PART I. Financial Information This section presents unaudited consolidated financial statements and management's discussion and analysis Item 1. Financial Statements 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 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 million13 Unaudited Consolidated Statements of Income 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 $0.4915 Unaudited Consolidated Statements of Comprehensive Income 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 agreements17 Unaudited Consolidated Statements of Stockholders' Equity 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 declared19 Unaudited Consolidated Statements of Cash Flows 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 offering22 Notes to Unaudited Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the unaudited consolidated financial statements (1) Nature of Operations and Basis of Presentation 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 services25 - 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 combinations29 (2) Acquisitions 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 consideration30 - On March 1, 2021, VSE acquired HAECO Special Services, LLC for $14.8 million, integrating its operations into the Federal and Defense segment34 (3) Revenue 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 parts41 - 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 year42 (4) Debt 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 borrowings45 - 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 debt4647 (5) Earnings Per Share 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 calculation51 (6) Commitments and Contingencies 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 results52 - Government audits and investigations are ongoing, but the company believes their outcome will not materially affect its operations, financial condition, or cash flows53 (7) Business Segments and Customer Information 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)565758 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 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, 202264 - 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 payments65 (9) Income Taxes 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 202269 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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 markets71 - Operations are structured into three reportable segments: Aviation, Fleet, and Federal and Defense72 Recent Acquisitions 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 Statements73 Impact of the COVID-19 Pandemic 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 delivery74 Business Trends This section analyzes key operational and market trends impacting each business segment's performance Aviation Segment 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) market76 - 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 wins77 - Key distribution agreements were extended, securing multi-year contracts for stable, recurring revenue78 Fleet Segment 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 20227982 - Commercial revenues now represent 41.6% of total Fleet segment revenue, up from 26.4% in 2021, reflecting successful diversification efforts beyond the USPS82 Federal and Defense Segment 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 work83 - 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 - Bookings increased by $29.0 million, or 46%, in Q1 2022, supporting a stable outlook for federal contracting revenue83 Results of Operations This section provides a detailed analysis of the company's consolidated financial performance Consolidated Results of Operations This section summarizes the overall financial performance, including key revenue and income metrics Consolidated Results of Operations Summary | Metric | Q1 2022 (in thousands) | Q1 2021 (in thousands) | Change ($) | 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 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)8485 Costs and Operating Expenses 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 activity8486 Operating Income 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)8487 Interest Expense This section explains changes in interest expense due to fluctuations in borrowing rates - Interest expense increased by $0.6 million (19.1%) due to higher average interest rates on outstanding borrowings8488 Provision for Income Taxes This section details the effective tax rate and factors influencing the income tax provision - The effective tax rate increased to 24.8% in Q1 2022 from 22.2% in Q1 2021, primarily due to a book expense related to the fair market value decrease in the COLI plan and a significantly lower tax deduction for FDII89 Segment Operating Results This section provides a detailed breakdown of financial performance for each operating segment Aviation Segment Results This section analyzes significant revenue growth and improved operating income within the Aviation segment Aviation Segment Results Summary | Metric | Q1 2022 (in thousands) | Q1 2021 (in thousands) | Change ($) | 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 recovery90 - The segment swung from an operating loss of $(0.3) million in Q1 2021 to an operating income of $7.6 million in Q1 2022, reflecting significant revenue growth9092 Fleet Segment Results This section reviews the revenue and operating income performance of the Fleet segment Fleet Segment Results Summary | Metric | Q1 2022 (in thousands) | Q1 2021 (in thousands) | Change ($) | 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 sales93 - Operating income grew by 11% ($0.6 million) due to increased commercial customer revenues, despite a slight decrease in profit percentage9395 Federal and Defense Segment Results This section discusses revenue and operating income changes in the Federal and Defense segment Federal and Defense Segment Results Summary | Metric | Q1 2022 (in thousands) | Q1 2021 (in thousands) | Change ($) | 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 work96 - 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 costs969798 Bookings and Funded Backlog 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 2022100 - Total funded backlog for the Federal and Defense segment increased by 5% year-over-year to $198 million as of March 31, 2022100 Liquidity and Capital Resources This section assesses the company's ability to meet financial obligations and fund operations 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 credit101102 - 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 commitments102 - The company was in compliance with all loan agreement covenants as of March 31, 2022, and expects to remain so over the next twelve months103 Cash Flows 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 payments104 - 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 year105 - 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 period106 - Cash dividends of $1.3 million ($0.10 per share) were paid in Q1 2022, subject to annual restrictions under the bank loan agreement107125 Other Obligations and Commitments 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-K108 Inflation and Pricing 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-K109 Off-Balance Sheet Arrangements 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 operations111 Disclosures About Market Risk 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 expired112 Critical Accounting Policies, Estimates and Judgments 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-K114 Recently Issued Accounting Pronouncements 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 Statements115 Item 3. Quantitative and Qualitative Disclosures About Market Risks 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 risks116 Item 4. Controls and Procedures 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 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 effective117 Changes in Internal Control Over Financial Reporting 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 reporting120 PART II. Other Information This section covers legal proceedings, risk factors, equity sales, and a list of exhibits Item 1. Legal Proceedings This section states that there are no legal proceedings to report for the period - No legal proceedings to report122 Item 1A. Risk Factors 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-K123 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section confirms no equity security purchases and outlines dividend payment restrictions - The company did not purchase any of its equity securities during the period124 - VSE's loan agreement restricts cash dividends to an aggregate of $6 million per fiscal year, provided no event of default or covenant breach occurs125 Item 6. Exhibits 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 documents127 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, 2022131
VSE (VSEC) - 2022 Q1 - Quarterly Report