VSE CORP

Previous wording

In April 2025, the Company completed the previously announced sale of its Fleet segment. See Note (3) "Discontinued Operations" and Note (13) "Subsequent Events" to the consolidated financial statements for further information.

Current wording

In April 2025, the Company completed the previously announced sale of its Fleet segment. See Note (3) "Discontinued Operations" to the consolidated financial statements for further information.

Previous wording

During the first quarter of 2025, the Company's strong program execution of new and existing distribution awards, an expansion of product offerings and MRO capabilities, increased market activity, and contributions from recent acquisitions produced record results, with quarterly revenue reaching $256.0 million for the three months ended March 31, 2025, representing a 58% increase year-over-year. Market growth and share gains have resulted in increased repair and distribution revenue of 76% and 49%, respectively, during the three months ended March 31, 2025, compared to the same period for the prior year. The Company's growth has been driven by several strategic initiatives, including executing on newly awarded distribution agreements, the introduction of new products and service capabilities to its portfolio, the launch of a new OEM licensed manufacturing program and the opening of a new distribution facility in Europe, all of which further strengthened the Company's position in the aviation aftermarket. Additionally, expanding VSE's partnerships with OEM's has provided the Company new opportunities, including access to new markets with an established customer base.

Current wording

During the second quarter of 2025, the Company's strong execution of new and existing distribution awards, the expansion of product line and repair capabilities, and contributions from recent acquisitions produced strong results, with quarterly revenue reaching $272.1 million for the three months ended June 30, 2025, representing a 41% increase year-over-year. Market growth, share gains and solid end-market activity have resulted in increased distribution and repair revenue of 50% and 27%, respectively, during the three months ended June 30, 2025, compared to the same period for the prior year. The Company's growth has been driven by several strategic initiatives, including executing on newly awarded distribution agreements, most notably the Pratt & Whitney Canada EMEA program, the introduction of new products and service capabilities to its portfolio, including its new Original Equipment Manufacturers ("OEM") licensed manufacturing program, and contributions from recent acquisitions. Additionally, expanding the Company's partnerships with OEMs has provided it new opportunities, including access to new markets with an established customer base.

Previous wording

The Company believes the acquisition of TCI in April 2024 and the recent acquisition of Kellstrom Aerospace in December 2024 are strongly aligned with VSE's core business and increases VSE's exposure to the high-growth, higher-margin aviation commercial engine MRO and distribution aftermarkets.

Current wording

The Company believes the acquisition of TCI in April 2024, the acquisition of Kellstrom Aerospace in December 2024 and the recent acquisition of Turbine Weld in May 2025 are strongly aligned with VSE's core business and increases the Company's exposure to the high-growth, higher-margin engine aftermarket. Furthermore, the Company believes that the Honeywell FCS acquisition in September 2023 to exclusively manufacture, sell, market, distribute, and repair certain fuel control systems, expands its existing capabilities and provides access to new customers and end markets.

Previous wording

Revenues. Revenues increased for the three months ended March 31, 2025, compared to the same period in the prior year primarily driven by contributions from the acquisitions of TCI and Kellstrom Aerospace, recently initiated distribution contract wins and improved demand for the Company's commercial aerospace products and services resulting from strong end market activity in global commercial air travel. Aviation distribution revenue increased $52.5 million, or 49%, and repair revenue increased $41.1 million, or 76%, for the three months ended March 31, 2025, compared to the same period in the prior year.

Current wording

Revenues. Revenues increased for the three and six months ended June 30, 2025, compared to the same periods in the prior year primarily driven by contributions from the acquisitions of TCI, Kellstrom Aerospace, and Turbine Weld, recently initiated distribution contract wins and improved demand for the Company's commercial aerospace and business and general aviation products and services resulting from solid end market activity in air travel. Aviation distribution revenue increased $58.2 million, or 50%, and repair revenue increased $21.2 million, or 27%, for the three months ended June 30, 2025, compared to the same period in the prior year. Aviation distribution revenue increased $110.7 million, or 50%, and repair revenue increased $62.3 million, or 47%, for the six months ended June 30, 2025, compared to the same period in the prior year.

Previous wording

Costs and Operating Expenses. Costs and operating expenses increased for the three months ended March 31, 2025, compared to the same period in the prior year, primarily driven by higher revenue. Included in costs and operating expenses is the amortization

Current wording

Costs and Operating Expenses. Costs and operating expenses increased for the three and six months ended June 30, 2025, compared to the same periods in the prior year primarily due to increases in revenue. Included in costs and operating expenses is the amortization of intangible assets related to acquisitions, which was $6.5 million for the three months ended June 30, 2025, compared to $4.3 million for the same period in the prior year. Amortization of intangible assets was $12.6 million for the six months ended June 30, 2025, compared to $7.7 million for the same period in the prior year. Additionally, the Company incurred a $5.9 million valuation adjustment charge on the earn-out receivable from the Fleet sale during the three months ended June 30, 2025.

Previous wording

Operating Income. Operating income increased for the three months ended March 31, 2025, compared to the same period of the prior year, primarily driven by revenue growth and a favorable shift in sales mix and pricing, partially offset by increased amortization of intangible assets and an increase in corporate acquisition and integration costs incurred during the current period.

Current wording

Operating Income. Operating income increased for the three and six months ended June 30, 2025, compared to the same periods of the prior year primarily due to the previously mentioned improved current period revenues and one-time prior year charges, including a lease abandonment charge of $12.9 million and corporate restructuring charges of $3.8 million. These operating income increases were partially offset by the previously mentioned increased amortization of intangible assets, an earn-out valuation adjustment charge, and an increase in corporate acquisition and integration costs incurred during the current periods.

Previous wording

Interest Expense. Interest expense decreased for the three months ended March 31, 2025, as compared to the same period in the prior year primarily due to a decrease in the Company's debt facility borrowings and a lower average interest rate on borrowings outstanding.

Current wording

Interest Expense. Interest expense decreased for the three and six months ended June 30, 2025, as compared to the same periods in the prior year primarily due to a decrease in the Company's debt facility borrowings and a lower average interest rate on borrowings outstanding.

Previous wording

Provision for Income Taxes. The Company's effective tax rate for continued operations was 15.7% and 14.1% for the three months ended March 31, 2025 and 2024, respectively. The Company's tax rate is affected by discrete items that may occur in any given year but may not be consistent from year to year. Permanent differences such as foreign derived intangible income deduction, Section 162(m) limitation, capital gains tax treatment, state income taxes, certain federal and state tax credits and other items caused differences between the Company's statutory U.S. federal income tax rate and its effective tax rate. The higher effective tax rate for the three months ended March 31, 2025 was primarily driven by a lower impact from the excess stock compensation deduction on the current year's rate.

Current wording

Provision for Income Taxes. The Company's effective tax rate for continuing operations was 15.1% and 15.4% for the three and six months ended June 30, 2025 respectively, and 26.8% and 132.9% for the three and six months ended June 30, 2024 respectively. The Company's tax rate is affected by discrete items that may occur in any given year but may not be consistent from year to year. Permanent differences such as foreign derived intangible income deduction, Section 162(m) limitation, capital gains tax treatment, state income taxes, certain federal and state tax credits and other items caused differences between the Company's statutory U.S. federal income tax rate and its effective tax rate. The lower effective tax rate for the three and six months ended June 30, 2025 compared to the same periods in 2024 primarily due to lower book income in 2024, a higher excess stock compensation deduction recognized for tax purposes in connection with current year stock vesting, and a valuation allowance reversal for certain tax attributes in 2025.

Previous wording

On May 2, 2025, the Company entered into a new credit agreement, which provides for a $300 million term loan facility and a $400 million revolving credit facility, both maturing on May 2, 2030. The new debt agreement provides a lower interest rate, greater flexibility and increased borrowing capacity. The new credit agreement replaces the Company's existing term loan and revolving credit facility, which were scheduled to mature in October 2026.

Current wording

On May 2, 2025, the Company entered into a new credit agreement, which provides for a $300 million term loan facility and a $400 million revolving credit facility, both maturing on May 2, 2030. The new debt agreement provides a lower interest rate, greater flexibility and increased borrowing capacity. The new credit agreement replaced the Company's previous term loan and revolving credit facility, which were scheduled to mature in October 2026.

Previous wording

The Company's internal sources of liquidity are primarily from operating activities, specifically from changes in the level of revenues and associated inventory, accounts receivable and accounts payable, and from profitability. Significant increases or decreases in revenues and inventory, accounts receivable and accounts payable can affect liquidity. Inventory and accounts payable levels can be affected by the timing of large opportunistic inventory purchases and by distributor agreement requirements. Accounts receivable and accounts payable levels can be affected by changes in the level of work performed and by the timing of large purchases. In addition to operating cash flows, other significant factors that affect the Company's overall management of liquidity include capital expenditures, and investments in the acquisition of businesses.

Current wording

The Company's primary sources of external financing are the capital markets and its credit agreement. The Company's internal sources of liquidity are primarily from operating activities, specifically from changes in the level of revenues and associated inventory, accounts receivable and accounts payable, and profitability. Significant increases or decreases in revenues and inventory, accounts receivable and accounts payable can affect the Company's liquidity. Inventory and accounts payable levels can be affected by the timing of large opportunistic inventory purchases and by distributor agreement requirements. Accounts receivable and accounts payable levels can be affected by changes in the level of work the Company performs and by the timing of large purchases. In addition to operating cash flows, other significant factors that affect the Company's overall management of liquidity include capital expenditures, divestitures, and investments in the acquisition of businesses.

Previous wording

The Company's primary external financing sources are the capital markets and its credit agreement, which includes a term loan and a revolving facility, with an aggregate maximum borrowing capacity of the revolving facility of $350.0 million as of March 31, 2025. For the three months ended March 31, 2025, outstanding borrowings under the credit agreement increased $34.5 million. As of March 31, 2025, the Company had $270.0 million outstanding under the term loan, $197.0 million under the revolving facility, $0.8 million in outstanding letters of credit, and $152.2 million in unused commitments.

Current wording

The Company's outstanding borrowings under the credit agreement decreased approximately $49.5 million for the six months ended June 30, 2025. As of June 30, 2025, the Company had outstanding borrowings under its term loan of $300.0 million, borrowings outstanding under its revolving facility of $83.0 million, outstanding letters of credit of $0.6 million, and $316.4 million of unused commitments under the credit agreement.

Previous wording

The Company believes its cash on hand, operating cash flows, and available credit under its credit agreement will provide sufficient liquidity for the Company's business operations as well as capital expenditures, dividends, and other capital requirements associated with its business operations over the next twelve months and thereafter for the foreseeable future.

Current wording

The Company believes its existing balances of cash and cash equivalents, along with its cash flows from operations and debt instruments under its credit agreement mentioned above, will provide sufficient liquidity for business operations as well as capital expenditures, dividends, and other capital requirements associated with its business operations over the next twelve months and thereafter for the foreseeable future.

Previous wording

Cash used in operating activities decreased $32.4 million for the three months ended March 31, 2025, as compared to the same period of the prior year, primarily due to an increase in net income from continuing operations and improved receivable collections.

Current wording

Cash used in operating activities decreased $61.8 million for the six months ended June 30, 2025, as compared to the same period of the prior year. The decrease was primarily due to an increase in net income from continuing operations and improved receivable collections.

Previous wording

The Company paid cash dividends totaling $2.1 million or $0.10 per share during the three months ending March 31, 2025. Pursuant to the terms of the credit agreement, payment of cash dividends are subject to annual restrictions. The Company has paid cash dividends annually since 1973.

Current wording

The Company paid cash dividends totaling $4.1 million or $0.20 per share during the six months ending June 30, 2025. Pursuant to the Company's credit agreement, the payment of cash dividends is subject to annual restrictions. The Company has paid cash dividends annually since 1973.

Previous wording

The Company's credit agreement provides available borrowing at variable interest rates. The Company's interest expense is impacted by the overall global economic and interest rate environment. Accordingly, future interest rate changes could potentially put the Company at risk for a material adverse impact on future earnings and cash flows. To mitigate this risk, the Company has employed interest rate hedges to fix rates on a portion of its borrowings for specified periods. For additional information related to the Company's debt and interest rate swaps, see Note (5) and Note (6), respectively, to the Consolidated Financial Statements.

Current wording

The Company's credit agreement provides available borrowing at variable interest rates. The Company's interest expense is impacted by the overall global economic and interest rate environment. Accordingly, future interest rate changes could potentially put the Company at risk for a material adverse impact on future earnings and cash flows. To mitigate this risk, the Company has employed interest rate hedges to fix rates on a portion of its outstanding borrowings for specified periods. For additional information related to the Company's debt and interest rate swaps, see Note (5) and Note (6), respectively, to the Consolidated Financial Statements.

Previous wording

The Company's consolidated financial statements are prepared in accordance with United States Generally Accepted Accounting Principles ("U.S. GAAP"), which requires the Company to make estimates and assumptions. Certain critical accounting policies affect the more significant accounts, particularly those that involve judgments, estimates and assumptions used in the preparation of the Company's consolidated financial statements, including revenue recognition, inventory valuation, business combinations, goodwill and intangible assets, and income taxes. If any of these estimates, assumptions or judgments prove to be incorrect, the Company's reported results could be materially affected. Actual results may differ significantly from the Company's estimates under different assumptions or conditions. See "Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations" and Note (1) "Nature of Business and Summary of Significant Accounting Policies" in the Company's 2024 Annual Report on Form 10-K for further discussions of the Company's significant accounting policies and estimates. There have been no significant changes in the Company's critical accounting estimates during the three months ended March 31, 2025, from those disclosed in the Company's 2024 Form 10-K.

Current wording

The Company's consolidated financial statements are prepared in accordance with United States Generally Accepted Accounting Principles ("U.S. GAAP"), which requires the Company to make estimates and assumptions. Certain critical accounting policies affect the more significant accounts, particularly those that involve judgments, estimates and assumptions used in the preparation of the Company's consolidated financial statements, including revenue recognition, inventory valuation, business combinations, goodwill and intangible assets, and income taxes. If any of these estimates, assumptions or judgments prove to be incorrect, the Company's reported results could be materially affected. Actual results may differ significantly from the Company's estimates under different assumptions or conditions. See "Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations" and Note (1) "Nature of Business and Summary of Significant Accounting Policies" in the Company's 2024 Annual Report on Form 10-K for further discussions of the Company's significant accounting policies and estimates. There have been no significant changes in the Company's critical accounting estimates during the six months ended June 30, 2025, from those disclosed in the Company's 2024 Form 10-K.