Operator: Our next question comes from the line of Michael Ciarmoli with Truist Securities.
Michael Ciarmoli: John or Steve, just to put a finer point on this. I can come up with a scenario where maybe the — your old organic growth in aviation, 24% to 28% comes down a little bit. Are you — did you make any changes to the organic growth assumptions? I know you called out $55 million to $60 million of TCI. It sounds like cargo is a little softer. We’ve seen some guys report Bizjet aftermarket a little bit softer, but I’m just trying to understand if anything changed with the underlying organic and aviation.
Steve Griffin: No, nothing has changed. So we can but I would say nothing has changed on our expectations. If you just look at the first quarter, up 20% organically. And when we compare that to what we put out at the Investor Day last year in November, that’s stronger than what we anticipated.
Michael Ciarmoli: And then just point of clarity on fleet. You talked about down 40%. Was that just postal assuming in not the whole segment, right, for 2Q and 3Q?
Steve Griffin: Correct. It’s just post. And it’s down 40% to 45% in the second and third quarter, respectively, associated with fiscal live.
Michael Ciarmoli: And then, John, just back to aviation, you called it out share gains from MRO. I mean, obviously, there’s tight capacity in the marketplace. Can you dig a little deeper there? I mean, are there certain repair capabilities that you’re taking share from? Is some of this coming from just M&A and disruption in the marketplace? Is there more runway there for you guys to pick up share? And maybe even, I guess, not only the capabilities, but what specific market segments?
John Cuomo: Yes, I think there’s a couple of things. I think first of all, I think you talked to anybody the world, I tell my team, enjoy the times now. We’re all doing well. The market is doing well. We’re taking share. There’s a couple of different paths. Number one, let’s talk about some OEM work that’s being offset. So we’ve got new capabilities with OEM authorized avionics that is predominantly on the 737 MAX, and that’s a really strong capability for us. I don’t know if I’d call that a share gain or Steve, how would you describe it more of an OEM authorizing their first U.S. partner to support this program because it’s going to really continue to ramp. So we see that’s just — that’s new and revenue is just beginning, and we see a tremendous amount of opportunity there.
I’d say when you look inside of our shops, our fuel shop and our hydraulics and pneumatics and avionics, I’d say there’s gains in different areas with different customer types. And then the last thing I’d add is our Southwest program where we have, we’re supporting their 737 retirement is providing additional opportunity for us. So as we help them tear down those 737s and help them monetize the product, the parts that are on that — those aircraft many of those need to come in for repair and is providing additional repair opportunities for our repair shops. So what I mean by all of this is you’re seeing buckets all over the place. It’s not just one platform or one program. It’s really just, again, nice consistent growth across our business.
And our business in general aviation business is performing very well. I was looking at some numbers yesterday of the markets. Obviously, it’s not as robust as you saw 2 years ago in terms of growth. But I’d say it’s plateauing at a very, very high rate and continues to stay pretty stable there, and you do see some months of growth. So not a lot of capacity in that market. So we do look out and feel that, that market still has a pretty good runway in terms of us being able to fill our capacity based on the demand profiles of our customers.
Michael Ciarmoli: Last one I had. I mean, you put up some really good EBITDA margins in the Aviation segment in the quarter. And I think you called out that there were some higher costs there. Can you kind of quantify some of those costs, I guess, startup costs and others and maybe what was that drag? And does that continue? Or does that give you a kind of opportunity to even push these margins higher once you get past some of those initial costs?
John Cuomo: Yes. Maybe I’ll start, and then I’ll hand it over to Tarang. I’d say the costs are not material enough to call out and specify in terms of numerical values, Mike. But what I’d say is, think with the reason why we do call it out is it does represent an opportunity for further margin expansion in the years ahead as we gain full scale in ’25 and ’26. We previously communicated that margin rates should continue to go higher and inflect higher. Tarang, is there anything else you want to add in terms of market mix on the year?
Tarang Sharma: Yes. I certainly want to add the question associated with the variability of our margin and us starting out the quarter at a high margin rate. One of the things that’s kind of built in here is the CPI margins are slightly lower than our margin run rate. So you’ll see that impact as we continue on throughout the year.
John Cuomo: And I’ll give you the qualitative answer. It’s all going to depend on mix. So within our business, we’ve obviously got some extremely high margin work and then some lower margin work. Now on the positive end, as I look at some of the opportunities that we have out there, some MRO growth that I see ahead, it’s in the higher-margin area. The second thing that I would highlight is that our Honeywell fuel controls program is more of a margin driver than a revenue driver and as that continues to ramp, we’ll continue to see opportunities there.
Michael Ciarmoli: Is there an opportunity for TCI margins to become in line with the segment average or historical? Or will that be kind of permanently a bit lower?
John Cuomo: I think maybe we’ll give it some time to kind of understand the business a bit better, and maybe answer that in a future time.
Operator: There are no further questions at this time. I’d like to turn the floor back over to Mr. Cuomo for closing comments.
John Cuomo: Thank you all for your continued support of VSE. We very much appreciate it and look forward to speaking with you in July during our second quarter earnings call. Have a great rest of your day.
Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
