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.