VSE's adjusted profit rose 128%. The per-share gain was 49%.

VSE's acquisition strategy is producing a much bigger aviation-parts and repair business. Q3 adjusted net income more than doubled, but each share received a smaller increase because the expansion also brought a much larger share base.

Adjusted net income rose 128% to $63.8 million, while adjusted diluted earnings per share increased 49% to $2.01. The weighted-average diluted share count grew 53% from a year earlier.

The same profit, divided more ways

Using last year's diluted share count, this quarter's adjusted profit would equal about $3.07 a share. With the actual share count, it produced $2.01. This comparison keeps current profit constant and changes only the number of shares.

VSE issued common shares and securities combining future share delivery with debt to help finance its acquisition program. The purchase of Precision Aviation Group, or PAG, also included exchangeable equity. Those instruments enter the earnings-per-share calculation.

The company completed the PAG acquisition in May. Q3 was its first full quarter in VSE's results, helping revenue rise 91% to $541 million.

Growth extends beyond the acquired businesses

VSE reported approximately 17% organic revenue growth, which excludes the first year of acquired revenue. Engine repair and parts demand supported that growth, alongside contributions from PAG and other purchases.

The adjusted EBITDA margin rose to 19.8% from 16.7%. This profit measure removes interest, taxes, depreciation, amortization and specified expenses and valuation changes.

VSE raised its annual revenue-growth forecast to 65% to 66.5%, from 61% to 64%. It also lifted its adjusted-margin target to 18.9% to 19.1%, from 18.7% to 19.0%. The expansion is delivering both scale and higher profitability.

Reported net income from continuing operations was $47.3 million. Adjusted earnings remove acquired-intangible amortization, stock compensation and other items, including an $8.9 million gain from reducing an acquisition earn-out liability.

Cash improved, but debt did not fall in dollars

Q3 free cash flow reached $46.6 million. That recovered most of the first half's cash outflow, leaving nine-month free cash flow at negative $3.4 million. Inventory investment continues to absorb cash.

The company's adjusted net-debt-to-earnings ratio improved to 2.3 times from 2.4 times in June. Its dollar amount of net debt nevertheless rose to $894.2 million from $871.6 million. The ratio includes earnings from acquired businesses before VSE owned them.

Management expects strong Q4 cash generation to support further debt reduction. The next test is whether the larger business can turn its earnings into enough cash to reduce debt while continuing to improve the result for each share.

Our VSE company profile tracks the completed acquisitions, financing, comparable earnings, cash flow and updated outlook.