VSE Q2 2026 Earnings Call Transcript

VSE (NASDAQ: VSEC ) reported second-quarter financial results on Thursday. The transcript from the company's second-quarter earnings call has been provided below. This content is powered APIs. For comprehensive financial data and transcripts, visit View the webcast at Summary VSE Corporation reported a record revenue of $449 million, an increase of 65% year-over-year, driven by strategic acquisitions, organic growth, and expanded capabilities in the aviation aftermarket.

2%. 7% to 19%, citing strong first-half execution and healthy customer demand. Integration of recent acquisitions is progressing well, with a focus on realizing synergies through insourcing, joint sales, and efficiency improvements. Management expressed confidence in the resilience of the business despite dynamic macroeconomic conditions, highlighting the strength of the aviation aftermarket and the company's strategic positioning.

Full Transcript OPERATOR Good day and thank you for standing by. Welcome to the VSE Corporation's second quarter 2026 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 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, Investor Relations Thank you. Welcome to VSE Corporation second quarter 2026 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're 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.

Before we begin, I'd like to highlight that VSE will host an Investor Day on Wednesday, December 9th at Current, Pier 59 in New York City. We look forward to sharing more on our strategy and long-term outlook there. Save the date. Invitations will be sent out later this month with full details following September.

At the conclusion of our prepared remarks, we will open the line for questions. With that, I'd like to turn the call over to John. John Cuomo, Chief Executive Officer, President and Board Director Good morning everyone and thank you for joining us today. Let's begin on slide 3 where I will review our second quarter highlights.

This second quarter marked a defining step forward for VSE. We closed two strategic acquisitions, delivered record revenue and profitability including a record consolidated adjusted EBITDA margin, and launched integration and synergy capture work streams across the combined platform. Importantly, the quarter demonstrated the underlying strength of our core business and the earnings power of the platform we're building. Let me now walk through our second quarter highlights.

First, we completed the acquisition of PAG, the largest transaction in VSE's history and a major milestone in our transformation. Together, PAG, Northstar, and our legacy VSE Aviation businesses create a differentiated global aviation aftermarket platform with greater scale, broader capabilities, and deeper customer relevance. We are advancing our strategy to become the world's leading independent provider of aviation aftermarket distribution and repair services while remaining firmly grounded in the OEM-centric strategy that has guided our transformation. Second, the strength of the platform is already evident in our financial performance and progress.

We delivered record revenue and profitability in the second quarter with results above prior expectations. Organic revenue grew approximately 14% with strength across both repair and distribution, supported by strength in the commercial engine aftermarket, new business wins, expanded capabilities, market share gains, and increased share of wallet. 2% in the quarter. This performance represents meaningful progress towards our long-term objective of consolidated adjusted EBITDA margins above 20% and supports our decision to raise both revenue and margin guidance for the full year.

Finally, integration, execution, and synergy capture are underway. We have established clear business plans, integration governance, and executive-owned work streams across the combined platform. Integration is a core VSE capability and an important competitive differentiator. In the short time since closing, our teams have already begun advancing tangible opportunities in insourcing, joint sales, sales channel alignment, and operating efficiency.

It remains early, but the pace of execution and the quality of the opportunities identified reinforce our confidence in the revenue synergy and margin expansion potential of the combined platform. Let's now move to slide 4 where I will highlight our recent acquisitions in greater detail. Let me start with the acquisition of PAG, which we closed on May 5th. We completed the acquisition from GenX 360 Capital Partners in a transaction valued at approximately $2 billion in cash and equity.

The acquisition materially expands VSE scale, global reach, proprietary content, and repair capabilities across commercial, business, general aviation, rotorcraft, OEM, and defense end markets. We recently hosted our first Employee Connection Summit, bringing together leaders from VSE and PAG to accelerate integration planning and commercial collaboration. The team is aligned on sales channel strategy, systems priorities, insourcing, and joint commercial opportunities. Execution is now underway across these work streams.

While we are still early in the integration, we are encouraged by both the breadth of the opportunities identified and the engagement of the combined teams. Just as important, PAG brings an exceptional team, highly complementary capabilities, and a strong customer-focused culture. This combination is strengthening VSE strategically, operationally, and commercially. Moving now to our Northstar acquisition, which closed on April 1, this acquisition adds engine-related MRO, third-party logistics, and component support capabilities to our aftermarket offering.

Northstar's teardown, kitting, and component-level capabilities span multiple engine platforms and deepen our role within the OEM aftermarket supply chains. Since completing the acquisition, we have already rebranded the business as VSE Aviation Services, aligned its leadership structure, and launched key integration initiatives to expand logistics, repair capacity, and engine component support. With that, let me provide an update on the current aviation aftermarket environment. Overall, the fundamentals supporting our business remain healthy and continue to reinforce our confidence in the long-term demand environment.

The broader macroeconomic and geopolitical environment remains dynamic, including volatility in energy prices. We continue to monitor these conditions closely and remain disciplined in our planning. Our updated guidance reflects what we are seeing in the business today: strong first half execution, healthy customer demand, and solid program visibility. To date, we have not seen any recent uncertainty translate into any meaningful change in customer demand or operator behavior.

Customer activity remains healthy across our platforms, and the demand signals we see support confidence in the durability of our business. At the same time, we will continue to stay close to our customers and respond quickly if market conditions should change. Global air traffic and fleet utilization remain resilient. An aging installed base, continued constraints on new aircraft and engine availability, and the need to keep existing assets operating are sustaining demand for aftermarket parts and repair services.

These are durable demand drivers across our platform. In business and general aviation, conditions also remain unchanged. The diversity of this customer base and the mission-critical nature support the aftermarket demand. This market provides an important and complementary source of revenue alongside the strength we continue to see in commercial aviation.

Taken together, the breadth of our markets, customers, capabilities, and revenue streams give us confidence in the resilience of our business. As we enter the second half, we remain optimistic about the opportunity ahead while maintaining discipline around execution and external risk. Let's now turn to slide 5 where I'll briefly walk through our second quarter 2026 financial highlights. We delivered an outstanding quarter, headlined by record revenue and profitability.

The results reflect strong execution in our core aviation businesses, continued organic momentum, and contributions from our recent acquisitions. Our revenue of $449 million increased 65% year over year, including 14% organic growth. Revenue growth was driven by new business wins, expanded product and repair capabilities, market share gains, increased share of wallet, and contributions from recent acquisitions. Adjusted EBITDA reached a record $86 million in the quarter, increasing 98% year over year and significantly outpacing revenue growth.

2% in the quarter. The result reflects favorable product and repair mix, strong operating execution, synergies from prior acquisitions, and contributions from PAG. The level of profitability exceeded our expectations for the quarter and demonstrates the earning power of the platform, although quarterly mix and timing can create variability from period to period. 75 increased 33% year over year.

Our record profitability reinforces our confidence in the long-term earnings potential of VSE and our path toward consolidated adjusted EBITDA margins above 20% over time. I'll now turn the call over to Adam to walk through the financial details. Adam Cohn, Chief Financial Officer Thank you, John. Let's turn to slide six of the conference call materials where I will provide a detailed overview of our second quarter consolidated financial results.

For the second quarter of 2026 we generated $449 million of revenue, an increase of 65% year over year. Both MRO and Distribution delivered strong results with MRO revenue increasing 149% and Distribution revenue increasing 17% year over year. The 149% increase in MRO revenue was driven by expanded repair capabilities and capacity, strong growth in engine content, market share gains, increased share of wallet with existing OEM partners and contributions from recent acquisitions, primarily PAG and Arrow 3.

The 17% increase in Distribution revenue was driven by solid execution on new business wins, product line expansion, market share gains, strong commercial engine end-market demand and contributions from the Arrow 3 acquisition. Excluding recent acquisitions, organic revenue increased approximately 14% year over year, reflecting strong underlying demand and execution across the business. This growth rate is net of intercompany eliminations between VSE and PAG. Since the May 5 closing, consolidated adjusted EBITDA increased 98% to $86 million.

2%, an increase of approximately 320 basis points from the prior year period. The expansion was driven primarily by a greater mix of higher margin product and repair activity, synergies from previously completed acquisitions and contributions from PAG. 75 per share. For the current and prior year periods, adjusted net income and adjusted diluted earnings per share have been updated to exclude amortization of intangible assets and stock-based compensation.

Turning to slide seven and our balance sheet: during the quarter, 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 revolver structure and together they strengthen our balance sheet and give us the flexibility to execute against our strategic priorities. At the end of the second quarter, total debt outstanding was $967 million, including our new Term Loan B and the debt portion of the tangible equity units.

Debt issuance costs were approximately $20 million and we had approximately $75 million of cash and cash equivalents on hand, resulting in net debt of approximately $872 million. We had no borrowings under our recently upsized $500 million revolving credit facility. During the second quarter we generated approximately $19 million of free cash flow, a significant improvement from the first quarter and from the second quarter of last year. The improvements were driven by strong profitability, better working capital performance and a continued shift in portfolio mix towards MRO.

Second quarter free cash flow was also absorbed by approximately $10 million of PAG-related cash transaction expenses. Excluding those expenses, free cash flow conversion was approximately 34% of adjusted EBITDA. We expect cash generation to strengthen in the second half as earnings grow, integration progresses and working capital investments begin to scale. 4 times, stronger than the pro forma guidance we outlined at the time of the PAG closing.

We expect leverage to continue to improve in the second half of the year supported by stronger free cash flow generation. This will increase our financial flexibility as we execute integration priorities and maintain a disciplined approach to capital allocation. Let's now turn to slide eight to review our updated consolidated company guidance for full year 2026. Starting with revenue: based on the strength of our first half execution, continued double-digit organic growth and increasing visibility into customer demand and program activity, we are raising our full year 2026 revenue guidance.

We now expect full year revenue growth of 61% to 64%, up from our prior outlook of 57% to 61%. We are also increasing our full year 2026 adjusted EBITDA margin outlook reflecting record first half profitability, continued operating execution and the early benefits from our recent acquisitions. 5% on free cash flow inclusive of PAG. We expect meaningful improvement in the second half driven by earnings growth, lower transaction-related cash costs and improved working capital efficiency as investments in programs scale.

Stronger cash generation remains an important priority and is expected to support continued deleveraging. 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 full year 2026, interest expense, net of interest income, is projected at approximately $36 to $39 million. Depreciation and amortization is expected to be approximately $96 to $100 million.

In aggregate, the effective tax rate is projected at approximately 25%. 5% of revenue. With that, I'll turn the call back over to John. John Cuomo, Chief Executive Officer, President and Board Director Thanks, Adam.

I'd like to conclude by briefly reviewing our 2026 priorities on slide nine. First, we are focused on executing acquisition integrations and accelerating the realization of synergies. Second, we are implementing newly awarded distribution programs across our core platforms. The recently launched Pratt & Whitney Canada APU agreement ramped ahead of our expectations in the second quarter.

We are also advancing our CFM engine initiatives. We took delivery of seven CFM56 engines during the quarter and began processing those assets through our in-house repair and tear down operations. Third, we are expanding our MRO capacity and technical capabilities to capture incremental demand, specifically across the engine aftermarket. Fourth, we are advancing and converting our organic pipeline into revenue and margin contribution.

Fifth, we are continuing to enhance our systems and our processes to support scale, integration and efficient growth, including the targeted use of AI and data-driven tools to improve operational efficiency, optimize workflows and support decision-making across the platform.