VSE Corporation

Hello and welcome to the VSE Corporation's second quarter 2025 earnings conference call. At this time all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand has been raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. It is now my pleasure to introduce Vice President of Investor Relations and Treasury, Michael Perman.

Thank you. Welcome to VSE Corporation's second quarter 2025 results conference call. We will begin with remarks from John Cuomo, President and CEO, followed by a financial update from Adam Cohn, Chief Financial Officer. The presentation we are sharing today is on our website. 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 financial measures in our presentation. Where available, the appropriate GAAP financial reconciliations are incorporated into our presentation and posted on our website. All percentages in today's discussion refer to -over-year progress except where noted. At the conclusion of our prepared remarks, we will open the line for questions. With that, I would now like to turn the call over to John. Good morning. Thank

you for joining us today for VSC's second quarter 2025 conference call. We are pleased to report another outstanding and record quarter. In the second quarter of 2025, we achieved record revenue, record profitability, record margins, and significantly improved free cash flow generation. Today's results highlight the strength of our business, the resilience of our markets, the strong contributions from recent acquisitions, and the impact that our integration efforts are having on accelerating growth and margin opportunities. Let's begin with slide three and a review of our second quarter highlights. First, on April 1st, we completed the sale of our fleet segment. This marks the final step in our multi-year transformation into a pure-play aviation aftermarket company. With this divestiture behind us, we are now fully focused on higher growth, higher margin, distribution, and MRO services within the aviation aftermarket. Second, we acquired Turbine Weld Industries, specialized MRO provider, complex engine components supporting the business and general aviation aftermarket. This acquisition expands our engine service capabilities and several proprietary repair offerings to our MRO portfolio, deepens our OEM relationships, and opens the door to future growth through targeted investment. Third, we signed a new five-year authorized service center agreement with EDEN for hydraulic pump MRO support. This is EDEN's first authorized aftermarket repair partnership, an endorsement of VSE as a trusted and capable OEM partner. Fourth, we secured a new $700 million credit facility, comprising a $300 million term loanee and a $400 million revolver. This refinancing places our prior facilities and gives us more flexibility along with a lower total cost of capital to support growth. And finally, we made solid progress executing on our operating plan, integrating recent acquisitions, launching new programs, and expanding margins through synergy capture and operational improvement. Let's now move to slide four, where I will provide updates on our acquisition and integration efforts. Let's begin with TCI. We acquired TCI in April 2024, and it's quickly become one of our fastest growing business units. Growth has been driven by a strong backlog from OEM engine partners and new business wins. To support this momentum, resting in new repair capabilities, expanding our capacity, and executing cross-selling synergies, including insourcing work from our calcium business. In December 2024, we acquired calcium. We're very pleased with calcium's performance and integration progress over our first six months of ownership. The team is executing well with a clear focus on driving profitable growth and improving margins. We're doing that in three ways. First, emphasizing higher value, higher margin, engine, and engine-related components, specifically those supporting next generation platforms like a leap engine. Second, we've refined our USM, new serviceable material strategy, to focus on higher margin product lines that align with our in-house repair capabilities and new part distribution product lines. This more disciplined and strategic approach has reduced upline USM revenue that is driving significantly stronger margins. In the first half of 2025, we have reduced calcium's USM revenue by approximately 20% on a run rate basis versus the prior year. And we expect a similar -over-year trend in the second half. Importantly, we repositioned USM as a strategic enabler of new part distribution and repair services and no longer a standalone speculative arts trading business. Third, we've already begun capturing a significant portion of the $4 million in cost synergies we identified at the time of acquisition. In addition to TCI and Kallstrom, we're very excited about our recent acquisition of Turbine Weld, an outstanding business with an outstanding team. At Turbine Weld, we're expanding operational capacity to meet strong customer demand and investing in new equipment and technical talent to support this accelerated growth. In addition, we're implementing standardized processes and upgrading systems to ensure the business scales efficiently and sustainably. Now, moving on to program implementations. The OEM Licensed Fuel Control Program made strong progress in the second quarter. The successful production of our first approved units will remain on track for full production by early 2026. Margin contribution is now fully reflected in our financials. As mentioned, we launched Eaton's first authorized repair station in the Americas. Early results are strong and we're helping Eaton expand into new markets, increase repair capacity, and improve the customer experience. This sets the stage for future partnership opportunities. Finally, following the fleet divestiture, we completed a full cost review to align with our single segment aviation model. We're now operating from a leaner base and are in the final stages of transition work, which will be completed before year end. I will now provide an update on the current market environment for our business. The second quarter began with some softness in the aftermarket. Driven by uncertainty around tariffs. However, activity rebounded quickly in May and June as OEMs and customers regained confidence and swiftly adjusted to the new environment. Looking ahead to the second half of 2025 and 2026, we anticipate continued strength in the aviation aftermarket, specifically in the engine segment. To capitalize on this growth, we've made targeted investments both organically and acquisitions, engine part distribution and repair services. The engine aftermarket remains one of the fastest growing and most supply constrained parts of the market. As of the second quarter, engine related MRO and distribution revenue represents greater than 50% of total VSE aviation revenue. Let's now move to slide five to discuss our financial performance. VSE delivered another outstanding quarter, generating record revenue, record profitability, and positive free cash flow supported by solid execution, continued robust end market activity. In the second quarter of 2025, consolidated revenues increased 41% to $272 million. Driven by strong financial performance from our core aviation distribution and MRO businesses and contributions to recent acquisitions. Aviation adjusted EBITDA increased by 48% in the quarter, a record $47 million, .1% of revenue. And consolidated adjusted EBITDA increased 52% to $43 million, 16% of revenue. These record results, driven by a balanced mix, strong pricing, solid execution on distribution program awards, a focus on higher margin product lines, continued success in our OEM licensed manufacturing program, and contribution from each acquisition, including earlier than planned synergy capture. Adjusted net income of $20 million and adjusted net income per diluted share of 97 cents increased 149% and 106% respectively. And finally, we completed the second quarter with a strong balance sheet, achieving an adjusted net leverage ratio of 2.2 times following the sales of the fleet business and the acquisition of Turbine Weld, providing us with significant financial flexibility to support our strategic growth initiatives. I will now turn the call over to Adam to discuss the details of our financial performance.

Thank you, John. Let's turn to slide six of the conference call materials. I will provide an overview of our second quarter consolidated financial performance. VSE generated $272 million of revenue in the quarter, an increase of 41% over the same period in the prior year. Adjusted EBITDA increased 52% to $43 million compared to the second quarter of 2024. Adjusted EBITDA margin was 16% in the quarter, an approximate 110 basis point improvement over the prior year period. Adjusted net income was $20 million and adjusted diluted earnings per share was 97 cents, an increase of 149% and 106% respectively over the prior year period. Now turning to slide seven, I will review our aviation segment's record second quarter performance. VSE aviation generated $272 million of revenue in the quarter, an increase of 41% over the prior year period. More specifically, distribution revenue increased 50% in the period driven by strong operational execution of new and existing programs, product line expansion, specifically parts supporting our OEM licensed manufacturing program, market share gains, and contributions from the KELSTRM acquisition. MRO revenue increased 27% in the quarter, driven by increased repair activity on higher value technical repair capabilities from our avionics, fuel, pneumatics, and hydraulics MRO centers of excellence, the addition of new repair capabilities, strong end market demand, and contributions from the Turbine weld acquisition. Excluding the impact of recent acquisitions, including TCI results in the quarter, organic aviation segment revenue increased by approximately 13% in the second quarter as compared to the prior year. Aviation adjusted EBITDA increased by 48% in the quarter to a record $47 million or .1% of revenue. Adjusted EBITDA margin improved 80 basis points year over year, driven by favorable pricing and product mix, higher margin after sales from our OEM licensed manufacturing program, lower contributions from our less profitable USM business, and increased insourcing of repair work. We're also beginning to realize cost synergies from recent acquisitions. Now let's turn to slide eight of our presentation materials to review our aviation segment guidance for the full year 2025. It is important to note our guidance does not assume further tariff escalation or global recession. We are reaffirming our full year 2025 aviation segment revenue growth guidance range of 35 to 40%. This growth is supported by full year contributions from recent acquisitions, partially offset by our strategic decision to narrow our USM focus to higher margin product lines aligned with our in house repair capabilities and new part distribution portfolio. We are raising our 2025 full year aviation adjusted EBITDA margin guidance to the high end of the previously provided range to 16.5 to 17%. This increase reflects a higher margin product mix and lower contributions from our less profitable USM business. In addition to our formal guidance commentary, I will now provide some additional modeling items. Adjusted unallocated corporate costs, which include incremental stranded costs associated with the fleet divestiture, participated to be between 14 and 15 million dollars, excluding stock based compensation for the full year. Stock based compensation, which beginning in Q1 is excluded from adjusted EBITDA, is expected to be three million dollars per quarter for the remainder of the year, but relatively evenly between aviation and corporate. Appreciation and amortization in total are projected to be approximately 38 to 40 million dollars for the full year 2025. Insurance expense is expected to be approximately 26 to 28 million dollars for the full year. Finally, our effective tax rate is expected to be approximately 25% for the remaining two quarters or a full year blended rate of 22%. Turning to slide 10 to review our balance sheet. At the end of the second quarter, our total net debt outstanding was 362 million dollars. Cash and availability under our 400 million dollar credit facility was 333 million dollars. During the second quarter, we generated approximately six million dollars of free cash flow driven by disciplined working capital management and record operating results. This was an improvement of approximately 28 million dollars versus Q2 of 2024. We are expecting to generate improved free cash flow in the second half of the year. Our adjusted net leverage ratio was 2.2 times in the second quarter, which includes the impact of the fleet business sale and the acquisition of Turban Wells. With that, I will turn it back over to John.

Thanks, Adam. I'd like to conclude our prepared remarks by revisiting our 2025 priorities on slide 11. First, following the sale of our fleet business, we completed a full review of our corporate structure and cost base. We're now aligned with our aviation focus strategy and well positioned to scale. Final transition work is underway and on track to be completed by year end. Second, we're expanding repair capabilities and increasing capacity across those legacy operations and recent acquisitions meet strong demand and drive growth at our MRO centers of excellence. Third, we're prioritizing the integration at CCI and Kallstrom to unlock efficiencies and enhance customer value. We've also launched integration planning for Turban Wells and are investing to meet growing demand. Fourth, we've begun capturing synergies from recent acquisitions to support margin expansion. Phase one of the Kallstrom integration is already delivering a significant portion of the $4 million in identified cost savings as evidenced by our strong second quarter margin performance. Next, we continue to make steady progress on implementing our OEM license fuel control manufacturing capabilities. And finally, we remain focused on building the anic growth pipeline, deepening OEM partnerships and expanding our market presence to support 2026 and beyond. I'll close by thanking our shareholders, customers, and supplier partners for their continued trust and support. And most importantly, thanks to the VSE team for their outstanding record second quarter performance. Operator, we're now ready to open the line for

questions. Certainly. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question comes from the line of Ken Herbert with RBC Capital Markets.

Yeah, good morning, John and Adam and Michael.

Morning,

Ken. Hey, John, maybe just to follow up on your comments on the organic growth. Looks like the guidance implies, you know, call it low to mid teens organic growth in the back half of the year, and you seem to have done a really nice job here of offsetting some of the USM growth headwinds. Can you just talk about what you're seeing on the commercial transport versus business yet side or specifically how we think about second half and what you're seeing by some of your end markets?

Sure, appreciate the question. Yeah, I mean, I think I wanted to be a little clear because I didn't want anyone to get a concern that organic growth was slowing, but we're really in a position as we have done in the first half of the year to continue to reposition that USM material business to something different, which is a bit of a decline in top line. But we look at the markets, I'd say, let me break it down first, engine and non-engine, both B and GA and commercial, the engine markets continue to be the most robust parts of the market for us specifically, and they continue to outperform kind of the component side of our business. That's both in distribution and MRO. Then when you look at it by end markets, the commercial end markets are stronger than the business and general aviation market. That market has settled nicely. The B and GA market is nicely in that kind of, you know, four to six percent range where we're seeing the commercial end markets probably naturally without organic growth in that high single digits, low double digits, and then a little bit of organic growth pushing us into double digits on the commercial side. So you kind of balance it out and you get to a place where our natural organic growth for our business being 50 percent commercial, 50 percent B and GA, about just over 50 percent engine type products versus component products, putting it in a position where it's about kind of, you know, mid to high single digits before any share gain.

Very helpful. And can you provide any more detail on the sort of the one VSC and I guess specifically what the impact could be maybe this year, but more importantly, 26, 27, as we talked about the adjusted EBITDA margins, is there a significant cost opportunity here or how are you thinking about the potential there?

Yeah, I mean, I'd say that we're, you know, as you can see by the margins that we posted in the quarter, the progress on the acquisitions and the integrations is ahead of schedule. So we built into our plans, you know, margin opportunity, and definitely felt that there was opportunity to continue to scale margins. I would say that, you know, we continue to be ahead of our plans. So I wouldn't get too far ahead in terms of margin opportunity, but there's definitely we do see continued opportunity out in the market, you know, as we integrate, but we've already captured a number of synergies, both on our fuel control program, our, you know, initial four million dollars that we announced with the Kelsnerum, a significant portion of that has been realized in the first half of the year as well.

Thanks, John. Nice cash generation in the quarter as well. I'll pass it back there.

Thanks, Ken. Appreciate it.

Thank you. Our next question comes from the line of Sheila Cahaglu with Jefferies.

Good morning, John and Adam, and thank you for the time. Maybe just on that last point Ken just made on cash, great cash generation, and I think you called out improved free cash flow in the second half. So given 57 million of generation, you know, just given the generation in the first half, how do we think about the sustainability of free cash flow and any puts and takes on working capital we should consider?

Yeah, sure. So yeah, it was a good solid cash quarter, as you mentioned, Sheila, we've generally generated about six million in the quarter. We have seen significant improvement year over year, so if you look over the first six months versus last year, I think we've improved by about 65 million, so pretty significant. And as you know, there's some working capital seasonality in the business, so we generally see a larger use in the first half of the year, and that sort of neutralizes in the back half of the year as we lap our inventory purchases. So we are expecting to strong improvement through the back half of the year. I would say that we are seeing improvement in our working capital profile, especially just given the last few acquisitions, including Kelsstrom. They're less working capital intensive businesses, so we're just seeing some natural improvement, but there's definitely a focus on continuing to generate strong free cash flow.

Great, and maybe if we could talk about Kelsstrom for a little bit. It's been a part of VSC for now over six months. What are the biggest positives? And John, you mentioned potentially shifting around the USM business, which you've always called out to something different. What does that something different mean?

Yeah, I appreciate the question. I mean, first, it makes me feel great about the diligence. Everything is relatively as we had thought the business would be. The distribution business is as strong or stronger than we had anticipated. The team that manages that is quite strong as well, and we're really pleased to see what they have done in the first half of the year and the opportunities as we move forward as well. The Vortex business, which is their MRO business, services business, is continues to perform outstandingly well, and we plan to get that integrated onto our systems hopefully before year end. And then I'd say for the USM business, we wanted to let it run for about six months and just watch how the business played. It was a little bit too opportunistic in terms of parts trading for me. So where we're moving the business and shifting the business is we look at our businesses bringing together our capabilities and insourcing as much work as we possibly can. So think of it more of a new used and repair model where we're supporting our new part distribution with a used USM option, or we're supporting our repair capabilities with a used option, or we're working directly with large airlines on some type of asset management program. So that's what our USM kind of strategy, which we've just launched and put a new leader in place, and that's what that'll look like. And we'll share more details as we get into the back end of the year. But expect to see a little bit of pruning on the revenue side there because we want to get away from the transactional parts trading, and we also want to focus on the right margin profile for our business.

Great. Thank you so much for that call.

Thank

you. Thank you. And our next question comes from the line of Noah Levitz with William Blair.

Awesome. John, Adam, Michael, good morning. Thanks for taking my question. To start off on margins, you touched a little bit on it earlier, but we were under the impression that Q1 margins were typically the greatest and then Q2 and Q3 were a bit lower before improving back in the fourth quarter. Obviously, this quarter's aviation EBITDA margins were exceptional at 17.1%. So given your control program receiving the full margin contribution, calcium cost energy is moving faster than expected, and then also driving down some of that lower margin USM work, what's kind of preventing you from the back half of the year maintaining if not beating that .1%? Adam, you want to kick off or you want me to start? Go ahead. Yeah,

I'll take it. It's a good question. So I would say that the second quarter margins were very strong. I think the, you know, the calcium synergy capture had a large part, the sort of capturing those maybe earlier than we initially anticipated. So that really drove some of the margins in the second quarter. If you look back historically, there is definitely seasonality in our margins, and it really goes back to the seasonality in the distribution business. We tend to see higher margins in the first half of the year from basically lower cost at inventory. And so that's really what's driving sort of that first half to the second half. And, you know, maybe initially we expected to capture more of the synergies in the second half of the year from that sort of accelerated up a quarter. So that's driving some of the differences from what we initially anticipated.

Great. And then we've leveraged down to 2.2 times. Can you talk a little bit about the M&A pipeline going forward? And then in particular, you've had a Honeywell fuel control deal for a while now. And things like those dial-up programs are very, very strong on the margin side. So are there other versions of that in the pipeline as well?

Thanks. Yeah, I appreciate the question. I'd say that the M&A pipeline is very, very healthy. As we look at the back half of 25 and into 26, we have a number of kind of active or -to-be active things in the market. It's always difficult to forecast something like that because as you know, it's either you're all in or you're all out. So we'll see how that plays out. But we do have a pretty robust and healthy pipeline. And obviously it's a place we plan to use our balance sheet to support that inorganic growth.

With

regard to kind of our license manufacturing program, we really need until the first quarter of next year to be perfect on our fuel control execution. So we are, although we're excited about the program and the growth opportunities it offers, because it's our first program and it's something very unique that we haven't done before, we're more kind of looking at it with more of a longer game focus. So I'd say don't expect anything there, at least in the next 12 months. So maybe back end of next year as we move into 2027, we'll look at growth opportunities and what the market looks like there for us.

Great. Thanks and congrats on the quarter.

Thank you. Appreciate it.

Thank you. Our next question comes from the line of Jeff Van Cinderan with B. Riley Securities. Good evening, everyone. Let me add my congratulations.

Wanted to follow up just on the Kallstrom synergies. It sounds like you're realizing those a little bit ahead of expectations. And wondering where are you seeing the remaining opportunities for efficiencies, synergies, leveraging scale as you fully integrate recent acquisitions? Just wondering what the focus is there for second half?

Yeah, I mean, you know, I appreciate the question. Synergy capture is easy and complicated at the same time. There's four real levers, right? There's growing revenue while keeping your SG&A relatively flat. There's an element of price, there's an element of product cost, and then there's an each deal that we do, when we're going through our de-modeling, in our diligence, we try to capture where we think the synergy opportunities are and what the very specific actions are that are going to be tied to each. I would say that a lot of the cost synergies have been captured already on this deal. So really where we look at is more insourcing, more on the product margin side, or opportunities to grow top line while kind of leveraging that operating expense base. So the SG&A is the press center to sales will start to decline and generate stronger returns for the business. So I'd say it's more on the top side of the income statement than the bottom side as we continue to integrate.

Okay, fair enough. And then just kind of a follow up, wondering what your thinking is on opportunities for the Honeywell business?

Yeah, I mean, like I just said to Noah, of anything we're doing, that is probably the most precise program. It's our first manufacturing program. It's a fuel control that's on the PT6 engine for Canada and the Rolls Royce 250. We want it to be absolutely perfect. We have work to do through the first quarter to continue to get final approvals and it to be our control without any interference from the original OEM. So we do not plan to work on new programs until that's complete. So I would tell you, probably the first quarter I can give you a better strategy update once we get the full implementation done on this program. But it's performing very, very well. We've got to clean up some supply chain issues that existed when we acquired the program and that's in process. Full financials are embedded in everything that we're doing today. So very, very pleased with the performance of the program. We just need a little bit of time.

Okay, fair enough. Thanks for taking my questions.

Oh, thank you.

Thank you. Our next question comes from the line of Josh Sullivan with the Benchmark Company.

Hey, good morning. Hey, Josh. John, can you just expand on the hydraulics opportunity? You know, maybe how large is that market? Why are you maybe the right partner to leverage capabilities there?

Yeah, I think, I mean, you know, it's a good question to say how large it is because, and I laugh because it's the data that I'm trying to get my arms around myself because you look at when you have kind of an approved market, you know, you don't have data. So, you know, I would guess somewhere between 50 and 100 million, but I'm giving you a very, very wide range because it's really difficult to capture kind of what the unauthorized shops are doing. For us, I think there's a few things. Number one is we're really able to drive kind of faster turnaround times and, you know, our level of quality in supporting OEM authorized work, you know, is very, very core to our strategy. So, the second thing is, you know, we partner in unique ways. It's not a one size fits all for an OEM, so we can kind of customize and really listen to where the OEM needs us and where they don't. So, starting to understand how this product is performing, where there's new parts, where there's used parts, and again, where the MRO piece plays in, and how can we bring all that together to support this OEM. So, relationship is strong. We've been able to capture business back that was in an unauthorized shop prior and listen to the OEM of some core customers that they wanted us to focus on and bring that work in to drive some near-term success. So, we're really pleased with the work so far.

Got it. And then maybe this ties into your USM strategy, but you noted, you know, engine side continues to be stronger than the component side. We've obviously heard that in other areas of the industry as well, but just curious on your thoughts on the cycle for when that might flip where component demand would outpace the engine side. And I know your recent M&A hasn't really been focused on the engine side, but just trying to get some perspective on that long-term industry cycle.

Yeah, it's a great question. And so, you know, my answer is more opinion than I would say, you know, fact and database, you know, but where we don't see, you know, kind of an inflection point where that shifts. We see, you know, at least for the near-term and the mid-term, you know, the engine aftermarket, again, both for business and general aviation and commercial continuing to outpace kind of the component side. The majority of that is really comes down to supply chain and MRO capacity. So, you know, if I, if you go visit my engine-related MRO shops and I can add capacity, I can fill that with work very, very quickly. We're still seeing more supply, more demand out there than there is supply in terms of shop floor space to do work. So, I don't see that slowing down in kind of the next three years or so, and that's probably as far as we look out. Got it.

Thank you for the time.

Thanks, Josh. Thank you. And our next question comes from the line of Michael Charmoli with Trua Securities.

Hey, morning, guys. Nice results. Thanks for taking the question. Hey, John, just maybe back to Sheila's question on the USM, you know, moving away from that maybe transactional speculative. Should we think about some of this new focus being creative to your repair margins, you know, especially as we think about, you know, sort of overall engine repairs? Are you going to be out there looking for certain USM parts to drive down their cost?

Yeah, I mean, I'd love to answer the question next quarter or the quarter after because we're just in the beginning of launching the strategy, but it's a great question and it's exactly how we're looking at it. So, I don't want to say unequivocably yes until I know that we can execute on the strategy, but I would say it's a couple of things. Number one is how do you, you know, if you think about when something is broken, you know, the question is, do you need a new part? Do you need to use part or do you need a repair? And bringing those three together so that you can think looking at it through the customer's lens rather than shipping a part to us into one of our MRO shops, we come back with a quota on price and lead time, you know, turnaround time, and they basically say it's beyond economical repair and then the numbers don't work. And if we don't have, you know, a rotable pool or a used USM pool, you know, we're not in a position to offer them an alternative at that point in time. So, tying those two together, number one, is extremely customer friendly and we think that's a very good strategy for us. The second piece is exactly where, you know, your initial comments are is how do we continue to look at, for lack of a better word, insourcing our own work so that we can continue to focus on margin expansion. You know, we've already taken some of the Vortex work, which is the calcium services business, and we're insourcing that into our TCI, you know, component shop up in Connecticut. So, you know, looking at those types of opportunities within the business continues to be a priority in terms of margin expansion.

Got it. Got it. And then I, gone, maybe if you could just parse out a little bit, I think I heard 50% revenue exposure to engines, maybe how that breaks out between commercial BGA and should we think about, you know, you talked about more alignment, you know, with some of the engines like LEAP. Should we look at kind of the LEAP shop visit forecast as a good proxy for your engine growth and commercial going forward?

Yeah, I mean, I think first, Michael, did we break it, did you break out the data on the market segments when you did the engine work?

No, we didn't give that level of granularity.

Okay. Yeah, so, but Michael, we'll try to get you some of that data and I'll for another quarter and to get to the data around that question. But, you know, it's north of 50% in terms of engine work and that's both on the MRO side and on the distribution side of the business compare and it's, you know, I would say it's probably not very different in our two market segments, but we'll get some data around it. The second question with regard to LEAP, I would say it was a little early to use that data for trends for us. You know, we are still a more on, you know, legacy engines. We are focused on kind of continuing to evolve that. But if you look at, you know, our core Pratt & Whitney, Canada, our Pratt & Whitney, USG, Safran type engines were, you know, probably heavier on kind of legacy engines today and continuing to focus on evolution to more, you know, newer type engines.

Got it, got it. And then just last one, Adam, do you have a target leverage ratio for year end?

I mean, given where we are right now, Mike, at 2.2 times with the EBITDA growth and free cash flow generation, we should be south of two times by end of the year. We didn't give a specific target, but we should be lower than two times. Got it. Thanks, guys. I'll jump back in the queue.

That's a good number. I don't know if I ever had that number before.

Thank you. Once again, ladies and gentlemen, to ask a question, please press star 1-1 on your telephone. And our next question comes from the line of Ken Herbert with RBC Capital Markets.

Hey, John, appreciate the follow up. I just wanted to ask the engine question maybe a slightly different way. Do you see better opportunity today as you look to build out that exposure on maybe the MRO side? It sounds like it may be relative to distribution as you think about engine and specifically sort of the organic pipeline. And then as part of that, does your existing relationship on the engine side in particular with Pratt, does that preclude you at all from working with other engine OEMs on the distribution side?

No, I mean, so first, more of our direct engine OEM distribution businesses on business and general aviation engines than it is on the commercial side. Our commercial distribution work that we do that's supporting engines is less engine OEM work and it's more other OEMs that are supporting that engine. So I think we have opportunity to support far more commercial distribution opportunities. And then with regard to OEMs, I mean, we're very, very OEM centric and in our MRO shops, we have centers of excellence that support different OEMs and we don't see working with one precluding us from an opportunity to work with another.

Great,

thank you. Thank you. And I'm sure no further questions. So with that, I'll now turn the call back over to President and CEO John Cuomo for any closing remarks.

Thanks everybody for joining our call today. We appreciate the continued support of the story. Have a great Thursday.

Ladies and gentlemen, thank you for participating. This does conclude today's program and you may now disconnect.