VSE Corp (VSEC) 2024 Q4 法說會逐字稿

Good morning and welcome to the VSE Corporation fourth quarter and full year 2024 results conference call.

(Operator Instructions).

I would like now to turn the conference over to Mr. Michael Perlman, Vice President of Investor relations.

Please go ahead.

Thank you.

Welcome to VSE's Corporation's fourth quarter and full year 2024 results conference call.

We will begin with remarks from John Cuomo, President and CEO, followed by financial update from Adam 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 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 by year progress, except where noted.

At the conclusion of our prepared remarks, we will open the line for questions.

With that, I'd like to turn the call over to John.

Good morning.

Thank you for joining us today for VSE's fourth quarter and full year 2024 conference call. 2024 was a transformative year for VSE, driven by record revenue and profitability in our aviation segment, the acquisition of two commercial aviation aftermarket businesses, and the divestiture of our Federal Defense Services segment.

These strategic actions reinforce our commitment to becoming a pure play aviation aftermarket company, streamlining our operations to drive sustained growth.

Before diving into our results, I want to highlight last week's announcement regarding the sale of our fleet segment business, Wheeler Fleet Solutions to one Equity Partners.

This divestiture marks the final step in our strategic transformation into a leading pure play aviation aftermarket parts and services provider.

The transaction is valued at up to $230 million including a $140 million cash payment in closing, a $25 million seller note, and up to $65 million in additional earnout consideration.

The earnout allows us to participate in fleet's expected revenue and margin recovery in 2025.

The transaction is expected to close in the second quarter of 2025, subject to customary closing conditions.

This divestiture and the strategic actions we've taken over the past five years demonstrate our commitment to becoming a pure play aviation aftermarket company.

With that, let's begin with an update on the current market environment for our aviation segment.

The aviation segment supports both the commercial and business and general aviation aftermarkets, with each representing approximately 50% of 2025 aviation segment forecasted revenue.

The aviation aftermarket is set for another year of expansion in 2025.

With both the commercial and business aviation sectors experiencing continued growth.

This momentum is driven by increased global passenger traffic, rising demand for maintenance repair and overhaul services, and an uptick in business jet utilization.

The commercial aircraft aftermarket's parts and services market is expected to maintain its strong growth trajectory in 2025.

Revenue passenger mile forecasts combined with ongoing supply chain and capacity constraints indicate another robust year for the sector.

As a result, VSE anticipates commercial aftermarket growth for our parts and services to range between 8% and 10% in 2025.

The business aviation sector continues to see unprecedented demand, with industry experts projecting that flight hours will remain steady or increase for more than 90% of operators in 2025 as compared to 2024.

This outlook, coupled with new market entrants leveraging fractional ownership, leasing, and jet car programs, as well as a projected expansion of the total business aviation fleet.

Supports VSE's forecast for our business and general aviation market.

We anticipate growth of 5% to 6% in 2025 for our products and services in this segment.

Therefore, we forecast our combined markets at 6.5% to 8% in 2025 with our plan to outperform these market assumptions.

Let's now turn to slide three, where I will provide an overview of our 2024 and year-to-date 2025 highlights, starting with our recent strategic acquisitions in aviation.

First, in December, we acquired Kellstrom Aerospace, a leading aftermarket solutions provider specializing in value-added distribution and technical services for the commercial engine market.

Kellstrom aligns strongly with our OEM centric strategy, expanding our presence in the commercial aerospace aftermarket.

This acquisition brings new engine focussed customers, additional distribution products, and enhanced MRO and technical service capabilities to VSE Aviation.

Integration of Kellstrom distribution business is underway and is expected to be completed over the next 12 months to 18 months.

In April 2024, we acquired turbine controls or TCI, further increasing our exposure to the commercial aviation engine component MRO market.

This acquisition expanded our repair capabilities and added new OEM relationships.

This business performed exceptionally well in 2024, driving well above market revenue growth as they supported their key OEM partners.

We remain focused on scaling capacity and deepening partnerships with OEMs in the year ahead.

Third, we successfully completed the integration of Desser's US distribution business in 2024, streamlining processes, systems and organizations, and launching a new go to market strategy under the BSE brand.

Looking ahead, we plan to integrate Desser's remaining business units in 2025 with the Desser Australia integration already completed in early 2025.

Moving on to new program implementations.

We opened a new 45,000 square foot distribution center of excellence in Hamburg, Germany.

Initially, this site supported Pratt and Whitney Canada's Europe, Middle East and Africa distribution and support program and has since expanded to include tires, tubes, and battery product lines, with additional product lines expected to be expanded in the future.

We launched a new OEM licensed avionic MRO program in 2024 that combined with our distribution program supporting this product line allows us to manage the total life cycle of these products.

We also launched our new OEM license manufacturing capability and facility expansion following our acquisition of the Honeywell fuel Control program.

The program exceeded our initial expectations and was a strong margin contributor in 2024.

We plan to fully transition all OEM manufacturing capabilities to our facility in 2025.

Now turning to our fleet segment. 2024 was the year of transition as we continued supporting the United States Postal Service following their migration to a new fleet management information system.

After reaching a low point in Q3, we began seeing improved maintenance-related repair activity and parts usage in the fourth quarter.

We expect this momentum to continue through 2025.

With the fleet segments commercial sales channel, we scaled our Memphis e-commerce fulfillment facility, diversified our customer base, and added new exclusive brands.

As a result, our commercial revenue growth continues to outpace the market.

At the corporate level, we successfully completed the sale of our federal defense segment in February 2024, marking a significant milestone in our transition to a pure play aviation business.

Finally, we relocated our corporate headquarters to South Florida, co-locating within our aviation segment headquarters and MRO Center of Excellence in Miami, Florida.

This move enhances collaboration with our business partners and employees while also reducing corporate overhead costs.

Let's now move to slide four or I'll provide an update on our business segments full year 2024 performance.

For the full year 2024, we delivered both record revenue and record profitability for our aviation segment.

Revenue growth was driven by balanced strong execution on new and existing distribution programs, and expanded portfolio of MRO capabilities, and contribution from recent acquisitions.

The aviation segment also reported record profitability driven by distribution program growth, the optimization of existing distribution programs.

Increased throughput at our MRO facilities, support from our new OEM licensed manufacturing programs, and contributions from recent acquisitions.

For our fleet segment, the revenue decline was primarily driven by the USPS transition to a new fleet management information system platform.

This resulted in decline in maintenance-related activities and reduced part requirements.

Maintenance-related repair activity levels begin to rebound in the fourth quarter and are expected to continue to improve in 2025.

This was partially offset by strong revenue contributions from our commercial customers driven by growth in both commercial fleet sales, and e-commerce fulfillment sales.

I will now turn the call over to Adam to discuss the details of our financial performance.

Thank you, John.

Let's turn to slides five and six of the conference call materials.

I will provide an overview of our fourth quarter financial performance.

Let's begin with our consolidated fourth quarter results.

VSE generated $299 million of revenue in the quarter, an increase of 27%, led by a 48% increase in aviation revenue partially offset by a 12% decline in fleet revenue.

Adjusted EBITDA increased 26% to $40 million compared to the fourth quarter of 2023.

Aviation drove this growth of $13 million compared to the same period in the prior year, partially offset by a $3 million decline in adjusted EBITDA for fleet and a $2 million increase in corporate admin expenses.

Adjusted net income was $18 million and adjusted diluted earnings per share was $0.90 per share.

For the full year 2024, we recorded approximately $1.1 billion in consolidated revenue of 26% versus 2023, driven by record aviation growth.

Adjusted EBITDA for the year was $136 million an increase of 20% or $22 million as compared to 2023.

Aviation contributed to a $41 million year to year increase, partially offset by a $15 million decline in fleet adjusted EBITDA and a $3 million increase in corporate admin expenses.

Adjusted net income increased 20% to $56 million.

Adjusted net income per diluted share declined 5% to $3.13 per diluted share, driven by an increase in share count.

Now turning to slide seven.

Where we will cover aviation segments record fourth quarter results in more detail.

Aviation revenue increased 48% to a record $227 million as compared to the fourth quarter of 2023.

Both distribution and MRO businesses were strong contributors, up 32% and 87% respectively.

The 32% contribution revenue was driven by strong execution of new and existing OEM programs and 29 days of revenue and earnings contributions from the recent Kellstrom acquisition.

The 87% increase in MRO revenue was driven by the expansion of new repair capabilities, margin share gains in the commercial and business and general aviation markets.

Support from our new OEM authorized avionics program and MRO contributions from the TCI acquisition.

Excluding the impact of all recent acquisitions, organic aviation segment revenue increased by approximately 17% in the fourth quarter as compared to the prior year.

Aviation adjusted EBITDA increased by 56% in the quarter to a record $37 million or 16.4% of revenue.

The increase in adjusted EBITDA was driven by strong execution on distribution programs, increased throughput at MRO facilities, improved pricing and product mix, the launch of our new OEM license manufacturing program, and contributions from recent acquisitions.

For the full year 2024, the aviation segment generated record revenue of $786 million an increase of 45% year over year.

Adjusted EBITDA increased 47% to $129 million and adjusted EBITDA margin increased 20 basis points to 16.3%, all record results for the segment.

Let's now turn to slide eight, a new slide in earnings presentation to review our aviation segment guidance for the full year 2025.

The purpose of Slide eight is to walk you through the revenue and margin bridge of our aviation segment with the impacts of our TCI and Kellstrom acquisitions.

Let's start with revenue.

John mentioned earlier that we forecast our combined commercial and business and general aviation markets to grow between 6.5% and 8% in 2025.

We expect full year 2025 aviation segment revenue to increase between 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 forecasting to outperform market growth organically with high single digit to low double digit organic growth supported by market share gains, distribution program growth, and repair capability expansion. 2025 full year adjusted EBITDA margins are expected to be between 15.5% and 16.5%.

The near-term margin dilution from TCI and Kellstrom is expected to have an approximately 90 basis points dilutive impact on aviation segment margins for the full year 2025.

This is expected to be offset by a 10 basis points to 110 basis points 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.

On a consolidated basis, interest expenses are projected to be $31 million to $33 million.

The effective tax rate is expected to be 25%, and depreciation and amortization in the aggregate is expected to be $36 million to $38 million for the full year 2025.

All figures are pre-fleet divestiture.

Now turning to slide nine for our fleet segment's fourth quarter results.

In the fourth quarter, fleet segment revenue declined 12% to $72 million.

On a sequential quarterly basis, revenue was up 2% or $2 million.

Revenue from commercial customers was $43 million in the fourth quarter.

Commercial revenue represented 59% of total fleet segment sales as compared to 52% in the prior year period.

USPS revenue, which is included within our other government channels, declined approximately 25% compared to the fourth quarter of last year.

The revenue decline was primarily driven by the USPS transition to a new fleet management information system platform, which resulted in a decline in maintenance related activities and therefore reduced part requirements.

Fleet segment adjusted EBITDA decreased 31% to approximately $7 billion driven by the impact of the decline in USPS sales volume.

Fleet segment adjusted EBITDA margin was 9.5% for the fourth quarter.

For the full year 2024, the fleet segment generated revenue of $294 million driven by 18% growth in our commercial sales channel, offset by a 30% decline in revenue from the USPS program.

Total adjusted EBITDA $21 million declined 42%, and for the full year adjusted EBITDA margin was 7.3%.

USPS revenue began to rebound in the fourth quarter of 2024 and is expected to continue to improve heading into 2025.

Turning to slide 10, in the fourth quarter, we generate $55 million of operating cash flow and $52 million of free cash flow, driven by disciplined working capital management and strong operating results.

At the end of the fourth quarter, our total net debt outstanding was $401 million and our revolver availability was $194 million.

Adjusted net leverage, which includes the trailing 12-month results from prior acquisitions, was 2.5 times.

I will turn it back over to John.

Thank you, Adam.

I would like to conclude our prepared remarks by looking forward and reviewing our 2025 priorities on slide 11.

We have made significant progress in simplifying our business and sharpening our go to market strategy.

With the announced sale of our fleet segment, we are entering the final phase of our strategic transformation into a pure play aviation aftermarket parts and services provider as one VSE.

We expect to close the fleet transaction in the second quarter, and we are working closely with one equity partners to ensure a smooth and successful transition.

Following the divestiture, we will conduct a comprehensive review of our cost structure to ensure our corporate organization is streamlined to support our go forward aviation strategy.

Turning now to our aviation priorities.

First, we are committed to driving organic growth, expanding our market presence and strengthening partnerships with both customers and suppliers.

We look forward to sharing updates on new partnerships.

Second, the integration of our OEM licensed manufacturing program remains on track.

We expect to complete the transition of all OEM manufacturing capabilities from Honeywell by year end.

Third, we continue to invest in expanding repair capabilities and adding incremental capacity across our MRO businesses to meet growing customer and market demand.

And finally, we are focused on accelerating the integrations of Desser, TCI, and Kellstrom to drive operational efficiencies and enhance customer value.

And finally, from a financial perspective, we are focused on capturing synergies from our recent acquisitions to support margin expansion this year and into 2026.

We also plan to continue to improve core aviation segment margins through operating leverage, program optimization, and enhanced MRO utilization.

We will continue to leverage our strong financial foundation to optimize inventory and drive free cash flow improvement in 2025.

In closing, I want to thank our global VSE team for their dedication and hard work.

Their efforts are driving our successes and positioning us for a stronger future.

Operator, we are now ready for the question-and-answer portion of our call.

We will now begin the question-and-answer session.(Operator Instructions).Our first question comes from Sheila Kahyaoglu from Jefferies.

Please go ahead.

Good morning, guys and congrats.

Maybe my first question, John, for you with 35% to 40% aviation growth that implies high single digits to double digits or organic growth this year, how do we think about the pace of that growth, and the cadence between sorry, distribution and MRO?

Yeah, it's a great question.

We had a big debate on kind of how to guide for the year.

When you look at our business now with TCI and with Kellstrom, we're about 50% business in general aviation aftermarket, 50% commercial aftermarket.

And candidly we wanted to give us a little bit of cushion.

We've talked, since we acquired Kellstrom about the USM business and although we love the business and there's a place for that business inside of VSE, we definitely ourselves see ourselves pruning some of that business to be what we want it to be in terms of consistency of revenue and.

The right margin profile.

So we with that, the that between the balance of the two markets and then the USM potentially.

Like slightly kind of refocused efforts there, that's where we, kind of got the guidance on revenue I'd say it's pretty evenly split, I, we kind of laid out what our growth rates are, by segment, and we're going to be slightly above those growth rates in both segments.

And I, I'd say as far as Michael, when you think about the year, it's not heavily back ended, right?

No, I think.

It's pretty consistent across the whole year

yeah.

Okay great thank you and then maybe my second question is on acquisitions you know you're proving to be a great integrator with TCI coming in I think at $85 million of contribution over the last 8.5 months versus $85 million was the full annual contribution we initially expected.

So what drove some of that TCI out performance and how do we think about the revenue synergies opportunity with Kellstrom, outside of the assets you'll prune off.

Yeah, I mean, it's a great question.

So each deal we look at, both has a different strategic focus, and then as we integrate it what we expect out of it.

TCI was all about creating capacity and, working with our OEM partners to manage the opportunities that that's in front of us and you know we've been able to grow that business well north of 25% since we've owned the business.

We feel that those opportunities still exist.

To continue a heavy pace of growth we're working with the team there it's all about capacity expansion when we look at Kellstrom, it, it's a combined kind of focus that's slightly different there, because we plan to have a heavier hand in integration there's a synergy capture element to it, which is really important for us, we've got you I think we gave a little.

Bit of that.

I think Michael and Adam did a good job with that bridge on the margin guidance so we can walk you through it, but we obviously want to be in a position in 2026 to have the integration behind us and the margin back to kind of our core levels.

So that's a bigger focus for us, I'd say than than the revenue growth.

That said, they're in the engine aftermarket and you can continue to expect kind of, double digit growth in 2025 for Kellstrom.

Great.

Thank you so much.

Okay.

Our next question comes from Ken Herbert of RBC Capital Markets.

Please go ahead.

Yeah, hi, good morning.

Hey, John, I appreciate the revenue and EBITDA bridge assumptions here as we think about '25.

I wanted to ask maybe the growth question in a different way.

So the guidance implies about call it 500 basis points of outperformance relative to some of your market growth assumptions for the SEC.

Can you comment maybe how you see that breaking out by, you called out share gains, you called out obviously greater, distribution agreements expanding, increased MRO capabilities.

Is there one of those two or three areas that are disproportionately driving the outperformance for the business relative to the market?

I mean, To be [H1st], no, which is a good thing, even when I looked at the, we grew 17% organically in the fourth quarter, and my favorite part of diving in the details of the financials is there's not just kind of a, one thing driving it.

It's really a nice balance across geographic sectors, across markets, across.

Programs.

So, what I love about actually where we're positioned today is we're actually seeing, growth in all of our areas.

I'm not saying it's the same percentage growth, but it's not one thing that's kind of outweighing the other.

So I know maybe it's a little harder to model, but Michael and Adam, right, it's pretty.

Very evenly distributed.

And we and to John's point, we saw that in Q4 very balanced between MRO and distribution organic growth in that 17% to 18% range.

Okay, perfect.

Hey, and as we think about, give or take the 50 basis points to 60 basis points of margin expansion on the core business in '25, is that a good way to think about the business sort of moving forward post '25, or is there may be some incremental opportunity on the core business just as you get further into obviously the TCI and Kellstrom integration?

Yeah, that's a good question.

I think 50 to 60 is a good way to think about it.

I think you're going to see more realization of synergies, especially with Kellstrom, throughout '25, so you'll see that realized in '26 as well.

I think we're continuing to optimize our fuel control program as well as we transition to full manufacturing light manufacturing capabilities.

So we, there's some SG&A carry forward that we're carrying, throughout this year that will be optimized as we get through the end of the year as we fully transition the program, so those two elements will help the expansion as you go into 2026.

Perfect thanks Adam thanks John, Michael nice quarter.

Thanks Ken, appreciate it.

Our next question comes from Michael Ciarmoli from Truist.

Please go ahead.

Hey, good morning, guys nice results thanks for taking the question.

Hey, John Adam, lots of, good colour on, revenue and margins, but no mention, on cash flow.

Can we maybe talk about some of the building blocks for cash in '25?

Even '26, and I know you, you've talked about new partnerships, so presumably there might still be some required investment and just had to think about working capital and you know just help help level set us on what to expect with cash.

Yeah, sure, so I think we'll provide more specific guidance after we close the fleet transaction.

But when you think about some of the larger elements '24 to '25, obviously in 2024 we had the big inventory provisioning around the rat program.

It's like we spelled that out, call it in the $35 million range.

We also had impact from the FDS transaction as well in the $15 million range, so neither of those two will repeat in 2025 and we'll provide a nice tailwind.

In 2025 there's some offsetting elements to that so we do have two payments to close out the Walker lane, real estate.

So there's a $6 million payment in '25 and another $6 million payment in '26.

And then we also are ramping the Honeywell program, in 2025 so you'll see some build up in inventory as we transition to our manufacturing, so those are the two, the couple large elements and obviously we're growing earnings and, there's a working capital requirement, in our business as well and then as you think to 2026, I think we're continuing to focus on optimizing our working capital.

Efficiency, especially on the inventory side, and I think the other element is some of the recent acquisitions we've made, TCI, Kellstrom, they're actually less, working capital intensive is our core business, so you're going to see some natural improvement as we get through the year.

Got it helpful, and then maybe John just pivoting back on on top line growth, when you laid out your kind of '26 targets I think that was '23.

I think the framework called for high single digit organic, obviously the market continues to be strong, but you've got low double-digit potential.

What, what's kind of driving that, subtle upward shift in the organic growth and I know you've got, the licensing deals and broaden the portfolio but.

Any noticeable changes that as you guys look at the portfolio that has driven that slight uptick.

I, it's interesting, it's similar to like the last question what we're seeing in terms of our opportunities is quite balanced across the business.

So you haven't seen us put out a ton of splashy headlines in terms of organic, growth rates, and hopefully we'll have a few during the year to share, but I actually like when it's more the blocking and blocking and tackle growth.

Our model is again very.

OEM centric and what's happening is as we're, embedded in working with our OEM partners where you know our normal cadence of natural market growth is happening and then there's additional kind of share of wallet or other problems that they need to have solved of where we're finding opportunities and again it's quite balanced across both market segments, BNGA and commercial, and both of our capabilities, distribution and MRO.

So it's given us a little bit more confidence in our ability to outpace.

The other thing that I'd add, Mike, is the end exposure from on the commercial side from TCI and Kellstrom.

So when you look at again, just, the stuff that we do that is hard and you want to get credit, you want to follow the good markets, the commercial engine market, natural pace is at the higher end of the market growth.

Yes, got it.

All right, good stuff.

Thanks guys.

I'll jump back in the queue.

Thank you,

Thanks.

Our next question comes from Louis De Palma of William Blair.

Please go ahead.

John, Adam, and Michael.

Good morning.

Good morning, Louis.(Multiple Speakers)

Congrats on the fleet deal.

And related to the fleet deal, when that closes, will there be some trapped corporate costs?

And I was wondering, when taking into account some, potential trap corporate costs, what do you view as the pro forma margin for this Year?

Yeah, I can take that.

So we are expecting some, amount of trap corporate cost.

We're still doing the work to, we'll give more precise guidance, but I think if you look back when we announced the FDS transaction we said around $3 million to $4 million and we're probably at the higher end of that range, but we will give you.

Some additional guidance around that next quarter.

I think when you look at pro forma margins, we're not going to give specifics, but we are expecting, some improvement, 100 basis points plus just looking, year on year given the lower margin contributions from the from the Wheeler business.

So once we close that transaction and, come up with a more precise number around stranded cost, we'll update you on pro forum margins.

Great, thanks, Adam and sticking to the topic of margins, John, I think you mentioned that you should finish the Honeywell OEM solutions integration this year.

How much of like a margin uplift should that like contribute for the 2026 year in terms of the remaining synergies.

There very little in '26 because we've been able to capture even though we're implementing it that we're capturing the margin improvement as we implement it so we were ahead of plan last year in terms of implementation and margin capture so the remainder of it will be in 2025 and then you'll see 2026 as I mean.

I'm going to give directional guide and kind of way to look at it and then we can give clarity towards the back end of the year but as you look at let's say the third and the fourth quarter that should start to mirror what '26 margins will look like.

So it's a good note, Michael, to take as we kind of, get to that point we can give maybe a little clarity to the market on it.

Great, and one final one on the subject of M&A, many investors, VSE investors hope that, Boeing will put AVR on the market as, it would seem to be a, an excellent fit with VSE.

It's unclear if that is going to happen, but for John, do you view.

It to be a win-win situation either way, such that if Boeing keeps AVL, you will continue to take their market share, but if they eventually put it on the market and if something makes sense that, it would be a good strategic fit.

Yeah, I mean, I think it I don't personally see the asset necessarily coming to market.

I think when we look at Boeing in general, I think the whole market, looks to them and is, all supporting them in their recovery efforts on the OEM side with regard to the aftermarket, we continue to drive differentiation and to drive our market niche if assets come to market, of all sizes we definitely are at.

In determining if they're the right fit for us and you know with the fleet business kind of exiting in the second quarter and our team being able to kind of for lack of a better word play above their weight class I think we can look at assets larger than we typically have as they come to market, but I would not say there's any necessity for us to look at a deal like that and we feel very comfortable with our existing M&A pipeline that's kind of more known and kind of our market positions.

Great, thanks, John.

Thanks Adam, Mike.

Thank you.

Our next question comes from Jeff Van Sinderen of B. Riley.

Please go ahead.

Hi, good morning everyone.

And let me add my congratulations.

Just wanted to follow up on the last que just want to follow up on the last question there around Boeing just wondering, maybe you don't necessarily go after acquiring the assets, but, are there opportunities you potentially could go after around them kind of exiting some of their businesses?

I mean there's one business that's kind of publicly sort of ish in the market.

I say publicly-ish because everything's confidential when you're doing a deal, but you know I read the same things you read.

That's the only business I'm aware of that's in the market and it's not an asset that we are looking at is not the type of asset that fits our portfolio and it's.

I say we can do a.

Larger deal is well above a deal that we would consider ourselves right now so from what we understand that's the only asset in the market at this time so we've got a pretty robust pipeline of kind of small and medium sized deals of our own and obviously we look at them as a partner and in some instances as a competitor and you know we continue to approach it that way.

Okay, fair enough, and then just wanted to clarify on the margin, the overall aviation margin progression this year.

It wasn't clear if you were saying that it would kind of ramp throughout the year.

I think that's what you're saying, but just wanted to clarify that.

Yeah, we do expect some ramp throughout the year.

Which is, what you, what you've seen obviously fourth quarter was very strong, for us on a margin, standpoint, and I think you'll expect to see that, in 2025 as well.

Okay, and then just one final one, any thoughts on kind of the remaining hurdles you need to get through to close the fleet up?

We've got, normal HSR that, should expire in the month of March.

I'm trying to remember what month we're in here, and then the closing conditions are quite light other than that, so we are expecting a second quarter, closure at this point.

Okay, great to hear.

Thanks for taking my questions.

No, thank you.

(Operator Instructions).

Our next question comes from Josh Sullivan of The Benchmark Company.

Please go ahead.

Hey, good morning.

A broader question I guess on the aftermarket, how should we think of the SEC as OEM rates stabilize and ramp, I guess two parts, what are your general thoughts on the cycle and then separately, how is the SEC now exposed with, so many transformative actions in '24 TCI Kellstrom, etc.

Yeah, it's a good question.

I think that, Michael, what do you think?

How do you want to answer this One?

Yeah, so in terms of OEM rate production, I think you know we're pretty confident in 2025 and 2026 in terms of our line of sight, I would say that we are uniquely positioned with the OEMs based on our differentiated value proposition, so as they pivot we can pivot to potentially work that they're trying to offload, so I think that the position does extremely well as their priorities change.

In terms of TCI and Kellstrom opportunities that I guess we mentioned earlier that you know these two companies are in the largest, the fastest growing portion of the commercial aviation aftermarket with their exposure to engines, so we continue to take advantage of existing opportunities with existing customers while working through the integration, so we're confident in how the for the outlook for 2025.

Yeah, so I think to Michael's '25 and '26, we feel very good about as you look at '27, I'd say we still feel this growth opportunities.

It's how do you pivot to new platforms and where do you find.

Find more offloading work from OEMs.

So the revenue may come, the organic growth may come from different channels than just a double-digit kind of national market decline.

I mean market growth, but we do not expect a market decline over the next three years at this point.

Got it.

And then I guess just to that end, in TCI, you mentioned in the comments there that you know it's all about capacity expansion.

How do we think of where capacity was when you first acquired the asset to maybe where it will be '26 and once you're done integrating.

Yeah, it was and is an amazing asset, as a private business, I think that you know you continue to invest to a certain level, and I think OEM partners will invest with you to a certain level.

I think when you have a long term stable public company approach like we do, it creates both different opportunities on both sides of the table.

So for us we're looking at.

How do we double capacity, in the total facility, and if we need expansion we'll look at that as well.

So I'd say it's a multi-year plan to kind of double capacity

And that's where a lot of our investment dollars are focused, especially in 2025 is expanding MRO capacity, TCI, and really across the board.

Great thank you for your time.

This concludes our question-and-answer session.

I would like to turn the conference back over to Mr. John Cuomo for any closing remarks.

Thank you, thanks everybody for the time today.

I look forward to speaking with you in May, to report our first quarter of 2025.

Thanks and have a great day.

The conference is now concluded.

Thank you for attending today's presentation.

You may now disconnect.