VSE Conference: CEO Says PAG Deal Is Transformational, Targets 20%+ EBITDA and Stronger Cash Flow

Core Viewpoint - VSE's acquisition of Precision Aviation Group (PAG) is seen as transformational, shifting the company's business mix towards higher free cash flow and enhanced repair capabilities [4][7]. Company Strategy - VSE aims to create a differentiated aviation aftermarket platform by integrating distribution, repair services, and intellectual property-driven revenue streams [4][8]. - The company is focused on bridging gaps in the aviation aftermarket by combining new parts, used parts, and repair services into a unified model [3][9]. Financial Projections - VSE expects post-acquisition leverage to be around 2.5x to 3x, with a conservative estimate of $15 million in cost synergies [5][15]. - The company targets adjusted EBITDA margins of over 20% by late 2027 to 2028, with a goal of achieving 30% to 35% EBITDA-to-free-cash-flow conversion and becoming free cash flow positive in 2025 [6][16]. Market Growth and Segmentation - VSE's revenue is expected to grow across four categories: commercial engines, commercial non-engines, business and general aviation (BGA) engines, and BGA non-engines, with growth rates varying from 5% to mid-double digits [10][11]. - The total aviation aftermarket is estimated at approximately $150 billion, with VSE targeting both service competitors and OEMs [11]. Integration and Synergies - VSE plans a phased, low-risk integration approach for PAG, focusing on validating operations early and integrating in smaller segments [19][20]. - The company acknowledges that the $15 million synergy estimate may be conservative, with potential for higher synergies from various initiatives [18][19]. Historical Performance - VSE has achieved approximately 15% organic growth over the past three years, with a compound annual growth rate (CAGR) of around 30% [12]. - The company has improved its margins from around 11.5% six years ago to "well north of 15%" currently [13].