On Wednesday, VSE (NASDAQ:VSEC) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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The full earnings call is available at https://edge.media-server.com/mmc/p/5bqzi4pu/
Summary
VSE reported record first-quarter results in 2026, with balanced contributions from both distribution and MRO channels, driven by engine-related aftermarket activity.
The company completed the acquisition of PAG, forming a scaled independent aviation aftermarket platform, and anticipates accelerated integration and synergy realization.
VSE updated its full-year 2026 revenue growth guidance to 57-61% and adjusted EBITDA margin outlook to 18.1-18.5%, reflecting the contribution from the PAG acquisition.
Recent developments include a new distribution agreement with Pratt Whitney Canada and the acquisition of Northstar Technologies, expanding engine service capabilities.
Management noted resilient demand across core end markets despite macroeconomic uncertainties and highlighted significant opportunities for cross-selling and operational efficiencies post-acquisition.
Full Transcript
OPERATOR
Good day and thank you for standing by. Welcome to The VSE Corporation first quarter 2026 earnings conference call. At this time all participants are in listen only mode. After the speaker’s presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised to withdraw your question. Please press star 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Michael Pearlman. Please go ahead.
Michael Pearlman
Thank you. Welcome to VSE Corporation’s first quarter 2026 results conference call. We will begin with remarks from John Cuomo, President and CEO, followed by a financial update from Adam Cohen, our Chief Financial Officer. The presentation we are sharing today is available on our website and we encourage you to follow along accordingly. Today’s discussion contains forward looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today’s forward looking statements due to various risks and uncertainties including those described in our periodic reports filed with the SEC. Except as required by law, we undertake no obligation to update our forward looking statements. We are using non-GAAP financials measures in our presentation. Where available, the appropriate GAAP financials reconciliations are incorporated into our presentation and posted on our website. All percentages in today’s discussion refer to year over year progress except where noted. At the conclusion of our prepared remarks, we will open the line for questions.
John Cuomo (President and CEO)
With that, I’d like to turn the call over to John Good morning everyone and thank you for joining us today. We delivered a strong start to 2026 with record results in the first quarter and continued momentum across our business. Our performance was driven by balanced contributions from both our distribution and MRO channels, supported by strong execution, new program activity and continued market share gains. Engine related aftermarket activity remains a key driver of our business and now represents more than half of our total revenue with continued strength across our core platforms. During the quarter we advanced our OEM aligned distribution programs, expanded our MRO capabilities, invested in targeted growth opportunities and made meaningful progress on our acquisition integrations. We remain focused on executing our strategy, scaling our platform and driving continued growth, margin expansion and long term value creation. Let’s begin on slide 3 where I will highlight our recent developments. Let me start with the acquisition of PAG, which we closed this week on Tuesday, May 5th. Together, VSE and PAG now form a scaled independent aviation aftermarket platform with 61 locations across 8 countries including 48 repair facilities and 11 distribution centers of Excellence. The combination significantly expands our capabilities across both distribution and MRO, enhances our technical depth and strengthens our ability to deliver more integrated end to end solutions with increased proprietary content to a broad and diversified customer base. The business will now serve a diverse customer base across commercial, business and general aviation, rotorcraft, OEM and defense markets. Strategically, this transaction accelerates our transition towards a more integrated higher margin aftermarket model with greater exposure to repair and engine related activity. PAG’s margin profile is immediately accretive and supports a clear path to exceeding 20% consolidated adjusted EBITDA margins over time along with improved free cash flow generation. We funded the transaction through a combination of equity and new debt financing with which Adam will cover in more detail shortly. With the transaction now closed, our focus shifts to integration and execution. We see clear opportunities to drive synergies through cross selling, repair and sourcing and procurement efficiencies and we are confident in our ability to deliver on those objectives. Let’s move to Slide 4 and continue with our recent developments. On April 1st we acquired Northstar Technologies, a provider of MRO and third party logistics services supporting the engine aftermarket. This acquisition expands our engine service capabilities in the business and general aviation market, deepens our integration with OEM aftermarket supply chains and enhances our ability to capture growing demand for care down and other labor intensive services. The business operates under a capital light model with strong demand visibility and a demonstrated resilience across market cycles supporting both active fleet and increasing teardown and retirement activity. Let’s now turn to slide 5 where I will highlight a few business developments from the quarter. First, we previously announced a new globally exclusive life of Program distribution agreement with Pratt Whitney Canada for APU aftermarket components. This agreement spans more than 2,500 SKUs across more than 15 commercial, regional and business aviation platforms and meaningfully expands our OEM aligned portfolio while deepening our role in supporting these assets across their full lifecycle. Second, we expanded our airline focused asset management program through the acquisition of CFM56 engines for a major US airline partner. By leveraging our in house capabilities across asset management, teardown and component level repair, we’re able to deliver a more integrated engine aftermarket solution. This program supports our organic growth and further strengthens our position across the engine lifecycle. Third, we completed the integration of Turbine Weld into the VSE platform. With that integration now in place, the business is well positioned to continue to scale and contribute to our expanding engine focused MRO capabilities. And finally, in connection with the PAG Acquisition. We strengthened our capital structure through a combination of equity and debt financing, enhancing our financial flexibility to support future growth. Adam will cover this in more detail shortly. Let me briefly update you on the current aviation aftermarket environment. Despite near term macroeconomic uncertainty, including elevated fuel prices driven by recent geopolitical developments, we have not seen a pullback in airline capacity, OEM production plans or operator behavior to date. Demand for engine maintenance and repair activity remains strong supported by continued fleet utilization, aging assets and ongoing supply constraints. This continues to be a key driver of activity across our commercial and business aviation businesses, specifically in the business and aviation SECtor. Demand also remains resilient. This segment has historically demonstrated lower sensitivity to fuel price volatility and and continues to provide a stable and diversified source of revenue within our portfolio. Let’s now move to slide 6 and discuss our consolidated first quarter 2026 financial performance. In the first quarter of 2026 we delivered record revenue and profitability. Revenue growth was driven by balanced contributions from both our distribution and MRO businesses along with contributions from recent acquisitions. Engine aftermarket activity remains a key driver of our performance and now represents more than 50% of our total revenue. We continue to see strong demand across this segment supported by high fleet utilization and ongoing supply constraints. Our business also delivered record profitability in the quarter. Profitability in the quarter reflects disciplined execution across both new and existing programs, expanded product offerings and MRO capabilities, strong performance in our OEM licensing and manufacturing programs, and early synergy realization from recent acquisitions. With that, I will now turn the call over to Adam to walk through our financial details.
Adam Cohen (Chief Financial Officer)
Thank you, John. Let’s turn to slide 7 of the conference call materials where I will provide a detailed overview of our first quarter consolidated financial results. For the first quarter of 2026, we generated $325 million of revenue, an increase of 27% year over year. Both distribution and MRO delivered strong results with distribution revenue increasing 26% and MRO revenue increasing 28% year over year. The 26% increase in distribution revenue was driven by strong performance across new and existing programs, product line expansion, market share gains, and contributions from the Arrow 3 acquisition. The 28% increase in MRO revenue was driven by expanded repair capacity, new repair capabilities, sustained end market demand and contributions from the Arrow 3 and Turbine Weld acquisitions. Growth across both segments continues to be supported by strong demand, specifically in the engine aftermarket. Excluding recent acquisitions, Organic revenue increased about 15% year over year, reflecting strong underlying demand across the business. Consolidated adjusted EBITDA increased 37% to $55 million compared to the first quarter of 2025. Adjusted EBITDA margin was 17.1%, an increase of approximately 130 basis points versus the prior year period driven primarily by greater mix of higher margin product and repair activity, higher margin OEM licensed manufacturing sales and continued synergy realization from recent acquisitions. Adjusted net income was $33 million and adjusted diluted earnings per share was $1.17 per share. Let’s turn to Slide 8 and our balance sheet at the end of the first quarter, total debt outstanding was $366 million. The company had approximately $1.24 billion of cash and cash equivalents on hand, of which a majority was used to fund the PAG acquisition at closing which occurred on May 5th. We had no borrowings under our $400 million revolving credit facility which was recently upsized to $500 million. The upside credit facility remains undrawn. During the first quarter, we used approximately $69 million of free cash flow driven by part procurement seasonality and targeted strategic investments to support both the recently awarded APU program and the expanded airline focused asset management program. We remain confident in our ability to generate strong free cash flow as these investments scale through the balance of the year pro forma for the acquisition. Adjusted net leverage is estimated to be below 3 times with a clear path to below 2.5x by year end driven by EBITDA growth and free cash flow generation. Let’s turn to Slide 9 to review our updated Consolidated Company guidance For full year 2026 inclusive of the PAG acquisition starting with Revenue with the PAG acquisition now closed as of May 5, we are updating our full year 2026 revenue growth guidance to reflect the contribution of that business. Our new range inclusive of PAG is 57 to 61% for the full year. Importantly, this update reflects the inclusion of PAG and no change in our expectations for the underlying business. The updated revenue guidance is presented net of intercompany eliminations. We are also updating Our full year 2026 adjusted EBITDA margin outlook to reflect the addition of PAG, raising our range to 18.1 to 18.5%. As with our revenue guidance, this update is driven by the inclusion of PAG and does not reflect any change in our expectations for the underlying business. On a free cash flow basis inclusive of our strategic investments executed in the first quarter and inclusive of the PAG acquisition, we expect to see improvement over the course of the year and on a year over year basis driven by earnings growth and a reduction in working Capital Intensity I would now like to provide an update on several additional modeling assumptions post PAG acquisition which are also detailed in the appendix of the presentation. For the full year 2026, interest expense net of interest income is projected at approximately 37 to $40 million. Depreciation and amortization is expected to be approximately 98 to $103 million. In aggregate, the effective tax rate is Projected at approximately 25%, stock based compensation is expected to be approximately 18 to 19 million dollars and capital expenditures are expected to be approximately 2 to 2.5% of revenue. Let’s now move to Slide 10 and review our new capital structure. On May 5, we closed on a $900 million term loan B and upsized our revolving credit facility to $500 million. These new facilities replace our prior term Loan A and the REVOLVER structure and together they strengthen our balance sheet and give us flexibility to execute on our strategic priorities. With this refinancing, we extended our term loan maturity, expanded our borrowing capacity and improved our day to day operating flexibility. We were pleased with the level of institutional support and the pricing achieved. This refinancing positions us with significant available liquidity and to support our strategic priorities and future growth initiatives. With that, I’ll turn the call back
John Cuomo (President and CEO)
over to John Thanks Adam. I’d like to conclude by briefly reviewing our 2026 priorities on Slide 11. First, we are focused on executing our recent acquisitions, accelerating integration and realizing synergies. We’ve made meaningful progress in the first quarter including completing the integration of turbine weld. Second, we are implementing newly awarded OEM and distribution programs across our core platforms including the Pratt Whitney Canada APU agreement and our CFM engine initiatives which we expect to contribute more meaningfully in the second half of the year. Third, we are expanding our MRO capacity and technical capabilities to capture continued demand across the engine aftermarket. Fourth, we are advancing and converting our organic growth pipeline into revenue and margin contribution. Fifth, we are continuing to enhance our systems and processes to support scale integration and efficient growth, including the targeted use of AI and data driven tools to improve operational efficiency and optimize workflows across the platform. And finally, with the PAG acquisition now closed, our focus moves to execution. We see clear opportunities to realize synergies through cross selling, repair and sourcing, procurement efficiencies and network optimization and we are confident in our ability to deliver on those objectives. In closing, we delivered a strong start to 2026 with record results in the first quarter and continued momentum across our business as we begin the second quarter …
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