Executive Summary

VSE delivered record revenue and profitability in Q1 2025 and posted broad-based strength across distribution and MRO, while reaffirming FY25 guidance; Aviation revenue grew 58% YoY to $256.0M and Adjusted EBITDA rose 60% to $40.4M .
Results exceeded S&P Global consensus: Adjusted EPS $0.78 vs $0.58* and revenue $256.0M vs $246.8M*, a clean top- and bottom-line beat supported by strong mix and acquisition contributions .
Guidance was maintained for FY25 revenue (+35% to +40%) and effectively raised for Adjusted EBITDA margin to 16–17% (reflecting a ~50 bps benefit from new SBC add-back methodology), reinforcing confidence despite tariff noise .
Strategic actions de-risk the story: Fleet divestiture completed, refinancing to SOFR+175 bps (-60 bps vs prior), and the Turbine Weld acquisition expand capabilities and lower cost of capital—key catalysts for H2 integration upside and cash flow inflection .

What Went Well and What Went Wrong

What Went Well
- Record quarter with balanced momentum: “We proudly delivered record revenue and profitability … VSE is now a more focused, higher-growth, and higher-margin aviation business” following the Fleet divestiture .
- Strong execution and accretive M&A: distribution +49% YoY and repair +76% YoY; TCI and Kellstrom integrating well, delivering on synergy expectations; Aviation Adjusted EBITDA margin 16.9% despite mix dilution from recent deals .
- Liquidity and cost of capital improved: new $700M facility (TLA $300M + $400M revolver) maturing 2030 at SOFR+175 bps, ~60 bps lower than prior; CFO expects ~$5M lower interest expense for FY25 vs prior guidance .
What Went Wrong
- Near-term margin dilution from acquisitions: segment margin declined ~60 bps YoY to 16.9% due to mix from TCI/Kellstrom, though core legacy margins improved and synergy capture is slated for 2H25 .
- Free cash flow usage in Q1: FCF of $(49.5)M driven by strategic inventory builds (including ahead of tariff noise), Honeywell transition inventory, HQ lease buyout, and discontinued ops—management guides to positive FCF over the balance of the year .
- Definition change adds complexity: beginning Q1 2025, Adjusted EBITDA excludes stock-based compensation; current guidance includes a ~50 bps margin uplift from this methodology change, requiring careful apples-to-apples comparisons .

Financial Results

Metric	Q3 2024	Q4 2024	Q1 2025
Revenue ($USD Millions)	$273.613	$299.021	$256.045
Operating Income ($USD Millions)	$23.698	$27.415	$24.504
Net Income - Continuing Ops ($USD Millions)	$11.650	$15.525	$13.968
Diluted EPS - Continuing Ops ($)	$0.63	$0.77	$0.67
Adjusted EPS ($)	$0.71	$0.90	$0.78
Adjusted EBITDA ($USD Millions)	$33.152	$39.513	$40.353
Aviation Adj. EBITDA Margin %	16.0%	16.4%	16.9%

Segment breakdown (Aviation now the single reportable segment):

Metric	Q3 2024	Q4 2024	Q1 2025
Aviation Revenues ($USD Millions)	$203.642	$227.403	$256.045
Aviation Operating Income ($USD Millions)	$25.435	$29.173	$31.524
Distribution Revenue YoY %	+12%	+32%	+49%
MRO Revenue YoY %	+86%	+87%	+76%

Key KPIs and balance sheet:

KPI	Q3 2024	Q4 2024	Q1 2025
Free Cash Flow ($USD Millions)	$4.411	$52.110	$(49.507)
Net Debt ($USD Millions)	$442.434	$401.143	$459.295
Net Leverage (x)	3.5x	2.9x	3.5x
Adjusted Net Leverage (x)	3.3x	2.5x	2.2x (pro forma Fleet sale)
Cash + Availability under Revolver ($USD Millions)	$189	$223	$158

Guidance Changes

Primary FY2025 guidance (Aviation):

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue Growth (%)	FY 2025	+35% to +40%	+35% to +40%	Maintained
Adjusted EBITDA Margin (%)	FY 2025	15.5% to 16.5%	16% to 17% (includes ~50 bps from SBC add-back)	Raised

Additional FY2025 assumptions shared on Q1 call:

Item	Guidance
Effective Tax Rate	~25% for the remaining 3 quarters of 2025
Depreciation & Amortization	~$38–$40M for FY25 (incl. Turbine Weld)
Stock-Based Compensation	~$3M per quarter, excluded from Adjusted EBITDA beginning Q1
Unallocated Corporate Costs	~~$21M for FY25 (~~$14–$15M ex-SBC)
Interest Expense	~~$26–$28M for FY25 (~~$5M lower vs prior guidance)

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 2024, Q4 2024)	Current Period (Q1 2025)	Trend
OEM-licensed manufacturing (Honeywell fuel control)	Q3: Program “outpace expectations,” EU distribution ramp; Q4: OEM-licensed program a profitability driver	Transition progressing with full operational capability and production expected within 12 months; contribution reflected in 2025 guide	Advancing on plan
Acquisition integration (TCI, Kellstrom)	Q3: TCI contribution, Kellstrom announced; Q4: Kellstrom closed (Dec-24)	Integrations ahead of plan; targeting $4M cost synergies for Kellstrom; near-term margin dilution offset by core margin improvement; synergy ramp in 2H25	Positive trajectory; synergy capture in H2
Tariffs/macro	Limited prior commentary	Mitigation playbook: inventory flexibility, global footprint flow optimization, USMCA, surcharge pass-throughs; no guidance change anticipated	Monitoring; currently manageable
End-market demand	Q3/Q4: strong end-market demand and above-market growth	Passenger traffic supportive; engine overhauls backed by backlog; cautious optimism, guidance intact	Stable/constructive
Liquidity & capital structure	Q3: equity raise; Q4: strong FCF, plan to reduce debt with Fleet proceeds	New $700M facility at SOFR+175 bps; ~60 bps rate reduction; ~$5M interest benefit vs prior	Improved flexibility/cost of capital

Management Commentary

“We proudly delivered record revenue and profitability in the first quarter and completed a critical chapter in our multi-year strategic transformation into a pure-play aviation aftermarket parts and services provider.” — John Cuomo, CEO .
“Distribution and MRO businesses [were] strong … OEM licensed manufacturing program [executing], and early success of TCI and Kellstrom acquisitions … integrating well and delivering on synergy expectations.” — John Cuomo .
“We are reaffirming our full year 2025 Aviation revenue growth guidance range of 35% to 40% … and increasing the Adjusted EBITDA margin range to 16% to 17% to include an ~50 bps positive adjustment associated with the stock-based compensation add-back.” — Adam Cohn, CFO .
On refinancing: “We’re pleased to have secured more favorable terms … lower interest rate and expanded borrowing capacity … reduce our cost of capital and enhance our liquidity.” — Adam Cohn, CFO .

Q&A Highlights

Margins and seasonality: Q1 typically strongest margin quarter (selling lower-cost Q4 inventory), with positive mix and high-margin distribution; integration synergies expected to add incremental benefits as year progresses, but guide remains prudent early in the year .
Demand sensitivity: Engine-related work viewed as more resilient due to overhaul backlogs; potential softness would skew to non-engine commercial repairs; backlog and bookings supportive of FY guidance .
Integration timing: Synergy capture areas being accelerated where value is highest; comprehensive integrations across TCI/Kellstrom/Turbine Weld targeted to conclude around mid-2026 (~18 months trajectory) .
Cash flow dynamics: Q1 cash usage driven by tariff-hedging inventory buys, Honeywell transition inventory, old HQ lease buyout, and discontinued ops; working capital expected to release with strong FCF in 2H25 .
New Eaton authorized service center: Originated from OEM-centric approach to recapture share; seen as Phase 1 with opportunity to expand; Honeywell fuel control transition progressing, with more 2026 color expected later in 2025 .

Estimates Context

S&P Global consensus vs actuals for Q1 2025:
- Adjusted EPS: $0.58* consensus (6 estimates) vs $0.78 actual — beat .
- Revenue: $246.8M* consensus (6 estimates) vs $256.0M actual — beat .
Implications: Model updates likely include higher FY25 EPS/margin on SBC methodology and lower interest expense (~$5M benefit), with integration synergy ramp in 2H25 supporting sustained H2 profitability .
Guidance remains intact despite tariff uncertainty, reducing downside estimate risk near term .
Values retrieved from S&P Global.*

Key Takeaways for Investors

Clean beat on both revenue and EPS vs S&P Global consensus, driven by mix, program execution, and M&A contributions; Aviation margin stable despite acquisition dilution .
FY25 revenue growth guidance maintained (+35%–40%) and Adjusted EBITDA margin range raised to 16%–17% due to SBC add-back, signaling confidence in operating trajectory .
Synergies from Kellstrom and ongoing integration work expected to accelerate in 2H25, setting up a stronger exit rate into 2026 .
Lower cost of capital (SOFR+175 bps) and improved liquidity post-refinancing should support execution and buffer macro/tariff risk; FY25 interest expense guided to $26–$28M (~$5M lower vs prior) .
Cash flow set to inflect positive over the balance of 2025 as working capital normalizes after strategic inventory investments and Honeywell transition builds .
Tariff risk actively mitigated (inventory flexibility, logistics, USMCA, pass-throughs) with no current guidance impact anticipated—reducing estimate downside risk .
New MRO wins (Eaton authorized service center) and Honeywell OEM-licensed manufacturing progress expand durable growth vectors, reinforcing the OEM-centric strategy .

Appendix: Additional Relevant Press Releases (Q1 2025)

Turbine Weld acquisition (~$50M cash consideration) expands technical MRO capabilities in BG&A engines (PW100/PT6), with plans to invest for capacity .
Refinancing completed (TLA $300M, revolver $400M, both due 2030) at SOFR+175 bps; enhances flexibility and lowers interest costs .

Estimates vs Actuals (Detail)

Metric	Q1 2025 Consensus (S&P Global)	Q1 2025 Actual
Revenue ($USD)	$246,830,170*	$256,045,000
Adjusted/Primary EPS ($)	$0.5767*	$0.78
# of Estimates (Revenue)	6*	—
# of Estimates (EPS)	6*	—
Values retrieved from S&P Global.*

Notes on Non-GAAP Changes

Beginning Q1 2025, consolidated and segment Adjusted EBITDA exclude stock-based compensation; FY25 margin guide includes ~50 bps from this add-back; non-GAAP reconciliations provided in the release .

References: Q1 2025 8-K/press release and exhibits ; Q1 2025 press release ; Q1 2025 earnings call ; Q4 2024 press release ; Q3 2024 press release ; Turbine Weld acquisition ; Refinancing .

VSE CORP (VSEC)·Q1 2025 Earnings Summary