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    VSEC
    Earnings call· Dec 2025(Q4 FY25)

    VSE Q4 FY25 earnings call VSEC

    Feb 26, 2026 Source

    Executive summary

    VSE Corporation Q4 FY25 — Record Aviation Revenue and Strategic Acquisitions Drive Growth

    VSE Corporation concluded a transformational FY25, achieving record aviation revenue and profitability, driven by strategic acquisitions and organic growth initiatives. The company is now a pure-play aviation aftermarket business, poised for further expansion with the pending acquisition of Precision Aviation Group and new OEM program awards. Management anticipates continued organic growth and margin expansion, despite near-term working capital impacts from new program inventory.

    Highlights

    5

    • Achieved record FY25 revenue of $1.1 billion, representing a 41% year-over-year increase.

    • Delivered record FY25 Aviation segment adjusted EBITDA of $195 million, up 48% year-over-year, with margin expansion of 80 basis points to 17.6%.

    • Q4 FY25 consolidated adjusted EBITDA increased 55% to $52 million, with margin expanding 260 basis points to 17.2%.

    • Adjusted net leverage improved significantly to 1.1x at year-end, down from 2x at Q3 end.

    • Entered a definitive agreement to acquire Precision Aviation Group (PAG), a transformational deal expected to generate $615 million in adjusted revenue and over 20% adjusted EBITDA margins for FY25.

    Concerns

    3

    • The new OEM APU program requires approximately $45 million of initial inventory and working capital, which is expected to impact free cash flow in Q1 and full-year 2026.

    • First quarter 2026 margins are projected to decline sequentially from Q4 2025 due to Aero 3 seasonality, the revenue ramp of new program awards, and product mix.

    • The conclusion of one actuation program last year creates a headwind for distribution organic growth in FY26.

    Guidance & targets

    15
    CategoryTargetConfidence
    Full-year 2026 Revenue Growth
    19% to 23% increase
    high materiality
    High
    Full-year 2026 Organic Revenue Growth
    high single to low double-digit range
    high materiality
    High
    Full-year 2026 Adjusted EBITDA Margins
    16.8% and 17.3%
    high materiality
    High
    Full-year 2026 Interest Expense
    approximately $20 million
    medium materiality
    Medium
    Full-year 2026 Depreciation and Amortization
    $52 million and $54 million
    medium materiality
    Medium
    Full-year 2026 Effective Tax Rate
    approximately 25%
    medium materiality
    Medium
    Full-year 2026 Stock-Based Compensation
    $15 million and $16 million
    medium materiality
    Medium
    Full-year 2026 Capital Expenditures
    approximately 2% of revenue
    medium materiality
    Medium
    Full-year 2026 Free Cash Flow
    stronger compared to 2025
    medium materiality
    Medium
    Q1 2026 Adjusted EBITDA Margins
    decline sequentially from Q4 2025
    medium materiality
    High
    Q1 2026 Adjusted EBITDA Margins (YoY)
    improve on a year-over-year basis
    medium materiality
    High
    Post-PAG Adjusted Net Leverage
    below 3x
    high materiality
    High
    PAG Synergies (Phase 1)
    exceed $15 million on an annualized basis
    high materiality
    High
    Combined Company Adjusted EBITDA Margins
    above 20%
    high materiality
    Medium
    20% Adjusted EBITDA Margin Target
    back end of the year '27
    high materiality
    Medium

    Segment performance

    1
    SegmentRevenueYoYQoQMargin
    Aviation
    Record revenue and profitability in Q4 FY25, driven by strong performance across both distribution and MRO business units, along with contributions from recent acquisitions. The year-over-year improvement reflects a greater mix of higher-margin product and repair activity, increased in-sourcing, favorable program mix, higher-margin OEM license manufacturing sales, and continued synergy realization.
    Distribution revenue growth: 37%MRO revenue growth: 24%Organic Aviation segment revenue growth: 12%
    		$301 million32%—18.3%

    Operational metrics

    26
    Revenue
    $1.1 billionup 41% YoY
    FY25

    Record full-year revenue.

    Adjusted EBITDA
    $183 millionup 56% YoY
    FY25

    Record full-year adjusted EBITDA.

    Adjusted Net Income
    $83 millionup 121% YoY
    FY25

    Full-year adjusted net income.

    Adjusted Diluted EPS
    $3.92up 87% YoY
    FY25

    Full-year adjusted diluted earnings per share.

    Adjusted Net Leverage Ratio
    1.1xcompared to 2x at Q3 end
    FY25 end

    Improved adjusted net leverage ratio.

    Revenue
    $301 millionup 32% YoY
    Q4 FY25

    Fourth quarter revenue.

    Consolidated Adjusted EBITDA
    $52 millionup 55% YoY
    Q4 FY25

    Fourth quarter consolidated adjusted EBITDA.

    Adjusted EBITDA Margin
    17.2%up 260 bps YoY
    Q4 FY25

    Fourth quarter adjusted EBITDA margin.

    Adjusted Net Income
    $26 million
    Q4 FY25

    Fourth quarter adjusted net income.

    Adjusted Diluted EPS
    $1.16
    Q4 FY25

    Fourth quarter adjusted diluted earnings per share.

    Cash on Hand
    $69 million
    Q4 FY25 end

    Cash balance at the end of the fourth quarter.

    Total Debt Outstanding
    $296 million
    Q4 FY25 end

    Total debt outstanding at the end of the fourth quarter.

    Revolving Credit Facility Capacity
    $400 millionno borrowings
    Q4 FY25 end

    Available capacity on the revolving credit facility.

    PAG Expected Adjusted Revenue
    $615 million
    FY25

    Expected adjusted revenue for Precision Aviation Group (PAG) for the full year 2025.

    PAG Expected Adjusted EBITDA Margin
    above 20%
    FY25

    Expected adjusted EBITDA margins for Precision Aviation Group (PAG) for the full year 2025.

    New OEM APU Program Initial Inventory Investment
    $45 million
    Q1 FY26

    Initial inventory and working capital required for the new OEM APU program, expected to impact free cash flow.

    Revenue Growth from Aero 3 & Turbine Weld
    11-13%
    FY26

    Expected contribution to total revenue growth in FY26 from the Aero 3 and Turbine Weld acquisitions.

    Core Aviation Business Margin Expansion
    up to 50 bps
    FY26

    Expected incremental margin expansion from operating leverage, program optimization, and improved MRO utilization within the core aviation business.

    Kellstrom Margins
    approximately 17%up from 11%
    current

    Kellstrom's current margins, reflecting significant improvement since acquisition.

    Market Growth Outlook
    mid- to high single-digit range
    2026

    Expected growth for the core markets VSE supports.

    Commercial Engine Business Growth
    low double digits
    2026

    Expected organic growth rate for the commercial engine business.

    Business & General Aviation Engine Business Growth
    high single digits
    2026

    Expected organic growth rate for the business and general aviation engine business.

    Commercial Components Business Growth
    mid-single-digit
    2026

    Expected organic growth rate for the commercial components business.

    Business & General Aviation Components Business Growth
    mid-single-digit
    2026

    Expected organic growth rate for the business and general aviation components business.

    Pricing and Volume Contribution to Growth
    50-50
    2026

    Expected split between price and volume for market growth rates.

    Turnover and Retention Improvements
    improvements
    current

    Observed improvements in employee turnover and retention rates.

    Product announcements

    2
    ProductTypeDetails
    Pratt & Whitney Canada PT6 Fuel Pumpsexpansion
    APU Components Distribution Agreementexpansion

    Deals & partnerships

    4
    Precision Aviation Group (PAG)Leading provider of MRO and supply chain solutions across commercial, business and general aviation, rotorcraft and defense markets.$2.025 billion (upfront consideration, $1.75B cash, $275M equity), up to $125 million (contingent earn-out)

    Entered into a definitive agreement to acquire PAG, a highly strategic transaction that meaningfully expands scale and strengthens engine and component service capabilities.

    Turbine WeldSpecialized MRO provider focused on complex engine components in business and general aviation.

    Acquired Turbine Weld, a specialized MRO provider, enhancing proprietary repair capabilities across key engine platforms.

    Aero 3Global MRO provider and distributor in the wheel and brake aftermarket.

    Completed the acquisition of Aero 3, a global MRO provider and distributor in the wheel and brake aftermarket.

    Fleet segmentSale of the Fleet segment, repositioning VSE as a pure-play aviation aftermarket company.

    Completed the sale of the Fleet segment, marking the transition to a pure-play aviation aftermarket company.

    Risks & headwinds

    4
    New OEM APU Program Working Capital Impactfirst quarter and for the full year 2026

    $45 million

    Mitigation: Expected stronger free cash flow in 2026 compared to 2025, excluding this initial inventory investment.

    Q1 FY26 Margin Declinefirst quarter

    decline sequentially

    Mitigation: Expected to improve on a year-over-year basis; driven by Aero 3 seasonality, revenue ramp of new program awards, and product mix.

    Actuation Program HeadwindFY26

    headwind

    Mitigation: Still expecting strong high single-digit organic growth in distribution despite this headwind.

    Tight Labor Marketongoing

    tight labor market

    Mitigation: Seeing improvements in turnover and retention, attracting more talent, and investing organically in facilities to build capacity, especially for engine-related MRO shops.

    What to watch in Q1 FY26

    5

    PAG Acquisition Close

    Late Q2
    CurrentDefinitive agreement entered
    TargetClosed

    Why it matters

    This is a transformational acquisition that will significantly expand VSE's scale and capabilities, and its closure is a prerequisite for updated consolidated guidance.

    Following the anticipated close in the late second quarter, our combined leadership teams will immediately focus on integration and executing identified synergy initiatives.

    Q&A highlights

    6

    How are synergies tracking for Kellstrom, Aero 3, and Turbine Weld, and what is the future opportunity for margin expansion from these acquisitions?

    Kellstrom is performing at or above company-wide margins, significantly ahead of initial expectations. Management is conservative on modeling synergies (100-200 bps baked in) to prioritize investment in headcount for 12-14% growth. Aero 3 synergies will be updated after a full quarter of operation.

    “But with regard to Kellstrom, the business on an individual basis is at or above our company-wide margins today. So we're extremely ahead of the totality of where we thought the business would be.”

    asked by Ken Herbert · answered by John Cuomo

    2 min read6 chapters

    Detailed Narrative

    01

    Transformational Year and Pure-Play Aviation Focus

    VSE Corporation completed its multiyear transformation in 2025, becoming a pure-play aviation aftermarket company with the sale of its Fleet segment in April. This strategic repositioning sharpened the company's focus and enabled record aviation revenue and profitability. The company surpassed $1 billion in annual revenue for the first time in its history, reflecting disciplined execution and validation of its strategy.

    02

    Strategic Acquisitions and Integration Progress

    In 2025, VSE executed two key acquisitions: Turbine Weld in May, enhancing engine component repair capabilities, and Aero 3 in December, expanding global wheel and brake MRO and distribution. Significant progress was also made on Kellstrom integration activities, exceeding synergy capture targets and driving alignment across branding, organizational structure, IT systems, and operational processes, contributing to improved margins.

    03

    Precision Aviation Group (PAG) Acquisition

    On January 29, VSE announced a definitive agreement to acquire Precision Aviation Group (PAG) for approximately $2.025 billion. This highly strategic transaction is expected to meaningfully expand VSE's scale and strengthen its engine and component service capabilities across the aviation aftermarket. PAG is projected to generate approximately $615 million in adjusted revenue for FY25 with adjusted EBITDA margins above 20%, and Phase 1 synergies are expected to exceed $15 million annually.

    04

    New Organic Growth Awards and Proprietary Content

    VSE secured two new exclusive organic growth awards: an asset purchase agreement with an OEM for the exclusive manufacture, distribution, and repair of certain fuel pumps for the Pratt & Whitney Canada PT6 engine series, and a globally exclusive life-of-program APU components distribution agreement for over 2,500 unique aftermarket parts supporting four OEM APU platforms. These awards expand VSE's proprietary OEM solutions portfolio and annuity-like revenue streams.

    05

    Aviation Aftermarket Environment and Growth Outlook

    The aviation aftermarket is positioned for continued growth in 2026, driven by healthy air travel demand, sustained utilization of legacy fleets due to new aircraft undersupply, and strong demand in business and general aviation. VSE expects its core markets to grow in the mid- to high single-digit range, with the company anticipating outperformance through new program awards, distribution expansion, increased MRO capacity, and market share gains.

    06

    Margin Expansion and Free Cash Flow Generation

    VSE achieved record profitability and generated positive free cash flow of $6 million in FY25, an improvement of $57 million year-over-year. The company anticipates continued margin expansion in 2026 through operating leverage, program optimization, and improved MRO utilization, with a long-term target of achieving adjusted EBITDA margins above 20% for the combined entity by the end of 2027, accelerated by the PAG acquisition.

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