VSEC Fourth Quarter and Full-Year 2022 Results Conference Call March 2023 V S E c o r p . c o m Forward-Looking Statements This presentation 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 Exchange Act. All such statements are intended to be covered by the safe harbor provisions for forward-looking statements c ...

VSE Corporation (NASDAQ:VSEC) Q3 2022 Results Conference Call October 27, 2022 8:30 AM ET Company Participants Noel Ryan - Head of IR John Cuomo - CEO and President Steve Griffin - SVP & CFO Conference Call Participants Kenneth Herbert - RBC Capital Markets Michael Ciarmoli - Truist Securities Austin Moeller - Canaccord Michael Louie DiPalma - William Blair Joshua Sullivan - the Benchmark Company Jeff Van Sinderen - B. Riley Securities Operator Greetings, and welcome to the VSE Corporation Third Quarter 202 ...

PART I. Financial Information This section encompasses the company's comprehensive financial statements and management's detailed analysis of its financial performance and operational results [ITEM 1. Financial Statements](index=4&type=section&id=ITEM%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for VSE Corporation and its subsidiaries, including balance sheets, income statements, comprehensive income statements, stockholders' equity statements, cash flow statements, and accompanying notes, for the periods ended September 30, 2022, and December 31, 2021 (for balance sheet) or September 30, 2021 (for income/cash flow statements) [Unaudited Consolidated Balance Sheets](index=4&type=section&id=Unaudited%20Consolidated%20Balance%20Sheets) This section presents the company's financial position, detailing assets, liabilities, and equity at specific reporting dates Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :----------------------------------- | :----------- | :----------- | | **Assets** | | | | Total current assets | $513,338 | $463,993 | | Total assets | $957,526 | $918,558 | | **Liabilities & Equity** | | | | Total current liabilities | $180,326 | $179,964 | | Long-term debt, less current portion | $288,531 | $270,407 | | Total liabilities | $512,098 | $501,225 | | Total stockholders' equity | $445,428 | $417,333 | | Total liabilities and stockholders' equity | $957,526 | $918,558 | [Unaudited Consolidated Statements of Income](index=5&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Income) This section outlines the company's financial performance over periods, reporting revenues, expenses, and net income Consolidated Statements of Income Highlights (in thousands, except per share) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total revenues | $242,487 | $200,582 | $715,439 | $540,675 | | Operating income | $17,272 | $13,892 | $43,337 | $10,781 | | Net income | $9,419 | $9,021 | $23,211 | $1,766 | | Basic earnings per share | $0.74 | $0.71 | $1.82 | $0.14 | | Diluted earnings per share | $0.73 | $0.71 | $1.81 | $0.14 | | Dividends declared per share | $0.10 | $0.09 | $0.30 | $0.27 | [Unaudited Consolidated Statements of Comprehensive Income](index=6&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Comprehensive%20Income) This section presents the company's total comprehensive income, including net income and other comprehensive income items Consolidated Statements of Comprehensive Income Highlights (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income | $9,419 | $9,021 | $23,211 | $1,766 | | Change in fair value of interest rate swap agreements, net of tax | $5,352 | $173 | $5,528 | $836 | | Other comprehensive income, net of tax | $5,352 | $173 | $5,528 | $836 | | Comprehensive income | $14,771 | $9,194 | $28,739 | $2,602 | [Unaudited Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) This section details changes in the company's equity, reflecting net income, dividends, and other equity transactions Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | Sep 30, 2022 (3 Months) | Jun 30, 2022 (3 Months) | Sep 30, 2022 (9 Months) | Dec 31, 2021 (9 Months) | | :----------------------------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Total Stockholders' Equity | $445,428 | $431,283 | $445,428 | $417,333 | | Net income | $9,419 | — | $23,211 | — | | Stock-based compensation | $655 | — | $3,195 | — | | Other comprehensive income, net of tax | $5,352 | — | $5,528 | — | | Dividends declared | $(1,281) | — | $(3,839) | — | [Unaudited Consolidated Statements of Cash Flows](index=12&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Cash%20Flows) This section reports the company's cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(4,206) | $(30,523) | | Net cash used in investing activities | $(3,181) | $(59,839) | | Net cash provided by financing activities | $6,959 | $90,367 | | Net (decrease) increase in cash and cash equivalents | $(428) | $5 | | Cash and cash equivalents at end of period | $90 | $383 | [Notes to Unaudited Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) This section provides detailed disclosures and explanations for the unaudited consolidated financial statements, covering the company's operations, recent acquisitions, revenue recognition, debt structure, earnings per share, commitments, segment performance, fair value measurements, and income taxes [1. Nature of Operations and Basis of Presentation](index=13&type=section&id=%281%29%20Nature%20of%20Operations%20and%20Basis%20of%20Presentation) This note describes VSE Corporation's business segments and the accounting principles applied in preparing the financial statements - VSE Corporation is a diversified aftermarket products and services company, operating in three segments: Aviation, Fleet, and Federal and Defense[23](index=23&type=chunk) - The company early adopted ASU 2021-08, 'Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,' in Q1 2022, applying it prospectively to new business combinations[27](index=27&type=chunk) [2. Acquisitions](index=13&type=section&id=%282%29%20Acquisitions) This note details the company's recent acquisitions, including Global Parts Group and HAECO Special Services, and their financial impact - Acquired Global Parts Group, Inc. in July 2021 for **$40 million**, including **$2 million** in contingent consideration, with final earn-out payment settled in Q3 2022. Global Parts' results are included in the Aviation segment[28](index=28&type=chunk)[31](index=31&type=chunk) - Acquired HAECO Special Services, LLC in March 2021 for **$14.8 million**, with its operating results included in the Federal and Defense segment[32](index=32&type=chunk) [3. Revenue](index=15&type=section&id=%283%29%20Revenue) This note provides a breakdown of the company's revenues by customer type and revenue type, along with contract asset and liability information Revenues by Customer (in thousands) | Customer Type | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Commercial | $127,258 | $94,163 | $376,640 | $218,544 | | DoD | $60,733 | $60,862 | $173,381 | $173,501 | | Other government | $54,496 | $45,557 | $165,418 | $148,630 | | Total | $242,487 | $200,582 | $715,439 | $540,675 | Revenues by Type (in thousands) | Revenue Type | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Repair | $28,979 | $18,714 | $77,308 | $56,051 | | Distribution | $138,400 | $114,678 | $420,152 | $282,031 | | Cost Plus Contract | $40,158 | $26,775 | $105,290 | $65,139 | | Fixed Price Contract | $18,430 | $25,729 | $59,069 | $82,090 | | T&M Contract | $16,520 | $14,686 | $53,620 | $55,364 | | Total | $242,487 | $200,582 | $715,439 | $540,675 | - Unbilled receivables increased to **$44.1 million** as of September 30, 2022, from **$31.9 million** as of December 31, 2021. Contract liabilities increased to **$7.7 million** from **$7.1 million** over the same period[42](index=42&type=chunk) - Revenues from products and services transferred at a point in time accounted for approximately **57%** and **59%** of total revenues for the three and nine months ended September 30, 2022, respectively[43](index=43&type=chunk) - As of September 30, 2022, the aggregate transaction price allocated to unsatisfied performance obligations was **$199 million**, with **96%** expected to be satisfied within one year[44](index=44&type=chunk) [4. Debt](index=19&type=section&id=%284%29%20Debt) This note outlines the company's long-term debt composition, interest rates, and recent amendments to its bank loan agreement Long-term Debt Composition (in thousands) | Debt Type | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------- | :----------- | :----------- | | Bank credit facility - term loan | $48,925 | $60,175 | | Bank credit facility - revolver loans | $250,305 | $226,559 | | Principal amount of long-term debt | $299,230 | $286,734 | | Less debt issuance costs | $(1,537) | $(2,165) | | Total long-term debt | $297,693 | $284,569 | | Less current portion | $(9,162) | $(14,162) | | Long-term debt, less current portion | $288,531 | $270,407 | - Interest rates on outstanding debt ranged from **6.13%** to **8.50%** as of September 30, 2022, with an effective interest rate of **6.42%**[49](index=49&type=chunk) - Interest expense, net, increased by **73%** to **$4.8 million** for the three months ended September 30, 2022, and by **45%** to **$12.3 million** for the nine months ended September 30, 2022, compared to the prior year periods[13](index=13&type=chunk)[50](index=50&type=chunk) - On October 7, 2022, the company amended its loan agreement, extending the maturity date to October 7, 2025, resetting the term loan to **$100 million**, modifying quarterly amortization payments to **$2.5 million**, increasing the maximum Total Funded Debt to EBITDA Ratio to **4.50x**, and changing the benchmark rate from LIBOR to SOFR[52](index=52&type=chunk)[53](index=53&type=chunk) [5. Earnings Per Share](index=20&type=section&id=%285%29%20Earnings%20Per%20Share) This note presents the calculation of basic and diluted earnings per share, including weighted-average shares outstanding Weighted-Average Shares Outstanding for EPS Calculation | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic weighted average common shares outstanding | 12,797,727 | 12,704,165 | 12,772,731 | 12,496,646 | | Diluted weighted average common shares outstanding | 12,834,084 | 12,774,636 | 12,816,319 | 12,573,076 | [6. Commitments and Contingencies](index=20&type=section&id=%286%29%20Commitments%20and%20Contingencies) This note discloses the company's involvement in legal claims, lawsuits, and government audits, assessing their potential financial impact - The company is involved in various claims and lawsuits, none of which are expected to have a material adverse effect on its financial position, results of operations, or cash flows[57](index=57&type=chunk) - Government audits and investigations are ongoing, but the company believes their outcome will not materially affect its financial results[58](index=58&type=chunk) [7. Business Segments and Customer Information](index=20&type=section&id=%287%29%20Business%20Segments%20and%20Customer%20Information) This note provides detailed financial performance data for the Aviation, Fleet, and Federal and Defense operating segments - The company operates under three reportable segments: Aviation (aftermarket repair and distribution), Fleet (parts, inventory management, e-commerce for commercial and government), and Federal and Defense (MRO and logistics for military and federal agencies)[59](index=59&type=chunk)[60](index=60&type=chunk)[63](index=63&type=chunk) Segment Revenues and Operating Income (in thousands) | Segment | 3 Months Ended Sep 30, 2022 (Revenue) | 3 Months Ended Sep 30, 2021 (Revenue) | 9 Months Ended Sep 30, 2022 (Revenue) | 9 Months Ended Sep 30, 2021 (Revenue) | | :------------------ | :------------------------------------ | :------------------------------------ | :------------------------------------ | :------------------------------------ | | Aviation | $102,625 | $73,124 | $300,934 | $165,010 | | Fleet | $64,754 | $60,268 | $196,526 | $173,072 | | Federal and Defense | $75,108 | $67,190 | $217,979 | $202,593 | | Total revenues | $242,487 | $200,582 | $715,439 | $540,675 | | | | | | | | Segment | 3 Months Ended Sep 30, 2022 (Operating Income) | 3 Months Ended Sep 30, 2021 (Operating Income) | 9 Months Ended Sep 30, 2022 (Operating Income) | 9 Months Ended Sep 30, 2021 (Operating Income) | | :------------------ | :--------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Aviation | $10,017 | $3,719 | $24,089 | $(18,885) | | Fleet | $6,539 | $5,387 | $18,286 | $15,128 | | Federal and Defense | $1,939 | $5,386 | $3,803 | $17,410 | | Corporate/unallocated expenses | $(1,223) | $(600) | $(2,841) | $(2,872) | | Operating income | $17,272 | $13,892 | $43,337 | $10,781 | [8. Fair Value Measurements](index=22&type=section&id=%288%29%20Fair%20Value%20Measurements) This note details financial assets and liabilities measured at fair value, including interest rate swaps and earn-out obligations Financial Assets and Liabilities Measured at Fair Value (in thousands) | Item | Sep 30, 2022 | Dec 31, 2021 | | :--------------------------------------------------- | :----------- | :----------- | | Non-COLI assets held in Deferred Supplemental Compensation Plan | $515 | $598 | | Interest rate swaps (asset) | $7,131 | — | | Interest rate swaps (liability) | — | $234 | | Earn-out obligation - short-term | — | $1,000 | | Earn-out obligation - long-term | — | $250 | - On July 22, 2022, the company executed two SOFR-based forward-starting fixed interest rate swaps with a fixed rate of **2.8%** for **$150 million** of floating rate debt, designated as cash flow hedges[68](index=68&type=chunk) - The earn-out obligation for the Global Parts acquisition, initially **$2.0 million**, was fully settled during the three months ended September 30, 2022[70](index=70&type=chunk) [9. Income Taxes](index=23&type=section&id=%289%29%20Income%20Taxes) This note explains the company's effective tax rates and the factors influencing them, such as book expense related to COLI assets - The effective tax rate was **24.4%** for the three months and **25.2%** for the nine months ended September 30, 2022, higher than the prior year periods (**18.8%** and **23.4%**, respectively)[73](index=73&type=chunk) - The higher effective tax rate in 2022 was primarily due to book expense related to the decline in value of Company Owned Life Insurance (COLI) assets, which was reversed for tax purposes[73](index=73&type=chunk) [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=ITEM%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section discusses the company's financial condition and results of operations, highlighting its business overview, recent acquisitions, the impact of COVID-19, segment-specific business trends, consolidated and segment operating results, bookings, backlog, liquidity, capital resources, market risks, and critical accounting policies for the periods presented [Business Overview](index=24&type=section&id=Business%20Overview) This section provides an overview of VSE Corporation's aftermarket products and services across its three operating segments - VSE Corporation provides aftermarket repair services, parts distribution, logistics, supply chain management, and consulting services for land, sea, and air transportation assets to government and commercial markets[74](index=74&type=chunk) - Operations are conducted within three reportable segments: Aviation, Fleet, and Federal and Defense[75](index=75&type=chunk) [Recent Acquisitions](index=24&type=section&id=Recent%20Acquisitions) This section refers to detailed information on recent acquisitions provided in the notes to the consolidated financial statements - Information regarding recent acquisitions is detailed in Note 2 to the Consolidated Financial Statements[76](index=76&type=chunk) [Impact of the COVID-19 Pandemic](index=24&type=section&id=Impact%20of%20the%20COVID-19%20Pandemic) This section discusses the ongoing effects of the COVID-19 pandemic on the global economy and the company's operational performance - The COVID-19 pandemic continues to affect the global economy, but the company has seen continued improvement in operating results during the nine months ended September 30, 2022, with all facilities remaining operational[77](index=77&type=chunk) [Business Trends](index=24&type=section&id=Business%20Trends) This section analyzes key business trends and strategic initiatives within the Aviation, Fleet, and Federal and Defense segments [Aviation Segment Business Trends](index=24&type=section&id=Aviation%20Segment_Business_Trends) This section highlights revenue growth drivers, distribution agreements, and market recovery within the Aviation segment - Aviation segment revenue increased **40%** year-over-year to **$103 million** in Q3 2022, driven by recovery in demand and growth initiatives[79](index=79&type=chunk) - Distribution revenue grew **105%** and repair revenue grew **38%** year-over-year during the first nine months of 2022, benefiting from new distribution initiatives and commercial market recovery[80](index=80&type=chunk) - Secured key multi-year distribution agreements, including new international markets, and the Global Parts acquisition is broadening product lines and client base[81](index=81&type=chunk) [Fleet Segment Business Trends](index=26&type=section&id=Fleet%20Segment_Business_Trends) This section discusses revenue growth from commercial customers and e-commerce, alongside plans for new distribution infrastructure - Fleet segment revenue is increasing from commercial fleet customers and e-commerce fulfillment sales, with commercial revenue growing approximately **23%** in Q3 and **50%** in the first nine months of 2022 year-over-year[83](index=83&type=chunk) - A new distribution warehouse and e-commerce fulfillment center in Olive Branch, Mississippi, is planned to double the current warehouse footprint and expand product offerings, with operations expected to commence in early 2023[83](index=83&type=chunk) [Federal and Defense Segment Business Trends](index=26&type=section&id=Federal%20and%20Defense%20Segment_Business_Trends) This section outlines the segment's focus on contract backlog, program optimization, and performance in U.S. Navy and Army work - The Federal and Defense segment is focusing on building contract backlog and optimizing legacy programs, with strong revenue performance in U.S. Navy work offsetting anticipated declines in U.S. Army work due to program completions[84](index=84&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's consolidated and segment-specific financial performance, including revenues and operating income [Consolidated Results of Operations](index=26&type=section&id=Consolidated%20Results%20of%20Operations) This section presents a comprehensive overview of the company's overall financial performance, including revenues, operating income, and net income Consolidated Results of Operations (in thousands) | Metric | 2022 (3 Months) | 2021 (3 Months) | Change ($) | Change (%) | 2022 (9 Months) | 2021 (9 Months) | Change ($) | Change (%) | | :-------------------------- | :-------------- | :-------------- | :--------- | :--------- | :-------------- | :-------------- | :--------- | :--------- | | Revenues | $242,487 | $200,582 | $41,905 | 21 % | $715,439 | $540,675 | $174,764 | 32 % | | Costs and operating expenses | $225,215 | $186,690 | $38,525 | 21 % | $672,102 | $529,894 | $142,208 | 27 % | | Operating income | $17,272 | $13,892 | $3,380 | 24 % | $43,337 | $10,781 | $32,556 | 302 % | | Interest expense, net | $4,818 | $2,780 | $2,038 | 73 % | $12,299 | $8,476 | $3,823 | 45 % | | Income before income taxes | $12,454 | $11,112 | $1,342 | 12 % | $31,038 | $2,305 | $28,733 | 1,247 % | | Provision for income taxes | $3,035 | $2,091 | $944 | 45 % | $7,827 | $539 | $7,288 | 1,352 % | | Net income | $9,419 | $9,021 | $398 | 4 % | $23,211 | $1,766 | $21,445 | 1,214 % | - Consolidated revenues increased by **21%** for the three months and **32%** for the nine months ended September 30, 2022, driven by growth across all segments[85](index=85&type=chunk)[86](index=86&type=chunk) - Operating income increased by **24%** for the three months and **302%** for the nine months ended September 30, 2022, primarily due to strong performance in the Aviation and Fleet segments[88](index=88&type=chunk)[89](index=89&type=chunk) - Interest expense, net, increased due to higher average interest rates on borrowings[90](index=90&type=chunk) - The effective tax rate increased to **24.4%** (3 months) and **25.2%** (9 months) in 2022, mainly due to book expense from the decline in COLI asset value[91](index=91&type=chunk) [Segment Operating Results](index=27&type=section&id=Segment%20Operating%20Results) This section details the financial performance of each operating segment: Aviation, Fleet, and Federal and Defense [Aviation Segment Results](index=27&type=section&id=Aviation%20Segment%20Results) This section analyzes the Aviation segment's revenue and operating income growth, driven by distribution and repair services Aviation Segment Performance (in thousands) | Metric | 2022 (3 Months) | 2021 (3 Months) | Change ($) | Change (%) | 2022 (9 Months) | 2021 (9 Months) | Change ($) | Change (%) | | :-------------------------- | :-------------- | :-------------- | :--------- | :--------- | :-------------- | :-------------- | :--------- | :--------- | | Revenues | $102,625 | $73,124 | $29,501 | 40 % | $300,934 | $165,010 | $135,924 | 82 % | | Operating income (loss) | $10,017 | $3,719 | $6,298 | 169 % | $24,089 | $(18,885) | $42,974 | 228 % | | Profit (loss) percentage | 9.8 % | 5.1 % | | | 8.0 % | (11.4 %) | | | - Aviation segment revenue growth was driven by a **35%** increase in distribution revenue and a **55%** increase in repair revenue for the three months ended September 30, 2022[92](index=92&type=chunk) - Operating income significantly increased due to new distribution programs, higher margin repair revenue, and contributions from the Global Parts acquisition, also benefiting from the absence of a **$23.7 million** inventory provision recognized in the prior year[98](index=98&type=chunk)[99](index=99&type=chunk) [Fleet Segment Results](index=29&type=section&id=Fleet%20Segment%20Results) This section examines the Fleet segment's revenue and operating income performance, primarily from commercial and government sales Fleet Segment Performance (in thousands) | Metric | 2022 (3 Months) | 2021 (3 Months) | Change ($) | Change (%) | 2022 (9 Months) | 2021 (9 Months) | Change ($) | Change (%) | | :-------------------------- | :-------------- | :-------------- | :--------- | :--------- | :-------------- | :-------------- | :--------- | :--------- | | Revenues | $64,754 | $60,268 | $4,486 | 7 % | $196,526 | $173,072 | $23,454 | 14 % | | Operating income | $6,539 | $5,387 | $1,152 | 21 % | $18,286 | $15,128 | $3,158 | 21 % | | Profit percentage | 10.1 % | 8.9 % | | | 9.3 % | 8.7 % | | | - Fleet segment revenues increased due to a **22.7%** growth in commercial customer sales and **6.3%** growth in other government sales for the three months ended September 30, 2022, partially offset by a **93.3%** decrease in DoD sales[100](index=100&type=chunk) - Operating income increased by **21%** for both the three and nine months ended September 30, 2022, driven by increased commercial fleet customer and e-commerce fulfillment sales[104](index=104&type=chunk) [Federal and Defense Segment Results](index=31&type=section&id=Federal%20and%20Defense%20Segment%20Results) This section reviews the Federal and Defense segment's revenue and operating income, noting program shifts and contract impacts Federal and Defense Segment Performance (in thousands) | Metric | 2022 (3 Months) | 2021 (3 Months) | Change ($) | Change (%) | 2022 (9 Months) | 2021 (9 Months) | Change ($) | Change (%) | | :-------------------------- | :-------------- | :-------------- | :--------- | :--------- | :-------------- | :-------------- | :--------- | :--------- | | Revenues | $75,108 | $67,190 | $7,918 | 12 % | $217,979 | $202,593 | $15,386 | 8 % | | Operating income | $1,939 | $5,386 | $(3,447) | (64)% | $3,803 | $17,410 | $(13,607) | (78)% | | Profit percentage | 2.6 % | 8.0 % | | | 1.7 % | 8.6 % | | | - Revenues increased due to Foreign Military Sales (FMS) program with the U.S. Navy, partially offset by declines in U.S. Army work[107](index=107&type=chunk) - Operating income decreased by **64%** for the three months and **78%** for the nine months ended September 30, 2022, primarily due to the completion of a U.S. Army program, a shift to lower-margin cost-type contracts, and a **$3.5 million** loss on a fixed-price, non-DoD contract with a foreign customer[109](index=109&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk) [Bookings and Funded Backlog](index=31&type=section&id=Bookings%20and%20Funded%20Backlog) This section provides information on bookings and funded contract backlog, particularly for the Federal and Defense segment - Bookings for Aviation and Fleet segments occur at the time of sale, so backlog is not an indicator of future revenues for these segments[112](index=112&type=chunk) Federal and Defense Segment Bookings and Backlog (in millions) | Metric | 2022 (9 Months) | 2021 (9 Months) | | :-------------------- | :-------------- | :-------------- | | Bookings | $250 | $234 | | Revenues | $218 | $203 | | Funded Contract Backlog | $199 | $218 | - Federal and Defense segment bookings increased **7%** year-over-year to **$250 million**, while total funded backlog decreased **9%** year-over-year to **$199 million** as of September 30, 2022[113](index=113&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) This section details the company's liquidity sources, capital structure, and cash flow activities, including a recent bank loan amendment that extended maturity and modified terms, and discusses the impact of operating, investing, and financing activities on cash [Liquidity](index=33&type=section&id=Liquidity) This section outlines the company's internal and external sources of liquidity, including operating activities and bank loan facilities - Primary internal liquidity sources are operating activities, influenced by revenues, inventory, receivables, payables, and profitability[115](index=115&type=chunk) - External financing is primarily from a bank loan agreement with a **$350 million** maximum credit for revolving loans and letters of credit, and an aggregate limit of **$100 million** for incremental increases[116](index=116&type=chunk) - As of September 30, 2022, the company had **$48.9 million** in term loan borrowings, **$250.3 million** in revolving loan borrowings, **$1.2 million** in letters of credit, and approximately **$98 million** of unused bank loan commitments[116](index=116&type=chunk) [Bank Loan Amendment](index=33&type=section&id=Bank%20Loan%20Amendment) This section details the recent amendment to the company's bank loan agreement, including maturity extension and covenant modifications - On October 7, 2022, a fourth amendment to the loan agreement extended the maturity date to October 7, 2025, reset the term loan to **$100.0 million**, modified quarterly amortization payments to **$2.50 million**, increased the maximum total leverage ratio to **4.50x**, and changed the benchmark rate from LIBOR to SOFR[118](index=118&type=chunk) Maximum Total Funded Debt to EBITDA Ratio | Testing Period | Maximum Total Funded Debt to EBITDA Ratio | | :--------------------------------------------------- | :---------------------------------------- | | From Fourth Amendment Effective Date through Jun 30, 2023 | 4.50 to 1.00 | | From Jul 1, 2023 through Dec 31, 2023 | 4.25 to 1.00 | | From Jan 24, 2024 through Jun 30, 2024 | 4.00 to 1.00 | | From Jul 1, 2024 through Sep 30, 2024 | 3.75 to 1.00 | | From Oct 1, 2024 and thereafter | 3.50 to 1.00 | [Cash Flows](index=33&type=section&id=Cash%20Flows) This section summarizes the company's cash flow activities from operations, investing, and financing, and their impact on cash balances Summary of Cash Flows (in thousands) | Cash Flow Activity | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(4,206) | $(30,523) | | Net cash used in investing activities | $(3,181) | $(59,839) | | Net cash provided by financing activities | $6,959 | $90,367 | | Net (decrease) increase in cash and cash equivalents | $(428) | $5 | - Cash used in operating activities decreased by **$26.3 million**, primarily due to lower inventory purchases and timing of vendor payments, partially offset by increased accounts receivable[120](index=120&type=chunk) - Cash used in investing activities decreased by **$56.7 million**, mainly due to **$53.2 million** less cash paid for acquisitions compared to the prior year[121](index=121&type=chunk) - Cash provided by financing activities decreased by **$83.4 million**, primarily due to **$52.0 million** from a public common stock offering in the prior year and overall lower net debt borrowings[122](index=122&type=chunk) - The company paid cash dividends totaling **$3.8 million** (**$0.30** per share) during the nine months ended September 30, 2022, continuing its dividend payments since 1973[123](index=123&type=chunk) [Other Obligations and Commitments](index=34&type=section&id=Other%20Obligations%20and%20Commitments) This section confirms no material changes to the company's other obligations and commitments since the last annual report - There have been no material changes to other obligations and commitments from those disclosed in the 2021 Annual Report on Form 10-K[124](index=124&type=chunk) [Inflation and Pricing](index=34&type=section&id=Inflation%20and%20Pricing) This section states no material changes to the company's disclosures regarding inflation and pricing from the prior annual report - There have been no material changes to the disclosure on inflation and pricing from the most recently filed Annual Report on Form 10-K[125](index=125&type=chunk) [Off-Balance Sheet Arrangements](index=34&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of any material off-balance sheet arrangements that could impact financial condition - The company does not have any off-balance sheet arrangements that are reasonably likely to have a material effect on its financial condition or results of operations[126](index=126&type=chunk) [Disclosures About Market Risk](index=34&type=section&id=Disclosures%20About%20Market%20Risk) This section details the company's exposure to market risks, particularly interest rate risk, and its hedging strategies - The company is exposed to interest rate risk due to variable interest rates on its bank loan agreement and uses interest rate swap agreements to manage this risk[127](index=127&type=chunk) - In July 2022, two SOFR-based forward-starting fixed interest rate swaps for **$150 million** of floating rate debt were executed, with the reference rate changing from LIBOR to SOFR as part of a loan agreement amendment in October 2022[128](index=128&type=chunk) [Critical Accounting Policies, Estimates and Judgments](index=34&type=section&id=Critical%20Accounting%20Policies%2C%20Estimates%20and%20Judgments) This section highlights the significant accounting policies and estimates used in preparing the financial statements - The preparation of financial statements requires significant estimates and assumptions, including revenue recognition, inventory valuation, business combinations, goodwill and intangible assets, and income taxes[130](index=130&type=chunk) - There have been no significant changes in critical accounting estimates during the nine months ended September 30, 2022, from those disclosed in the 2021 Annual Report on Form 10-K[132](index=132&type=chunk) [Recently Issued Accounting Pronouncements](index=36&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) This section refers to the notes to financial statements for details on recently issued accounting standards - For a description of recently announced accounting standards, refer to Note 1, 'Nature of Business and Significant Accounting Policies — Recent Accounting Pronouncements,' in Item 1 of this report[133](index=133&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risks](index=36&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risks) This section refers to the 'Disclosures About Market Risk' section within Management's Discussion and Analysis of Financial Condition and Results of Operations for detailed information on market risks - Refer to 'Disclosures About Market Risk' in Item 2 for quantitative and qualitative disclosures about market risks[134](index=134&type=chunk) [ITEM 4. Controls and Procedures](index=36&type=section&id=ITEM%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures and states that there have been no material changes in internal control over financial reporting during the reported quarter - As of September 30, 2022, the company's disclosure controls and procedures were evaluated and deemed effective by management, including the CEO and CFO[135](index=135&type=chunk) - There have been no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[136](index=136&type=chunk) PART II. Other Information This section provides additional disclosures on legal proceedings, risk factors, equity sales, and required exhibits [ITEM 1. Legal Proceedings](index=37&type=section&id=ITEM%201.%20Legal%20Proceedings) This section states that there are no material legal proceedings to report for the period - There are no legal proceedings to report[139](index=139&type=chunk) [ITEM 1A. Risk Factors](index=37&type=section&id=ITEM%201A.%20Risk%20Factors) This section indicates that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 - There have been no material changes to the risk factors previously disclosed in the 2021 Annual Report on Form 10-K[140](index=140&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=37&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section confirms that the company did not purchase any of its equity securities during the reporting period - The company did not purchase any of its equity securities during the period covered by this report[141](index=141&type=chunk) [ITEM 6. Exhibits](index=38&type=section&id=ITEM%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the Fourth Amendment to the Fourth Amended and Restated Business Loan and Security Agreement and various certifications - Exhibit 10.1 is the Fourth Amendment to the Fourth Amended and Restated Business Loan and Security Agreement, dated October 7, 2022[143](index=143&type=chunk) - Includes Section 302 CEO and CFO Certifications (Exhibits 31.1, 31.2) and Section 906 CEO and CFO Certifications (Exhibits 32.1, 32.2)[143](index=143&type=chunk) [Signatures](index=39&type=section&id=Signatures) This section contains the signatures of the company's principal executive officer and principal financial and accounting officer, certifying the filing of the report - The report is signed by John A. Cuomo, Director, Chief Executive Officer and President, and Stephen D. Griffin, Senior Vice President and Chief Financial Officer[147](index=147&type=chunk)[148](index=148&type=chunk)

Financial Performance - Total revenue increased by 38% year-over-year, reaching $241.7 million in 2Q22 compared to $175.1 million in 2Q21[8, 15] - Adjusted EBITDA increased by 21% year-over-year, reaching $22.9 million in 2Q22 compared to $18.9 million in 2Q21[8, 15] - Adjusted Net Income increased by $1.9 million year-over-year[8] - Aviation segment revenue increased by 121% year-over-year, reaching $105 million in 2Q22 compared to $47.5 million in 2Q21[9, 23] - Fleet segment revenue increased by 12% year-over-year, reaching $64.7 million in 2Q22 compared to $58.1 million in 2Q21[9, 26] - Federal & Defense segment revenue increased by 3% year-over-year, reaching $72.0 million in 2Q22 compared to $69.5 million in 2Q21[9, 27] Segment Highlights - Aviation distribution revenue increased by 177% year-over-year and repair revenue increased by 37% year-over-year[9, 21] - Fleet commercial revenue increased by 48% year-over-year, driven by e-commerce fulfillment[9] - Commercial sales represent approximately 40% of Fleet segment revenue[6, 26] Balance Sheet - Net debt increased to $308 million in 2Q22 from $284 million in 4Q21[31] - Free cash flow was $(3.4) million in 2Q22[31]

Financial Data and Key Metrics Changes - Total revenue increased by 38% year-over-year, reaching $241.7 million in Q2 2022 [24][8] - Adjusted EBITDA rose by 21% year-over-year to $22.9 million, with an adjusted EBITDA margin of 9.5% [27][8] - Adjusted net income increased by 25% compared to the prior year [8] Business Line Data and Key Metrics Changes - **Aviation Segment**: Revenue reached a record $105 million, up 121% year-over-year, with distribution revenue increasing by 177% and MRO revenue by 37% [12][28] - **Fleet Segment**: Revenue grew by 12% year-over-year, driven by strong commercial fleet and e-commerce fulfillment sales [16][32] - **Federal and Defense Segment**: Revenue increased by 3% year-over-year, but adjusted EBITDA declined by 58% due to a shift in contract mix [19][35] Market Data and Key Metrics Changes - The Aviation segment's adjusted EBITDA margin improved by 293 basis points to 11.4% [14][31] - Commercial revenue in the Fleet segment increased by over 48% year-over-year, now representing 40% of total segment revenue [17][32] - Federal and Defense segment margins declined to 4.8%, down 690 basis points year-over-year [36] Company Strategy and Development Direction - The company is focused on building sustainable revenue channels, margin expansion, and optimizing core revenue channels through customer service [9][10] - Continued investment in new capabilities and integrated solutions is planned to support growth in general aviation and commercial customers [30][31] - The company aims to maintain a long-term mid-teen adjusted EBITDA margin target [31] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges in the macro environment, including supply chain disruptions and labor constraints, but expressed confidence in the company's resilience and demand for its products [6][21] - The company anticipates further growth in the second half of 2022, driven by program execution and market share gains [22][21] - Management remains cautious about the pace of recovery in the commercial repair market but is optimistic about the backlog and customer activity in the Business and General Aviation segment [48][49] Other Important Information - The company announced the addition of two new directors to its Board as part of a long-term succession plan [20] - Cash and unused commitment availability at the end of Q2 was $91 million, with total net debt outstanding at $308 million [37][38] - The company executed $150 million of forward starting interest rate swaps to mitigate interest rate exposure [39] Q&A Session Summary Question: Insights on Aviation business repair segment - Management noted improvements in both commercial and Business and General Aviation repair businesses, with cautious optimism about future growth [45][46] Question: Performance of Global Parts acquisition - The Global Parts acquisition has exceeded expectations, with strong integration and performance relative to plan [49][50] Question: Margin dynamics in the second half - Management indicated that mix will drive margins, with no expected step down in MRO revenues [56][57] Question: USPS contract performance - Management expects USPS performance to improve due to aging vehicles and market share gains [78][79] Question: Supply chain and pricing strategy - The company is well-positioned with sufficient inventory to support demand, and has flexibility in pricing due to the aftermarket nature of its business [86][87]

[PART I. Financial Information](index=4&type=section&id=PART%20I%20Financial%20Information) This section presents the company's unaudited consolidated financial statements and management's discussion and analysis for the reporting period [ITEM 1. Financial Statements](index=4&type=section&id=ITEM%201%20Financial%20Statements) This section presents VSE Corporation's unaudited consolidated financial statements, including balance sheets, income, equity, cash flows, and detailed notes [Unaudited Consolidated Balance Sheets](index=4&type=section&id=Unaudited%20Consolidated%20Balance%20Sheets) This chapter presents the company's consolidated balance sheets as of June 30, 2022, and December 31, 2021 Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :----------------------------------- | :------------ | :---------------- | | Total current assets | $506,586 | $463,993 | | Total assets | $947,223 | $918,558 | | Total current liabilities | $176,602 | $179,964 | | Total liabilities | $515,940 | $501,225 | | Total stockholders' equity | $431,283 | $417,333 | - Total assets increased by **$28.665 million** from December 31, 2021, to June 30, 2022, primarily driven by an increase in receivables and inventories[12](index=12&type=chunk) [Unaudited Consolidated Statements of Income (Loss)](index=5&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Income%20(Loss)) This chapter details the company's consolidated income and loss for the three and six months ended June 30, 2022 and 2021 Consolidated Statements of Income (Loss) Highlights (in thousands, except per share) | Metric | 3 Months Ended Jun 30, 2022 | 3 Months Ended Jun 30, 2021 | 6 Months Ended Jun 30, 2022 | 6 Months Ended Jun 30, 2021 | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total revenues | $241,713 | $175,112 | $472,952 | $340,093 | | Operating income (loss) | $14,151 | $(12,714) | $26,065 | $(3,111) | | Net income (loss) | $7,548 | $(12,366) | $13,792 | $(7,255) | | Basic earnings (loss) per share | $0.59 | $(0.97) | $1.08 | $(0.59) | | Diluted earnings (loss) per share | $0.59 | $(0.97) | $1.08 | $(0.59) | | Dividends declared per share | $0.10 | $0.09 | $0.20 | $0.18 | - Total revenues increased by **38%** for the three months and **39%** for the six months ended June 30, 2022, compared to the prior year[13](index=13&type=chunk) - The company reported a significant turnaround from net loss to net income, with basic EPS of **$0.59** for Q2 2022 (vs. **$(0.97)** in Q2 2021) and **$1.08** for H1 2022 (vs. **$(0.59)** in H1 2021)[13](index=13&type=chunk) [Unaudited Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) This chapter presents the consolidated comprehensive income and loss for the three and six months ended June 30, 2022 and 2021 Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands) | Metric | 3 Months Ended Jun 30, 2022 | 3 Months Ended Jun 30, 2021 | 6 Months Ended Jun 30, 2022 | 6 Months Ended Jun 30, 2021 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) | $7,548 | $(12,366) | $13,792 | $(7,255) | | Other comprehensive income, net of tax | — | $152 | $176 | $663 | | Comprehensive income (loss) | $7,548 | $(12,214) | $13,968 | $(6,592) | - Comprehensive income for the three and six months ended June 30, 2022, was **$7,548 thousand** and **$13,968 thousand**, respectively, a significant improvement from losses in the prior year[15](index=15&type=chunk) [Unaudited Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This chapter outlines changes in consolidated stockholders' equity for the six months ended June 30, 2022 Consolidated Stockholders' Equity Highlights (in thousands) | Metric | Balance at Dec 31, 2021 | Net Income (H1 2022) | Stock-based Compensation (H1 2022) | Other Comprehensive Income (H1 2022) | Dividends Declared (H1 2022) | Balance at Jun 30, 2022 | | :-------------------------- | :---------------------- | :------------------- | :--------------------------------- | :----------------------------------- | :--------------------------- | :---------------------- | | Total Stockholders' Equity | $417,333 | $13,792 | $2,540 | $176 | $(2,558) | $431,283 | - Total stockholders' equity increased from **$417.3 million** at December 31, 2021, to **$431.3 million** at June 30, 2022, primarily due to net income and stock-based compensation, partially offset by dividends[19](index=19&type=chunk) [Unaudited Consolidated Statements of Cash Flows](index=12&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Cash%20Flows) This chapter presents the consolidated cash flow activities for the six months ended June 30, 2022 and 2021 Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | 6 Months Ended Jun 30, 2022 | 6 Months Ended Jun 30, 2021 | | :------------------------------------ | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(20,138) | $(53,968) | | Net cash provided by (used in) investing activities | $327 | $(18,791) | | Net cash provided by financing activities | $19,664 | $72,718 | | Net decreases in cash and cash equivalents | $(147) | $(41) | - Net cash used in operating activities decreased by **$33.8 million**, indicating improved operational cash management[21](index=21&type=chunk) - Investing activities shifted from a net use of **$18.8 million** in H1 2021 to a net provision of **$0.3 million** in H1 2022, largely due to lower acquisition payments and property/equipment purchases[21](index=21&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) This chapter provides detailed explanatory notes to the unaudited consolidated financial statements [(1) Nature of Operations and Basis of Presentation](index=13&type=section&id=Note%201%20Nature%20of%20Operations%20and%20Basis%20of%20Presentation) This note describes VSE Corporation's diversified aftermarket business and its basis of financial statement presentation - VSE Corporation is a diversified aftermarket products and services company, operating in Aviation, Fleet, and Federal and Defense segments[24](index=24&type=chunk) - The company early adopted ASU 2021-08, 'Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,' in the first quarter of 2022[28](index=28&type=chunk) [(2) Acquisitions](index=13&type=section&id=Note%202%20Acquisitions) This note details the company's recent acquisitions, including Global Parts Group and HAECO Special Services - Acquired Global Parts Group, Inc. on July 26, 2021, for a preliminary purchase price of **$40 million**, including **$2 million** in contingent consideration[29](index=29&type=chunk) - Acquired HAECO Special Services, LLC on March 1, 2021, for **$14.8 million**, integrating its operations into the Federal and Defense segment[33](index=33&type=chunk) [(3) Revenue](index=15&type=section&id=Note%203%20Revenue) This note provides a detailed breakdown of the company's revenues by customer and type Revenues by Customer (in thousands) | Customer | 3 Months Ended Jun 30, 2022 | 3 Months Ended Jun 30, 2021 | 6 Months Ended Jun 30, 2022 | 6 Months Ended Jun 30, 2021 | | :--------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Commercial | $129,522 | $65,280 | $249,382 | $124,381 | | DoD | $60,524 | $66,751 | $112,648 | $112,639 | | Other government | $51,667 | $43,081 | $110,922 | $103,073 | | Total | $241,713 | $175,112 | $472,952 | $340,093 | Revenues by Type (in thousands) | Revenue Type | 3 Months Ended Jun 30, 2022 | 3 Months Ended Jun 30, 2021 | 6 Months Ended Jun 30, 2022 | 6 Months Ended Jun 30, 2021 | | :--------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Repair | $25,966 | $19,021 | $48,329 | $37,337 | | Distribution | $143,795 | $86,551 | $281,752 | $167,353 | | Cost Plus Contract | $34,555 | $21,813 | $65,132 | $38,364 | | Fixed Price Contract | $22,278 | $32,430 | $40,639 | $56,361 | | T&M Contract | $15,119 | $15,297 | $37,100 | $40,678 | | Total | $241,713 | $175,112 | $472,952 | $340,093 | - Unbilled receivables increased to **$41.3 million** as of June 30, 2022, from **$31.9 million** as of December 31, 2021[41](index=41&type=chunk) - Revenues from products and services transferred at a point in time accounted for approximately **59%** of total revenues for the three and six months ended June 30, 2022, up from **49%** in the prior year[42](index=42&type=chunk) - As of June 30, 2022, the aggregate amount of transaction prices allocated to unsatisfied or partially unsatisfied performance obligations was **$183 million**, with **94%** expected to be satisfied within one year[43](index=43&type=chunk) [(4) Debt](index=19&type=section&id=Note%204%20Debt) This note details the company's long-term debt, interest rates, interest expense, and loan covenant compliance Long-term Debt Composition (in thousands) | Debt Type | June 30, 2022 | December 31, 2021 | | :-------------------------- | :------------ | :---------------- | | Bank credit facility - term loan | $52,675 | $60,175 | | Bank credit facility - revolver loans | $257,681 | $226,559 | | Principal amount of long-term debt | $310,356 | $286,734 | | Total long-term debt (net of issuance costs) | $308,610 | $284,569 | | Long-term debt, less current portion | $294,448 | $270,407 | - Interest rates on outstanding debt ranged from **4.62%** to **7.00%** as of June 30, 2022, with an effective interest rate of **5.06%**[48](index=48&type=chunk) - Interest expense, net, increased to **$3.7 million** for Q2 2022 (from **$2.4 million** in Q2 2021) and **$7.1 million** for H1 2022 (from **$5.1 million** in H1 2021)[49](index=49&type=chunk) - The company was in compliance with all required ratios and terms under its loan agreement as of June 30, 2022[50](index=50&type=chunk) [(5) Earnings Per Share](index=19&type=section&id=Note%205%20Earnings%20Per%20Share) This note provides weighted-average common shares outstanding for basic and diluted earnings per share calculations Weighted-Average Shares Outstanding for EPS Calculation | Metric | 3 Months Ended Jun 30, 2022 | 3 Months Ended Jun 30, 2021 | 6 Months Ended Jun 30, 2022 | 6 Months Ended Jun 30, 2021 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic weighted average common shares outstanding | 12,778,355 | 12,702,366 | 12,760,026 | 12,391,166 | | Diluted weighted average common shares outstanding | 12,811,078 | 12,702,366 | 12,807,249 | 12,391,166 | [(6) Commitments and Contingencies](index=20&type=section&id=Note%206%20Commitments%20and%20Contingencies) This note discusses management's assessment of potential impacts from claims, lawsuits, and government disputes - Management believes that the outcome of current claims, lawsuits, government disputes, audits, and investigations will not have a material adverse effect on the company's financial position, results of operations, or cash flows[54](index=54&type=chunk)[55](index=55&type=chunk) [(7) Business Segments and Customer Information](index=20&type=section&id=Note%207%20Business%20Segments%20and%20Customer%20Information) This note presents financial information by the company's three reportable segments: Aviation, Fleet, and Federal and Defense - The company operates under three reportable segments: Aviation, Fleet, and Federal and Defense, providing aftermarket repair, distribution, logistics, and MRO services[56](index=56&type=chunk)[57](index=57&type=chunk)[58](index=58&type=chunk) Segment Revenues (in thousands) | Segment | 3 Months Ended Jun 30, 2022 | 3 Months Ended Jun 30, 2021 | 6 Months Ended Jun 30, 2022 | 6 Months Ended Jun 30, 2021 | | :------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Aviation | $105,019 | $47,515 | $198,309 | $91,886 | | Fleet | $64,742 | $58,057 | $131,772 | $112,804 | | Federal and Defense | $71,952 | $69,540 | $142,871 | $135,403 | | Total revenues | $241,713 | $175,112 | $472,952 | $340,093 | Segment Operating Income (Loss) (in thousands) | Segment | 3 Months Ended Jun 30, 2022 | 3 Months Ended Jun 30, 2021 | 6 Months Ended Jun 30, 2022 | 6 Months Ended Jun 30, 2021 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Aviation | $6,450 | $(22,272) | $14,072 | $(22,604) | | Fleet | $5,366 | $4,000 | $11,747 | $9,741 | | Federal and Defense | $2,552 | $6,999 | $1,864 | $12,024 | | Corporate/unallocated expenses | $(217) | $(1,441) | $(1,618) | $(2,272) | | Operating income (loss) | $14,151 | $(12,714) | $26,065 | $(3,111) | [(8) Fair Value Measurements](index=21&type=section&id=Note%208%20Fair%20Value%20Measurements) This note provides information on financial assets and liabilities measured at fair value Financial Assets and Liabilities Measured at Fair Value (in thousands) | Item | June 30, 2022 | December 31, 2021 | | :------------------------------------------------- | :------------ | :---------------- | | Non-COLI assets held in Deferred Supplemental Compensation Plan | $532 | $598 | | Interest rate swap agreements | — | $234 | | Earn-out obligation - short-term | $250 | $1,000 | | Earn-out obligation - long-term | — | $250 | - Interest rate swap agreements expired in February and March 2022, resulting in no fair value recorded as of June 30, 2022[62](index=62&type=chunk) - The earn-out obligation related to the Global Parts acquisition decreased from **$1.25 million** at December 31, 2021, to **$0.25 million** at June 30, 2022, due to payments[65](index=65&type=chunk) [(9) Income Taxes](index=22&type=section&id=Note%209%20Income%20Taxes) This note presents effective tax rates for the three and six months ended June 30, 2022 and 2021 Effective Tax Rates | Period | 2022 | 2021 | | :-------------------------- | :----- | :----- | | Three months ended June 30, | 26.6% | 19.6% | | Six months ended June 30, | 25.8% | 17.6% | - The effective tax rate increased primarily due to book expense related to the decline in value of Company Owned Life Insurance (COLI) assets in H1 2022, which was reversed for tax purposes[67](index=67&type=chunk) [(10) Subsequent Events](index=22&type=section&id=Note%2010%20Subsequent%20Events) This note discloses significant events after the reporting period, including forward-starting fixed interest rate swaps - Subsequent to June 30, 2022, the company executed forward-starting fixed interest rate swaps to hedge **$150 million** of floating rate debt, with the tenor beginning on October 31, 2022[68](index=68&type=chunk) [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=ITEM%202%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of VSE Corporation's financial condition and operating results [Business Overview](index=23&type=section&id=Business%20Overview) This chapter provides an overview of VSE Corporation's diversified aftermarket products and services business - VSE Corporation is a diversified aftermarket products and services company providing repair, parts distribution, logistics, supply chain management, and consulting services for land, sea, and air transportation assets[70](index=70&type=chunk) - Operations are conducted within three reportable segments: Aviation, Fleet, and Federal and Defense[71](index=71&type=chunk) [Recent Acquisitions](index=23&type=section&id=Recent%20Acquisitions) This chapter refers to detailed information on recent acquisitions in the notes to the financial statements - Refer to Note (2) 'Acquisitions' in the Consolidated Financial Statements for additional information on recent acquisitions[72](index=72&type=chunk) [Impact of the COVID-19 Pandemic](index=23&type=section&id=Impact%20of%20the%20COVID-19%20Pandemic) This chapter discusses the company's continued operational improvements and uninterrupted service delivery despite the COVID-19 pandemic - The company experienced continued improvement in operating results during the six months ended June 30, 2022, following the impact of the COVID-19 pandemic[73](index=73&type=chunk) - All repair, distribution, and base operations facilities remain open and operational, delivering products and services without interruption[73](index=73&type=chunk) [Business Trends](index=23&type=section&id=Business%20Trends) This chapter analyzes key business trends and performance drivers across all operating segments [Aviation Segment](index=23&type=section&id=Aviation%20Segment%20Business%20Trends) This chapter highlights the Aviation segment's revenue growth from commercial market recovery and acquisitions - Aviation segment revenue increased by **121%** year-over-year to **$105 million** for Q2 2022, driven by recovery in commercial market activity and share gains in business & general aviation[76](index=76&type=chunk) - Distribution revenue increased by **175%** and repair revenue by **29%** year-over-year for the first six months of 2022[77](index=77&type=chunk) - The acquisition of Global Parts in July 2021 expanded product lines and client base, contributing to growth[76](index=76&type=chunk) [Fleet Segment](index=23&type=section&id=Fleet%20Segment%20Business%20Trends) This chapter details the Fleet segment's revenue growth from commercial customers and e-commerce fulfillment - Commercial customer revenue in the Fleet segment increased by approximately **48%** for Q2 2022 and **68%** for H1 2022 year-over-year, driven by growth in e-commerce fulfillment[79](index=79&type=chunk) - Commercial revenues constituted **40.9%** of total Fleet segment revenue for H1 2022, up from **28.4%** in H1 2021, reflecting successful diversification[79](index=79&type=chunk) [Federal and Defense Segment](index=25&type=section&id=Federal%20and%20Defense%20Segment%20Business%20Trends) This chapter focuses on the Federal and Defense segment's revenue growth from NAVSEA Foreign Military Sales programs - Revenue growth in the Federal and Defense segment was driven by strong performance in Naval Sea Systems Command (NAVSEA) Foreign Military Sales (FMS) programs[80](index=80&type=chunk) - Activity on the FMS Program increased, including work to transfer a frigate to Bahrain[80](index=80&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) This chapter provides a detailed analysis of the company's consolidated and segment-specific operating results [Consolidated Results of Operations](index=25&type=section&id=Consolidated%20Results%20of%20Operations) This chapter summarizes the company's overall financial performance, highlighting increases in revenues, operating income, and net income Consolidated Results of Operations (in thousands) | Metric | 3 Months Ended Jun 30, 2022 | 3 Months Ended Jun 30, 2021 | Change ($) | Change (%) | 6 Months Ended Jun 30, 2022 | 6 Months Ended Jun 30, 2021 | Change ($) | Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Revenues | $241,713 | $175,112 | $66,601 | 38% | $472,952 | $340,093 | $132,859 | 39% | | Operating income | $14,151 | $(12,714) | $26,865 | 211% | $26,065 | $(3,111) | $29,176 | 938% | | Net income | $7,548 | $(12,366) | $19,914 | 161% | $13,792 | $(7,255) | $21,047 | 290% | - Consolidated revenues increased by **$66.6 million (38%)** for Q2 2022 and **$132.9 million (39%)** for H1 2022, driven by growth across all segments[81](index=81&type=chunk)[82](index=82&type=chunk) - Operating income saw a significant turnaround, increasing by **$26.9 million (211%)** for Q2 2022 and **$29.2 million (938%)** for H1 2022, primarily due to Aviation and Fleet segment improvements[84](index=84&type=chunk)[85](index=85&type=chunk) - Interest expense increased by **45%** for Q2 2022 and **31%** for H1 2022 due to higher average interest rates and debt balances[86](index=86&type=chunk) [Segment Operating Results](index=27&type=section&id=Segment%20Operating%20Results) This chapter provides a detailed breakdown of the operating performance for each reportable segment [Aviation Segment Results](index=27&type=section&id=Aviation%20Segment%20Results) This chapter analyzes the Aviation segment's revenue growth and operating income turnaround Aviation Segment Results (in thousands) | Metric | 3 Months Ended Jun 30, 2022 | 3 Months Ended Jun 30, 2021 | Change ($) | Change (%) | 6 Months Ended Jun 30, 2022 | 6 Months Ended Jun 30, 2021 | Change ($) | Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Revenues | $105,019 | $47,515 | $57,504 | 121% | $198,309 | $91,886 | $106,423 | 116% | | Operating income (loss) | $6,450 | $(22,272) | $28,722 | 129% | $14,072 | $(22,604) | $36,676 | 162% | | Profit (loss) percentage | 6.1% | (46.9%) | | | 7.1% | (24.6%) | | | - Aviation segment revenues increased by **$57.5 million (121%)** for Q2 2022 and **$106.4 million (116%)** for H1 2022, driven by distribution contract wins, Global Parts acquisition, and improved repair demand[89](index=89&type=chunk) - Operating income improved significantly, turning from a loss of **$(22.3) million** in Q2 2021 to a profit of **$6.5 million** in Q2 2022[92](index=92&type=chunk) - Costs and operating expenses for Q2 2022 included a **$2.3 million** non-cash charge to write down accounts receivable and inventory related to Russia and Ukrainian markets[90](index=90&type=chunk)[91](index=91&type=chunk) [Fleet Segment Results](index=29&type=section&id=Fleet%20Segment%20Results) This chapter examines the Fleet segment's revenue and operating income growth from commercial customer sales Fleet Segment Results (in thousands) | Metric | 3 Months Ended Jun 30, 2022 | 3 Months Ended Jun 30, 2021 | Change ($) | Change (%) | 6 Months Ended Jun 30, 2022 | 6 Months Ended Jun 30, 2021 | Change ($) | Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Revenues | $64,742 | $58,057 | $6,685 | 12% | $131,772 | $112,804 | $18,968 | 17% | | Operating income | $5,366 | $4,000 | $1,366 | 34% | $11,747 | $9,741 | $2,006 | 21% | | Profit percentage | 8.3% | 6.9% | | | 8.9% | 8.6% | | | - Fleet segment revenues increased by **$6.7 million (12%)** for Q2 2022 and **$19.0 million (17%)** for H1 2022, driven by a **47.5% (Q2)** and **68.0% (H1)** increase in commercial customer sales, partially offset by decreased DoD revenues[95](index=95&type=chunk)[96](index=96&type=chunk) - Operating income increased by **34%** for Q2 2022 and **21%** for H1 2022, primarily due to increased commercial customer revenues[99](index=99&type=chunk) [Federal and Defense Segment Results](index=29&type=section&id=Federal%20and%20Defense%20Segment%20Results) This chapter analyzes the Federal and Defense segment's revenue growth and operating income decline Federal and Defense Segment Results (in thousands) | Metric | 3 Months Ended Jun 30, 2022 | 3 Months Ended Jun 30, 2021 | Change ($) | Change (%) | 6 Months Ended Jun 30, 2022 | 6 Months Ended Jun 30, 2021 | Change ($) | Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Revenues | $71,952 | $69,540 | $2,412 | 3% | $142,871 | $135,403 | $7,468 | 6% | | Operating income | $2,552 | $6,999 | $(4,447) | (64)% | $1,864 | $12,024 | $(10,160) | (84)% | | Profit percentage | 3.5% | 10.1% | | | 1.3% | 8.9% | | | - Federal and Defense segment revenues increased by **3%** for Q2 2022 and **6%** for H1 2022, driven by FMS programs with the U.S. Navy, partially offset by U.S. Army program completions[100](index=100&type=chunk) - Operating income decreased significantly by **64%** for Q2 2022 and **84%** for H1 2022, due to U.S. Army program completions, an unfavorable contract mix (more cost-type contracts), and a **$3.5 million** loss on a fixed-price contract in H1 2022[103](index=103&type=chunk)[104](index=104&type=chunk)[105](index=105&type=chunk) [Bookings and Funded Backlog](index=31&type=section&id=Bookings%20and%20Funded%20Backlog) This chapter provides an overview of the Federal and Defense segment's bookings and funded contract backlog Federal and Defense Segment Bookings and Funded Backlog (in millions) | Metric | 2022 | 2021 | | :---------------------- | :--- | :--- | | Bookings | $155 | $170 | | Revenues | $143 | $135 | | Funded Contract Backlog | $183 | $224 | - For the Federal and Defense segment, bookings decreased **9%** year-over-year to **$155 million**, and total funded backlog decreased **18%** year-over-year to **$183 million** for the six months ended June 30, 2022[107](index=107&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) This chapter discusses the company's liquidity sources, capital structure, and cash flow activities [Liquidity](index=31&type=section&id=Liquidity) This chapter outlines the company's primary liquidity sources and compliance with loan terms - Primary sources of liquidity are operating activities and a bank loan agreement with a maximum credit availability of **$350 million**[108](index=108&type=chunk)[109](index=109&type=chunk) - Bank debt increased by approximately **$23.6 million** for the six months ended June 30, 2022[109](index=109&type=chunk) - As of June 30, 2022, the company had approximately **$91 million** of unused bank loan commitments and was in compliance with all loan agreement terms[109](index=109&type=chunk)[110](index=110&type=chunk) [Cash Flows](index=33&type=section&id=Cash%20Flows) This chapter summarizes the company's cash flow activities for the six months ended June 30, 2022 and 2021 Summary of Cash Flows (in thousands) | Cash Flow Activity | 6 Months Ended Jun 30, 2022 | 6 Months Ended Jun 30, 2021 | | :------------------------------------ | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(20,138) | $(53,968) | | Net cash provided by (used in) investing activities | $327 | $(18,791) | | Net cash provided by financing activities | $19,664 | $72,718 | | Net decreases in cash and cash equivalents | $(147) | $(41) | - Net cash used in operating activities decreased by **$33.8 million**, primarily due to increased accounts receivable from revenue growth and lower cash use for inventory purchases[113](index=113&type=chunk) - Cash provided by investing activities improved by **$19.1 million**, mainly due to **$14.8 million** less cash paid for acquisitions and lower property and equipment purchases[114](index=114&type=chunk) - Cash provided by financing activities decreased by **$53.1 million**, primarily due to **$52 million** from a common stock offering in the prior year and lower net debt borrowings[115](index=115&type=chunk) [Other Obligations and Commitments](index=33&type=section&id=Other%20Obligations%20and%20Commitments) This chapter states no material changes to other obligations and commitments since the previous annual report - There have been no material changes to other obligations and commitments since the 2021 Annual Report on Form 10-K[117](index=117&type=chunk) [Inflation and Pricing](index=33&type=section&id=Inflation%20and%20Pricing) This chapter indicates no material changes to inflation and pricing disclosure from the most recent annual report - There have been no material changes to the disclosure regarding inflation and pricing from the most recently filed Annual Report on Form 10-K[118](index=118&type=chunk) [Off-Balance Sheet Arrangements](index=33&type=section&id=Off-Balance%20Sheet%20Arrangements) This chapter confirms no off-balance sheet arrangements are likely to materially affect financial condition or results - The company does not have any off-balance sheet arrangements that are reasonably likely to have a material effect on its financial condition or results of operations[119](index=119&type=chunk) [Disclosures About Market Risk](index=34&type=section&id=Disclosures%20About%20Market%20Risk) This chapter discusses the company's exposure to interest rate risk and hedging strategies - The company is exposed to interest rate risk due to variable interest rates on its bank loan agreement[120](index=120&type=chunk) - Previous interest rate swap agreements expired in February and March 2022, leaving no debt covered by swaps as of June 30, 2022[121](index=121&type=chunk) - In July 2022, the company executed forward-starting fixed interest rate swaps to hedge **$150 million** of floating rate debt, effective October 31, 2022[121](index=121&type=chunk) [Critical Accounting Policies, Estimates and Judgments](index=34&type=section&id=Critical%20Accounting%20Policies,%20Estimates%20and%20Judgments) This chapter confirms no significant changes in critical accounting estimates during the six months ended June 30, 2022 - There have been no significant changes in critical accounting estimates during the six months ended June 30, 2022, from those disclosed in the 2021 Annual Report on Form 10-K[123](index=123&type=chunk) [Recently Issued Accounting Pronouncements](index=34&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) This chapter directs readers to the financial statement notes for details on recent accounting standards - Refer to Note (1) 'Nature of Business and Significant Accounting Policies — Recent Accounting Pronouncements' for details on recently announced accounting standards[124](index=124&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risks](index=34&type=section&id=ITEM%203%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risks) This section refers to Item 2 for quantitative and qualitative disclosures regarding market risks - Refers to 'Disclosures About Market Risk' in Item 2 for relevant information[125](index=125&type=chunk) [ITEM 4. Controls and Procedures](index=34&type=section&id=ITEM%204%20Controls%20and%20Procedures) Management confirmed effective disclosure controls and procedures as of June 30, 2022, with no material changes in internal control - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2022[126](index=126&type=chunk) - No material changes in internal control over financial reporting occurred during the quarterly period[127](index=127&type=chunk) [PART II. Other Information](index=35&type=section&id=PART%20II%20Other%20Information) This section provides additional information including legal proceedings, risk factors, equity sales, exhibits, and signatures [ITEM 1. Legal Proceedings](index=35&type=section&id=ITEM%201%20Legal%20Proceedings) This section confirms no material legal proceedings were reported during the period covered by the report - No material legal proceedings were reported[129](index=129&type=chunk) [ITEM 1A. Risk Factors](index=35&type=section&id=ITEM%201A%20Risk%20Factors) This section indicates no material changes to risk factors previously disclosed in the 2021 Form 10-K - No material changes to the previously disclosed risk factors in the 2021 Form 10-K[130](index=130&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=ITEM%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section confirms no equity security purchases and outlines loan agreement restrictions on cash dividends - The company did not purchase any of its equity securities during the period[131](index=131&type=chunk) - VSE's loan agreement restricts cash dividends to an aggregate of **$6 million** in any fiscal year, subject to no event of default[132](index=132&type=chunk) [ITEM 6. Exhibits](index=36&type=section&id=ITEM%206%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL documents - Includes Section 302 and 906 certifications from the CEO and CFO, along with XBRL instance and taxonomy documents[134](index=134&type=chunk) [Signatures](index=37&type=section&id=Signatures) This section contains the signatures of the company's principal executive and financial officers, dated July 28, 2022 - The report was signed by John A. Cuomo, CEO and President, and Stephen D. Griffin, Senior Vice President and CFO, on July 28, 2022[138](index=138&type=chunk)

VSE Corporation (NASDAQ:VSEC) Q1 2022 Earnings Conference Call April 28, 2022 8:30 AM ET Company Participants Noel Ryan – Head of IR John A. Cuomo – CEO and President Stephen D. Griffin – SVP & CFO Conference Call Participants Austin Moeller - Canaccord Genuity Kenneth Herbert - RBC Capital Markets Michael Ciarmoli - Truist Securities Michael DiPalma - William Blair Jeffrey Van Sinderen - B. Riley Securities Operator Greetings, and welcome to the VSE Corporation First Quarter 2022 Earnings Conference Call. ...

[PART I. Financial Information](index=4&type=section&id=PART%20I.%20Financial%20Information) This section presents unaudited consolidated financial statements and management's discussion and analysis [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements of VSE Corporation and its subsidiaries for the three months ended March 31, 2022, and December 31, 2021 (for balance sheet) or March 31, 2021 (for income, comprehensive income, stockholders' equity, and cash flow statements) It includes the balance sheets, income statements, comprehensive income statements, stockholders' equity statements, cash flow statements, and detailed notes explaining the company's operations, accounting policies, acquisitions, revenue recognition, debt, earnings per share, commitments, business segments, fair value measurements, and income taxes [Unaudited Consolidated Balance Sheets](index=4&type=section&id=Unaudited%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's assets, liabilities, and equity at specific quarter-end and year-end dates Unaudited Consolidated Balance Sheets Summary | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :--------------------------------- | :----------------------------- | :----------------------------- | | Total assets | $920,972 | $918,558 | | Total liabilities | $497,180 | $501,225 | | Total stockholders' equity | $423,792 | $417,333 | - Total assets increased slightly from **$918.6 million** at December 31, 2021, to **$921.0 million** at March 31, 2022 Total liabilities decreased from **$501.2 million** to **$497.2 million**, while total stockholders' equity increased from **$417.3 million** to **$423.8 million**[13](index=13&type=chunk) [Unaudited Consolidated Statements of Income](index=6&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Income) This section details the company's revenues, expenses, and net income for the three months ended March 31, 2022, and 2021 Unaudited Consolidated Statements of Income Summary | Metric | Three months ended March 31, 2022 (in thousands) | Three months ended March 31, 2021 (in thousands) | Change (%) | | :--------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :--------- | | Total revenues | $231,239 | $164,981 | 40.2% | | Operating income | $11,914 | $9,603 | 24.1% | | Net income | $6,244 | $5,111 | 22.2% | | Basic earnings per share | $0.49 | $0.42 | 16.7% | | Diluted earnings per share | $0.49 | $0.42 | 16.7% | | Dividends declared per share | $0.10 | $0.09 | 11.1% | - Total revenues increased by **40.2%** year-over-year, driven by growth in both product and service revenues Net income grew by **22.2%**, and basic and diluted EPS increased by **16.7%** to **$0.49**[15](index=15&type=chunk) [Unaudited Consolidated Statements of Comprehensive Income](index=7&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Comprehensive%20Income) This section presents the company's comprehensive income, including net income and other comprehensive income items, for the reporting periods Unaudited Consolidated Statements of Comprehensive Income Summary | Metric | Three months ended March 31, 2022 (in thousands) | Three months ended March 31, 2021 (in thousands) | | :--------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net income | $6,244 | $5,111 | | Change in fair value of interest rate swap agreements, net of tax | $176 | $511 | | Comprehensive income | $6,420 | $5,622 | - Comprehensive income increased to **$6.4 million** in **Q1 2022** from **$5.6 million** in **Q1 2021**, primarily due to higher net income, despite a smaller positive change in the fair value of interest rate swap agreements[17](index=17&type=chunk) [Unaudited Consolidated Statements of Stockholders' Equity](index=9&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) This section outlines changes in stockholders' equity, reflecting net income, dividends, and stock-based compensation Unaudited Consolidated Statements of Stockholders' Equity Summary | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :--------------------------------- | :----------------------------- | :----------------------------- | | Total Stockholders' Equity | $423,792 | $417,333 | | Net income | $6,244 | - | | Stock-based compensation | $1,317 | - | | Dividends declared | $(1,278) | - | - Stockholders' equity increased from **$417.3 million** at December 31, 2021, to **$423.8 million** at March 31, 2022, driven by net income and stock-based compensation, partially offset by dividends declared[19](index=19&type=chunk) [Unaudited Consolidated Statements of Cash Flows](index=11&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Cash%20Flows) This section details cash inflows and outflows from operating, investing, and financing activities for the reported periods Unaudited Consolidated Statements of Cash Flows Summary | Cash Flow Activity | Three months ended March 31, 2022 (in thousands) | Three months ended March 31, 2021 (in thousands) | | :--------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net cash used in operating activities | $(18,174) | $(36,367) | | Net cash provided by (used in) investing activities | $1,393 | $(16,468) | | Net cash provided by financing activities | $16,761 | $52,804 | | Net decreases in cash and cash equivalents | $(20) | $(31) | - Net cash used in operating activities significantly decreased from **$(36.4) million** in **Q1 2021** to **$(18.2) million** in **Q1 2022** Investing activities shifted from a net use of **$(16.5) million** to a net provision of **$1.4 million**, primarily due to the absence of a large acquisition payment seen in the prior year Financing activities provided less cash, decreasing from **$52.8 million** to **$16.8 million**, mainly due to the prior year's common stock offering[22](index=22&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the unaudited consolidated financial statements [(1) Nature of Operations and Basis of Presentation](index=12&type=section&id=%281%29%20Nature%20of%20Operations%20and%20Basis%20of%20Presentation) This note describes VSE Corporation's business segments and accounting principles - VSE Corporation is a diversified aftermarket products and services company operating in three segments: Aviation, Fleet, and Federal and Defense, providing repair, distribution, logistics, and supply chain management services[25](index=25&type=chunk) - The company early adopted ASU 2021-08, 'Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,' in **Q1 2022**, applying it prospectively to new business combinations[29](index=29&type=chunk) [(2) Acquisitions](index=12&type=section&id=%282%29%20Acquisitions) This note details recent acquisition activities, including purchase prices and integration - On July 26, 2021, VSE acquired Global Parts Group, Inc. for a preliminary purchase price of **$40 million**, including **$2 million** in contingent consideration[30](index=30&type=chunk) - On March 1, 2021, VSE acquired HAECO Special Services, LLC for **$14.8 million**, integrating its operations into the Federal and Defense segment[34](index=34&type=chunk) [(3) Revenue](index=14&type=section&id=%283%29%20Revenue) This note provides a breakdown of revenue by segment and type, with performance obligations Revenue Summary | Segment | Q1 2022 Revenue (in thousands) | Q1 2021 Revenue (in thousands) | | :---------------- | :----------------------------- | :----------------------------- | | Aviation | $93,290 | $44,371 | | Fleet | $67,030 | $54,747 | | Federal and Defense | $70,919 | $65,863 | | **Total** | **$231,239** | **$164,981** | Revenue Summary | Revenue Type | Q1 2022 Revenue (in thousands) | Q1 2021 Revenue (in thousands) | | :----------------- | :----------------------------- | :----------------------------- | | Repair | $22,363 | $18,316 | | Distribution | $137,957 | $80,802 | | Cost Plus Contract | $30,577 | $16,551 | | Fixed Price Contract | $18,361 | $23,931 | | T&M Contract | $21,981 | $25,381 | | **Total** | **$231,239** | **$164,981** | - Revenues from products and services transferred at a point in time accounted for approximately **60%** of total revenues in **Q1 2022**, up from **49%** in **Q1 2021**, primarily driven by sales of vehicle and aircraft parts[41](index=41&type=chunk) - As of March 31, 2022, the aggregate transaction price allocated to unsatisfied performance obligations was **$198 million**, with **92%** expected to be satisfied within one year[42](index=42&type=chunk) [(4) Debt](index=16&type=section&id=%284%29%20Debt) This note outlines the company's debt structure, including credit facilities and interest rates Debt Summary | Debt Type | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------------- | :----------------------------- | :----------------------------- | | Bank credit facility - term loan | $56,425 | $60,175 | | Bank credit facility - revolver loans | $249,375 | $226,559 | | Total long-term debt | $303,845 | $284,569 | - Total long-term debt increased to **$303.8 million** as of March 31, 2022, from **$284.6 million** at December 31, 2021, primarily due to increased revolving loan borrowings[45](index=45&type=chunk) - Interest rates on outstanding debt ranged from **4.00%** to **5.75%** as of March 31, 2022, with an effective interest rate of **4.09%** Interest rate swap agreements expired in February and March 2022, leaving no hedged portion of debt[46](index=46&type=chunk)[47](index=47&type=chunk) [(5) Earnings Per Share](index=16&type=section&id=%285%29%20Earnings%20Per%20Share) This note presents the calculation of basic and diluted earnings per share Earnings Per Share Summary | Metric | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Basic weighted average common shares outstanding | 12,741,394 | 12,076,509 | | Diluted weighted average common shares outstanding | 12,803,279 | 12,171,828 | - Basic and diluted weighted average common shares outstanding increased year-over-year, contributing to the EPS calculation[51](index=51&type=chunk) [(6) Commitments and Contingencies](index=17&type=section&id=%286%29%20Commitments%20and%20Contingencies) This note discloses legal proceedings, government audits, and other potential liabilities - The company is involved in various claims and legal proceedings in the normal course of business, but management believes their resolution will not have a material adverse effect on financial results[52](index=52&type=chunk) - Government audits and investigations are ongoing, but the company believes their outcome will not materially affect its operations, financial condition, or cash flows[53](index=53&type=chunk) [(7) Business Segments and Customer Information](index=18&type=section&id=%287%29%20Business%20Segments%20and%20Customer%20Information) This note provides financial data and strategic insights for operating segments and customer types - VSE operates through three segments: Aviation (aftermarket repair and distribution for various aviation customers), Fleet (parts, inventory management, and logistics for commercial and government fleets), and Federal and Defense (MRO and logistics for military and federal agencies)[56](index=56&type=chunk)[57](index=57&type=chunk)[58](index=58&type=chunk) Business Segments and Customer Information Summary | Segment | Q1 2022 Revenues (in thousands) | Q1 2021 Revenues (in thousands) | Q1 2022 Operating Income (in thousands) | Q1 2021 Operating Income (in thousands) | | :---------------- | :----------------------------- | :----------------------------- | :-------------------------------------- | :-------------------------------------- | | Aviation | $93,290 | $44,371 | $7,622 | $(332) | | Fleet | $67,030 | $54,747 | $6,381 | $5,741 | | Federal and Defense | $70,919 | $65,863 | $(688) | $5,025 | | **Total** | **$231,239** | **$164,981** | **$11,914** | **$9,603** | Business Segments and Customer Information Summary | Customer | Q1 2022 Revenue (in thousands) | Q1 2022 (%) | Q1 2021 Revenue (in thousands) | Q1 2021 (%) | | :--------------- | :----------------------------- | :---------- | :----------------------------- | :---------- | | Commercial | $119,860 | 52% | $59,101 | 36% | | DoD | $52,124 | 22% | $45,888 | 28% | | Other government | $59,255 | 26% | $59,992 | 36% | | **Total** | **$231,239** | **100%** | **$164,981** | **100%** | [(8) Fair Value Measurements](index=20&type=section&id=%288%29%20Fair%20Value%20Measurements) This note details the fair value of financial instruments and earn-out obligations Fair Value Measurements Summary | Item | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :------------------------------------------------- | :----------------------------- | :----------------------------- | | Non-COLI assets held in Deferred Supplemental Compensation Plan | $577 | $598 | | Interest rate swap agreements | $0 | $234 | | Earn-out obligation - short-term | $750 | $1,000 | | Earn-out obligation - long-term | $0 | $250 | - The company's interest rate swap agreements expired in February and March **2022**, resulting in a fair value of **$0** as of March 31, **2022**[64](index=64&type=chunk) - The earn-out obligation related to the Global Parts acquisition decreased from **$1.3 million** at December 31, 2021, to **$0.8 million** at March 31, 2022, due to reclassification and payments[65](index=65&type=chunk) [(9) Income Taxes](index=21&type=section&id=%289%29%20Income%20Taxes) This note explains the effective tax rate and factors influencing the income tax provision Income Taxes Summary | Metric | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :---------------- | :-------------------------------- | :-------------------------------- | | Effective tax rate | 24.8% | 22.2% | - The effective tax rate increased to **24.8%** in **Q1 2022** from **22.2%** in **Q1 2021**, primarily due to a book expense related to the fair market value decrease in the COLI plan and a significantly lower tax deduction for foreign derived intangible income (FDII) in **2022**[69](index=69&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations for the three months ended March 31, 2022, compared to the same period in 2021 It covers business overview, recent acquisitions, the impact of COVID-19, business trends by segment, detailed consolidated and segment operating results, bookings and backlog, and liquidity and capital resources, including cash flows, debt, and market risks [Business Overview](index=22&type=section&id=Business%20Overview) This section describes VSE Corporation's diversified aftermarket products and services business - VSE Corporation is a diversified aftermarket products and services company, offering repair, parts distribution, logistics, supply chain management, and consulting services for land, sea, and air transportation assets across government and commercial markets[71](index=71&type=chunk) - Operations are structured into three reportable segments: Aviation, Fleet, and Federal and Defense[72](index=72&type=chunk) [Recent Acquisitions](index=22&type=section&id=Recent%20Acquisitions) This section refers to detailed information on recent acquisition activities in the financial statement notes - Information on recent acquisitions is detailed in Note (2) to the Consolidated Financial Statements[73](index=73&type=chunk) [Impact of the COVID-19 Pandemic](index=22&type=section&id=Impact%20of%20the%20COVID-19%20Pandemic) This section discusses the ongoing effects of the COVID-19 pandemic on operations and financial performance - The company experienced continued improvement in operating results during **Q1 2022**, with all facilities remaining operational and no interruptions in product and service delivery[74](index=74&type=chunk) [Business Trends](index=22&type=section&id=Business%20Trends) This section analyzes key operational and market trends impacting each business segment's performance [Aviation Segment](index=22&type=section&id=Aviation%20Segment) This section highlights revenue improvements and market share gains within the Aviation segment - The Aviation segment saw continued revenue improvement due to market recovery and share gains in the business & general aviation (B&GA) market[76](index=76&type=chunk) - Distribution revenue increased by **172%** and repair revenue by **22%** year-over-year in **Q1 2022**, benefiting from the Global Parts acquisition and new contract wins[77](index=77&type=chunk) - Key distribution agreements were extended, securing multi-year contracts for stable, recurring revenue[78](index=78&type=chunk) [Fleet Segment](index=22&type=section&id=Fleet%20Segment) This section details revenue growth from commercial fleet customers and diversification efforts - The Fleet segment continues to grow revenue from commercial fleet customers and e-commerce fulfillment sales, with commercial revenue increasing approximately **93%** year-over-year in **Q1 2022**[79](index=79&type=chunk)[82](index=82&type=chunk) - Commercial revenues now represent **41.6%** of total Fleet segment revenue, up from **26.4%** in **2021**, reflecting successful diversification efforts beyond the USPS[82](index=82&type=chunk) [Federal and Defense Segment](index=24&type=section&id=Federal%20and%20Defense%20Segment) This section reviews revenue performance, contract awards, and bookings for the Federal and Defense segment - The Federal and Defense segment achieved strong revenue performance, particularly from U.S. Air Force work via the HSS acquisition, despite declines in U.S. Army work[83](index=83&type=chunk) - A new 12-month, **$100 million** contract was awarded by Naval Sea Systems Command (NAVSEA) for Foreign Military Sales (FMS) and Follow-on Technical Support (FOTS)[83](index=83&type=chunk) - Bookings increased by **$29.0 million**, or **46%**, in **Q1 2022**, supporting a stable outlook for federal contracting revenue[83](index=83&type=chunk) [Results of Operations](index=24&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's consolidated financial performance [Consolidated Results of Operations](index=24&type=section&id=Consolidated%20Results%20of%20Operations) This section summarizes the overall financial performance, including key revenue and income metrics Consolidated Results of Operations Summary | Metric | Q1 2022 (in thousands) | Q1 2021 (in thousands) | Change ($) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :--------- | :--------- | | Revenues | $231,239 | $164,981 | $66,258 | 40.2% | | Costs and operating expenses | $219,325 | $155,378 | $63,947 | 41.2% | | Operating income | $11,914 | $9,603 | $2,311 | 24.1% | | Net income | $6,244 | $5,111 | $1,133 | 22.2% | [Revenues](index=24&type=section&id=Revenues) This section analyzes the drivers behind consolidated revenue growth across all segments - Consolidated revenues increased by **$66.3 million** (**40.2%**) year-over-year, with growth across all segments: Aviation (**$48.9 million**), Fleet (**$12.3 million**), and Federal and Defense (**$5.1 million**)[84](index=84&type=chunk)[85](index=85&type=chunk) [Costs and Operating Expenses](index=24&type=section&id=Costs%20and%20Operating%20Expenses) This section discusses changes in costs and operating expenses in relation to revenue growth - Costs and operating expenses increased by **$63.9 million** (**41.2%**) in line with the increase in revenues and business activity[84](index=84&type=chunk)[86](index=86&type=chunk) [Operating Income](index=24&type=section&id=Operating%20Income) This section examines factors contributing to the increase in consolidated operating income - Operating income increased by **$2.3 million** (**24.1%**) year-over-year, driven by strong performance in Aviation (**$8.0 million** increase) and Fleet (**$0.6 million** increase), partially offset by a decrease in Federal and Defense (**$5.7 million** decrease)[84](index=84&type=chunk)[87](index=87&type=chunk) [Interest Expense](index=26&type=section&id=Interest%20Expense) This section explains changes in interest expense due to fluctuations in borrowing rates - Interest expense increased by **$0.6 million** (**19.1%**) due to higher average interest rates on outstanding borrowings[84](index=84&type=chunk)[88](index=88&type=chunk) [Provision for Income Taxes](index=26&type=section&id=Provision%20for%20Income%20Taxes) This section details the effective tax rate and factors influencing the income tax provision - The effective tax rate increased to **24.8%** in **Q1 2022** from **22.2%** in **Q1 2021**, primarily due to a book expense related to the fair market value decrease in the COLI plan and a significantly lower tax deduction for FDII[89](index=89&type=chunk) [Segment Operating Results](index=26&type=section&id=Segment%20Operating%20Results) This section provides a detailed breakdown of financial performance for each operating segment [Aviation Segment Results](index=26&type=section&id=Aviation%20Segment%20Results) This section analyzes significant revenue growth and improved operating income within the Aviation segment Aviation Segment Results Summary | Metric | Q1 2022 (in thousands) | Q1 2021 (in thousands) | Change ($) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :--------- | :--------- | | Revenues | $93,290 | $44,371 | $48,919 | 110% | | Operating income (loss) | $7,622 | $(332) | $7,954 | 2,396% | | Profit (loss) percentage | 8.2% | (0.7)% | | | - Aviation segment revenues surged by **110%** (**$48.9 million**) year-over-year, driven by **172%** distribution revenue growth from new contracts and the Global Parts acquisition, and **22%** repair revenue growth from market recovery[90](index=90&type=chunk) - The segment swung from an operating loss of **$(0.3) million** in **Q1 2021** to an operating income of **$7.6 million** in **Q1 2022**, reflecting significant revenue growth[90](index=90&type=chunk)[92](index=92&type=chunk) [Fleet Segment Results](index=26&type=section&id=Fleet%20Segment%20Results) This section reviews the revenue and operating income performance of the Fleet segment Fleet Segment Results Summary | Metric | Q1 2022 (in thousands) | Q1 2021 (in thousands) | Change ($) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :--------- | :--------- | | Revenues | $67,030 | $54,747 | $12,283 | 22% | | Operating income | $6,381 | $5,741 | $640 | 11% | | Profit percentage | 9.5% | 10.5% | | | - Fleet segment revenues increased by **22%** (**$12.3 million**) year-over-year, primarily due to a **92.9%** increase in commercial customer sales, driven by e-commerce fulfillment business growth, partially offset by decreased DoD sales[93](index=93&type=chunk) - Operating income grew by **11%** (**$0.6 million**) due to increased commercial customer revenues, despite a slight decrease in profit percentage[93](index=93&type=chunk)[95](index=95&type=chunk) [Federal and Defense Segment Results](index=28&type=section&id=Federal%20and%20Defense%20Segment%20Results) This section discusses revenue and operating income changes in the Federal and Defense segment Federal and Defense Segment Results Summary | Metric | Q1 2022 (in thousands) | Q1 2021 (in thousands) | Change ($) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :--------- | :--------- | | Revenues | $70,919 | $65,863 | $5,056 | 8% | | Operating income | $(688) | $5,025 | $(5,713) | (114)% | | Profit percentage | (1.0)% | 7.6% | | | - Federal and Defense segment revenues increased by **8%** (**$5.1 million**) year-over-year, driven by FMS program revenues with the U.S. Navy, partially offset by declines in U.S. Army work[96](index=96&type=chunk) - The segment reported an operating loss of **$(0.7) million** in **Q1 2022**, a significant decrease from **$5.0 million** operating income in **Q1 2021**, primarily due to a **$3.5 million** loss on a fixed-price, non-DoD contract caused by higher-than-anticipated supply chain costs[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk) [Bookings and Funded Backlog](index=28&type=section&id=Bookings%20and%20Funded%20Backlog) This section overviews new contract awards and the total funded backlog for the Federal and Defense segment - Bookings for the Federal and Defense segment increased by **46%** year-over-year to **$92 million** in **Q1 2022**[100](index=100&type=chunk) - Total funded backlog for the Federal and Defense segment increased by **5%** year-over-year to **$198 million** as of March 31, **2022**[100](index=100&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet financial obligations and fund operations [Liquidity](index=28&type=section&id=Liquidity) This section describes the company's available cash, credit facilities, and loan covenant compliance - Primary internal liquidity sources are operating activities, while external financing comes from a bank loan agreement expiring in July **2024**, with a maximum credit availability of **$350 million** for revolving loans and letters of credit[101](index=101&type=chunk)[102](index=102&type=chunk) - As of March 31, **2022**, the company had **$56.4 million** in term loan borrowings, **$249.4 million** in revolving loan borrowings, and **$1.0 million** in outstanding letters of credit, with approximately **$100 million** of unused bank loan commitments[102](index=102&type=chunk) - The company was in compliance with all loan agreement covenants as of March 31, **2022**, and expects to remain so over the next twelve months[103](index=103&type=chunk) [Cash Flows](index=29&type=section&id=Cash%20Flows) This section analyzes changes in cash flows from operating, investing, and financing activities Cash Flows Summary | Cash Flow Activity | Q1 2022 (in thousands) | Q1 2021 (in thousands) | | :--------------------------------- | :--------------------- | :--------------------- | | Net cash used in operating activities | $(18,174) | $(36,367) | | Net cash provided by (used in) investing activities | $1,393 | $(16,468) | | Net cash provided by financing activities | $16,761 | $52,804 | - Net cash used in operating activities decreased by **$18.2 million** year-over-year due to strong cash collections, lower inventory purchases, and favorable timing of vendor payments[104](index=104&type=chunk) - Investing activities shifted to a net cash inflow of **$1.4 million** from an outflow of **$16.5 million**, primarily due to the absence of the HSS acquisition payment made in the prior year[105](index=105&type=chunk) - Financing activities provided **$36.0 million** less cash year-over-year, mainly due to the public common stock offering in February **2021** and lower net debt borrowings in the current period[106](index=106&type=chunk) - Cash dividends of **$1.3 million** (**$0.10** per share) were paid in **Q1 2022**, subject to annual restrictions under the bank loan agreement[107](index=107&type=chunk)[125](index=125&type=chunk) [Other Obligations and Commitments](index=29&type=section&id=Other%20Obligations%20and%20Commitments) This section confirms no material changes to other financial obligations and commitments - There have been no material changes to other obligations and commitments since the **2021** Annual Report on Form 10-K[108](index=108&type=chunk) [Inflation and Pricing](index=29&type=section&id=Inflation%20and%20Pricing) This section addresses the impact of inflation and pricing strategies on financial performance - No material changes to inflation and pricing disclosures from the most recently filed Annual Report on Form 10-K[109](index=109&type=chunk) [Off-Balance Sheet Arrangements](index=30&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of material off-balance sheet arrangements - The company does not have any off-balance sheet arrangements that are reasonably likely to have a material effect on its financial condition or results of operations[111](index=111&type=chunk) [Disclosures About Market Risk](index=30&type=section&id=Disclosures%20About%20Market%20Risk) This section details the company's exposure to market risks, particularly interest rate fluctuations - The company is exposed to interest rate risk due to variable interest rates on its bank loan agreement As of March 31, **2022**, there is no portion of debt covered by interest rate swaps, as previous hedges expired[112](index=112&type=chunk) [Critical Accounting Policies, Estimates and Judgments](index=30&type=section&id=Critical%20Accounting%20Policies%2C%20Estimates%20and%20Judgments) This section confirms no significant changes to critical accounting policies and estimates - No significant changes in critical accounting estimates were made during **Q1 2022** from those disclosed in the **2021** Annual Report on Form 10-K[114](index=114&type=chunk) [Recently Issued Accounting Pronouncements](index=30&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) This section refers to the notes for details on recently adopted or issued accounting standards - Details on recently announced accounting standards are provided in Note (1) of the Notes to Unaudited Consolidated Financial Statements[115](index=115&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risks](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risks) This section refers to the 'Disclosures About Market Risk' within Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, for details on the company's exposure to market risks, particularly interest rate risk - Refer to 'Disclosures About Market Risk' in Item 2 for information on market risks[116](index=116&type=chunk) [Item 4. Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting during the quarter [Evaluation of Disclosure Controls and Procedures](index=30&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures as evaluated by management - As of March 31, **2022**, management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective[117](index=117&type=chunk) [Changes in Internal Control Over Financial Reporting](index=32&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section reports on any material changes to internal control over financial reporting - There have been no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[120](index=120&type=chunk) [PART II. Other Information](index=32&type=section&id=PART%20II.%20Other%20Information) This section covers legal proceedings, risk factors, equity sales, and a list of exhibits [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) This section states that there are no legal proceedings to report for the period - No legal proceedings to report[122](index=122&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) This section indicates that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 - No material changes to previously disclosed risk factors from the **2021** Form 10-K[123](index=123&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section confirms no equity security purchases and outlines dividend payment restrictions - The company did not purchase any of its equity securities during the period[124](index=124&type=chunk) - VSE's loan agreement restricts cash dividends to an aggregate of **$6 million** per fiscal year, provided no event of default or covenant breach occurs[125](index=125&type=chunk) [Item 6. Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report on Form 10-Q - The report includes various exhibits, such as Section 302 and 906 CEO/CFO certifications, and XBRL instance and taxonomy documents[127](index=127&type=chunk) [Signatures](index=34&type=section&id=Signatures) This section contains the official signatures of the company's authorized officers - The report was signed by John A. Cuomo, Director, Chief Executive Officer and President, and Stephen D. Griffin, Senior Vice President and Chief Financial Officer, on April 28, **2022**[131](index=131&type=chunk)

First Quarter 2022 Results Conference Call April 2022 Forward-Looking Statements This presentation 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 Exchange Act. All such statements are intended to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigat ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2021 ☐ 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: 000-3676 VSE CORPORATION (Exact Name of Registrant as Specified in its Charter) Delaware 54-0649263 (State or Other Jurisdictio ...