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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2025

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _____ to _____
Commission File Number: 000-03676
VSE CORPORATION
(Exact Name of Registrant as Specified in its Charter)

Delaware | 54-0649263
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.)

3361 Enterprise Way |  |  |  |
Miramar, | Florida |  |  |  | 33025
(Address of Principal Executive Offices) |  |  |  | (Zip Code)

Registrant's Telephone Number, Including Area Code: (954) 430-6600
Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol |  | Name of each exchange on which registered
Common Stock, par value $0.05 per share |  | VSEC |  | The NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transaction period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Number of shares of Common Stock outstanding as of May 2, 2025: 20,669,684

| TABLE OF CONTENTS |
|  | Page
PART I | FINANCIAL INFORMATION |
ITEM 1. | Financial Statements |
| Unaudited Consolidated Balance Sheets as of March 31, 202 5 and December 31, 202 4 | 4
| Unaudited Consolidated Statements of Operations for the three months ended March 31, 202 5 and 202 4 | 5
| Unaudited Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 202 5 and 202 4 | 6
| Unaudited Consolidated Statements of Stockholders' Equity for the three months ended March 31, 202 5 and 202 4 | 7
| Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 202 5 and 202 4 | 8
| Notes to Unaudited Consolidated Financial Statements | 9
ITEM 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 19
ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk | 22
ITEM 4. | Controls and Procedures | 22
PART II | OTHER INFORMATION |
ITEM 1. | Legal Proceedings | 23
ITEM 1A. | Risk Factors | 23
ITEM 2. | Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities | 23
ITEM 5. | Other Information | 28
ITEM 6. | Exhibits | 24
Signatures |  | 25

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Table of Contents
Forward-Looking Statements
This quarterly report on Form 10-Q (“Form 10-Q”) contains statements that, to the extent they are not recitations of historical fact, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All such statements are intended to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and this statement is included for purposes of such safe harbor provisions.
“Forward-looking” statements, as such term is defined by the Securities and Exchange Commission (the “SEC”) in its rules, regulations and releases, represent the Company's expectations or beliefs, including, but not limited to, statements concerning the Company's operations, economic performance, financial condition, growth, acquisition and disposition strategies, investments and future operational plans. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “forecast,” “seek,” “plan,” “predict,” “project,” “could,” “estimate,” “might,” “continue,” “seeking” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. These statements, by their nature, involve substantial risks and uncertainties, certain of which are beyond the Company's control, and actual results may differ materially depending on a variety of important factors, including, but not limited to, those identified elsewhere in this document, including in Item 1A, Risk Factors, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 3, Quantitative and Qualitative Disclosures About Market Risk, as well as with respect to the risks described in Item 1A, Risk Factors, to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024 filed with the SEC on March 3, 2025 (“2024 Form 10-K") and in Item 1A. Risk Factors of this report. All forward-looking statements made herein are qualified by these cautionary statements and risk factors and there can be no assurance that the actual results, events or developments referenced herein will occur or be realized.
Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that occur or arise after the date hereof.
-3-

Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
VSE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)

| March 31, |  | December 31,
(in thousands, except share and per share amounts) | 2025 |  | 2024
Assets |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 5,711 |  |  | $ | 29,505 |
Receivables (net of allowance of $4.6 million and $4.1 million, respectively) | 169,532 |  |  | 158,104 |
Contract assets | 30,879 |  |  | 29,960 |
Inventories | 441,455 |  |  | 434,059 |
Prepaid expenses and other current assets | 61,770 |  |  | 30,899 |
Current assets held-for-sale | 259,511 |  |  | 282,820 |
Total current assets | 968,858 |  |  | 965,347 |
Property and equipment (net of accumulated depreciation of $23.9 million and $21.3 million, respectively) | 71,175 |  |  | 71,041 |
Intangible assets (net of accumulated amortization of $80.3 million and $82.7 million, respectively) | 191,023 |  |  | 197,157 |
Goodwill | 423,576 |  |  | 428,263 |
Operating lease right-of-use assets | 45,223 |  |  | 43,225 |
Other assets | 33,127 |  |  | 37,597 |
Total assets | $ | 1,732,982 |  |  | $ | 1,742,630 |
Liabilities and Stockholders' Equity |  |  |
Current liabilities: |  |  |
Current portion of long-term debt | $ | 5,625 |  |  | $ | 30,000 |
Accounts payable | 140,780 |  |  | 145,492 |
Accrued expenses and other current liabilities | 46,793 |  |  | 52,749 |
Dividends payable | 2,067 |  |  | 2,059 |
Current liabilities held-for-sale | 53,034 |  |  | 68,200 |
Total current liabilities | 248,299 |  |  | 298,500 |
Long-term debt, less current portion | 459,381 |  |  | 400,173 |
Deferred compensation | 7,212 |  |  | 7,262 |
Long-term operating lease obligations | 39,346 |  |  | 39,498 |
Other long-term liabilities | 3,000 |  |  | 9,011 |
Total liabilities | 757,238 |  |  | 754,444 |
Commitments and contingencies (Note 8) |  |  |
Stockholders' equity: |  |  |
Common stock, par value $0.05 per share, authorized 23,000,000 shares; issued and outstanding 20,669,684 and 20,590,496, respectively | 1,033 |  |  | 1,030 |
Additional paid-in capital | 591,650 |  |  | 591,600 |
Retained earnings | 381,443 |  |  | 392,484 |
Accumulated other comprehensive income | 1,618 |  |  | 3,072 |
Total stockholders' equity | 975,744 |  |  | 988,186 |
Total liabilities and stockholders' equity | $ | 1,732,982 |  |  | $ | 1,742,630 |

The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
VSE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)

|  |  |  | Three months ended March 31,
(in thousands, except share and per share amounts) |  |  |  |  |  | 2025 |  | 2024
Revenues: |  |  |  |  |  |  |  |
Products |  |  |  |  |  | $ | 160,551 |  |  | $ | 108,023 |
Services |  |  |  |  |  | 95,494 |  |  | 54,360 |
Total revenues |  |  |  |  |  | 256,045 |  |  | 162,383 |
Costs and operating expenses: |  |  |  |  |  |  |  |
Products |  |  |  |  |  | 136,867 |  |  | 92,661 |
Services |  |  |  |  |  | 86,229 |  |  | 47,804 |
Selling, general and administrative expenses |  |  |  |  |  | 2,311 |  |  | 2,925 |
Amortization of intangible assets |  |  |  |  |  | 6,134 |  |  | 3,350 |
Total costs and operating expenses |  |  |  |  |  | 231,541 |  |  | 146,740 |
Operating income |  |  |  |  |  | 24,504 |  |  | 15,643 |
Interest expense, net |  |  |  |  |  | 7,939 |  |  | 9,190 |
Income from continuing operations before income taxes |  |  |  |  |  | 16,565 |  |  | 6,453 |
Provision for income taxes |  |  |  |  |  | 2,597 |  |  | 911 |
Net income from continuing operations |  |  |  |  |  | 13,968 |  |  | 5,542 |
Loss from discontinued operations, net of tax |  |  |  |  |  | (22,941) |  |  | (12,153) |
Net loss |  |  |  |  |  | $ | (8,973) |  |  | $ | (6,611) |
Earnings (loss) per share: |  |  |  |  |  |  |  |
Basic |  |  |  |  |  |  |  |
Continuing operations |  |  |  |  |  | $ | 0.68 |  |  | $ | 0.35 |
Discontinued operations |  |  |  |  |  | (1.11) |  |  | (0.77) |
|  |  |  |  |  | $ | (0.43) |  |  | $ | (0.42) |
Diluted |  |  |  |  |  |  |  |
Continuing operations |  |  |  |  |  | $ | 0.67 |  |  | $ | 0.35 |
Discontinued operations |  |  |  |  |  | (1.11) |  |  | (0.76) |
|  |  |  |  |  | $ | (0.44) |  |  | $ | (0.41) |
Weighted average shares outstanding: |  |  |  |  |  |  |  |
Basic |  |  |  |  |  | 20,617,949 |  |  | 15,783,915 |
Diluted |  |  |  |  |  | 20,740,319 |  |  | 15,939,950 |
Dividends declared per share |  |  |  |  |  | $ | 0.10 |  |  | $ | 0.10 |

The accompanying notes are an integral part of these consolidated financial statements.
-5-

Table of Contents
VSE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)

|  |  |  | Three months ended March 31,
(in thousands) |  |  |  |  |  | 2025 |  | 2024
Net loss |  |  |  |  |  | $ | (8,973) |  |  | $ | (6,611) |
Other comprehensive (loss) income, net of tax: |  |  |  |  |  |  |  |
Change in fair value of interest rate swap agreements, net of tax |  |  |  |  |  | (1,454) |  |  | 2,504 |
Total other comprehensive (loss) income, net of tax |  |  |  |  |  | (1,454) |  |  | 2,504 |
Comprehensive loss |  |  |  |  |  | $ | (10,427) |  |  | $ | (4,107) |

The accompanying notes are an integral part of these consolidated financial statements.
-6-

Table of Contents
VSE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Unaudited)

| Three months ended March 31, 2025
|  |  |  |  | Additional Paid-In Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Income |  | Total Stockholders' Equity
| Common Stock |  |  |  |
(in thousands, except per share data) | Shares |  | Amount |  |  |  |
Balance at December 31, 2024 | 20,591 |  |  | $ | 1,030 |  |  | $ | 591,600 |  |  | $ | 392,484 |  |  | $ | 3,072 |  |  | $ | 988,186 |
Net loss | — |  |  | — |  |  | — |  |  | (8,973) |  |  | — |  |  | (8,973) |
Stock-based compensation | 79 |  |  | 3 |  |  | 50 |  |  | — |  |  | — |  |  | 53 |
Other comprehensive loss, net of tax | — |  |  | — |  |  | — |  |  | — |  |  | (1,454) |  |  | (1,454) |
Dividends declared (0.10 per share) | — |  |  | — |  |  | — |  |  | (2,068) |  |  | — |  |  | (2,068) |
Balance at March 31, 2025 | 20,670 |  |  | $ | 1,033 |  |  | $ | 591,650 |  |  | $ | 381,443 |  |  | $ | 1,618 |  |  | $ | 975,744 |

| Three months ended March 31, 2024
|  |  |  |  | Additional Paid-In Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Income |  | Total Stockholders' Equity
| Common Stock |  |  |  |
(in thousands, except per share data) | Shares |  | Amount |  |  |  |
Balance at December 31, 2023 | 15,757 |  |  | $ | 788 |  |  | $ | 229,103 |  |  | $ | 384,702 |  |  | $ | 2,132 |  |  | $ | 616,725 |
Net loss | — |  |  | — |  |  | — |  |  | (6,611) |  |  | — |  |  | (6,611) |
Stock-based compensation | 77 |  |  | 4 |  |  | 1,702 |  |  | — |  |  | — |  |  | 1,706 |
Other comprehensive income, net of tax | — |  |  | — |  |  | — |  |  | — |  |  | 2,504 |  |  | 2,504 |
Dividends declared ($0.10 per share) | — |  |  | — |  |  | — |  |  | (1,586) |  |  | — |  |  | (1,586) |
Balance at March 31, 2024 | 15,834 |  |  | $ | 792 |  |  | $ | 230,805 |  |  | $ | 376,505 |  |  | $ | 4,636 |  |  | $ | 612,738 |

The accompanying notes are an integral part of these consolidated financial statements.
-7-

Table of Contents
VSE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)

|  | Three months ended March 31,
(in thousands) |  | 2025 |  | 2024
|  | (a) |  | (a)
Cash flows from operating activities: |  |  |  |
Net loss |  | $ | (8,973) |  |  | $ | (6,611) |
Adjustments to reconcile net loss to net cash used in operating activities: |  |  |  |
Depreciation and amortization |  | 9,905 |  |  | 5,945 |
Amortization of debt issuance cost |  | 332 |  |  | 332 |
Deferred taxes |  | (5,764) |  |  | (3,763) |
Stock-based compensation |  | 3,522 |  |  | 2,498 |
Impairment and loss on sale of business segments |  | 33,952 |  |  | 16,867 |
Loss on sale of property and equipment |  | 10 |  |  | 421 |
Changes in operating assets and liabilities, net of impact of acquisitions: |  |  |  |
Receivables |  | (19,393) |  |  | (24,604) |
Contract assets |  | (920) |  |  | 7,823 |
Inventories |  | (6,359) |  |  | (19,911) |
Prepaid expenses and other current assets and other assets |  | (29,910) |  |  | (17,381) |
Operating lease assets and liabilities, net |  | 372 |  |  | (166) |
Accounts payable and deferred compensation |  | (10,892) |  |  | (25,676) |
Accrued expenses and other liabilities |  | (12,514) |  |  | (14,834) |
Net cash used in operating activities |  | (46,632) |  |  | (79,060) |
Cash flows from investing activities: |  |  |  |
Purchases of property and equipment |  | (2,875) |  |  | (7,729) |
Proceeds from the sale of business segment |  | 2,746 |  |  | 41,137 |
Net cash (used) provided in investing activities |  | (129) |  |  | 33,408 |
Cash flows from financing activities: |  |  |  |
Borrowings on bank credit facilities |  | 74,489 |  |  | 211,082 |
Repayments on bank credit facilities |  | (39,989) |  |  | (159,135) |
Payment of taxes for equity transactions |  | (4,201) |  |  | (2,079) |
Dividends paid |  | (2,060) |  |  | (1,577) |
Net cash provided by financing activities |  | 28,239 |  |  | 48,291 |
Net (decrease) increase in cash and cash equivalents |  | (18,522) |  |  | 2,639 |
Cash and cash equivalents, beginning of period |  | 29,030 |  |  | 7,930 |
Cash and cash equivalents, end of period |  | $ | 10,508 |  |  | $ | 10,569 |
(a) The cash flows related to discontinued operations and held-for-sale assets and liabilities have not been segregated, and remain included in the major classes of assets and liabilities. Accordingly, the Consolidated Statements of Cash Flows include the results of continuing and discontinued operations. See Note (3) "Discontinued Operations".

The accompanying notes are an integral part of these consolidated financial statements.
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VSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 2025
Table of Contents
(1) Nature of Operations and Basis of Presentation
Nature of Operations
VSE Corporation (collectively, with its consolidated subsidiaries), "VSE," or the "Company," is a leading provider of aviation aftermarket parts distribution and maintenance, repair and overhaul ("MRO") services for air transportation assets for commercial and government markets. VSE operates in one reportable segment aligned with the Company's operating segment: Aviation.
Basis of Presentation
The Company's accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles ("U.S. GAAP") for interim financial information and in accordance with the instructions to SEC Form 10-Q and Article 10 of SEC Regulation S-X. Therefore, such financial statements do not include all the information and footnotes required by U.S. GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024 ("2024 Form 10-K"). In the Company's opinion, all adjustments, including normal recurring items, considered necessary for a fair presentation of results for the interim periods have been included in the accompanying unaudited consolidated financial statements. Operating results for the three months ended March 31, 2025, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2025.
In February 2024, VSE 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 present the results of operations for the Federal and Defense segment as discontinued operations for all periods presented.
In February 2025, VSE signed a definitive agreement to sell all of the issued and outstanding shares of common stock of its Fleet segment. See Note (3) "Discontinued Operations" and Note (13) "Subsequent Events" for further information. The consolidated financial statements present the results of operations for the Fleet segment 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 classification. Unless otherwise noted, amounts and disclosures throughout these Notes to Consolidated Financial Statements relate solely to continuing operations and exclude all discontinued operations.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities 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 include fair value measurements, inventory provisions, collectability of receivables, valuation allowances on deferred tax assets, fair value of goodwill and other intangible assets and contingencies.
(2) Acquisitions
Turbine Controls, Inc. ("TCI")
On April 24, 2024, the Company completed the acquisition of TCI for a total consideration of $122.4 million. The total consideration consisted of cash consideration of $112.4 million, net of $1.2 million cash acquired, and 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 the Company's revolving credit facility. TCI is a leading provider of aftermarket MRO support services for complex engine components, as well as engine and airframe accessories, across commercial and military applications. The acquisition presents an opportunity for VSE's Aviation segment to accelerate its MRO strategy, including expanding the Company's repair capability offerings and adding several new original equipment manufacturer ("OEM") relationships.
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The final purchase price allocation is as follows (in thousands):

Receivables |  | $ | 9,122 |
Contract assets |  | 16,193 |
Inventories |  | 5,512 |
Prepaid expenses and other current assets |  | 570 |
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 the Company's MRO services to new customers. The value attributed to goodwill and customer relationships is deductible for income tax purposes. The estimated value attributed to the customer relationship intangible assets is being amortized on a straight-line basis using a useful life of 10 years.
The Company incurred $1.6 million of acquisition-related expenses related to the TCI acquisition during the three months ended March 31, 2024, which 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 three months ended March 31, 2025, and 2024, respectively. The unaudited consolidated pro forma results of operations are as follows (in thousands):

|  | Three months ended March 31,
|  | 2025 |  | 2024
Revenue |  | $ | 256,045 |  |  | $ | 187,054 |
Income from continuing operations |  | $ | 13,968 |  |  | $ | 4,900 |

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.
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Table of Contents
Kellstrom Aerospace Group, Inc. ("Kellstrom Aerospace")
On December 3, 2024, the Company completed the acquisition of Kellstrom Aerospace for a total consideration of approximately $188.9 million, subject to post-closing adjustments, consisting of cash consideration of $168.6 million, net of $10.6 million cash acquired, and in-kind payment in the form of shares of the Company's common stock with a value equal to approximately $20.3 million. The purchase price of this acquisition was funded by the Company's October 2024 underwritten public offering and borrowings under the Company's revolving credit facility. Kellstrom Aerospace is a diversified global distributor and service provider supporting the commercial aerospace engine aftermarket. The acquisition provides an opportunity to improve the Company's position in the commercial aviation aftermarket by expanding product and capability offerings both domestically and internationally, including participation in aircraft engine maintenance events.
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. The Company has not yet finalized the determination of the fair values allocated to various assets and liabilities, including, but not limited to, working capital and income taxes. Therefore, the allocation of the total consideration for the acquisition to the tangible and identifiable intangible assets acquired, and liabilities assumed, is preliminary until the Company obtains final information regarding their fair values, which could potentially result in changes to the Kellstrom Aerospace opening balance sheet. Adjustments or changes to goodwill, assets or liabilities remain possible.
During the first quarter of 2025, the purchase price allocation was adjusted 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. Such adjustments resulted in a $4.7 million decrease to goodwill, driven by a $2.3 million fair value step up to operating lease right-of-use assets, a $2.2 million working capital settlement which reduced net purchase consideration, and a $0.2 million decrease in deferred tax liabilities.
The adjusted 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 |  | 96,024 |
Operating lease right-of-use assets |  | 14,141 |
Total assets acquired |  | 233,079 |
Accounts payable |  | (27,750) |
Accrued expense and other current liabilities |  | (6,153) |
Deferred tax liabilities |  | (10) |
Long-term operating lease obligations |  | (10,300) |
Total liabilities assumed |  | (44,213) |
Net assets acquired, excluding cash |  | $ | 188,866 |
Cash consideration, net of cash acquired |  | $ | 168,599 |
VSE common stock, at fair value |  | 20,267
Total |  | $ | 188,866 |

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Goodwill resulting from the Kellstrom Aerospace acquisition reflects the strategic advantage of growing the Company's distribution and MRO capabilities in the commercial aerospace aftermarket. The value attributed to goodwill and customer relationships is not deductible for income tax purposes. The estimated value attributed to the customer relationship intangible assets is being amortized on a straight-line basis using a useful life of 8 years.
Acquisition-related expenses related to the Kellstrom Aerospace acquisition totaled $0.7 million for the three months ended March 31, 2025, and are included in selling, general and administrative expenses.
The following unaudited pro forma financial information presents the combined results of operations for Kellstrom Aerospace and VSE Corporation for the three months ended March 31, 2025, and 2024, respectively. The unaudited consolidated pro forma results of operations are as follows (in thousands):

|  | Three months ended March 31, |  |  |  |  |  |
|  | 2025 |  | 2024 |  |  |  |  |  |
Revenue |  | $ | 256,045 |  |  | $ | 200,758 |  |  |  |  |  |  |
Income from continuing operations (a) |  | $ | 14,559 |  |  | $ | 7,447 |  |  |  |  |  |  |

(a) The after-tax impact of acquisition expenses incurred during the three months ended March 31, 2025 were adjusted for in the current period.

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.
(3) Discontinued Operations
Sale of Federal and Defense Segment
In February 2024, VSE entered into two separate agreements to sell substantially all the Federal and Defense segment's operational assets ("FDS Sale") for a cash consideration of $42.9 million. The FDS Sale is consistent with the Company's long-term strategic growth strategy focused on higher margin and higher growth aftermarket parts distribution and MRO businesses. The Company recorded a pre-tax loss on the FDS Sale of $0.2 million for the three months ended March 31, 2025 related to a settlement of net working capital and a pre-tax loss of $12.7 million and transaction fees of $2.5 million for the three months ended March 31, 2024. All such losses and transaction fees are included in loss from discontinued operations, net of tax in the consolidated statements of operations.
Sale of Fleet Segment
In February 2025, VSE signed a definitive agreement to sell all issued and outstanding shares of common stock of its Fleet segment. As stated within Note (13) "Subsequent Events", the transaction was completed in April 2025 for a total consideration of up to $230 million (the “Fleet Sale”). This consideration is comprised of a $140 million cash payment at closing, a $25 million seller note, and an earn-out payment of up to $65 million, subject to the achievement of certain milestones. The Company recorded a pre-tax impairment loss on the Fleet assets held-for-sale of $33.7 million during the three months ended March 31, 2025, which is included in loss from discontinued operations, net of tax in the consolidated statements of operations.
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Table of Contents
The components of loss from discontinued operations, net of tax for the three months ended March 31, 2025 and 2024, consist of the following (in thousands):

|  |  |  | Three months ended March 31,
|  |  |  |  |  | 2025 |  | 2024
Revenues |  |  |  |  |  | $ | 75,358 |  |  | $ | 105,425 |
Costs and operating expenses |  |  |  |  |  | 71,829 |  |  | 105,252 |
Income from discontinued operations |  |  |  |  |  | 3,529 |  |  | 173 |
Other impairment |  |  |  |  |  | 33,708 |  |  | 4,204 |
Loss on the sale of discontinued operations |  |  |  |  |  | 244 |  |  | 12,663 |
Total loss before income taxes |  |  |  |  |  | (30,423) |  |  | (16,694) |
Benefit for income taxes |  |  |  |  |  | (7,482) |  |  | (4,541) |
Loss from discontinued operations, net of tax |  |  |  |  |  | $ | (22,941) |  |  | $ | (12,153) |

The assets and liabilities reported as held-for-sale consist of the following (in thousands):

|  |  |  | March 31, |  | December 31,
|  |  | 2025 |  | 2024
Assets |  |  |  |  |
| Cash and cash equivalents |  |  | $ | 4,797 |  |  | $ | (475) |
| Receivables, net |  |  | 47,424 |  |  | 39,459 |
| Inventories |  |  | 141,223 |  |  | 142,259 |
| Prepaid expenses and other current assets |  |  | 10,218 |  |  | 11,057 |
| Property and equipment, net |  |  | 14,113 |  |  | 14,546 |
| Intangible assets, net |  |  | 93 |  |  | 124 |
| Goodwill |  |  | 29,482 |  |  | 63,190 |
| Operating lease right-of-use assets |  |  | 9,595 |  |  | 10,101 |
| Other assets |  |  | 2,566 |  |  | 2,559 |
| Total assets held-for-sale |  |  | $ | 259,511 |  |  | $ | 282,820 |
Liabilities |  |  |  |  |
| Accounts payable |  |  | $ | 36,546 |  |  | $ | 42,099 |
| Accrued expenses and other current liabilities |  |  | 8,402 |  |  | 9,446 |
| Long-term operating lease obligations |  |  | 8,086 |  |  | 8,645 |
| Deferred tax liabilities |  |  | — |  |  | 8,010 |
| Total liabilities held-for-sale |  |  | $ | 53,034 |  |  | $ | 68,200 |

Selected financial information related to cash flows from discontinued operations is as follows (in thousands):

|  | Three months ended March 31, |  |  |
|  | 2025 |  | 2024 |  |  |
Depreciation and amortization |  | $ | 731 |  |  | $ | 835 |  |  |  |
Stock-based compensation (a) |  | $ | (225) |  |  | $ | 222 |  |  |  |
Purchases of property and equipment |  | $ | 208 |  |  | $ | 1,303 |  |  |  |
(a) Stock-based compensation benefit was recognized during the three months ended March 31, 2025 due to forfeitures in the period. |  |  |

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Table of Contents
(4) Revenue
Disaggregation of Revenues
The Company's revenues are derived from the delivery of products to its customers and from services performed for commercial and government customers.
A summary of revenues by customer for the three months ended March 31, 2025 and 2024 is as follows (in thousands):

|  |  |  | Three months ended March 31,
|  |  |  |  |  |  |  | 2025 |  | 2024
Commercial |  |  |  |  |  |  |  | $ | 254,953 |  |  | $ | 157,984 |
Government |  |  |  |  |  |  |  | 1,092 |  |  | 4,399 |
Total |  |  |  |  |  |  |  | $ | 256,045 |  |  | $ | 162,383 |

A summary of revenues by type for the three months ended March 31, 2025 and 2024 is as follows (in thousands):

|  |  |  | Three months ended March 31,
|  |  |  |  |  |  |  | 2025 |  | 2024 (a)
Repair |  |  |  |  |  |  |  | $ | 95,494 |  |  | $ | 54,360 |
Distribution |  |  |  |  |  |  |  | 160,551 |  |  | 108,023 |
Total |  |  |  |  |  |  |  | $ | 256,045 |  |  | $ | 162,383 |
(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):

|  |  |  | March 31, |  | December 31,
|  | Financial Statement Classification |  | 2025 |  | 2024
Billed and billable receivables |  | Receivables, net |  | $ | 169,532 |  |  | $ | 158,104 |
Contract assets - unbilled receivables |  | Contract assets |  | $ | 30,879 |  |  | $ | 29,960 |
Contract liabilities |  | Accrued expenses and other current liabilities |  | $ | 3,088 |  |  | $ | 4,479 |

For the three months ended March 31, 2025 and 2024, the Company recognized revenue that was previously included in the beginning balance of contract liabilities of $2.4 million and $1.4 million, respectively.
(5) Debt
Long-term debt consisted of the following (in thousands):

| March 31, |  | December 31,
| 2025 |  | 2024
Bank credit facility - term loan | $ | 270,000 |  |  | $ | 277,500 |
Bank credit facility - revolving facility | 197,000 |  |  | 155,000 |
Principal amount of long-term debt | 467,000 |  |  | 432,500 |
Less: debt issuance costs | (1,994) |  |  | (2,327) |
Total debt | 465,006 |  |  | 430,173 |
Less: current portion | (5,625) |  |  | (30,000) |
Long-term debt, less current portion | $ | 459,381 |  |  | $ | 400,173 |

As of March 31, 2025, the interest rate on the Company's outstanding term loan borrowings and weighted average interest rate on the Company's aggregate outstanding revolving facility was 6.67% each. The Company had letters of credit outstanding of $0.8 million as of March 31, 2025 and December 31, 2024.
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The Company was in compliance with required ratios and other terms and conditions under its credit agreement as of March 31, 2025.
Subsequent Event
On May 2, 2025, the Company entered into a new credit agreement, which provides for a $300 million term loan facility and a $400 million revolving credit facility, both maturing on May 2, 2030. Borrowings under the new credit agreement will 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 new credit agreement replaces the Company's existing term loan and revolving credit facility. The proceeds of the term loan were utilized to pay fees and expenses incurred in connection with the new agreement and to repay, in full, amounts outstanding under the previous credit agreement.
Future required payments on the new term loan, to be paid in quarterly installments beginning in September 2025, are as follows: $3.8 million for the remainder of 2025, $7.5 million in 2026, $11.3 million in 2027, $20.6 million in 2028, $22.5 million in 2029, and $234.3 million in 2030. The Company has classified the current portion of long-term debt in its consolidated balance sheets as of March 31, 2025 based on the payment terms of the new credit agreement.
(6) Derivative Instruments and Hedging Activities
The Company's derivative instruments designated as cash flow hedges as of March 31, 2025 were as follows (in thousands):

| Notional Amount | Paid Fixed Rate | Receive Variable Rate | Settlement and Termination
Interest rate swaps | $150,000 | 2.8% | 1-month term SOFR | Monthly through October 31, 2027
Interest rate swaps | $100,000 | 4.5% | 1-month term SOFR | Monthly through July 31, 2026

The Company is party to fixed interest rate swap instruments that are designated and accounted for as cash flow hedges to manage risks associated with interest rate fluctuations on a portion of the Company's floating rate debt. For the three months ended March 31, 2025, the Company reclassified $0.5 million from accumulated other comprehensive income to interest expense, net. The Company estimates that it will reclassify $1.1 million of unrealized gains from accumulated other comprehensive income into earnings in the twelve months following March 31, 2025. See Note (11) "Fair Value Measurements" for the fair value of the interest rate swaps.
(7) Earnings Per Share
Basic earnings per share ("EPS") is computed by dividing net income by the weighted average number of shares of common stock outstanding during each period. Shares issued during the period are weighted for the portion of the period that they were outstanding. The 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.
The weighted-average number of shares outstanding used to compute basic and diluted EPS were as follows:

|  |  |  | Three months ended March 31,
|  |  |  |  |  | 2025 |  | 2024
Basic weighted average common shares outstanding |  |  |  |  |  | 20,617,949 |  |  | 15,783,915 |
Effect of dilutive shares |  |  |  |  |  | 122,370 |  |  | 156,035 |
Diluted weighted average common shares outstanding |  |  |  |  |  | 20,740,319 |  |  | 15,939,950 |

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Table of Contents
(8) Commitments and Contingencies
Contingencies
The Company may have certain claims in the normal course of business, including legal proceedings, against it and against other parties. In the Company's opinion, the resolution of these claims will not have a material adverse effect on its results of operations, financial condition, or cash flows.
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 of the Company, whether relating to government contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including repayments, fines or penalties being imposed, which could lead to suspension or debarment from future government contracting. Government investigations often take years to complete and many result in no adverse action against the Company. 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 its results of operations, financial condition, or cash flows.
(9) Business Segment
The sale of the Company's Fleet and Federal and Defense segments allows VSE 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 Fleet Federal and Defense segments, management of the Company's business operations is conducted under a single reportable operating segment: Aviation. The Company's 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 engine components and accessories, fuel controls, avionics, pneumatics, hydraulics, wheel and brake, and rotable exchange and supply chain services.
The operating segment reported below is the only segment for which separate financial information is available and for which segment results are evaluated regularly by the Company's President and Chief Executive Officer, who is the Chief Operating Decision Maker ("CODM"), in deciding how to allocate resources and in assessing performance. As the Company operates under a single reportable operating segment, the CODM evaluates segment performance based on net income (loss) and considers budget-to-actual, sequential period and prior period variances on a monthly basis when making decisions about allocating capital and personnel. The expenses listed below are viewed as significant segment expenses as part of the CODM’s evaluation.
Net sales of the Company exclude intercompany sales as these activities are eliminated in consolidation. Corporate costs are primarily selling, general and administrative expenses not allocated to the Aviation segment.
The Company's segment information is as follows (in thousands):

|  | Three months ended March 31,
|  | 2025 |  | 2024
Revenues |  | $ | 256,045 |  |  | $ | 162,383 |
Costs and operating expenses: |  |  |  |
Segment costs (a) |  | 210,018 |  |  | 130,933 |
Depreciation and amortization (b) |  | 9,166 |  |  | 4,933 |
Allocated corporate cost (c) |  | 5,337 |  |  | 4,207 |
Unallocated corporate costs |  | 7,020 |  |  | 6,667 |
Operating income |  | 24,504 |  |  | 15,643 |
Interest expense, net |  | 7,939 |  |  | 9,190 |
Provision for income taxes |  | 2,597 |  |  | 911 |
Loss from discontinued operations, net of tax |  | (22,941) |  |  | (12,153) |
Net loss |  | $ | (8,973) |  |  | $ | (6,611) |

(a) Segment costs consist of material, labor, overhead, and selling, general, and administrative costs attributable to the Aviation segment.
(b) This line item includes only depreciation and amortization attributable to the Aviation segment.
(c) Primarily includes costs for information technology, human resources, accounting, and legal support services allocated to the Aviation segment.

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The Company's total assets are as follows (in thousands):

| March 31, |  | December 31,
| 2025 |  | 2024
Total assets: |  |  |
Aviation | $ | 1,448,556 |  |  | $ | 1,409,426 |
Corporate | 24,915 |  |  | 50,384 |
Assets held-for-sale | 259,511 |  |  | 282,820 |
Total assets | $ | 1,732,982 |  |  | $ | 1,742,630 |

(10) Goodwill and Intangible Assets
Goodwill
Changes in the carrying amount of goodwill for the three months ended March 31, 2025 were as follows (in thousands):

|  | Carrying Amount
Balance as of December 31, 2024 |  | $ | 428,263 |
Measurement period adjustments |  | (4,687) |
Balance as of March 31, 2025 |  | $ | 423,576 |

Goodwill decreased during the three months ended March 31, 2025 in connection with measurement period adjustments for the Kellstrom Aerospace acquisition discussed in Note (2) "Acquisitions."
Intangible Assets
Intangible assets consisted of the following (in thousands):

|  | Cost |  | Accumulated Amortization |  | Net Intangible Assets
March 31, 2025 |  |  |  |  |  |
Contract and customer-related |  | $ | 271,350 |  |  | $ | (80,327) |  |  | $ | 191,023 |
December 31, 2024 |  |  |  |  |  |
Contract and customer-related |  | $ | 271,350 |  |  | $ | (74,193) |  |  | $ | 197,157 |
Trade names |  | 8,500 |  |  | (8,500) |  |  | — |
Total |  | $ | 279,850 |  |  | $ | (82,693) |  |  | $ | 197,157 |

Intangible assets with a cost of $8.5 million were fully amortized as of December 31, 2024 and are no longer reflected in the intangible asset values as of March 31, 2025.
As of March 31, 2025, the estimated future annual amortization expense related to intangible assets is as follows (in thousands):

Year ending |  | Amount
Remainder of 2025 |  | $ | 18,262 |
2026 |  | 24,349 |
2027 |  | 22,602 |
2028 |  | 21,769 |
2029 |  | 21,706 |
2030 |  | 21,266 |
Thereafter |  | 61,069 |
Total |  | $ | 191,023 |

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(11) Fair Value Measurements
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):

Amounts Recorded at Fair Value |  | Financial Statement Classification |  | Fair Value Hierarchy |  | Fair Value March 31, 2025 |  | Fair Value December 31, 2024
Non-COLI assets held in Deferred Supplemental Compensation Plan(a) |  | Other assets |  | Level 1 |  | $ | 623 |  |  | $ | 629 |
Interest rate swaps |  | Other assets |  | Level 2 |  | $ | 2,156 |  |  | $ | 4,093 |
(a) Non-Company Owned Life Insurance ("COLI") assets held in the Company's deferred supplemental compensation plan consist of equity funds with fair value based on observable inputs such as quoted prices for identical assets in active markets and changes in fair value are recorded as selling, general and administrative expenses.

The carrying amounts of cash and cash equivalents, receivables, accounts payable and amounts included in prepaid expenses and other current assets and accrued expenses and other current liabilities that meet the definition of a financial instrument approximate fair value due to their relatively short maturity. The carrying value of the Company's 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 the Company's existing debt arrangements.
(12) Income Taxes
Income tax expense during interim periods is based on the estimated annual effective income tax rate plus any discrete items that are recorded in the period in which they occur. The Company's tax rate is affected by discrete items that may occur in any given year but may not be consistent from year to year.
The Company's effective tax rate for continuing operations was 15.7% and 14.1% for the three months ended March 31, 2025 and 2024, respectively. The effective tax rate was higher for the three months ended March 31, 2025 as compared to the same period of the prior year primarily due to a lower impact from the excess stock compensation deduction on the current year's rate.
(13) Subsequent Events
Sale of Fleet Segment
In April 2025, the Company completed the previously announced sale of its Fleet segment under the stock purchase agreement dated February 17, 2025. The total consideration is approximately $230 million, consisting of $140 million in cash, a $25 million seller note, and up to $65 million in a contingent earn-out payment, subject to certain post-closing and working capital adjustments. The Company used the initial cash proceeds to repay outstanding borrowings under its revolving credit facility.
Acquisition of Turbine Weld Industries, LLC
On May 1, 2025, the Company acquired Turbine Weld Industries, LLC, a specialized MRO provider of complex technical and proprietary engine components for business and general aviation ("BG&A") platforms. VSE acquired Turbine Weld Industries, LLC for a total consideration of approximately $50 million in cash, subject to working capital adjustments. The cash consideration was funded through additional borrowings under the revolving facility under the Company's credit agreement. It is not practical to disclose the preliminary purchase price allocation given the short period of time between the acquisition date and the issuance of these unaudited consolidated financial statements.
During the three months ended March 31, 2025, we incurred $0.5 million of acquisition-related expenses, which are included in selling, general and administrative expenses.
Credit Agreement Refinancing
On May 2, 2025, the Company entered into a new credit agreement, which provides for a $300 million term loan facility and a $400 million revolving credit facility, both maturing on May 2, 2030. See Note (5) "Debt" for further information.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Business Overview
VSE is a diversified aviation aftermarket products and services company providing maintenance, repair and overhaul ("MRO") services, parts distribution, logistics, supply chain management and consulting services for transportation assets to commercial and government markets.
Recent Developments
Sale of Fleet Segment
In April 2025, the Company completed the previously announced sale of its Fleet segment. See Note (3) "Discontinued Operations" and Note (13) "Subsequent Events" to the consolidated financial statements for further information.
Business Trends
During the first quarter of 2025, the Company's strong program execution of new and existing distribution awards, an expansion of product offerings and MRO capabilities, increased market activity, and contributions from recent acquisitions produced record results, with quarterly revenue reaching $256.0 million for the three months ended March 31, 2025, representing a 58% increase year-over-year. Market growth and share gains have resulted in increased repair and distribution revenue of 76% and 49%, respectively, during the three months ended March 31, 2025, compared to the same period for the prior year. The Company's growth has been driven by several strategic initiatives, including executing on newly awarded distribution agreements, the introduction of new products and service capabilities to its portfolio, the launch of a new OEM licensed manufacturing program and the opening of a new distribution facility in Europe, all of which further strengthened the Company's position in the aviation aftermarket. Additionally, expanding VSE's partnerships with OEM's has provided the Company new opportunities, including access to new markets with an established customer base.
The Company believes the acquisition of TCI in April 2024 and the recent acquisition of Kellstrom Aerospace in December 2024 are strongly aligned with VSE's core business and increases VSE's exposure to the high-growth, higher-margin aviation commercial engine MRO and distribution aftermarkets.
Results of Operations
The following table summarizes the Company's consolidated results of operations (in thousands):

|  |  |  | Three months ended March 31,
|  |  |  |  |  |  |  |  |  | 2025 |  | 2024 |  | Change ($) |  | Change (%)
Revenues |  |  |  |  |  |  |  |  |  | $ | 256,045 |  |  | $ | 162,383 |  |  | $ | 93,662 |  |  | 58 | %
Costs and operating expenses |  |  |  |  |  |  |  |  |  | 231,541 |  |  | 146,740 |  |  | 84,801 |  |  | 58 | %
Operating income |  |  |  |  |  |  |  |  |  | 24,504 |  |  | 15,643 |  |  | 8,861 |  |  | 57 | %
Interest expense, net |  |  |  |  |  |  |  |  |  | 7,939 |  |  | 9,190 |  |  | (1,251) |  |  | (14) | %
Income from continuing operations before income taxes |  |  |  |  |  |  |  |  |  | 16,565 |  |  | 6,453 |  |  | 10,112 |  |  | 157 | %
Provision for income taxes |  |  |  |  |  |  |  |  |  | 2,597 |  |  | 911 |  |  | 1,686 |  |  | 185 | %
Net income from continuing operations |  |  |  |  |  |  |  |  |  | $ | 13,968 |  |  | $ | 5,542 |  |  | $ | 8,426 |  |  | 152 | %

Revenues. Revenues increased for the three months ended March 31, 2025, compared to the same period in the prior year primarily driven by contributions from the acquisitions of TCI and Kellstrom Aerospace, recently initiated distribution contract wins and improved demand for the Company's commercial aerospace products and services resulting from strong end market activity in global commercial air travel. Aviation distribution revenue increased $52.5 million, or 49%, and repair revenue increased $41.1 million, or 76%, for the three months ended March 31, 2025, compared to the same period in the prior year.
Costs and Operating Expenses. Costs and operating expenses increased for the three months ended March 31, 2025, compared to the same period in the prior year, primarily driven by higher revenue. Included in costs and operating expenses is the amortization
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of intangible assets related to acquisitions, which was $6.1 million for the three months ended March 31, 2025, compared to $3.4 million for the same period in the prior year.
Operating Income. Operating income increased for the three months ended March 31, 2025, compared to the same period of the prior year, primarily driven by revenue growth and a favorable shift in sales mix and pricing, partially offset by increased amortization of intangible assets and an increase in corporate acquisition and integration costs incurred during the current period.
Interest Expense. Interest expense decreased for the three months ended March 31, 2025, as compared to the same period in the prior year primarily due to a decrease in the Company's debt facility borrowings and a lower average interest rate on borrowings outstanding.
Provision for Income Taxes. The Company's effective tax rate for continued operations was 15.7% and 14.1% for the three months ended March 31, 2025 and 2024, respectively. The Company's tax rate is affected by discrete items that may occur in any given year but may not be consistent from year to year. Permanent differences such as foreign derived intangible income deduction, Section 162(m) limitation, capital gains tax treatment, state income taxes, certain federal and state tax credits and other items caused differences between the Company's statutory U.S. federal income tax rate and its effective tax rate. The higher effective tax rate for the three months ended March 31, 2025 was primarily driven by a lower impact from the excess stock compensation deduction on the current year's rate.
Liquidity and Capital Resources
Liquidity
The Company's internal sources of liquidity are primarily from operating activities, specifically from changes in the level of revenues and associated inventory, accounts receivable and accounts payable, and from profitability. Significant increases or decreases in revenues and inventory, accounts receivable and accounts payable can affect liquidity. Inventory and accounts payable levels can be affected by the timing of large opportunistic inventory purchases and by distributor agreement requirements. Accounts receivable and accounts payable levels can be affected by changes in the level of work performed and by the timing of large purchases. In addition to operating cash flows, other significant factors that affect the Company's overall management of liquidity include capital expenditures, and investments in the acquisition of businesses.
The Company's primary external financing sources are the capital markets and its credit agreement, which includes a term loan and a revolving facility, with an aggregate maximum borrowing capacity of the revolving facility of $350.0 million as of March 31, 2025. For the three months ended March 31, 2025, outstanding borrowings under the credit agreement increased $34.5 million. As of March 31, 2025, the Company had $270.0 million outstanding under the term loan, $197.0 million under the revolving facility, $0.8 million in outstanding letters of credit, and $152.2 million in unused commitments.
The Company believes its cash on hand, operating cash flows, and available credit under its credit agreement will provide sufficient liquidity for the Company's business operations as well as capital expenditures, dividends, and other capital requirements associated with its business operations over the next twelve months and thereafter for the foreseeable future.
New Credit Agreement
On May 2, 2025, the Company entered into a new credit agreement, which provides for a $300 million term loan facility and a $400 million revolving credit facility, both maturing on May 2, 2030. The new debt agreement provides a lower interest rate, greater flexibility and increased borrowing capacity. The new credit agreement replaces the Company's existing term loan and revolving credit facility, which were scheduled to mature in October 2026.
Borrowings under the new credit agreement will accrue interest at either the term SOFR rate plus the SOFR margin or ABR plus the ABR margin. The Company, at its option may select between one, three or six month Term SOFR Rates. The applicable SOFR margin or ABR margin will be determined based on the Company’s Total Net Leverage Ratio.
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Cash Flows
The following table summarizes the Company's cash flows (in thousands):

|  |  |  | Three months ended March 31,
|  |  |  |  |  | 2025 |  | 2024
Net cash used in operating activities |  |  |  |  |  | $ | (46,632) |  |  | $ | (79,060) |
Net cash (used) provided in investing activities |  |  |  |  |  | (129) |  |  | 33,408 |
Net cash provided by financing activities |  |  |  |  |  | 28,239 |  |  | 48,291 |
Net (decrease) increase in cash and cash equivalents |  |  |  |  |  | $ | (18,522) |  |  | $ | 2,639 |

Cash used in operating activities decreased $32.4 million for the three months ended March 31, 2025, as compared to the same period of the prior year, primarily due to an increase in net income from continuing operations and improved receivable collections.
Cash used in investing activities was $0.1 million for the three months ended March 31, 2025, as compared to cash provided from investing activities of $33.4 million for the same period of the prior year. The change is primarily driven by $41.1 million in proceeds from the sale of the Federal and Defense segment in the prior year, as compared to just $2.7 million in proceeds from the sale in the current year as a result of the settlement of final amounts. Refer to Note (3) "Discontinued Operations" to the consolidated financial statements for further information.
Cash provided by financing activities decreased $20.1 million for the three months ended March 31, 2025, as compared to the same period of the prior year, primarily reflecting lower net borrowings of the Company's credit agreement during the current period.
The Company paid cash dividends totaling $2.1 million or $0.10 per share during the three months ending March 31, 2025. Pursuant to the terms of the credit agreement, payment of cash dividends are subject to annual restrictions. The Company has paid cash dividends annually since 1973.
Other Obligations and Commitments
There have not been any material changes to the Company's other obligations and commitments that were included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024 ("2024 Form 10-K").
Inflation and Pricing
There have not been any material changes to this disclosure from those discussed in the Company's 2024 Form 10-K.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on its financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
Disclosures About Market Risk
Interest Rate Risk
The Company's credit agreement provides available borrowing at variable interest rates. The Company's interest expense is impacted by the overall global economic and interest rate environment. Accordingly, future interest rate changes could potentially put the Company at risk for a material adverse impact on future earnings and cash flows. To mitigate this risk, the Company has employed interest rate hedges to fix rates on a portion of its borrowings for specified periods. For additional information related to the Company's debt and interest rate swaps, see Note (5) and Note (6), respectively, to the Consolidated Financial Statements.
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The Company believes there have been no material changes in market risks from those discussed in the Company's 2024 Form 10-K.
Critical Accounting Policies, Estimates and Judgments
The Company's consolidated financial statements are prepared in accordance with United States Generally Accepted Accounting Principles ("U.S. GAAP"), which requires the Company to make estimates and assumptions. Certain critical accounting policies affect the more significant accounts, particularly those that involve judgments, estimates and assumptions used in the preparation of the Company's consolidated financial statements, including revenue recognition, inventory valuation, business combinations, goodwill and intangible assets, and income taxes. If any of these estimates, assumptions or judgments prove to be incorrect, the Company's reported results could be materially affected. Actual results may differ significantly from the Company's estimates under different assumptions or conditions. See "Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations" and Note (1) "Nature of Business and Summary of Significant Accounting Policies" in the Company's 2024 Annual Report on Form 10-K for further discussions of the Company's significant accounting policies and estimates. There have been no significant changes in the Company's critical accounting estimates during the three months ended March 31, 2025, from those disclosed in the Company's 2024 Form 10-K.
Recently Issued Accounting Pronouncements
For a description of recently announced accounting standards, including the expected dates of adoption and estimated effects, if any, on the Company's consolidated financial statements, see Note (1) "Nature of Business and Summary of Significant Accounting Policies — Recent Adopted Accounting Pronouncements” to the Company's Consolidated Financial Statements included in its 2024 Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See "Disclosures About Market Risk" in Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Management of the Company has evaluated, with the participation of its Chief Executive Officer and Chief Financial Officer, the effectiveness of the disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2025, disclosure controls and procedures were effective to ensure that information the Company is required to disclose in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
In connection with the acquisition of TCI and Kellstrom Aerospace, certain areas of the Company's internal control over financial reporting changed. These areas are primarily related to integrating corporate functions such as entity level controls and certain financial reporting controls. Certain control structure items remain in operation at TCI and Kellstrom Aerospace, primarily related to information technology, inventory management, human resources, processing and billing of revenues, and collection of those revenues. The control structures at TCI and Kellstrom Aerospace have been modified to appropriately oversee and incorporate these activities into the overall control structure. The Company will continue to evaluate the need for additional internal controls over financial reporting.
There have been no additional changes in the Company's internal control over financial reporting during the quarterly period covered by this report that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
U.S. and foreign trade policies, including the assessment of tariffs and other impositions on imported goods, may have a material adverse impact on the Company’s business.
The U.S. and certain foreign countries have recently announced new or increased tariffs on imported goods, and additional tariffs or increases in tariffs could be assessed in the future. If any such tariffs were to increase the Company’s costs of obtaining materials or products from suppliers or increase the costs of selling the Company’s products to its customers, and the Company were unable to mitigate the impacts of any such increased costs, it could have a material adverse impact on its business and results of operations.
Other than as disclosed above in this section, there have been no material changes to the previously disclosed risk factors in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024 ("2024 Form 10-K”). The risk factors disclosed in the Company's 2024 Form 10-K should be considered together with information included in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, and under "Forward-Looking Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities
The Company did not purchase any of its equity securities during the period covered by this report other than 36,622 shares of common stock that were voluntarily forfeited to VSE by participants in its 2006 Restricted Stock Plan (the "2006 Plan") to cover their personal tax liability for vesting stock awards under the 2006 Plan.
Item 5. Other Information
During the three months ended March 31, 2025, no director or "officer," as defined in Rule 16a-1(f) of the Exchange Act, of the Company adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408 of Regulation S-K.
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Item 6. Exhibits

(a) Exhibits |  |
Exhibit 2.1 |  | Stock Purchase Agreement, dated February 1 7, 2025, by and among OEP Wheeler Intermediate, LLC, Wheeler Fleet Solutions, Co., and V SE Corporation (incorporate d by refe rence to Exhibit 2.1 to Form 8-K filed on February 21, 2025)
Exhibit 10.1 |  | Credit Agreement, dated as of May 2, 2025, by and among the Company as the borrower, each subsidiary of the Company from time to time party thereto as guarantors, the lenders from time to time party thereto and Citizens Bank, N.A., as administrative agent.
Exhibit 31.1 |  | Section 302 CEO Certification
Exhibit 31.2 |  | Section 302 CFO Certification
Exhibit 32.1 |  | Section 906 CEO Certification
Exhibit 32.2 |  | Section 906 CFO Certification
Exhibit 101.INS |  | Inline XBRL Instance Document
Exhibit 101.SCH |  | Inline XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PRE |  | Inline XBRL Taxonomy Extension Presentation Document
Exhibit 104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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VSE CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|  |  | VSE CORPORATION
Date: | May 7, 2025 | By: | /s/ John A. Cuomo
|  |  | John A. Cuomo
|  |  | Director, Chief Executive Officer and President
|  |  | (Principal Executive Officer)

Date: | May 7, 2025 | By: | /s/ Adam R. Cohn
|  |  | Adam R. Cohn
|  |  | Chief Financial Officer
|  |  | (Principal Financial Officer)

Date: | May 7, 2025 | By: | /s/ Tarang Sharma
|  |  | Tarang Sharma
|  |  | Chief Accounting Officer
|  |  | (Principal Accounting Officer)

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