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 4 and 20 23 30 Consolidated Statements of Income for the years ended December 31, 202 4 , 202 3 and 20 2 2 31 Consolidated Statements of Comprehensive Income for the years ended December 31, 20 2 4 , 202 3 and 20 2 2 32 Consolidated Statements of Stockholders' Equity for the years ended December 31, 202 4 , 202 3 and 20 2 2 33 Consolidated Statements of Cash Flows for the years ended December 31, 202 4 , 202 3 and 20 2 2 34 Notes to Consolidated Financial Statements 35 -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, 2024 and 2023, 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, 2024, and the related notes and financial statement schedule 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, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, 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, 2024, 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 March 3, 2025 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 within the Aviation segment As described further in note 1 to the consolidated financial statements, the Company records inventory within its Aviation Segment 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 for the Aviation Segment. The principal considerations for our determination that the assessment of the write-down of slow moving inventory at certain locations within the Aviation Segment 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, within the Aviation Segment, included the following, among others. • We tested the design and operating effectiveness of controls relating to the Company’s inventory process, including controls over the Company’s evaluation of the impact on the estimate of net realizable value based on the number of days transpiring from the date the inventory was originally received, sales of the inventory, specific inventories identified to relate to aircraft with declining usage and the approval and evaluation of distribution agreements. • We assessed the recovery rates applied to slow moving inventory. • 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. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2019. Charlotte, North Carolina March 3, 2025 -29- Table of Contents VSE CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets As of December 31, (in thousands, except share data) 2024 2023 Assets Current assets: Cash and cash equivalents $ 29,030 $ 7,768 Receivables, net 197,563 127,958 Contract assets 29,960 8,049 Inventories 576,318 500,864 Prepaid expenses and other current assets 41,956 36,389 Current assets held-for-sale — 93,002 Total current assets 874,827 774,030 Property and equipment, net 85,586 58,076 Intangible assets, net 197,281 114,130 Goodwill 491,453 351,781 Operating lease right-of-use assets 53,326 28,684 Other assets 32,147 23,637 Total assets $ 1,734,620 $ 1,350,338 Liabilities and Stockholders' equity Current liabilities: Current portion of long-term debt $ 30,000 $ 22,500 Accounts payable 187,590 173,036 Accrued expenses and other current liabilities 62,195 36,383 Dividends payable 2,059 1,576 Current liabilities held-for-sale — 53,391 Total current liabilities 281,844 286,886 Long-term debt, less current portion 400,173 406,844 Deferred compensation 7,262 7,939 Long-term operating lease obligations 48,144 24,959 Deferred tax liabilities — 6,985 Other long-term liabilities 9,011 — Total liabilities 746,434 733,613 Commitments and contingencies (Note 13) Stockholders' equity: Common stock, par value $ 0.05 per share, authorized 23,000,000 shares; issued and outstanding 20,590,496 and 15,756,918 respectively 1,030 788 Additional paid-in capital 591,600 229,103 Retained earnings 392,484 384,702 Accumulated other comprehensive income 3,072 2,132 Total stockholders' equity 988,186 616,725 Total liabilities and stockholders' equity $ 1,734,620 $ 1,350,338 The accompanying notes are an integral part of these financial statements. -30- Table of Contents VSE CORPORATION AND SUBSIDIARIES Consolidated Statements of Income For the years ended December 31, (in thousands, except share and per share amounts) 2024 2023 2022 Revenues: Products $ 776,676 $ 693,035 $ 554,010 Services 303,456 167,453 115,438 Total revenues 1,080,132 860,488 669,448 Costs and operating expenses: Products 675,015 605,682 495,965 Services 279,168 144,813 100,509 Selling, general and administrative expenses 14,576 7,619 3,635 Lease abandonment and termination costs 12,205 — — Amortization of intangible assets 17,749 14,378 15,735 Total costs and operating expenses 998,713 772,492 615,844 Operating income 81,419 87,996 53,604 Interest expense, net 34,939 31,083 17,893 Income from continuing operations before income taxes 46,480 56,913 35,711 Provision for income taxes 9,982 13,761 9,052 Net income from continuing operations 36,498 43,152 26,659 (Loss) income from discontinued operations, net of tax ( 21,174 ) ( 4,018 ) 1,400 Net income $ 15,324 $ 39,134 $ 28,059 Earnings (loss) per share: Basic Continuing operations $ 2.04 $ 3.05 $ 2.09 Discontinued operations ( 1.18 ) ( 0.28 ) 0.11 $ 0.86 $ 2.77 $ 2.20 Diluted Continuing operations $ 2.03 $ 3.04 $ 2.08 Discontinued operations ( 1.18 ) ( 0.28 ) 0.11 $ 0.85 $ 2.76 $ 2.19 Weighted average shares outstanding: Basic 17,878,608 14,130,334 12,780,117 Diluted 17,975,295 14,184,729 12,827,894 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, 2024 2023 2022 (in thousands) Net income $ 15,324 $ 39,134 $ 28,059 Other comprehensive income (loss), net of tax: Change in fair value of interest rate swap agreements, net of tax 940 ( 2,836 ) 5,144 Total other comprehensive income (loss), net of tax 940 ( 2,836 ) 5,144 Comprehensive income $ 16,264 $ 36,298 $ 33,203 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 (Loss) Total Stockholders' Equity Common Stock (in thousands) Shares Amount Balance at December 31, 2021 12,727 $ 636 $ 88,515 $ 328,358 $ ( 176 ) $ 417,333 Net income — — — 28,059 — 28,059 Stock-based compensation 90 5 4,105 — — 4,110 Other comprehensive income, net of tax — — — — 5,144 5,144 Dividends declared ($ 0.40 per share) — — — ( 5,120 ) — ( 5,120 ) 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 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) 2024 2023 2022 (a) (a) (a) Cash flows from operating activities: Net income $ 15,324 $ 39,134 $ 28,059 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 28,762 23,416 24,602 Amortization of debt issuance costs 1,330 1,544 968 Deferred taxes ( 9,996 ) ( 1,979 ) ( 1,139 ) Stock-based compensation 8,315 7,738 4,465 Specific provision for inventory — 742 1,094 Impairment and loss on sale of business segment 19,403 — — Loss on sale of property and equipment 479 — 122 Lease abandonment and termination costs 12,205 — — Changes in operating assets and liabilities, net of impact of acquisitions: Receivables ( 40,239 ) ( 25,923 ) ( 26,606 ) Contract assets 7,781 5,148 ( 6,425 ) Inventories ( 31,668 ) ( 87,529 ) ( 59,099 ) Prepaid expenses and other current assets and other assets ( 6,685 ) ( 3,191 ) 2,563 Operating lease assets and liabilities, net ( 10,247 ) ( 390 ) ( 486 ) Accounts payable and deferred compensation ( 31,756 ) 23,913 36,193 Accrued expenses and other current and noncurrent liabilities 5,955 ( 4,452 ) 3,740 Net cash (used in) provided by operating activities ( 31,037 ) ( 21,829 ) 8,051 Cash flows from investing activities: Purchases of property and equipment ( 20,704 ) ( 18,666 ) ( 11,212 ) Proceeds from the sale of business segment 40,157 — — Proceeds from payments on notes receivable — 1,557 8,835 Cash paid for acquisitions, net of cash acquired ( 283,122 ) ( 218,581 ) — Net cash used in investing activities ( 263,669 ) ( 235,690 ) ( 2,377 ) Cash flows from financing activities: Borrowings on bank credit facilities 739,236 844,262 520,223 Repayments on bank credit facilities ( 739,736 ) ( 699,872 ) ( 518,347 ) Proceeds from issuance of common stock 325,999 130,020 899 Earn-out obligation payments — — ( 1,250 ) Payment of debt financing costs — ( 2,890 ) ( 1,113 ) Payment of taxes for equity transactions ( 2,633 ) ( 1,113 ) ( 1,015 ) Dividends paid ( 7,060 ) ( 5,436 ) ( 5,111 ) Net cash provided by (used in) financing activities 315,806 264,971 ( 5,714 ) Net increase (decrease) in cash and cash equivalents 21,100 7,452 ( 40 ) Cash and cash equivalents, beginning of period 7,930 478 518 Cash and cash equivalents, end of period $ 29,030 $ 7,930 $ 478 Supplemental disclosures of cash flow information: Cash paid for interest $ 37,076 $ 35,039 $ 16,423 Cash paid for income taxes $ 12,230 $ 13,944 $ 10,332 (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. The accompanying notes are an integral part of these financial statements -34- 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 is a diversified aftermarket products and services company serving commercial and government markets. Our operations include aircraft and airframe parts supply and distribution, supply chain and inventory management services; MRO services of aircraft components and engine accessories; vehicle fleet sustainment programs; and vehicle fleet parts supply and distribution. We operate in two reportable segments aligned with our operating segments: Aviation and Fleet. 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 our parent company and our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. In February 2024, we entered into two separate agreements to sell substantially all of the Federal and Defense segment assets. See Note (3) "Discontinued Operations" for further information. The consolidated financial statements reflect the Federal and Defense segment's results of operations as discontinued operations, and the related assets and liabilities as held-for-sale for all periods presented. Certain reclassifications have been made to the prior period financial information to reflect discontinued operations presentation. 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 us 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 We issue 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. We recognize stock-based compensation expense over the underlying award’s requisite service period, as measured using the award’s grant date fair value. Our policy is to recognize forfeitures as they occur. For performance share awards, we assess the probability of achieving the performance conditions at each reporting period end and adjust compensation expense based on the number of shares we expect 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. Our 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. -35- 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, 2024 2023 2022 Basic weighted average common shares outstanding 17,878,608 14,130,334 12,780,117 Effect of dilutive shares 96,687 54,395 47,777 Diluted weighted average common shares outstanding 17,975,295 14,184,729 12,827,894 Cash and Cash Equivalents We consider 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 our consolidated balance sheets approximate fair value. Although certain cash balances exceed insurance limits of the Federal Deposit Insurance Corporation, we do not limit our credit exposure to any one financial institution and utilize financial institutions with high credit quality. As of December 31, 2024, we held approximately $ 5.9 million of cash in foreign bank accounts, primarily in connection with our acquisitions of Desser Holding Company, LLC ("Desser Aerospace") and Kellstrom Aerospace. Refer to Note (2) "Acquisitions," for details regarding our acquisitions. Property and Equipment Property and equipment is recorded at cost, net of accumulated depreciation and amortization. Depreciation and amortization is generally provided on the straight-line method 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 provided by the straight-line method over the lesser of their useful life or the remaining term of the lease. Leases We determine at inception whether an arrangement that provides us control over the use of an asset is a lease. Substantially all of our leases are long-term operating leases for facilities with fixed payment terms. We recognize a right-of-use ("ROU") asset and a lease liability upon commencement of our operating leases. The initial lease liability is equal to the future fixed minimum lease payments discounted using our incremental borrowing rate, on a secured basis. The lease term includes option renewal periods and early termination payments when it is reasonably certain that we 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. We recognize 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 our consolidated statement of income. Concentrations of Credit Risk Financial instruments that potentially subject us to concentration of credit risk consist primarily of our trade receivables. Our trade receivables consist of amounts due from various commercial entities and government clients. We believe 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 entity. We perform ongoing credit evaluations and monitoring of the financial condition of all our customers. We maintain an allowance for credit losses based upon several factors, including historical collection experience, current aging status of the customer accounts and financial condition of our customers. Revenue Recognition We account 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, we determine our performance obligations under the contract and the contract's -36- Table of Contents 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 our 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. Our 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 our customers. Substantially all our Fleet segment revenues from the sale of vehicle parts to customers are recognized at the point in time of the transfer of control to the customer. Sales returns and allowances for vehicle parts are not significant. Our Aviation segment 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. Our Aviation segment 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. Our Aviation segment 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. We review our 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 our 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 our consolidated balance sheets. Allowance for Credit Losses We establish allowances for credit losses on our accounts receivable and contract assets. To measure expected credit losses, we have disaggregated pools of receivable balances by segment. Within each segment, receivables exhibit similar risk characteristics. In determining the amount of the allowance for credit losses, we consider historical collectability based on past due status. We also consider current market conditions and forecasts of future economic conditions to inform potential adjustments to historical loss data. In addition, we also record 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 to us. 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 finished goods replacement parts for our Fleet and Aviation segments, and also include related purchasing, storage, and handling costs. Inventories for our Aviation segment 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. We periodically evaluate 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 We provide for certain key management employees to be incentivized and rewarded based on overall company performance through the VSE Corporation Deferred Supplemental Compensation Plan (the "DSC Plan"). We recognized DSC Plan expenses of $ 0.3 million, $ 0.4 million, and $ 0.3 million for the years ended December 31, 2024, 2023 and 2022, respectively. -37- Table of Contents We invest 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. Our DSC Plan assets were $ 12.0 million and $ 11.0 million as of December 31, 2024 and December 31, 2023, respectively. Gains and losses recognized on the changes in fair value of the investments are recorded as selling, general and administrative expenses on the accompanying consolidated statements of income. We recorded net gains of $ 0.6 million for the years ended December 31, 2024 and 2023 and $ 22 thousand for the year ended December 31, 2022. 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 our ability to generate sufficient future taxable income to utilize these deferred tax assets. Business Combinations We allocate 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 our 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, we may initially qualitatively assess whether it is necessary to perform a quantitative goodwill impairment test, which is only required if we conclude that it is more likely than not that a reporting unit's fair value 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, we 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 we deem a quantitative impairment test necessary, we estimate and compare the fair value of each reporting unit to its respective carrying value including goodwill. The fair value of our reporting units 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. Impairment of Long-Lived Assets We review our 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 -38- Table of Contents 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. Recent Accounting Pronouncements Recently Adopted Accounting Pronouncements In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , which requires public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. We adopted the standard in the fourth quarter of 2024 and applied the disclosure retrospectively to all prior periods presented in the financial statements. The adoption of ASU 2023-07 did not have an impact on our consolidated financial position, results of operations or cash flows. See Note (14) "Business Segments and Customer Information" for further information. Recently Issued Accounting Pronouncements Not Yet Adopted 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. We are currently evaluating the disclosure impact of this ASU, however, the standard will not have an impact on our consolidated financial position, results of operations or cash flows. 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. We are currently evaluating the impact that adoption of ASU 2024-03 may have on our consolidated financial statements and disclosures. (2) Acquisitions Fiscal 2024 Turbine Controls, Inc. On April 24, 2024, we completed the acquisition of TCI for a total consideration of $ 122.4 million, consisting of net cash consideration of $ 112.4 million, which included $ 1.5 million as a net working capital adjustment, and in-kind payment in the form of shares of the Company's common stock with a value equal to approximately $ 10.0 million. The purchase price of this acquisition was funded by borrowings under our 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 VSE's Aviation segment to accelerate its MRO strategy, including expanding our repair capability offerings and adding several new OEM relationships. The purchase price for TCI was allocated on a preliminary basis, among assets acquired and liabilities assumed at fair value based on the best available information on the acquisition date, with the excess purchase price recorded as goodwill. The fair values of the non-financial assets acquired, and liabilities assumed, were determined based on preliminary estimates, assumptions, and other information compiled by management, including independent valuations utilizing established industry valuation techniques. We have not yet finalized the determination of the fair values allocated to various assets and liabilities, including, but not limited to, 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 we obtain final information regarding their fair values, which could potentially result in changes to the TCI opening balance sheet. During the year ended December 31, 2024, we adjusted the purchase price allocation as a result of working capital and measurement period adjustments. The adjustments were recorded as a result of new information obtained about facts and circumstances that existed as of the acquisition date and resulted in immaterial impacts to accrued expense and other current liabilities, goodwill, and cash consideration, net of cash acquired. -39- Table of Contents The adjusted preliminary 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 Other assets 214 Property and equipment, net 6,434 Intangible asset - customer related 59,000 Goodwill 40,201 Operating lease right-of-use assets 7,832 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 our 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 on a straight-line basis using a useful life of 10 years. The operating results of TCI were included in our consolidated results of operations from the date of acquisition. Our consolidated revenues and operating income for the year ended December 31, 2024 include $ 84.4 million and $ 7.1 million, respectively, from the acquisition of TCI. Operating income does not include the impact of acquisition-related expenses incurred by VSE Corporation. Acquisition-related expenses related to the TCI acquisition 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 $ 1,111,915 $ 949,019 Income from continuing operations $ 37,226 $ 38,981 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 acquisition and other transaction costs. The unaudited pro forma financial information 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. -40- Table of Contents Kellstrom Aerospace Group, Inc. On December 3, 2024, we completed the acquisition of Kellstrom Aerospace for a total consideration of approximately $ 191.0 million, subject to post-closing adjustments, consisting of net cash consideration of $ 170.8 million 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 purchase price of this acquisition was funded by our October 2024 underwritten public offering and borrowings under our 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 our position in the commercial aviation aftermarket by expanding product and capability offerings both domestically and internationally, including our participation in aircraft engine maintenance events. The purchase price for Kellstrom Aerospace was allocated on a preliminary basis, among assets acquired, and liabilities assumed, at fair value based on the best available information on the acquisition date, with the excess purchase price recorded as goodwill. The fair values of the non-financial assets acquired, and liabilities assumed, were determined based on preliminary estimates, assumptions, and other information compiled by management, including independent valuations utilizing established industry valuation techniques. We have 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 we obtain final information regarding their fair values, which could potentially result in changes to the Kellstrom Aerospace opening balance sheet. Adjustments or changes to goodwill, assets or liabilities remain possible. The preliminary purchase price is as follows (in thousands): Receivables $ 27,379 Contract assets 2,925 Inventories 37,686 Prepaid expenses and other current assets 2,723 Property and equipment, net 10,301 Intangible asset - customer related 41,900 Goodwill 100,711 Operating lease right-of-use assets 10,793 Total assets acquired 234,418 Accounts payable ( 27,750 ) Accrued expense and other current liabilities ( 6,096 ) Deferred tax liabilities ( 201 ) Long-term operating lease obligations ( 9,348 ) Total liabilities assumed ( 43,395 ) Net assets acquired, excluding cash $ 191,023 Cash consideration, net of cash acquired $ 170,756 VSE common stock, at fair value 20,267 Total $ 191,023 Goodwill resulting from the acquisition reflects the strategic advantage of growing our 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 on a straight-line basis using a useful life of 8 years. The operating results of Kellstrom Aerospace were included in our consolidated results of operations from the date of acquisition. Our consolidated revenues and operating income for the year ended December 31, 2024 include $ 17.0 million and $ 1.2 million, respectively, from the acquisition of Kellstrom Aerospace. Kellstrom Aerospace's operating income does not include the impact of acquisition-related expenses incurred by VSE Corporation. Acquisition-related expenses related to the -41- Table of Contents Kellstrom Aerospace acquisition totaled $ 2.7 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 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 $ 1,244,344 $ 1,021,260 Income from continuing operations $ 45,241 $ 48,528 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 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 Precision Fuel Components, LLC ("Precision Fuel") On February 1, 2023, our Aviation segment acquired Precision Fuel Components, LLC for a purchase price of $ 11.7 million. Precision Fuel's operating results are included in our Aviation segment beginning on the acquisition date. The acquisition was not material to our consolidated financial statements. During the year ended December 31, 2023, we incurred $ 0.2 million of acquisition-related expenses related to the acquisition of Precision Fuel, which are included in selling, general and administrative expenses. Desser Holding Company, LLC On July 3, 2023, we completed the acquisition of Desser Aerospace, a global aftermarket solutions provider of specialty distribution and MRO services. We purchased Desser Aerospace for cash consideration of $ 131.5 million. Concurrent with the closing of the transaction, we 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. During the year ended December 31, 2024, we adjusted the purchase price allocation as a result of certain measurement period adjustments to acquired assets and liabilities assumed due to updated valuation reports received from our external valuation specialist, revisions to internal estimates, and new information obtained about facts and circumstances that existed as of the acquisition date. The measurement period adjustments included: a decrease in deferred tax liabilities of $ 1.6 million and an increase in inventories of $ 0.1 million. These adjustments resulted in a decrease to goodwill of $ 1.7 million. -42- Table of Contents We completed the purchase accounting valuation for Desser Aerospace during the second quarter of 2024. The final purchase price 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 our 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 on a straight-line basis using a weighted average useful life of 8.3 years. We incurred $ 3.2 million of acquisition-related expenses related to the Desser Aerospace acquisition 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 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 $ 1,080,132 $ 908,243 Income from continuing operations $ 36,498 $ 46,265 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, 2023 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 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. Honeywell Fuel Control Systems ("Honeywell FCS Acquisition") On September 27, 2023, our Aviation segment 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 our -43- Table of Contents 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 . During the year ended December 31, 2024, we adjusted the purchase price allocation as a result of a measurement period adjustment to acquired assets due to updated valuation reports received from Honeywell. The measurement period adjustment resulted in a decrease in prepaid expenses and other current assets of $ 0.5 million, with a corresponding increase to goodwill. We completed the purchase accounting valuation for the Honeywell FCS Acquisition during the third quarter of 2024. 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 our 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 on a straight-line basis using a useful life of 10 years. We incurred $ 0.3 million of acquisition-related expenses related to the Honeywell FCS Acquisition 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. (3) Discontinued Operations In February 2024, we entered into two separate agreements to sell substantially all of the Federal and Defense segment assets for a cash consideration of $ 43.0 million, including amounts in escrow, subject to post-closing adjustments. The FDS Sale is consistent with our long-term strategic growth strategy focused on higher margin and higher growth aftermarket parts distribution and MRO businesses. We recorded a pre-tax loss on the FDS Sale of $ 15.2 million and transaction fees of $ 2.5 million during the year ended December 31, 2024, which are included in (loss) income from discontinued operations, net of tax in the consolidated statements of income. The results of operations for the Federal and Defense segment are reported in (loss) income from discontinued operations, net of tax within the consolidated statements of income for the years ended December 31, 2024, 2023, and 2022, and the related assets and liabilities are presented within assets and liabilities held-for-sale on the consolidated balance sheets as of December 31, 2023. -44- Table of Contents The components of (loss) income from discontinued operations, net of tax consist of the following (in thousands): For the years ended December 31, 2024 2023 2022 Revenues $ 26,268 $ 252,466 $ 280,314 Costs and operating expenses 34,684 258,125 278,779 (Loss) income from discontinued operations before income taxes ( 8,416 ) ( 5,659 ) 1,535 Other FDS impairment 4,204 — — Loss on the sale of discontinued operations 15,199 — — (Loss) income from discontinued operations before income taxes ( 27,819 ) ( 5,659 ) 1,535 (Benefit) provision for income taxes ( 6,645 ) ( 1,641 ) 135 (Loss) income from discontinued operations, net of tax $ ( 21,174 ) $ ( 4,018 ) $ 1,400 The assets and liabilities reported as held-for-sale consist of the following (in thousands): As of December 31, 2023 Assets Cash and cash equivalents $ 162 Receivables, net 10,805 Contract assets 25,109 Inventories 472 Prepaid expenses and other current assets 6,154 Property and equipment, net 6,102 Intangible assets, net 3,505 Goodwill 31,575 Operating lease right-of-use assets 9,097 Other assets 21 Total assets held-for-sale (a) $ 93,002 Liabilities Accounts payable $ 20,893 Accrued expenses and other current liabilities 19,537 Long-term operating lease obligations 8,942 Deferred tax liabilities 4,019 Total liabilities held-for-sale (a) $ 53,391 (a) Amounts were classified as current for the prior period consolidated balance sheet. Certain assets and liabilities previously reported as held-for-sale were excluded from the FDS sale and were reclassified in 2024 as held and used, at their respective fair values, on the consolidated balance sheets. The reclassification related to our Alexandria, VA headquarters office space and consisted of an operating lease right-of-use-asset of $ 7.1 million, property and equipment of $ 2.6 million, and an operating lease obligation of $ 11.0 million. In 2024, we vacated the headquarters office space, resulting in a write down of the associated lease right-of-use asset and property and equipment, and then subsequently terminated the lease for the vacated headquarters office space. See Note (12) "Leases" for further information. The FDS Sale resulted in the divestiture of certain government contracts requiring novation. Until the novation process is finalized, we continue to receive cash collections related to these contracts, which are due to the purchaser. As of December 31, 2024, we have recorded a $ 0.3 million liability for these collections within accrued expenses and other current liabilities on our consolidated balance sheets. -45- Table of Contents Selected financial information related to cash flows from discontinued operations is as follows (in thousands): For the years ended December 31, 2024 2023 2022 Depreciation and amortization $ 150 $ 2,289 $ 3,576 Purchases of property and equipment $ — $ 295 $ 331 Stock-based compensation $ — $ 139 $ 63 (4) Revenue Recognition Disaggregated Revenue Our revenues are derived from the delivery of products and services performed for commercial and government customers. A summary of revenues by customer for each of our operating segments is as follows (in thousands): Year Ended December 31, 2024 Aviation Fleet Total Commercial $ 779,008 $ 178,509 $ 957,517 Other government 7,248 115,367 122,615 Total $ 786,256 $ 293,876 $ 1,080,132 Year Ended December 31, 2023 Commercial $ 539,592 $ 150,835 $ 690,427 DoD — 209 209 Other government 4,428 165,424 169,852 Total $ 544,020 $ 316,468 $ 860,488 Year Ended December 31, 2022 Commercial $ 403,155 $ 104,162 $ 507,317 DoD — 3,286 3,286 Other government 4,957 153,888 158,845 Total $ 408,112 $ 261,336 $ 669,448 -46- Table of Contents A summary of revenues by type for each of our operating segments is as follows (in thousands): Year Ended December 31, 2024 Aviation Fleet Total Repair $ 293,063 $ — $ 293,063 Distribution 493,193 293,876 787,069 Total $ 786,256 $ 293,876 $ 1,080,132 Year Ended December 31, 2023 Repair $ 157,154 $ — $ 157,154 Distribution 386,866 316,468 703,334 Total $ 544,020 $ 316,468 $ 860,488 Year Ended December 31, 2022 Repair $ 107,399 $ — $ 107,399 Distribution 300,713 261,336 562,049 Total $ 408,112 $ 261,336 $ 669,448 Contract Balances Contract balances were as follows (in thousands): As of December 31, Financial Statement Classification 2024 2023 Billed and billable receivables Receivables, net (a) $ 197,563 $ 127,958 Contract assets - unbilled receivables Contract assets $ 29,960 $ 8,049 Contract liabilities Accrued expenses and other current liabilities $ 4,479 $ 2,785 (a) Net of allowance of $ 6.5 million and $ 3.4 million as of December 31, 2024 and 2023, respectively. The increase in contract assets during fiscal 2024 is primarily in connection with the acquisition of TCI during the current period. Refer to Note (2) "Acquisitions" for further information. During fiscal 2024 and 2023, respectively, we recognized $ 2.1 million and $ 0.9 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, 2024 2023 Buildings and building improvements $ 25,279 $ 24,555 Computer equipment 14,490 8,309 Furniture, fixtures, and equipment (a) 64,185 41,208 Leasehold improvements 10,104 6,151 Construction in process 16,722 13,675 Land and land improvements 1,454 1,617 132,234 95,515 Less: accumulated depreciation and amortization ( 46,648 ) ( 37,439 ) Total property and equipment, net $ 85,586 $ 58,076 (a) Certain amounts from prior year have been reclassified to conform with current year presentation. Depreciation and amortization expense for the years ended December 31, 2024, 2023 and 2022 was $ 10.9 million, $ 6.8 million, and $ 5.3 million, respectively. -47- Table of Contents (6) Goodwill and Other Intangible Assets Goodwill Changes in the carrying amount of goodwill by operating segment for the years ended December 31, 2024 and 2023 were as follows (in thousands): Fleet Aviation Total Balance as of December 31, 2022 $ 63,190 $ 154,072 $ 217,262 Goodwill acquired — 134,519 134,519 Balance as of December 31, 2023 $ 63,190 $ 288,591 $ 351,781 Goodwill acquired — 140,804 140,804 Measurement period adjustments — ( 1,132 ) ( 1,132 ) Balance as of December 31, 2024 $ 63,190 $ 428,263 $ 491,453 Goodwill increased during the year ended December 31, 2024 in connection with acquisitions completed during the period as discussed in Note (2) "Acquisitions." There were no impairments of goodwill during the years ended December 31, 2024, 2023 and 2022. Other Intangible Assets Intangible assets consisted of the following (in thousands): Cost Accumulated Amortization Net Intangible Assets December 31, 2024 Contract and customer-related $ 272,590 $ ( 75,309 ) $ 197,281 Trade names 8,670 ( 8,670 ) — Total $ 281,260 $ ( 83,979 ) $ 197,281 December 31, 2023 Contract and customer-related $ 241,090 $ ( 127,022 ) $ 114,068 Trade names 8,670 ( 8,608 ) 62 Total $ 249,760 $ ( 135,630 ) $ 114,130 The gross carrying amount of contract and customer-related intangibles increased during the year ended December 31, 2024 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 $ 69.4 million being fully amortized and no longer reflected in the intangible asset values as of December 31, 2024. There were no impairment losses during the years ended December 31, 2024, 2023 and 2022. The weighted-average useful life for all intangible assets as of December 31, 2024 is 12.2 years. The estimated future annual amortization expense related to intangible assets are as follows (in thousands): Year Ending December 31, 2025 $ 24,520 2026 24,349 2027 22,602 2028 21,768 2029 21,706 Thereafter 82,336 Total $ 197,281 -48- Table of Contents (7) Debt Long-term debt consisted of the following (in thousands): As of December 31, 2024 2023 Bank credit facility - term loan $ 277,500 $ 300,000 Bank credit facility - revolving facility 155,000 133,000 Principal amount of long-term debt 432,500 433,000 Less: debt issuance costs ( 2,327 ) ( 3,656 ) Total debt 430,173 429,344 Less: current portion ( 30,000 ) ( 22,500 ) Long-term debt, net of current portion $ 400,173 $ 406,844 We have a credit agreement with a bank group from which we borrow amounts under the agreement to provide working capital support, fund letters of credit, and finance acquisitions. The credit agreement includes term and revolving facilities. The revolving facility provides for revolving loans and letters of credit. Borrowings under our term loan and revolving facility mature in October 2026. The maximum amount of credit available under the credit agreement for revolving loans and letters of credit is $ 350 million. We may elect to increase the maximum availability of the term loan facility, the revolving facility, or both facilities up to an aggregate additional amount of $ 25 million subject to lender approvals. The credit agreement also provides for letters of credit aggregating up to $ 25 million. Borrowings under our credit agreement bear interest at a variable rate of interest based on Term SOFR or a base rate, plus in each case an applicable margin (based on our Total Funded Debt to EBITDA Ratio). The base rate for any day is a fluctuating rate per annum equal to the highest of (i) the Federal Funds Rate plus .50 %; (ii) the Prime Rate and (iii) the sum of Term SOFR for a one-month interest period, plus the difference between the additional Term SOFR interest margin for SOFR rate loans and the additional base rate interest margin for base rate loans. The applicable margins for SOFR loans ranges from 1.50 % to 3.75 % and .50 % to 2.75 % for base rate loans. We also pay a commitment fee with respect to undrawn amounts under the revolving loan facility ranging from .25 % to .50 % (based on our Total Funded Debt to EBITDA Ratio) and fees on letters of credit that are issued. As of December 31, 2024, the interest rate on our outstanding term loan and weighted average interest rate on our aggregate outstanding revolving facility was 7.40 % and 7.21 %, respectively. We had letters of credit outstanding of $ 0.8 million as of December 31, 2024 and 2023. Future required term loan and revolving facility payments as of December 31, 2024 are as follows (in thousands): Year Ending December 31, Term Revolving Facility Total 2025 $ 30,000 $ — $ 30,000 2026 247,500 155,000 402,500 Total $ 277,500 $ 155,000 $ 432,500 The credit agreement contains collateral requirements to secure our 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 Funded Debt to EBITDA Ratio and a minimum Fixed Charge Coverage Ratio. We were in compliance with required ratios and other terms and conditions as of December 31, 2024. -49- Table of Contents (8) Derivative Instruments and Hedging Activities We are 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 our floating rate debt. Our derivative instruments designated as cash flow hedges as of December 31, 2024 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 income (loss) and the amounts are reclassified from accumulated other comprehensive income (loss) into earnings in a manner that matches the timing of the earnings impact of the hedged transactions. For the years ended December 31, 2024 and 2023, we reclassified $ 4.3 million and $ 3.8 million, respectively, from accumulated other comprehensive income to interest expense, net. We estimate that we will reclassify $ 1.5 million of unrealized gains from accumulated other comprehensive income into earnings in the twelve months following December 31, 2024. See Note (17) "Fair Value Measurements" for the fair value of the interest rate swaps. (9) Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in thousands): As of December 31, 2024 2023 Accrued compensation and benefits $ 19,527 $ 15,734 Accrued customer rebates and royalties 6,731 5,545 Current portion of lease liabilities 6,889 4,957 Accrued lease termination fee 6,010 — Contract liabilities 4,479 2,785 Accrued interest 1,734 469 Accrued warranty 1,541 1,282 Accrued income taxes 839 116 Other (a) 14,445 5,495 Total $ 62,195 $ 36,383 (a) Certain amounts from prior year have been reclassified to conform with current year presentation. (10) Stock-Based Compensation Plans The VSE Corporation 2006 Restricted Stock Plan, as amended (the "2006 Plan"), provides VSE's employees and directors the opportunity to receive various types of stock-based compensation and cash awards. The total number of shares authorized for issuance under this plan was 1,875,000 and, as of December 31, 2024, 448,083 shares remained available for issuance. As of December 31, 2024, we have outstanding stock-settled bonus awards, time-vested stock awards, and performance share awards under this plan. Stock-settled bonus awards are a fixed dollar-denominated award. On the first anniversary of the grant date, the total fixed dollar value of the award is converted into shares based on our closing stock price on the date of conversion. Vesting occurs over a three-year service period in three equal tranches. Beginning with the 2023 stock-settled bonus awards, the first vesting occurs one year after the award is converted into shares. For awards granted prior to 2023, the first vesting occurs one year after the grant date. On each vesting date, 100 % of the vested award is paid in stock. Expense is recognized on a straight-line basis over the requisite service period for each tranche, which results in an accelerated pattern for an award. Time-vested stock awards generally vest over a three-year service period in equal installments on each anniversary of the grant date. Our directors receive a grant of stock annually as part of their compensation and the stock vests immediately upon grant. We grant performance share awards to certain employees under the 2006 Plan. Performance share awards are rights to receive shares of our stock on the satisfaction of service requirements and performance conditions. These awards vest ratably in equal -50- Table of Contents installments over a three-year period on the anniversary of each grant date, subject to meeting the minimum service requirements and the achievement of certain annual or cumulative financial metrics of our performance, with the number of shares ultimately issued, if any, ranging up to 200 % of the specified target shares beginning in 2023. If performance is below the minimum threshold level of performance, no shares will be issued. For all performance share awards granted, the annual and cumulative financial metrics are based on our achievement of adjusted EBITDA. During fiscal 2021, we established the Employee Stock Purchase Plan ("ESPP") to allow eligible employees to purchase shares of our VSE common stock at a discount of up to 15 % of the fair market value on specified dates. For ESPP offerings in the year ended December 31, 2024, the purchase price was 12 % off the lesser of the fair market value on the date of the offering and the fair market value on the date of purchase, thereby resulting in stock compensation expense of $ 0.1 million. As of December 31, 2024, 500,000 shares of VSE common stock are authorized for issuance under the ESPP. Expense and Related Tax Benefits Recognized Stock-based compensation expense is recognized within products and services costs within our consolidated statements of income. Stock-based compensation expense and related tax benefits recognized under the 2006 Plan were as follows (in thousands): For the years ended December 31, 2024 2023 2022 Stock-settled bonus awards $ 428 $ 1,166 $ 1,186 Time-vested stock awards 3,727 2,639 2,089 Performance share awards 4,053 3,807 1,067 Total $ 8,208 $ 7,612 $ 4,342 Tax benefit recognized from stock-based compensation $ 2,048 $ 1,899 $ 1,083 Stock-Settled Bonus Awards In March 2024, the employees eligible for the 2023 awards, 2022 awards, and the 2021 awards received a total of 9,972 shares of common stock. The grant-date fair value of these awards for the years ended December 31, 2024, 2023 and 2022 was $ 75.12 , $ 42.23 , and $ 43.30 per share, respectively. The total compensation cost related to non-vested stock-settled bonus awards not yet recognized was approximately $ 1.0 million with a weighted average amortization period of 2.2 years as of December 31, 2024. The total fair value of stock-settled bonus awards that vested in the years ended December 31, 2024, 2023 and 2022 was $ 0.7 million, $ 1.2 million, and $ 0.9 million, respectively. Time-Vested Stock Awards Time-vested stock award activity for the year ended December 31, 2024 was: Number of Shares Weighted Average Grant Date Fair Value Unvested as of December 31, 2023 97,843 $ 44.68 Granted 83,784 $ 79.30 Vested ( 46,561 ) $ 45.13 Forfeited ( 15,606 ) $ 57.12 Unvested as of December 31, 2024 119,460 $ 67.16 The grant date fair value of time-vested stock awards is based on the closing market price of our common stock on the grant date. The weighted average grant date fair value of the time-vested stock awards granted for the years ended December 31, 2024, 2023 and 2022 was $ 79.30 , $ 45.78 , and $ 43.01 , respectively. As of December 31, 2024 there was $ 5.5 million of unrecognized compensation cost related to time-vested stock awards, which is expected to be recognized over a weighted-average period of 2.1 years. The total fair value of time-vested stock awards that vested in the years ended December 31, 2024, 2023 and 2022 was $ 3.7 million, $ 1.2 million, and $ 1.7 million, respectively. -51- Table of Contents Performance Share Awards Performance Share award activity for the year ended December 31, 2024 was: Number of Shares Weighted Average Grant Date Fair Value Unvested as of December 31, 2023 168,280 $ 42.41 Granted 45,246 $ 77.54 Vested ( 73,442 ) $ 42.42 Forfeited ( 29,927 ) $ 52.14 Unvested as of December 31, 2024 110,157 $ 54.20 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, 2024, 2023 and 2022 was $ 77.54 , $ 42.23 , and $ 43.30 , respectively. As of December 31, 2024 there was $ 3.3 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, 2024 was $ 5.6 million . (11) Income Taxes We are subject to U.S. federal income tax as well as income tax in multiple state and local jurisdictions. With few exceptions, the statute of limitations for these jurisdictions is no longer open for audit or examinations for the years before 2020 for federal and state income taxes in the U.S. We file consolidated federal income tax returns that include all of our U.S. subsidiaries. The components of income from continuing operations before income taxes were as follows (in thousands): For the years ended December 31, 2024 2023 2022 Domestic $ 41,599 $ 52,137 $ 36,694 Foreign 4,881 4,776 ( 983 ) Income from continuing operations before income taxes $ 46,480 $ 56,913 $ 35,711 The components of the provision for income taxes from continuing operations were as follows (in thousands): For the years ended December 31, 2024 2023 2022 Current: Federal $ 11,670 $ 11,556 $ 9,483 State 2,132 2,205 1,485 Foreign 1,573 1,138 35 Total current 15,375 14,899 11,003 Deferred: Federal ( 4,725 ) ( 1,148 ) ( 1,890 ) State ( 489 ) 3 ( 61 ) Foreign ( 179 ) 7 — Total deferred ( 5,393 ) ( 1,138 ) ( 1,951 ) Provision for income taxes $ 9,982 $ 13,761 $ 9,052 -52- Table of Contents 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, 2024 2023 2022 Tax at statutory federal income tax rate $ 9,761 $ 11,952 $ 7,499 Increases (decreases) in tax resulting from: State taxes, net of federal tax benefit 1,738 2,019 1,459 Permanent differences, net ( 634 ) ( 193 ) 287 Tax credits ( 454 ) ( 461 ) ( 418 ) Prior year true-up adjustment ( 931 ) 269 ( 45 ) Valuation allowance 378 77 324 Other provision adjustments 124 98 ( 54 ) Provision for income taxes $ 9,982 $ 13,761 $ 9,052 Effective tax rate 21.5 % 24.2 % 25.3 % The tax effect of temporary differences representing deferred tax assets and liabilities was as follows (in thousands): As of December 31, 2024 2023 Deferred compensation and accrued paid leave $ 2,767 $ 3,003 Accrued expense 2,094 1,429 Inventory reserve 23,463 13,980 Operating lease liabilities 14,362 6,249 Stock-based compensation 2,084 1,697 Capitalized inventory 1,741 1,335 US operating and capital loss carryforward 12,777 7,637 Disallowed interest expense 9,450 1,663 Tax credit carryforward 1,421 1,492 Foreign country operating loss carryforward 1,364 806 Interest capitalized 2,030 — Transaction costs 357 — 73,910 39,291 Valuation allowance (a) ( 19,301 ) ( 9,906 ) Total gross deferred tax assets 54,609 29,385 Interest rate swaps ( 1,021 ) ( 708 ) Depreciation ( 3,959 ) ( 2,925 ) Goodwill and intangible assets ( 38,279 ) ( 26,666 ) Operating lease right-of-use assets ( 10,962 ) ( 5,939 ) Other ( 270 ) ( 132 ) Total gross deferred tax liabilities ( 54,491 ) ( 36,370 ) Net deferred tax assets (liabilities) (b) $ 118 $ ( 6,985 ) (a) A valuation allowance was provided against US capital loss in connection with the stock sale of Prime Turbines, certain state net operating loss, tax credit, and foreign tax loss deferred tax assets arising from carryforwards of unused tax benefits. (b) Deferred tax assets are included within other assets in our consolidated balance sheets. As of December 31, 2024, we had various tax losses and tax credits that may be applied against future taxable income. The majority of such tax attributes will expire in 2025 through 2044; however, some may be carried forward indefinitely. -53- Table of Contents 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 we do not have material operations in jurisdictions with tax rates lower than the Pillar Two minimum, we do not expect these rules will significantly increase our global tax costs. We will continue to monitor US and global legislative action related to Pillar Two for future potential impacts. (12) Leases Our operating lease cost was as follows for the years ended December 31, (in thousands): 2024 2023 2022 Operating lease cost (a) $ 9,327 $ 6,480 $ 2,714 (a) Excludes short-term lease expense, which is not material. Our lease arrangements do not contain any material residual guarantees, variable payment provisions, or restrictive covenants. The table below summarizes future minimum lease payments under operating leases, recorded on the balance sheet, as of December 31, 2024 (in thousands): Year ending December 31, 2025 $ 10,178 2026 9,807 2027 9,620 2028 8,713 2029 7,558 Thereafter 27,520 Minimum lease payments 73,396 Less: imputed interest ( 18,363 ) Present value of minimum lease payments 55,033 Less: current portion of lease liabilities (a) ( 6,889 ) Long-term lease liabilities $ 48,144 (a) The current portion of lease liabilities are presented within accrued expenses and other current liabilities on our 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): 2024 2023 2022 Cash paid for amounts included in the measurement of operating lease liabilities $ 9,818 $ 5,045 $ 2,441 Right-of-use assets obtained in exchange for new operating lease liabilities $ 30,314 $ 11,812 $ 11,876 The weighted-average discount rate was 6.5 % and 5.9 % and the weighted-average remaining lease term was 8.6 years and 5.7 years as of December 31, 2024, and 2023, respectively. Lease Abandonment and Termination In connection with the FDS sale as described in Note (3) "Discontinued Operations", we implemented changes that resulted in one-time charges primarily related to the lease abandonment and termination of our headquarters office space. On June 28, 2024, we ceased use of our 95,000 sq. ft. leased office space in Alexandria, VA. We relocated our VA-based corporate staff to a 4,000 sq. ft. office space in Vienna, VA under a new short-term lease. We recognized one-time lease abandonment costs of $ 12.9 million, which comprised of a reduction in our operating lease right-of-use assets of $ 6.7 million, exit costs of $ 3.7 million, and a non-cash write-off of certain property and equipment of $ 2.5 million. These one-time costs are included within lease abandonment and termination costs on our consolidated statements of income. -54- Table of Contents On September 4, 2024, we entered into an agreement to immediately terminate the Alexandria, VA, office space lease in exchange for $ 12.0 million, payable in two equal installments due in January 2025 and January 2026. As a result, we recognized a lease termination gain of $ 0.7 million, which comprised of a $ 1.1 million net liability reduction, partially offset by a $ 0.4 million decrease in our remaining operating lease right-of-use asset. The lease termination gain is included within lease abandonment and termination costs on our consolidated statements of income. As of December 31, 2024, $ 6.0 million of the $ 12.0 million due as a result of the lease termination is classified within accrued expenses and other current liabilities, while the remaining $ 6.0 million is classified within other long-term liabilities. (13) Commitments and Contingencies We may have certain claims in the normal course of business, including legal proceedings, against us and against other parties. In our opinion, the resolution of these claims will not have a material adverse effect on our 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 our 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. We believe, based upon current information, that the outcome of any such government disputes, audits and investigations will not have a material adverse effect on our results of operations, financial condition, or cash flows. -55- Table of Contents (14) Business Segments and Customer Information Segment Information The sale of the Federal and Defense segment allows us to focus on a long-term strategic growth strategy focused on higher margin and higher growth aftermarket parts distribution and MRO businesses. Following the sale of the Federal and Defense segment, management of our business operations is conducted under two reportable operating segments: Aviation: Our Aviation 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 fuel controls, avionics, pneumatics, hydraulics, wheel and brake, and rotable exchange and supply chain services. Fleet: Our Fleet segment provides parts, inventory management, e-commerce fulfillment, logistics, supply chain support and other services to support the commercial aftermarket medium- and heavy-duty truck market, and the USPS. Core services include vehicle parts distribution, sourcing, IT solutions, customized fleet logistics, warehousing, kitting, just-in-time supply chain management, alternative product sourcing, and engineering and technical support. The operating segments reported below are our segments for which separate financial information is available and for which segment results are evaluated regularly by our President and Chief Executive Officer, who is our Chief Operating Decision Maker ("CODM"), in deciding how to allocate resources and in assessing performance. Our CODM evaluates segment performance based on consolidated revenues and operating income and considers budget-to-actual, sequential period and prior period variances on a monthly basis when making decisions about allocating capital and personnel to the segments. Segment costs, depreciation and amortization, and allocated corporate costs are viewed as significant segment expenses as part of the CODM’s evaluation. Net sales of our business segments exclude inter-segment sales as these activities are eliminated in consolidation. Corporate expenses are primarily selling, general and administrative expenses not allocated to segments. Corporate assets are primarily cash, property and equipment and investments held in separate trust. Our segment information is as follows (in thousands): Year Ended December 31, 2024 Aviation Fleet Corporate / unallocated expenses Consolidated Revenues $ 786,256 $ 293,876 $ — $ 1,080,132 Costs and operating expenses: Segment costs (a) 640,895 266,689 36,831 944,415 Depreciation and amortization 25,500 2,957 155 28,612 Allocated corporate cost (b) 18,474 7,212 — 25,686 Total costs and operating expenses 684,869 276,858 36,986 998,713 Operating income (loss) (c) $ 101,387 $ 17,018 $ ( 36,986 ) $ 81,419 Capital Expenditures (d) $ 19,030 $ 2,386 $ 215 $ 21,631 Total Assets $ 1,409,426 $ 282,820 $ 42,374 $ 1,734,620 -56- Table of Contents Year Ended December 31, 2023 Aviation Fleet Corporate / unallocated expenses Consolidated Revenues $ 544,020 $ 316,468 $ — $ 860,488 Costs and operating expenses: Segment costs (a) 443,909 272,084 14,682 730,675 Depreciation and amortization 16,080 5,300 ( 253 ) 21,127 Allocated corporate cost (b) 12,863 7,827 — 20,690 Total costs and operating expenses 472,852 285,211 14,429 772,492 Operating income (loss) (c) $ 71,168 $ 31,257 $ ( 14,429 ) $ 87,996 Capital Expenditures (d) $ 16,467 $ 2,198 $ 269 $ 18,934 Total Assets (e) $ 950,143 $ 274,382 $ 125,813 $ 1,350,338 For the Year Ended December 31, 2022 Aviation Fleet Corporate / unallocated expenses Consolidated Revenues $ 408,112 $ 261,336 $ — $ 669,448 Costs and operating expenses: Segment costs (a) 345,614 221,137 7,654 574,405 Depreciation and amortization 13,174 8,783 ( 931 ) 21,026 Allocated corporate cost (b) 12,908 7,505 — 20,413 Total costs and operating expenses 371,696 237,425 6,723 615,844 Operating income (loss) (c) $ 36,416 $ 23,911 $ ( 6,723 ) $ 53,604 Capital Expenditures (d) $ 5,961 $ 5,502 $ 861 $ 12,324 (a) Segment costs consist of material, labor, overhead, and selling, general, and administrative costs not separately disclosed within this footnote. (b) Primarily includes costs for information technology, human resources, accounting, and legal support services. (c) Certain corporate costs previously allocated to the Federal and Defense business for segment reporting purposes did not qualify for classification within discontinued operations and have been reallocated to continuing operations. (d) Amounts differ from consolidated statements of cash flows due to inclusion of capital expenditures for which payment has not yet been remitted. (e) Corporate assets in 2023 include $ 93,002 of assets held-for-sale. Customer Information Our revenues are derived from the delivery of products and services performed for commercial and government customers. Revenues from the USPS, reported within our Fleet segment, represented 11 %, 19 %, and 23 % of consolidated revenues for 2024, 2023 and 2022, respectively. Our customers also include various other commercial entities and government agencies. See Note (4) "Revenue Recognition" for revenue by customer. We do not measure revenue or profit by product or service lines, either for internal management or external financial reporting purposes, because it would be impractical to do so. Products offered and services performed are determined by contract requirements and the types of products and services provided for one contract bear no relation to similar products and services provided on another contract. Products and services provided vary when new contracts begin, or current contracts expire. In many cases, more than one product or service is provided under a contract. Accordingly, cost and revenue tracking are designed to best serve contract requirements and segregating costs and revenues by product or service lines in situations for which it is not required would be difficult and costly to both us and our customers. -57- Table of Contents Geographical Information Revenue by geography is based on the billing address of the customer. Our revenue by geographic area is as follows (in thousands): For the years ended December 31, 2024 2023 2022 United States $ 785,599 $ 656,767 $ 557,615 Other Countries (a) 294,533 203,721 111,833 Total revenue $ 1,080,132 $ 860,488 $ 669,448 (a) No individual country, other than disclosed above, exceeded 10% of our total revenue for any period presented. (15) Capital Stock Our 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 our stockholders. Stockholders of record are entitled to the amount of dividends declared per common share held. In May 2024, we entered into an underwriting agreement with certain underwriters relating to the issuance and sale of up to 2,429,577 shares of the Company's common stock at a public offering price of $ 71.00 per share. On May 17, 2024, the Company issued 2,429,577 shares, which included the exercise by the underwriters of their option to purchase additional shares, pursuant to the underwriting agreement. Net proceeds of $ 162.0 million were received by the Company, which were used to repay outstanding borrowings under our revolving credit facility, including amounts borrowed to pay the purchase price of the acquisition of TCI and for general corporate purposes. We incurred legal and accounting fees of $ 0.4 million associated with the May 2024 public offering. In October 2024, we entered into an underwriting agreement with certain underwriters relating to the issuance and sale of 1,724,137 shares of the Company's common stock at a public offering price of $ 87.00 per share. Under the terms of the agreement, we granted the underwriters an option, exercisable for 30 days, to purchase up to an additional 258,620 shares of common stock. The offering closed on October 17, 2024, resulting in the issuance of 1,982,757 shares, which included the exercise by the underwriters of their option to purchase additional shares, pursuant to the underwriting agreement, for which we received net proceeds of $ 163.8 million, net of issuance costs. Additionally, we incurred legal and accounting fees of $ 0.3 million associated with the October 2024 public offering. The net proceeds were used to finance a portion of the cash consideration for the Kellstrom Aerospace acquisition and general corporate purposes, including repaying outstanding borrowings under our revolving facility. (16) 401(k) Plan We maintain a defined contribution plan under Section 401(k) of the Internal Revenue Code of 1986, as amended, that covers substantially all our employees. Under the provisions of our 401(k) plan, employees' eligible contributions are matched at rates specified in the plan documents. Our expense associated with this plan was approximately $ 2.0 million, $ 1.6 million, and $ 1.7 million for the years ended December 31, 2024, 2023, and 2022, respectively. (17) Fair Value Measurements We utilize fair value measurement guidance prescribed by GAAP to value our 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). 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 our outstanding debt obligations approximates its fair value. The fair value of long-term debt is calculated using Level 2 inputs based on interest rates available for debt with terms and maturities similar to our existing debt arrangements. -58- Table of Contents 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. The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis and the level they fall within the fair value hierarchy (in thousands): As of December 31, Amounts Recorded at Fair Value Financial Statement Classification Fair Value Hierarchy 2024 2023 Non-COLI assets held in Deferred Supplemental Compensation Plan (a) Other assets Level 1 $ 629 $ 594 Interest rate swaps Other assets Level 2 $ 4,093 $ 2,840 (a) Non-COLI assets held in our 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. (18) Restructuring Costs During the year ended December 31, 2024, we incurred $ 4.2 million of corporate restructuring expenses , which are included in selling, general and administrative expenses, primarily related to the cancellation of contracts and leasing agreements associated with the FDS Sale. As of December 31, 2024, approximately $ 0.8 million of these costs are included within accrued expenses and other current liabilities on our consolidated balance sheets. Our corporate restructuring activities related to the FDS Sale are substantially complete, and we do not expect to incur additional material costs associated with these activities . (19) Subsequent Event On February 17, 2025, we signed a definitive agreement to sell all of the issued and outstanding shares of common stock of our Fleet segment for a total consideration of up to $ 230 million (the “Fleet Sale”). This consideration assumes a $ 140 million cash payment at the closing of the Fleet Sale, a $ 25 million seller note, and an earn-out payment of up to $ 65 million, subject to the achievement of certain milestones. The Fleet Sale is expected to close in the second quarter of 2025 and is subject to customary closing conditions and approvals. We currently intend to use the net proceeds from the Fleet Sale to reduce existing borrowings under the credit agreement. -59- Table of Contents ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.