VSE CORP Q1 FY2025 earnings call

• Completed sale of fleet segment on April 1st, positioning VSE as a pure-play aviation aftermarket provider. • Acquired Turbine Weld Industries, a specialized MRO service provider for complex engine components, with $20 million revenue over the last 12 months and a $50 million purchase price. • Signed a new five-year authorized service center agreement with Eaton for hydraulic pump MRO services. • Entered into a new $700 million credit facility for growth flexibility. • Integration of TCI and Kellstrom is ahead of plan; TCI exceeds expectations, Kellstrom integration progresses towards $4 million cost synergies. • Transition of Honeywell Fuel Control program is progressing, with expected financial contribution in 2025. • Strong first quarter financial results with record revenue, profitability, and adjusted EBITDA.

In the first quarter of 2025, VSE aviation generated $256 million in revenue, a 58% increase from the prior year. Distribution revenue increased 49% driven by new OEM program awards, operational execution, and the Kellstrom acquisition. MRO revenue increased 76% due to expanded repair capabilities, market share gains, and the TCI acquisition. Aviation adjusted EBITDA was $43 million, a 52% increase, representing 16.9% of revenue.

• Reaffirmed 2025 aviation segment revenue growth guidance of 35%-40%, with 26%-28% contribution from acquisitions and high single to low double-digit organic growth. • Reaffirmed aviation adjusted EBITDA margin guidance of 15.5%-16.5%, increased to 16%-17% including stock-based compensation add back. • Integration synergies expected to begin in the second half of 2025 and continue into 2026. • Effective tax rate expected ~25% for remaining 2025 quarters; depreciation/amortization ~$38M-$40M; stock-based compensation ~$3M per quarter; unallocated corporate costs ~$21M full year.

• Uncertainty around trade agreements and potential tariff impacts, but no expected revision to 2025 guidance.

Q: On margins in Q1 and margin outlook, A: Adam discussed Q1 being strong due to low-cost inventory sales and positive mix, with integration synergies expected in Q2-Q4.

Q: On acquisition integrations, A: John discussed accelerating integrations but timing remains around 18 months for full completion of TCI, Kellstrom, and Turbine Weld integrations.

Q: On Eaton hydraulic steel, A: John discussed OEM centric value proposition and potential for more with Eaton as the start of an MRO relationship.

Q: On component repair capacity with TCI, A: John discussed a phased approach to expanding capacity to support growing market demand.

Q: On organic growth and MRO vs distribution, A: John and Adam discussed organic growth trends being similar for MRO and distribution, with USM being on the lower growth side.

Q: On integration synergies for acquisitions, A: John discussed different synergies for each acquisition (TCI focuses on capacity expansion, Kellstrom has some cost out, Turbine Weld is similar to TCI in capacity support).