Financial Analysis

Commitments and Contingencies The Company may have certain claims in the normal course of business, including legal proceedings, against the Company and against other parties. Legal liabilities are recorded when it is probable that the outcome in a proceeding will be unfavorable and the related loss amount can be reasonably estimated. In the Company's opinion, the resolution of these claims will not have a material adverse effect on the Company's results of operations, financial position, or cash flows. However, because the results of any legal proceedings cannot be predicted with certainty, the amount of loss, if any, cannot be reasonably estimated. Further, from time-to-time, government agencies audit or investigate whether the Company's operations are being conducted in accordance with applicable contractual and regulatory requirements. Government audits or investigations, whether relating to government contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including repayments, fines or penalties imposed, or could lead to suspension or debarment from future government contracting. Government investigations often take years to complete and many result in no adverse action. The Company believes, based upon current information, that the outcome of any such government disputes, audits and investigations will not have a material adverse effect on the Company's results of operations, financial condition, or cash flows.

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401(k) Plan The Company maintains a defined contribution plan under Section 401(k) of the Internal Revenue Code of 1986, as amended, that covers substantially all employees. Under the provisions of the 401(k) plan, employees' eligible contributions are matched at rates specified in the plan documents. The Company's 401(k) Plan expense was approximately $2.4 million, $1.3 million, and $1.0 million for the years ended December 31, 2025, 2024, and 2023, respectively.

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"Debt Long-term debt consisted of the following (in thousands): As of December 31, 2025 2024 Bank credit facility - term loan $ 296,250 $ 277,500 Bank credit facility - revolving facility 155,000 Principal amount of long-term debt 296,250 432,500 Less: debt issuance costs (3,446) (2,327) Total debt 292,804 430,173 Less: current portion (7,500) (30,000) Long-term debt, net of current portion $ 285,304 $ 400,173 On May 2, 2025, the Company entered into a new credit agreement providing for a $300 million term loan facility and a $400 million revolving credit facility, both maturing on May 2, 2030. The revolving credit facility includes a $30 million sub facility available for the issuance of letters of credit. The new credit agreement replaced the Company's existing term loan and revolving credit facility. Proceeds from the term loan were utilized to pay transaction-related fees and expenses and to repay, in full, all amounts outstanding under the prior credit agreement. Borrowings under the new credit agreement accrue interest at either the term SOFR or ABR, plus in each case an applicable margin (based on the Company's Total Net Leverage Ratio). The ABR for any day is a fluctuating rate per annum equal to the highest of (i) the Federal Funds Effective Rate plus 0.50%; (ii) the Prime Rate and (iii) the daily SOFR rate plus 1%. The applicable margin for term SOFR loans ranges from 1.25% to 2.25% and for ABR loans from 0.25% to 1.25%. The Company also pays a commitment fee with r …

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A summary of revenues by customer is as follows (in thousands): Year ended December 31, 2025 2024 2023 Commercial $ 1,108,091 $ 779,008 $ 539,592 Government 4,184 7,248 $ 4,428 Total $ 1,112,275 $ 786,256 $ 544,020 A summary of revenues by type is as follows (in thousands): Year ended December 31, 2025 2024 (a) 2023 (a) Repair $ 408,350 $ 303,456 $ 167,453 Distribution 703,925 482,800 376,567 Total $ 1,112,275 $ 786,256 $ 544,020 (a) Certain revenue amounts in the prior year have been reclassified to conform to current presentation of revenue type categories. Contract balances were as follows (in thousands): As of December 31, Financial Statement Classification 2025 2024 Billed and billable receivables Receivables, net (a) $ 190,732 $ 158,104 Contract assets - unbilled receivables Contract assets $ 41,468 $ 29,960 Contract liabilities Accrued expenses and other current liabilities $ 6,891 $ 4,479 (a) Net of allowance of $7.2 million and $4.1 million as of December 31, 2025 and 2024, respectively.

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"Stock-Based Compensation Plans The VSE Corporation 2006 Restricted Stock Plan, as amended (the ""2006 Plan""), provides for the issuance of equity-based and cash-based compensation awards to the Company's employees and non-employee directors. The types of awards issued under the 2006 Plan include stock-settled bonus awards, time-vested stock awards, and performance share awards. The total number of shares authorized for issuance under the 2006 Plan was 2,675,000, of which 1,114,532 shares remained available for issuance as of December 31, 2025. Stock-settled bonus awards are fixed dollar-denominated awards. On the first anniversary of the grant date, the total fixed dollar value of the award is converted into shares based on the Company's closing stock price on the date of conversion. These awards vest over a three-year service period in three equal tranches. Beginning with the 2023 stock-settled bonus awards, the first tranche vests one year following the conversion of the award into shares. On each vesting date, 100% of the vested award is settled in shares. Compensation expense is recognized on a straight-line basis over the requisite service period for each tranche, resulting in an accelerated pattern for the overall award. Time-vested stock awards generally vest in equal annual installments over a three-year service period beginning on the first anniversary of the grant date. Directors receive annual stock grants as part of their compensation, which vest immediately upo …

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"Goodwill and Other Intangible Assets Goodwill Changes in the carrying amount of goodwill for the years ended December 31, 2025 and 2024 were as follows (in thousands): Total Balance as of December 31, 2023 $ 288,591 Goodwill acquired 140,804 Measurement period adjustments (1,132) Balance as of December 31, 2024 $ 428,263 Goodwill acquired 229,760 Measurement period adjustments (16,781) Balance as of December 31, 2025 $ 641,242 Goodwill acquired during fiscal 2025 and 2024 pertains to the acquisitions completed during those respective periods. Measurement period adjustments in fiscal 2025 and 2024 represent adjustments to the allocation of the purchase consideration of the respective acquisitions. Refer to Note (2) ""Acquisitions"" for discussion of acquisitions. There were no impairments of goodwill during the years ended December 31, 2025, 2024 and 2023. Intangible Assets Intangible assets consisted of the following (in thousands): Cost Accumulated Amortization Net Intangible Assets December 31, 2025 Customer-related $ 396,150 $ (100,188) $ 295,962 December 31, 2024 Customer-related $ 271,350 $ (74,193) $ 197,157 Trade names 8,500 (8,500) Total $ 279,850 $ (82,693) $ 197,157 The gross carrying amount of customer-related intangibles increased during the year ended December 31, 2025 in connection with acquisitions completed during the year as discussed in Note (2) ""Acquisitions."" This increase was partially offset by intangible assets with a cost of $8.5 million being fully …

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Income Taxes The Company is subject to U.S. federal income tax as well as income tax in multiple state, local and foreign jurisdictions. With few exceptions, the statute of limitations for these jurisdictions is no longer open for audit or examinations for the years before 2021 for federal and state income taxes in the U.S and various foreign jurisdictions. The Company files consolidated federal income tax returns that include all of its U.S. subsidiaries. The components of income from continuing operations before income taxes were as follows (in thousands): For the years ended December 31, 2025 2024 2023 Domestic $ 62,037 $ 18,928 $ 14,284 Foreign 7,002 4,881 4,776 Income from continuing operations before income taxes $ 69,039 $ 23,809 $ 19,060 The components of the provision for income taxes from continuing operations were as follows (in thousands): For the years ended December 31, 2025 2024 2023 Current: Federal $ 10,422 $ 9,010 $ 6,792 State 2,191 1,495 1,066 Foreign 1,655 1,573 1,138 Total current 14,268 12,078 8,996 Deferred: Federal 1,944 (6,569) (3,951) State (1,234) (923) (557) Foreign 568 (179) 7 Total deferred 1,278 (7,671) (4,501) Provision for income taxes $ 15,546 $ 4,407 $ 4,495 The Company's effective tax rate differs from the federal statutory rate. A reconciliation of the provision for income taxes from continuing operations to the amount computed by applying the statutory federal income tax rate is as follows (in thousands): For the years ended December 31, …

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"Leases The Company's operating lease cost was as follows for the years ended December 31, (in thousands): 2025 2024 2023 Operating lease cost (a) $ 8,169 $ 6,627 $ 3,781 (a) Excludes short-term lease expense, which is not material. The table below summarizes future minimum lease payments under operating leases as of December 31, 2025 (in thousands): Year ending December 31, 2026 $ 9,229 2027 10,173 2028 8,676 2029 6,830 2030 5,609 Thereafter 25,109 Total future minimum lease payments 65,626 Less: imputed interest (15,627) Present value of minimum lease payments 49,999 Less: current portion of lease liabilities (a) (6,306) Long-term lease liabilities $ 43,693 (a) The current portion of lease liabilities are presented within accrued expenses and other current liabilities on the Company's consolidated balance sheets. Refer to Note (9) ""Accrued Expenses and Other Current Liabilities."" Other supplemental operating lease information for the year ended December 31, was as follows (in thousands): 2025 2024 2023 Cash paid for amounts included in the measurement of operating lease liabilities $ 7,608 $ 7,171 $ 2,719 Right-of-use assets obtained in exchange for new operating lease liabilities $ 9,484 $ 30,314 $ 11,812 The weighted-average discount rate was 6.3% and 6.5% and the weighted-average remaining lease term was 8.2 years and 9.5 years as of December 31, 2025, and 2024, respectively. Lease Abandonment and Termination In connection with the FDS sale as described in Note (3) ""D …

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"Recent Accounting Pronouncements Recently Adopted Accounting Pronouncements In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company adopted the standard during 2025 and applied the disclosure retrospectively to all prior periods presented in the financial statements. The adoption of ASU 2023-09 did not have an impact on the Company's consolidated financial position, results of operations or cash flows. See Note (11) ""Income Taxes"" for further information. Recently Issued Accounting Pronouncements Not Yet Adopted In November 2024, the FASB issued ASU 2024-03, Income StatementReporting Comprehensive IncomeExpense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires public entities to disclose additional information about specific expense categories in the notes to the financial statements. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The adoption will not have an impact on the Company's consolidated financial posi …

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Restructuring CostsDuring the year ended December 31, 2024, the Company incurred $4.2 million of corporate restructuring expenses , which are included in selling, general and administrative expenses in the consolidated statement of operations, primarily related to the cancellation of contracts and leasing agreements associated with the FDS Sale. Corporate restructuring expenses during the year ended December 31, 2025 were not material. The Company's corporate restructuring activities related to the FDS and Fleet Sales are substantially complete, and the Company does not expect to incur additional material costs associated with these activities

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Revenue Recognition Disaggregated Revenue The Company's revenues are derived from the delivery of products to and services performed for its commercial and government customers. A summary of revenues by customer is as follows (in thousands): Year ended December 31, 2025 2024 2023 Commercial $ 1,108,091 $ 779,008 $ 539,592 Government 4,184 7,248 $ 4,428 Total $ 1,112,275 $ 786,256 $ 544,020 A summary of revenues by type is as follows (in thousands): Year ended December 31, 2025 2024 (a) 2023 (a) Repair $ 408,350 $ 303,456 $ 167,453 Distribution 703,925 482,800 376,567 Total $ 1,112,275 $ 786,256 $ 544,020 (a) Certain revenue amounts in the prior year have been reclassified to conform to current presentation of revenue type categories. Contract Balances Contract balances were as follows (in thousands): As of December 31, Financial Statement Classification 2025 2024 Billed and billable receivables Receivables, net (a) $ 190,732 $ 158,104 Contract assets - unbilled receivables Contract assets $ 41,468 $ 29,960 Contract liabilities Accrued expenses and other current liabilities $ 6,891 $ 4,479 (a) Net of allowance of $7.2 million and $4.1 million as of December 31, 2025 and 2024, respectively. During fiscal 2025 and 2024, respectively, the Company recognized $3.5 million and $2.1 million of revenue that was previously included in the beginning balance of contract liabilities.

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"Business Segment and Customer Information Segment Information Following the sales of the Company's Fleet and Federal and Defense segments, the Company manages its business as a single reportable and operating segment focused on higher margin and higher growth aftermarket parts distribution and MRO activities. The Company's single operating segment provides aftermarket MRO and distribution services to commercial, business and general aviation, cargo, military and defense, and rotorcraft customers globally. Core services include parts distribution, MRO services including engine components and accessories, fuel controls, avionics, pneumatics, hydraulics, wheel and brake, as well as rotable exchange and supply chain services. The operating segment presented below represents the Company's only segment for which discrete financial information is available and is the basis on which operating results are regularly reviewed by the Company's President and Chief Executive Officer, who serves as the Chief Operating Decision Maker (""CODM""), for purposes of resource allocation and performance assessment. The CODM evaluates segment performance based on consolidated net income as the measure of segment profit or loss and considers budget-to-actual results, sequential period and prior period comparisons on a monthly basis when making decisions regarding capital and personnel allocation. The expenses presented below represent significant segment expenses that are regularly provided to and c …

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Capital Stock The Company's common stock has a par value of $0.05 per share. Proceeds from common stock issuances that are greater than $0.05 per share are credited to additional paid in capital. Holders of common stock are entitled to one vote per common share held on all matters voted on by the Company's stockholders. Stockholders of record are entitled to the amount of dividends declared per common share held. In October 2025, the Company entered into an underwriting agreement with certain underwriters relating to the issuance and sale of 2,352,941 shares of the Company's common stock at a public offering price of $170.00 per share. Under the terms of the agreement, the Company granted the underwriters an option, exercisable for 30 days, to purchase up to an additional 352,941 shares of common stock. The offering closed on October 29, 2025, resulting in the issuance of 2,705,882 shares, which included the exercise by the underwriters of their option to purchase additional shares for which the Company received proceeds of $441.6 million, net of issuance costs. Additionally, the Company incurred transaction-related legal and accounting fees of $0.5 million. The net proceeds were used to fund the cash consideration for the Aero 3 acquisition and general corporate purposes, including repaying outstanding borrowings under the Company's revolving facility. In May 2024, the Company entered into an underwriting agreement with certain underwriters relating to the issuance and sale …

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"Subsequent Events On January 29, 2026, the Company entered into a stock purchase agreement (""the Purchase Agreement"") to acquire Precision Aviation Group (""PAG""), a portfolio company of GenNx360 Capital Partners, for total upfront consideration of approximately $2.025 billion in cash and equity (the PAG Acquisition). In addition, the Purchase Agreement provides for up to $125 million in additional contingent earn-out consideration, payable in cash or equity consideration at the Company's sole discretion, based on PAG's 2026 adjusted EBITDA performance. The Acquisition is subject to customary closing conditions and approvals and is expected to close in the second quarter of 2026. In connection with and pursuant to the Purchase Agreement, concurrently with the signing of the Purchase Agreement, the Company entered into a debt commitment letter (the Debt Commitment Letter) with one or more financial institutions (collectively, the Commitment Parties). Subject to the terms of the Debt Commitment Letter, the Commitment Parties have committed to provide new senior secured financing, which currently consists of, (i) a term loan B facility (the New Term Loan B Facility), (ii) an upsize of the Company's existing revolving facility (as amended, the New Revolving Facility), and (iii) an upsize of the Company's $300.0 million senior secured term loan A facility from $296.25 million (as amended, the New Term Loan A Facility). Following the satisfaction of certain conditions under the …

SubsequentEventsTextBlock · excerpt; the full note is in the filing