VSE Corporation

Good day, and thank you for standing by. Welcome to the VSE Corporation fourth quarter 2025 earnings conference call. At this time, all participants are in a 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 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.

Thank you. Welcome to VSE Corporation's fourth quarter and full year 2025 results conference call. We will begin with remarks from John Cuomo, President and CEO, followed by a financial update from Adam Cohn, our Chief Financial Officer. The presentation we are sharing today is 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 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 year-over-year progress, except where noted. At the conclusion of our prepared remarks, we will open up the line for questions. With that, I'd like to turn the call over to John.

Good morning. Thank you for joining us today for VSE's fourth quarter and full year 2025 conference call. 2025 was an exceptional and transformational year for VSE. We completed our multi-year transformation and transition to a pure play aviation aftermarket company, delivered record aviation revenue and profitability, surpassed $1 billion in annual revenue for the first time in our history, and strengthened our balance sheet. These results reflect disciplined execution and validate the strategy we have been advancing over the past several years. During the year, we expanded our engine and component capabilities through highly complementary acquisitions, advanced key OEM programs, increased MRO capacity, and accelerated integration and synergy capture activities across the platform. Each of these actions enhances our operating leverage, deepens our proprietary capabilities, and strengthens our competitive positioning in the global aviation aftermarket. We enter 2026 with strong momentum. Our aviation-only platform is scaled and positioned to drive sustained organic growth and continued margin expansion and improved free cash flow generation. Let's move to slide three where I would like to highlight our recent developments. Let me start with our announced transformational acquisition of Precision Aviation Group, or PAG. On January 29th, we entered into a definitive agreement to acquire PAG, a leading provider of MRO and supply chain solutions across commercial, business, and general aviation, rotorcraft, and defense markets. This is a highly strategic transaction that meaningfully expands our scale and strengthens our engine and component service capabilities across the aviation aftermarket. Importantly, PAG aligns directly with our strategy of adding high value, high margin, mission critical, proprietary and differentiated services to our portfolio. From a financial perspective, PAG expects to generate approximately $615 million in adjusted revenue for the full year 2025, with adjusted EBITDA margins above 20%. Following the anticipated close in the late second quarter, our combined leadership teams will immediately focus on integration and executing identified synergy initiatives. Phase 1 cost and insourcing synergies are expected to exceed $15 million on an annualized basis. This provides a clear path for the combined company to achieve adjusted EBITDA margins above 20% over the next several years as integration progresses. The total upfront consideration for the acquisition is approximately $2.25 billion, subject to customary working capital adjustments. This consists of $1.75 billion in cash and approximately $275 million of equity issued to GenX 360, subject to a customary lockup. The agreement also includes up to $125 million in contingent earn-out consideration, payable in cash or equity at VSE's discretion, based on PAG's 2026 adjusted EBITDA performance. We expect to fund the transaction with approximately $1.28 billion in net proceeds from our recently completed common stock and tangible equity unit offerings, together with permanent debt financing that we are finalizing in the coming weeks. Let's turn to slide four. I'm very pleased to announce two new organic growth awards that expand our exclusive product portfolio, increase annuity-like revenue, and further our strategy of adding proprietary content to the business. First, we entered into an asset purchase agreement with an OEM to exclusively manufacture, distribute, and repair certain fuel pumps for the Pratt & Whitney Canada PT6 engine series. This expands our proprietary OEM solutions portfolio and strengthens our position in high-value, high-margin, mission-critical engine accessory programs. We also announced a new globally exclusive life of program APU components distribution agreement. This meaningfully expands our role in supporting APU platforms across a broad range of commercial and mission critical aircraft. Under this agreement, BSE will serve as the exclusive life of program license distributor for more than 2,500 unique aftermarket parts supporting four OEM APU platforms. This program will require approximately $45 million of initial inventory and working capital, which is expected to impact free cash flow in the first quarter and for the full year 2026. With that, let me briefly update you on the current aviation aftermarket environment and how we're thinking about 2026. The aviation aftermarket is positioned for another year of growth in 2026. supported by many of the same fundamentals that drove performance in 2025 across both commercial and business aviation. In commercial aviation, we continue to see healthy air travel demand with industry forecasts calling for mid-single digit revenue passenger kilometer growth in 2026. Early commentary from the airlines we serve as we enter the year has also been constructive. Aircraft retirements remain an important watch item, but they are anticipated to stay below historical averages for the next several years. That dynamic continues to reflect the undersupply of new aircraft, sustained utilization of legacy fleets, strong durability of existing engine platforms, MRO capacity constraints, extended material lead times, and oil prices that support the economics of keeping older aircraft in service. In business and general aviation, demand remains strong with aircraft utilization at or near record levels. Ongoing wealth creation and the increasing preference for point-to-point travel supported by fractional and charter models continue to underpin activity. While North America remains the largest market, we expect relatively stronger markets in the Asia Pacific, Middle East, and Africa regions contributing to an expanded global install base. Taking all that into account and considering our portfolio mix across commercial and business aviation, as well as engine and non-engine programs, we expect our core markets that we support to grow in the mid to high single-digit range. Based on our planned organic growth initiatives, We expect to outperform those market assumptions, and Adam will shortly outline organic growth guidance in the high single-digit to low double-digit range. Let's now turn to slide five, where I'll walk through our full year 2025 highlights. We delivered record aviation revenue and profitability, surpassing $1 billion in aviation revenue for the first time in company history, while expanding margins and generating positive free cash flow. We secured multiple distribution and MRO program awards and strengthened key OEM partnerships, reinforcing future organic growth and expanding proprietary content. In April, we completed the sale of our fleet segment, repositioning VSE as a pure-play aviation aftermarket company and sharpening our strategic focus. In May, we acquired Turban Weld, a specialized MRO provider focused on complex engine components in business and general aviation. This enhances our proprietary repair capabilities across key engine platforms and strengthens our engine MRO value proposition. And in December, we completed the acquisition of Aero3, a global MRO provider and distributor in the wheel and brake aftermarket. Aero3 builds upon our 2023 acquisition of Dessert Aerospace and further expands our global wheel and brake MRO and distribution capabilities while enhancing our diversified component services portfolio. We also made substantial progress advancing Kellstrom integration activities, exceeding our synergy capture targets and driving alignment across branding, organizational structure, IT systems, and operational processes. We invested strategically to increase MRO capacity and broaden technical capabilities across both engine and component programs to support future organic growth We launched new program and product introductions in Europe and continue to expand our presence across both Europe and Asia Pacific. We advanced our OEM solutions organization and fuel control transition program, positioning 2026 as a key execution year. And finally, we launched initial AI-enabled tools and process improvement initiatives to drive greater efficiency across the platform. Let's now turn to slide six for a closer look at our full 2025 financial performance. For the full year, we delivered record revenue and record profitability. Revenue growth was driven by strong performance across both our aviation distribution and MRO business units, along with contributions from recent acquisitions. The aviation segment also generated record profitability, supported by disciplined execution and distribution programs, increased MRO activity, strong performance in our OEM licensed manufacturing programs, and acquisition contributions. I'm also pleased to report that we generated positive free cash flow for the full year and reduced adjusted net leverage to 1.1 times. I'll now turn the call over to Adam to walk through the financial details.