarter final award determination related to a five-year renewal of this agreement. In summary, three years ago we redefined our go-to-market value propositions and business strategies. The record revenue and margin expansion in 2022 validates and supports the opportunities that exist for VSE, both today and into the future. I will now turn the call over to Steve for a detailed review of our financial performance.

Thanks, John. I will now turn to slides 5 and 6 of the conference call materials to provide an overview of our fourth quarter and full year 2022 performance. The fourth quarter was strong and capped a year of new records for many of our businesses. We recorded $234 million of revenue, an increase of 11% 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 business and general aviation end markets. Fleet segment growth was supported by commercial fleet and e-commerce fulfillment together with modestly higher contributions from the US Postal Service. Federal and Defense revenue was lower, driven by the completion of certain US Army contracts, offset partially by growth in US Navy programs, specifically foreign military sales and support of ongoing aftermarket services. We generated $22.9 million and $8.7 million of adjusted EBITDA and adjusted net income, respectively, an increase of 29% for both measurements. Fourth quarter interest expense was higher than anticipated, driven by the recent Federal Reserve rate hikes and timing of cash flow in the quarter. We anticipate this higher interest expense to continue throughout 2023. For the full year 2022, we recorded $949 million in revenue, up 26% versus 2021, driven by growth in all business segments but primarily driven by the $160 million of new aviation business. Total adjusted EBITDA for the year was $92 million, an increase of 27% versus 2021, and adjusted net income was $37 million, an increase of 34% versus 2021. Aviation segment adjusted EBITDA drove over $30 million of growth and helped to offset declines in the Federal and Defense segment. Now turning to slide 7, we'll cover the Aviation segment results. Revenue increased 29% versus the prior year period to a record $107 million. Both distribution and MRO businesses grew at 22% and 53%, respectively. Distribution growth was driven by a combination of new business and end market activity. MRO benefited from higher commercial flight activity as it continues to track towards pre-pandemic levels. Our commercial MRO remained 7% behind pre-pandemic levels in line with the overall market trends. Aviation adjusted EBITDA increased by 102% in the quarter, while adjusted EBITDA margins increased by 530 basis points to 14.7%, their highest level since 2019. For the full year 2022, Aviation generated record revenue of $408 million led by organic investments in new distribution programs, contributions from the global parts acquisition, and increases in MRO activity. Total adjusted EBITDA of $52 million was up 145%, and for the full year, adjusted EBITDA margins were 12.8%, up 420 basis points versus 2021. Within the Aviation segment, we anticipate revenue to grow between 7% and 15% year-over-year, driven by a balance of commercial end market recovery, new program execution, and expected stabilization of business and general aviation markets. We do not anticipate material impacts associated with a recent Precision Fuel Components acquisition announced earlier this year. We anticipate adjusted EBITDA margins between 12% and 14%, driven by the mix of MRO activities and commercial recovery. Now turning to slide 8. Fleet segment revenue increased 7% versus the prior year period, driven by higher commercial sales and e-commerce fulfillment support. Total commercial revenues were $24.9 million in the fourth quarter, an increase of 19% versus the prior year period. US Postal Service revenues were up 6% versus the fourth quarter last year, which is included within our other government revenue. Segment adjusted EBITDA of $7.9 million increased 4% versus the fourth quarter of 2021 as Fleet continues to scale offerings and solutions for commercial customers. Adjusted EBITDA margins declined 40 basis points in the quarter, primarily as a result of $600,000 of prelaunch expenses for the new Memphis, Tennessee e-commerce Center of Excellence. For the full year 2022, Fleet generated record revenue of $261 million with over $100 million in commercial revenue for the first time. Commercial now represents 40% of segment revenue, up from 32% in 2021. Adjusted EBITDA for the full year was $33 million, up 9%, and highlights the opportunity to continue to increase total segment profitability while diversifying revenue. Looking to 2023, we anticipate revenue growth of 12% to 20% year-over-year as contributions from the commercial revenues, primarily from the recent Memphis, Tennessee facility launch, offset modestly lower US Postal service revenues. We expect an adjusted EBITDA rate between 11% and 13%. We anticipate margins modestly lower than that stated range for the first quarter as we ramp production in the new facility and expect to see stabilization towards the second half of 2023. Now turning to slide 9. Federal and Defense segment revenue decreased 7% versus the prior year period, as growth in US Navy aftermarket services offset declines due to US Army contract completions. Federal and Defense adjusted EBITDA of $800,000 in the third quarter was down 77% year-over-year. Adjusted EBITDA margins declined 400 basis points on a year-over-year basis to 1.3%, driven by the mix of cost-plus contracts and the effects of contract completions. In the quarter, we recorded a contract loss of $4.1 million associated with the completion of a specific fixed-price, non-DoD contract with a foreign customer that is not considered indicative of ongoing business operations or strategy. There are no continuing obligations associated with this program, and we do not anticipate any further impacts. For the full year, Federal and Defense revenue increased 4% to $280 million primarily as a result of our US Navy program, which was up 45% year-over-year as a result of a vessel transfer to the Royal Bahrain Naval Force. Adjusted EBITDA declined 55% to $10.8 million year-over-year due to the shift to more cost-plus contracts, which represent 50% of total segment revenue, up from 35% in 2021. As a result of the nonrepeating 2022 US Navy vessel transfer, we anticipate between a 5% and 10% revenue decline in 2023 for the Federal and Defense business and an adjusted EBITDA margin of 1% to 3% as we continue to invest in new business development resources and capabilities that will drive incremental growth in 2024 and beyond. Turning to slide 10, at the end of the fourth quarter, we had $160 million in cash and unused commitment availability under our $450 million credit facility. We generated $8.5 million of free cash flow in the quarter, primarily driven by revenue growth and the successful execution of recent aviation distribution awards. For the full year 2022, we used $3.2 million of free cash flow, which includes $10 million of fourth quarter inventory investments, to support the previously announced VSE Aviation expansion into the Asia Pacific region for our existing Pratt & Whitney Canada engine accessories program. At the end of the year, we had total net debt outstanding of $286 million and trailing 12 months adjusted EBITDA of $92 million. Net leverage was 3.1x in the fourth quarter, down from 3.4x at the end of the third quarter, and down from 3.9x as of year-end 2021. We anticipate 2023 net leverage to end modestly higher than year-end 2022. However, we expect that during the second and third quarter, it will increase closer to 4x as we make the remaining investments in working capital to support both the Fleet Memphis facility and Aviation Pratt and Whitney Asia expansion. We still anticipate the total initial investments for these two combined to be $70 million, of which $10 million was spent in the fourth quarter already. We started 2023 strong with a key aviation acquisition and a new fleet facility opening. We are well positioned to execute on our 2023 operating plan. Operator, we are now ready for the question-and-answer portion of our call.

The first question is from Ken Herbert from RBC.

Hi, good morning, John. Good morning, Steve. This is actually Steve Kent Herbert. Starting with the guidance for this year, where do you see the most conservatism within the guide, and maybe where do you see the most upside with regard to any of the segments?

I think the guidance we've given is pretty accurate as to what we expect the businesses to do this year. As we look at each one of the three business segments. The Aviation business, we've got some new execution of our Pratt Asia contract as well as the continued commercial end market recovery which will help to drive top line, which we believe is pretty solid. As we look towards the Fleet segment, a lot of the growth that we're expecting to see is in the commercial side of our business as you'd expect, the new most recent Memphis facility launch will drive some really good improvement in terms of total commercial revenues in the business. We expect to see some modestly lower USPS revenue. And as always, that's a business is difficult for us to predict, but we do expect modestly lower revenue. And then in the Federal business, we mentioned that we expect the total top line revenue to be down on a year-over-year basis, primarily driven by the large one-time vessel transfer that happened during 2022, as well as some contract completions. But we're very focused on making sure that business has a sustainable growth trajectory headed out into 2024 and beyond. But I'd say across the board, the guidance is in line with what we'd expect to see.

Yes, I think there's a level of conservatism would be at the back end of the year with Aviation and Federal. I think our Fleet business, we've been very transparent about the contributions from our new warehouse. I think when we look at the back end, Q3, Q4 for Aviation and Federal, we know we will win new business. The question is, what will we win and how much of that will contribute in the back end of the year versus 2024. And I would say there's some opportunity for upside there.

That's great. And then if I could just ask one more. Can you provide an update on the kind of NAVSEA Federal and Defense contract? Kind of when you expect to have a long-term contract in place?

Sure. The contract, the Bridge contract expires in early August of this year. Our pricing is valid on the recompete through the end of May of this year. So we do anticipate notice of an award in the second quarter and then post notice we will share a strategic update on the Federal and Defense segment with a little bit more clarity on that business.

Good morning. I'm on for Mike Ciarmoli this morning. Thanks for taking our questions. So first, just wanted to ask on the aviation segment, just given that your 4Q margins were higher than what you're expecting for 2023, I was just wondering, was the product mix in the fourth quarter a bit of an outlier, or are there any input cost pressures you'd call out that you're expecting to pressure margins in the coming quarters?

Yes, we saw very strong results, as you can see, in the fourth quarter, kind of returning to that pre-COVID level of mid-teens as we've explained in the past. When we look to 2023, we continue to see the opportunity for the commercial recovery to help the business and a bit more stabilization in the business in general aviation side. So rather than it being more of like an input cost dynamic, I think we look at the business and general aviation side of our total segment as being very robust in the back half of last year. And we expect to see that start to stabilize to some extent as we look into this year and therefore a bit more of a guide, as you see, to the 12% to 14% range. I think the business can vary as we go quarter-to-quarter, but we're very, very pleased with the results in the fourth quarter.

That makes sense. Thanks. And then as a follow-up, just wanted to ask, how are you on labor? Do you have any significant headcount that you need to add in the coming year? And are you experiencing any issues with productivity or elevated attrition?

No, I'd say there's a level of stabilization in the markets. Technical labor in aviation is always a challenge, and we continue to manage that challenge. We have a new facility in Memphis that we're standing up. We've got the ERP systems, brand new, and they're running very well. We are shipping product out. We are still staffing that team up as we get ready to scale for that back end of the year, which will generate about $50 million of new revenue. But I wouldn't say there's anything material or out of the norm other than what we've previously communicated.

Good morning. Steve, for VSE Aviation, you showed great operating leverage. Should the long-term margin exceed your pre-pandemic level because of all of the scale that you've added with the new partnerships? And just in general, how do you balance the margin and your growth? Thanks.

Great question, Louie. I would say long-term, we would say mid-teens is our margin rate expectation for this business. If you go back to pre-COVID, right at about 15% is where they operated. I think if you look at the fourth quarter, you can see that this business is very capable of doing that even though it's double the size of what it used to be. So all the new business that we've added has been at least the margin rates that we've been at pre-COVID. So we feel that as we look to the long term, that mid-teens margin rate is absolutely the expectation in the long run. And as we continue to scale, as we acquire businesses that we think are very complementary, they're at higher margins or provide synergy opportunities, there might be opportunity to go higher than that. And it all comes down to execution and driving scale on the existing business. So at this point, we're very, very pleased with its performance, and I think we are excited about driving it forward in '23, '24, and beyond.

Great. Thanks, Steve. And for John, for the Pratt and Whitney Canada Asia expansion. Is the main revenue contribution expected to be in 2024, or is that already happening right now?

It's starting to happen now. It's a slower ramp than we had in the Americas just because of the complexity of—we're working mostly out of Singapore and Australia. So you'll start to see it ramp more in the second quarter of this year.

Great. And also last October at the NBAA conference, you announced distribution partnerships, or they may have been extensions and modest expansions with Bombardier and Embraer. How are those deals progressing?

Yes, I mean, our Bombardier program, which is really the cornerstone of our global parts business, so that was a renewal of that existing business. It was a really important part of that business. And we've been able to outperform our internal forecast that we focused on. Steve, you want to share a little bit about the growth in Global, which obviously is very much related to that agreement?

Yes, I mean, the Global Parts acquisition, which came with some of the great relationships with Bombardier, grew over 30%, just on a standalone basis from '21 to '22. Not all of that was in our numbers, obviously, because '21, they were a separate business. But I think that highlights the execution of the teams and how well they've done in relation to those agreements you're referencing.

Great. And one last one. The business aviation market has obviously been or was very hot for the past two years in terms of bookings for the major OEMs, and it's been a very strong contributor for you. Are you seeing any signs of a slowdown in that segment?

Yes, it's a great question because you read about kind of what's happening in that market and there's a little bit of mixed data. I'd say what we're seeing is definitely more stabilization of the market. So I would not expect—we had most of the market data that we saw was forecasting high single-digit growth rate in that business for 2023. We shared, I think on our last call that we were looking at more of mid-single-digit growth rate. So that's a little bit of price and a little bit of volume. So definitely seeing the market get less aggressive on growth, but we still see it as 2023 as a growth year for business and general aviation for our business.

Hi. Good morning, John and Steve. So my question is just about the airlines. How much pent-up demand do you think there is still with the airlines for repair services, just given that MRO is higher margin than the parts distribution? And do you think it will remain robust even if we go into a recession in the second half of the year?

Yes, I think it's a great question and I think from our perspective, everyone was expecting—I'm drawing up with my hand—but everyone was expecting that spike in demand as the recovery from COVID happened. And what we've continued to share is our month-over-month inputs on repair work on the commercial business just continued to increase. We saw that through the end of last year. We are seeing that as we start 2023. We believe that more of our business is domestic than international. And we do believe that regardless of kind of recessionary impacts that we're going to see stable to growing markets. And if you remember, if you look at most of the major airlines and look at even their summer travel, they have less airplanes than they want to have. They have less pilots than they want to have. So capacity is at a premium, and even if there is kind of some slight pullback from a recessionary impact, we're not anticipating seeing a major difference in our PKs in totality. Yes, we're still seeing the month-over-month improvement. And again, it's nice and gradual, which is great because it's allowing us to staff and manage our capacity as well.

Okay, and then I think you touched on this already in your remarks, but I guess you're confident in the cash balance and the debt needed to support the inventory to ramp Memphis.

Yes, we are. As you can see, in the fourth quarter, we generated $8 million of free cash flow. We used about $3 million in a year. Most of that was driven by—we did acquire $10 million of inventory in the fourth quarter as part of our Pratt & Whitney Canada Asia expansion. So we're very pleased with the ability for us to improve the net leverage of the business. Last year at this time was 3.9x. We ended the year at 3.1x in line with as we had communicated. Now, as we look towards this year, we do expect that net leverage to increase as we bring on the working capital required to launch the two facilities. So you should expect to see us use some cash here in the first and the second quarter, with back half improvements very similar to how we've done in the last year or two. But we feel very comfortable with the current credit facility as well as the opportunities that exist in the demand profile.

And, Austin, remember, once we start to scale the shipments out of Memphis, that inventory will start to turn very quickly, so it's not a long return on that investment. By the third and fourth quarter, you're going to see that inventory really start to move and you're going to see the cash generation happen pretty quickly. So it's really just a blip both in terms of decline in operating margin for the fleet business because all of that was done organically in the beginning of the year, as well as the cash impact, so that business will get right back on track. It's a great growth opportunity for us and a really fast return on the investment that we're putting into that facility, both from an expense perspective and an inventory perspective.

Great. I can't wait to see the inventory fly off the shelves. Thank you.

Me too. I've seen it come in. I can't wait to see it go out.

Hi, everyone. Just wanted to follow up on the Memphis facility. Realize you just stood that up, but maybe you can touch on what is left to do to optimize efficiency at Memphis and then also maybe just remind us of the long-term outlook for the benefits from that facility.

Yes, I mean so when we launched our commercial business, I've been with the business about four years now. We really launched the commercial business when I started. Remember, if you looked back, this business had a tremendous amount of concentration in it. And we said we've got to focus on customer diversification through commercial customers and e-commerce customers. So if you look back at four years ago, very, very nominal revenue out of that channel this year, well, 2022, we finished it at $100 million of revenue in that channel, all of that was done organically. We were at a point where we knew what the demand was. We didn't have the capacity to support it, which is why we set up the Memphis facility. So we know we can generate an additional $50 million of commercial revenue out of that site this year. And but we also know that there's further demand and further disruption that we can do in that market to support future growth and that this gives us the capacity to do it, along with standing up the facility again to build that scalable growth, which will drive lower SG&A as a percentage of sales over time, and also that perfect order coming out of that site. We launched a new ERP system, and new warehouse management system. So it's like a crawl walk run model. We're only taking enough orders that we can be perfect. And that's what we did in January and February, as we kicked off March each day or each week, we're talking about record number of lines that were shipping out of that site as we're slowly starting to scale. And we're just taking a methodical approach to scaling it because we want to be perfect to our customers as we ship out of that site. So obviously, with any new ERP system, you find ways to optimize, but I went and picked impact and order myself out there. It's a great system training. You can get trained on the system quickly. A lot of controls in place to drive order accuracy and timeliness of orders as well. And we feel very bullish on that investment.

Okay, great to hear. And then just wanted to touch on the USPS part of the fleet business for a minute, if we could. Just wondering what's based in your guidance for that. Realize it's tough to predict.

Yes. We've got an expectation of modest declines in that business. We do anticipate that some of the new next-gen delivery vehicles will begin to be delivered at the end of this year. And as a result, we do expect that the total legacy repair portfolio may go down slightly. That drives sort of our assumption as to the modest declines in the top line performance for USPS, for our business. Now, all that said, it's going to be quarter-to-quarter, pretty dynamic. So as you see, just last quarter, the fourth quarter was up 6% and for the full year, last year was up 5%.

And we had a strong start to the year.

Yes, it's going to be dynamic quarter-to-quarter. But we do expect those modest declines primarily more in the back half of the year.

Okay. And if I could just squeeze in one more. Just wondering kind of the latest you're seeing in terms of acquisitions. Wondering if the leverage going up a little bit as we're kind of getting to mid-year, if that might slow down the pace of acquisitions in aviation. Maybe just if you could touch on the attractiveness of potential targets, valuation metrics you're seeing, any comments on your pipeline? The availability of some of the larger deals.

Yes. We manage two pipelines. We've got deals that are kind of sub $5 million of EBITDA, kind of smaller tuck-in deals that are less publicly marketed. And then we've got kind of larger deals for us, kind of $5 million to $10 million or so of EBITDA that are more publicly marketed. We've got a very robust pipeline. We believe when you look at let's just talk about kind of core aerospace aftermarket quality assets that are usually publicly marketed, those trade in the mid-teens. I mean, those are high multiple deals. We believe, as a publicly traded company, we have the capacity under our current facilities to do deals. And we believe that in this market, we're well positioned because our certainty of closure is stronger than potentially sponsors in this market. And that can give us an advantage to get deals done at potentially lower than historic multiples. So we continue to feel very robust about the pipeline, and we continue to look at maybe potential non-core assets as well that potential exit to help us fund things as well that it wouldn't only be funded through our current facility, but we've got the capacity in the facility, and you won't see a slowdown in that front.

The final question we have is from Joshua Sullivan from the Benchmark Company.

Hey. Good morning. On the Memphis facility looking at that $50 million incremental. Can you just provide some insight on the customer composition? How many greater than 10% customers do you think you ultimately have?

Pretty much zero. We've got some e-commerce channels that we support, so if you look at partners that we're supporting, so like think of that business goes direct to fleet customers through our own e-commerce system, which is too long tail of end users, or through other people's e-commerce channels to their long tail of end users. So this is the business that's about the tail. That's why it's about optimizing it. We do have some large kind of e-commerce partners that have just a website and where their funnel of inventory. But when we look at true end user demand, this is the tail, and you're not going to see concentration at that level.

Got it. And then just one on the Aviation segment, what's your view of the trajectory of shop visits for general aviation and bizjet over the next two to five years? I know you're talking about sales growth here in the kind of immediate term, but what does that longer-term cycle look like?

Yes. So it's interesting because if you look back at the cycle business in general aviation, I've been in the industry for 25 years—it was a little bit more boom and bust in the 90s when I started in that market, and it was less of a robust and stable market. The market has truly stabilized for a number of reasons. Number one, you have major players out there that are running operations with stable bases of customers. Number two, you have a market that is sold out on larger or mid-tier aircraft through 2024 or 2025 or 2026, depending on the OEM. So in the market, used aircraft is still relatively speaking, at some of the lowest levels in history. So we look at that coupled together and we look at it as a pretty stable market. Do I think the market is going to be double-digit growth? No. Do I think it will be stable to low single-digit growth? Absolutely.

Got it. And then just one last one on the distribution side in aviation, what are you seeing as far as supply chain choke points or release at this point?

They're really mixed. It's interesting. It's really either one OEM or at one factory that has either labor issues or material issues or the like. So we're not seeing, like, I wouldn't say in our world, we're not seeing a consistency in a trend. So we've seen more improvement in the last six months than it's gotten better for us, not worse. The one thing I'd caveat always is that as the OEMs start to pick up new production, it's the same base of manufacturers that are building for both. And that's why sometimes we take a little bit stronger of an inventory position because we want to support our aftermarket customers. But I would say right now it's not materially impacting any of our revenue or any of our customer service.

Thank you. Ladies and gentlemen, we have reached the end of our question-and-answer session. I would now like to turn the call back over to John Cuomo for closing remarks. Please go ahead, sir.

Thanks, everybody, for joining our call today. We're very proud of our 2022 results, some great records in both our Fleet and our Aviation segment, and look forward to continuing to report on both strategic updates as well as strong financial performance in the year ahead. Have a great day.

Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.