VSE Corporation ("VSE" or the "Company") (NASDAQ: VSEC), a leading provider of aftermarket distribution and repair services, announced today that the Company has signed a definitive agreement to acquire Kellstrom Aerospace Group, Inc. ("Kellstrom"), a portfolio company of AE Industrial Partners, LP and a diversified global distributor and service provider supporting the commercial aerospace engine aftermarket. The transaction is subject to customary closing conditions, including regulatory review, and is expected to close in the fourth quarter of 2024.
MANAGEMENT COMMENTARY
"The agreement to acquire Kellstrom represents a significant milestone for VSE Aviation," stated John Cuomo, President and CEO of VSE Corporation. "This acquisition improves our position in the commercial aviation aftermarket, reinforces our OEM-focused strategy, expands our aftermarket product and capability offerings, and broadens our global footprint. The acquisition also significantly increases our participation in aircraft engine maintenance events, which represents the largest and fastest-growing segment of the commercial aftermarket today. Like VSE, Kellstrom's core differentiator is its outstanding team delivering the highest level of service and commercial value to customers."
"We are delighted to welcome the Kellstrom team to the VSE Aviation family later this year," said Ben Thomas, President of VSE Aviation. "Kellstrom's portfolio of engine-focused products and MRO services, coupled with its technical advisory capabilities and OEM-centric approach, makes this acquisition highly complementary to VSE Aviation's business. This acquisition is expected to yield significant sales and operating synergies, allowing us to leverage combined strengths, optimize resources, and drive accelerated growth in the aviation aftermarket."
"Kellstrom is excited to be joining the VSE team," said Oscar Torres, President and CEO of Kellstrom Aerospace. "This combination is expected to significantly expand the products and services we offer our customers around the world. We are confident that by joining forces with VSE Aviation, we will enhance the long-term value we bring to our customers and supplier partners in the commercial aerospace aftermarket."
ACQUISITION OVERVIEW AND STRATEGIC RATIONALE
Kellstrom is a leading full-service aftermarket solutions provider of value-added distribution and technical services for the commercial aerospace engine aftermarket. Differentiated by a highly technical, high-touch global sales and product line management organization, Kellstrom supports over 30 OEMs and approximately 800 customers, including airlines, air cargo operators, lessors, OEMs, and MROs across 75 countries.
Kellstrom is directly aligned with VSE Aviation's growth strategy:
AGREEMENT TERMS AND TIMELINE
ACQUISITION FINANCIAL AND INTEGRATION SUMMARY
ACQUISITION FINANCING SUMMARY
ADVISORS
Jones Day served as legal counsel and Jefferies, LLC acted as exclusive financial advisor to VSE Corporation with respect to the Kellstrom acquisition. Kirkland & Ellis LLP served as legal counsel and Perella Weinberg Partners served as exclusive financial advisor to Kellstrom.
PRELIMINARY THIRD QUARTER 2024 FINANCIAL RESULTS (1)
|
3Q'24 (Preliminary - unaudited) |
Revenue |
~$268 to ~$275 million |
Operating Income |
~$22 to ~$24 million |
Adjusted EBITDA(1) |
~$31 to ~$34 million |
(1) Non-GAAP measure, see additional information at the end of this release regarding non-GAAP financial measures |
VSE's 3Q 2024 performance and current aftermarket trends are expected to support Aviation segment full-year revenue growth above Company expectations and previously provided guidance, while impacting the Fleet segment as full-year revenue is anticipated to decline year-over-year. The Company continues to expect to report positive free cash flow in the third quarter, followed by an increase in free cash flow in the fourth quarter.
THIRD QUARTER 2024 EARNINGS CONFERENCE CALL
A conference call will be held Wednesday, November 6, 2024, at 8:30 A.M. ET to review the Company's financial results, discuss recent events and conduct a question-and-answer session.
A webcast of the conference call and accompanying presentation materials will be available in the Investor Relations section of VSE's website at https://ir.vsecorp.com. To listen to the live broadcast, go to the site at least 15 minutes prior to the scheduled start time to register, download and install any necessary audio software.
To participate in the live teleconference:
Domestic Live: |
(844) 826-3035 |
International Live: |
(412) 317-5195 |
Audio Webcast: |
https://viavid.webcasts.com/starthere.jsp?ei=1690580&tp_key=8747ae1c41 |
ABOUT VSE CORPORATION
VSE is a leading provider of aftermarket distribution and repair services. Operating through its two key segments, VSE significantly enhances the productivity and longevity of its customers' high-value, business-critical assets. The Aviation segment is a leading provider of aftermarket parts distribution and maintenance, repair, and overhaul (MRO) services for components and engine accessories to commercial, business, and general aviation operators. The Fleet segment specializes in part distribution, engineering solutions, and supply chain management services catered to the medium and heavy-duty fleet market. For more detailed information, please visit VSE's website at www.vsecorp.com.
FORWARD-LOOKING STATEMENTS
This press release 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, and Section 21E of the Securities Exchange Act of 1934, as amended. All such statements are intended to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and this statement is included for purposes of such safe harbor provisions.
"Forward-looking" statements, as such term is defined by the Securities and Exchange Commission (the "SEC") in its rules, regulations and releases, represent our expectations or beliefs, including, but not limited to, statements concerning our operations, economic performance, financial condition, growth and acquisition strategies, investments and future operational plans. Without limiting the generality of the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "intend," "forecast," "seek," "plan," "predict," "project," "could," "estimate," "might," "continue," "seeking" or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements.
These statements speak only as of the date of this press release and we undertake no ongoing obligation, other than that imposed by law, to update these statements as a result of new information, future events or otherwise. These statements relate to, among other things, our intent, belief or current expectations with respect to the acquisition of Kellstrom, including anticipated financing and closing timeline related thereto: our future financial condition, results of operations or prospects; our business and growth strategies; and our financing plans and forecasts. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, certain of which are beyond our control, and that actual results may differ materially from those contained in or implied by the forward-looking statements as a result of various factors, some of which are unknown, including, without limitation:
You are advised, however, to consult any further disclosures we make on related subjects in our periodic reports on Forms 10-K, 10-Q or 8-K filed with or furnished to the SEC.
PRELIMINARY RESULTS
Our actual operating results remain subject to the completion of our quarter-end closing process, which includes review by management and our audit committee. While carrying out such procedures, we may identify items that would require us to make adjustments to the preliminary estimates of our operating results set forth herein. As a result, our actual operating results could be outside of the ranges set forth herein and such differences could be material. The preliminary estimates of our financial results included herein have been prepared by, and are the responsibility of, our management. Our independent registered public accountants have not audited, reviewed or performed any procedures with respect to such preliminary estimates of our operating results. The information presented herein should not be considered a substitute for the financial information we file with the SEC in our Quarterly Report on Form 10-Q for the third quarter of 2024. We have no intention or obligation to update the preliminary estimates of our operating results set forth above prior to the release of our consolidated financial statements as of and for the three and nine months ended September 30, 2024.
NON-GAAP MEASURES
In addition to the financial measures prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP), this release also contains non-GAAP financial measures. These measures provide useful information to investors.
The non-GAAP Financial Information set forth in this document is not calculated in accordance with GAAP under SEC Regulation G. We consider EBITDA and Adjusted EBITDA as non-GAAP financial measures and important indicators of performance and useful metrics for management and investors to evaluate our business' ongoing operating performance on a consistent basis across reporting periods. These non-GAAP financial measures, however, should not be considered in isolation or as a substitute for performance measures prepared in accordance with GAAP. Estimated Adjusted EBITDA for the quarter ended September 30, 2024 represents estimated operating income before depreciation and amortization expenses and excluding other non-recurring adjustments.
Additionally, our estimates of Adjusted EBITDA Margin and Pro Forma Net Leverage Ratio are forward-looking non-GAAP financial measures based solely on information available to us as of the date of this press release and may differ materially from our actual operating results as a result of developments that occur after the date of this press release. The determination of the amounts that are excluded from these non-GAAP financial measures is a matter of management judgment and depends upon, among other factors, the nature of the underlying expense or income amounts recognized in a given period. We are unable to present a quantitative reconciliation of the aforementioned forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures because such information is not available, and management cannot reliably predict all of the necessary components of such GAAP measures without unreasonable effort or expense. For the same reasons, we are unable to address the probable significance of the unavailable information.
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