ITEM 1A. Risk Factors
The Company's future results may differ materially from past results and from those projected in the forward-looking statements contained in this Form 10-K due to various uncertainties and risks, including those risks set forth below, nonrecurring events and other important factors disclosed previously and from time to time in the Company's other reports filed with the SEC.
Operational Risks
The Company's success is highly dependent on the performance of the aviation aftermarket, which could be impacted by lower demand for business aviation and commercial air travel or airline fleet changes causing lower demand for the Company's goods and services.
General global industry and economic conditions that affect the aviation industry may also affect the Company's business. The Company is subject to macroeconomic cycles, and when recessions occur, the Company may experience reduced orders, payment delays, supply chain disruptions or other factors as a result of the economic challenges faced by customers, prospective customers and suppliers. Further, the aviation industry has historically, from time to time, been subject to downward cycles which reduce the overall demand for jet engine and aircraft component replacement parts and repair and overhaul services, and such downward cycles result in lower sales and greater credit risk. Demand for commercial air travel can be influenced by airline industry profitability, world trade policies, government-to-government relations, terrorism, political unrest, war (including the ongoing Russia-Ukraine conflict and Middle East conflicts), disease outbreaks, environmental constraints imposed upon aircraft operations, technological changes, price, and other competitive factors. These global industry and economic conditions may have a material adverse effect on the Company's business, financial condition, and results of operations.
Acquisitions, which are a part of the Company's business strategy, present certain risks.
A key element of the Company's business strategy is growth through the acquisition of additional companies. The Company is focused on acquiring complementary assets that add new products, new customers, and new capabilities or new geographic and/or operational competitive advantages in both new and existing markets within the Company's core competencies. The Company's acquisition strategy is affected by a number of challenges and risks, including the availability of suitable acquisition candidates, availability of capital, diversion of management’s time and attention from the Company's core business, effective integration of the operations and personnel of acquired companies, potential write downs of acquired intangible assets, potential loss of key employees of acquired companies, use of a significant portion of available cash, compliance with debt covenants and consummation of acquisitions on terms satisfactory to the Company.
The Company may not be able to successfully execute its acquisition strategy, and the failure to do so could have a material adverse effect on the Company's business, financial condition, and results of operations.
Global economic conditions and political factors could adversely affect the Company's revenues.
Revenues for work performed in, or products delivered to, foreign countries are subject to economic conditions in those countries and to political risks posed by ongoing conditions or foreign conflicts, including the continuing Russia-Ukraine and Middle East conflicts, potential terrorist activity, and evolving global trade tensions, including those involving China. The Company is also subject to U.S. and foreign export control laws and regulations, trade sanctions, and other compliance requirements, which may restrict the markets in which it may operate or the parties with whom it may transact. Changes in export control regulations, sanctions regimes, licensing requirements, or their interpretation or enforcement could delay or prevent the Company from delivering or receiving products or services, result in fines or penalties, or otherwise adversely affect the Company’s business, financial condition, and results of operations. Changes in government policies or regimes in these regions may affect the Company's ability to continue ongoing work or initiate new projects. Political and economic conditions in both the United States and abroad, as well as global prices and availability of oil and other commodities, could also influence demand for certain of the Company's products and services.
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
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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.
Supply chain delays, disruptions, and potential geopolitical uncertainty could adversely affect the Company's business operations and expenses.
Due to current economic and geopolitical uncertainty and supply chain disruptions, the Company's business could be adversely impacted by delays or the inability to source products and services for customers. If the Company's suppliers experience increased disruptions to their operations as a result of these dynamics, they may be unable to fill the Company's supply needs in a timely, compliant and cost-effective manner. The Company has incurred and may in the future incur additional costs and delays, including higher prices, schedule delays or the costs associated with identifying alternative suppliers. In instances where the Company may not be able to mitigate these consequences, the Company's ability to perform on contracts may be impacted, which could result in reduced revenues and profits.
Competition from existing and new competitors may harm the Company's business.
The aviation parts industry is highly fragmented, has several highly visible leading companies, and is characterized by intense competition. Some of the Company's original equipment manufacturer ("OEM") competitors have greater name recognition than VSE, as well as complementary lines of business and financial, marketing and other resources that the Company does not have. In addition, OEMs, aircraft maintenance providers, leasing companies and U.S. FAA certificated repair facilities may attempt to bundle their services and product offerings in the supply industry, thereby significantly increasing industry competition.
Investments in inventory and facilities could cause losses if certain work is disrupted or discontinued.
The Company has made investments in inventory, facilities, and lease commitments to support specific business programs, work requirements, and service offerings. A slowing or disruption of these business programs, work requirements, or service offerings that results in operating below intended levels could cause the Company to suffer financial losses.
The Company's business could be adversely affected by incidents that could cause an interruption in operations or impose a significant financial liability.
Disruption of the Company's operations due to internal or external system or service failures, accidents or incidents involving employees or third parties working in high-risk locations, or other crises could adversely affect the Company's financial performance and condition. A fire, flood, earthquake, other natural disaster, or other crisis at or affecting physical facilities, procurement systems, or contractual deliveries could potentially interrupt the revenues from the Company's operations.
The Company has material customer concentration within its business operations with a single customer group accounting for a material portion of its revenues.
The Company has material customer concentration within its business operations. A group of affiliated customers under common ownership (the “Customer Group”) collectively accounted for approximately 20% of the Company’s revenue for the year ended December 31, 2025. The Customer Group consists of multiple operating entities that are commonly controlled and managed as part of a single parent organization. If the Customer Group were to (i) experience a prolonged period of reduced demand, depressed business activity, liquidity constraints, or financial distress, (ii) breach or seek relief from its contractual obligations under its agreements with the Company, or (iii) otherwise terminate or materially reduce its business relationships with the Company, and the Company were unable to timely replace the lost business on comparable terms, the Company’s financial position, results of operations, and cash flows could be materially adversely affected.
The nature of the Company's operations and work performed by employees presents certain challenges related to workforce management.
The Company's financial performance is heavily dependent on the abilities of operating and administrative staff with respect to technical skills, operating performance, pricing, cost management, safety, and administrative and compliance efforts. A wide diversity of contract types, nature of work, work locations, and legal and regulatory complexities challenge the Company's administrative staff and skill sets. The Company also faces challenges associated with quality of workforce, quality of work, safety, and labor relations compliance. Current and projected work in foreign countries exposes the Company to challenges associated with export and ethics compliance, local laws and customs, workforce issues, extended supply chain, political unrest,
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and war zone threats. Failure to attract or retain an adequately skilled workforce, lack of knowledge or training in critical functions, or inadequate staffing levels, can result in lost work, reduced profit margins, losses from cost overruns, performance deficiencies, workplace accidents, and regulatory noncompliance.
The Company is dependent on access to and the performance of third-party package delivery companies.
The Company's ability to provide efficient distribution of the products it sells to customers is an integral component of the Company's overall business strategy, both domestic and international. The Company predominantly does not maintain its own delivery networks, and instead relies on third‑party package delivery companies. The Company cannot guarantee that it will always be able to ensure access to preferred shipping and delivery companies or that these companies will continue to meet the Company's needs or provide reasonable pricing terms. In addition, if the package delivery companies on which the Company relies experience delays resulting from inclement weather or other disruptions, the Company may be unable to maintain appropriate stock of inventory or deliver products to customers on a timely basis, which may adversely affect the Company's results of operations and financial condition.
Prolonged periods of inflation where the Company does not have adequate inflation protections in customer contracts may adversely affect the Company by increasing costs beyond what it can recover through price increases.
Inflation can adversely affect the Company by increasing the costs of labor, material and other costs. In addition, inflation is often accompanied by higher interest rates, which increases the cost associated with the Company's variable rate outstanding debt obligations and could increase rates for any new debt obligations. In an inflationary environment, depending on economic conditions, the Company may be unable to raise prices enough to keep up with the rate of inflation, which would reduce profit margins. The Company has experienced, and continues to experience, increases in the prices of labor, materials, and other costs of providing service. Continued inflationary pressures could impact the Company's profitability.
Changes in future business conditions could cause business investments, recorded goodwill, and/or purchased intangible assets to become impaired, resulting in substantial losses and write-downs that would reduce the Company's operating income.
As part of its business strategy, the Company makes acquisitions and investments following careful analysis and due diligence processes designed to achieve a desired return or strategic objective. Business acquisitions involve estimates, assumptions, and judgments to determine acquisition prices, which are allocated among acquired assets, including goodwill, based upon fair market values. Notwithstanding the Company's analyses, due diligence processes, and business integration efforts, actual operating results of acquired businesses may vary significantly from initial estimates. In such events, the Company may be required to write down the carrying value of the related goodwill and/or purchased intangible assets. In addition, declines in the trading price of the Company's common stock, par value $0.05 per share (the "common stock"), or the market as a whole could result in goodwill and/or purchased intangible asset impairment charges.
As of December 31, 2025, goodwill and intangible assets, net of amortization, accounted for 32% and 15%, respectively, of the Company's total assets. The Company evaluates goodwill for impairment at least annually on the first day of the fourth quarter, or whenever events or other changes in circumstances indicate that the carrying value may not be fully recoverable. The Company assesses acquired intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The impairment assessments are based on several factors requiring judgment. As a general matter, a significant decrease in expected cash flows or changes in market conditions may indicate potential impairment of recorded goodwill or intangible assets.
Adverse equity market conditions that result in a decline in market multiples and the trading price of the Company's common stock, or other events, such as reductions in future contract awards or significant adverse changes in the Company's operating margins or the operating results of acquired businesses that vary significantly from projected results on which purchase prices are based, could result in an impairment of goodwill or other intangible assets. Any such impairments that result in the Company recording goodwill or intangible asset impairment charges could have a material adverse effect on the Company's financial position or results of operations.
Circumstances associated with divestitures could adversely affect the Company's results of operations and financial condition.
The Company may periodically divest or seek to divest certain businesses that are no longer a part of the Company's ongoing strategic plan. A decision to divest or discontinue assets, businesses, or product lines may result in asset impairments, including
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those related to goodwill and other intangible assets, and losses upon disposition, both of which could have adverse effects on the Company's results of operations and financial condition. In addition, the Company may encounter difficulty in finding buyers or executing alternative exit strategies at acceptable prices and terms in a timely manner and prospective buyers may have difficulty obtaining financing. These divestitures may require a significant investment of time and resources and may disrupt the business, distract management from other responsibilities, and may involve the retention of certain current or future liabilities in order to induce a buyer to complete a divestiture or may otherwise result in losses on disposal or continued financial involvement in the divested business, including through indemnification or other arrangements, for a period of time following the transaction, which could adversely affect the Company's financial results. The Company may not be successful in managing these or any other significant risks that it may encounter in divesting or discontinuing a business or product line, which could have a material adverse effect on the business.
Intellectual property risks could affect the Company’s commercial relationships.
The Company utilizes intellectual property and proprietary information owned by third parties, including suppliers, customers and OEMs, and must comply with applicable contractual, legal and regulatory requirements governing the use and protection of such information. Any failure to appropriately use or safeguard third-party intellectual property, or any dispute regarding such use, could result in increased costs, restrictions, or loss of commercial relationships.
Risks Related to the PAG Acquisition
The PAG Acquisition may not occur at all or may not occur in the expected time frame, which may negatively affect the trading price of the Company's common stock and the Company's future business and financial results.
No assurance can be provided that the PAG Acquisition will be completed in the manner and within the time frame currently anticipated, or at all. Completion of the PAG Acquisition is subject to the satisfaction or waiver of a number of conditions beyond the Company's control that may prevent, delay or otherwise materially adversely affect its completion. If the PAG Acquisition is not completed or if there are significant delays in completing the PAG Acquisition, it could negatively affect the trading price of the Company's common stock and the Company's future business and financial results.
The Company may not realize the strategic benefits and cost synergies that are anticipated from the planned PAG Acquisition.
The benefits that are expected to result from the PAG Acquisition will depend, in part, on the Company's ability to consummate the PAG Acquisition within the anticipated time period, or at all, and to integrate and realize the anticipated cost synergies of the PAG Acquisition. There is a significant degree of difficulty and management distraction inherent in the process of integrating an acquisition. Some members of the Company's management may be required to devote considerable time to this integration process, which will decrease the time they will have to manage the Company, service existing customers, attract new customers and develop new products or strategies. The risks and uncertainties relating to integrating PAG include, among other things:
• the challenge of integrating complex organizations, systems, operating procedures, internal controls over financial reporting, compliance programs, technology, networks and other assets of PAG, including addressing potential differences between PAG’s private-company control environment and public company Sarbanes-Oxley requirements;
• the inability to successfully integrate the Company's respective businesses in a manner that permits the Company to achieve the cost savings and other anticipated benefits from the PAG Acquisition;
• the inability to minimize the diversion of management attention from ongoing business concerns during the process of integrating PAG into the Company's businesses;
• the inability to resolve potential conflicts that may arise relating to customer, supplier and other important relationships of the Company's business and PAG;
• difficulties in retaining key management and other key employees; and
• the challenge of managing the expanded operations of a significantly larger and more complex company and coordinating geographically separate organizations.
If management is not able to effectively manage the integration process, or if any significant business activities are interrupted as a result of the integration process, the Company's business, financial condition and results of operations could suffer. The Company also cannot guarantee that the benefits and cost synergies that it currently expects to realize as a result of the PAG Acquisition will be achieved within the anticipated time frames or at all.
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Following the PAG Acquisition, the Company expects to realize certain synergies and cost savings. Any synergies and cost savings that the Company realizes may differ materially from the Company's estimates. These are the Company's current estimates and assumptions, but they involve risks, uncertainties, assumptions and other factors that may cause the Company's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such estimates. This information is speculative in nature, and some or all of the assumptions underlying the estimated synergies and cost savings may not materialize or may vary from actual results. The Company's ability to realize these anticipated synergies and savings is subject to significant uncertainties and you should not place undue reliance on the adjustments in evaluating the Company's anticipated results.
The Company will incur substantial expenses to consummate the PAG Acquisition but may not realize the anticipated benefits. In addition, even if the Company is able to integrate PAG successfully, the anticipated benefits of the pending PAG Acquisition may not be realized fully, or at all, or may take longer to realize than expected. Given the size and significance of the PAG Acquisition, the Company may encounter difficulties in the integration of the operations of PAG and may fail to realize the full benefits and synergies of the PAG Acquisition, which could adversely impact the Company's business, results of operations and financial condition.
PAG may have liabilities that are not known to the Company.
PAG may have liabilities that the Company failed, or was unable, to discover in the course of performing due diligence investigations of PAG. The Company cannot assure you that the indemnification available to the Company under the Purchase Agreement in respect of the PAG Acquisition will be sufficient in amount, scope or duration to fully offset the possible liabilities associated with the business of PAG or property that the Company will assume upon consummation of the PAG Acquisition. The Company may learn additional information about PAG that materially adversely affects the Company, such as unknown or contingent liabilities and liabilities related to compliance with applicable laws. Any such liabilities, individually or in the aggregate, could have a material adverse effect on the Company's business, financial condition and results of operations.
The Company has made certain assumptions relating to the PAG Acquisition, which may prove to be materially inaccurate.
The Company has made certain assumptions relating to the PAG Acquisition, which assumptions involve significant judgment and may not reflect the full range of uncertainties and unpredictable outcomes inherent in the PAG Acquisition, and may be materially inaccurate. These assumptions relate to numerous matters, including:
• the Company's ability to realize the expected benefits of the PAG Acquisition, including cost and other synergies it expects to realize;
• the Company's expectations of future revenue and earnings of the PAG business and the Company's expectations with respect to the margin profile of the Company's business following the PAG Acquisition;
• the Company's ability to retain key employees from PAG, and maintain, develop and deepen relationships with these employees;
• the Company's ability to retain and maintain relationships with key brokers, suppliers and customers associated with PAG;
• the Company's ability to issue equity and debt or any other financing, or to generate and maintain needed cash from operations, to complete the PAG Acquisition on acceptable terms or at all and the impact of such financing on the Company's operating results or financial condition;
• projections of future expenses and expense allocation relating to the PAG Acquisition and PAG;
• unknown or contingent liabilities associated with the PAG Acquisition and PAG;
• the amount of goodwill and intangibles that will result from the PAG Acquisition;
• other purchase accounting adjustments that the Company may record in its financial statements in connection with the PAG Acquisition;
• acquisition and integration costs, including restructuring charges and transaction costs; and
• other financial and strategic risks of the PAG Acquisition.
The Company has incurred and will continue to incur significant expenses in connection with the PAG Acquisition, regardless of whether the PAG Acquisition is completed.
The Company has incurred and will continue to incur significant expenses related to the PAG Acquisition. These expenses include, but are not limited to, fees related to arranging debt financing, including the bridge loan and the issuance of Tangible Equity Units ("TEUs"), financial advisory and opinion fees and expenses, legal fees, accounting fees and expenses, certain employee expenses, consulting fees, filing fees, printing expenses and other related fees and expenses. Many of these expenses
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will be payable by the Company regardless of whether the PAG Acquisition is completed. In addition, indebtedness incurred in connection with the PAG Acquisition, including under the bridge loan and through the issuance of TEUs, may increase the Company’s leverage and debt service obligations and could limit its financial and operational flexibility. The bridge loan is intended to be temporary, and there can be no assurance that the Company will be able to refinance or repay the bridge loan on favorable terms, or at all, which could adversely affect the Company’s liquidity and results of operations.
If the Company's due diligence investigation of PAG was inadequate or if risks related to PAG’s business materialize, it could have a material adverse effect on the Company's future business and financial results and may negatively affect the trading price of the Company's common stock.
Even though the Company conducted a customary due diligence investigation of PAG, the Company cannot be sure that its diligence surfaced all material issues that may be present inside PAG or its business, or that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of PAG and its business and outside of its control will not arise later. If any such material issues arise or if known risks prove to be more significant than expected, they may materially and adversely impact the ongoing business of the combined company and may negatively affect the trading price of the Company's common stock
Legal and Regulatory Risks
The Company is subject to numerous government rules and regulations that could expose the Company to potential liabilities or work loss.
The aviation industry is highly regulated by the FAA and similar regulatory agencies in other countries. Aviation engines, engine accessories and components that the Company sells components and repair services for must meet certain airworthiness standards established by the FAA or the equivalent agencies in certain other countries. The Company also operates repair facilities that are licensed by the FAA and equivalent agencies of certain other countries to perform such services. New and more stringent regulations may be adopted in the future that could have an adverse effect on the Company.
Due to the nature of the Company's work, the Company could potentially be exposed to legal actions arising from operations.
The Company's work includes many manual tasks, including warehousing, shipping, and packing of parts inventory, and maintaining and repairing aircraft components and equipment. Some of the Company's work efforts involve the handling of hazardous materials. These services may pose certain challenges that could cause the Company to be exposed to legal and other liabilities arising from performance issues, work related incidents or employee misconduct that result in damages, injury or death to third parties. Such events could cause the Company to suffer financial losses and adversely affect the Company's financial condition. See Item 3, "Legal Proceedings” below.
Environmental and pollution risks could potentially impact the Company's financial results.
The Company's operations are subject to and affected by a variety of existing federal, state, and local environmental protection laws and regulations. In addition, the Company could be affected by future laws or regulations, including those imposed in response to concerns over climate change, other aspects of the environment, or natural resources. The Company expects to incur future capital and operating costs to comply with current and future environmental laws and regulations, and such costs could be substantial, depending on the future proliferation of environmental rules and regulations and the extent to which the Company discovers currently unknown environmental conditions.
Some of the Company's contract work includes the use of chemical solvents and the handling of hazardous materials to maintain, repair, and refurbish vehicles, aircraft engines, and equipment. This exposes the Company to certain environmental and pollution risks. Various federal, state, and local environmental laws and regulations impose restrictions on the discharge of pollutants into the environment and establish standards for the transportation, storage, and disposal of toxic and hazardous wastes. Substantial fines, penalties, and criminal sanctions may be imposed for noncompliance, and certain environmental laws impose joint and several "strict liability" for remediation of spills and releases of oil and hazardous substances. Such laws and regulations impose liability upon a party for environmental cleanup and remediation costs and damage without regard to negligence or fault on the part of such party and could expose the Company to liability for the conduct of or conditions caused by third parties.
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Costs associated with compliance with federal, state, and local provisions regulating the discharge of materials or that otherwise relate to the protection of the environment have not had a material adverse effect on the Company's capital expenditures, earnings, or competitive position. However, the Company cannot predict the likelihood of such a material adverse effect should it experience the occurrence of a future environmental or pollution event.
The adoption of new environmental laws and regulations, stricter enforcement of existing laws and regulations, imposition of new cleanup requirements, discovery of previously unknown or more extensive contamination, litigation involving environmental impacts, the Company's inability to recover related costs under government contracts, or the financial insolvency of other responsible parties could cause the Company to incur costs that could have a material adverse effect on the Company's financial position, results of operations, or cash flows.
Technology Risks
Technology and cybersecurity threats, risks, and incidents could potentially impact the Company's financial results.
The Company faces cybersecurity risk related to its computer systems and data, which may include unauthorized access, acts by computer hackers, computer viruses, malicious code, organized cybersecurity attacks and other security problems and system disruptions, including possible unauthorized access to the Company and its customers' information. Cybersecurity incidents and similar attacks vary in their form and can include the deployment of harmful malware or ransomware, denial-of-services attacks, and other attacks, which may affect business continuity and threaten the availability, confidentiality and integrity of the Company's systems and data. Cybersecurity incidents can also include employee or personnel failures, fraud, phishing or other social engineering attempts or other methods to cause confidential information, payments, account access or access credentials, or other data to be transmitted to an unintended recipient. Cybersecurity threat actors also may attempt to exploit vulnerabilities through software including software commonly used by companies in cloud-based services and bundled software. The Company also relies on third parties to host certain enterprise systems and manage and host the Company's data and that of customers. The Company's ability to monitor such third parties’ security measures and the full impact of the systemic risk is limited. If the Company's systems, data, or any third party service that the Company uses is unavailable for any reason, customers may experience service interruptions, which could significantly impact the Company's operations, reputation, business, and financial results. Lack of access to the Company's data and that of the Company's clients, or failure of the Company's systems or those of third-party service providers, may result in interruptions in service, all of which may cause a loss in customers, refunds of product fees, and/or material harm to the Company's reputation and operating results.
The Company maintains a cybersecurity risk management program to monitor and mitigate cybersecurity threats and an incident response plan for emerging threats. To date, costs associated with preventing or remediating information management security breaches or complying with related laws and regulations have not had a material adverse effect on the Company's capital expenditures, earnings or competitive position. Additionally, the Company has obtained insurance that provides coverage for certain cybersecurity incidents. Despite these efforts, the Company can make no assurances that it will be able to mitigate, detect, prevent, timely and adequately respond, or fully recover from the negative effects of cybersecurity incidents or other cybersecurity compromises, and such cybersecurity incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption, or unavailability of personal information, critical data and confidential or proprietary information (the Company's own or that of third parties) and the disruption of business operations. Additionally, sophistication of cybersecurity threats, including through the use of artificial intelligence, continues to increase, and the controls and preventative actions the Company takes to reduce the risk of cybersecurity incidents and protect the Company's systems, including the regular testing of the Company's incident response plan, may be insufficient. The potential consequences of a material cybersecurity incident include financial loss, reputational damage, damage to IT systems, data loss, litigation with third parties, theft of intellectual property, fines, customer attrition, costs related to remediation or the payment of ransom, and increased cybersecurity protection and remediation costs due to the increasing sophistication and proliferation of threats, which in turn could adversely affect the Company's competitiveness and results of operations. Any imposition of liability, particularly liability that is not covered by insurance or is in excess of insurance coverage, could materially harm the Company's operating results and financial condition.
In addition, rapid technological changes and digital disruption, including the increasing adoption of artificial intelligence and data-driven platforms by competitors, customers, suppliers, and other market participants, as well as the development and introduction of new aircraft components, advanced replacement parts, and digitally enabled or AI-optimized maintenance solutions, may alter competitive dynamics and customer expectations. If the Company is unable to effectively develop, implement, or adapt to emerging technologies, new products, and digital solutions, or if such technologies or newly developed parts materially change asset utilization, supply chain management, repair and overhaul processes, or other industry fundamentals, the Company’s business, financial condition, and results of operations could be adversely affected.
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Financial Risks
The Company's debt exposes the Company to certain risks.
As of December 31, 2025, the Company had $293 million of total debt outstanding, net of unamortized debt issuance costs. The amount of existing debt, combined with the Company's ability to incur significant amounts of debt in the future, could have important consequences, including:
• increasing the Company's vulnerability to adverse economic or industry conditions;
• requiring the Company to dedicate a portion of cash flow from operations to payments on its debt, thereby reducing the availability of cash flow to fund working capital, capital expenditures, strategic initiatives, and general corporate purposes;
• increasing the Company's vulnerability to, and limiting flexibility in planning for, or reacting to, changes in the Company's business;
• exposing the Company to the risk of higher interest rates on borrowings under its credit facility, which is subject to variable rates of interest;
• placing the Company at a competitive disadvantage compared to competitors that have less debt; and
• limiting the Company's ability to borrow additional funds.
Market volatility and adverse capital market conditions may affect the Company's ability to access cost-effective sources of funding and may expose the Company to risks associated with the financial viability of suppliers.
The financial markets can experience high levels of volatility and disruption, reducing the availability of credit and other capital sources for certain issuers. The Company may access these markets from time to time to support certain business activities, including funding acquisitions and refinancing existing indebtedness. The Company may also access these markets to acquire credit support for letters of credit. A number of factors could cause the Company to incur higher borrowing costs, experience greater difficulty accessing public and private markets for debt or prevent the Company from raising capital in the equity capital markets. These factors include disruptions or declines in the global capital markets, a decline in the Company's financial performance, outlook, or credit ratings and/or volatility in the price of shares of the Company's common stock due to trading volume and public float. The occurrence of any or all of these events may adversely affect the Company's ability to fund operations, meet contractual commitments, make future investments or desirable acquisitions, or respond to competitive challenges.
There can be no assurance the Company will continue to pay dividends at current levels or in the future.
The payment of cash dividends and repurchases of the Company's common stock are subject to limitations under applicable law and the Company's credit agreement, and to the discretion of the Company's board of directors, considered in the context of then current conditions, including the Company's earnings, other operating results, and capital requirements. Declines in asset values or increases in liabilities, including liabilities associated with benefit plans and assets and liabilities associated with taxes, can reduce stockholders’ equity. A deficit in stockholders’ equity could limit the Company's ability under Delaware law to pay dividends.
