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    VSEC
    Earnings call· Mar 2026(Q1 FY26)

    VSE Q1 FY26 earnings call VSEC

    May 6, 2026 Source

    Executive summary

    VSE Corporation Q1 FY26 — Record Revenue and Profitability, Strategic Acquisitions Closed

    VSE Corporation delivered a strong start to FY26 with record revenue and profitability, driven by balanced contributions from both distribution and MRO channels. The company successfully closed two strategic acquisitions, PAG and NorthStar Technologies, significantly expanding its engine-focused aftermarket capabilities and technical depth. Management expressed confidence in continued demand resilience across core end markets despite macroeconomic uncertainties, with a focus on integration, synergy realization, and organic growth initiatives for the remainder of the year.

    Highlights

    5

    • Record revenue of $325 million, an increase of 27% year-over-year.

    • Consolidated adjusted EBITDA increased 37% to $55 million, with margin expanding 130 basis points to 17.1%.

    • Organic revenue growth of approximately 15% year-over-year, excluding recent acquisitions.

    • Engine-related aftermarket activity now represents more than 50% of total revenue.

    • Closed PAG acquisition, forming a scaled independent aviation aftermarket platform with 61 locations and immediately accretive margin profile.

    Concerns

    1

    • Free cash flow usage of approximately $69 million in Q1 FY26, driven by part procurement seasonality and strategic investments.

    Guidance & targets

    10
    CategoryTargetConfidence
    Full-year 2026 Revenue Growth
    57% to 61%
    high materiality
    High
    Full-year 2026 Adjusted EBITDA Margin
    18.1% to 18.5%
    high materiality
    High
    Full-year 2026 Free Cash Flow
    Improvement over the course of the year and on a year-over-year basis
    medium materiality
    Medium
    Full-year 2026 Interest Expense (net of interest income)
    $37 million to $40 million
    medium materiality
    High
    Full-year 2026 Depreciation and Amortization
    $98 million to $103 million
    medium materiality
    High
    Full-year 2026 Effective Tax Rate
    Approximately 25%
    medium materiality
    High
    Full-year 2026 Stock-based Compensation
    $18 million to $19 million
    medium materiality
    High
    Full-year 2026 Capital Expenditures
    Approximately 2% to 2.5% of revenue
    medium materiality
    High
    Adjusted Net Leverage
    Below 2.5x
    high materiality
    High
    Consolidated Adjusted EBITDA Margins
    Exceeding 20%
    high materiality
    Medium

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Distribution
    Driven by strong performance across new and existing programs, product line expansion, market share gains, and contributions from the Aero 3 acquisition.
    		$200.7M26%——
    MRO
    Driven by expanded repair capacity, new repair capabilities, sustained end market demand, and contributions from the Aero 3 and Turbine Weld acquisitions.
    		$124.3M28%——

    Operational metrics

    10
    Organic Revenue Growth
    15%YoY
    Q1 FY26

    Reflecting strong underlying demand across the business.

    Adjusted EBITDA
    $55M37% YoY
    Q1 FY26

    Driven by greater mix of higher-margin product and repair activity, higher-margin OEM license manufacturing sales, and continued synergy realization from recent acquisitions.

    Adjusted EBITDA Margin
    17.1%130 bps YoY
    Q1 FY26

    Increase driven by greater mix of higher-margin product and repair activity, higher-margin OEM license manufacturing sales, and continued synergy realization from recent acquisitions.

    Adjusted Net Income
    $33M
    Q1 FY26
    Adjusted Diluted EPS
    $1.17
    Q1 FY26
    Revolving Credit Facility Capacity
    $500MUpsized from $400M
    Q1 FY26

    Upsized facility provides significant available liquidity and operating flexibility.

    Adjusted Net Leverage
    Below 3x
    Pro forma for PAG acquisition

    Estimated pro forma for the PAG acquisition, with a clear path to below 2.5x by year-end.

    PAG Organic Growth
    High single digits
    Annual

    The business is expected to grow naturally at this rate, though some will shift to intercompany due to synergies.

    TCI Business Growth
    North of 20%
    Since acquisition

    Growth experienced since VSE acquired the business, well above market.

    Term Loan B Pricing
    SOFR plus 200vs. SOFR plus 175 (prior Term Loan A)
    Current

    New Term Loan B pricing, similar to prior Term Loan A at low leverage levels, but with more flexibility and fewer covenants.

    Industry KPIs

    1
    MetricValueDetails
    Aftermarket services splitMore than 50%%

    Product announcements

    2
    ProductTypeDetails
    Pratt & Whitney Canada APU Aftermarket Components Distribution Agreementexpansion
    CFM56 Engines Airline-Focused Asset Management Programexpansion

    Deals & partnerships

    2
    PAGAcquisition of a scaled independent aviation aftermarket platform.

    Closed on May 5. Forms a platform with 61 locations (48 repair facilities, 11 distribution centers) across 8 countries. Expands capabilities across distribution and MRO, enhances technical depth, and strengthens integrated end-to-end solutions. Funded through equity and new debt financing.

    NorthStar TechnologiesAcquisition of a provider of MRO and third-party logistics services supporting the engine aftermarket.

    Acquired on April 1. Expands engine service capabilities in the business and general aviation market, deepens integration with OEM aftermarket supply chains, and enhances ability to capture demand for teardown and labor-intensive services. Operates a capital-light model with strong demand visibility.

    Risks & headwinds

    3
    Macroeconomic uncertainty and geopolitical developmentsNear-term

    Unquantified

    Mitigation: Strength of engine-focused aftermarket exposure and growing presence in business and general aviation position the company to navigate uncertainty; no change in customer behavior observed to date.

    Elevated fuel pricesNear-term

    Unquantified

    Mitigation: Business and general aviation segment historically demonstrates lower sensitivity to fuel price volatility; no pullback in airline capacity or OEM production plans observed to date.

    Supply chain constraintsOngoing

    Unquantified

    Mitigation: Demand for engine maintenance and repair remains strong, supported by ongoing supply constraints.

    What to watch in Q2 FY26

    5

    PAG Integration and Synergy Realization

    Next quarter
    CurrentIntegration underway, focus on cross-selling and in-sourcing in FY26
    TargetInitial wins and validation of internal synergy plans

    Why it matters

    Successful integration and synergy capture from the PAG acquisition are crucial for achieving targeted margin expansion and long-term value creation.

    Yes. I mean it's a good question🎣. I mean, essentially, to oversimplify it, our model showed one EBITDA number, their model had a higher one. So the question is, how do you bridge that gap and get there? And that was not just dollars, but their margin percentage was higher in their model. So it's a combination of the right mix and of accelerating some of the in-sourcing and sales synergies.

    Q&A highlights

    6

    Given some engine companies have noted a lag effect from higher crude prices, is VSE concerned about a similar impact, especially with increased focus on engines?

    Management has not seen any softness in bookings, including for engine-related business, and April started strong. The business mix, including more legacy engines and 50% business and general aviation, makes it more resilient to fuel price volatility. Downside scenarios like accelerated retirements could even create demand for teardowns.

    “I'd also kind of highlight the mix of the work that we have. We typically lag a bit on newer generation engines and have a mix of more legacy engines. So whether if you want to play kind of downside scenarios and think through retirements accelerate a bit, that does cause an element of teardowns and such as acceleration happens, which creates additional demand inside of our shops.”

    asked by Kenneth Herbert · answered by John Cuomo

    3 min read6 chapters

    Detailed Narrative

    01

    PAG Acquisition and Integration Strategy

    VSE closed the acquisition of PAG on May 5, forming a scaled independent aviation aftermarket platform with 61 locations across 8 countries. The combination significantly expands MRO and distribution capabilities, enhances technical depth, and strengthens integrated end-to-end solutions. PAG's margin profile is immediately accretive, supporting a clear path to exceeding 20% consolidated adjusted EBITDA margins over time⏳. The integration strategy for 2026 focuses on cross-selling, repair in-sourcing, and procurement efficiencies, with cost synergies expected to roll out in 2027.

    02

    NorthStar Technologies Acquisition and Strategic Rationale

    On April 1, VSE acquired NorthStar Technologies, expanding its engine service capabilities in the business and general aviation market. This acquisition deepens integration with OEM aftermarket supply chains and enhances the ability to capture demand for teardown and labor-intensive services. NorthStar operates a capital-light model with strong demand visibility and resilience across market cycles, supporting both active fleet and increasing retirement activity. The acquisition was primarily driven by the need to support an OEM partner's aftermarket programs and logistics.

    03

    Engine Aftermarket Demand and Business Aviation Resilience

    Demand for engine maintenance and repair activity remains strong, driven by continued fleet utilization, aging assets, and ongoing supply constraints. Engine-related aftermarket activity now constitutes over 50% of total revenue. The business and general aviation sector, representing about 50% of VSE's business, has demonstrated lower sensitivity to fuel price volatility and continues to provide a stable and diversified revenue source. Management has observed no pullback in airline capacity, OEM production plans, or operator behavior to date, with April also showing strong performance.

    04

    New Programs and OEM Partnerships

    VSE announced a new globally exclusive life-of-program distribution agreement with Pratt & Whitney Canada for APU aftermarket components, spanning over 2,500 SKUs across 15+ platforms. This agreement expands the OEM-aligned portfolio and deepens VSE's role in supporting asset life cycles. Additionally, the company expanded its airline-focused asset management program through the acquisition of CFM56 engines for a major U.S. airline partner, leveraging in-house capabilities for teardown and component-level repair. These programs are expected to contribute more meaningfully in the second half of the year.

    05

    Capital Structure and Refinancing

    In connection with the PAG acquisition, VSE strengthened its capital structure by closing a $900 million Term Loan B and upsizing its revolving credit facility to $500 million, replacing prior facilities. This refinancing extended term loan maturity, expanded borrowing capacity, and improved day-to-day operating flexibility. The company expressed satisfaction with the institutional support and pricing achieved, positioning VSE with significant liquidity for strategic priorities and future growth initiatives. Pro forma adjusted net leverage is estimated to be below 3x, with a path to below 2.5x by year-end.

    06

    Application of AI and Data-Driven Tools

    VSE is implementing AI initiatives with a bottoms-up approach, encouraging business units to identify problems for AI to solve. Efforts include improving shop floor productivity, aggregating data for supply chain demand planning and pricing, and enhancing customer service through quote aggregation. The company aims to build much of this capability in-house to avoid annuity-based fees. Real productivity gains from these initiatives are anticipated in 2027 and beyond.

    AI-generated summary of the company’s earnings call. Not investment advice.