Third Quarter 2025 Results Conference Call October 27, 2025 vsecorp.com Introduction Forward-Looking Statements This presentation contains statements that, to the extent they are not recitations of historical fact, constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Exchange Act. All such statements are intended to be covered by the safe harbor provisions for forward-looking statements contained in ...

Financial Performance - Total revenues for Q3 2025 reached $282.9 million, an increase of 38.9% compared to Q3 2024[3] - Adjusted EBITDA for Q3 2025 was $47.4 million, reflecting a 58.4% increase year-over-year[3] - The adjusted net income for Q3 2025 was $20.5 million, up 110.5% from the previous year[3] - Operating income for Q3 2025 was $10.1 million, a decrease of 49.7% compared to Q3 2024[9] - The adjusted EPS (diluted) for Q3 2025 was $0.99, an increase of 86.8% from the prior year[3] - Total revenues for Q3 2025 reached $282.9 million, a 39% increase from $203.6 million in Q3 2024[35] - Product revenues increased to $176.0 million, up 49% from $118.4 million year-over-year[35] - Service revenues rose to $106.9 million, a 25% increase compared to $85.3 million in the same period last year[35] - Operating income for the nine months ended September 30, 2025, was $57.1 million, compared to $38.3 million for the same period in 2024, reflecting a 49% increase[35] - Net income from continuing operations for the nine months ended September 30, 2025, was $31.2 million, significantly higher than $9.0 million in 2024[35] - The company reported a net loss of $1.9 million for the nine months ended September 30, 2025, compared to a net income of $2.3 million in 2024[36] Cash Flow and Leverage - The company generated $24.1 million in operating cash flow and $18.0 million in free cash flow during Q3 2025, representing significant year-over-year improvements[6] - Free cash flow for Q3 2025 was $18,040,000, significantly up from $4,411,000 in Q3 2024[19] - As of September 30, 2025, the adjusted net leverage ratio was approximately 2.0x, indicating a strong balance sheet position[6] - Net debt decreased to $347,312,000 as of September 30, 2025, down from $401,143,000 at the end of 2024[21] - The net leverage ratio improved to 2.1x as of September 30, 2025, compared to 2.9x at the end of 2024[22] - Cash flows from operating activities showed a net cash used of $10.7 million for the nine months ended September 30, 2025, compared to $86.4 million in 2024[36] - The company generated $76.6 million in net cash from investing activities in 2025, contrasting with a net cash used of $87.5 million in 2024[36] - Borrowings on bank credit facilities amounted to $648.1 million, with repayments totaling $720.8 million during the nine months ended September 30, 2025[36] - Cash and cash equivalents at the end of the period were $8.8 million, down from $29.0 million at the beginning of the period[36] Segment Performance - The aviation segment revenue increased by 38.9% year-over-year, driven by strong execution of distribution programs and expanded MRO capacity[4] - Aviation segment operating income increased to $38,240,000 in Q3 2025, a 50.3% increase from $25,435,000 in Q3 2024[18] - Adjusted EBITDA for the Aviation segment rose to $50,356,000 in Q3 2025, reflecting a 51.2% increase compared to $33,300,000 in Q3 2024[18] - The adjusted EBITDA margin for the aviation segment is now expected to be between 17.0% to 17.25%, increased from prior guidance of 16.5% to 17%[8] Guidance and Future Plans - The company raised its full-year 2025 revenue growth guidance to 38% to 40%, up from the previous guidance of 35% to 40%[8] - The company plans to hold a conference call on October 27, 2025, to discuss financial results and recent events[28] Costs and Expenditures - The company reported a significant increase in unallocated corporate costs, which rose to $28,153,000 in Q3 2025, a 424.9% increase from $5,363,000 in Q3 2024[18] - Capital expenditures for the nine months ended September 30, 2025, were $14,513,000, down from $17,439,000 in the same period of 2024[19] Assets and Liabilities - Total current assets decreased to $722,280,000 as of September 30, 2025, from $965,347,000 at the end of 2024[34] - Current liabilities reduced to $183,351,000 as of September 30, 2025, down from $298,500,000 at the end of 2024[34]

Financial Performance - Total revenues for Q3 2025 reached $282.9 million, a 39% increase from $203.6 million in Q3 2024[17] - Product revenues increased by 49% to $176.0 million in Q3 2025, compared to $118.4 million in Q3 2024[17] - Service revenues rose by 25% to $106.9 million in Q3 2025, up from $85.3 million in Q3 2024[17] - For the three months ended September 30, 2025, revenue increased to $282.9 million, up from $252.2 million in the same period of 2024, representing a growth of 12.7%[49] - Net sales for Q3 2025 were $282,909,000, a 39% increase from $203,642,000 in Q3 2024; for the nine months ended September 30, 2025, revenues reached $811,093,000, up 45% from $558,853,000 in the same period of 2024[70] - Revenue from commercial customers for the nine months ended September 30, 2025, was $808.7 million, a 46.5% increase from $552.1 million in 2024[54] Income and Expenses - Operating income for Q3 2025 was $10.1 million, down from $20.1 million in Q3 2024, reflecting increased costs[17] - Net income for Q3 2025 was $3.9 million, a decrease from $11.7 million in Q3 2024[19] - Operating income for Q3 2025 was $10,087,000, down 50% from $20,072,000 in Q3 2024; for the nine months, operating income was $57,104,000, an increase of 49% from $38,317,000 in the prior year[70] - Net income from continuing operations was $3.6 million for the three months ended September 30, 2025, a 59% decrease compared to the same period in the prior year[92] - The effective tax rate for continuing operations was 37.5% for Q3 2025, compared to 21.1% in Q3 2024, primarily due to a potential tax dispute and higher pre-tax book income[81] Assets and Liabilities - Total assets decreased to $1.56 billion as of September 30, 2025, from $1.74 billion at the end of 2024[15] - Current liabilities decreased significantly to $183.4 million from $298.5 million at the end of 2024[15] - Long-term debt, less current portion, decreased to $348.6 million from $400.2 million at the end of 2024[15] - As of September 30, 2025, total debt was $356.1 million, down from $430.2 million at the end of 2024[56] - The company reported a decrease in cash and cash equivalents to $8.784 million at the end of the period, down from $29.030 million at the beginning[28] Cash Flow - Cash flows from operating activities resulted in a net cash used of $10.652 million, a significant improvement from $86.412 million in the prior year[28] - The company generated $76.558 million in net cash from investing activities, primarily due to proceeds from the sale of business segments amounting to $138.816 million[28] - Cash used in operating activities decreased by $75.8 million for the nine months ended September 30, 2025, compared to the same period in the prior year[103] Acquisitions and Divestitures - The company completed the acquisition of Turbine Weld Industries for $49.9 million, enhancing its MRO service capabilities[36] - The acquisition of Turbine Controls, Inc. was finalized for $122.4 million, aimed at expanding MRO support services across commercial and military applications[39] - The Company completed the acquisition of Turbine Weld Industries, LLC in May 2025, enhancing its capabilities in complex technical engine components[89] - VSE completed the sale of its Fleet segment for total consideration of up to $230 million, including $136.2 million in cash and a potential earn-out of up to $65 million[50] - The Company signed a definitive agreement to acquire GenNx/AeroRepair IntermediateCo Inc. for approximately $350 million in cash, subject to customary closing conditions[85] Internal Controls and Compliance - The Company has evaluated its disclosure controls and procedures, concluding they were effective as of September 30, 2025[116] - There were changes in internal control over financial reporting due to acquisitions of Kellstrom Aerospace and Turbine Weld, focusing on integrating corporate functions[117] - No material changes in internal control over financial reporting were reported during the quarterly period ending September 30, 2025[118] - The Company is evaluating the need for additional internal controls over financial reporting following recent acquisitions[117] Legal and Regulatory Matters - The Company believes that the resolution of legal claims and government audits will not have a material adverse effect on its financial condition or cash flows[65] - The Company has not experienced material impacts from being added to China's "Unreliable Entity List" but continues to monitor the situation[124] - The Company believes potential restrictions from the "Unreliable Entity List" would apply only to the parent company, not its operating subsidiaries[124] - There have been no legal proceedings reported during this period[120] Market Conditions and Risks - The Company continues to face risks from global economic conditions and political factors, including the Russia-Ukraine conflict and trade tensions with China[122] - The company recorded a pre-tax loss of $46.8 million for the nine months ended September 30, 2025, which included a $33.7 million impairment charge on Fleet assets held-for-sale[51]

Core Points - The Chinese government has reactivated the "unreliable entity list" to impose sanctions on foreign entities, including Dedrone by Axon and TechInsights, due to their military technology cooperation with Taiwan and actions that undermine China's national sovereignty and security [1][4][5] - The Chinese government emphasizes that it handles the unreliable entity list cautiously and only targets a small number of foreign entities that pose a threat to national security, assuring compliant foreign businesses that they have nothing to worry about [1][4] Summary by Categories Government Actions - The Chinese government has implemented sanctions against specific foreign entities for their involvement in military technology cooperation with Taiwan and for making negative statements about China [1] - The sanctions are based on various Chinese laws, including the Foreign Trade Law and the National Security Law [1] Entities Listed - The following foreign entities have been included in the unreliable entity list: 1. Dedrone by Axon 2. DZYNE Technologies 3. Elbit Systems of America, LLC 4. Epirus, Inc. 5. AeroVironment, Inc. 6. Exelis Inc. 7. Alliant Techsystems Operations LLC 8. BAE Systems, Inc. 9. Teledyne FLIR, LLC 10. VSE Corporation 11. Cubic Global Defense 12. Recorded Future, Inc. 13. Halifax International Security Forum 14. TechInsights Inc. and its subsidiaries [4][5]

Core Viewpoint - The Ministry of Commerce of China has announced the inclusion of certain foreign entities, including anti-drone technology companies and TechInsights, in the unreliable entity list, which will restrict their activities related to China [1]. Group 1: Entities Listed - The following foreign entities have been included in the unreliable entity list: 1. Dedrone by Axon 2. DZYNE Technologies 3. Elbit Systems of America, LLC 4. Epirus, Inc. 5. AeroVironment, Inc. 6. Exelis Inc. 7. Alliant Techsystems Operations LLC 8. BAE Systems, Inc. 9. Teledyne FLIR, LLC 10. VSE Corporation 11. Cubic Global Defense 12. Recorded Future, Inc. 13. Halifax International Security Forum 14. TechInsights Inc. and its branches [4]. Group 2: Measures Taken - The measures taken against the listed entities include: 1. Prohibition of engaging in import and export activities related to China 2. Prohibition of new investments within China 3. Prohibition of transactions and cooperation with these entities by organizations and individuals in China, especially concerning data transmission and provision of sensitive information [1].

Core Viewpoint - The Ministry of Commerce has announced the inclusion of foreign entities, specifically anti-drone technology companies and TechInsights, in the unreliable entity list to protect national sovereignty, security, and development interests [2][5]. Group 1: Announcement Details - The announcement includes measures such as prohibiting the listed entities from engaging in import and export activities related to China, forbidding new investments in China, and restricting Chinese organizations and individuals from conducting transactions or cooperation with these entities [2][3]. - The entities listed in the unreliable entity list include Dedrone by Axon, DZYNE Technologies, Elbit Systems of America, Epirus, AeroVironment, Exelis, Alliant Techsystems Operations, BAE Systems, Teledyne FLIR, VSE Corporation, Cubic Global Defense, Recorded Future, Halifax International Security Forum, and TechInsights along with its various branches [4]. Group 2: Rationale Behind the Decision - The Ministry of Commerce stated that these foreign entities have engaged in military technology cooperation with Taiwan, made harmful statements regarding China, and assisted foreign governments in suppressing Chinese companies, which severely undermines China's national interests [5]. - The Chinese government emphasizes that it handles the unreliable entity list cautiously and only targets a small number of foreign entities that pose a threat to national security, assuring that compliant foreign entities have nothing to worry about [5].

不 可 靠 实 体 清 单 工 作 机 制 公 告 附：被列入不可靠实体清单的外国实体 不可靠实体清单工作机制 （商务部代章） 2025年10月9日 2025年 第10号 为维护国家主权、安全和发展利益，根据《中华人民共和国对外贸易法》《中华人民共和国国家安 全法》《中华人民共和国反外国制裁法》等有关法律，不可靠实体清单工作机制依据《不可靠实体清单 规定》第二条、第八条和第十条等有关规定，决定将反无人机技术公司、TechInsights公司及其分支机 构等外国实体列入不可靠实体清单，并采取以下处理措施： 一、禁止上述实体从事与中国有关的进出口活动； 二、禁止上述实体在中国境内新增投资； 三、禁止中国境内的组织、个人与上述实体进行有关交易、合作等活动，特别是向上述实体传输数 据、提供敏感信息。 本公告未尽事宜，按《不可靠实体清单规定》执行。 本公告自公布之日起实施。 附 被列入不可靠实体清单的外国实体 6. Exelis公司（Exelis Inc.） 7. 联合技术系统运营公司（Alliant Techsystems Operations LLC） 1. 反无人机技术公司（Dedrone by Axon） 2. ...

PART I FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=ITEM%201.%20Financial%20Statements) The company presents its unaudited consolidated financial statements reflecting its recent strategic shift to an aviation focus [Unaudited Consolidated Balance Sheets](index=4&type=section&id=Unaudited%20Consolidated%20Balance%20Sheets) Total assets decreased to $1.60 billion, driven by the sale of the Fleet segment and a corresponding reduction in liabilities Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$1,602,027** | **$1,742,630** | | Total Current Assets | $753,619 | $965,347 | | Goodwill | $428,665 | $428,263 | | **Total Liabilities** | **$622,500** | **$754,444** | | Total Current Liabilities | $202,045 | $298,500 | | Long-term debt, less current portion | $371,656 | $400,173 | | **Total Stockholders' Equity** | **$979,527** | **$988,186** | - The balance sheet as of December 31, 2024, included **$282.8 million in 'Current assets held-for-sale'** and **$68.2 million in 'Current liabilities held-for-sale'** related to the Fleet segment, which were no longer present as of June 30, 2025, following the sale[13](index=13&type=chunk)[32](index=32&type=chunk) [Unaudited Consolidated Statements of Operations](index=5&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Operations) Q2 2025 continuing operations saw a net income of $13.6 million, a significant turnaround from a prior-year loss Q2 2025 vs Q2 2024 Performance (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Total Revenues | $272,139 | $192,828 | | Operating Income | $22,513 | $2,602 | | Net Income from Continuing Operations | $13,638 | $(5,288) | | (Loss) from Discontinued Operations | $(10,441) | $2,511 | | **Net Income (Loss)** | **$3,197** | **$(2,777)** | | Diluted EPS from Continuing Operations | $0.66 | $(0.31) | Six Months 2025 vs 2024 Performance (in thousands, except per share data) | Metric | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | | Total Revenues | $528,184 | $355,211 | | Operating Income | $47,017 | $18,245 | | Net Income from Continuing Operations | $27,606 | $254 | | (Loss) from Discontinued Operations | $(33,382) | $(9,642) | | **Net (Loss)** | **$(5,776)** | **$(9,388)** | | Diluted EPS from Continuing Operations | $1.33 | $0.01 | [Unaudited Consolidated Statements of Cash Flows](index=12&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Cash%20Flows) Cash from investing activities was positive due to asset sales, while operating activities used $34.7 million Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(34,741) | $(96,588) | | Net cash provided by (used in) investing activities | $82,613 | $(81,820) | | Net cash (used in) provided by financing activities | $(59,996) | $189,471 | | **Net (decrease) increase in cash** | **$(12,124)** | **$11,063** | - Investing activities in 2025 were positively impacted by **$138.8 million in proceeds from the sale of business segments**, net of cash divested[28](index=28&type=chunk) - Financing activities in 2024 were significantly boosted by **$161.7 million in proceeds from the issuance of common stock**[28](index=28&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=14&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) Notes detail the company's transformation, including acquisitions, divestitures, and a new credit agreement - The company now operates in a **single reportable segment, Aviation**, providing aftermarket parts distribution and MRO services[30](index=30&type=chunk)[69](index=69&type=chunk) - On May 1, 2025, the company acquired Turbine Weld for **$49.9 million in cash** to strengthen its MRO service portfolio[36](index=36&type=chunk) - The sale of the Fleet segment was completed on April 1, 2025, for a total consideration of up to **$230 million**, including cash, a seller note, and a potential earn-out[50](index=50&type=chunk) - A new credit agreement was established on May 2, 2025, providing a **$300 million term loan** and a **$400 million revolving credit facility**, both maturing in 2030[59](index=59&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses strong Q2 2025 revenue growth driven by acquisitions and its focused aviation strategy - Q2 2025 revenue reached **$272.1 million, a 41% increase year-over-year**, driven by strong execution, expanded product lines, and contributions from recent acquisitions[90](index=90&type=chunk) - **Distribution revenue grew 50%** and **repair revenue grew 27%** in Q2 2025 compared to Q2 2024, fueled by new distribution agreements like the Pratt & Whitney Canada EMEA program and solid end-market activity[90](index=90&type=chunk)[93](index=93&type=chunk) - Operating income for Q2 2025 **increased by 765% to $22.5 million**, largely due to higher revenues and the absence of a $12.9 million lease abandonment charge recorded in Q2 2024[92](index=92&type=chunk)[95](index=95&type=chunk) - The company entered a new credit agreement in May 2025 with a **$300M term loan and $400M revolving facility**, enhancing liquidity and flexibility; as of June 30, 2025, VSE had **$316.4 million of unused commitments**[98](index=98&type=chunk)[101](index=101&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate exposure from variable-rate debt, which is partially hedged - VSE's primary market risk is **interest rate risk** from its variable-rate credit facility[111](index=111&type=chunk) - The company uses **interest rate hedges (swaps)** to fix rates on a portion of its borrowings to mitigate the impact of interest rate fluctuations[111](index=111&type=chunk) [Controls and Procedures](index=33&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Disclosure controls were deemed effective, with internal control changes made to integrate recent acquisitions - The CEO and CFO concluded that as of June 30, 2025, the company's **disclosure controls and procedures were effective**[116](index=116&type=chunk) - Changes were made to internal controls to integrate the acquisitions of Kellstrom Aerospace and Turbine Weld, focusing on areas like entity-level controls, IT, inventory management, and revenue processing[117](index=117&type=chunk) PART II OTHER INFORMATION [Legal Proceedings](index=34&type=section&id=ITEM%201.%20Legal%20Proceedings) The company reported no legal proceedings during the period - There are **no legal proceedings** to report[120](index=120&type=chunk) [Risk Factors](index=34&type=section&id=ITEM%201A.%20Risk%20Factors) No material changes were reported to the risk factors previously disclosed in the company's Form 10-K - **No material changes** to previously disclosed risk factors were reported[121](index=121&type=chunk) [Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities](index=34&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company did not repurchase its equity securities, except for shares withheld for employee tax liabilities - The company did not engage in any stock buybacks; the only equity purchases were **194 shares forfeited by employees** to cover tax liabilities on vesting stock awards[122](index=122&type=chunk) [Other Information](index=34&type=section&id=ITEM%205.%20Other%20Information) No directors or officers adopted, modified, or terminated Rule 10b5-1 trading arrangements during the quarter - No directors or officers adopted, modified, or terminated any **Rule 10b5-1 trading plans** during the three months ended June 30, 2025[123](index=123&type=chunk) [Exhibits](index=35&type=section&id=ITEM%206.%20Exhibits) This section lists filed exhibits, including the new Credit Agreement and required CEO/CFO certifications - Key exhibits filed include the new **Credit Agreement dated May 2, 2025**, and required CEO/CFO certifications[125](index=125&type=chunk)

Financial Performance - VSE achieved record revenue of $272 million in Q2 2025, a 41% increase year-over-year, driven by strong performance in aviation distribution and MRO businesses [17][21] - Adjusted EBITDA rose 52% to $43 million, with an adjusted EBITDA margin of 16%, reflecting a 110 basis point improvement from the previous year [21][17] - Adjusted net income increased by 149% to $20 million, with adjusted diluted earnings per share rising to $0.97, a 106% increase [21][19] Business Segment Performance - The Aviation segment generated $272 million in revenue, a 41% increase, with distribution revenue up 50% and MRO revenue up 27% [22][21] - Organic revenue growth in the Aviation segment was approximately 13% when excluding recent acquisitions [22] - Adjusted EBITDA for the Aviation segment increased by 48% to $47 million, representing 17.1% of revenue, driven by favorable pricing and product mix [23][21] Market Environment - The second quarter began with softness in the aftermarket due to tariff uncertainties, but activity rebounded in May and June [15] - The aviation aftermarket, particularly in the engine segment, is expected to remain strong, with engine-related MRO and distribution revenue accounting for over 50% of total aviation revenue [16][17] Company Strategy and Industry Competition - VSE completed the sale of its fleet segment, focusing on higher growth and higher margin distribution and MRO services within the aviation aftermarket [7][6] - The company is prioritizing integration of recent acquisitions to unlock efficiencies and enhance customer value, with a focus on capturing synergies [29][30] - VSE is expanding repair capabilities and increasing capacity across operations to meet strong demand [28][30] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in continued strength in the aviation aftermarket, particularly in the engine segment, and highlighted targeted investments to capitalize on growth [16][28] - The company reaffirmed its full-year 2025 Aviation segment revenue growth guidance of 35% to 40% and raised adjusted EBITDA margin guidance to 16.5% to 17% [24][25] Other Important Information - VSE secured a new $700 million credit facility, providing financial flexibility to support growth initiatives [9] - The company generated approximately $6 million in free cash flow during the quarter, an improvement of $28 million year-over-year [26][27] Q&A Session Summary Question: Can you discuss organic growth expectations for the second half of the year? - Management indicated that organic growth is expected to continue, with engine markets outperforming component markets, particularly in commercial aviation [35][36] Question: What are the synergies expected from recent acquisitions? - Management noted that significant cost synergies have already been captured, with ongoing opportunities for margin expansion as integrations progress [68][70] Question: How sustainable is the free cash flow generation? - Management highlighted a strong cash generation in the first half and anticipated continued improvement in free cash flow in the second half, driven by better working capital management [44][45] Question: What is the outlook for the Honeywell fuel control program? - Management stated that the program is performing well, but further growth opportunities will be evaluated after achieving full implementation [72][73] Question: What is the strategy for the USM business moving forward? - The company plans to shift the USM business towards a used and repair model, focusing on margin expansion rather than transactional parts trading [46][50]

Financial Performance - VSE achieved record revenue of $272 million in Q2 2025, a 41% increase year-over-year, driven by strong performance in aviation distribution and MRO businesses [16][18] - Adjusted EBITDA increased by 52% to $43 million, with an adjusted EBITDA margin of 16%, reflecting a 110 basis point improvement from the prior year [16][18] - Adjusted net income reached $20 million, with adjusted net income per diluted share of $0.97, marking increases of 149% and 106% respectively [16][19] Business Segment Performance - Aviation segment revenue also increased by 41% to $272 million, with distribution revenue up 50% and MRO revenue up 27% [20] - Organic revenue growth in the aviation segment was approximately 13% when excluding recent acquisitions [20] - The company is focusing on higher margin product lines, leading to a reduction in less profitable used serviceable material (USM) revenue by about 20% on a run rate basis [11][20] Market Environment - The aviation aftermarket showed resilience, with a rebound in activity in May and June after initial softness due to tariff uncertainties [15] - Engine-related MRO and distribution revenue now represents over 50% of total aviation revenue, indicating strong demand in this segment [15] Company Strategy and Development Direction - VSE completed the sale of its fleet segment, transitioning to a pure play aviation aftermarket company, and is now focused on higher growth and higher margin opportunities [6][25] - The company is prioritizing integration of recent acquisitions, including Turbine Weld and Kaelstrom, to unlock efficiencies and enhance customer value [26] - VSE is also capturing cost synergies from acquisitions, with $4 million in identified cost savings already being realized [12][26] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in continued strength in the aviation aftermarket, particularly in the engine segment, and anticipates revenue growth of 35% to 40% for the full year 2025 [22][15] - The company is raising its full-year adjusted EBITDA margin guidance to 16.5% to 17%, reflecting a higher margin product mix [22] Other Important Information - VSE secured a new $700 million credit facility, providing financial flexibility to support growth initiatives [7] - The company generated approximately $6 million in free cash flow during the quarter, an improvement of about $28 million compared to the previous year [24] Q&A Session Summary Question: Can you discuss organic growth expectations for the second half of the year? - Management indicated that organic growth is expected to be in the low to mid-teens, with engine markets outperforming component markets [32][34] Question: What are the synergies from recent acquisitions? - Management noted that synergies from Kaelstrom are being realized ahead of schedule, contributing to strong margins [36][62] Question: How sustainable is the free cash flow generation? - Management expects strong improvement in free cash flow in the second half of the year, driven by better working capital management [42] Question: What is the strategy for the USM business? - The company is shifting the USM business to focus on higher margin product lines and integrating it with repair capabilities [45][84] Question: What are the opportunities in the hydraulics market? - Management sees potential in the hydraulics market, emphasizing faster turnaround times and quality in supporting OEM authorized work [73] Question: What is the outlook for engine aftermarket demand? - Management believes that engine aftermarket demand will continue to outpace component demand in the near to mid-term due to supply chain constraints [77]