VSE CORP 10-K

ITEM 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248 ) 28 Consolidated Balance Sheets as of December 31, 202 5 and 20 24 30 Consolidated Statements of Operations for the years ended December 31, 202 5 , 202 4 and 202 3 31 Consolidated Statements of Comprehensive Income for the years ended December 31, 202 5 , 202 4 and 202 3 32 Consolidated Statements of Stockholders' Equity for the years ended December 31, 202 5 , 202 4 and 202 3 33 Consolidated Statements of Cash Flows for the years ended December 31, 202 5 , 202 4 and 202 3 34 Notes to Consolidated Financial Statements 36 -27- Table of Contents Report of Independent Registered Public Accounting Firm Board of Directors and Shareholders VSE Corporation Opinion on the financial statements We have audited the accompanying consolidated balance sheets of VSE Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2025, and the related notes and financial statement schedules included under Item 15.2 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 27, 2026 expressed an unqualified opinion. Basis for opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Assessment of the write-down of slow moving inventory at certain locations As described further in note 1 to the consolidated financial statements, the Company records inventory at the lower of cost or net realizable value. The Company periodically evaluates the carrying value of inventory which requires the write-down of slow-moving inventory for excess or obsolescence based on certain inputs and assumptions used to determine the net realizable value. These assumptions include the recovery rates applied to slow moving inventory. Changes in these assumptions could have a significant impact on the valuation of the inventory. The principal consideration for our determination that the write-down of slow moving inventories at certain locations is a critical audit matter are the magnitude of the inventory balance and that the inputs and assumptions used in determining the write-down are subject to significant management judgement. The inputs and assumptions used in determining the write-down of slow-moving inventory includes the recovery rates applied to slow moving inventory, the identification of specific inventories associated with aircraft with declining usage trends and the impact of exclusive distribution agreements. The assessment of these inputs required a high degree of auditor judgement in evaluating the recovery rates for slow moving inventory. -28- Table of Contents Our audit procedures related to the write-down of slow moving inventories at certain locations, included the following, among others. • We tested the design and operating effectiveness of controls relating to the Company’s estimate of the write-down of slow moving inventories, including review of significant inputs and assumptions. • We assessed the reasonableness of recovery rates applied to slow moving inventory based on historical aging. • We assessed the identification of specific inventory with declining usage trends by evaluating external industry information. • We conducted sensitivity analysis around the reserve assumptions applied to aged inventory. • We performed a look back analysis over historical inventory and reserve balances to evaluate changes year over year. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2019. Charlotte, North Carolina February 27, 2026 -29- Table of Contents VSE CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets As of December 31, (in thousands, except share data) 2025 2024 Assets Current assets: Cash and cash equivalents $ 69,358 $ 29,505 Receivables, net 190,732 158,104 Contract assets 41,468 29,960 Inventories 553,834 434,059 Prepaid expenses and other current assets 37,937 30,899 Current assets held-for-sale — 282,820 Total current assets 893,329 965,347 Property and equipment, net 91,098 71,041 Intangible assets, net 295,962 197,157 Goodwill 641,242 428,263 Operating lease right-of-use assets 50,151 43,225 Note receivable 27,041 — Other assets 29,755 37,597 Total assets $ 2,028,578 $ 1,742,630 Liabilities and Stockholders' equity Current liabilities: Current portion of long-term debt $ 7,500 $ 30,000 Accounts payable 154,506 145,492 Accrued expenses and other current liabilities 73,161 52,749 Dividends payable 2,339 2,059 Current liabilities held-for-sale — 68,200 Total current liabilities 237,506 298,500 Long-term debt, less current portion 285,304 400,173 Deferred compensation 5,918 7,262 Long-term operating lease obligations 43,693 39,498 Deferred tax liabilities 12,394 — Other long-term liabilities 4,955 9,011 Total liabilities 589,770 754,444 Commitments and contingencies (Note 13) Stockholders' equity: Common stock, par value $ 0.05 per share, authorized 44,000,000 shares; issued and outstanding 23,398,046 and 20,590,496 respectively 1,170 1,030 Additional paid-in capital 1,041,483 591,600 Retained earnings 395,643 392,484 Accumulated other comprehensive income 512 3,072 Total stockholders' equity 1,438,808 988,186 Total liabilities and stockholders' equity $ 2,028,578 $ 1,742,630 The accompanying notes are an integral part of these financial statements. -30- Table of Contents VSE CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations For the years ended December 31, (in thousands, except share and per share amounts) 2025 2024 2023 Revenues: Products $ 703,925 $ 482,800 $ 376,567 Services 408,350 303,456 167,453 Total revenues 1,112,275 786,256 544,020 Costs and operating expenses: Products 589,963 404,873 330,216 Services 364,182 279,168 144,794 Selling, general and administrative expenses 13,340 13,629 7,123 Earn-out receivable fair value adjustments 29,200 — — Lease abandonment and termination costs — 12,205 — Amortization of intangible assets 25,995 17,625 11,742 Total costs and operating expenses 1,022,680 727,500 493,875 Operating income 89,595 58,756 50,145 Interest expense, net 20,556 34,947 31,085 Income from continuing operations before income taxes 69,039 23,809 19,060 Provision for income taxes 15,546 4,407 4,495 Net income from continuing operations 53,493 19,402 14,565 (Loss) income from discontinued operations, net of tax ( 41,790 ) ( 4,078 ) 24,569 Net income $ 11,703 $ 15,324 $ 39,134 Earnings (loss) per share: Basic Continuing operations $ 2.53 $ 1.09 $ 1.03 Discontinued operations ( 1.98 ) ( 0.23 ) 1.74 $ 0.55 $ 0.86 $ 2.77 Diluted Continuing operations $ 2.52 $ 1.08 $ 1.03 Discontinued operations ( 1.97 ) ( 0.23 ) 1.73 $ 0.55 $ 0.85 $ 2.76 Weighted average shares outstanding: Basic 21,138,691 17,878,608 14,130,334 Diluted 21,238,718 17,975,295 14,184,729 The accompanying notes are an integral part of these financial statements. -31- Table of Contents VSE CORPORATION AND SUBSIDIARIES Consolidated Statements of Comprehensive Income For the years ended December 31, 2025 2024 2023 (in thousands) Net income $ 11,703 $ 15,324 $ 39,134 Other comprehensive (loss) income, net of tax: Change in fair value of interest rate swap agreements, net of tax ( 2,560 ) 940 ( 2,836 ) Total other comprehensive (loss) income, net of tax ( 2,560 ) 940 ( 2,836 ) Comprehensive income $ 9,143 $ 16,264 $ 36,298 The accompanying notes are an integral part of these financial statements. -32- Table of Contents VSE CORPORATION AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income Total Stockholders' Equity Common Stock (in thousands) Shares Amount Balance at December 31, 2022 12,817 $ 641 $ 92,620 $ 351,297 $ 4,968 $ 449,526 Net income — — — 39,134 — 39,134 Issuance of common stock 2,846 142 128,968 — — 129,110 Stock-based compensation 94 5 7,515 — — 7,520 Other comprehensive loss, net of tax — — — — ( 2,836 ) ( 2,836 ) Dividends declared ($ 0.40 per share) — — — ( 5,729 ) — ( 5,729 ) Balance at December 31, 2023 15,757 788 229,103 384,702 2,132 616,725 Net income — — — 15,324 — 15,324 Issuance of common stock 4,412 221 324,960 — — 325,181 Stock issuance in connection with acquisitions 300 15 30,252 — — 30,267 Stock-based compensation 122 6 7,285 — — 7,291 Other comprehensive income, net of tax — — — — 940 940 Dividends declared ($ 0.40 per share) — — — ( 7,542 ) — ( 7,542 ) Balance at December 31, 2024 20,591 1,030 591,600 392,484 3,072 988,186 Net income — — — 11,703 — 11,703 Issuance of common stock 2,706 135 440,968 — — 441,103 Stock-based compensation 101 5 8,915 — — 8,920 Other comprehensive loss, net of tax — — — — ( 2,560 ) ( 2,560 ) Dividends declared ($ 0.40 per share) — — — ( 8,544 ) — ( 8,544 ) Balance at December 31, 2025 23,398 $ 1,170 $ 1,041,483 $ 395,643 $ 512 $ 1,438,808 The accompanying notes are an integral part of these financial statements. -33- Table of Contents VSE CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows For the years ended December 31, (in thousands) 2025 2024 2023 (a) (a) (a) Cash flows from operating activities: Net income $ 11,703 $ 15,324 $ 39,134 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 39,924 28,762 23,416 Amortization of debt issuance costs 1,464 1,330 1,544 Deferred taxes ( 58 ) ( 9,996 ) ( 1,979 ) Stock-based compensation 12,835 8,315 7,738 Specific provision for inventory — — 742 Impairment and loss on sale of business segments 47,046 19,403 — Loss on sale of property and equipment 45 479 — Lease abandonment and termination costs — 12,205 — Earn-out receivable adjustments 29,200 — — Interest income on note receivable ( 2,041 ) — — Changes in operating assets and liabilities, net of impact of acquisitions: Receivables ( 26,531 ) ( 40,239 ) ( 25,923 ) Contract assets ( 8,570 ) 7,781 5,148 Inventories ( 56,870 ) ( 31,668 ) ( 87,529 ) Prepaid expenses and other current assets and other assets ( 4,532 ) ( 6,685 ) ( 3,191 ) Operating lease assets and liabilities, net 2,376 ( 10,247 ) ( 390 ) Accounts payable and deferred compensation ( 10,932 ) ( 31,756 ) 23,913 Accrued expenses and other current and noncurrent liabilities ( 8,069 ) 5,955 ( 4,452 ) Net cash provided by (used in) operating activities 26,990 ( 31,037 ) ( 21,829 ) Cash flows from investing activities: Purchases of property and equipment ( 21,281 ) ( 20,704 ) ( 18,666 ) Proceeds from the sale of business segments, net of cash divested 138,973 40,157 — Proceeds from payments on notes receivable — — 1,557 Cash paid for acquisitions, net of cash acquired ( 394,144 ) ( 283,122 ) ( 218,581 ) Net cash used in investing activities ( 276,452 ) ( 263,669 ) ( 235,690 ) Cash flows from financing activities: Borrowings on bank credit facilities 667,335 739,236 844,262 Repayments on bank credit facilities ( 803,585 ) ( 739,736 ) ( 699,872 ) Proceeds from issuance of common stock 442,167 325,999 130,020 Payment of debt financing costs ( 2,584 ) — ( 2,890 ) Payment of taxes for equity transactions ( 5,138 ) ( 2,633 ) ( 1,113 ) Dividends paid ( 8,263 ) ( 7,060 ) ( 5,436 ) Other ( 142 ) — — Net cash provided by financing activities 289,790 315,806 264,971 Net increase in cash and cash equivalents 40,328 21,100 7,452 Cash and cash equivalents, beginning of period 29,030 7,930 478 Cash and cash equivalents, end of period $ 69,358 $ 29,030 $ 7,930 (a) The cash flows related to discontinued operations and held-for-sale assets and liabilities have not been segregated and remain included in the major classes of assets and liabilities. Accordingly, the Consolidated Statements of Cash Flows include the results of continuing and discontinued operations. See Note (3) "Discontinued Operations". The accompanying notes are an integral part of these financial statements. -34- Table of Contents VSE CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (continued) For the years ended December 31, (in thousands) 2025 2024 2023 Supplemental disclosure of noncash investing and financing activities: Note receivable from the sale of business segment $ 25,000 $ — $ — Supplemental disclosures of cash flow information: Cash paid for interest $ 26,849 $ 37,076 $ 35,039 Cash paid for income taxes Federal $ 11,900 $ 8,200 $ 9,900 State 2,938 1,962 1,990 Foreign United Kingdom 1,059 1,555 — Other 217 232 2,107 Total cash paid for income taxes $ 16,114 $ 11,949 $ 13,997 The accompanying notes are an integral part of these financial statements. -35- Table of Contents VSE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (1) Nature of Business and Summary of Significant Accounting Policies Nature of Business VSE Corporation, through its subsidiaries (collectively, "VSE" or the "Company") is a diversified aftermarket products and services company serving commercial and government markets. The Company's operations include aircraft and airframe parts supply and distribution and MRO services of aircraft components and engine accessories. The Company operates as one reportable segment aligned with the Company's operating segment: Aviation. Basis of Presentation The accompanying consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and include the assets, liabilities, results of operations and cash flows of the parent company and the Company's wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. In April 2025, VSE completed the sale of all of the issued and outstanding shares of common stock of its Fleet segment. See Note (3) "Discontinued Operations" for further information. The consolidated financial statements present the results of operations for the Fleet segment as discontinued operations for all periods presented, and the related assets and liabilities as held-for-sale as of December 31, 2024. In February 2024, VSE completed the sale of substantially all of the Federal and Defense segment assets. See Note (3) "Discontinued Operations" for further information. The consolidated financial statements present the results of operations for the Federal and Defense segment as discontinued operations for all periods presented. Certain reclassifications, including reclassifications for discontinued operations, have been made to the prior period financial information. Unless otherwise noted, amounts and disclosures throughout these Notes to Consolidated Financial Statements relate solely to continuing operations and exclude all discontinued operations. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates affecting the financial statements may include, but are not limited to, fair value measurements, inventory provisions, collectability of receivables, valuation allowances on deferred tax assets, fair value of goodwill and other intangible assets and contingencies. Stock-Based Compensation The Company issues stock-based awards as compensation to employees and directors. Stock-based awards include stock-settled bonus awards, time-vested stock awards and performance share awards. The Company recognizes stock-based compensation expense over the underlying award’s requisite service period, as measured using the award’s grant date fair value. The Company's policy is to recognize forfeitures as they occur. For performance share awards, the Company assesses the probability of achieving the performance conditions at each reporting period end and adjusts compensation expense based on the number of shares it expects to ultimately issue. Earnings Per Share Basic earnings per share ("EPS") is computed by dividing net income by the weighted average number of shares of common stock outstanding during each period. Shares issued during the period are weighted for the portion of the period that they were outstanding. The Company's calculation of diluted earnings per common share includes the dilutive effects for the assumed vesting of outstanding stock-based awards. The antidilutive common stock equivalents excluded from the diluted per share calculation are not material. -36- Table of Contents The weighted-average number of shares outstanding used to compute basic and diluted EPS were as follows: For the years ended December 31, 2025 2024 2023 Basic weighted average common shares outstanding 21,138,691 17,878,608 14,130,334 Effect of dilutive shares 100,027 96,687 54,395 Diluted weighted average common shares outstanding 21,238,718 17,975,295 14,184,729 Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Due to the short maturity of these instruments, the carrying values on the Company's consolidated balance sheets approximate fair value. Although certain cash balances exceed insurance limits of the Federal Deposit Insurance Corporation, the Company does not limit its credit exposure to any one financial institution and utilizes financial institutions with high credit quality. As of December 31, 2025, the Company held approximately $ 6.3 million of cash in foreign bank accounts. Property and Equipment Property and equipment is recorded at cost, net of accumulated depreciation and amortization. Depreciation and amortization is generally calculated on a straight-line basis over the estimated useful lives of the various assets. Property and equipment is generally depreciated over the following estimated useful lives: computer equipment, furniture, other equipment from three to 15 years; and buildings and land improvements from 15 to 20 years. Amortization of leasehold improvements is calculated on a straight-line basis over the lesser of their useful life or the remaining term of the lease. Leases The Company determines at inception whether an arrangement that provides the Company control over the use of an asset is a lease. Substantially all of the Company's leases are long-term operating leases for facilities with fixed payment terms. The Company recognizes a right-of-use ("ROU") asset and a lease liability upon commencement of operating leases. The initial lease liability is equal to the future fixed minimum lease payments discounted using the Company's incremental borrowing rate, on a secured basis. The lease term includes option renewal periods and early termination payments when it is reasonably certain that the Company will exercise those rights. The initial measurement of the ROU asset is equal to the initial lease liability plus any initial indirect costs and prepayments, less any lease incentives. The Company's lease arrangements do not contain any material residual guarantees, variable payment provisions, or restrictive covenants. Finance leases are not material to the Company's consolidated financial statements. The Company recognizes lease costs on a straight-line basis over the remaining lease term, except for variable lease payments that are expensed in the period in which the obligation for those payments is incurred. Leases with an initial term of 12 months or less with purchase options or extension options that are not reasonably certain to be exercised are not recorded on the balance sheet. Operating lease cost is included in costs and operating expenses on the Company's consolidated statements of operations. Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of trade receivables. Trade receivables consist of amounts due from various commercial entities and government clients. The Company believes that concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the customer base and their dispersion across many different geographic regions. The credit risk, with respect to contracts with the government, is limited due to the creditworthiness of the respective governmental entities. The Company performs ongoing credit evaluations and monitoring of the financial condition of all customers. The Company maintains an allowance for credit losses based upon several factors, including historical collection experience, current aging status of the customer accounts and financial condition of customers. Revenue Recognition The Company accounts for revenue in accordance with ASC 606. The unit of account in ASC 606 is a performance obligation. At the inception of each contract with a customer, the Company determines its performance obligations under the contract and -37- Table of Contents the contract's transaction price. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is defined as the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when the performance obligation is satisfied. The majority of the Company's contracts have a single performance obligation as the promise to transfer the respective goods or services is not separately identifiable from other promises in the contracts and is, therefore, not distinct. For product sales, each product sold to a customer typically represents a distinct performance obligation. Performance obligations are satisfied over time as work progresses or at a point in time based on transfer of control of products and services to customers. The Company's revenues result from the sale of aircraft parts and performance of MRO services for private and commercial aircraft owners, other aviation MRO providers, and aviation original equipment manufacturers. The Company recognizes revenues for the sale of aircraft parts at a point in time when control is transferred to the customer, which usually occurs when the parts are shipped. The Company recognizes revenues for MRO services over time as the services are transferred to the customer. MRO services revenue recognized is measured based on the cost-to-cost input method, as costs incurred reflect the work completed, and therefore the services transferred to date. Sales returns and allowances are not significant. Receivables and Contract Balances Receivables are recorded at amounts earned less an allowance. The Company reviews receivables regularly to determine if there are any potentially uncollectible accounts. Contract assets include unbilled amounts typically resulting from sales under contracts when the cost-to-cost method of revenue recognition is utilized, and revenue recognized exceeds the amount billed to the customer. The amounts may not exceed their estimated net realizable value. Contract assets are classified as current based on the Company's contract operating cycle. Contract liabilities include customer advances and billings in excess of revenue recognized and are included within accrued expenses and other current liabilities in the Company's consolidated balance sheets. Allowance for Credit Losses The Company establishes allowances for credit losses on accounts receivable and contract assets. To measure expected credit losses, the Company has disaggregated pools of receivable balances which exhibit similar risk characteristics. In determining the amount of the allowance for credit losses, the Company considers historical collectability based on past due status. The Company also considers current market conditions and forecasts of future economic conditions to inform potential adjustments to historical loss data. In addition, the Company also records allowances for credit losses for specific receivables that are deemed to have a higher risk profile than the rest of the respective pool of receivables, such as concerns about a specific customer's inability to meet its financial obligation. The adequacy of these allowances is assessed quarterly through consideration of factors on a collective basis where similar characteristics exist and on an individual basis. Inventories Inventories are stated at the lower of cost or net realizable value using the FIFO method. Inventories consist primarily of aftermarket parts for distribution, and general aviation engine accessories and parts, and also include related purchasing, overhaul labor, storage, and handling costs. The Company periodically evaluates the carrying value of inventory, considering factors such as its physical condition, sales patterns and demand in order to estimate the amount necessary to write down any slow moving, obsolete or damaged inventory. These estimates could vary significantly from actual amounts based upon future economic conditions, customer inventory levels or competitive factors that were not foreseen or did not exist when the estimated write-downs were made. Deferred Compensation Plans The Company provides for certain key management employees to be incentivized and rewarded based on overall company performance through the Company's Deferred Supplemental Compensation Plan (the "DSC Plan"). DSC Plan expenses were $ 0.4 million, $ 0.3 million, and $ 0.4 million for the years ended December 31, 2025, 2024 and 2023, respectively. The Company invests in corporate owned life insurance ("COLI") products and in mutual funds that are held in a Rabbi Trust to fund the DSC Plan obligations. The COLI investments are recorded at cash surrender value and the mutual fund investments are recorded at fair value. The DSC Plan assets are included in other assets on the accompanying consolidated balance sheets. DSC Plan assets were $ 13.2 million and $ 12.0 million as of December 31, 2025 and December 31, 2024, respectively. Gains and losses recognized on the changes in fair value of the investments are recorded as selling, general and administrative expenses on -38- Table of Contents the accompanying consolidated statements of operations. The Company recorded net gains of $ 0.7 million, $ 0.6 million, and $ 0.6 million for the years ended December 31, 2025, 2024 and 2023, respectively. Derivative Instruments Derivative instruments are recorded on the consolidated balance sheets at fair value. Unrealized gains and losses on derivatives designated as cash flow hedges are reported in other comprehensive income and reclassified into earnings in a manner that matches the timing of the earnings impact of the hedged transactions. Income Taxes Income taxes are accounted for under the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. This method also requires the recognition of future tax benefits, such as net operating loss carryforwards, to the extent that realization of such benefits is more likely than not. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The carrying value of net deferred tax assets is based on assumptions regarding the Company's ability to generate sufficient future taxable income to utilize these deferred tax assets. Business Combinations The Company allocates the purchase price of acquired entities to the underlying tangible and identifiable intangible assets acquired and liabilities assumed based on their respective estimated fair values, with any excess recorded as goodwill. The operating results of acquired businesses are included in the Company's results of operations beginning as of their effective acquisition dates. For contingent consideration arrangements, a liability is recognized at fair value as of the acquisition date with subsequent fair value adjustments recorded in operations. Goodwill Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired in a business combination. Goodwill is tested for potential impairment at the reporting unit level annually at the beginning of the fourth quarter, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. When testing goodwill for impairment, the Company may initially qualitatively assess whether it is necessary to perform a quantitative goodwill impairment test, which is only required if the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company considered the totality of all relevant events and circumstances that affect the fair value or carrying amount of a reporting unit in accordance with ASC 350-20-35-3C. In the event the Company deems a quantitative impairment test necessary, the Company estimates and compares the reporting unit fair value to its respective carrying value including goodwill. Reporting unit fair value is determined using a combination of the income approach and the market approach, which involves the use of estimates and assumptions, including projected future operating results and cash flows, the cost of capital, and financial measures derived from observable market data of comparable public companies. If the fair value is less than the carrying value, the amount of impairment expense is equal to the difference between the reporting unit’s fair value and the reporting unit’s carrying value. Based on the annual goodwill impairment test performed during the fourth quarter of 2025, the Company's qualitative impairment test determined that it was more likely than not that the reporting unit fair value exceeded carrying value. Impairment of Long-Lived Assets The Company reviews its long-lived assets, including amortizable intangible assets, operating lease right-of-use assets, and property and equipment, for impairment whenever events or changes in facts and circumstances indicate that their carrying values may not be fully recoverable and the carrying amount of the asset exceeds its estimated future undiscounted cash flows. When the carrying amount of the asset exceeds its estimated future undiscounted cash flows, an impairment loss is recognized to reduce the asset’s carrying amount to its estimated fair value based on the present value of its estimated future cash flows. -39- Table of Contents Recent Accounting Pronouncements Recently Adopted Accounting Pronouncements In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company adopted the standard during 2025 and applied the disclosure retrospectively to all prior periods presented in the financial statements. The adoption of ASU 2023-09 did not have an impact on the Company's consolidated financial position, results of operations or cash flows. See Note (11) "Income Taxes" for further information. Recently Issued Accounting Pronouncements Not Yet Adopted In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires public entities to disclose additional information about specific expense categories in the notes to the financial statements. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The adoption will not have an impact on the Company's consolidated financial position, results of operations or cash flows. The Company is currently evaluating the impact that adoption of ASU 2024-03 will have on its disclosures. (2) Acquisitions Fiscal 2025 Aero 3, Inc. ("Aero 3") On December 23, 2025, the Company completed the previously announced acquisition of GenNx/AeroRepair IntermediateCo Inc., the parent company of Aero 3, Inc., for a total cash consideration, subject to working capital adjustments, of $ 346.4 million, net of cash acquired of $ 1.4 million. The acquisition was funded with proceeds from the Company's October 2025 underwritten public offering, see Note (15) "Capital Stock" for further information. Aero 3 is a diversified global MRO service provider and distributor supporting the wheel and brake aftermarket. The acquisition expands the Company's global aftermarket capabilities by broadening MRO, distribution, and proprietary product offerings to support commercial, business and general aviation operators while aligning with the Company's OEM-centric strategy. The Company has not yet finalized the determination of the fair values allocated to various assets and liabilities, including, but not limited to, working capital and income taxes. Therefore, the allocation of the total consideration for the acquisition to the tangible and identifiable intangible assets acquired, and liabilities assumed, is preliminary until the Company obtains final information regarding their fair values, which could potentially result in changes to the Aero 3 opening balance sheet. Adjustments or changes to goodwill, assets or liabilities remain possible. -40- Table of Contents The preliminary purchase price allocation is as follows (in thousands): Receivables $ 12,244 Contract assets 1,825 Inventories 54,267 Prepaid expenses and other current assets 880 Property and equipment, net 4,704 Intangible assets - customer related 94,000 Goodwill 214,519 Operating lease right-of-use assets 5,163 Other assets 4,159 Total assets acquired 391,761 Accounts payable ( 9,262 ) Accrued expense and other current liabilities ( 6,218 ) Long-term operating lease obligations ( 3,664 ) Deferred tax liabilities ( 21,247 ) Other long-term liabilities ( 4,971 ) Total liabilities assumed ( 45,362 ) Net assets acquired, excluding cash $ 346,399 Goodwill resulting from the acquisition reflects the strategic advantage of expanding the Company's MRO services, parts distribution and proprietary solution capabilities to support the wheel and brake aftermarket. The value attributed to goodwill and customer relationships is not deductible for income tax purposes. The estimated value attributed to the customer relationship intangible assets is being amortized over a weighted average useful life of 12.1 years. The operating results of Aero 3 were included in the Company's consolidated results of operations from the date of acquisition. Aero 3's consolidated revenues and operating income included in the Company's consolidated statements of operations for the year ended December 31, 2025 were not material. Acquisition-related expenses totaled $ 4.0 million for the year ended December 31, 2025 and are included in selling, general and administrative expenses. The following unaudited pro forma financial information presents the combined results of operations for Aero 3 and VSE Corporation for the years ended December 31, 2025, and 2024, respectively. The unaudited consolidated pro forma results of operations are as follows (in thousands): For the years ended December 31, 2025 2024 Revenue $ 1,222,244 $ 901,940 Income from continuing operations $ 66,489 $ 29,217 The unaudited pro forma combined financial information presented above has been prepared from historical financial statements that have been adjusted to give effect to the acquisition of Aero 3 as though it had occurred on January 1, 2024 and includes adjustments for intangible asset amortization; interest expense and debt issuance costs on long-term debt; and acquisition and other transaction costs. The unaudited pro forma financial information is presented for illustrative purposes only and is not intended to reflect the actual results of operations that would have occurred if the acquisition had occurred on January 1, 2024, nor is it indicative of future operating results. -41- Table of Contents PT6 Fuel Pumps License Agreement On December 18, 2025, the Company entered into an Asset Purchase and License Agreement with an original equipment manufacturer for a purchase price of $ 10.8 million, to exclusively manufacture, sell, market, distribute, and repair certain fuel pumps for use on the Pratt & Whitney PT6 engine series. The purchase price is expected to be mainly paid in 2026 and funded through the Company's sources of liquidity. As of December 31, 2025, the liability associated with the purchase price is recorded within accrued expenses and other current liabilities on the Company's consolidated balance sheets. The acquisition was accounted for as a business combination under ASC 805, Business Combinations . The acquisition is not material to the Company's consolidated financial statements. The preliminary allocation of the purchase price comprised of net tangible assets of $ 2.1 million, goodwill of $ 1.9 million, and a customer-related intangible asset of $ 6.8 million, which is being amortized over a period of 16 years. Goodwill resulting from the acquisition reflects the strategic advantage of expanding existing distribution and MRO capabilities supporting certain PT6 fuel pumps. The value attributed to goodwill and customer relationships is deductible for income tax purposes. The Company has not yet finalized the determination of the fair values allocated to various assets and liabilities, including, but not limited to, working capital. Therefore, the allocation of the total consideration for the acquisition to the tangible and identifiable intangible assets acquired is preliminary until the Company obtains final information regarding their fair values, which could potentially result in changes to the opening balance sheet. Adjustments or changes to goodwill, assets or liabilities remain possible. Acquisition-related expenses incurred during the year ended December 31, 2025 were not material. The pro-forma impact of the acquisition is not material to the Company’s results of operations. Turbine Weld Industries, LLC ("Turbine Weld") On May 1, 2025, the Company acquired Turbine Weld for a total cash consideration of $ 49.9 million, net of cash acquired of $ 0.9 million. The acquisition purchase price was funded by borrowings under the Company's revolving credit facility. Turbine Weld is a specialized MRO service provider of complex technical and proprietary engine components for business and general aviation platforms. The acquisition strengthens the Company’s MRO portfolio of services by broadening technical capabilities and expanding the repair portfolio. The acquisition is not material to the Company's consolidated financial statements. The preliminary allocation of the purchase price comprised of net tangible assets, excluding cash acquired, of $ 12.6 million, goodwill of $ 13.3 million, and a customer-related intangible asset of $ 24.0 million, which is being amortized over a period of 10 years. Goodwill resulting from the acquisition of Turbine Weld reflects the strategic advantage of expanding the Company's MRO services to new customers. The value attributed to goodwill and customer relationships is deductible for income tax purposes. The Company has not yet finalized the determination of the fair values allocated to various assets and liabilities, including, but not limited to, working capital. Therefore, the allocation of the total consideration for the acquisition to the tangible and identifiable intangible assets acquired, and liabilities assumed, is preliminary until the Company obtains final information regarding their fair values, which could potentially result in changes to the Turbine Weld opening balance sheet. Adjustments or changes to goodwill, assets or liabilities remain possible. Acquisition-related expenses totaled $ 1.5 million for the year ended December 31, 2025, which are included in selling, general and administrative expenses. The pro-forma impact of the acquisition is not material to the Company’s results of operations. Fiscal 2024 Kellstrom Aerospace Group, Inc. ("Kellstrom Aerospace") On December 3, 2024, the Company completed the acquisition of Kellstrom Aerospace for a total consideration of approximately $ 188.9 million, consisting of cash consideration of $ 168.6 million, net of $ 10.6 million cash acquired, and in-kind payment in the form of shares of the Company's common stock with a value equal to approximately $ 20.3 million. The cash consideration was funded by proceeds from the Company's October 2024 underwritten public offering and borrowings under the Company's revolving credit facility. Kellstrom Aerospace is a diversified global distributor and service provider supporting the commercial aerospace engine aftermarket. The acquisition provides an opportunity to improve the Company's position in the commercial aviation aftermarket by expanding product and capability offerings both domestically and internationally, including participation in aircraft engine maintenance events. During the year ended December 31, 2025, the purchase price allocation was adjusted as a result of working capital and to reflect measurement period adjustments based on new information obtained about facts and circumstances that existed as of the acquisition date. Such adjustments resulted in a $ 16.8 million decrease to goodwill, primarily driven by a $ 7.8 million increase -42- Table of Contents to deferred tax assets, a $ 4.9 million increase to inventories, a $ 2.3 million fair value step up to operating lease right-of-use assets, and a $ 2.2 million working capital settlement which reduced net purchase consideration. The final purchase price allocation is as follows (in thousands): Receivables $ 27,379 Contract assets 2,925 Inventories 42,589 Prepaid expenses and other current assets 2,538 Property and equipment, net 10,301 Intangible asset - customer related 41,900 Goodwill 83,922 Operating lease right-of-use assets 14,141 Deferred tax assets 7,624 Total assets acquired 233,319 Accounts payable ( 27,750 ) Accrued expense and other current liabilities ( 6,403 ) Long-term operating lease obligations ( 10,300 ) Total liabilities assumed ( 44,453 ) Net assets acquired, excluding cash $ 188,866 Cash consideration, net of cash acquired $ 168,599 VSE common stock, at fair value 20,267 Total $ 188,866 Goodwill resulting from the acquisition reflects the strategic advantage of growing the Company's distribution and MRO capabilities in the commercial aerospace aftermarket. The value attributed to goodwill and customer relationships is not deductible for income tax purposes. The estimated value attributed to the customer relationship intangible assets is being amortized over a period of 8 years. The operating results of Kellstrom Aerospace were included in the Company's consolidated results of operations from the date of acquisition. Acquisition-related expenses totaled $ 0.7 million and $ 2.7 million for the years ended December 31, 2025 and 2024, respectively, and are included in selling, general and administrative expenses. The following unaudited pro forma financial information presents the combined results of operations for Kellstrom Aerospace and VSE Corporation for the years ended December 31, 2024, and 2023, respectively. The unaudited consolidated pro forma results of operations are as follows (in thousands): For the years ended December 31, 2024 2023 Revenue $ 950,468 $ 704,792 Income from continuing operations $ 28,145 $ 19,941 The unaudited pro forma combined financial information presented above has been prepared from historical financial statements that have been adjusted to give effect to the acquisition of Kellstrom Aerospace as though it had occurred on January 1, 2023 and includes adjustments for intangible asset amortization; interest expense and debt issuance costs on long-term debt; and acquisition and other transaction costs. The unaudited pro forma financial information is presented for illustrative purposes only and is not intended to reflect the actual results of operations that would have occurred if the acquisition had occurred on January 1, 2023, nor is it indicative of future operating results. -43- Table of Contents Turbine Controls, Inc. ("TCI") On April 24, 2024, the Company completed the acquisition of TCI for a total consideration of $ 122.4 million. The total consideration consisted of cash consideration of $ 112.4 million, net of $ 1.2 million cash acquired, and an in-kind payment in the form of shares of the Company's common stock with a value equal to approximately $ 10.0 million. The cash consideration was funded by borrowings under the Company's revolving credit facility. TCI is a leading provider of aftermarket MRO support services for complex engine components, as well as engine and airframe accessories, across commercial and military applications. The acquisition presents an opportunity for the Company to accelerate its MRO strategy, including expanding the Company's repair capability offerings and adding several new OEM relationships. The final purchase price allocation is as follows (in thousands): Receivables $ 9,122 Contract assets 16,193 Inventories 5,512 Prepaid expenses and other current assets 570 Property and equipment, net 6,434 Intangible asset - customer related 59,000 Goodwill 40,201 Operating lease right-of-use assets 7,832 Other assets 214 Total assets acquired 145,078 Accounts payable ( 9,764 ) Accrued expense and other current liabilities ( 5,624 ) Long-term operating lease obligations ( 7,339 ) Total liabilities assumed ( 22,727 ) Net assets acquired, excluding cash $ 122,351 Cash consideration, net of cash acquired $ 112,351 VSE common stock, at fair value 10,000 Total $ 122,351 Goodwill resulting from the acquisition of TCI reflects the strategic advantage of expanding the Company's MRO services to new customers. The value attributed to goodwill and customer relationships is deductible for income tax purposes. The estimated value attributed to the customer relationship intangible assets is being amortized over a period of 10 years. Acquisition-related expenses totaled $ 2.2 million for the year ended December 31, 2024, and are included in selling, general and administrative expenses. The following unaudited pro forma financial information presents the combined results of operations for TCI and VSE Corporation for the years ended December 31, 2024, and 2023, respectively. The unaudited consolidated pro forma results of operations are as follows (in thousands): For the years ended December 31, 2024 2023 Revenue $ 818,039 $ 632,551 Income from continuing operations $ 20,130 $ 10,394 The unaudited pro forma combined financial information presented above has been prepared from historical financial statements that have been adjusted to give effect to the acquisition of TCI as though it had occurred on January 1, 2023 and includes adjustments for intangible asset amortization; interest expense and debt issuance costs on long-term debt; and -44- Table of Contents acquisition and other transaction costs. The unaudited pro forma financial information is presented for illustrative purposes only and is not intended to reflect the actual results of operations that would have occurred if the acquisition had occurred on January 1, 2023, nor is it indicative of future operating results. Fiscal 2023 Honeywell Fuel Control Systems ("Honeywell FCS Acquisition") On September 27, 2023, the Company entered into an Asset Purchase and License Agreement with Honeywell International Inc. ("Honeywell"), for a purchase price of $ 105.0 million, to exclusively manufacture, sell, market, distribute, and repair certain Honeywell fuel control systems. The purchase price of this acquisition was funded by borrowings under the Company's revolving credit facility. This agreement expands existing distribution and MRO capabilities supporting certain Honeywell fuel control systems and associated subcomponents. The acquisition was accounted for as a business combination under ASC 805, Business Combinations . The final purchase price allocation is as follows (in thousands): Prepaid expenses and other current assets (a) $ 11,500 Property and equipment 2,714 Intangible assets 16,200 Goodwill 74,586 Total assets acquired $ 105,000 Cash consideration $ 105,000 Total consideration $ 105,000 (a) Represents prepaid inventory consisting of finished goods acquired but not in the Company's physical possession as of the acquisition date. Goodwill resulting from the acquisition reflects the expected synergies from the acquisition. The value attributed to goodwill and customer relationship is deductible for income tax purposes. The estimated value attributed to the customer relationship intangible asset is being amortized over a period of 10 years. The Company incurred $ 0.3 million of acquisition-related expenses during the year ended December 31, 2023, which are included in selling, general and administrative expenses. The pro-forma impact of the acquisition is not material to the Company’s results of operations. Desser Holding Company, LLC ("Desser Aerospace") On July 3, 2023, the Company completed the acquisition of Desser Aerospace, a global aftermarket solutions provider of specialty distribution and MRO services for cash consideration of $ 131.5 million. Concurrent with the closing of the transaction, the Company immediately sold, in a separate transaction, Desser Aerospace’s propriety solutions businesses to Loar Group Inc. (“Loar”) for a cash consideration of $ 31.8 million. -45- Table of Contents The final purchase price allocation is as follows (in thousands): Receivables $ 7,383 Inventories 31,228 Prepaid expenses and other current assets 515 Property and equipment 2,527 Intangible assets 21,950 Goodwill 53,942 Operating lease right-of-use-assets 6,679 Total assets acquired 124,224 Accounts payable ( 10,128 ) Accrued expenses and other current liabilities ( 5,793 ) Long-term operating lease obligations ( 5,937 ) Deferred tax liabilities ( 2,666 ) Total liabilities assumed ( 24,524 ) Net assets acquired, excluding cash $ 99,700 Cash consideration, net of cash acquired $ 101,870 Post-close adjustment ( 2,170 ) Total $ 99,700 Goodwill resulting from the acquisition of Desser Aerospace reflects the strategic advantage of expanding the Company's specialty distribution and MRO services to new customers. The value attributed to goodwill and customer relationships is not fully deductible for income tax purposes. The estimated value attributed to the customer relationship intangible assets is being amortized over a weighted average useful life of 8.3 years. The Company incurred $ 3.2 million of acquisition-related expenses during the year ended December 31, 2023, which are included in selling, general and administrative expenses. The following unaudited pro forma financial information presents the combined results of operations for Desser Aerospace and VSE Corporation for the year ended December 31, 2023. The unaudited consolidated pro forma results of operations are as follows (in thousands): For the year ended December 31, 2023 Revenue $ 591,775 Income from continuing operations $ 17,678 The unaudited pro forma combined financial information presented above has been prepared from historical financial statements that have been adjusted to give effect to the acquisition of Desser Aerospace as though it had occurred on January 1, 2022 and includes adjustments for intangible asset amortization; interest expense and debt issuance costs on long-term debt; acquisition and other transaction costs; and certain costs allocated from the former parent. The unaudited pro forma financial information is presented for illustrative purposes only and is not intended to reflect the actual results of operations that would have occurred if the acquisition had occurred on January 1, 2022, nor is it indicative of future operating results. Precision Fuel Components, LLC ("Precision Fuel") On February 1, 2023, the Company acquired Precision Fuel Components, LLC for a purchase price of $ 11.7 million. The acquisition was not material to the Company's consolidated financial statements. During the year ended December 31, 2023, the Company incurred $ 0.2 million of acquisition-related expenses, which are included in selling, general and administrative expenses. -46- Table of Contents (3) Discontinued Operations Sale of Fleet Segment On April 1, 2025, VSE completed the sale of its Fleet segment for a total consideration of up to $ 230 million (the “Fleet Sale”). This consideration is comprised of $ 136.2 million of cash, net of $ 4.8 million cash divested. The consideration also includes a $ 25 million seller note and a potential earn-out payment of up to $ 65 million, subject to the achievement of certain milestones. The seller note is scheduled to mature in July 2030. See Note (17) "Fair Value Measurements" for information regarding the fair value of the earn-out. The Fleet Sale is consistent with the Company's long-term strategy of transforming to a pure-play aviation business focused on higher margin and higher growth aftermarket parts distribution and MRO businesses. During the year ended December 31, 2025, the Company recorded a total pre-tax loss of $ 46.8 million, inclusive of $ 3.8 million of transaction fees. The loss was comprised of a pre-tax impairment charge on the Fleet assets held-for-sale of $ 33.7 million and a pre-tax loss on the Fleet Sale of $ 13.1 million, which was primarily attributable to a $ 8.3 million adjustment of a deferred tax liability related to the pre-tax impairment from the first quarter of 2025 and the impact of working capital adjustments of $ 4.8 million. The total loss is included in (loss) income from discontinued operations, net of tax in the consolidated statements of operations. In the fourth quarter of the year ended December 31, 2025, the Company recognized an additional $ 8.7 million income tax provision as a result of a change in the tax treatment of the sale transaction from an asset sale to a stock sale. Sale of Federal and Defense Segment In February 2024, VSE entered into two separate agreements to sell substantially all the Federal and Defense segment's operational assets ("FDS Sale") for cash consideration of $ 42.9 million. The FDS Sale is consistent with the Company's long-term strategic growth strategy of transforming to a pure-play aviation business focused on higher margin and higher growth aftermarket parts distribution and MRO businesses. The Company recorded a pre-tax loss on the FDS Sale of $ 0.2 million during the year ended December 31, 2025 related to the settlement of net working capital, and a pre-tax loss of $ 15.2 million and transaction fees of $ 2.5 million for the year ended December 31, 2024. All such losses and transaction fees are included in (loss) income from discontinued operations, net of tax in the consolidated statements of operations. The components of (loss) income from discontinued operations, net of tax consist of the following (in thousands): For the years ended December 31, 2025 2024 2023 Revenues $ 75,358 $ 320,145 $ 568,934 Costs and operating expenses 71,865 305,890 536,740 Income from discontinued operations 3,493 14,255 32,194 Other impairment 33,708 4,204 — Loss on the sale of discontinued operations 13,338 15,199 — (Loss) income from discontinued operations before income taxes ( 43,553 ) ( 5,148 ) 32,194 (Benefit) provision for income taxes ( 1,763 ) ( 1,070 ) 7,625 (Loss) income from discontinued operations, net of tax $ ( 41,790 ) $ ( 4,078 ) $ 24,569 -47- Table of Contents The assets and liabilities reported as held-for-sale consist of the following (in thousands): As of December 31, 2024 Assets Cash and cash equivalents $ ( 475 ) Receivables, net 39,459 Inventories 142,259 Prepaid expenses and other current assets 11,057 Property and equipment, net 14,546 Intangible assets, net 124 Goodwill 63,190 Operating lease right-of-use assets 10,101 Other assets 2,559 Total assets held-for-sale $ 282,820 Liabilities Accounts payable $ 42,099 Accrued expenses and other current liabilities 9,446 Long-term operating lease obligations 8,645 Deferred tax liabilities 8,010 Total liabilities held-for-sale $ 68,200 Selected financial information related to cash flows from discontinued operations is as follows (in thousands): For the years ended December 31, 2025 2024 2023 Depreciation and amortization $ 731 $ 2,951 $ 7,314 Stock-based compensation (a) $ ( 225 ) $ 202 $ 1,006 Purchases of property and equipment $ 208 $ 2,343 $ 2,280 (a) Stock-based compensation benefit was recognized during the year ended December 31, 2025 due to forfeitures in the period. (4) Revenue Recognition Disaggregated Revenue The Company's revenues are derived from the delivery of products to and services performed for its commercial and government customers. A summary of revenues by customer is as follows (in thousands): Year ended December 31, 2025 2024 2023 Commercial $ 1,108,091 $ 779,008 $ 539,592 Government 4,184 7,248 $ 4,428 Total $ 1,112,275 $ 786,256 $ 544,020 -48- Table of Contents A summary of revenues by type is as follows (in thousands): Year ended December 31, 2025 2024 (a) 2023 (a) Repair $ 408,350 $ 303,456 $ 167,453 Distribution 703,925 482,800 376,567 Total $ 1,112,275 $ 786,256 $ 544,020 (a) Certain revenue amounts in the prior year have been reclassified to conform to current presentation of revenue type categories. Contract Balances Contract balances were as follows (in thousands): As of December 31, Financial Statement Classification 2025 2024 Billed and billable receivables Receivables, net (a) $ 190,732 $ 158,104 Contract assets - unbilled receivables Contract assets $ 41,468 $ 29,960 Contract liabilities Accrued expenses and other current liabilities $ 6,891 $ 4,479 (a) Net of allowance of $ 7.2 million and $ 4.1 million as of December 31, 2025 and 2024, respectively. During fiscal 2025 and 2024, respectively, the Company recognized $ 3.5 million and $ 2.1 million of revenue that was previously included in the beginning balance of contract liabilities. (5) Property and Equipment Property and equipment, net consisted of the following (in thousands): As of December 31, 2025 2024 Buildings and building improvements $ 24,459 $ 11,003 Computer equipment 12,478 9,678 Furniture, fixtures, and equipment 65,813 46,096 Leasehold improvements 12,668 8,627 Construction in process 8,684 15,979 Land and land improvements 1,208 978 125,310 92,361 Less: accumulated depreciation and amortization ( 34,212 ) ( 21,320 ) Total property and equipment, net $ 91,098 $ 71,041 Depreciation and amortization expense for the years ended December 31, 2025, 2024 and 2023 was $ 13.2 million, $ 8.2 million, and $ 4.4 million, respectively. -49- Table of Contents (6) Goodwill and Other Intangible Assets Goodwill Changes in the carrying amount of goodwill for the years ended December 31, 2025 and 2024 were as follows (in thousands): Total Balance as of December 31, 2023 $ 288,591 Goodwill acquired 140,804 Measurement period adjustments ( 1,132 ) Balance as of December 31, 2024 $ 428,263 Goodwill acquired 229,760 Measurement period adjustments ( 16,781 ) Balance as of December 31, 2025 $ 641,242 Goodwill acquired during fiscal 2025 and 2024 pertains to the acquisitions completed during those respective periods. Measurement period adjustments in fiscal 2025 and 2024 represent adjustments to the allocation of the purchase consideration of the respective acquisitions. Refer to Note (2) "Acquisitions" for discussion of acquisitions. There were no impairments of goodwill during the years ended December 31, 2025, 2024 and 2023. Intangible Assets Intangible assets consisted of the following (in thousands): Cost Accumulated Amortization Net Intangible Assets December 31, 2025 Customer-related $ 396,150 $ ( 100,188 ) $ 295,962 December 31, 2024 Customer-related $ 271,350 $ ( 74,193 ) $ 197,157 Trade names 8,500 ( 8,500 ) — Total $ 279,850 $ ( 82,693 ) $ 197,157 The gross carrying amount of customer-related intangibles increased during the year ended December 31, 2025 in connection with acquisitions completed during the year as discussed in Note (2) "Acquisitions." This increase was partially offset by intangible assets with a cost of $ 8.5 million being fully amortized and no longer reflected in the intangible asset values as of December 31, 2025. There were no impairment losses during the years ended December 31, 2025, 2024 and 2023. The weighted-average useful life for all intangible assets as of December 31, 2025 is 12.2 years. The estimated future annual amortization expense related to intangible assets are as follows (in thousands): Year Ending December 31, 2026 $ 34,924 2027 33,177 2028 32,344 2029 32,281 2030 31,841 Thereafter 131,395 Total $ 295,962 -50- Table of Contents (7) Debt Long-term debt consisted of the following (in thousands): As of December 31, 2025 2024 Bank credit facility - term loan $ 296,250 $ 277,500 Bank credit facility - revolving facility — 155,000 Principal amount of long-term debt 296,250 432,500 Less: debt issuance costs ( 3,446 ) ( 2,327 ) Total debt 292,804 430,173 Less: current portion ( 7,500 ) ( 30,000 ) Long-term debt, net of current portion $ 285,304 $ 400,173 On May 2, 2025, the Company entered into a new credit agreement providing for a $ 300 million term loan facility and a $ 400 million revolving credit facility, both maturing on May 2, 2030. The revolving credit facility includes a $ 30 million sub facility available for the issuance of letters of credit. The new credit agreement replaced the Company's existing term loan and revolving credit facility. Proceeds from the term loan were utilized to pay transaction-related fees and expenses and to repay, in full, all amounts outstanding under the prior credit agreement. Borrowings under the new credit agreement accrue interest at either the term SOFR or ABR, plus in each case an applicable margin (based on the Company's Total Net Leverage Ratio). The ABR for any day is a fluctuating rate per annum equal to the highest of (i) the Federal Funds Effective Rate plus 0.50 %; (ii) the Prime Rate and (iii) the daily SOFR rate plus 1 %. The applicable margin for term SOFR loans ranges from 1.25 % to 2.25 % and for ABR loans from 0.25 % to 1.25 %. The Company also pays a commitment fee with respect to undrawn amounts under the revolving credit facility ranging from 0.20 % to 0.30 % (based on the Company's Total Net Leverage Ratio) and fees on letters of credit that are issued. The Company incurred $ 2.6 million of fees in connection with the new credit agreement, of which $ 2.3 million were capitalized as deferred debt issuance costs and are being amortized to interest expense over the remaining term of the agreement. As of December 31, 2025, the interest rate on the Company's outstanding term loan was 5.22 %. Letters of credit outstanding totaled $ 0.6 million and $ 0.8 million as of December 31, 2025 and 2024, respectively. During the year ended December 31, 2025, the Company repaid all outstanding borrowings under the revolving credit facility, primarily using proceeds from the Fleet Sale and the Company's October 2025 underwritten public offering. See Note (3) "Discontinued Operations" and Note (15) "Capital Stock", respectively, for additional information. Future required term loan and revolving facility payments as of December 31, 2025 are as follows (in thousands): Year Ending December 31, Term Revolving Facility Total 2026 $ 7,500 $ — $ 7,500 2027 11,250 — 11,250 2028 20,625 — 20,625 2029 22,500 — 22,500 2030 234,375 — 234,375 Total $ 296,250 $ — $ 296,250 The credit agreement contains collateral requirements to secure the Company's loan agreement obligations, restrictive covenants, a limit on annual dividends, and other affirmative and negative covenants, conditions, and limitations. Restrictive covenants include a maximum Total Net Leverage Ratio and a minimum Interest Coverage Ratio. The Company was in compliance with required ratios and other terms and conditions as of December 31, 2025. -51- Table of Contents (8) Derivative Instruments and Hedging Activities The Company is party to fixed interest rate swap instruments that are designated and accounted for as cash flow hedges to manage risks associated with interest rate fluctuations on a portion of the Company's floating rate debt. The Company's derivative instruments designated as cash flow hedges as of December 31, 2025 were (in thousands): Notional Amount Paid Fixed Rate Receive Variable Rate Settlement and Termination Interest rate swap $ 150,000 2.8 % 1-month term SOFR Monthly through October 31, 2027 Interest rate swap $ 100,000 4.5 % 1-month term SOFR Monthly through July 31, 2026 These derivative instruments are recorded on the consolidated balance sheets at fair value. Unrealized changes in the fair value on cash flow hedges are recognized in other comprehensive (loss) income and the amounts are reclassified from accumulated other comprehensive income into earnings in a manner that matches the timing of the earnings impact of the hedged transactions. For the years ended December 31, 2025, 2024, and 2023, the Company reclassified $ 1.9 million, $ 4.3 million, and $ 3.8 million, respectively, from accumulated other comprehensive income to interest expense, net. The Company estimates that it will reclassify $ 0.3 million of unrealized gains from accumulated other comprehensive income into earnings in the twelve months following December 31, 2025. See Note (17) "Fair Value Measurements" for the fair value of these swaps. (9) Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in thousands): As of December 31, 2025 2024 Accrued compensation and benefits $ 19,364 $ 16,254 Accrued customer rebates and royalties 7,531 6,731 Current portion of lease liabilities 6,306 4,781 Accrued lease termination fee 6,010 6,010 Contract liabilities 6,891 4,479 Accrued interest 65 1,734 Accrued warranty 1,631 1,067 Accrued income taxes 2,121 813 Accrued purchase consideration 10,800 — Interest rate swap liability 553 — Other 11,889 10,880 Total $ 73,161 $ 52,749 (10) Stock-Based Compensation Plans The VSE Corporation 2006 Restricted Stock Plan, as amended (the "2006 Plan"), provides for the issuance of equity-based and cash-based compensation awards to the Company's employees and non-employee directors. The types of awards issued under the 2006 Plan include stock-settled bonus awards, time-vested stock awards, and performance share awards. The total number of shares authorized for issuance under the 2006 Plan was 2,675,000 , of which 1,114,532 shares remained available for issuance as of December 31, 2025. Stock-settled bonus awards are fixed dollar-denominated awards. On the first anniversary of the grant date, the total fixed dollar value of the award is converted into shares based on the Company's closing stock price on the date of conversion. These awards vest over a three-year service period in three equal tranches. Beginning with the 2023 stock-settled bonus awards, the first tranche vests one year following the conversion of the award into shares. On each vesting date, 100 % of the vested award is settled in shares. Compensation expense is recognized on a straight-line basis over the requisite service period for each tranche, resulting in an accelerated pattern for the overall award. Time-vested stock awards generally vest in equal annual installments over a three-year service period beginning on the first anniversary of the grant date. Directors receive annual stock grants as part of their compensation, which vest immediately upon grant. -52- Table of Contents The Company grants performance share awards to certain employees under the 2006 Plan. These awards represent the right to receive shares upon the satisfaction of specified service requirements and performance conditions. Performance share awards vest ratably in equal annual installments over a three-year period on the anniversary of each grant date, subject to meeting minimum service requirements and achievement of certain annual or cumulative financial metrics of the Company's performance. The number of shares ultimately issuable ranges from 0 % to 200 % of the specified target shares, based on the level of performance achieved. If performance falls below the minimum threshold, no shares will be issued. For all performance share awards granted, the annual and cumulative financial metrics are based on the Company's achievement of a specified adjusted EBITDA target. In 2021, the Company established the VSE Employee Stock Purchase Plan ("ESPP") to allow eligible employees to purchase shares of the Company's common stock at a discount of up to 15 % of fair market value on specified dates. For ESPP offerings during the years ended December 31, 2025, 2024 and 2023, the purchase price was at a discount of 12 % off the lesser of the fair market value on the offering date or the purchase date. As a result, the Company recognized stock-based compensation expense of $ 0.1 million in each of these years. As of December 31, 2025, 500,000 shares of common stock were authorized for issuance under the ESPP, of which 419,996 shares remained available for issuance. Expense and Related Tax Benefits Recognized Stock-based compensation expense is included within products and services costs on the consolidated statements of operations. The total s tock-based compensation expense and related tax benefits recognized related to stock-based compensation were as follows (in thousands): For the years ended December 31, 2025 2024 2023 Stock-settled bonus awards $ 900 $ 273 $ 856 Time-vested stock awards 5,606 3,583 2,482 Performance share awards 6,386 4,151 3,407 Total $ 12,892 $ 8,007 $ 6,745 Tax benefits recognized $ 3,217 $ 1,998 $ 1,683 Stock-Settled Bonus Awards In March 2025, employees eligible for the 2024 awards, 2023 awards, and the 2022 awards received a total of 3,298 shares of common stock. The grant-date fair value of these awards for the years ended December 31, 2025, 2024 and 2023 was $ 113.97 , $ 75.12 , and $ 42.23 per share, respectively. Total stock-based compensation expense related to non-vested stock-settled bonus awards not yet recognized was approximately $ 1.4 million with a weighted average amortization period of 2.2 years as of December 31, 2025. The total fair value of stock-settled bonus awards that vested in the years ended December 31, 2025, 2024 and 2023 was $ 0.4 million, $ 0.7 million, and $ 1.2 million, respectively. Time-Vested Stock Awards Time-vested stock award activity for the year ended December 31, 2025 was: Number of Shares Weighted Average Grant Date Fair Value Unvested as of December 31, 2024 119,460 $ 67.16 Granted 64,165 $ 115.64 Vested ( 51,798 ) $ 61.84 Forfeited ( 8,047 ) $ 59.37 Unvested as of December 31, 2025 123,780 $ 95.03 The grant date fair value of time-vested stock awards is based on the closing market price of the Company's common stock on grant date. The weighted average grant date fair value of the time-vested stock awards granted for the years ended December 31, 2025, 2024 and 2023 was $ 115.64 , $ 79.30 , and $ 45.78 , respectively. As of December 31, 2025 there was $ 7.3 million of unrecognized stock-based compensation expense related to time-vested stock awards, which is expected to be -53- Table of Contents recognized over a weighted-average period of 1.9 years. The total fair value of time-vested stock awards that vested in the years ended December 31, 2025, 2024 and 2023 was $ 6.6 million, $ 3.7 million, and $ 1.2 million, respectively. Performance Share Awards Performance Share award activity for the year ended December 31, 2025 was: Number of Shares Weighted Average Grant Date Fair Value Unvested as of December 31, 2024 110,157 $ 54.20 Granted 35,614 $ 116.92 Vested ( 67,696 ) $ 55.48 Forfeited ( 7,408 ) $ 65.47 Performance award achievement adjustments (a) 12,117 $ 77.76 Unvested as of December 31, 2025 82,784 $ 82.57 (a) Represents the difference between the target shares granted and the actual shares awarded based upon the attainment of performance goals for the Company. The actual number of shares to be issued upon vesting range between 0 - 200 % of the target number of shares granted. The weighted average grant date fair value of the performance share awards granted for the years ended December 31, 2025, 2024 and 2023 was $ 116.92 , $ 77.54 , and $ 42.23 , respectively. As of December 31, 2025 there was $ 4.7 million of unrecognized compensation cost related to performance share awards, which is expected to be recognized over a weighted-average period of 1.4 years. The total fair value of performance share awards that vested in the year ended December 31, 2025 was $ 7.8 million . (11) Income Taxes The Company is subject to U.S. federal income tax as well as income tax in multiple state, local and foreign jurisdictions. With few exceptions, the statute of limitations for these jurisdictions is no longer open for audit or examinations for the years before 2021 for federal and state income taxes in the U.S and various foreign jurisdictions. The Company files consolidated federal income tax returns that include all of its U.S. subsidiaries. The components of income from continuing operations before income taxes were as follows (in thousands): For the years ended December 31, 2025 2024 2023 Domestic $ 62,037 $ 18,928 $ 14,284 Foreign 7,002 4,881 4,776 Income from continuing operations before income taxes $ 69,039 $ 23,809 $ 19,060 -54- Table of Contents The components of the provision for income taxes from continuing operations were as follows (in thousands): For the years ended December 31, 2025 2024 2023 Current: Federal $ 10,422 $ 9,010 $ 6,792 State 2,191 1,495 1,066 Foreign 1,655 1,573 1,138 Total current 14,268 12,078 8,996 Deferred: Federal 1,944 ( 6,569 ) ( 3,951 ) State ( 1,234 ) ( 923 ) ( 557 ) Foreign 568 ( 179 ) 7 Total deferred 1,278 ( 7,671 ) ( 4,501 ) Provision for income taxes $ 15,546 $ 4,407 $ 4,495 The Company's effective tax rate differs from the federal statutory rate. A reconciliation of the provision for income taxes from continuing operations to the amount computed by applying the statutory federal income tax rate is as follows (in thousands): For the years ended December 31, 2025 2024 2023 $ % $ % $ % US federal statutory tax rate $ 14,498 21.0 % $ 5,000 21.0 % $ 4,003 21.0 % Increases (decreases) in tax resulting from: State and local income taxes, net of federal income tax effect (a) 756 1.1 % 451 1.9 % 402 2.1 % Foreign tax effects Germany 798 1.2 % — — % — — % Other foreign jurisdictions ( 41 ) — % 373 1.6 % 144 0.8 % Effect of cross-border tax laws Foreign-derived intangible income ( 3,753 ) ( 5.4 ) % ( 1,892 ) ( 8.0 ) % ( 615 ) ( 3.2 ) % Tax credits ( 52 ) ( 0.1 ) % ( 80 ) ( 0.3 ) % ( 32 ) ( 0.2 ) % Changes in valuation allowances 502 0.7 % 4 — % ( 1 ) — % Nontaxable or nondeductible items Excess stock tax benefit ( 1,421 ) ( 2.1 ) % ( 772 ) ( 3.2 ) % — — % Section 162(m) executive compensation 3,809 5.5 % 1,444 6.1 % 554 2.9 % Transaction costs 1,053 1.5 % 489 2.0 % 477 2.5 % Corporate-owned life insurance — — % ( 283 ) ( 1.2 ) % ( 409 ) ( 2.1 ) % Other ( 132 ) ( 0.2 ) % 116 0.5 % 43 0.2 % Other adjustments Other adjustments ( 471 ) ( 0.7 ) % ( 443 ) ( 1.9 ) % ( 71 ) ( 0.4 ) % Effective tax rate $ 15,546 22.5 % $ 4,407 18.5 % $ 4,495 23.6 % (a) State Taxes in CA, FL, KS, and VA made up the majority (greater than 50%) of the tax effect in this category. State income tax expense includes the effects of changes in valuation allowances related to state net operating losses, the impact of state conformity to federal income tax provisions, and the benefit of state income tax credits. During the year ended December 31, 2025, the Company recorded unrecognized tax benefits of approximately $ 3.1 million in connection with a recent acquisition. Because the identified tax exposures, including interest and penalties, are fully indemnified, recognition is not expected to materially affect the Company’s effective tax rate. -55- Table of Contents The tax effect of temporary differences representing deferred tax assets and liabilities was as follows (in thousands): As of December 31, 2025 2024 Deferred compensation and accrued paid leave $ 2,544 $ 1,948 Accrued expense 2,481 1,367 Inventory reserve 22,822 23,020 Operating lease liabilities 13,321 14,199 Stock-based compensation 2,201 2,084 Capitalized inventory 514 498 US operating and capital loss carryforward 8,187 12,843 Disallowed interest expense 6,982 9,450 Tax credit carryforward 1,822 1,421 Foreign country operating loss carryforward 1,417 1,364 Interest capitalized — 2,030 Transaction costs 302 235 62,593 70,459 Valuation allowance (a) ( 5,091 ) ( 19,368 ) Total gross deferred tax assets 57,502 51,091 Interest rate swaps ( 170 ) ( 1,021 ) Depreciation ( 7,285 ) ( 4,000 ) Goodwill and intangible assets ( 50,571 ) ( 26,786 ) Operating lease right-of-use assets ( 11,870 ) ( 10,962 ) Other — ( 193 ) Total gross deferred tax liabilities ( 69,896 ) ( 42,962 ) Net deferred tax (liabilities) assets (b) $ ( 12,394 ) $ 8,129 (a) A valuation allowance was provided against US capital losses in connection with a recent stock sale, certain state net operating losses, tax credits, and foreign tax loss deferred tax assets arising from carryforwards of unused tax benefits. (b) Deferred tax assets are included within other assets in the Company's consolidated balance sheets as of December 31, 2024. As of December 31, 2025, the Company had various tax losses and tax credits that may be applied against future taxable income. The majority of such tax attributes will expire in 2026 through 2046; however, some may be carried forward indefinitely. The Organization for Economic Co-operation and Development has issued Pillar Two model rules introducing a new global minimum tax of 15% intended to be effective on January 1, 2024. While the US has not yet adopted the Pillar Two rules, many countries took steps to incorporate Pillar Two model rule concepts into their domestic laws in 2023. Considering that the Company does not have material operations in jurisdictions with tax rates lower than the Pillar Two minimum, the Company does not expect these rules will significantly increase global tax costs. The Company will continue to monitor US and global legislative action related to Pillar Two for future potential impacts. (12) Leases The Company's operating lease cost was as follows for the years ended December 31, (in thousands): 2025 2024 2023 Operating lease cost (a) $ 8,169 $ 6,627 $ 3,781 (a) Excludes short-term lease expense, which is not material. -56- Table of Contents The table below summarizes future minimum lease payments under operating leases as of December 31, 2025 (in thousands): Year ending December 31, 2026 $ 9,229 2027 10,173 2028 8,676 2029 6,830 2030 5,609 Thereafter 25,109 Total future minimum lease payments 65,626 Less: imputed interest ( 15,627 ) Present value of minimum lease payments 49,999 Less: current portion of lease liabilities (a) ( 6,306 ) Long-term lease liabilities $ 43,693 (a) The current portion of lease liabilities are presented within accrued expenses and other current liabilities on the Company's consolidated balance sheets. Refer to Note (9) "Accrued Expenses and Other Current Liabilities." Other supplemental operating lease information for the year ended December 31, was as follows (in thousands): 2025 2024 2023 Cash paid for amounts included in the measurement of operating lease liabilities $ 7,608 $ 7,171 $ 2,719 Right-of-use assets obtained in exchange for new operating lease liabilities $ 9,484 $ 30,314 $ 11,812 The weighted-average discount rate was 6.3 % and 6.5 % and the weighted-average remaining lease term was 8.2 years and 9.5 years as of December 31, 2025, and 2024, respectively. Lease Abandonment and Termination In connection with the FDS sale as described in Note (3) "Discontinued Operations," the Company implemented post-sale changes, including the abandonment and termination of its former headquarters office space. The Company ceased use of the office space and formally terminated the related lease in 2024. These actions resulted in net lease abandonment and termination charges of $ 12.2 million during the year ended December 31, 2024. As of December 31, 2025, the Company had a remaining lease termination obligation of $ 6.0 million, due in January 2026, which is included within accrued expenses and other current liabilities on the consolidated balance sheets. (13) Commitments and Contingencies The Company may have certain claims in the normal course of business, including legal proceedings, against the Company and against other parties. Legal liabilities are recorded when it is probable that the outcome in a proceeding will be unfavorable and the related loss amount can be reasonably estimated. In the Company's opinion, the resolution of these claims will not have a material adverse effect on the Company's results of operations, financial position, or cash flows. However, because the results of any legal proceedings cannot be predicted with certainty, the amount of loss, if any, cannot be reasonably estimated. Further, from time-to-time, government agencies audit or investigate whether the Company's operations are being conducted in accordance with applicable contractual and regulatory requirements. Government audits or investigations, whether relating to government contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including repayments, fines or penalties imposed, or could lead to suspension or debarment from future government contracting. Government investigations often take years to complete and many result in no adverse action. The Company believes, based upon current information, that the outcome of any such government disputes, audits and investigations will not have a material adverse effect on the Company's results of operations, financial condition, or cash flows. -57- Table of Contents (14) Business Segment and Customer Information Segment Information Following the sales of the Company's Fleet and Federal and Defense segments, the Company manages its business as a single reportable and operating segment focused on higher margin and higher growth aftermarket parts distribution and MRO activities. The Company's single operating segment provides aftermarket MRO and distribution services to commercial, business and general aviation, cargo, military and defense, and rotorcraft customers globally. Core services include parts distribution, MRO services including engine components and accessories, fuel controls, avionics, pneumatics, hydraulics, wheel and brake, as well as rotable exchange and supply chain services. The operating segment presented below represents the Company's only segment for which discrete financial information is available and is the basis on which operating results are regularly reviewed by the Company's President and Chief Executive Officer, who serves as the Chief Operating Decision Maker ("CODM"), for purposes of resource allocation and performance assessment. The CODM evaluates segment performance based on consolidated net income as the measure of segment profit or loss and considers budget-to-actual results, sequential period and prior period comparisons on a monthly basis when making decisions regarding capital and personnel allocation. The expenses presented below represent significant segment expenses that are regularly provided to and considered by the CODM in evaluating segment performance. Segment assets are reported on the consolidated balance sheets as total assets. The Company's segment information is as follows (in thousands): For the years ended December 31, 2025 2024 2023 Revenues $ 1,112,275 $ 786,256 $ 544,020 Costs and operating expenses: Segment costs (a) 900,759 641,298 431,412 Depreciation and amortization (b) 39,160 25,500 16,080 Allocated corporate cost (c) 24,020 18,071 12,411 Unallocated corporate costs (d) 58,741 42,631 33,972 Total costs and operating expenses 1,022,680 727,500 493,875 Operating income 89,595 58,756 50,145 Interest expense, net 20,556 34,947 31,085 Provision for income taxes 15,546 4,407 4,495 (Loss) income from discontinued operations, net of tax ( 41,790 ) ( 4,078 ) 24,569 Net income $ 11,703 $ 15,324 $ 39,134 (a) Segment costs consist of material, labor, overhead, and selling, general, and administrative costs attributable to the Aviation segment. (b) This line item includes only depreciation and amortization attributable to the Aviation segment. (c) Primarily includes costs for information technology, human resources, accounting, and legal support services allocated to the Aviation segment. (d) Primarily includes earn-out receivable fair value adjustments and corporate costs for acquisition, integration and restructuring activities. Customer and Geographical Information The Company's revenues are derived from the delivery of products and services performed for commercial and government customers. Customers also include various other commercial entities and government agencies. See Note (4) "Revenue Recognition" for revenue by customer. Revenues from a group of affiliated customers under common ownership represented 20 %, 21 %, and 14 % of consolidated revenues for the years ended December 31, 2025, 2024 and 2023, respectively. -58- Table of Contents Revenue by geography is based on the billing address of the customer. Revenue by geographic area is as follows (in thousands): For the years ended December 31, 2025 2024 2023 United States $ 629,665 $ 492,297 $ 340,915 Canada 149,034 107,305 72,448 Other Countries (a) 333,576 186,654 130,657 Total revenue $ 1,112,275 $ 786,256 $ 544,020 (a) No individual country, other than disclosed above, exceeded 10% of the Company's total revenue for any period presented. (15) Capital Stock The Company's common stock has a par value of $ 0.05 per share. Proceeds from common stock issuances that are greater than $ 0.05 per share are credited to additional paid in capital. Holders of common stock are entitled to one vote per common share held on all matters voted on by the Company's stockholders. Stockholders of record are entitled to the amount of dividends declared per common share held. In October 2025, the Company entered into an underwriting agreement with certain underwriters relating to the issuance and sale of 2,352,941 shares of the Company's common stock at a public offering price of $ 170.00 per share. Under the terms of the agreement, the Company granted the underwriters an option, exercisable for 30 days, to purchase up to an additional 352,941 shares of common stock. The offering closed on October 29, 2025, resulting in the issuance of 2,705,882 shares, which included the exercise by the underwriters of their option to purchase additional shares for which the Company received proceeds of $ 441.6 million, net of issuance costs. Additionally, the Company incurred transaction-related legal and accounting fees of $ 0.5 million. The net proceeds were used to fund the cash consideration for the Aero 3 acquisition and general corporate purposes, including repaying outstanding borrowings under the Company's revolving facility. In May 2024, the Company entered into an underwriting agreement with certain underwriters relating to the issuance and sale of 2,429,577 shares of the Company's common stock at a public offering price of $ 71.00 per share. Net proceeds of $ 162.0 million were received by the Company, which were used to repay outstanding borrowings under the Company's revolving credit facility, including amounts borrowed to pay the purchase price of the acquisition of TCI and for general corporate purposes. In October 2024, the Company entered into an underwriting agreement with certain underwriters relating to the issuance and sale of 1,982,757 shares at a public offering price of $ 87.00 per share, for which the Company received net proceeds of $ 163.8 million. The net proceeds were used to fund a portion of the cash consideration for the Kellstrom Aerospace acquisition and general corporate purposes, including repaying outstanding borrowings under the Company's revolving facility. (16) 401(k) Plan The Company maintains a defined contribution plan under Section 401(k) of the Internal Revenue Code of 1986, as amended, that covers substantially all employees. Under the provisions of the 401(k) plan, employees' eligible contributions are matched at rates specified in the plan documents. The Company's 401(k) Plan expense was approximately $ 2.4 million, $ 1.3 million, and $ 1.0 million for the years ended December 31, 2025, 2024, and 2023, respectively. (17) Fair Value Measurements The Company utilizes fair value measurement guidance prescribed by GAAP to value its financial instruments. The accounting standard for fair value measurements establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: observable inputs such as quoted prices in active markets (Level 1); inputs other than the quoted prices in active markets that are observable either directly or indirectly (Level 2); and unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions (Level 3). -59- Table of Contents The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis (in thousands): As of December 31, Description Financial Statement Classification Fair Value Hierarchy 2025 2024 Non-COLI assets held in Deferred Supplemental Compensation Plan (a) Other assets Level 1 $ 704 $ 629 Interest rate swaps - current Accrued expenses and other current liabilities Level 2 $ 553 $ — Interest rate swaps - long-term Other assets Level 2 $ 1,235 $ 4,093 (a) Non-COLI assets held in the Company's deferred supplemental compensation plan consist of equity funds with fair value based on observable inputs such as quoted prices for identical assets in active markets and changes in fair value are recorded as selling, general and administrative expenses. The carrying amounts of cash and cash equivalents, receivables, accounts payable and amounts included in prepaid expenses and other current assets and accrued expenses and other current liabilities that meet the definition of a financial instrument approximate fair value due to their relatively short maturity. The carrying value of the note receivable approximates fair value as the stated interest income effectively offsets the time value of money, resulting in minimal discounting impact. The carrying value of the Company's outstanding debt obligations approximates its fair value. The fair value of the note receivable and long-term debt are calculated using Level 2 inputs based on interest rates available for debt with terms and maturities similar to the Company's existing debt arrangements. Non-financial assets acquired and liabilities assumed in business combinations were measured at fair value using income, market and cost valuation methodologies. See Note (2), "Acquisitions." The fair value measurements were estimated using significant inputs that are not observable in the market and thus represent a Level 3 measurement. In connection with the sale of the Fleet segment in April 2025, the total consideration to be received by the Company included a potential earn-out payment of up to $ 65 million, subject to the achievement of certain milestones by the divested business during 2025. Pursuant to the sale agreement, half of the earn-out amount, if any, is due to the Company by December 31, 2026, with the second half due by June 30, 2027. The earn-out receivable is measured at fair value using unobservable inputs and thus represents a Level 3 measurement. The fair value is remeasured at each reporting period, with all fair value changes subsequent to the initial sale-date measurement recorded within earn-out receivable fair value adjustments in the consolidated statements of operations. The following table presents the changes in the fair value of the earn-out receivable: Amount Balance as of December 31, 2024 $ — Sale date fair value of earn-out receivable 29,200 Subsequent fair value adjustments ( 29,200 ) Balance as of December 31, 2025 $ — The fair value of the earn-out receivable was estimated using a modified Black-Scholes model and other methods, which accounted for the probabilities of various outcomes. The sale date fair value of the earn-out receivable was utilized in calculating the Company's impairment loss on Fleet assets classified as held-for-sale recorded in 2025 as discussed in Note (3) "Discontinued Operations." During the year ended December 31, 2025, the Company recorded a fair value adjustment resulting in a full write-down of the earn-out receivable due to updated estimates used in the valuation. Based on updated forecasts, which incorporated actual performance to date of the divested entity subsequent to the sale, and the required milestones under the sale agreement, the Company does not expect that the earn-out performance threshold will be achieved. (18) Restructuring Costs During the year ended December 31, 2024, the Company incurred $ 4.2 million of corporate restructuring expenses , which are included in selling, general and administrative expenses in the consolidated statement of operations, primarily related to the cancellation of contracts and leasing agreements associated with the FDS Sale. Corporate restructuring expenses during the year ended December 31, 2025 were not material. The Company's corporate restructuring activities related to the FDS and Fleet Sales are substantially complete, and the Company does not expect to incur additional material costs associated with these activities . -60- Table of Contents (19) Subsequent Events On January 29, 2026, the Company entered into a stock purchase agreement ("the Purchase Agreement") to acquire Precision Aviation Group ("PAG"), a portfolio company of GenNx360 Capital Partners, for total upfront consideration of approximately $ 2.025 billion in cash and equity (the “PAG Acquisition”). In addition, the Purchase Agreement provides for up to $ 125 million in additional contingent earn-out consideration, payable in cash or equity consideration at the Company's sole discretion, based on PAG's 2026 adjusted EBITDA performance. The Acquisition is subject to customary closing conditions and approvals and is expected to close in the second quarter of 2026. In connection with and pursuant to the Purchase Agreement, concurrently with the signing of the Purchase Agreement, the Company entered into a debt commitment letter (the “Debt Commitment Letter”) with one or more financial institutions (collectively, the “Commitment Parties”). Subject to the terms of the Debt Commitment Letter, the Commitment Parties have committed to provide new senior secured financing, which currently consists of, (i) a term loan B facility (the “New Term Loan B Facility”), (ii) an upsize of the Company's existing revolving facility (as amended, the “New Revolving Facility”), and (iii) an upsize of the Company's $ 300.0 million senior secured term loan A facility from $ 296.25 million (as amended, the “New Term Loan A Facility”). Following the satisfaction of certain conditions under the Debt Commitment Letter, certain commitments within the Debt Commitment Letter to provide a bridge loan facility and a backstop facility were reduced to $ 0 , and the New Term Loan A Facility and the New Term Loan B Facility commitments may also be reduced. In February 2026, the Company initiated concurrent public offerings of (i) 4,587,766 shares of its common stock at a public offering price of $ 188.00 per share (the “Common Stock Offering”) and (ii) 9,200,000 5.750 % tangible equity units, each with a stated value of $ 50.00 (the “Units Offering,” and together with the Common Stock Offering, the “Offerings”). The Common Stock Offering closed on February 4, 2026, and the Units Offering closed on February 5, 2026. The net proceeds of approximately $ 1.3 billion received by the Company are expected to be used to finance a portion of the cash consideration for the PAG Acquisition. If for any reason the PAG Acquisition is not consummated, the Company intends to use the net proceeds from the Offerings, after payment of any cash redemption amount and repurchase price, for general corporate purposes, which may include repayment of outstanding indebtedness. -61- Table of Contents ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.