VSE Corporation (VSEC) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the VSE Corporation's Conference Call. [Operator Instructions] I would now like to hand the conference over to your first speaker today, Michael Perlman. Please go ahead.

Thank you. Joining me today are John Cuomo, President and CEO; and Adam Cohn, our Chief Financial Officer. Today's call will address the press release issued this morning announcing VSE Corporation has entered into a definitive agreement to acquire Precision Aviation Group. As part of the announcement, the company provided preliminary fourth quarter and full year 2025 results, which will be reviewed on this call. The presentation we are sharing today is on our website, and we encourage you to follow along accordingly. Today's discussion contains forward-looking statements about future business and financial expectations. 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. 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, the appropriate GAAP financial reconciliations are included in our presentation and posted on our website. All percentages in today's discussion refer to year-over-year progress, except where noted. With that, I'll turn the call over to John.

Thank you, Michael. Good morning, and thank you, everyone, for participating in today's call. We appreciate your flexibility in joining us on short notice. Today is a very exciting day as we announced a transformational step forward for VSE. We have signed a definitive agreement to acquire Precision Aviation Group, or PAG. This transaction represents a major milestone in accelerating VSE's strategy to build a scaled, differentiated and higher-margin aviation aftermarket platform. This transaction is expected to meaningfully increase our revenue by about 50% on a pro forma basis, support a path to over 20% consolidated adjusted EBITDA margins over the next few years and strengthen our market positions. In addition, this will create long-term value creation opportunities for customers, suppliers, employees and shareholders. Let's get started and move to Slide 2 of our presentation materials. We have long admired PAG, their leadership, their team, their MRO capabilities, their product solutions, their sales and service-driven culture and the platforms and end markets they support. Let's begin with a summary of the strategic rationale for this deal. First, the acquisition of PAG broadens our global footprint, improving customer proximity, turnaround times, AOG support and supply chain responsiveness. The combined company will operate a network of 60 locations, including 47 repair facilities and 11 distribution centers of excellence worldwide. Second, this transaction expands our parts, repair and proprietary capabilities portfolio, creating one of the broadest and most diverse aftermarket capability sets in the market. Third, PAG supports continued diversification with end market customers across over 10,000 commercial, cargo, business and general aviation, rotorcraft, lessors and defense customers improving resilience through market cycles. Next, the business meaningfully scales VSE, including an approximate 50% increase in estimated fiscal year 2025 revenue on a pro forma basis and the opportunity for the combined and consolidated EBITDA margin to exceed 20% over the next few years as integration and synergy initiatives progress. And finally, we will have the opportunity to drive approximately $15 million in annualized synergies over the next few years as our integration and synergy actions progress. Let's now move to Slide 3. Over the last 6 years, VSE has undergone a multiyear transformation to focus our business on the aviation aftermarket. Highlighting this transformation were the divestitures of noncore business segments, the acquisitions of 8 aviation aftermarket businesses and the restructuring of the VSE platform to support an aviation aftermarket distribution, repair and recently launched Proprietary Solutions business. During this period, we have been a disciplined acquirer of high-quality aviation assets, demonstrating synergy realization through tangible cost savings, operating and integration efficiencies and accelerating growth through new investment. The realization of acquisition synergies in combination with our improved operational performance has led to accelerated growth, margin expansion and increased market share post integrations. Over the past 6 years, VSE has delivered strong financial performance supported by these actions. Our Aviation segment revenue has grown approximately 30% on a compounded annual growth rate from $225 million in 2019 to approximately $1.1 billion in 2025. Over the same time, VSE consolidated adjusted EBITDA margins expanded over 400 basis points to approximately 16.3% in 2025. Let's now move to Slide 4, where I'll provide a brief update on who VSE is today. As you're aware, VSE is now 100% focused on aviation aftermarket providing distribution and repair services for commercial and business and general aviation markets. We serve our end markets through parts distribution, MRO and Proprietary Solutions. We employ approximately 1,600 people across 31 locations in 7 countries, offering a broad range of services to a diversified global client base of commercial airlines, regional airlines, air cargo transporters, MRO providers, aviation manufacturers, private aircraft owners and fixed-based operators. Our end market exposure pro forma for the Aero 3 acquisition, which closed in late December 2025 is approximately 54% commercial and 46% business and general aviation based on our preliminary estimates. Distribution and MRO account for approximately 59% and 41% of revenue, respectively, and our engine-related content now represents approximately 59% of revenue. Let's move to Slide 5 and talk more about PAG. PAG is a best-in-class global provider of aviation aftermarket MRO services, distribution and supply chain solutions supporting commercial, business and general aviation, rotorcraft and defense end markets through a broad portfolio of technical capabilities. PAG operates 29 locations worldwide across 6 countries, employs approximately 1,000 people and completes more than 175,000 repairs annually. Pro forma for acquisitions completed in 2025 by PAG, the company generated approximately $615 million in adjusted revenue for the full period ended December 31, 2025. PAG supports over 10,000 active customers, supporting a diverse set of aircraft platforms across commercial, business and general aviation and military end markets. More specifically, PAG's end market exposure is approximately 58% business and general aviation, 29% commercial and 13% military, with approximately 1/3 of the business focused on engine content. PAG's primary capabilities include the following: repair services across components, engines and APUs and avionics, parts and services, including exchanges and Used Serviceable Material and Proprietary Solutions, which include DER repair, reverse engineering and in-house manufacturing. Let's now move to Slide 6, where I will highlight what VSE and PAG will look like together. This is an exciting slide and the combination of our 2 businesses creates a more diversified, globally scaled, higher-margin aviation aftermarket platform with broader technical capabilities and an expanded portfolio of proprietary repair solutions designed to strengthen customer support, extend asset life and reduce total cost of ownership. The combined company will employ approximately 2,600 people in 60 locations across 8 countries with an industry-leading MRO network and centers of excellence that enhance customer proximity, turnaround times, AOG support and supply chain responsiveness. PAG's margin profile, combined with VSE's growing proprietary parts and repair solutions business, is expected to drive the combined company's operating leverage and support a path to exceed 20% consolidated adjusted EBITDA margins over the next few years as integration and synergy initiatives progress. The combined company's end market exposure is expected to be approximately 50% business and general aviation, 45% commercial and 5% military. MRO will now account for approximately 60% of total revenue, and engine-related content is expected to be approximately 50% of total revenue. Let's walk through more detail on PAG and more detail on the strategic rationale behind the acquisition as we move to Slide 7. PAG is a highly diversified aviation aftermarket platform, operating 4 complementary business units. The first is component services, where PAG offers a broad range of system and component repair and overhaul capabilities across hydraulics, pneumatics, starter generators, wheel and brakes, instruments and landing gear. Second is engine services, where PAG delivers component, accessory, engine and APU repair and testing for turbine-powered platforms. A few key engine and APU platforms include the Rolls-Royce 250, the PT6, the GTCP131-9 and the GTCP331. Third, our avionics services. PAG offers industry-leading repair solutions for flight critical electronic and electromechanical systems, including displays, sensors, engine and flight control systems, navigations, communications and radars. And lastly, Proprietary Solutions, where PAG provides DER repairs, reverse engineering alternatives and low-rate in-house manufacturing of structural parts, circuit boards and subassemblies. PAG operates a differentiated high-margin 100% aftermarket-focused business with adjusted EBITDA margins greater than 20%. PAG offers integrated solutions and proprietary content, including over 2,000 unique DER repair capabilities and inventory to support their maintenance service model. Additionally, PAG has multiple margin expansion levers, including cross-selling, in-sourcing and the expansion of DER and proprietary repairs for increased value capture. Let's now move to Slide 8. And this slide really highlights the capability set for the combined business. The combination of VSE and PAG's capabilities create an integrated aviation aftermarket platform with highly diversified capabilities and Proprietary Solutions. Our business will kind of be organized in 3 channels: parts, MRO and exchange services and Proprietary Solutions. The parts channel will include our new parts distribution and new serviceable material business units. The MRO and exchange services will include 6 areas of focus: commercial engine component and accessory, business in general aviation and rotorcraft engine accessory, wheel and brake, avionics, traditional component repair and engine and APU MRO. And our Proprietary Solutions channel will include our OEM solutions business, which is anchored by our fuel control program, our DER and proprietary repair business and our alternative sourcing and reverse engineering business. This combined capacity set and capability set will be one of the broadest and most diverse in the industry. Let's now shift our focus to integration and synergy capture opportunities on Slide 9. Together, VSE and PAG are expected to realize over $15 million in annualized synergies by a phased integration of our operational and corporate support functions. Over the next few years, we expect to fully optimize our consolidated offerings, including cross-selling and in-sourcing product support and repairs and driving operational efficiencies across our 60 shared locations. We expect to drive further operational efficiencies through procurement savings, network optimization and supply chain improvements, which are also expected to improve working capital and drive improved cash flow. Let's move to Slide 10, where I will highlight VSE's successful track record of acquisitions and integrations. Since 2021, we have completed 8 aviation aftermarket-focused acquisitions, deployed approximately $1 billion in capital and delivered strong organic growth and margin expansion post acquisition. We have a proven and repeatable integration playbook, allowing us to successfully integrate systems, processes and organizations. We have a strong track record of delivering on synergy targets on or ahead of schedule. I want to emphasize something more important. This is not a deal solely about size and scale. It's a deal where the strategic logic is clear on day 1, more capabilities, more customer relevance, more geographic reach, more repair content, more Proprietary Solutions and ultimately, an anticipated stronger margin and cash flow profile. I will now turn the call over to Adam to review the transaction details and our preliminary fourth quarter and full year 2025 results.

Thank you, John. Let's turn to Slide 11 to review the transaction details. Under the terms of the agreement, VSE will acquire PAG for total upfront consideration of approximately $2.025 billion, subject to customary working capital adjustments, consisting of $1.75 billion in cash and approximately $275 million of equity consideration issued to GenNx, a repeat partner to VSE, subject to a customary lockup period that will expire in 3 equal parts, 6, 12 and 18 months from closing. Further, the agreement includes up to $125 million in additional contingent earn-out consideration payable in cash or equity consideration at VSE's sole discretion based on PAG's 2026 adjusted EBITDA performance. Inclusive of full run rate synergies, the total upfront consideration represents approximately 13.5x PAG's expected adjusted EBITDA for the full year period ended December 31, 2025. The transaction is expected to be immediately accretive to VSE's adjusted EBITDA margin with consolidated margin expected to exceed 20% over the next few years as integration and synergy initiatives progress. The cash portion of the upfront consideration is supported by a full commitment to enter a bridge facility. The transaction is expected to close in the second quarter of 2026, subject to regulatory approvals and customary closing conditions. Let's now turn to Slide 12 of the conference call materials, where I will review our preliminary fourth quarter and full year 2025 consolidated financial results. We announced today that the company expects fourth quarter and full year 2025 revenue in the range of approximately $290 million to $304 million and approximately $1.101 billion to $1.115 billion, respectively. Our fourth quarter and full year 2025 results include approximately 1 week of Aero 3 results. Our fourth quarter and full year 2025 operating income is expected to be in the range of approximately $27 million to $34 million and approximately $84 million to $91 million, respectively. And fourth quarter and full year 2025 consolidated adjusted EBITDA in the range of $45 million to $53 million and $176 million to $184 million, respectively. The company also expects to report a sequential quarterly improvement in free cash flow in the fourth quarter, resulting in positive free cash flow for the full year 2025. With that, I will turn it back over to John.

Thank you, Adam. In conclusion, the acquisition of PAG is transformational, is expected to significantly expand our scale, diversify our capability set, increase our Proprietary Solutions content and strengthen our market position as a mission-critical partner to aviation operators worldwide. The combined company is expected to deliver compelling value for our customers, suppliers, employees and shareholders as we execute a clear path to enhance growth, diversification and near-term margin expansion. PAG expands our scale, it strengthens our capabilities and it meaningfully upgrades the long-term earnings power of VSE. I cannot be more excited to welcome PAG President, David Mast and his outstanding PAG Global team to the VSE family. With that, I'd like to turn the call back to the operator as we are now ready to open the line for questions.

[Operator Instructions] And our first question will come from Sheila Kahyaoglu from Jefferies.

John, congrats on yet another deal. It seems like you've been working on this one for a while. So PAG seems to have a broad set of capabilities, whether it's component repair, DER engines. Can you maybe expand on a few of the slides you nicely laid out and how it overlaps with the VSEC portfolio and the potential for revenue synergies?

Yes. I mean it's something we have been working on it for a long time, and this is the deal for us that was going to really transform the business. What I love about the business before I talk about the capabilities is as you look at -- like our culture and our business was really built off of execution. We have so many exclusive contracts, and we have a new parts distribution business and our repair business really began off of our OEM exclusivity and we became an execution business. They have much more of a hustle culture. They built a very similar model where parts are integrated into MRO. So bringing the cultures together is really going to take 1 plus 1 greater than 2. With regard to the capability set, it's highly complementary. There's very, very little overlap. We have some fuel controls and a little bit of wheel and brake that's an overlap, new customers, but not same capabilities. But when you look and dive deeper into what they do, what I love is, let's talk about avionics. Avionics, they've got a tremendous, tremendous capability set on the commercial avionics platform. We have a great business. Combined, that business, I think, will be second to none in the markets. This gets us into both full engine and full APU MRO. They're doing that the engine work more on the rotorcraft and business and general aviation side. And on the APU side, it's mostly Honeywell commercial APUs. So it expands that portfolio as well. So think of things like potentially our Southwest teardown program, where we have the entire Used Serviceable Material for 737NG. Now we've got a capability set to bring that work in-house that's far more expansive than what VSE had today. I think that the other thing I really love about the capability set is they're on new platforms and growth platforms, but there's also some legacy "End-of-life" platforms. And that's where you can have more intellectual property, you can own more of your repair capabilities and you can kind of own like we do with that fuel control program that we bought from Honeywell, we can kind of own the end-to-end solution, which is great for the end user customer, but also great for our margin profile. So I don't know if that answered the question, but there's a little bit of a mix there. I'd say on the left side of that chart, where it's new parts and our commercial USM business, that's pretty much exclusively VSE. And within that gray part on Slide 8, that's where you'll see a lot of the overlap with -- and kind of capability expansion with PAG.

Got it. No, that's super helpful. And then maybe another one on PAG's organic growth focus. It seems like the company was quite acquisitive with 7 add-on deals throughout the last few years. How do we think about the core organic growth of the business and how you see that going forward?

Yes. I mean if you look -- it's hard to clean up, you'll see as you look through all the pro formas, the legacy data is complicated. But the business grew kind of high single digits, low double digits through the last few years. But I would say, looking forward in our forecast, we'll look more in that kind of high single-digit category. Similar to what we did with Kellstrom, we want to make sure we're growing the right revenue together. So I'd say we'll be a little bit more conservative in that mid- to upper single digits as we look at optimizing the right margin profile for the future and the right capability set for the future. So there may be some things that we say we don't want to grow together and other areas that will kind of double down. So I'd say think of it more in this -- in the high single -- mid- to upper single-digit category.

Our next question will come from Ken Herbert from RBC Capital Markets.

On the PAG business, it's obviously grown quite a lot as well, as you just called out through acquisitions. How integrated is the business today? And how much of a sort of integration of the PAG business do you need to sort of undertake here now as part of this moving forward?

Yes. I think what David Mast, CEO, has done really, really well. It's less of an integration strategy than we have. It's a little different, but the investments he's made in his facilities are second to none. I look forward to hosting you and some investors at some of the sites and you get a feel for the amount of investment that they put into these centers of excellence. So I'd say from a like how the facilities look and operate and from a Six Sigma and a lean perspective, really outstanding. They're on similar groups of systems that we're on. The question is when you look at these capability sets, I think that what we'll want to do is kind of do some more system integration inside of these capability sets and think through the go-to-market strategy. But I'd say they're further along than most of the other deals we've done in terms of acquisitions, but -- and integrations, but there definitely is part of the integration playbook that we'll put together through the end of this year and really kick off integration in 2027.

Okay. That's great. And just looking at the pro forma business combined, you'll be still approximately sort of 50% business jet, general aviation. Can you just talk strategically the justification for the continued focus in this market and why you think it presents maybe opportunities, maybe not better than commercial transport, but how it compares to commercial transport? I tend to think of it as maybe more fragmented, less volume, but maybe a little better opportunities on price and return. So any comment on that would be great.

Well, we look at it very similar, Ken. I think you're talking about a couple of things. Number one is you have a huge tail of end-user customers. So when you think of kind of rotorcraft, business aviation and general aviation, the 3 combined, in many instances, you're looking at north of 10,000 end users, which is -- creates a level of complexity for our OEM partners, and it really puts us in a strong and leading position to support the aftermarket. The second thing is you're also looking at a tremendous amount of platforms. You've got from a PC-12 to a Gulfstream to Robinson helicopter, I mean you look at that totality of that market, the number of kind of legacy aircraft that will fly for another 20, 30 years and then the number of new aircraft that are flying. We see that market as one that we can look platform by platform together. Actually, I was with David, the CEO, this week, and we were talking about if you look at our capabilities set together, when you look at a platform and you pick out the Pilatus like the PC-12, you can go through that platform and you can say, here's where we support wheel and brake, here's where we can support the engine. Here's where we can support the airframe. Here's where we can support the avionics. And we can start to put together platform strategies in terms of totality of aftermarket that we think will be second to none in the market. So we're really, really excited about that market and really becoming a unique market leader in that space.

Our next question comes from Scott Deuschle from Deutsche Bank.

Sorry if I missed this. John, can you give us a sense, though, as to how large the DER repair business is at PAG? I mean 2,000 repair seems like a lot, but I was curious if you could put that in the context of their revenue.

Yes. It's not in the deck, but let me pull out so I get you the right information. I mean it's on the smaller end of the business. I'd say think of it more on just sub-10%.

Okay. And then when you talk about their reverse engineering capability, is that just code for PMA? Or are you referring to something else?

It's somewhat code for PMA, but more than the PMA, it's thinking through how they're managing their own shops and where they can build engineering and manufacturing capabilities, so they're not using third-party shops, and they're bringing things in-house. I think one of the other strong things Ken's question a moment ago on integration. I think one of the things that David, the CEO, has done really, really well is as he's bought businesses, leaving the systems and the other pieces aside, he's really brought capabilities in-house, and they really look at that cross-selling and how to use the shops together quite well. And when you look at that manufacturing and product side of the business, that's really what it's supporting the MRO shops.

Okay. Great. And then, Adam, there's a pretty wide range on preliminary EBITDA for the fourth quarter, particularly given that it's late January here. I guess what drives that range? And can you give us some sense as to whether it's biased toward the low end or high end?

Yes. I mean, Scott, it's really just about completing our year-end audit work and just providing an appropriate range around the numbers. So we feel good about the quarter, and we'll give you an update on the earnings call next month.

Scott, you just got me in trouble because Adam had a narrower range, and I...

All good. I guess last question here, John. Can you characterize PAG's free cash flow conversion rate in 2025 and then what that expectation is for that business in 2026?

Yes. I mean, Adam, you can answer this. It's stronger than ours. And I think [indiscernible] to go ahead.

Yes, Scott, I would just say I would think of the conversion more similar to our existing MRO business. It is an inventory supported MRO model, but it's still much less working capital intensive than our distribution business. So you should see the mix improve and our cash flow profile to improve over time.

Our next question will come from Louie DiPalma from William Blair.

Congrats on this transaction and the strong fourth quarter results. How significant is the international presence for PAG? And how does that -- as you integrate the company, how does that further develop your view for the centers of excellence across avionics, engines and the other areas?

Yes. I mean the market in general, when you look at independent maintenance repair and overhaul shops, still remains very U.S. dominant, but we still see a tremendous opportunity for future growth organically and inorganically with smaller opportunities outside of the U.S. I think that their Australia presence is very exciting to us. It's a really strong rotorcraft and business and general aviation market. And we have opposite capabilities, very complementary capabilities, I should say. So bringing those together will really position us well in that market. I also think that they've got a great opportunity for us to utilize our existing capabilities to support their facility in Brazil. And then they have a recent acquisition in Europe that is a really strong center of excellence as well. So I'd say it's a great start, and it's a great continued expansion. I think as we look 5 years down the road for us, there's still a tremendous opportunity for us outside the U.S. to keep expanding.

Great. And in terms of the component repair business, you have established key distributor arrangements with Pratt & Whitney Canada, with Honeywell, Eaton and many other Tier 1s. How do the MRO capabilities of PAG allow you to provide component repair for some of those same components that you are the exclusive distributor for? And how does that contribute to positive margin generation?

Yes. I think -- I mean, we shared an initial synergy target, but I'll tell you, we'll share more as we start to get our arms around the businesses together. David and I both very much agree that the bigger opportunities out there is as we get our teams together and start sharing more data across the board of how we can work together and in-source and do things exactly like you say, we have a few target large OEMs that we believe our combined capability set can bring more offerings to the table. I look at when we acquired the 1st Choice business in South Florida, which is an independent MRO shop on the commercial side. We now have Eaton programs that are approved and authorized. We have Collins programs, and we have Honeywell programs in there, where before they had no direct OEM programs. So I'd say more than taking our existing work, I think that it's more about future organic growth opportunities where we can take their existing capabilities, partner with our large OEMs and bring in authorized work into their shops. I'd say that's the bigger opportunity. That is in-sourcing our own work that we potentially are outsourcing today.

Right. And one final one. You launched the Honeywell Fuel Control product line successfully, and that seems to be one of your higher-margin products as you are the OEM. And I think you previously disclosed in an answer that the Proprietary Solutions for PAG is roughly 10% of revenue. But do you envision Proprietary Solutions growing as a percentage of overall...

We do. Yes. If you look at that, I think it's Slide 8, which kind of lays out what the capability set looks like for the future. When you look at that Proprietary Solutions side of the business, expect it to continue to grow, expect us to continue to partner with our OEMs as they have end-of-life programs, as they have intellectual property that we can focus on to support them. And as we deal with continued supply chain issues, as the OEM, specifically on the commercial side, market continues to grow, you're going to see other supply chain constraints that we may not even know about today and utilizing proprietary repairs and alternative sourcing and reverse engineering to support kind of those supply chain gaps, we see that as tremendous growth opportunities for the business going forward as well as margin expansion opportunity.

And our next question will come from Louis Raffetto from Wolfe Research.

Obviously, you guys have been busy. Curious as to why debt versus equity for this deal versus the last deal?

Yes. I mean, at the end of the day, what we wanted to bring to the table here is deal certainty. We put our balance sheet in a position as we focused on the Aero 3 acquisition to really have a strong balance sheet to support this acquisition because we've been working on this longer than we worked on the last one and wanted to have the ability to bring deal certainty. And we'll work on permanent financing and share more details as we get through that work.

All right. Great. And then I guess Slide 8 is interesting. Is that something we should think of as potential future reporting lines? Or just end market breakdown? Just curious as to how to think about that slide.

Yes. I think it's too much for a reporting line perspective. Adam and I had this discussion last week in the middle of the kind of deal work is what does 2027 kind of reporting look like. So we'll -- we have some work to do on that. It's -- I think -- but I'd say this is how we'll probably organize the business, and then we'll think through how to bucketize that and how to think about reporting going forward. We expect the transaction to close sometime in the second quarter. The business will run relatively independent through the end of the calendar year. And Michael will share details shortly. We'll set up our Investor Day. We have a date already for early January, and we'll launch and share kind of how we will publicly report as well as what to expect from an integration perspective. We feel really confident we've done more diligence on this transaction, obviously, with the size of scale than we've ever done before. But now we want to really understand together how we're going to work together before we kind of finalize everything. So we've got the framework. And now it's just as we've always done with our integration playbook. Let the businesses run, let us learn from each other and work together and then we fine-tune that integration model, and then we'll share publicly towards the end of the year, and we'll walk you through how to look at the markets as well. I'd say for today, we'll continue to report distribution versus repair, and we'll continue to share details on our market segments. And because the engine markets are growing so fast, we'll continue to share kind of engine versus non-engine data. But as we get into 2027 and we can get our arms around the data together, we'll share additional information above and beyond that.

Our next question will come from Jeff Van Sinderen from B. Riley Securities.

Let me add my congratulations. It looks like an amazing deal. A couple of multipart questions here. Circling back to the combined organic growth profile for a moment, what are the fastest-growing areas at PAG? And as an entity, where do you see the most substantial opportunities for growth as you contemplate putting the 2 companies together? And then also, are there any parts of the combined business that you might rationalize?

Yes. I mean both great questions, Jeff. Thank you. I think let's start with the organic growth. I think I mentioned earlier, we look at kind of mid- to high single-digit growth rates because we do look at, I'd say, potential rationalization. I think we have to go through the capability sets together post close and really dive deep and see if everything makes sense for the long term. So I'm not ready to answer that question yet because I'd like to just cross all my T's and dot my I's before I answer that question. With regard to growth rates, it's very similar to us. So you're going to see their commercial business on the avionics and more on the engine APU side be on the higher end of the growth profile. Anything on the business and general aviation side, engines will grow faster than non-engine work. So it kind of is in those 3 tiers, those 3 buckets.

Okay. That's helpful. And then as you -- maybe you can touch on PAG's pipeline of acquisition targets because they've been acquisitive as well. And how does that expand the scope of what the combined entity might look to acquire in the future?

Well, I mean, you know I'm fast, but I will tell you that we're going to swallow this deal together and bring these businesses together the right way. But I would tell you, I ironically think of more small rather than large. I think what we will do together as we build out the strategic profile, we share that Slide 8 with the capability set. The more we dive deep like into the granular areas of capabilities, what we're going to learn is what we need to round out the portfolio and whether it's geographic, whether it's a customer base, whether it's a platform or whether it's just a capability within an existing kind of grouping. And I think expect to see in the future more smaller tuck-ins to support those areas than something large and transformational again. I'd say that's kind of where we would focus near term. But the bigger near term is how do we bring these businesses together the right way and really extract the value that we know is there with the combined businesses.

Okay. Great. And if I could squeeze one more in really quick. Just anything on integration time line or milestones we should anticipate?

Yes. I mean because of -- we don't see any antitrust risk. I mean, like I said, there's really not -- there's really no -- almost no overlap in terms of capability sets. So -- but we do want -- we have to get through that work and get through closing. The second thing is a deal of this size and scale and the quality of the team that they have, this is more of a joint integration team where we want to make sure that we're aligned together. So we will spend the back end of the year with the integration team working. And I would say don't expect the integration really to begin until 2027. They have a really strong operating plan this year, and that's why we supported an earn-out on the transaction. So we want to allow them to continue to excel. I'm the first one who says I want them to achieve 100% of that earn-out. We want to give them the capacity to do that. And we want the integration planning to really be done perfectly well, and we'll kick off integration in January of '27. But we will share with you a very detailed integration plan and what to expect.

Our next question will come from John Godyn from Citi.

Congratulations on the deal. It sounds like there's a lot more information coming, so I can appreciate that. But I wanted to just look at Slide 9 with the synergy numbers and some of the detail there and just double-click on that to the extent possible. I was curious kind of revenue synergies versus cost synergies, maybe expanding on some of the bullet points here that you guys have for the integration playbook. And I guess the last piece is just the greater than sign on the $15 million, of course, is curious, anything to elaborate on the upside beyond $15 million?

Yes. It's a great question, John. And you're kind of newer to working with us, so you'll get a feel of how we manage the integration playbook. When we share on a deal, the initial synergy targets, those are all things that we can literally tick and tie with detailed actions. So the reason there's the plus sign is I think that we see a lot of -- I'll talk about the plus sign first. We see a lot of opportunities in how we bring this business together from a go-to-market perspective where there's really sales synergies, and we can now kind of tackle a new market or a new capability set or a new growth area that we wouldn't have been able to do on our own, either one of us. And that's the plus area. But I'd say because I can't actually put a detailed action and a check box next to it, that's not what I'm sharing today. So we have a very confident line of sight to cost synergies, to margin synergies that are built into the $15 million, and that's the playbook work. And then the above and beyond, we'll share more details as we can kind of get our arms around kind of the customer-facing and the sales side as we bring the businesses together, and that's where we believe there's upside. So what we presented here, we feel really confident in the plan. And the thing -- obviously, the synergies are important of a deal of size and scale. But what it also does is taking their margin profile, how we've been able to scale our margins and with the synergies, it puts us in a position to really -- I look at the best-in-class aftermarket businesses and their consolidated EBITDA starts with a 2 rather than a 1 and puts us in a position of line of sight to a 20-plus percent EBITDA margin, which is also really exciting for the platform we're building.

That's great. So it sounds like as you roll out more details on integration, et cetera, that 15% is likely to get pressed higher, and we'll get those details over time.

Yes. And I would say very transparently, you won't get those details until probably maybe with our third quarter. And if not, definitely, as we launch, we'll do an integration kind of Investor Day like real -- to walk you through it in detail. So I'd say sometime between October and January, we'll be able to give you the granular details. We'll get through closing. I don't know when it will close, like May, June at the latest, and then get our arms around and again, validate the next level of synergies and put that detailed plan together with the actions, and then we'll walk all of you through that detailed plan. And we'll see we're very transparent about it.

Okay. Perfect. And can I ask [indiscernible], and I apologize if I missed it, but the interest rate on the fully committed bridge facility, do we know that or approximately? Any color there?

Yes. We didn't give a specific interest rate. I would just say somewhat consistent with our current debt facility is the way to think about it.

And our next question will come from Jonathan Siegmann from Stifel.

John, Adam and Michael, congratulations on the great deal. So this is the second one from the same seller, which the first one was a good deal. Just real quick. Just was there any reason why the former owner didn't put those 2 pieces together on their own? And is there a reason why they -- together at VSE is a better combination?

I mean I can't answer the first question. I think I don't -- I've always been in a public company, so I don't know the ins and outs of how all the private equity funds work and the rationalization around it. But I do have a tremendous amount of confidence that when you look at the capability set that both assets really, really fit well with us. I think GenNx360, I'm thrilled that they have some rollover equity and they're a great partner, and they've been outstanding to do true transactions with. And the way that they've invested in their businesses, the way they've invested in their management teams and the quality of the capabilities and the assets that they have, I don't think there's any more in their portfolio, but they've been 2 great transactions for us. So not certain on their end. I can't answer that. But for us, we see a tremendous opportunity in these real centers of excellence in terms of MRO and parts capability sets.

Okay. And then all right, maybe I'll just ask on the Proprietary Solutions. You've highlighted your enthusiasm for that growing nicely and being accretive to margins. Just can you maybe expand on the relative size of PAG's Proprietary Solutions? You mentioned to Scott's question on DER specifically, but how does that grow?

Yes. Just to be clear, so I'd say that whole bucket is under 10 -- it's under 10% of their business. So that includes the whole Proprietary Solutions business.

Okay. And that should be margin accretive as well, same kind of...

Absolutely. Yes. Absolutely.

[Operator Instructions] And our next question will come from Sam Struhsaker from Truist Securities.

On for Mike Ciarmoli. Congratulations on this deal. I was just curious you kind of building off of the Proprietary Solutions question there. You mentioned reverse engineering alternatives. Does that mean that they're doing PMA work? Or is that something else?

Yes. I mean there's some PMA in there. I'd say that Proprietary Solutions business is far more focused on DER repair than anything else. So as you look at that business, they are a repair business with maintenance repair and overhaul sites that they bring their inventory-centric model to. So where they're looking at their proprietary solutions business, it leads with kind of DER repair, which in many instances is bringing either a Used Serviceable Material part or a PMA part into the repair capability where there are supply chain constraints in the market.

Got it. And I apologize if I missed this earlier, I was having some technical difficulties. But -- so is it fair to assume that then all of those kind of subsegments within PAG are margin accretive to you guys?

I don't think we -- I actually don't really look at that on an individual basis. Adam, how would you look at that? I'd just say the total business is accretive. Obviously, the higher-margin work is accretive. I didn't go...

Yes. I mean the businesses are relatively consistent. But overall, it's accretive consolidated.

And I am showing no further questions from our phone lines. I'd now like to turn the conference back over to John Cuomo for any closing remarks.

Thanks, Crystal, and thanks, everybody, for joining today. I appreciate the tremendous flexibility in spending an hour with us this morning. We've been working for 6 years on transforming this business and building a platform to be able to find the right kind of merger partner, and I use that word in a literal sense that we can bring together to start scaling this business in the right direction and excited for the PAG team to join our family and look forward to the closing and all that's ahead. Thanks again, and have a wonderful rest of your day.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a wonderful day.