VSE CORP

Previous 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.

Current wording

During the third 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 generated strong results, with quarterly revenue reaching $282.9 million for the three months ended September 30, 2025, representing a 39% increase year-over-year. Market growth, share gains and contributions from the recent acquisitions of Kellstrom Aerospace and Turbine Weld have resulted in increased repair and distribution revenue of 25% and 49%, respectively, during the three months ended September 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, the introduction of new products and repair capabilities, including its Original Equipment Manufacturers ("OEM") licensed manufacturing program, and investments to increase capacity and the addition of new capabilities supporting recent acquisitions.

Previous 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.

Current wording

The Company believes the acquisitions of TCI in April 2024, Kellstrom Aerospace in December 2024 and Turbine Weld in May 2025 are strongly aligned with VSE's core business and increase its 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 the Company's existing capabilities and provides access to new customers and end markets while strengthening the Company's partnership with Honeywell.

Previous 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.

Current wording

Revenues. Revenues increased for the three and nine months ended September 30, 2025, compared to the same periods in the prior year primarily driven by contributions from the acquisitions of Kellstrom Aerospace and Turbine Weld, new 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 global commercial air travel. The revenue increase during the nine months ended September 30, 2025 was also driven by contributions from the acquisition of TCI. Aviation distribution revenue increased $57.7 million, or 49%, and repair revenue increased $21.6 million or 25%, for the three months ended September 30, 2025, compared to the same period in the prior year. Aviation distribution revenue increased $168.4 million, or 49%, and repair revenue increased $83.9 million, or 39%, for the nine months ended September 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 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.

Current wording

Costs and Operating Expenses. Costs and operating expenses increased for the three and nine months ended September 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 $6.7 million for the three months ended September 30, 2025, compared to $4.8 million for the same period in the prior year. Amortization of intangible assets was $19.3 million for the nine months ended September 30, 2025, compared to $12.5 million for the same period in the prior year. Additionally, for the three and nine months ended September 30, 2025, the Company recognized a $23.3 million and a $29.2 million charge, respectively, on the fair value of the earn-out receivable from the Fleet Sale.

Previous 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.

Current wording

Operating Income. Operating income decreased for the three months ended September 30, 2025, compared to the same period of the prior year primarily due to the $23.3 million valuation adjustment charge on the earn-out receivable from the Fleet Sale and increased intangible asset amortization, partially offset by the previously mentioned increased revenues. Operating income increased for the nine months ended September 30, 2025, compared to the same period of the prior year primarily due to increased revenues as well as one-time prior year charges, including a lease abandonment charge of $12.2 million and corporate restructuring charges of $4.0 million. The operating income increase was partially offset by the previously mentioned increased amortization of intangible assets, earn-out valuation adjustment charges, and an increase in corporate acquisition and integration costs incurred during the current period.

Previous 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.

Current wording

Interest Expense. Interest expense decreased for the three and nine months ended September 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. The Company also recognized interest income on the note receivable of $1.3 million during the three and nine months ended September 30, 2025.

Previous 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.

Current wording

Provision for Income Taxes. The Company's effective tax rate for continuing operations was 37.5% and 18.7% for the three and nine months ended September 30, 2025 respectively, and 21.1% and 12.8% for the three and nine months ended September 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 higher effective tax rates for the three and nine months ended September 30, 2025 is primarily due to the recognition of an accrual for a potential tax dispute associated with the dissolution of a foreign subsidiary. Additionally, higher pre-tax book income in the nine months ended September 30, 2025 compared to the same period in 2024 reduced the favorable tax rate impact arising from various discrete tax adjustments in 2025.

Previous 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.

Current wording

The Company's outstanding borrowings under the credit agreement decreased approximately $72.8 million for the nine months ended September 30, 2025. As of September 30, 2025, the Company had borrowings outstanding under its term loan of $298.1 million, borrowings outstanding under its revolving facility of $61.6 million, outstanding letters of credit of $0.6 million, and $337.8 million of unused commitments under the credit agreement.

Previous 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.

Current wording

Cash used in operating activities decreased $75.8 million for the nine months ended September 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, after adjusting for non-cash expenses, and improved working capital management.

Previous wording

Cash provided by investing activities increased $164.4 million for the six months ended June 30, 2025, as compared to the same period of the prior year. The increase was primarily due to cash provided during the current period of $138.8 million related to the Fleet and FDS sales, net of cash divested, offset by cash provided in the prior period of $42.1 million related to the FDS sale. The increase was also driven by higher cash paid for the prior year TCI acquisition, net of cash acquired, of $112.3 million, as compared to cash paid for the current year Turbine Weld acquisition, net of cash acquired, of $49.9 million. See Note (2) "Acquisitions" and Note (3) "Discontinued Operations" to the consolidated financial statements for further information.

Current wording

Cash provided by investing activities increased $164.1 million for the nine months ended September 30, 2025, as compared to the same period of the prior year. The increase was primarily due to cash provided during the current period of $138.8 million related to the Fleet and FDS sales, net of cash divested, offset by cash provided in the prior period of $42.1 million related to the FDS sale. The increase was also driven by higher cash paid for the prior year TCI acquisition, net of cash acquired, of $112.3 million, as compared to cash paid for the current year Turbine Weld acquisition, net of cash acquired, of $49.9 million. See Note (2) "Acquisitions" and Note (3) "Discontinued Operations" to the consolidated financial statements for further information.

Previous wording

Cash used in financing activities increased $249.5 million for the six months ended June 30, 2025, as compared to the same period of the prior year. The increase was primarily due to net repayments of debt during the current period of $49.5 million, as

Current wording

Cash used in financing activities increased $260.1 million for the nine months ended September 30, 2025, as compared to the same period of the prior year. The increase was primarily due to net repayments of debt during the current period of $72.8 million,

Previous wording

-24- compared to net borrowings of debt during the prior period of $33.5 million. The increase was also driven by the prior period receipt of $162.0 million in proceeds related to the Company's public underwritten offering of its common stock in May 2024.

Current wording

-25- as compared to net borrowings of debt during the prior period of $20.0 million. The increase was also driven by the prior period receipt of $161.7 million in proceeds related to the Company's public underwritten offering of its common stock in May 2024.

Previous 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.

Current wording

The Company paid cash dividends totaling $6.2 million or $0.30 per share during the nine months ending September 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 each year since 1973.

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 six months ended June 30, 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 nine months ended September 30, 2025, from those disclosed in the Company's 2024 Form 10-K.