VSE Corporation Q1 FY2026 earnings call

• Recently closed the acquisition of PAG on May 5th, forming a scaled independent aviation aftermarket platform with 61 locations across eight countries, expanding capabilities across distribution and MRO, enhancing technical depth, and strengthening ability to deliver integrated solutions. PAG's margin profile is immediately accretive. - On April 1st, acquired Northstar Technologies, expanding engine service capabilities in the business and general aviation market, deepening integration with OEM aftermarket supply chains. - Advanced OEM-aligned distribution programs, expanded MRO capabilities, invested in targeted growth opportunities, and made progress on acquisition integrations. - Focused on executing strategy, scaling platform, driving growth, margin expansion, and long-term value creation. - Priorities include executing recent acquisitions, accelerating integration, realizing synergies; implementing newly awarded OEM and distribution programs; expanding MRO capacity and technical capabilities; advancing and converting organic growth pipeline; enhancing systems and processes to support scale, integration, and efficient growth, including use of AI and data-driven tools.

In the first quarter of 2026, VSE delivered record revenue and profitability. Revenue was $325 million, up 27% year-over-year. Distribution revenue increased 26% driven by strong performance across new and existing programs, product line expansion, market share gains, and contributions from the Arrow 3 acquisition. MRO revenue increased 28% due to expanded repair capacity, new repair capabilities, sustained end market demand, and contributions from the Arrow 3 and Turbine Weld acquisitions. Engine aftermarket activity now represents more than 50% of total revenue. Excluding recent acquisitions, organic revenue increased about 15% year-over-year. Consolidated adjusted EBITDA increased 37% to $55 million, with an adjusted EBITDA margin of 17.1%, an increase of approximately 130 basis points versus the prior year period. Adjusted net income was $33 million and adjusted diluted earnings per share was $1.17 per share.

• Updated full-year 2026 revenue growth guidance to 57% to 61% inclusive of the PAG acquisition. - Updated full year 2026 adjusted EBITDA margin outlook to 18.1% to 18.5% inclusive of PAG. - Expect free cash flow improvement over the course of the year driven by earnings growth and reduction in working capital intensity. - For full year 2026, interest expense net of interest income projected at approximately 37 to $40 million, depreciation and amortization expected to be approximately 98 to $103 million in aggregate, effective tax rate projected at approximately 25%, stock-based compensation expected to be approximately 18 to $19 million, and capital expenditures expected to be approximately 2% to 2.5% of revenue. - On May 5th, closed on a $900 million term loan B and upsized revolving credit facility to $500 million, strengthening balance sheet and providing flexibility to execute on strategic priorities.

Q: Ken Herbert from RBC Capital Markets asked about potential lag impact from higher crude prices on VSE's business and how it compares to other engine companies.

A: John Cuomo said April has started strong, no outward impact on engine bookings yet, and the business has a mix of legacy engines and 50% business in general aviation which is more resilient.

Q: Sheila Kyoglu from Jefferies asked about organic growth in Q1 and how MRO is growing.

A: John Cuomo said distribution outpaced MRO in growth, with engine-focused product leading distribution growth, and April has started strong on both MRO and distribution.

Q: Louis de Palma from William Blair asked about acceleration of organic growth in the second half due to new deals and other moving parts.

A: John Cuomo said the Pratt & Whitney Canada APU global distribution deal will scale throughout the year, and the CFM 56 deal could contribute later, with organic growth already embedded in guidance.

Q: Scott Deutchel from Deutsche Bank asked about the CSN 56 asset management program and inventory build, and when VSE might reach 20% EBITDA margins.

A: John Cuomo said the CSN 56 program was partially due to engine purchases and inventory build for the new APU program, and he wasn't ready to commit to a timeline for reaching 20% EBITDA margins yet.

Q: John Godden from Citi asked about aftermarket resiliency and leading indicators.

A: John Cuomo said VSE hasn't seen any softness in the business, April was strong, and outward bookings are quite strong.

Q: Jeff Van Cenderen from B. Reilly Securities asked about first 90 days focus on PAG integration and AI application.

A: John Cuomo said first 30-45 days focus on visiting sites and getting to know people, with integration focused on capability sets and market segments for cross-selling and insourcing opportunities, and AI initiatives are bottoms up with businesses finding problems to solve and building in-house where possible.

Q: Jonathan Siegman from Stiefel asked about the Martin-Whitney Canada Agreement and North Star.

A: John Cuomo said there's still share gain opportunity with OEM partners as they manage a large portion of the aftermarket, and North Star acquisition is to support an OEM partner and there are potential small bite-sized opportunities in the M&A pipeline.