VSE Corporation Quarterly report [Sections 13 or 15(d)]

Quarterly report [Sections 13 or 15(d)]

Fair Value Measurements

Fair Value Measurements

9 Months Ended

Sep. 30, 2025

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 September 30, 2025		Fair Value December 31, 2024
Non-COLI assets held in Deferred Supplemental Compensation Plan(a)	Other assets	Level 1	$	691	$	629
Interest rate swaps - current	Accrued expenses and other current liabilities	Level 2	$	686	$	—
Interest rate swaps - long-term	Other assets	Level 2	$	1,592	$	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 note receivable approximates fair value as the stated interest income effectively offsets the time value of money, resulting in minimal discounting impact. The carrying value of the Company's outstanding debt obligations approximates its fair value. The fair value of the note receivable and long-term debt are calculated using Level 2 inputs based on interest rates available for debt with terms and maturities similar to the Company's existing debt arrangements.

In connection with the sale of the Fleet segment in April 2025, the Company may receive up to $65 million in earn-out payments should the Fleet segment achieve certain milestones during 2025. The earn-out is recorded at fair value using unobservable inputs and thus represents a Level 3 measurement within the fair value hierarchy. The Company's fair value estimates of the earn-out receivable were determined using a modified Black-Scholes model and other methods, which account for the probabilities of various outcomes. The earn-out receivable is measured at fair value each reporting period. Changes in these assumptions could result in a material change to the fair value measurement. Subsequent changes in fair value are recorded within earn-out receivable fair value adjustments in the consolidated statements of operations. Pursuant to the sale agreement, half of the earn-out amount, if any, is due to the Company by December 31, 2026, with the second half due by June 30, 2027.

The following table presents the changes in the fair value of the earn-out receivable:


	Earn-out Receivable
Balance as of December 31, 2024	$	—
Sale date fair value of earn-out	29,200
Subsequent fair value adjustments (a)	(29,200)
Balance as of September 30, 2025	$	—

(a) The adjustment recognized during the second quarter of 2025 was initially classified within selling, general and administrative expenses within the consolidated statement of operations. During the third quarter of 2025, the adjustments were reclassified and separately disclosed to earn-out receivable fair value adjustments within the consolidated statements of operations.

The sale date fair value of the earn-out receivable was utilized in calculating the Company's impairment loss on Fleet assets classified as held-for-sale, which was recognized during the first quarter of 2025 and is included in income (loss) from discontinued operations, net of tax, in the consolidated statements of operations.

The fair value of the earn-out at the time of sale and at June 30, 2025 was determined using a modified Black-Scholes model based on significant inputs not observable in the market, incorporating asset volatility and a discount rate. The fair value of the earn-out receivable as of September 30, 2025 was determined using unobservable inputs, primarily internal forecasts. Based on updated forecasts, which incorporated actual performance to date of the divested entity subsequent to the sale, and the required milestones under the sale agreement, the Company does not expect that the earn-out performance thresholds will be achieved. Accordingly, the Company recorded a fair value adjustment during the three months ended September 30, 2025, resulting in a full write-down of the earn-out receivable.