VSE (VSEC) - 2025 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements The company presents its unaudited consolidated financial statements reflecting its recent strategic shift to an aviation focus Unaudited Consolidated Balance Sheets Total assets decreased to $1.60 billion, driven by the sale of the Fleet segment and a corresponding reduction in liabilities Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $1,602,027 | $1,742,630 | | Total Current Assets | $753,619 | $965,347 | | Goodwill | $428,665 | $428,263 | | Total Liabilities | $622,500 | $754,444 | | Total Current Liabilities | $202,045 | $298,500 | | Long-term debt, less current portion | $371,656 | $400,173 | | Total Stockholders' Equity | $979,527 | $988,186 | - The balance sheet as of December 31, 2024, included $282.8 million in 'Current assets held-for-sale' and $68.2 million in 'Current liabilities held-for-sale' related to the Fleet segment, which were no longer present as of June 30, 2025, following the sale[13][32] Unaudited Consolidated Statements of Operations Q2 2025 continuing operations saw a net income of $13.6 million, a significant turnaround from a prior-year loss Q2 2025 vs Q2 2024 Performance (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Total Revenues | $272,139 | $192,828 | | Operating Income | $22,513 | $2,602 | | Net Income from Continuing Operations | $13,638 | $(5,288) | | (Loss) from Discontinued Operations | $(10,441) | $2,511 | | Net Income (Loss) | $3,197 | $(2,777) | | Diluted EPS from Continuing Operations | $0.66 | $(0.31) | Six Months 2025 vs 2024 Performance (in thousands, except per share data) | Metric | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | | Total Revenues | $528,184 | $355,211 | | Operating Income | $47,017 | $18,245 | | Net Income from Continuing Operations | $27,606 | $254 | | (Loss) from Discontinued Operations | $(33,382) | $(9,642) | | Net (Loss) | $(5,776) | $(9,388) | | Diluted EPS from Continuing Operations | $1.33 | $0.01 | Unaudited Consolidated Statements of Cash Flows Cash from investing activities was positive due to asset sales, while operating activities used $34.7 million Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(34,741) | $(96,588) | | Net cash provided by (used in) investing activities | $82,613 | $(81,820) | | Net cash (used in) provided by financing activities | $(59,996) | $189,471 | | Net (decrease) increase in cash | $(12,124) | $11,063 | - Investing activities in 2025 were positively impacted by $138.8 million in proceeds from the sale of business segments, net of cash divested[28] - Financing activities in 2024 were significantly boosted by $161.7 million in proceeds from the issuance of common stock[28] Notes to Unaudited Consolidated Financial Statements Notes detail the company's transformation, including acquisitions, divestitures, and a new credit agreement - The company now operates in a single reportable segment, Aviation, providing aftermarket parts distribution and MRO services[30][69] - On May 1, 2025, the company acquired Turbine Weld for $49.9 million in cash to strengthen its MRO service portfolio[36] - The sale of the Fleet segment was completed on April 1, 2025, for a total consideration of up to $230 million, including cash, a seller note, and a potential earn-out[50] - A new credit agreement was established on May 2, 2025, providing a $300 million term loan and a $400 million revolving credit facility, both maturing in 2030[59] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong Q2 2025 revenue growth driven by acquisitions and its focused aviation strategy - Q2 2025 revenue reached $272.1 million, a 41% increase year-over-year, driven by strong execution, expanded product lines, and contributions from recent acquisitions[90] - Distribution revenue grew 50% and repair revenue grew 27% in Q2 2025 compared to Q2 2024, fueled by new distribution agreements like the Pratt & Whitney Canada EMEA program and solid end-market activity[90][93] - Operating income for Q2 2025 increased by 765% to $22.5 million, largely due to higher revenues and the absence of a $12.9 million lease abandonment charge recorded in Q2 2024[92][95] - The company entered a new credit agreement in May 2025 with a $300M term loan and $400M revolving facility, enhancing liquidity and flexibility; as of June 30, 2025, VSE had $316.4 million of unused commitments[98][101] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure from variable-rate debt, which is partially hedged - VSE's primary market risk is interest rate risk from its variable-rate credit facility[111] - The company uses interest rate hedges (swaps) to fix rates on a portion of its borrowings to mitigate the impact of interest rate fluctuations[111] Controls and Procedures Disclosure controls were deemed effective, with internal control changes made to integrate recent acquisitions - The CEO and CFO concluded that as of June 30, 2025, the company's disclosure controls and procedures were effective[116] - Changes were made to internal controls to integrate the acquisitions of Kellstrom Aerospace and Turbine Weld, focusing on areas like entity-level controls, IT, inventory management, and revenue processing[117] PART II OTHER INFORMATION Legal Proceedings The company reported no legal proceedings during the period - There are no legal proceedings to report[120] Risk Factors No material changes were reported to the risk factors previously disclosed in the company's Form 10-K - No material changes to previously disclosed risk factors were reported[121] Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities The company did not repurchase its equity securities, except for shares withheld for employee tax liabilities - The company did not engage in any stock buybacks; the only equity purchases were 194 shares forfeited by employees to cover tax liabilities on vesting stock awards[122] Other Information No directors or officers adopted, modified, or terminated Rule 10b5-1 trading arrangements during the quarter - No directors or officers adopted, modified, or terminated any Rule 10b5-1 trading plans during the three months ended June 30, 2025[123] Exhibits This section lists filed exhibits, including the new Credit Agreement and required CEO/CFO certifications - Key exhibits filed include the new Credit Agreement dated May 2, 2025, and required CEO/CFO certifications[125]