Good day and welcome to the VSE Corporation First Quarter 2025 Results Conference Call. All participants will be in the listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Michael Perlman. Please go ahead.

Thank you. Welcome to VSE Corporation's first quarter 2025 results conference call. We will begin with remarks from John Cuomo, President and CEO, followed by a financial update from Adam Cohn, our Chief Financial Officer. 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 the 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 incorporated into our presentation and posted on our website. All percentages in today's discussion refer to year-over-year progress, except where noted. Beginning in the first quarter of 2025, our results exclude the fleet segment, which was moved to discontinued operations following the announced sale of that business. At the conclusion of our prepared remarks, we will open up the line for questions. With that, I'd like to turn the call over to John.

Good morning. Thank you for joining us today for VSE's first quarter 2025 conference call. This was truly an exceptional quarter for VSE. We delivered record revenue and record profitability, a clear testament to the strength of our businesses, the resilience of our markets, the dedication of our teams, and the effectiveness of our ongoing transformation strategy. At the same time, we made significant strides in advancing our multi-year strategic transformation, all positioning VSE as a more focused, integrated, and margin- and growth-oriented platform. Let's begin on Slide 3 and discuss recent business updates and developments. First, on April 1st, we completed the sale of our fleet segment. This divestiture marks the official close of a significant chapter in our multi-year strategic transformation, one that positions VSE as a focused, pure-play provider of aviation aftermarket parts and services. The divestiture represents the culmination of deliberate strategic actions, including multiple business exits, all aimed at repositioning the company for the future. With this chapter complete, we are now fully focused on pursuing higher growth, higher margin opportunities in the aviation aftermarket, creating long-term value for our customers, supplier partners, employees, and shareholders. Second, we announced the acquisition of Turbine Weld Industries as a specialized MRO service provider of complex engine components for business and general aviation platforms. This acquisition marks another important step in the strategic expansion of our aviation services business, further positioning VSE as a comprehensive solution provider to our OEM and aftermarket partners. Turbine Weld is an outstanding business and well aligned with VSE's core strategy in the following areas. Turbine Weld enhances VSE's position in the business and general aviation engine aftermarket on two of the most widely used engine platforms, the PW100 and the PT6. Next, Turbine Weld strengthens VSE's collaboration with OEM partners by developing numerous proprietary repair specifications as the sole source provider for many flight-critical repairs. And finally, VSE plans to invest in Turbine Weld's operational capacity to address market demand and accelerated growth opportunities. Turbine Weld generated approximately $20 million in revenue over the last 12 months, and the purchase price was approximately $50 million. Third, we signed a new five-year authorized service center agreement with Eaton to perform MRO services on hydraulic pump products. This marks Eaton's first-ever authorized service center collaboration and represents a significant enhancement to their aftermarket repair capabilities and customer support for these products. This agreement reinforces VSE's OEM partner value proposition, supporting OEMs in servicing their end-user customers while also helping them monetize and protect their aftermarket business. And finally, last week, we entered into a new $700 million credit facility, including a five-year $300 million term loan A and a $400 million revolving credit facility to replace all existing credit facilities. Adam will discuss this in more detail, but this refinancing positions VSE to execute on our growth strategies with increased flexibility at a lower cost of capital. Let's now move to Slide 4, where I'll provide a business update beginning with our integration activities. Over the past 12 months, we've acquired two market-leading commercial aerospace engine-focused aftermarket businesses, both of which are performing ahead of plan. Let's start with TCI. April marked the one-year anniversary of TCI joining the VSE family. The business continues to exceed expectations, driven by strong input volumes and a robust backlog of work from our OEM engine partners. To support this growing demand and to position TCI for future expansion, we're investing in additional component repair capacity aligned with OEM requirements. Turning now to Kellstrom. Integration efforts are well underway and progressing in line with our expectations. This reinforces our confidence in this transaction's strategic rationale and in our ability to create meaningful value as we integrate the businesses. We remain on track to achieve the $4 million in cost synergies we previously identified and are targeting near-term margins of 15% or greater as we optimize specific parts of the Kellstrom portfolio. Now moving on to program implementations. The transition of the Honeywell Fuel Control program is progressing. With full operational capability and production expected within the next 12 months, we made strong progress in building the necessary infrastructure, systems, and staffing to support this transition. The expected financial contribution from this program is fully reflected in our 2025 guidance. Additionally, as noted earlier, we recently launched the first-ever authorized repair station for Eaton in the Americas. This is a natural extension of our longstanding distribution partnership supporting Eaton's fuel pumps for business and general aviation. This new agreement expands our capabilities into hydraulic repairs and overhaul for commercial aviation customers. And finally, the fleet segment divestiture. We are currently operating under a transition services agreement to ensure a seamless handoff. In parallel, we are conducting a comprehensive review of our corporate and business unit cost structure to ensure we remain lean and efficient to support our go-forward single-segment aviation strategy. I will now transition and provide an update on the current market environment for our business. Despite broader global market uncertainties, particularly those stemming from evolving tariff policies, demand remains solid. This is supported by continued strength in global passenger traffic trends. We remain cautiously optimistic that aircraft utilization will hold strong throughout the remainder of the year, which should continue to support robust aftermarket demand outlook. That said, our team is monitoring the situation closely and remains prepared to act as needed. Based on current market trends, customer feedback, and our backlog and bookings, we are reaffirming our full year revenue guidance. For 2025, we continue to expect commercial aftermarket growth in the range of 8% to 10%. Likewise, for our products and services supporting the business and general aviation customers, we maintain our projected growth rate of 5% to 6%. Now, turning specifically to tariffs, we've been proactive in working closely with our OEM partners to mitigate potential impacts, both for our business and our end-user customers. Here's how. First, our strong inventory position provides us flexibility in how and when we make purchases. Second, our global distribution footprint enables us to optimize and adjust logistic flows where needed, and we're actively coordinating with supplier partners on this front. Third, we're leveraging the USMCA exemptions to support trade flows for Mexico and Canada-based products and customers. And finally, where appropriate, we will pass through tariff-related surcharges. We believe our diversified market exposure, including a balanced presence in both commercial and business aviation, along with our OEM-centric strategy, are key strengths that help us navigate a dynamic and uncertain environment. To be clear, there's work to do, processes to implement and undertake, and uncertainty exists for all of us until we understand the final trade agreements. However, at this time, we do not expect any tariff-related impacts that would require us to revise our previously issued 2025 revenue or margin guidance, nor our organic growth expectations for either of our end-user markets. Let's now move to Slide 5 to discuss our financial performance. In the first quarter of 2025, our consolidated revenues increased 58% to $256 million, driven by strong financial performance from our core aviation distribution and MRO businesses and contributions from both the TCI and Kellstrom acquisitions. Our consolidated adjusted EBITDA increased 60% to $40 million in the quarter or 15.8% of revenue. These results were driven by strong end market activity, solid execution on distribution program awards, and an increase in MRO activity, solid performance from our OEM licensed manufacturing program, and contributions from recent acquisitions. Adjusted net income of $16 million and adjusted net income per diluted share of $0.78 increased 125% and 73% respectively. Importantly, we ended the first quarter with a strong balance sheet, achieving a pro forma adjusted net leverage ratio of 2.2 times following the sale of the fleet business, which provides us with significant financial flexibility. I will now turn the call over to Adam to discuss the details of our financial performance.

Thank you, John. Let's turn to Slide 6 of the conference call materials where I will provide an overview of our first quarter consolidated financial performance. As a reminder, our consolidated results include the fleet segment, which was moved to discontinued operations following the announced sale of the business. VSE generated $256 million of revenue in the quarter, an increase of 58% over the same period in the prior year. Adjusted EBITDA increased 60% to $40 million compared to the first quarter of 2024. Beginning in the first quarter of 2025 and for future comparative periods, consolidated and segment-level adjusted EBITDA will exclude stock-based compensation. Adjusted EBITDA margin was 15.8% in the quarter and approximate 30 basis point improvement over the prior year period. Adjusted net income was $16 million and adjusted diluted earnings per share was $0.78, an increase of 125% and 73% respectively over the prior year period. Now turn to Slide 7 where I will review our aviation segment's record first-quarter performance. VSE aviation generated $256 million of revenue in the quarter, an increase of 58% over the prior year period. More specifically, distribution revenue increased 49% in the period driven by the ramp of new OEM program awards, strong operational execution and market share growth, product line expansion, and contributions from the Kellstrom acquisition. MRO revenue increased 76% in the quarter driven by the expansion of new repair capabilities, share gains in the commercial and business and general aviation markets, strong end market demand, support from our new OEM authorized avionics program, and contributions from the TCI acquisition. Excluding the impact of all recent acquisitions, organic aviation segment revenue increased by approximately 12% in the first quarter compared to the prior year period. Aviation adjusted EBITDA increased by 52% in the quarter to a record $43 million or 16.9% of revenue. This increase in adjusted EBITDA was driven by strong execution on distribution programs, increased throughput at MRO facilities, improved pricing and product mix, solid performance from our OEM licensed manufacturing program, and contributions from recent acquisitions. Now, let's turn to Slide 8 of our presentation materials to review our aviation segment guidance for the full year 2025. It is important to note that our guidance does not assume further tariff escalation or global recession. We are reaffirming our full year 2025 aviation segment revenue growth guidance range of 35% to 40%. Supporting this growth are full year revenue contributions of approximately 26% to 28% from both the TCI and Kellstrom acquisitions. In addition, we are expecting to outperform the market growth assumptions John discussed earlier with high single to low double-digit organic growth for the full year, supported by market share gains, distribution program growth, and repair capability expansion. We are also reaffirming our 2025 full year aviation adjusted EBITDA margin guidance range of 15.5% to 16.5% and increasing the range to 16% to 17% to include an approximate 50 basis point positive adjustment associated with the stock-based compensation add back that I referenced earlier. We continue to expect TCI and Kellstrom to have a near-term margin dilutive impact on aviation's margins, all set by an 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. Synergy benefits will continue into 2026 until all integration activity is complete. In addition to our formal guidance commentary, I want to provide several clarifying financial updates related to the recent divestiture of our fleet segment. Our effective tax rate is expected to be approximately 25% for the remaining three quarters of 2025. Depreciation and amortization in total are projected to be approximately $38 million to $40 million for the full year, inclusive of the Turbine Weld acquisition. Stock-based compensation, which beginning in Q1 is excluded from adjusted EBITDA, is expected to be approximately $3 million per quarter for the remainder of the year, split relatively evenly between aviation and corporate. Lastly, unallocated corporate costs, which include incremental stranded costs associated with the fleet divestiture, are anticipated to total approximately $21 million for the full year, or about $14 million to $15 million, excluding stock-based compensation. Let's move on to Slide 9 to discuss our recent debt refinancing. Last week, we entered into a new $700 million credit facility, including a $300 million term loan A, and a $400 million revolving credit facility, both maturing in May 2030. These facilities replaced the company's previous debt facilities, which were scheduled to mature in October 2026. Borrowing under each of the new facilities will bear interest at the secured overnight financing rate, plus 175 basis points per annum, representing a 60 basis point improvement compared to the terms of the prior facilities. We are very pleased to have secured more favorable terms, including a lower interest rate, and an expanded borrowing capacity, which will reduce our cost of capital and enhance our liquidity. Following the recent debt refinancing, the sale of the fleet business, and the acquisition of Turbine Weld, we expect interest expense to be approximately $26 million to $28 million for the full year, or approximately $5 million lower than our previous guidance. Turning to Slide 10 to review our balance sheet. At the end of the first quarter, our total net debt outstanding was $459 million, and cash and availability under our prior $350 million revolving credit facility was $158 million. During the first quarter, as planned, we used $49.5 million of free cash flow, driven by strategic inventory investments to support current customer programs. This was an improvement of approximately $37 million over Q1 of last year. We are expecting to generate positive cash flow over the balance of the year. Our adjusted net leverage ratio, pro forma for the sale of our fleet business, improved to 2.2 times in the first quarter. Our long-term target for leverage remains in a 3 to 3.25 times range. With that, I will turn it back over to John.

Thank you, Adam. I'd like to conclude our prepared remarks by summarizing our 2025 priorities. First, following the sale of our fleet business, we have initiated a comprehensive review of our corporate structure and cost base to better align with our aviation-focused strategy. Second, we are expanding repair capabilities and increasing operational capacity to meet growing demand and accelerate organic growth across our MRO centers of excellence. Third, we are prioritizing the integrations of TCI and Kellstrom to drive operational efficiencies and enhance customer value. Integration planning for Turbine Weld is already underway. To lead these efforts, we've appointed a senior internal leader to oversee all integration activities and synergy capture activities across the organization. Fourth, we remain committed to capturing synergies from recent acquisitions to support margin expansion throughout this year and into 2026. Next, we are advancing the full transition of our OEM licensed manufacturing capabilities from Honeywell to VSE. And finally, we continue to build our organic pipeline, strengthening OEM supplier partnerships and expanding our market reach. Thank you to our shareholders, customers, and employees for your continued support and confidence in our team. We remain focused on delivering long-term value and are excited about the road ahead. Operator, we are now ready for the question-and-answer portion of our call.

We will now begin the question-and-answer session. The first question comes from Ken Herbert with RBC Capital Markets. Please go ahead.

Yes, hi. Good morning, John, Adam, and Michael.

Morning, Ken.

Morning.

I just wanted to first ask, on the margins in the first quarter, good performance. It looks like you're calling out more of the synergy capture in the second half of the year. How should we think about the conservatism in the margin outlook and maybe opportunities there as volume growth sort of holds steady around this give or take low double-digit high single range through the year? How do we think about the margin opportunity in the back half of the year in particular?

Thanks for the question, Ken. I would say that Q1 typically is our strongest margin period of the year. You can see that phenomenon if you look back at last year as well. A part of that is because we're selling lower cost inventory that we're purchasing in the prior year period in Q4 and selling it through. You will see very strong margins in Q1. And we also had a pretty positive mix in the quarter as well. We had some high margin sales, particularly in distribution. So it was a very strong period. And the acquisitions, particularly Kellstrom and TCI, are performing well, as John mentioned. So Q1, strong margins. We will continue to see benefits from integration synergies as we go through the course of the year, incremental benefits. But it's early in the year. We feel good about our guidance, obviously a very strong margin performance. We'll reassess as we go through the course of the year.

That's great. Thanks, Adam. Just as I think about the end market growth you outlined for business jets in commercial transport, if there is theoretically a slowdown or we see more of a pronounced slowdown in airline capacity or a broader economic slowdown, macro pressure, where do you see sensitivity in business jets relative to commercial transport? Do you feel like one market might be better positioned relative to the other as you think about sensitivity through this year to some of the macro pressures?

Yes, Ken, that's an excellent question. As we explore each of those markets, it's clear that we're heavily focused on the engine operations in both sectors. We experience less pressure due to the backlog, and we believe that this backlog and the frequency of engine overhauls will persist regardless of market fluctuations. The potential delays or extensions might occur more in areas such as avionics, interiors, or other types of repairs, where airlines have the option to postpone decisions. From a repair standpoint, there may be more impact on commercial non-engine work. The main concern is whether flight hours will remain stable on both sides of the business. Currently, we're optimistic about our backlog. We've incorporated some conservatism in our planning for the year compared to market conditions, and we now view that conservatism as more realistic. Therefore, we are confident in our guidance.

Great. Thanks, John. Congratulations on the quarter and obviously the massive restructuring. I'll pass it back there.

Our next question comes from Jeff Van Sinderen with B. Riley Securities. Please go ahead.

Good morning, Jeff.

Good morning, everyone, and congratulations on the strong metrics. Just wanted to touch a little bit more on the acceleration of integration of your recent acquisitions. Just wondering if there's any more color you can give us on some of the things you're doing there. And also, could the timing of completion of integration happen earlier than previously expected?

Yes, I think it's a good question. I'd say that there's a couple of things that we're learning. We're learning where there's value in shifting some of the integrations and where we can drive synergies faster, organic growth on a combined basis faster, or we're enhancing some type of customer or supplier benefit. So we're accelerating those areas. I'd say it's still when you look at TCI, the Kellstrom totality of the business, and now the new acquisition, you're still looking at, I'd say, the earliest kind of bid next year to get all of them done, which is about 18 months or so, which is about what we've shared. I don't see our ability to accelerate that further. I think it's just shifting it, which can help drive better benefits, like shifting priorities.

Okay, fair enough. Then I know you've gotten on to some new programs, some new business one. Just wondering which one of those, or I guess how you would rank those, or which are the most meaningful in terms of contribution, and then over what time frame should we expect to see a little bit of impact on the P&L from those?

Yes, I'd say that if you look at the guidance that we've put out for the year, that pretty much contains the organic growth kind of scaling of what we expect for 2025, specifically the Eaton program that will scale this year and will give a little bit more color into 2026, and expect us to talk more about organic growth opportunities in the back end of the year and how that could impact '26 modeling. I'd say the 2025 guidance pretty much includes everything, and we've scaled it for you in the guidance.

Okay, fair enough. Thanks very much. I'll take the rest offline. Thanks. Appreciate the time.

Thanks. Appreciate the time.

Our next question comes from Michael Carroll with Truist. Please go ahead.

Hey, good morning, guys. Thanks for taking the questions. Nice results. John, just as you're looking at the business and trying to evaluate demand trends, what's the best metric to gauge the health? And obviously, you've got the business general aviation side and transport. I mean, are you looking more – you referenced traffic, but is it more biz jet cycles? Is it more takeoffs and landings? What's the better proxy? And if you do start – or I guess drawing on your experience historically, from the time we start to see capacity cuts, how long does that typically take to flow through to impact demand?

Yes, I'd say slower – let's start with the second question first. Let's say we'll see it slower on the side than you will on kind of the component. I think the complexity around the cycle – I think this is slightly different. What happened during COVID when everybody just paused and froze, it took longer to get the cycle up and running. And there's a lot of awareness in the market of that. So I don't expect to see kind of a holistic pullback in terms of retraction of work because people know it's not that easy to turn the spigot back on once we turn it off. So I do expect to see some caution on some fronts, but a little bit more kind of crossing T's and dotting I's and watching the pet, but I don't expect a wholesale kind of pullback. I think with regard to data, it's a great question. I think the traffic data is the strongest data. I think on the engine side, it's continuing to talk to the overall jobs, whether it's third parties or the OEM, and understand on literally a granular level how full their shops are. Do they plan to stay full? And are they seeing any kind of shift or kind of pullback in demand on their front? And then really, which is a near-term trend, is booking a backlog.

Got it.

And we've seen a few blips here and there, and then as soon as we get nervous, they've cut out a bit. But you have seen a little bit came out, a little quiet cut kind of weeks, and then it's come back. So I'd say we haven't seen anything alarming yet, but we are keenly watching.

Okay. That's fair. And then just last one, maybe as it relates to cash, I heard you expect positive for the rest of the year. But then you also talked about, I guess, making some investments, specifically at recently acquired Turbine Weld, and then just adding more capacity, including PCI, maybe any color there on those required investments and cash in the quarter and a little bit about CapEx?

Yes. In terms of the quarter, Q1 typically sees our highest cash usage. Looking back to Q1 last year, we used approximately $37 million more than in the latest quarter. Much of this is due to inventory purchases at the end of the year and related payables in Q1. There were additional factors in Q1 this year, including the lease buyout for the old headquarters, which affected us by about $6 million. Our cash flow was consolidated to Q1, and there was cash usage related to the Wheeler fleet segment during that time. We also discussed building inventory to transition the Honeywell program through year-end. These elements contributed to the cash flow in the first quarter. Additionally, we made some strategic inventory purchases ahead of the tariff situation, which added to the impact. However, as we progress through the year and start to see a reduction in inventory buys, working capital should benefit us. In the second half of the year, we anticipate strong free cash flow, similar to what we experienced in Q4 of last year. While we are more heavily invested in CapEx during the last three quarters compared to Q1, that is all part of what I'm referring to.

Got it. Perfect. Thanks, guys. I'll jump back in the queue.

Thanks. Our next question comes from Sheila Kahyaoglu with Jefferies. Please go ahead. Sheila, sorry to interrupt, but you are not audible at the moment.

Operator, let's move to the next analyst and we'll see if Sheila can get back into the queue.

Certainly. Our next question comes from Louie DiPalma with William Blair. Please go ahead.

John, Adam, and Michael, good morning.

Morning.

John, can you discuss the origin of the Eaton hydraulic steel? How did it come about? And is there opportunity to do more with Eaton? Is this just potentially a phase one?

Yes, thanks for the question, Louis. This is exactly aligned with what we've discussed on this OEM-centric value proposition, where rather than bidding on competitive deals that are in the market against most of our competitors and being in a race to the bottom, it's sitting with OEMs talking about where they have problems in the market and calling them a solution. So looking at kind of legacy platforms where we have an OEM who maybe has lost a significant amount of share to unauthorized shops, MRO shops in the market, and then how do we help them capture some of that share back? Having that dialogue really was the impetus for the program and then the award that was eventually given to us. We look at every OEM relationship as a beginning. So we look at this as the beginning of our first kind of MRO relationship with them. We also have a legacy distribution relationship with them. So it's a wonderful company with great products, and we look forward to accelerating to other opportunities after we get this launched.

Right, because haven't you been able to significantly expand with Honeywell and Pratt & Whitney Canada after your original deals with those companies?

Yes, I mean, every OEM is slightly different, but I'd say that if you look historically five years back at the business, we've been able to grow share with each of the OEMs once we get embedded with one program, and they can actually see the performance of our business and the differentiation of what we can do that's different from others out there in the market, absolutely.

Sounds good. And another one, what has been the general progress of the Honeywell Fuel Control OEM solutions acquisition, and like at what stage do you think VSE would be ready to do another deal of that ilk?

Yes, I mean, I've said repeatedly, and I will stick to it, is 2026 we'll start looking at other opportunities. So there will be nothing in 2025. And we are accelerating very much on literally a week-by-week basis of getting engineering approvals. The big goal is to get the design authority shifted to us where we're the official manufacturer of record. Hope that's well before the end of the year.

Sounds good. And one final one, over the past two years, and I guess this is for you, John and Adam as well. VSE has done approximately $600 million of M&A volume across your different deals. And should investors generally expect VSE to make like $300 million in acquisitions per year going forward as a benchmark? Or like because you're larger now, do you think that your M&A volume could be larger than that?

I appreciate the question and would love to share that we have a solid model in place that we believe will function effectively. We have a promising pipeline of smaller deals, similar to the medium-sized deal we closed last week, along with a few transformational opportunities available in the market. The challenge lies in understanding the timing and practicality of these opportunities. We maintain a very disciplined approach and have exited several potential transactions that did not align with our portfolio, which complicates predicting when deals will actually become actionable. Additionally, once we identify actionable deals, we must assess their compatibility with our business model. While mergers and acquisitions will continue to be a focus, we will do so with a cautious and disciplined perspective.

Sounds good. Thanks. Thanks everyone.

Thanks, Louie.

Thanks.

Thank you. Our next question comes from Josh Sullivan with Benchmark. Please go ahead.

Morning.

Good morning. Just on the component repair capacity with TCI you mentioned, what's the timeline to bringing that online and then what's the potential incremental there?

I'm sorry, the component repair, I missed it quite.

The component repair capacity you mentioned in the prepared remark.

Yes, I mean, I'd say it's in phases, so we're really dealing with the businesses going through the business together with the leaders to say, okay, these are all the capabilities we have. Where do we need to go deeper and expand and improve turn time so that we can increase capacity and support the market? So some of it is equipment, some of it is labor, some of it is additional shifts using the same equipment, two or three times longer in a day than we're using today. So I'd say we've already started and the business is up about 30% since we've owned it and we've already started down that journey. So I'd say it's evolutionary, not kind of revolutionary. It won't just happen all at once. It'll just happen in phases.

Got it. And then you mentioned that key term, turn times, and as you guys get deeper into the commercial engine market, how do you play into that conversation, given all these capabilities you're bringing in and clearly a focal point for the industry is on improving turn time? How is VSE a part of that story?

Yes, I mean, at the end of the day, it's everything in our opinion, starts with the turn time first and then the cost second. And you've got to be ahead of the market in terms of turn times, so it depends on the business, whether we're supporting the end user directly or we're supporting a major engine overhaul shop. For the engine overhaul shop, we're really doing back shop work and we need to be in a position where we're faster and cheaper than they are. And so turn time and cost of repair is critical factor for us being awarded the business and us maintaining and growing that business. And we feel we've done an outstanding job of that and continue to have turn time improvement. I feel like we're at or ahead of the industry in terms of turn times. And I'd say it's not that different regarding the end-user work. Being very candid since I've been at the business, we've shifted the portfolio a bit to where we were maybe servicing very good portfolio of capabilities. But our turn times weren't good and our costs weren't good because we didn't have a good cost basis on products that we just weren't competitive. So we've narrowed the scope of our MRO shops over the last five years to places where we know our turn times are market-leading. And we know that because of other efficiencies and other supply chain avenues that we pursue, we're able to offer competitive pricing as well. So that's a huge part of the model. That's how we look at it all the time.

Great. Thank you for the time.

Thanks. The next question comes from Ellen Page with Jefferies. Please go ahead.

Hi, guys. Thanks for the question. Maybe just to start, you called out 12% organic growth for the overall aviation business, but can you help us understand the trends in MRO versus distribution and if there is any impact from timing at the USM business within Kellstrom?

Yes, I mean, I think we've let me answer the USM question first. We've been pretty clear that USM is part of everyone's model and there's a place for it inside of our business, but it's a much more strategic place. So, from a growth perspective, expect that to be always on the lower end of growth for us, and that's pretty much where we are today. We're finding the right place for that business as we integrate it and there will be a place for it. It's just definitely on the lower growth side. As we look at the two growth areas.

Yes, it was a little bit skewed towards distribution this quarter, but it's normal as inflows in the quarter, so nothing to really take away.

Yes, because I mean, I could share a little color this quarter. I think MRO is a little ahead, but yes, it's not materially different one way or another on the organic growth.

That's helpful. And within your integration process for year one and two, how do you think about cost versus revenue synergies for the three deals that you've done in the last 12 months?

Yes, the answer is just yes. I mean, meaning that synergies encompass a little bit of everything. But I'd say, it also says already, each acquisition brings something different with how we look at synergies. So let's talk about TCI first. That business is not a cost takeout business. That business is all about how can we help a business that's an A plus asset with an A plus team? And how do we help them expand capacity and take advantage of a growing market? So that business, we've grown 30% throughout the year. As you can imagine, there's an amount of SG&A that stays flat during that period. And then there's some additional labor that comes in. So SG&A is the percentage of sales does decline, which is going to drive some additional margin in that business. And then we'll look at price and product cost margins to assist that business as well. So there's no kind of cost out in the business like that. In other businesses, like in the Kellstrom business, there were some leaders who have left the business. And because we have a large organization, there's no need to replace those leaders. And we had an ability to have some cost out in the first and into the second quarter to drive some synergies up front. So each deal will kind of look different. I'd say Turbine Weld will look more like TCI. It's a very similar business, just supporting business in general aviation OEMs. And very similarly, it's a capacity constrained market where all we need to do is help them, again, give them an aperture for growth. So each asset kind of looks different on our synergy plan.

Great. Thanks. I'll leave it there.

Great. Thanks.

Thank you. This concludes our question and answer session. I would like to turn the conference back over to John Cuomo for any closing remarks.

Yes, I just want to say thank you, everybody, for this been a tremendous journey getting through our first kind of critical chapter at VSE, which is really transforming the business to a pure play aviation aftermarket business. And we're excited for the next chapter ahead and for all of you to be part of it. Have a great day. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.