VSE Corporation (NASDAQ: VSEC), a prominent provider of aftermarket distribution and repair services, has unveiled three significant strategic initiatives aimed at reshaping its portfolio and reinforcing its position in the aviation aftermarket. Alongside this announcement, the company has released preliminary financial results for the fourth quarter and full year of 2023, as well as provided guidance for the full year of 2024. Further details and updates will be disclosed during the upcoming earnings call scheduled for March 7, 2024.
Management’s Perspective
John Cuomo, President and CEO of VSE Corporation, emphasized the importance of these strategic moves, stating, “Today marks another crucial step in VSE’s transformation journey. We have successfully divested a significant portion of our Federal and Defense segment assets, initiated a strategic review of our Fleet segment, and entered into a definitive agreement to acquire a leading OEM-centric aviation MRO business. These actions underscore our commitment to streamlining our business operations and go-to-market strategy, positioning us as a key player in the aviation aftermarket distribution and repair services sector.”
Cuomo further added, “We are pleased to announce the acquisition agreement with Turbine Controls, Inc. (TCI). Their stellar reputation as an MRO leader, coupled with their dedication to quality and OEM collaboration, aligns perfectly with VSE’s operational and strategic framework. TCI’s extensive experience in servicing major commercial engine and accessory OEMs, spanning across engine components and airframe accessories for commercial, military, and general aviation markets, will enable us to expand our OEM Authorized MRO capabilities, explore new markets, and cater to new clientele. We eagerly welcome the TCI team to the VSE Aviation family and are enthusiastic about building upon their legacy of success as a premier, highly specialized MRO market leader.”
Commenting on the long-term objectives, Cuomo concluded, “Continuously driving value for our stakeholders remains a key priority for VSE. This includes ongoing evaluation of our portfolio to ensure alignment with our strategic objectives and bolstering our balance sheet. Given these objectives, assessing strategic alternatives for our Fleet segment is a prudent step at this juncture. Throughout this process, we remain committed to supporting our business growth, our exceptional workforce, and our valuable customer and supplier relationships.”
Acquisition of Turbine Controls, Inc. (TCI)
VSE has finalized a definitive agreement to acquire Turbine Controls, Inc., a renowned provider of aftermarket maintenance, repair, and overhaul (MRO) support services for complex engine components and engine and airframe accessories across commercial and military applications. With a strong presence across a broad spectrum of engine platforms, including key next-generation platforms, TCI operates from its MRO centers of excellence in Connecticut and Florida. TCI’s offerings include repair services for rotating and static engine components, gearboxes, and various accessories. The acquisition, valued at approximately $120 million, comprising $110 million in cash and $10 million in common shares of the company (subject to working capital adjustments), is expected to be finalized in the second quarter of 2024, subject to customary closing conditions.
Federal and Defense Divestiture Update
VSE has completed the sale of substantially all of its Federal and Defense segment (FDS) operating assets in two transactions, generating total cash proceeds of $44.0 million, including estimated net working capital adjustments. Concurrent with the divestitures, VSE will discontinue the use of one non-core FDS facility and conclude all transition activities by the second quarter of 2024. Additionally, the company plans to reposition its Alexandria, VA headquarters facility and relocate its corporate headquarters later in 2024 to reduce expenses and consolidate its operating footprint.
Review of Strategic Alternatives for the Fleet Segment
VSE has initiated a process to explore and evaluate strategic alternatives for its Fleet segment with the objective of enhancing shareholder value. This strategic review could encompass various alternatives, including a potential sale of the Fleet segment. The company has engaged Jefferies LLC as its financial advisor for this Strategic Process, with no definitive timetable set for its completion.
Preliminary Financial Results for Fourth Quarter and Full Year 2023
(Refer to the table provided in the article for the preliminary financial results)
Full Year 2024 Guidance
VSE has provided revenue growth and Adjusted EBITDA margin guidance for its Aviation segment and Fleet segment for the full year of 2024. The guidance is subject to updates in the second quarter following the completion of the TCI acquisition.
Advisors
Jones Day acted as legal counsel to VSE Corporation for all reported transactions, while Jefferies LLC served as the exclusive financial advisor for the Federal and Defense divestitures. RBC Capital Markets, LLC provided exclusive financial advisory services to Turbine Controls, Inc.
