Q4 2024 VSE Corp Earnings Call
Specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would like now to turn the conference over to Mr. Michael Perlman Vice.
<unk> of Investor Relations. Please go ahead.
Speaker Change: Thank you welcome to <unk> Corporation fourth quarter and full year 2024 results conference call. We will begin with remarks from John Cuomo, President and CEO, followed by financial update from Adam <unk> our.
Adam: Our Chief Financial Officer.
Adam: Presentation, we are sharing today is on our website and we encourage you to follow along accordingly.
Adam: The discussion contains forward looking statements about future business and financial expectations.
Adam: Actual results may differ significantly from those projected in today's forward looking statements due to various risks and uncertainties, including those described in our periodic reports filed with the SEC.
Adam: Except as required by law, we undertake no obligation to update our forward looking statements.
Adam: We are using non-GAAP financial measures in our presentation, where available the appropriate GAAP financial reconciliations are incorporated into our presentation and posted on our website all percentages in today's discussion refer to year over year progress, except where noted.
Adam: At the conclusion of our prepared remarks, we will open the line for questions with that I'd like to turn the call over to John.
John Cuomo: Good morning, Thank you for joining us today for <unk> fourth quarter and full year 2024 conference call.
John Cuomo: <unk> thousand 24 was a transformative year for vse.
John Cuomo: Driven by record revenue and profitability in our aviation segment the acquisition of two commercial aviation aftermarket businesses.
Good morning, and welcome to the V. S. C Corporation fourth quarter and full year 2024 results conference call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by Chris.
John Cuomo: The divestiture of our federal and Defense services segment.
John Cuomo: These strategic actions will reinforce our commitment to becoming a pure play aviation aftermarket company streamlining our operations to drive sustained growth.
The Star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one can you touch tone from.
John Cuomo: Before diving into our results I want to highlight last week's announcement regarding the sale of our fleet segment business Wheeler fleet solutions to one equity partners.
Speaker Change: To withdraw your question. Please press Star then two please note. This event is being recorded I would like now to turn the conference over to Mr. Michael Perlman, Vice President of Investor Relations. Please go ahead.
John Cuomo: This divestiture marks the final step in our strategic transformation into a leading pure play aviation aftermarket parts and services provider.
Speaker Change: Thank you welcome to Vse Corporation fourth quarter and full year 2024 results conference call.
John Cuomo: The transaction is valued at up to $230 million, including a $140 million cash payment at closing a $25 million seller note and up to $65 million in.
Speaker Change: We will begin with remarks from John former President and CEO, followed by financial update from Adam Cohen, Our Chief Financial Officer. The presentation. We are sharing today is on our website and we encourage you to follow along accordingly.
John Cuomo: <unk> earn out consideration.
John Cuomo: The earn out allows us to participate in fleets expected revenue and margin recovery in 2025 the.
Speaker Change: The discussion contains forward looking statements about future business and financial expectations.
Speaker Change: Actual results may differ significantly from those projected in today's forward looking statements due to various risks and uncertainties, including those described in our periodic reports filed with the SEC.
John Cuomo: The transaction is expected to close in the second quarter of 2025 subject to customary closing conditions.
John Cuomo: This divestiture and the strategic actions, we've taken over the past five years demonstrate our commitment to becoming a pure play aviation aftermarket company.
Speaker Change: Except as required by law, we undertake no obligation to update our forward looking statements. We are using non-GAAP financial measures in our presentation, where available and the appropriate GAAP financial reconciliations are incorporated into our presentation and posted on our website all percentages in today's discussion refer to year over year progress.
John Cuomo: With that let's begin with an update on the current market environment for our aviation segment.
John Cuomo: The aviation segment supports both the commercial and business in general aviation aftermarket with each representing approximately 50% of 2025 aviation segment forecasted revenue.
Speaker Change: Except where noted at the conclusion of our prepared remarks, we will open the line for questions with that I'd like to turn the call over to John.
Speaker Change: Good morning, Thank you for joining us today for Vse, its fourth quarter and full year 2024 conference call.
John Cuomo: The aviation aftermarket is set for another year of expansion in 2025 with both the commercial and business aviation sectors experiencing continued growth.
Speaker Change: 2024 was a transformative year for BSC driven.
John Cuomo: This momentum is driven by increased global passenger traffic.
Speaker Change: Driven by record revenue and profitability in our aviation segment. The acquisition of two commercial aviation aftermarket businesses and the divestiture of our federal and defense services segment.
John Cuomo: Rising demand for maintenance repair and overhaul services and an uptick in business jet utilization.
The commercial aircraft aftermarkets parts and services market is expected to maintain its strong growth trajectory in 2025.
Speaker Change: These strategic actions will reinforce our commitment to becoming a pure play aviation aftermarket company streamlining our operations to drive sustained growth.
John Cuomo: Revenue passenger miles forecast combined with ongoing supply chain and capacity constrained indicate another robust year for the sector.
Speaker Change: Before diving into our results I want to highlight last week's announcement regarding the sale of our fleet segment business Wheeler fleet solutions to one equity partners.
John Cuomo: As a result.
John Cuomo: We anticipate commercial aftermarket growth for our parts and services to range between 8% and 10% in 2025.
Speaker Change: This divestiture marks the final step in our strategic transformation into a leading pure play aviation aftermarket parts and services provider.
John Cuomo: The business aviation sector continues to see unprecedented demand with industry experts projecting that flight hours will remain steady or increase for more than 90% of operators in 2025 as compared to 2024.
Speaker Change: The transaction is valued at up to $230 million, including a $140 million cash payment at closing.
Speaker Change: $25 million seller note and up to $65 million and additional earn out consideration.
John Cuomo: This outlook, coupled with new market entrants, leveraging fractional ownership leasing and jet card program.
Speaker Change: The earn out allows us to participate in fleets expected revenue and margin recovery in 2025 to.
John Cuomo: As well as a projected expansion of the total business Aviation fleet supports vse's forecast for our business in general aviation market.
Speaker Change: The transaction is expected to close in the second quarter of 2025 subject to customary closing conditions.
We anticipate growth of 5% to 6% in 2025 for our products and services in this segment.
Speaker Change: This divestiture and the strategic actions, we've taken over the past five years demonstrate our commitment to becoming a pure play aviation aftermarket company with that let's begin with an update on the current market environment for our aviation segment.
John Cuomo: Therefore, we forecast our combined market at six 5% to 8% in 2025 with our plan to outperform the end market assumptions.
Let's now turn to slide three where I will provide an overview of our 2024 and year to date 2025 highlights starting with our recent strategic acquisitions in aviation.
Speaker Change: Yeah.
Speaker Change: The aviation segment support both the commercial and business in general aviation aftermarket with each representing approximately 50% of 2025 aviation segment forecasted revenue.
First in December we acquired <unk> aerospace, a leading aftermarket solutions provider specializing in value added distribution and technical services to the commercial engine market.
Speaker Change: The aviation aftermarket is set for another year of expansion in 2025 with both the commercial and business aviation sectors experiencing continued growth.
John Cuomo: <unk> strongly with our OEM centric strategy.
Speaker Change: This momentum is driven by increased global passenger traffic rising.
John Cuomo: Spanning our presence in the commercial aerospace aftermarket.
Speaker Change: Demand for maintenance repair and overhaul services and an uptick in business jet utilization.
John Cuomo: This acquisition brings new engine focused customers additional distribution product and enhanced MRO and technical service capabilities to Vse aviation.
Speaker Change: The commercial aircraft aftermarkets parts and services market is expected to maintain its strong growth trajectory in 2025.
John Cuomo: The integration of <unk> distribution business is underway and is expected to be completed over the next 12 months to 18 months.
Speaker Change: Revenue passenger miles forecast combined with ongoing supply chain and capacity constrained indicate another robust year for the sector.
John Cuomo: In April 2024, we acquired turbine controls or PCI.
As a result the.
Speaker Change: He anticipates commercial aftermarket growth for our parts and services to range between 8% and 10% in 2025.
John Cuomo: Further increasing our exposure to the commercial aviation engine component MRO market.
John Cuomo: This acquisition expanded our repair capabilities and added new OEM relationships.
Speaker Change: The business aviation sector continues to see unprecedented demand with industry experts projecting that flight hours will remain steady or increase for more than 90% of operators in 2025 as compared to 2024.
John Cuomo: This business performed exceptionally well in 2024, driving well above market revenue growth as they supported their key OEM partners, we remain focused on scaling capacity and deepening partnerships with Oems and the year ahead.
Speaker Change: This outlook, coupled with new market entrants, leveraging fractional ownership leasing and jet card program as well as a projected expansion of the total business Aviation fleet support Vse's forecast for our business in general aviation market.
John Cuomo: Third we successfully completed the integration of <unk> U S distribution business in 2020 for streamline processes systems and organization and launching a new go to market strategy under the Etsy brand looking.
Speaker Change: We anticipate growth of 5% to 6% in 2025 for our products and services in this segment.
John Cuomo: Looking ahead, we plan to integrate <unk> remaining business units in 2025 with the deaths are Australia integration already completed in early 2025.
Speaker Change: Therefore, we forecast our combined market at six 5% to 8% in 2025 with our plan to outperform these market assumptions.
John Cuomo: Moving onto new program implementation.
John Cuomo: We opened a new 45000 square foot distribution center of excellence in Homburg, Germany.
Speaker Change: Let's now turn to slide three where I will provide an overview of our 2024 and year to date 2025 highlights starting with our recent strategic acquisitions in aviation.
John Cuomo: Initially.
John Cuomo: This site supported Pratt <unk> Whitney, Canada is Europe, Middle East and Africa distribution and support program and has since expanded to include tires tubes, and battery product lines with additional product line expected to be expanded in the future.
Speaker Change: First in December we acquired <unk> aerospace, a leading aftermarket solutions provider specializing in value added distribution and technical services to the commercial engine market.
John Cuomo: We launched a new OEM licensed Avionic MRO program in 2024 that combined with our distribution program supporting this product line allows us to manage the total life cycle of these products.
Speaker Change: Kallstrom align strongly with our OEM centric strategy expanding our presence in the commercial aerospace aftermarket.
John Cuomo: We also launched our new OEM license manufacturing capability and facility expansion following our acquisition of the Honeywell fuel control program.
Speaker Change: This acquisition brings new engine focused customers additional distribution product and enhanced MRO and technical service capabilities to Vse aviation.
John Cuomo: The program exceeded our initial expectations and was a strong margin contributor in 2024, we plan to fully transition all OEM manufacturing capabilities to our facility in 2025.
Speaker Change: The integration of <unk> distribution business is underway and is expected to be completed over the next 12 months to 18 months.
Speaker Change: In April 2024, we acquired turbine control.
Speaker Change: Or TCR.
John Cuomo: Now turning to our fleet segment.
Speaker Change: Further increasing our exposure to the commercial aviation engine component MRO market.
John Cuomo: 2024 was a year of transition as we continued supporting the United States Postal service following their migration to a new fleet management information system.
Speaker Change: This acquisition expanded our repair capabilities and added new OEM relationships.
John Cuomo: After reaching a low point in Q3, we began seeing improved maintenance related repair activity and parts usage in the fourth quarter.
Speaker Change: This business performed exceptionally well in 2024, driving well above market revenue growth as they supported their key OEM partners.
John Cuomo: We expect this momentum to continue through 2025.
Speaker Change: We remain focused on scaling capacity and deepening partnerships with Oems and the year ahead.
John Cuomo: With the fleet segments commercial sales channel, we scaled our Memphis ecommerce fulfillment facility diversified our customer base and added new exclusive brands.
Speaker Change: Third we successfully completed the integration of <unk> U S distribution business in 2020 for streamline processes systems and organization and launching a new go to market strategy under the Etsy brand.
John Cuomo: As a result, our commercial revenue growth continues to outpace the market.
John Cuomo: At the corporate level, we successfully completed the sale of our federal <unk> Defense segment in February 2024, marking a significant milestone in our transition to a pure play aviation business.
Speaker Change: Looking ahead, we plan to integrate <unk> remaining business units in 2025 with the deaths are Australia integration already completed in early 2025.
John Cuomo: Finally, we relocated our corporate headquarters to South, Florida co locating within our aviation segment headquarters and MRO Center of excellence in Miramar, Florida.
Speaker Change: Moving onto new program implementation.
Speaker Change: We opened a new 45000 square foot distribution center of excellence in Hamburg, Germany.
John Cuomo: This move enhances collaboration with our business partners and employees, while also reducing corporate overhead costs.
Speaker Change: Initially this site supported Pratt <unk> Whitney, Canada is Europe, Middle East and Africa distribution and support program and has since expanded to include tires tubes, and battery product lines with additional product line expected to be extended in the future.
John Cuomo: Let's now move to slide four.
John Cuomo: I will provide an update on our business segment full year 2020 for performance.
John Cuomo: For the full year 2024, we delivered both record revenue and record profitability for our aviation segment.
Speaker Change: We launched a new OEM license Avionic MRO program in 2024 that combined with our distribution program supporting this product line allows us to manage the total lifecycle of these products.
John Cuomo: Revenue growth was driven by balanced strong execution on new and existing distribution programs and expanded portfolio of MRO capabilities and contribution from recent acquisitions.
Speaker Change: We also launched our new OEM license manufacturing capability and facility expansion following our acquisition of the Honeywell fuel control program.
John Cuomo: The aviation segment also reported record profitability driven by distribution program growth the optimization of existing distribution programs increased throughput at our MRO facilities support from our new OEM license manufacturing programs.
Speaker Change: The program exceeded our initial expectations and was a strong margin contributor in 2024, we plan to fully transition all OEM manufacturing capabilities to our facility in 2025.
John Cuomo: Contributions from recent acquisitions.
Speaker Change: Now turning to our fleet segment.
John Cuomo: For our fleet segment. The revenue decline was primarily driven by the USPS transition to a new fleet management information system platform.
Speaker Change: 2024 was a year of transition as we continued supporting the United States Postal service following their migration to a new fleet management information system.
John Cuomo: This resulted in decline in maintenance related activities and reduced park requirements.
Speaker Change: After reaching a low point in Q3, we began seeing improved maintenance related repair activity and parts usage in the fourth quarter.
John Cuomo: Maintenance related repair activity levels begin to rebound in the fourth quarter and are expected to continue to improve in 2025.
Speaker Change: We expect this momentum to continue through 2025.
Speaker Change: With the fleet segments commercial sales channel, we scaled our Memphis ecommerce fulfillment facility diversified our customer base and added new exclusive brands.
John Cuomo: This was partially offset by strong revenue contributions from our commercial customers driven by growth in both commercial fleet sales and e-commerce fulfillment sales I.
Speaker Change: As a result, our commercial revenue growth continues to outpace the market.
I will now turn the call over to Adam to discuss the details of our financial performance.
Speaker Change: At the corporate level, we successfully completed the sale of our federal <unk> Defense segment in February 2024, marking a significant milestone in our transition to a pure play aviation business.
Thank you Josh.
John Cuomo: Let's turn to slides five and six of the conference call materials I will provide an overview of our fourth quarter financial performance.
John Cuomo: Let's begin with our consolidated fourth quarter results.
Speaker Change: Finally, we relocated our corporate headquarters to South, Florida co locating within our aviation segment headquarters and MRO Center of excellence in Miramar, Florida.
John Cuomo: <unk> generated $299 million of revenue in the quarter, an increase of 27% led by a 48% increase in aviation revenue partially offset.
Speaker Change: This move enhances collaboration with our business partners and employees, while also reducing corporate overhead costs.
John Cuomo: Offset by a 12% decline in fleet revenue.
John Cuomo: Adjusted EBITDA increased 26% to $40 million compared to the fourth quarter of 2023.
Speaker Change: Let's now move to slide four.
Speaker Change: I will provide an update on our business segment full year 2020 for performance.
John Cuomo: Aviation drove this growth up $13 million compared to the same period in the prior year, partially offset by a $3 million decline in adjusted EBITDA per fleet, and a $2 million increase in corporate admin expenses.
Speaker Change: For the full year 2024, we delivered both record revenue and record profitability for our aviation segment.
Speaker Change: Revenue growth was driven by balanced strong execution on new and existing distribution programs and expanded portfolio.
John Cuomo: Adjusted net income was $18 million and adjusted diluted earnings per share was <unk> 97 per share.
Speaker Change: <unk> portfolio of MRO capabilities and contribution from recent acquisition.
John Cuomo: For the full year 2024, we recorded approximately $1 1 billion in consolidated revenue up.
Speaker Change: The aviation segment also reported record profitability driven by distribution program growth the optimization of existing distribution programs increased throughput at our MRO facilities.
John Cuomo: 26% versus 2023, driven by record aviation growth.
John Cuomo: Adjusted EBITDA for the year was $136 million, an increase of 20% or $22 million as compared to 2023 aviation contributed to a $41 million year over year increase partially offset by a $15 million decline in fleet adjusted EBITDA and a three.
Speaker Change: Support from our new OEM license manufacturing programs and contributions from recent acquisitions.
Speaker Change: For our fleet segment. The revenue decline was primarily driven by the USPS transition to a new fleet management information system platform.
Speaker Change: This resulted in a decline maintenance related activities and reduced park requirements.
John Cuomo: $8 million increase in corporate admin expenses.
Speaker Change: Maintenance related repair activity levels begin to rebound in the fourth quarter and are expected to continue to improve in 2025. This was partially offset by strong revenue contributions from our commercial customers driven by growth in both commercial fleet sales and e-commerce fulfillment sales.
John Cuomo: Adjusted net income increased 20% to $56 million.
John Cuomo: Adjusted net income per diluted share declined 5% to $3 13 per diluted share driven by an increase in share count.
John Cuomo: Now turning to slide seven.
John Cuomo: We will cover aviation segment's record fourth quarter results in more detail.
Speaker Change: I will now turn the call over to Adam to discuss the details of our financial performance.
John Cuomo: Aviation revenue increased 48% to a record $227 million as compared to the fourth quarter of 2023, both distribution and MRO businesses were strong contributors up 32% and 87% respectively.
Adam Cohen: Thank you John let's turn to slides five and six of the conference call materials I will provide an overview of our fourth quarter financial performance.
Speaker Change: Let's begin with our consolidated fourth quarter results.
Speaker Change: Vse generated $299 million of revenue in the quarter, an increase of 27% led by a 48% increase in aviation revenue, partially offset by a 12% decline in fleet revenue.
John Cuomo: The 32% increase distribution revenue was driven by strong execution of new and existing OEM programs.
John Cuomo: 29 days of revenue and earnings contributions from the recent <unk> acquisition.
Speaker Change: Adjusted EBITDA increased 26% to $40 million compared to the fourth quarter of 2023.
John Cuomo: The 87% increase in MRO revenue was driven by the expansion of new repair capabilities margin share gains in the commercial and business and general aviation markets.
Speaker Change: Aviation drove this growth up $13 million compared to the same period in the prior year, partially offset by a $3 million decline in adjusted EBITDA per fleet, and a $2 million increase in corporate admin expenses.
John Cuomo: Port from our new OEM authorized avionics program and MRO contributions from the <unk> acquisition.
John Cuomo: Excluding the impact of all recent acquisitions organic aviation segment revenue increased by approximately 17% in the fourth quarter as compared to the prior year.
Speaker Change: Adjusted net income was $18 million and adjusted diluted earnings per share was <unk> 97 per share.
Speaker Change: For the full year 2024, we recorded approximately $1 1 billion in consolidated revenue of 26% versus 2023, driven by record aviation growth.
John Cuomo: Aviation adjusted EBITDA increased by 56% in the quarter to a record $37 million or 16, 4% of revenue.
Speaker Change: Adjusted EBITDA for the year was $136 million.
John Cuomo: The increase in adjusted EBITDA was driven by strong execution on distribution programs increased throughput at MRO facilities improved pricing and product mix.
Speaker Change: An increase of 20% or $22 million as compared to 2023 aviation contributed to a $41 million year over year increase partially offset by a $15 million decline in fleet adjusted EBITDA and a $3 million increase in corporate admin expenses.
The launch of our new OEM license manufacturing program and contributions from recent acquisitions.
John Cuomo: For the full year 2020 for the aviation segment generated record revenue of $786 million, an increase of 45% year over year.
Speaker Change: Adjusted net income increased 20% to $56 million.
Speaker Change: Adjusted net income per diluted share declined 5% to $3 13 per diluted share driven by an increase in share count.
John Cuomo: Adjusted EBITDA increased 47% to $129 million and adjusted EBITDA margin increased 20 basis points to 16, 3% all record results for this segment.
Speaker Change: Now turning to slide seven.
Speaker Change: We will cover aviation segment's record fourth quarter results in more detail.
John Cuomo: Let's now turn to slide eight a new slide in our earnings presentation to review our aviation segment guidance for the full year 2025.
Speaker Change: Aviation revenue increased 48% to a record $227 million as compared to the fourth quarter of 2023, both distribution and MRO businesses were strong contributors up 32% and 87% respectively.
John Cuomo: The purpose of slide eight is to walk you through the revenue and margin bridge of our aviation segment with the impacts of our TCA and <unk> acquisitions.
Speaker Change: The 32% increase distribution revenue was driven by strong execution of new and existing OEM programs.
John Cuomo: Let's start with revenue John mentioned earlier that we forecast, our combined commercial and business and general aviation markets to grow between six 5% and 8% in 2025.
Speaker Change: 29 days of revenue and earnings contributions from the recent <unk> acquisition.
We expect full year 2025 aviation segment revenue to increase between 35% to 40%.
Speaker Change: The 87% increase in MRO revenue was driven by the expansion of new repair capabilities margin share gains in the commercial and business and general aviation markets.
John Cuomo: Supporting this growth our full year revenue contributions of approximately 26% to 28% from both the PCI and <unk> acquisitions.
Speaker Change: <unk> from our new OEM authorized avionics program and MRO contributions from the <unk> acquisition.
John Cuomo: In addition, we are forecasting to outperform market growth organically with high single digit to low double digit organic growth supported by market share gains distribution program growth and repair capability expansion.
Speaker Change: Excluding the impact of all recent acquisitions organic aviation segment revenue increased by approximately 17% in the fourth quarter as compared to the prior year.
John Cuomo: 2025 full year adjusted EBITDA margins are expected to be between $15 five and 16, 5%.
Speaker Change: Aviation adjusted EBITDA increased by 56% in the quarter to a record $37 million or.
John Cuomo: The near term margin dilution from PCI and <unk> is expected to have an approximately 90 basis point dilutive impact on aviation segment margins for the full year 2025.
Speaker Change: Or 16, 4% of revenue.
Speaker Change: The increase in adjusted EBITDA was driven by strong execution on distribution programs increased throughput at MRO facilities improved pricing and product mix. The launch of our new OEM license manufacturing program and contributions from recent acquisitions.
John Cuomo: This is expected to be offset by a 10 to 110 basis point improvement in core legacy aviation margins driven by operating leverage program optimization and MRO utilization. In addition, we expect to begin realizing integration synergies in the second half of 2025.
Speaker Change: For the full year 2020 for the aviation segment generated record revenue of $786 million, an increase of 45% year over year.
John Cuomo: Synergy benefits will continue into 2026 until all integration activity is complete.
Speaker Change: Adjusted EBITDA increased 47% to $129 million and adjusted EBITDA margin increased 20 basis points to 16, 3% all record results for the segment.
John Cuomo: On a consolidated basis interest expense is projected to be 31% to $33 million. The effective tax rate is expected to be 25% and depreciation and amortization in the aggregate is expected to be $36 million to $38 million for the full year 2025, all figures are pre.
Speaker Change: Let's now turn to slide eight a new slide in our earnings presentation to review our aviation segment guidance for the full year 2025.
Speaker Change: The purpose of slide eight is to walk you through the revenue and margin bridge of our aviation segment with the impacts of our TCA and <unk> acquisitions.
John Cuomo: <unk> fleet divestiture.
John Cuomo: Now turning to slide nine per fleet segments fourth quarter results in the fourth quarter fleet segment revenue declined 12% to $72 million.
Speaker Change: Let's start with revenue John mentioned earlier that we forecast, our combined commercial and business and general aviation markets to grow between six 5% and 8% in 2025.
John Cuomo: On a sequential quarterly basis revenue was up 2% or $2 million.
John Cuomo: Revenue from commercial customers was $43 million in the fourth quarter.
Speaker Change: We expect full year 2025 aviation segment revenue to increase between 35% to 40% supporting this growth our full year revenue contributions of approximately 26% to 28% from both the PCI and <unk> acquisitions.
John Cuomo: Commercial revenue represented 59% of total fleet segment sales as compared to 52% in the prior year period.
John Cuomo: USPS revenue, which is included within our other government channel declined approximately 25% compared to the fourth quarter of last year.
Speaker Change: In addition, we are forecasting to outperform market growth organically with high single digit to low double digit organic growth supported by market share gains distribution program growth and repair capability expansion.
John Cuomo: The revenue decline was primarily driven by the USPS transitioned to a new fleet management information system platform, which resulted in a decline in maintenance related activities and therefore reduced part requirements.
John Cuomo: Please segment adjusted EBITDA decreased 31% to approximately $7 million driven by the impact of the decline in USPS sales volume.
Speaker Change: 2025 full year adjusted EBITDA margins are expected to be between $15 five and 16, 5%.
John Cuomo: <unk> segment adjusted EBITDA margin was nine 5% for the fourth quarter.
Speaker Change: The near term margin dilution from PCI and Telstra is expected to have an approximately 90 basis point dilutive impact on aviation segment margins for the full year 2025.
John Cuomo: For the full year 2020 for the fleet segment generated revenue of $294 million driven by 18% growth in our commercial sales channel offset by a 30% decline in revenue from the USPS program <unk>.
Speaker Change: This is expected to be offset by a 10 to 110 basis point improvement in core legacy aviation margins, driven by operating leverage program optimization and MRO utilization.
John Cuomo: Total adjusted EBITDA of $21 million declined 42% and for the full year adjusted EBITDA margin was seven 3%.
Speaker Change: In addition, we expect to begin realizing integration synergies in the second half of 2025.
John Cuomo: USPS revenue begin to rebound in the fourth quarter of 2024 and is expected to continue to improve heading into 2025.
Speaker Change: Synergy benefits will continue into 2026 until all integration activity is complete.
John Cuomo: Turning to slide 10 in the fourth quarter, we generated $55 million of operating cash flow and $52 million of free cash flow driven by disciplined working capital management and strong operating results.
Speaker Change: On a consolidated basis interest expense is projected to be 31% to $33 million. The effective tax rate is expected to be 25% and depreciation and amortization in the aggregate is expected to be $36 million to $38 million for the full year 2025, all figures are pre.
John Cuomo: At the end of the fourth quarter, our total net debt outstanding was $401 million.
John Cuomo: And our revolver availability was $194 million adjusted net leverage which includes the trailing 12 month results from prior acquisitions was two five times I.
Speaker Change: Fleet divestiture.
Speaker Change: Now turning to slide nine for our fleet segments fourth quarter results in the fourth quarter fleet segment revenue declined 12% to $72 million.
John Cuomo: I will turn it back over to John.
Speaker Change: On a sequential quarterly basis revenue was up 2% or $2 million.
John Cuomo: Thank you Adam.
Speaker Change: I would like to conclude our prepared remarks by looking forward and reviewing our 2025 priorities on slide 11.
Revenue from commercial customers was $43 million in the fourth quarter commercial revenue represented 59% of total fleet segment sales as compared to 52% in the prior year period.
Speaker Change: We have made significant progress in simplifying our business and sharpening our go to market strategy with.
Speaker Change: USPS revenue, which is included within our other government channel declined approximately 25% compared to the fourth quarter of last year.
Speaker Change: With the announced sale of our fleet segment, we are entering the final phase of our strategic transformation into a pure play aviation aftermarket parts and services provider as one DSC.
Speaker Change: The revenue decline was primarily driven by the USPS transitioned to a new fleet management information system platform, which resulted in decline in maintenance related activities and therefore reduced part requirements.
Speaker Change: We expect to close the fleet transaction in the second quarter and we are working closely with one equity partners to ensure a smooth and successful transition.
Speaker Change: Please segment adjusted EBITDA decreased 31% to approximately $7 million driven by the impact of the decline in USPS sales volume.
Speaker Change: Following the divestiture, we will conduct a comprehensive review of our cost structure to ensure our corporate organization is streamlined to support our go forward aviation strategy.
Speaker Change: <unk> segment adjusted EBITDA margin was nine 5% for the fourth quarter.
Speaker Change: Turning now to our aviation priorities.
For the full year 2020 for the fleet segment generated revenue of $294 million driven by 18% growth in our commercial sales channel offset by a 30% decline in revenue from the USPS program total adjusted EBITDA of $21 million declined 42% and for the full year.
Speaker Change: First we are committed to driving organic growth expanding our market presence and strengthening partnerships with both customers and suppliers. We look forward to sharing updates on new partnerships.
Speaker Change: Second the integration of our OEM license manufacturing program remains on track.
Speaker Change: Adjusted EBITDA margin was seven 3%.
Speaker Change: We expect to complete the transition of all OEM manufacturing capabilities from Honeywell by year end.
Speaker Change: USPS revenue began to rebound in the fourth quarter of 2024 and is expected to continue to improve heading into 2025.
Speaker Change: Third we continue to invest in expanding repair capabilities, and adding incremental capacity across our MRO businesses to meet growing customer and market demand.
Speaker Change: Turning to slide 10 in the fourth quarter, we generated $55 million of operating cash flow and $52 million of free cash flow driven by disciplined working capital management and strong operating results.
Speaker Change: And finally, we are focused on accelerating the integrations of desert, PCI and <unk> to drive operational efficiencies and enhance customer value.
Speaker Change: At the end of the fourth quarter, our total net debt outstanding was $401 million and our revolver availability was $194 million adjusted net leverage which includes the trailing 12 month results from prior acquisitions was two five times.
Speaker Change: And finally from a financial perspective, we are focused on capturing synergies from our recent acquisitions to support margin expansion this year and into 2026.
Speaker Change: I will turn it back over to John.
John: Thank you Adam.
Speaker Change: We also plan to continue to improve core aviation segment margins or operating leverage program optimization and enhanced MRO utilization.
Speaker Change: I would like to conclude our prepared remarks by looking forward and reviewing our 2025 priorities on slide 11.
Speaker Change: We have made significant progress in simplifying our business and sharpening our go to market strategy with the announced sale of our fleet segment. We are entering the final phase of our strategic transformation into a pure play aviation aftermarket parts and services provider as one dfc.
Speaker Change: We will continue to leverage our strong financial foundation to optimize inventory and drive free cash flow improvement in 2025.
Speaker Change: In closing I want to thank our global team for their dedication and hard work.
Speaker Change: Their efforts are driving our successes and positioning us for a stronger future.
Speaker Change: We expect to close the fleet transaction in the second quarter and we are working closely with one equity partners to ensure a smooth and successful transition.
Speaker Change: Operator, we are now ready for the question and answer portion of our call.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: Following the divestiture, we will conduct a comprehensive review of our cost structure to ensure our corporate organization is streamlined to support our go forward aviation strategy.
Speaker Change: You are using a speakerphone please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw. It. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Speaker Change: Turning now to our aviation priorities.
Speaker Change: First we are committed to driving organic growth expanding our market presence and strengthening partnerships with both customers and suppliers. We look forward to sharing updates on new partnerships.
Speaker Change: Our first question comes from Sheila <unk> from Jefferies.
Speaker Change: Second the integration of our OEM license manufacturing program remains on track, we expect to complete the transition of all OEM manufacturing capabilities from Honeywell by year end.
Speaker Change: Please go ahead.
Speaker Change: Good morning, guys and congrats.
Speaker Change: Good morning.
Speaker Change: Maybe my first question John for you with 35% to 40% aviation growth. It implies high single digits double digits organic growth. This year, how do we think about the pace of that growth and the cadence between vishal, sorry distributions and MRO.
Speaker Change: Third we continue to invest in expanding repair capabilities, and adding incremental capacity across our MRO businesses to meet growing customer and market demand.
Speaker Change: Yeah. It's a great question, we had a big debate on kind of how to guide for the year. When you look at our business now with PCI and with calcium where about 50% business and general aviation aftermarket, 50% commercial aftermarket and candidly, we wanted to give us a little bit of cushion we've talked.
Speaker Change: And finally, we are focused on accelerating the integrations of desert, PCI and Telstra to drive operational efficiencies and enhance customer value.
Speaker Change: And finally from a financial perspective, we are focused on capturing synergies from our recent acquisitions to support margin expansion this year and into 2026.
Speaker Change: Since we acquired <unk> about the USA business and although we love the business and there's a place for that business inside of ESC, we definitely as ourselves see ourselves pruning some of that business to be what we want it to be in terms of consistency of revenue and at the right margin profile, so, but so we with that.
Speaker Change: We also plan to continue to improve core aviation segment margins through operating leverage program optimization and enhanced MRO utilization.
Speaker Change: We will continue to leverage our strong financial foundation to optimize inventory and drive free cash flow improvement in 2025.
Speaker Change: The debate that between the balance of the two markets and then the U S M potentially like slightly kind of refocused efforts there.
Speaker Change: In closing I want to thank our global Bse team for their dedication and hard work.
Speaker Change: Are we kind of got the guidance on revenue I would say, it's pretty evenly split.
Speaker Change: Their efforts are driving our successes and positioning us for a stronger future.
Speaker Change: We kind of laid out what our growth rates are.
Speaker Change: Operator, we are now ready for the question and answer portion of our call.
Speaker Change: By segment, and we're going to be slightly above those growth rates in both segments and.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys. If at any time. Your question has been addressed and you would like to withdraw. It. Please press Star then two at this time, we will pause moment.
Speaker Change: I would say as far as Michael when you think about the year.
Speaker Change: The top heavily back ended right.
Speaker Change: No I think it's pretty consistent across the whole year.
Speaker Change: Okay, great. Thank you and then.
Speaker Change: And then my second question is on acquisitions.
Speaker Change: I think it would be a great integrator with GCI coming in I think it's $85 million of contribution over the last eight and a half months versus $85 million.
Speaker Change: Currently to assemble our roster.
Speaker Change: Full annual contribution we initially expected so what drove some of that PCI outperformance and how do we think about the.
Speaker Change: Yes.
Speaker Change: Our first question comes from <unk>.
Speaker Change: Sheila <unk> from Jefferies.
Speaker Change: Robalo synergies opportunity with counts from outside of the asset sale.
Speaker Change: Please go ahead.
Speaker Change: Good morning, guys and congrats.
Speaker Change: Yeah, I mean, it's a great question. So each deal we look at both has a different strategic focus and then as we integrated what we expect out of it GCI was all about creating capacity and working with our OEM partners to manage the opportunity set that's in front of us and we've been able to grow that business well north of 25% since we've.
Speaker Change: Good morning, Joe.
Speaker Change: Maybe my first question John for you with 35% to 40% aviation growth. It implies high single digits to double digits organic growth. This year, how do we think about the pace of that growth and the cadence between alright.
Speaker Change: Alright, just to be sure and then morale.
Speaker Change: Yeah. It's a great question, we had a big debate on kind of how to guide for the year. When you look at our business now with <unk> and with <unk>, We're about 50% business and general aviation aftermarket, 50% commercial aftermarket and candidly, we wanted to give us a little bit of cushion we've talked.
Speaker Change: On the business.
Speaker Change: So we feel that those opportunities still exist to continue a heavy pace of growth we're working with the team. There. It's all about capacity expansion. When we look at Kallstrom. It's a combined kind of focus at slightly different there because we plan to have a heavier hand in integration there is a <unk>.
Speaker Change: Since we acquired <unk> about the USA business and although we love the business and there's a place for that business inside of ESC, we definitely as ourselves see ourselves pruning some of that business to be what we want it to be in terms of consistency of revenue and at the right margin profile, so, but so we with that.
Speaker Change: <unk> capture element to it.
Speaker Change: Which which is really important for us we've got I think we gave a little bit of that but I think Michael and Adam did a good job at that bridge on the margin guidance. So we can walk you through it but we obviously want to be in a position in 2026 to have the integration behind us and the margin back to kind of our core levels. So thats a bigger focus for.
Speaker Change: No debate that between the balance of the two markets and then the U S M potentially like slightly kind of refocused efforts there.
Speaker Change: Where are we kind of got the guidance on revenue I'd say, it's pretty evenly split.
Speaker Change: I would say than the revenue growth that said they are in the engine aftermarket and you can continue to expect kind of double digit growth in 2025 of our culture.
Speaker Change: We kind of laid out what our growth rates are.
Speaker Change: Great. Thank you so much.
Speaker Change: By segment, and we're going to be slightly above those growth rates in both segments.
Speaker Change: Thanks, Joe.
Speaker Change: Our next question comes from Ken Herbert of RBC Capital markets. Please go ahead.
Speaker Change: <unk>.
Speaker Change: I would say as far as Michael when you think about the year.
Speaker Change: The top heavily back ended right no.
Ken Herbert: Yes, hi, good morning.
Speaker Change: No I think it's pretty consistent across the whole year.
Ken Herbert: Hey, John I appreciate I appreciate the the revenue and EBITDA bridge assumptions here as we think about 25 I wanted to ask maybe the growth question a different way. So the guidance implies about call. It 500 basis points of outperformance relative to some of your market growth assumptions for VLCC can.
Speaker Change: Okay, great. Thank you and then.
Speaker Change: And then my second question is on acquisitions.
Speaker Change: Turning to be a great integrator with GCI coming in I think it's $85 million of contribution over the last five months versus $85 million was that full annual contribution. We initially expected. So what drove some of that PCI out performance and how do we think about <unk>.
Ken Herbert: Can you comment maybe how you see that breaking out bye bye.
Ken Herbert: Called out share gains you called out obviously greater distribution agreements expanding.
Speaker Change: Double opportunity with Cal from outside of the asset sale.
Ken Herbert: Increased MRO capabilities is there one of those two or three areas that are disproportionately driving the outperformance for the business relative to the market.
Speaker Change: Yeah.
Speaker Change: Yeah, I mean, it's a great question. So each deal we look at both has a different strategic focus and then as we integrated what we expect out of it <unk> was all about creating capacity and working with our OEM partners to manage the opportunity set that's in front of us and data we've been able to grow that business fall north of 25% since we've owned it.
Ken Herbert: I mean.
Ken Herbert: To be honest and know which is a good thing even when I looked at the we grew 17% organically in the fourth quarter and the my favorite part of diving into the details of the financials is there is not just kind of a.
Speaker Change: The business.
Speaker Change: We feel that those opportunities still exist to continue a heavy pace of growth we're working with the team there. It's all about capacity expansion when we look at Kallstrom.
Ken Herbert: One thing driving it it's really a nice balance across geographic sectors across markets across programs. So what I love about actually aware of where we're positioned today is we're actually seeing.
Speaker Change: It is a combined kind of focus at slightly different there because we plan to have a heavier hand in integration there is a synergy capture element to it.
Speaker Change: Growth in all of our areas I'm not saying, it's the same percentage growth, but it's not it's not one thing thats kind of outweighing. The other side Omega Omega, it's a little harder to model, but Michael and Adam Brian It's pretty evenly distributed.
Speaker Change: Which which is really important for us we've got I think we gave a little bit of that but I think Michael and Adam did a good job at that bridge on the margin guidance. So we can walk you through it but we obviously want to be in a position in 2026 to have the integration behind us and the margin back to kind of our core levels. So thats a bigger focus for.
Speaker Change: And to John's point, we saw that in Q4, very balanced between MRO and distribution organic growth in that 17% to 18% range.
Speaker Change: Okay perfect.
Speaker Change: Think about give or take.
Speaker Change: Ross I would say than the revenue growth that said they are in the engine aftermarket and you can continue to expect kind of double digit growth in 2025 of our culture.
Speaker Change: 50 to 60 basis points of margin expansion on the core business in 'twenty five.
Speaker Change: Is that a.
Speaker Change: Great. Thank you so much.
Speaker Change: Good way to think about the business sort of moving forward post 25 or is there may be some incremental opportunity on the core business just as you get further into obviously, the TCR and <unk> integration.
Speaker Change: Sure.
Speaker Change: Our next question comes from Ken Herbert of RBC Capital markets. Please go ahead.
Ken Herbert: Yes, hi, good morning.
Ken Herbert: Ken that's a good question I think 50 to 60 is a good way to think about it I think youre going to see more realization of synergies, especially with Telstra.
Ken Herbert: Hey, John I appreciate I appreciate the the revenue and EBITDA bridge assumptions here as we think about 25 I wanted to ask maybe the growth question a different way. So the guidance implies about call. It 500 basis points of outperformance relative to some of your market growth assumptions for VLCC.
Speaker Change: Throughout two five so youll see that realized in 2006 as well.
Speaker Change: We are continuing to optimize our fuel control program as well as we transitioned to full manufacturing light manufacturing capabilities.
Ken Herbert: Can you comment maybe how you see that breaking out by by you called out share gains you called out obviously greater or distribution agreements expanding.
Speaker Change: So there is some SG&A carry forward that were carrying throughout this year that will be optimized as we get through the end of the year as we fully transition the program. So those two elements will help the the expansion as you go into 2026.
Ken Herbert: Increased MRO capabilities is there one of those two or three areas that are disproportionately driving the outperformance for the business relative to the market.
Speaker Change: Perfect. Thanks, Adam Thanks, Jon Michael Nice quarter.
Ken Herbert: I mean.
Ken Herbert: To be honest and know which is a good thing even when I looked at we grew 17% organically in the fourth quarter and my favorite part of diving into the details of the financials is there is not just kind of.
Speaker Change: Thanks, Scott appreciate it.
Speaker Change: Our next question comes from Michael Cheer Moly from Truest. Please go ahead.
Speaker Change: Hey, good morning, guys nice results and thanks for taking the question Hey, John Adam lots of good color on.
Ken Herbert: One thing driving it it's really a nice balance across geographic sectors across markets across programs. So what I love about actually we're aware of our position today is we're actually seeing.
Speaker Change: Revenue and margins, but no mention on cash flow can we maybe talk about some of the building blocks for cash in 2005.
Ken Herbert: Growth in all of our areas I'm not saying, it's the same percentage growth, but it's not it's not one thing thats kind of outweighing, the other side Omega and making it a little harder to model, but Michael and Adam right, It's pretty noisy got very evenly distributed.
Even 26, and I know you've talked about new partnerships. So presumably there might still be some required investment and just how to think about working capital and just help level set us on what to expect with cash.
Speaker Change: Yes, sure. So I think we'll provide more specific guidance. After we close the fleet transaction, but when you think about some of the larger elements, 24% to 25%. Obviously in 2024, we had the big inventory provisioning around the prep program. So if we spelled that out call. It in the $35 million range.
Ken Herbert: And to John's point, we saw that in Q4, very balanced between MRO and distribution organic growth and that 17% to 18% range.
Ken Herbert: Okay perfect.
Ken Herbert: Think about give or take that 50.
Ken Herbert: 50 to 60 basis points of margin expansion on the core business in 'twenty five.
Speaker Change: <unk> also had impact from the STS.
Is that a <unk>.
Ken Herbert: Good way to think about the business sort of moving forward post 25 or is there may be some incremental opportunities on the core business just as you get further into obviously, the TCR and <unk> integration.
Speaker Change: Transaction as well and the $15 million range. So neither of those two will repeat in 2025, and we will provide a nice tailwind.
Speaker Change: In 2025, there is some offsetting elements to that so we do have two.
Speaker Change: Yes, Chad that's a good question I think 50 to 60 is a good way to think about it I think youre going to see more realization of synergies, especially with kallstrom.
Speaker Change: <unk> payments to close out the Walker Lane.
Speaker Change: Real estate. So there is a $6 million payment in 'twenty, five and another $6 million payment in 'twenty six.
Ken Herbert: Throughout 25, so youll see that realized in 2006 as well.
Speaker Change: And then we also are ramping the Honeywell program in 2025, so youll see some buildup in inventory as we transitioned to our manufacturing.
Ken Herbert: We are continuing to optimize our fuel control program as well as we transitioned to full manufacturing light manufacturing capabilities.
Ken Herbert: So there are some SG&A carry forward that were carrying throughout this year that will be optimized as we get through the end of the year as we fully transition the program. So those two elements will help the the expansion as you go into 2026.
Speaker Change: So those are the two a couple of large elements and obviously, where we're growing earnings.
Speaker Change: There's a working capital requirement.
And our business as well and then as you think to 2026 I think we're continuing to focus on optimizing our working capital.
Speaker Change: Perfect. Thanks, Adam Thanks, Jon Michael Nice quarter.
Speaker Change: Efficiency, especially on the inventory side and I think the other element is some of the recent acquisitions, we've made <unk> kallstrom.
Speaker Change: Thanks, Scott appreciate it.
Speaker Change: Our next question comes from Michael Cheer Moly from Truest. Please go ahead.
Speaker Change: There are actually less working capital intensive as our core business, so youre going to see some natural improvement as we get through the year.
Speaker Change: Hey, good morning, guys nice results. Thanks for taking the question Hey, John Adams lots of good color on.
Speaker Change: Got it helpful.
Speaker Change: And then maybe John.
Speaker Change: Revenue and margins, but no mention on cash flow can we maybe talk about some of the building blocks for cash in 2005.
Speaker Change: Pivoting back on topline growth.
Speaker Change: When you laid out your kind of 26 targets I think that was 23 I think the framework calls for high single digit organic.
Speaker Change: Even 26, and I know you've talked about new partnerships. So presumably there might still be some required investment and just how to think about working capital and just to help.
Speaker Change: Obviously, the market continues to be strong, but you've got low double digit potential whats kind of.
Speaker Change: Driving that.
Speaker Change: <unk> upward shift in the organic growth and I know, you've got the licensing deals and broaden the portfolio, but any noticeable changes.
Speaker Change: To help level set us on what to expect with cash.
Speaker Change: Yes, sure. So I think we'll provide more specific guidance. After we close the fleet transaction, but when you think about some of the larger elements, 24% to 25%. Obviously in 2024, we had the big inventory provisioning around the program. So if we spelled that out call. It in the $35 million range.
Speaker Change: As you guys look at the portfolio.
Speaker Change: At strip and that slight uptick.
Speaker Change: It's interesting because as similar to like the last question.
Speaker Change: What we're seeing in terms of our opportunities is quite balanced across the business. So you haven't seen us put out a ton of splashy headlines in terms of organic growth.
Speaker Change: You also had impact from the Sds.
Speaker Change: <unk> as well and the $15 million range. So neither of those two will repeat in 2025, and we will provide a nice tailwind.
Speaker Change: Hopefully, we'll have a few during the year to share, but I actually like when it's more of the block blocking and tackle growth.
Speaker Change: In 2025, there is some offsetting elements to that so we do have.
Speaker Change: Our model is again very OEM centric and what's happening is as we are.
Speaker Change: Two payments to close out the Walker Lane.
Speaker Change: Embedded in working with our OEM partners, where our normal cadence of natural market growth is happening and then there is additional kind of share of wallet or other problems that they need to have solved of where we're finding opportunities and again, it's quite balanced across both market segments, the NGA and commercial and both of our capabilities.
Speaker Change: Real estate. So there is a $6 million payment in 'twenty, five and another $6 million payment in 2006.
Speaker Change: And then we also are ramping the Honeywell program.
2025, so youll see some buildup in inventory as we transitioned to our manufacturing.
Speaker Change: So those are the two a couple of large elements and obviously, where we're growing.
Speaker Change: Distribution in MRO.
Speaker Change: Owing earnings.
Speaker Change: It's given us a little bit more confidence in our ability to outpace the other thing that I would add Mike is the end of the exposure from the commercial side from PCI and Cal stroke. So when you look at again.
Speaker Change: There's a working capital requirement.
Speaker Change: And our business as well and then as you think to 2026 I think we're continuing to focus on optimizing our working capital.
Speaker Change: Stuff that we do that is hard and you want to get credit you wanted to follow the good markets.
Speaker Change: <unk>, especially on the inventory side and I think the other element is some of the recent acquisitions we've made.
Speaker Change: The commercial engine market natural pace is at the higher end of the market growth.
PCI Kallstrom: PCI Kallstrom.
PCI Kallstrom: They are actually less working capital intensive as our core business, so youre going to see some natural improvement.
Speaker Change: Got it alright, good stuff, thanks, guys I'll jump back in the queue. Thank you.
Speaker Change: Our next question comes from Louis Dipalma of William Blair. Please go ahead.
PCI Kallstrom: We get through the year.
Adam Cohen: Got it helpful. And then maybe John just pivoting back on topline growth.
John Adam: John Adam and Mike Good morning.
Adam Cohen: When you laid out your your kind of 2006 targets I think that was 23 I think the framework calls for high single digit organic obviously the market continues to be strong, but you've got low double digit potential.
Speaker Change: Good morning Louise.
Speaker Change: Congrats on the fleet deal.
Speaker Change: And related to the fleet deal.
Speaker Change: When that closes will there be some trapped corporate costs and I was wondering when taking into account some.
Adam Cohen: Kind of driving that subtle upward shift in the organic growth and I know you've got the licensing deals broaden the portfolio, but any noticeable changes as you guys look at the portfolio.
Speaker Change: A potential trap corporate costs, what do you view, the pro forma margin or.
Adam Cohen: And that slight uptick.
Speaker Change: Sure.
Adam Cohen: It's interesting because as similar to like the last question.
Speaker Change: Yes, I can take that so we are expecting some amount of trapped corporate costs.
Adam Cohen: We're seeing in terms of our opportunities is quite balanced across the business. So you haven't seen us put out a ton of splashy headlines in terms of organic growth.
Speaker Change: We're still doing the work to yes, we'll give more precise guidance, but I think if you look back when we announced the fts transaction, we said around $3 million to $4 million and we're probably at the higher end of that range, but we will give you.
Adam Cohen: Hopefully we will have a few during the year to share, but I actually like when it's more of the block blocking and tackle growth. Our model is again very OEM centric and what's happening is as we're embedded in working with our OEM partners, where our normal cadence of natural market growth is happening and then there is additional.
Speaker Change: Some additional guidance around that next quarter I think when you look at pro forma margins, but we're not going to give specifics, but we are expecting some improvement.
Speaker Change: Yes, 100 basis points, plus just looking year on year, given the lower margin contributions from the from the Wheeler business. So once we close that transaction and.
Adam Cohen: <unk> share of wallet or other problems that they need to have solved of where we're finding opportunities and again, it's quite balanced across both market segments, the NGA and commercial and both of our capabilities distribution and MRO.
Speaker Change: Come up with a more precise number on stranded costs, we will update you on pro forma margins.
Speaker Change: It's given us a little bit more confidence in our ability to outpace the other thing that I would add Mike is the end of exposure from the commercial side from PCI and Cal stroke. So when you look at again.
Speaker Change: Great. Thanks, Adam.
Speaker Change: Taking to the topic of margin John I think you mentioned that.
Speaker Change: You should finish the Honeywell OEM solutions integration this year.
Speaker Change: Not that we do that is hard and you want to get credit you wanted to follow the good markets.
Speaker Change: Much of.
Speaker Change: Our margin uplift should that like contribute.
Speaker Change: Commercial engine market natural pace is at the higher end of the market growth.
Speaker Change: For the 2026 year in terms of the remaining synergies there can be very little in 2006, because we've been able to capture even though we're implementing it.
Speaker Change: Got it alright, good stuff, thanks, guys I'll jump back in the queue. Thank you. Thanks.
Speaker Change: Our next question comes from Louis Dipalma of William Blair. Please go ahead.
Speaker Change: Capturing the margin improvement as we implemented. So we were ahead of plan last year in terms of implementation and margin capture so the remainder of it will be in 2025, and then Youll see 2026.
Speaker Change: John Adam and Mike Good morning.
Speaker Change: Good morning Louise.
Speaker Change: Congrats on the fleet deal and related to the fleet deal.
Speaker Change: Im going to give directional guidance and kind of way to look at it and then we can give clarity towards the back end of the year, but as you look at let's say the third and the fourth quarter that should start to mirror, what 26 margins. It looked like so it's a good note Michael to take as we kind of.
Speaker Change: When that closes will there be some trapped corporate costs and I was wondering when taking into account some.
Speaker Change: Get to that point, we can get maybe a little clarity to the market on it.
Speaker Change: Potential trap corporate costs.
Speaker Change: Yeah.
Speaker Change: Do you view as the the pro forma margin for this year.
Speaker Change: Great and one final one subject.
Speaker Change: Yes.
Speaker Change: And.
Speaker Change: Many investors.
Speaker Change: Yes, I can take that so we are expecting some amount of trapped corporate costs.
Speaker Change: DSC investors hope that Boeing will put <unk> on the market as it would seem to be an excellent fit with DSC. It's unclear if that is going to happen, but John do you view.
Speaker Change: We're still doing the work.
Speaker Change: Yes, we'll give more precise guidance, but I think if you look back when we announced the fts transaction, we said around $3 million to $4 million and we're probably at the higher end of that range, but we will give you.
Speaker Change: Some additional guidance around that next quarter I think when you look at pro forma margins, but we're not going to give specifics, but we are expecting some improvement.
Speaker Change: It could be a win win situation either way such that if Boeing keeps AVR you will continue to take their market share, but if they eventually put it on the market and if something makes sense that it would be a good strategic fit.
Speaker Change: Yes, 100 basis points, plus just looking year on year, given the lower margin contributions from the from the Wheeler business. So once we close that transaction.
Speaker Change: Yeah, I mean I think.
Speaker Change: I don't personally see the asset necessarily coming to market I think when we look at Boeing in general I think the whole market.
Speaker Change: Action and.
Speaker Change: Come up with a more precise number stranded costs, we will update you on pro forma margins.
Speaker Change: It looks to them.
Speaker Change: Great. Thanks, Adam.
Speaker Change: All supporting them in their recovery efforts on the OEM side with regard to the aftermarket we continued to drive differentiation and to drive.
Speaker Change: Sticking to the topic of margins John I think you mentioned that.
Speaker Change: You should finish the Honeywell OEM solutions integration this year, how much of it.
Speaker Change: Our market niche if assets come to market of all sizes. We definitely are active in determining if they're the right fit for us.
Speaker Change: Our margin uplift should that like contribute for.
Speaker Change: For the 2026 year in terms of the remaining synergies there can be very little in 2006, because we've been able to capture even though we're implementing it.
Speaker Change: The fleet business kind of exiting in the second quarter, and our team being able to kind of for lack of a better word play above their weight class I think we can look at assets larger than we typically have as they come to market but.
Speaker Change: Capturing the margin improvement as we implemented. So we were ahead of plan last year in terms of implementation and margin capture so the remainder of it will be in 2025, and then Youll see 2026.
Speaker Change: But I would not say there is any necessity for us to look at a deal like that and we feel very comfortable with our existing M&A pipeline, that's kind of more known and kind of our market positions.
Speaker Change: I'm going to give directional guidance.
John: Great. Thanks, John Thanks, Mike.
Speaker Change: Way to look at it and then we can give clarity towards the back end of the year, but as you look at let's say the third and the fourth quarter that should start to mirror, what 26 margins will look like so it's a good note Michael to take as we kind of.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Jeff Van <unk> of B Riley. Please go ahead.
Speaker Change: Get to that point, we can get maybe a little clarity to the market on it.
Speaker Change: Hi, Good morning, everyone and let me add my congratulations.
Speaker Change: Great and one final one I'll, let subject.
Thanks, Joe up on the last quarter just wanted to follow up on the last question there around Boeing just wondering maybe you don't necessarily go after acquiring the assets but.
Speaker Change: And.
Speaker Change: Many investors.
Speaker Change: DSC investors hope that Boeing will put <unk> on.
Speaker Change: Are there opportunities you potentially could go after around.
Speaker Change: On the market as it would seem to be an excellent fit with DSC. It's unclear if that is going to happen, but John do you view.
Speaker Change: So then some of their businesses.
Speaker Change: I mean, there is one business that that's kind of publicly sort of ish in the market I would say publicly ish because everything is confidential when youre doing a deal but I read the same things you read that's the only business I'm aware of that's in the market and that's not an asset that we are looking at is not the type of asset that fits our portfolio.
Speaker Change: It could be a win win situation either way such that if Boeing keeps AVR you will continue to take their market share, but if they eventually put it on the market.
Speaker Change: If something makes sense that it would be a good strategic fit.
Speaker Change: I say, we can do a larger deal is well above the deal that we would consider ourselves right now so from what we understand that's the only asset in the market at this time. So we've got a pretty robust pipeline of kind of small and medium sized deals of our own and obviously, we look at them as a partner and in some instances as a competitor.
Speaker Change: Yeah, I mean I think.
Speaker Change: I don't personally see the asset necessarily coming to market I think when we look at Boeing in general I think the whole market.
Speaker Change: It looks to them.
Speaker Change: All supporting them in their recovery efforts on the OEM side with regard to the aftermarket we continued to drive differentiation and to drive our.
Speaker Change: And we continue to approach it that way.
Speaker Change: Okay fair enough.
Speaker Change: And then just wanted to clarify on the margin the overall aviation margin progression this year.
Speaker Change: Our market niche if assets come to market of all sizes, we definitely are active in determining the right fit for us.
Speaker Change: Wasn't clear if you were saying that it would kind of ramp throughout the year I think thats, what you are saying, but I just wanted to clarify that.
Speaker Change: The fleet business kind of exiting in the second quarter, and our team being able to kind of for lack of a better word play above their weight class I think we can look at assets larger than we typically have as they come to market but.
Speaker Change: Yes, we do expect some ramp throughout the year.
Speaker Change: Which is what you what you have seen obviously fourth quarter was very strong.
Speaker Change: But I would not say there is any necessity for us to look at a deal like that and we felt very comfortable with our existing M&A pipeline thats kind of more known and kind of our market positions.
Speaker Change: For us for on a margin standpoint, I think you'll expect to see that.
Speaker Change: 2025 as well.
Speaker Change: Okay, and then just one final one any any thoughts on <unk>.
Speaker Change: Great. Thanks, John Thanks, Mike.
Speaker Change: The remaining hurdles you need to get through to close the fleets.
Speaker Change: Thank you.
Speaker Change: We've got normal HSR.
Our next question comes from Jeff Van <unk> of B Riley. Please go ahead.
Speaker Change: Would expire in the month of.
Speaker Change: March on primarily one month, where in here and then the closing conditions are quite light other than that so we are expecting.
Speaker Change: Hi, Good morning, everyone and let me add my congratulations.
Speaker Change: Thanks, Joe up on the last question just wanted to follow up on the last question there around Boeing just wondering maybe you don't necessarily go after acquiring the assets but.
Speaker Change: Second quarter.
Speaker Change: Closure at this point.
Speaker Change: Okay, great to hear thanks for taking my questions now thank you.
Speaker Change: As a reminder, if you have a question. Please press Star then one.
Speaker Change: Are there opportunities you potentially could go after around.
Speaker Change: So that in some of their businesses.
Speaker Change: Our next question comes from Josh Sullivan of the Benchmark Company. Please go ahead.
Speaker Change: I mean, there is one business that that's kind of publicly sort of ish in the market I would say publicly ish because everything is confidential when youre doing a deal but I read the same things you read that's the only business I'm aware of that's in the market and that's not an asset that we are looking at is not the type of asset that fits our portfolio.
Speaker Change: Hey, good morning, good morning, Josh.
Speaker Change: Yeah.
Speaker Change: Just a broader question I guess on the aftermarket.
Speaker Change: Should we think of VLCC is OEM rates stabilize and ramp.
Speaker Change: Two parts what are your general thoughts on the cycle and then separately how has VLCC now exposed with so many transformative actions in 'twenty four <unk> et cetera.
Speaker Change: I say, we can do a larger deal is well above the deal that we would consider ourselves right now so from what we understand that's the only asset in the market at this time. So we've got a pretty robust pipeline of kind of small and medium sized deals of our own and obviously, we look at them as a partner and in some instances as a competitor.
Speaker Change: Yes, it's a good question.
Michael Perlman: I think that Michael.
Michael Perlman: Michael What do you think how do you want to answer this one.
Michael Perlman: Yes, so in terms of OEM rate production I think we're pretty confident in 2025 and 2026 in terms of our language sites.
Speaker Change: And we continue to approach it that way.
Speaker Change: Okay fair enough.
Michael Perlman: I would say that we are uniquely positioned with the Oems based on our differentiated value proposition.
Speaker Change: And then just wanted to clarify on that.
Speaker Change: Margin the overall aviation margin progression this year.
Michael Perlman: So as they pivot we can pivot to essentially work that theyre trying to off load. So I think that positions us.
Speaker Change: Wasn't clear if you were saying that it would kind of ramp throughout the year I think thats, what youre, saying, but I just wanted to clarify that.
Michael Perlman: Extremely well as their priorities change.
Michael Perlman: In terms of PCI and <unk> opportunities that we mentioned earlier that these two companies are in the.
Speaker Change: Yes, we do expect some ramp throughout the year.
Speaker Change: Which is what you what you have seen obviously fourth quarter was very strong.
Michael Perlman: The largest of the fastest growing portion of the commercial aviation aftermarket with their exposure to ensign. So we've continued to take advantage of existing opportunities with existing customers, while working through the integration.
Speaker Change: For us for on a margin standpoint, I think you'll expect to see that.
Speaker Change: 2025 as well.
Speaker Change: Okay, and then just one final one any any thoughts on kind.
Michael Perlman: So we're confident in.
Speaker Change: The outlook between 'twenty, but yes, so I think to Michael's point 25, and 26, we feel very very good about as you look at 'twenty seven I'd say, we still feel those growth opportunities. It is how do you pivot to new platforms, and where do you find more offloading work from Oems. So so the revenue may come organic growth may come from different channels.
Speaker Change: The remaining hurdles you need to get through to close the fleets.
Speaker Change: We've got normal HSR that should expire in the month of.
Speaker Change: March I'm trying my whole month, we're in here and then the closing conditions are quite light other than that so we are expecting.
Speaker Change: Second quarter.
Speaker Change: Then just a double digit kind of national market decline, Bob end market growth, but we do not expect a market decline over the next three years at this point.
Speaker Change: Closure at this point.
Speaker Change: Okay, great to hear thanks for taking my questions now thank you.
Speaker Change: Got it.
Speaker Change: As a reminder, if you have a question. Please press Star then one.
Speaker Change: And then I guess just to that end GCI you mentioned in the comments there that it's all about capacity expansion. How do we think of where capacity was when you first acquired the asset to maybe where it will be 26% once youre done integrating.
Josh Sullivan: Our next question comes from Josh Sullivan of the Benchmark Company. Please go ahead.
Josh Sullivan: Hey, good morning, Brian.
Josh Sullivan: Just a broader question I guess on the aftermarket.
Speaker Change: Yes. It was it was and is an amazing asset as a private business I think that you continue to invest to a certain level and I think OEM partners will invest with you to a certain level I think when you have a long term stable public company approach like we do.
Josh Sullivan: How should we think of the FCC is OEM rates stabilize and ramp.
Josh Sullivan: Two parts what are your general thoughts on the cycle and then separately how has VLCC now exposed with so many transformative actions in 'twenty four <unk> et cetera.
Speaker Change: Thats both different opportunities on both sides of the table so for US we're looking at.
Josh Sullivan: Yes, it's a good question.
Speaker Change: How do we double capacity.
Speaker Change: I think that Michael what do you think how do you want to answer this one.
Speaker Change: The total facility and if we need expansion, we will look at that as well. So I'd say, it's a multi year plan to kind of double capacity.
Speaker Change: Yes, so in terms of OEM rate production I think we're pretty confident in 2025 and 2026 in terms of our line of sight.
Speaker Change: Where a lot of our investment dollars are focused especially in 2025 is expanding MRO capacity PCI and really across the board.
Speaker Change: I would say that we are uniquely positioned with the Oems based on our differentiated value proposition.
Speaker Change: Great. Thank you for your time.
Speaker Change: As they pivot we can pivot to essentially work that theyre trying to off load. So I think.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Mr. John Cuomo for any closing remarks.
Speaker Change: Positions us extremely well as their priorities changed.
Speaker Change: In terms of PCI and <unk> opportunities that we mentioned earlier that these two companies are in the.
Speaker Change: Thank you and thanks, everybody for the time today, we look forward to speaking with you in May to report our first quarter of 2025, thanks and have a great day.
Largest the fastest growing portion of the commercial aviation aftermarket with their exposure to ensign. So we continue to take advantage of existing opportunities with existing customers, while working through the integration.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: So we're confident in.
Speaker Change: The outlook between 'twenty, but yes, so I think to Michael's point 25, and 26, we feel very very good about as you look at 'twenty seven I'd say, we still feel this growth opportunities. It's how do you pivot to new platforms, and where do you find more offloading work from Oems. So so the revenue may come that organic growth may come from different channels.
Speaker Change: And then just a double digit kind of national market decline, Bob end market growth, but we do not expect a market decline over the next three years at this point.
Speaker Change: Got it.
Speaker Change: And then I guess just to that end on GCI you mentioned in the comments there that it's all about capacity expansion. How do we think of where capacity was when you first acquired the asset to maybe where it will be 26% once youre done integrating.
Speaker Change: Yes, it was.
Speaker Change: It was and is an amazing asset.
Speaker Change: That business I think that you continued to invest to a certain level and I think OEM partners will invest with you to a certain level I think when you have a long term stable public company approach like we do it creates both different opportunities on both sides of the table. So for US we're looking at.
Speaker Change: How do we double capacity.
Speaker Change: The total facility and if we need expansion, we will look at that as well. So I'd say, it's a multiyear plan to kind of double capacity.
Speaker Change: Where a lot of our investment dollars are focus, especially in 2025 is expanding MRO capacity GCI and really across the board.
Speaker Change: Okay.
Speaker Change: Great. Thank you for your time.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Mr. John Cuomo for any closing remarks.
Speaker Change: Thanks, everybody for the time today, we look forward to speaking with you in May to report our first quarter of 2025, thanks and have a great day.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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