VSE Corporation (VSEC) Q3 2025 Earnings Call Prepared Remarks Transcript
Consolidated Revenue $283 million in Q3 2025, an increase of 39% year-over-year. This growth was driven by execution of new and existing distribution programs, expanded MRO capacity, the addition of new product lines and repair capabilities, and contributions from recent acquisitions, supported by solid end market demand.
Consolidated Adjusted EBITDA $47 million in Q3 2025, an increase of 58% year-over-year. The adjusted EBITDA margin was 16.7%, an approximate 200 basis point improvement over the prior year period. This was driven by a higher mix of proprietary and higher-value aftermarket products and repair work, increased in-sourcing synergies, sales from the OEM license manufacturing program, and earlier-than-planned realization of cost and margin synergies from recent acquisitions.
Adjusted Net Income $20 million in Q3 2025, an increase of 111% year-over-year. Adjusted diluted earnings per share was $0.99, an increase of 87% year-over-year.
Aviation Segment Revenue $283 million in Q3 2025, an increase of 39% year-over-year. Distribution revenue increased 49%, driven by operational execution of new and existing programs, product line expansion, market share gains, and contributions from the Kellstrom acquisition. MRO revenue increased 25%, driven by higher-margin product mix, new repair capabilities, in-sourcing repair activity, strong end market demand, and contributions from the Turbine Weld acquisition. Organic Aviation segment revenue increased by approximately 10% year-over-year.
Aviation Adjusted EBITDA $50 million in Q3 2025, an increase of 51% year-over-year. Adjusted EBITDA margin improved 140 basis points year-over-year to 17.8%. This was driven by a focus on higher-margin product and repair activity, in-sourcing activity, favorable mix, higher-margin aftermarket sales from the OEM license manufacturing program, and synergies from recent acquisitions.
Free Cash Flow Approximately $18 million in Q3 2025, an improvement of $14 million year-over-year. This was driven by record operating results and disciplined working capital management.
Adjusted Net Leverage Ratio Improved to 2x at the end of Q3 2025 from 2.2x in Q2 2025. This improvement was driven by solid free cash flow generation and improved working capital management.
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Defense Spending Approaches $1 Trillion Milestone
- Defense Budget Surge: The advancement of an $839 billion defense bill by U.S. Congress is pushing total defense spending toward the historic $1 trillion mark, which is expected to drive global commercial aftermarket MRO demand at a 3.2% CAGR through 2035, creating significant market opportunities for related firms.
- Strategic Partnership: VisionWave Holdings has signed a strategic exchange agreement worth $7 million with Israeli company SaverOne, potentially allowing VisionWave to control approximately 51% of SaverOne, thereby enhancing its technological capabilities and competitive edge in concealed threat detection.
- Technology Integration Progress: VisionWave's acquisition of the qSpeed computational acceleration engine, independently valued at $99.6 million, aims to reduce threat detection and response times from minutes to seconds, enhancing the responsiveness of its WaveStrike RF-enabled fire control systems and solidifying its market position.
- International Market Expansion: VisionWave, through its subsidiary Solar Drone Ltd., has secured follow-on hardware orders and distribution agreements in Italy and Spain, planning to invest up to $10 million over the next 6 to 12 months to accelerate commercialization timelines, demonstrating its commitment to the Southern European market.
Defense Spending Approaches $1 Trillion Milestone
- Defense Budget Surge: The advancement of an $839 billion defense bill by Congress is pushing total defense spending toward the historic $1 trillion mark, which is expected to drive global commercial aftermarket MRO demand at a 3.2% CAGR through 2035, creating significant market opportunities for related companies.
- Strategic Partnership: VisionWave Holdings signed a strategic exchange agreement worth $7 million with Israeli company SaverOne, potentially allowing VisionWave to control approximately 51% of SaverOne, enhancing concealed threat detection capabilities and strengthening market competitiveness through combined technologies.
- Technology Integration Progress: VisionWave's acquisition of the qSpeed computational acceleration engine, valued at $99.6 million, is expected to significantly reduce the delay between threat detection and response, enhancing the responsiveness of its WaveStrike and Argus systems, thereby solidifying its position in the defense market.
- Market Expansion Plans: VisionWave, through its subsidiary Solar Drone Ltd., has secured hardware orders and distribution agreements in Southern Europe, planning to invest up to $10 million over the next 6 to 12 months to accelerate commercialization efforts to meet infrastructure maintenance needs in Italy and Spain.
