VSE (NASDAQ:VSEC) executives highlighted record results and a major pending acquisition during the company’s fourth-quarter 2025 earnings call, describing 2025 as a “transformational year” that completed its shift to a pure-play aviation aftermarket business. Management also introduced 2026 guidance that excludes the recently announced Precision Aviation Group (PAG) transaction and discussed new proprietary program wins that are expected to add recurring, higher-margin revenue over time.
2025 transformation and record performance
President and CEO John Cuomo said VSE finished a multi-year transition to focus solely on the aviation aftermarket, including the sale of its fleet segment in April. He said the company delivered record aviation revenue and profitability, surpassed $1 billion in annual revenue for the first time, and strengthened its balance sheet.
Fourth-quarter and full-year financial results
Chief Financial Officer Adam Cohn reported that fourth-quarter 2025 revenue was $301 million, up 32% year over year. Consolidated adjusted EBITDA rose 55% to $52 million, with adjusted EBITDA margin of 17.2%, an improvement of about 260 basis points. Adjusted net income was $26 million, and adjusted diluted EPS was $1.16.
For the full year 2025, Cohn said revenue was approximately $1.1 billion, up 41% versus 2024. Adjusted EBITDA increased 56% to $183 million. Adjusted net income rose 121% to $83 million, and adjusted diluted EPS increased 87% to $3.92.
In the aviation segment, VSE posted fourth-quarter revenue of $301 million, up 32%, with distribution up 37% and MRO up 24%. Cohn said that excluding the impact of recent acquisitions (and including Kellstrom beginning in December), organic aviation revenue increased about 12% year over year in the quarter. Aviation adjusted EBITDA increased 43% to a record $55 million, or 18.3% of revenue, driven by mix, increased insourcing, favorable program mix, higher-margin OEM licensed manufacturing sales, and synergy realization.
On the balance sheet, Cohn said VSE ended the quarter with $296 million of debt and about $69 million of cash, with no borrowings on its $400 million revolving credit facility. Fourth-quarter free cash flow was about $31 million. Full-year free cash flow totaled $6 million, an improvement of roughly $57 million versus the prior year. Adjusted net leverage improved to 1.1x at year-end.
PAG acquisition and proprietary program wins
Cuomo said VSE entered into a definitive agreement on Jan. 29 to acquire Precision Aviation Group, calling it a “transformational” deal that expands scale and engine and component service capabilities across commercial, business and general aviation, rotorcraft, and defense markets. PAG expects to generate approximately $615 million in adjusted revenue for full-year 2025, with adjusted EBITDA margins above 20%, according to management.
Cuomo said upfront consideration is approximately $2.025 billion, consisting of $1.75 billion in cash and about $275 million of equity issued to GenNx360, subject to a lockup. The agreement includes up to $125 million in contingent earnout consideration based on PAG’s 2026 adjusted EBITDA performance, payable in cash or equity at VSE’s discretion. VSE expects to fund the transaction with approximately $1.28 billion in net proceeds from recently completed common stock and Tangible Equity Unit offerings, plus permanent debt financing being finalized. Following the anticipated close in late second quarter, management said integration will begin immediately, with phase one cost and insourcing synergies expected to exceed $15 million annually.
In addition to M&A, management highlighted two new organic growth awards aimed at increasing proprietary content:
- An asset purchase agreement with an OEM to exclusively manufacture, distribute, and repair certain fuel pumps for Pratt & Whitney Canada PT6 engine series.
- A globally exclusive, life-of-program APU components distribution agreement, under which VSE will be the exclusive licensed distributor for more than 2,500 aftermarket parts across four OEM APU platforms.
The APU distribution program will require about $45 million of initial inventory and working capital, which management said will weigh on free cash flow in the first quarter and full year 2026. On the call, Cuomo declined to name the OEM and said the company shared the item primarily so investors could model the first-quarter inventory build. He said the transition pace and revenue contribution will be clearer by the time VSE reports first-quarter results in early May.
2026 outlook (excluding PAG) and margin drivers
Cohn said VSE will no longer provide segment-level guidance because it is now a single aviation-focused segment. He also emphasized that the PAG acquisition is not included in the 2026 outlook and that the company plans to update guidance after the transaction closes.
For 2026, VSE guided to revenue growth of 19% to 23% year over year, with full-year contributions from Aero3 and Turbine Weld accounting for about 11% to 13% of that increase. Management expects organic growth in the high single-digit to low double-digit range, driven by new program awards, distribution expansion, increased MRO capacity and capabilities, and market share gains. Revenue is expected to increase sequentially throughout the year, reflecting Aero3 seasonality and a ramp in new program awards with heavier contribution in the second half.
Adjusted EBITDA margin is expected to be 16.8% to 17.3% for 2026. Cohn said Aero3 and Turbine Weld should add about 40 basis points, while operating leverage, program optimization, and improved MRO utilization in the core business could contribute up to 50 basis points of incremental margin expansion. He also said first-quarter margins are expected to decline sequentially from the fourth quarter due to seasonality, award ramp timing, and mix, but improve year over year.
Additional 2026 modeling assumptions provided included interest expense of about $20 million, depreciation and amortization of $52 million to $54 million, an effective tax rate of about 25%, stock-based compensation of $15 million to $16 million, and capital expenditures of roughly 2% of revenue.
Q&A: synergies, market share, and free cash flow timing
In response to questions, Cuomo said Kellstrom’s margins have improved substantially since acquisition, saying the business moved from 11% margins to about 17% over roughly 14 months and is at or above company-wide margins. He said VSE still sees further opportunity through integration and cost actions, but also stressed the importance of investing in labor and capabilities to support growth.
On organic growth, Cuomo described a pipeline of strategic commercial MRO contracts and suggested opportunities in areas such as avionics, hydraulics, pneumatics, and engine-adjacent work, while noting that program timing can be unpredictable. He told analysts that outperformance versus market growth assumptions is being driven by share gains, and said pricing has moderated, with growth rates reflecting roughly a 50/50 mix of price and volume.
On free cash flow, management reiterated that the first quarter is typically negative due to seasonal working capital, and said the new APU inventory investment will increase that usage. Excluding the APU inventory build, Cohn said VSE expects stronger free cash flow in 2026 than 2025, citing a shift toward more MRO revenue and improved distribution terms. Both executives said they expect strong free cash flow generation in the second half of 2026.
Looking further out, Cuomo said VSE had a path to 20% adjusted EBITDA margins even before the PAG announcement, and that the PAG deal could accelerate that path. However, he said investors should not expect a 20% margin level in 2026, and indicated the company’s goal would be reaching that level around the back half of 2027.
About VSE (NASDAQ:VSEC)
VSE Corporation (NASDAQ: VSEC) is a provider of aftermarket distribution and supply chain management services serving both government and commercial markets. The company’s solutions span a wide range of industries, with particular emphasis on defense, aerospace and transportation. VSE’s core mission is to ensure mission readiness by delivering critical parts, maintenance and technical support for equipment throughout its lifecycle.
Through its Distribution Services segment, VSE sources, markets and distributes replacement parts and components for commercial truck, bus, rail and specialty vehicle applications.
