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VC

VSE CORP (VSEC)·Q3 2025 Earnings Summary

Executive Summary

  • Record quarter: revenue $282.9M (+38.9% YoY) and Adjusted EBITDA $47.4M (+58.4% YoY), with Aviation Adjusted EBITDA margin at a record 17.8% .
  • Clear beats vs S&P Global consensus: revenue $282.9M vs $276.2M* and EPS (Primary) $0.99 vs $0.84*; Q2 and Q1 were also beats, establishing a three-quarter beat streak (see Estimates Context).
  • Guidance raised: FY25 revenue growth to 38–40% (from 35–40%) and Aviation Adjusted EBITDA margin to 17.0–17.25% (from 16.5–17.0%) on strong YTD execution and mix tailwinds .
  • Strategic catalyst: signed definitive agreement to acquire Aero 3 for $350M cash; pro forma enhances consolidated Adjusted EBITDA margin by >50 bps; funding via equity offering and/or revolver (offering launched same day) .
  • Important nuance: GAAP results were depressed by a $23.3M non-cash earn-out receivable fair value adjustment tied to the Fleet divestiture; Aviation operating performance remained strong and unaffected by this charge .

What Went Well and What Went Wrong

  • What Went Well

    • Record Aviation profitability driven by higher-value mix, in-sourcing, OEM-licensed manufacturing sales, and faster-than-expected synergy capture; Aviation Adjusted EBITDA margin reached 17.8% (+~140 bps YoY) .
    • Strong free cash flow: Q3 FCF $18.0M (+~$14M YoY) and adjusted net leverage ~2.0x, reflecting disciplined working-capital management and improved cash generation .
    • Strategic expansion: definitive agreement to acquire Aero 3 (TTM ~$120M revenue, >20% Adjusted EBITDA margin) to build a leading global wheel & brake aftermarket platform; management expects >50 bps pro forma margin uplift YTD and strong OEM alignment .

  • What Went Wrong

    • GAAP compression: operating income fell 50% YoY and GAAP EPS declined to $0.17, primarily due to a $23.3M non-cash earn-out receivable fair value adjustment related to the Fleet sale (no impact on Aviation segment) .
    • Corporate costs: unallocated corporate costs spiked YoY (to $28.2M from $5.4M), with adjusted corporate costs at $3.0M; management flagged ~$4M adjusted corporate costs for Q4 as stranded Fleet costs roll off .
    • Limited transparency: the company rescheduled its call and did not hold Q&A, which can leave some modeling questions (e.g., seasonality, mix) to prepared remarks only .

Financial Results

MetricQ3 2024Q2 2025Q3 2025Q3 2025 Consensus
Revenue ($M)$203.6 $272.1 $282.9 $276.2*
Operating Income ($M)$20.1 $22.5 $10.1 —
Net Income – Continuing Ops ($M)$8.7 $13.6 $3.6 —
Diluted EPS – Continuing Ops ($)$0.47 $0.66 $0.17 —
Adjusted EBITDA ($M)$29.9 $43.5 $47.4 —
Adjusted EPS (Diluted) ($)$0.53 $0.97 $0.99 $0.84*

  • Margin snapshot

    • Aviation Adjusted EBITDA Margin: 16.9% (Q1), 17.1% (Q2), 17.8% (Q3, +~140 bps YoY) .
    • Consolidated Adjusted EBITDA Margin: 16.7% in Q3 (from prepared remarks) .

  • Segment/Revenue mix (Products ≈ distribution; Services ≈ MRO) | Revenue Mix ($M) | Q3 2024 | Q2 2025 | Q3 2025 | |---|---|---|---| | Products | $118.4 | $173.6 | $176.0 | | Services | $85.3 | $98.5 | $106.9 | | Total | $203.6 | $272.1 | $282.9 |

  • KPIs and Balance Sheet | KPI | Q2 2025 | Q3 2025 | |---|---|---| | Operating Cash Flow ($M) | $11.9 | $24.1 | | Capex ($M) | $(5.6) | $(6.0) | | Free Cash Flow ($M) | $6.3 | $18.0 | | Net Debt ($M) | $362.3 | $347.3 | | Adjusted Net Leverage (x) | 2.2x | 2.0x | | TTM Adjusted EBITDA ($M) | $147.0 | $164.5 |

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue Growth (YoY)FY 202535–40% (Q2 guide) 38–40% Raised (narrowed up)
Aviation Adjusted EBITDA MarginFY 202516.5–17.0% (Q2 guide) 17.0–17.25% Raised

Management also guided Q4 modeling items: adjusted unallocated corporate costs ≈ $4M; stock-based comp ≈ $3M (split ~evenly between Aviation and corporate); D&A ≈ $11M; interest ≈ $5M; tax rate ≈ 25% .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3 2025)Trend
Market backdrop/aftermarket demandStrong end-market demand; record sales in both distribution and MRO Robust demand across commercial and BG&A; strong engine/MRO activity; retirements slow; utilization high Stable-to-strong
OEM-licensed manufacturingEarly success in Q1; program execution progressing Advancing; contributing to mix/margin; transition on track for 2026 completion Positive, execution progressing
M&A/portfolio actionsFleet divestiture completed; Turbine Weld acquired Signed to acquire Aero 3 (wheel & brake MRO/distribution); >50 bps pro forma margin uplift YTD Accretive platform build
Synergies/in-sourcingIntegration of Kellstrom/TCI tracking; synergy capture Synergies realized earlier than planned; in-sourcing driving margin expansion Ahead of plan
Free cash flow/working capitalCommitment to improve WC and FCF FCF improved to $18M; leverage down to ~2.0x Improving
Defense exposureEaton authorized service center (hydraulics) TH-73 Thrasher fuel control MRO LTA with V2X Expanding defense MRO
Seasonality/4Q outlookNot emphasizedQ4 revenue flat-to-slightly down sequentially; lower margin seasonally (inventory cost dynamics) Normal seasonality noted

Management Commentary

  • CEO: “VSE delivered another quarter of record performance… integrating recent acquisitions, capturing synergies, advancing OEM-licensed manufacturing, expanding MRO capabilities, and growing our organic pipeline.”
  • CFO: “We continued to strengthen our balance sheet and enhance cash generation… adjusted net leverage ratio was approximately 2.0x… we are raising our full-year revenue and Adjusted EBITDA margin guidance.”
  • Acquisition rationale (CEO): “Aero 3… broadens our MRO, distribution, and proprietary product offerings while extending our global footprint… establishes one of the industry’s most comprehensive global aftermarket platforms focused on aircraft wheels and brakes.”

Q&A Highlights

  • The company rescheduled the call to the same day and did not conduct Q&A due to the acquisition announcement timing .
  • Key modeling clarifications were provided in prepared remarks: Q4 adjusted unallocated corporate costs ($4M), SBC ($3M split between Aviation and corporate), D&A ($11M), interest ($5M), tax (~25%) .
  • Sequential outlook: Q4 revenue expected flat to slightly down vs Q3, with lower margin seasonally (earlier quarters benefit from lower-cost inventory) .

Estimates Context

  • Q3 2025: Revenue $282.9M vs $276.2M*; EPS (Primary) $0.99 vs $0.84* — both beats.
  • Q2 2025: Revenue $272.1M vs $261.9M*; EPS (Primary) $0.97 vs $0.70* — beats.
  • Q1 2025: Revenue $256.0M vs $246.8M*; EPS (Primary) $0.78 vs $0.58* — beats.
  • FY 2025: EPS (Primary) consensus $3.59*; the company raised FY25 Aviation margin and revenue growth ranges on YTD strength .

Values marked with * retrieved from S&P Global.

MetricQ1 2025Q2 2025Q3 2025
Revenue – Actual ($M)$256.0 $272.1 $282.9
Revenue – Consensus ($M)$246.8*$261.9*$276.2*
EPS (Primary) – Actual ($)$0.78 $0.97 $0.99
EPS (Primary) – Consensus ($)$0.58*$0.70*$0.84*

Key Drivers of the Quarter

  • Mix/operations: Margin expansion driven by higher-value aftermarket products/repairs, in-sourcing, OEM-licensed manufacturing sales, and earlier-than-expected synergy realization .
  • Cash/Leverage: Stronger working-capital management boosted FCF; adjusted net leverage down to ~2.0x .
  • GAAP vs non-GAAP: A $23.3M non-cash earn-out receivable fair value adjustment reduced GAAP operating income and EPS; Aviation segment performance unaffected .

Guidance Implications

  • Raised FY25 revenue growth to 38–40% and Aviation Adjusted EBITDA margin to 17.0–17.25% on YTD execution and mix; Q4 seasonality implies near-term margin moderation (normal pattern) .
  • Post-close of Aero 3, consolidated margins should benefit (>50 bps pro forma uplift YTD), funded with equity and/or revolver, maintaining leverage discipline .

Other Relevant Q3 Announcements

  • Aero 3 acquisition: $350M cash consideration; TTME revenue ~$120M; Adjusted EBITDA margin >20%; expected close in Q4’25, subject to approvals .
  • Equity offering: Company commenced an underwritten public offering to fund all/part of Aero 3 and general corporate purposes .

Key Takeaways for Investors

  • Execution/mix-led outperformance: Three straight quarterly beats with record Q3 profitability; mix and synergy tailwinds underpin raised guidance .
  • GAAP noise vs core strength: Non-cash Fleet earn-out adjustment obscures strong underlying Aviation performance; segment operating income and margins robust .
  • FY setup: Q4 seasonality likely moderates margins, but FY targets raised; watch inventory cost cadence and mix into year-end .
  • Strategic scale-up: Aero 3 adds a high-margin wheel & brake platform with OEM alignment; integration track record (Kellstrom/TCI) supports synergy capture .
  • Balance sheet trending better: FCF momentum and leverage down to ~2.0x provide capacity for organic investments and M&A integration .
  • Near-term consideration: Equity raise to fund Aero 3 may create technical overhang; focus on pro forma earnings power and margin accretion post-close .
  • 2026 lens: OEM-licensed manufacturing transition on track, integration projects ahead of schedule, positioning for sustained growth and margin expansion .

Notes:

  • Company figures are as reported in VSE’s Q3 2025 press release and 8-K; call transcript provided additional color. Citations included inline.
  • Values marked with * are retrieved from S&P Global.