|Shares Out. (in M):||34||P/E||0||0|
|Market Cap (in $M):||1,218||P/FCF||0||0|
|Net Debt (in $M):||147||EBIT||0||196|
|Entry||09/20/2017 01:35 PM|
The quarterly results and the acquisition announcement were a nice synopsis of this company (both good and bad) over the past 3 years.
On the positive side, the Aviation Services revenue was much stronger than expected. I need to iterate that these revenues have lumpiness and Q1 is seasonally a smaller quarter so that lumpiness can have outsized percentage effects, but to grow the top line over 10% while losing the KC-10 revenue is a significant positive. With the roll-on of the Air Force landing gear contract, the Aviation Services will not see the expected flat fiscal year with the loss of the KC-10 contract.
On the not-sure side, the acquisition (and related Air Canada deal) makes a lot of sense as there are lots of potential scale effects here, but no one knows until we see actual numbers.
On the negative side, the SG&A, gross margin and cash flow are as maddening and opaque as ever. I am still trying to piece together the comments on the call (they were asked specifically about these matters) and the 10Q on this matter, but there is lumpiness in expenses and cash flow as contracts roll on and off. And arriving at a normalized SG&A and margin is difficult and management seems to do its best to not lend any transparency to the exercise. But given that KC-10 was a low-margin contract and that they knocked the cover off the ball on revenue, I expected better bottom line numbers.
And of course, we learned nothing about the INL/A contract, which should have a bigger effect than all the above. And Expeditionary results were the usual level of terrible. But these items were expected.
|Subject||Dyncorp's Final Protest Rejected|
|Entry||11/01/2017 10:55 AM|
The real catalyst here will be the forecast going forward including this contract. I expect management to give some color on this in the next month or two although the numbers may be for a ramp period.
|Entry||12/21/2017 10:08 PM|
The Aviation Services blew away my numbers. They had 13% growth (3% of this was in-organic from Air Canada). So 10% organic growth and this includes a 6% loss from the KC-10 contract going away. And the AS pipeline of new contracts (including Air force contract) is favorable. In my write-up, I had assumed that FY 2018 would barely beat FY 2017 due to the loss of the KC-10 contract. Organic gross profit in H1 has grown $10mm y-o-y ($2mm was due to Canada acquisition). Combine this with lower tax rate, and I now have FY '18 unlevered FCF in Aviation Services of $110mm (not including acquired Canadian biz, which seems like it will add about $10-15mm gross profit from the numbers given; of course, these contracts also add to SG&A) versus the $80mm in FY 2017. Half of the difference is due to organic growth. The other half is due to lower tax rate.
The bad news was not news. Management has been stating that they would be winding down COCO contracts and that troop contracts would be winding down soon. So they will be selling helicopters, but mgmt has also been warning that market is soft. So they are taking a $1 per share after tax write-down of helicopters. This is the price of exiting a bad business.
In the aftermarket, the stock dropped to $39.50 from $44, but I am confused as to why. The Aviation Services news was very positive and the Expeditionary news was what was expected.
At $39.50, you can buy the Aviation Services business for 11x unlevered FCF and get the Expeditionary business for free.
We will be given a preview of FY 2019 at the January meeting. The INL/A contract will take 2-3 quarters to ramp so the contribution in FY 2018 will be minimal, but we should have a much better idea of the economics AIR faces with the FY 2019 preview. This is the catalyst for which I have been waiting.
|Entry||12/22/2017 08:46 AM|
sorry, typo . . . I meant to say "you can buy the Aviation Services business for 13x unlevered FCF . . . " not 11x.
At $39.50, this is cheaper today than it was when I wrote this up at $35.25 and since then, Aviation Services results have trounced expectations and they pushed the INL/A contract past the finish line. And we have a catalyst in a few weeks.
|Subject||Re: Author Exit Recommendation|
|Entry||02/28/2018 01:01 PM|
We have reduced long position as the event (FY 2019 guidance including INL/A contract announced Jan 11 @ Investor Day) was disappointing. Total return was about +25%, but AIR got large benefit from corporate tax reduction.
The Aviation segment continues to exceed all expectations.
The accounting and guidance is opaque and it is difficult to break out two segments, but based on the EBITDA guidance in the Jan 11 presentation, it seems to me that the Expeditionary segment has gone from money-losing to break-even. We had the Aviation segment producing about $180mm of EBITDA in FY 2019, and the total guidance is $185mm mid-point. So this implies expeditionary going from negative $20mm to +$5mm EBITDA. I.e. the INL/A contract only adding about $25mm of EBITDA. This is disappointing. These new GOCO contracts like INL/A are capital-lite, but the Expeditionary segment is not earning a reasonable cost of capital and remains a drag on valuation.
At this price ($43.30) buying Aviation Services for 14x FCF from Aviation Services business, which continues to grow. This values Expeditionary at zero. I think this is cheap multiple for Aviation Services, but not compelling. So two ways to win: multiple expansion for Aviation Services to reflect its strong growth and market position; and mgmt making Expeditionary worth something or selling.
But the obvious catalyst has passed and so I am removing idea from VIC.
|Subject||Re: Re: Author Exit Recommendation|
|Entry||03/21/2018 11:42 AM|
For anyone still following, yesterday's announcement that they would be selling the COCO business is a significant positive. I had hoped they would do this a few years ago. Hopefully, they will get some cash for the aircraft and be done with this horrible business. Interestingly, they left guidance unchanged after removing this business. I would have thought EBITDA would actually rise and revenue would of course fall.
Otherwise, the Aviation business continues to chug along nicely. Supply/Trading was a positive while MRO was a bit slower growth than I had hoped.
It is significant to note that the remaining business deserves a higher EBITDA multiple because they are getting rid of capital-heavy COCO business. I get about $120mm of unlev FCF based on FY 2019 guidance. And hopefully they can get a couple bucks a share for the COCO aircraft and contracts.