UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,September 30, 2022

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:  000-03676
vsec-20220930_g1.jpg
VSE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware54-0649263
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.)
6348 Walker Lane  
Alexandria,Virginia22310
(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, Including Area Code:  (703) 960-4600
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.05 per shareVSECThe NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes     No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes     No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transaction period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes     No

Number of shares of Common Stock outstanding as of April 22,October 21, 2022: 12,779,72912,799,678



 TABLE OF CONTENTS 
   
   
  Page
  
   
ITEM 1. 
   
 
   
 
   
 
   
 
   
 
   
ITEM 2.
   
ITEM 3.
   
ITEM 4.
   
  
   
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 6.
   
 
   


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Table of Contents
Forward-Looking Statements

This quarterly report on Form 10-Q (“Form 10-Q”) 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 Securities Exchange Act of 1934, as amended (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 Litigation Reform Act of 1995 and includes this statement for purposes of such safe harbor provisions.

“Forward-looking” statements, as such term is defined by the Securities Exchange Commission (the “SEC”) in its rules, regulations and releases, represent our expectations or beliefs, including, but not limited to, statements concerning our operations, economic performance, financial condition, the impact of widespread health developments, such as the ongoing COVID-19 outbreak, the health and economic impact thereof and the governmental, commercial, consumer and other responses thereto, growth and acquisition strategies, investments and future operational plans. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “forecast,” “seek,” “plan,” “predict,” “project,” “could,” “estimate,” “might,” “continue,” “seeking” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. These statements, by their nature, involve substantial risks and uncertainties, certain of which are beyond our control, and actual results may differ materially depending on a variety of important factors, including, but not limited to, those identified elsewhere in this document, including in Item 1A, Risk Factors, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 3, Quantitative and Qualitative Disclosures About Market Risk, as well as with respect to the risks described in Item 1A, Risk Factors, to our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on March 11, 2022 (“2021 Form 10-K"). All forward-looking statements made herein are qualified by these cautionary statements and risk factors and there can be no assurance that the actual results, events or developments referenced herein will occur or be realized.

Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that occur or arise after the date hereof.


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Table of Contents
PART I.  Financial Information

Item 1.    Financial Statements

VSE Corporation and Subsidiaries

Unaudited Consolidated Balance Sheets
(in thousands except share and per share amounts)
March 31,December 31,September 30,December 31,
2022202120222021
AssetsAssetsAssets
Current assets:Current assets:Current assets:
Cash and cash equivalentsCash and cash equivalents$498 $518 Cash and cash equivalents$90 $518 
Receivables (net of allowance of $1.6 million and $1.7 million, respectively)83,958 76,587 
Receivables (net of allowance of $3.4 million and $1.7 million, respectively)Receivables (net of allowance of $3.4 million and $1.7 million, respectively)91,093 76,587 
Unbilled receivablesUnbilled receivables31,211 31,882 Unbilled receivables44,084 31,882 
InventoriesInventories332,023 322,702 Inventories349,917 322,702 
Other current assetsOther current assets26,966 32,304 Other current assets28,154 32,304 
Total current assetsTotal current assets474,656 463,993 Total current assets513,338 463,993 
Property and equipment (net of accumulated depreciation of $68 million and $66 million, respectively)44,478 42,486 
Intangible assets (net of accumulated amortization of $124 million and $135 million, respectively)103,527 108,263 
Property and equipment (net of accumulated depreciation of $72 million and $66 million, respectively)Property and equipment (net of accumulated depreciation of $72 million and $66 million, respectively)44,564 42,486 
Intangible assets (net of accumulated amortization of $120 million and $135 million, respectively)Intangible assets (net of accumulated amortization of $120 million and $135 million, respectively)94,857 108,263 
GoodwillGoodwill248,837 248,753 Goodwill248,837 248,753 
Operating lease - right-of-use assetsOperating lease - right-of-use assets26,061 27,327 Operating lease - right-of-use assets23,950 27,327 
Other assetsOther assets23,413 27,736 Other assets31,980 27,736 
Total assetsTotal assets$920,972 $918,558 Total assets$957,526 $918,558 
Liabilities and Stockholders' equityLiabilities and Stockholders' equity  Liabilities and Stockholders' equity  
Current liabilities:Current liabilities:  Current liabilities:  
Current portion of long-term debtCurrent portion of long-term debt$14,162 $14,162 Current portion of long-term debt$9,162 $14,162 
Accounts payableAccounts payable94,923 115,064 Accounts payable119,093 115,064 
Accrued expenses and other current liabilitiesAccrued expenses and other current liabilities46,684 49,465 Accrued expenses and other current liabilities50,791 49,465 
Dividends payableDividends payable1,276 1,273 Dividends payable1,280 1,273 
Total current liabilitiesTotal current liabilities157,045 179,964 Total current liabilities180,326 179,964 
Long-term debt, less current portionLong-term debt, less current portion289,683 270,407 Long-term debt, less current portion288,531 270,407 
Deferred compensationDeferred compensation13,773 14,328 Deferred compensation10,128 14,328 
Long-term operating lease obligationsLong-term operating lease obligations26,336 27,168 Long-term operating lease obligations22,947 27,168 
Deferred tax liabilitiesDeferred tax liabilities10,343 9,108 Deferred tax liabilities10,166 9,108 
Other long-term liabilitiesOther long-term liabilities— 250 Other long-term liabilities— 250 
Total liabilitiesTotal liabilities497,180 501,225 Total liabilities512,098 501,225 
Commitments and contingencies (Note 6)Commitments and contingencies (Note 6)00Commitments and contingencies (Note 6)
Stockholders' equity:Stockholders' equity:  Stockholders' equity:  
Common stock, par value $0.05 per share, authorized 15,000,000 shares; issued and outstanding 12,768,983 and 12,726,659, respectively638 636 
Common stock, par value $0.05 per share, authorized 23,000,000 shares; issued and outstanding 12,799,678 and 12,726,659, respectivelyCommon stock, par value $0.05 per share, authorized 23,000,000 shares; issued and outstanding 12,799,678 and 12,726,659, respectively640 636 
Additional paid-in capitalAdditional paid-in capital89,830 88,515 Additional paid-in capital91,706 88,515 
Retained earningsRetained earnings333,324 328,358 Retained earnings347,730 328,358 
Accumulated other comprehensive loss— (176)
Accumulated other comprehensive income (loss)Accumulated other comprehensive income (loss)5,352 (176)
Total stockholders' equityTotal stockholders' equity423,792 417,333 Total stockholders' equity445,428 417,333 
Total liabilities and stockholders' equityTotal liabilities and stockholders' equity$920,972 $918,558 Total liabilities and stockholders' equity$957,526 $918,558 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Table of Contents
VSE Corporation and Subsidiaries

Unaudited Consolidated Statements of Income
(in thousands except share and per share amounts)
 For the three months ended March 31,
 20222021
Revenues:
Products$137,231 $78,580 
Services94,008 86,401 
Total revenues231,239 164,981 
Costs and operating expenses:  
Products122,455 70,712 
Services91,228 80,340 
Selling, general and administrative expenses906 38 
Amortization of intangible assets4,736 4,288 
Total costs and operating expenses219,325 155,378 
Operating income11,914 9,603 
Interest expense, net3,609 3,030 
Income before income taxes8,305 6,573 
Provision for income taxes2,061 1,462 
Net income$6,244 $5,111 
Basic earnings per share$0.49 $0.42 
Basic weighted average shares outstanding12,741,394 12,076,509 
Diluted earnings per share$0.49 $0.42 
Diluted weighted average shares outstanding12,803,279 12,171,828 
Dividends declared per share$0.10 $0.09 

 For the three months ended September 30,For the nine months ended September 30,
 2022202120222021
Revenues:
Products$138,216 $113,005 $419,023 $276,048 
Services104,271 87,577 296,416 264,627 
Total revenues242,487 200,582 715,439 540,675 
Costs and operating expenses:    
Products123,348 101,044 376,781 273,081 
Services96,653 79,916 279,163 241,104 
Selling, general and administrative expenses981 809 2,752 1,897 
Amortization of intangible assets4,233 4,921 13,406 13,812 
Total costs and operating expenses225,215 186,690 672,102 529,894 
Operating income17,272 13,892 43,337 10,781 
Interest expense, net4,818 2,780 12,299 8,476 
Income before income taxes12,454 11,112 31,038 2,305 
Provision for income taxes3,035 2,091 7,827 539 
Net income$9,419 $9,021 $23,211 $1,766 
Basic earnings per share$0.74 $0.71 $1.82 $0.14 
Basic weighted average shares outstanding12,797,727 12,704,165 12,772,731 12,496,646 
Diluted earnings per share$0.73 $0.71 $1.81 $0.14 
Diluted weighted average shares outstanding12,834,084 12,774,636 12,816,319 12,573,076 
Dividends declared per share$0.10 $0.09 $0.30 $0.27 












The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Table of Contents
VSE Corporation and Subsidiaries
Unaudited Consolidated Statements of Comprehensive Income
(in thousands)
 For the three months ended March 31,
 20222021
Net income$6,244 $5,111 
Change in fair value of interest rate swap agreements, net of tax176 511 
Other comprehensive income, net of tax176 511 
Comprehensive income$6,420 $5,622 

 For the three months ended September 30,For the nine months ended September 30,
 2022202120222021
Net income$9,419 $9,021 $23,211 $1,766 
Change in fair value of interest rate swap agreements, net of tax5,352 173 5,528 836 
Other comprehensive income, net of tax5,352 173 5,528 836 
Comprehensive income$14,771 $9,194 $28,739 $2,602 









































The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Table of Contents
VSE Corporation and Subsidiaries

Unaudited Consolidated Statements of Stockholders' Equity
(in thousands except per share data)

Three months ended March 31, 2022
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Equity
 Common Stock
 SharesAmount
Balance at December 31, 202112,727 $636 $88,515 $328,358 $(176)$417,333 
Net income— — — 6,244 — 6,244 
Stock-based compensation42 1,315 — — 1,317 
Other comprehensive income, net of tax— — — — 176 176 
Dividends declared ($0.10 per share)— — — (1,278)— (1,278)
Balance at March 31, 202212,769 $638 $89,830 $333,324 $— $423,792 

Three months ended September 30, 2022
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Total
Stockholders'
Equity
 Common Stock
 SharesAmount
Balance at June 30, 202212,795 $640 $91,051 $339,592 $— $431,283 
Net income— — — 9,419 — 9,419 
Stock-based compensation— 655 — — 655 
Other comprehensive income, net of tax— — — — 5,352 5,352 
Dividends declared ($0.10 per share)— — — (1,281)— (1,281)
Balance at September 30, 202212,800 $640 $91,706 $347,730 $5,352 $445,428 

Three months ended March 31, 2021
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Equity
 Common Stock
 SharesAmount
Balance at December 31, 202011,055 $553 $31,870 $325,097 $(1,203)$356,317 
Issuance of common stock1,599 80 51,937 52,017 
Net income— — — 5,111 — 5,111 
Stock-based compensation37 1,489 — — 1,491 
Other comprehensive income, net of tax— — — — 511 511 
Dividends declared ($0.09 per share)— — — (1,144)— (1,144)
Balance at March 31, 202112,691 $635 $85,296 $329,064 $(692)$414,303 

Three months ended September 30, 2021
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Equity
 Common Stock
 SharesAmount
Balance at June 30, 202112,704 $635 $85,844 $315,555 $(540)$401,494 
Net income— — — 9,021 — 9,021 
Stock-based compensation— — 1,478 — — 1,478 
Other comprehensive income, net of tax— — — — 173 173 
Dividends declared ($0.09 per share)— — — (1,145)— (1,145)
Balance at September 30, 202112,704 $635 $87,322 $323,431 $(367)$411,021 



























The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Table of Contents
VSE Corporation and Subsidiaries

Unaudited Consolidated Statements of Cash FlowsStockholders' Equity (continued)
(in thousands)thousands except per share data)
For the three months ended March 31,
 20222021
Cash flows from operating activities:
Net income$6,244 $5,111 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization6,547 5,944 
Deferred taxes1,177 1,457 
Stock-based compensation1,308 1,415 
  Changes in operating assets and liabilities, net of impact of acquisitions:  
Receivables(7,371)(2,787)
Unbilled receivables671 (17,341)
Inventories(9,321)(28,910)
Other current assets and noncurrent assets6,158 (10,306)
Accounts payable and deferred compensation(20,997)1,051 
Accrued expenses and other current and noncurrent liabilities(2,590)7,999 
Net cash used in operating activities(18,174)(36,367)
Cash flows from investing activities:  
Purchases of property and equipment(1,269)(2,109)
Proceeds from the sale of property and equipment— 14 
Proceeds from payments on notes receivable2,662 412 
Cash paid for acquisitions, net of cash acquired— (14,785)
Net cash provided by (used in) investing activities1,393 (16,468)
Cash flows from financing activities:  
Borrowings on loan agreement112,071 146,431 
Repayments on loan agreement(93,005)(144,257)
Proceeds from issuance of common stock, net of underwriters' discounts and issuance costs— 52,017 
Earn-out obligation payments(500)— 
Payments of taxes for equity transactions(530)(390)
Dividends paid(1,275)(997)
Net cash provided by financing activities16,761 52,804 
Net decreases in cash and cash equivalents(20)(31)
Cash and cash equivalents at beginning of period518 378 
Cash and cash equivalents at end of period$498 $347 


Nine months ended September 30, 2022
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders'
Equity
 Common Stock
 SharesAmount
Balance at December 31, 202112,727 $636 $88,515 $328,358 $(176)$417,333 
Net income— — — 23,211 — 23,211 
Stock-based compensation73 3,191 — — 3,195 
Other comprehensive income, net of tax— — — — 5,528 5,528 
Dividends declared ($0.30 per share)— — — (3,839)— (3,839)
Balance at September 30, 202212,800 $640 $91,706 $347,730 $5,352 $445,428 


Nine months ended September 30, 2021
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Equity
 Common Stock
 SharesAmount
Balance at December 31, 202011,055 $553 $31,870 $325,097 $(1,203)$356,317 
Issuance of common stock1,599 80 51,937 — — 52,017 
Net income— — — 1,766 — 1,766 
Stock-based compensation50 3,515 — — 3,517 
Other comprehensive income, net of tax— — — — 836 836 
Dividends declared ($0.27 per share)— — — (3,432)— (3,432)
Balance at September 30, 202112,704 $635 $87,322 $323,431 $(367)$411,021 


























The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Table of Contents
VSE Corporation and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
(in thousands)

For the nine months ended September 30,
 20222021
Cash flows from operating activities:
Net income$23,211 $1,766 
Adjustments to reconcile net income to net cash used in operating activities:  
Depreciation and amortization19,277 18,996 
Deferred taxes(779)(4,803)
Stock-based compensation3,597 2,968 
Inventory valuation adjustment1,094 24,420 
Loss on sale of PPE— (48)
  Changes in operating assets and liabilities, net of impact of acquisitions:  
Receivables(14,506)(9,321)
Unbilled receivables(12,202)(4,484)
Inventories(28,309)(66,518)
Other current assets and noncurrent assets6,189 (18,912)
Accounts payable and deferred compensation(171)17,955 
Accrued expenses and other current and noncurrent liabilities(1,607)7,458 
Net cash used in operating activities(4,206)(30,523)
Cash flows from investing activities:  
Purchases of property and equipment(7,416)(7,606)
Proceeds from the sale of property and equipment— 199 
Proceeds from payments on notes receivable4,235 1,550 
Earn-out obligation payments— (750)
Cash paid for acquisitions, net of cash acquired— (53,232)
Net cash used in investing activities(3,181)(59,839)
Cash flows from financing activities:  
Borrowings on loan agreement358,051 394,079 
Repayments on loan agreement(345,554)(350,956)
Proceeds from issuance of common stock486 52,017 
Earn-out obligation payments(1,250)(808)
Payments of taxes for equity transactions(942)(681)
Dividends paid(3,832)(3,284)
Net cash provided by financing activities6,959 90,367 
Net (decrease) increase in cash and cash equivalents(428)
Cash and cash equivalents at beginning of period518 378 
Cash and cash equivalents at end of period$90 $383 
Supplemental disclosure of noncash investing and financing activities:
Earn-out obligation in connection with acquisitions$— $1,250 



The accompanying notes are an integral part of these unaudited consolidated financial statements.
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VSE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
Table of Contents


(1) Nature of Operations and Basis of Presentation

Nature of Operations

VSE Corporation (“VSE,” the “Company,” “we,” “us,” or “our”) is a diversified aftermarket products and services company providing repair services, parts distribution, logistics, supply chain management and consulting services for land, sea and air transportation assets to commercial and government markets. OurWe conduct our operations are conducted under three reporting units aligned with our operating segments: (1) Aviation; (2) Fleet; and (3) Federal and Defense.

In February 2021, we completed the issuance and sale of 1,428,600 shares of the Company's common stock, in a public offering at a price of $35.00 per share. The underwriters exercised their option to purchase an additional 170,497 shares. The transaction closed on February 2, 2021. We received net proceeds of approximately $52 million after deducting underwriting discounts, commissions and offering related expenses, which were used for general corporate purposes, including financing strategic acquisitions and working capital requirements for new program launches.

Basis of Presentation

Our accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and in accordance with the instructions to SEC Form 10-Q and Article 10 of SEC Regulation S-X. Therefore, such financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 ("2021 Form 10-K"). In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended March 31,September 30, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022. 

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates affecting the financial statements include fair value measurements, inventory provisions, collectability of receivables, estimated profitability of long-term contracts, valuation allowances on deferred tax assets, fair value of goodwill and other intangible assets and contingencies.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers," which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, "Revenue from Contracts with Customers," as if the acquirer had originated the contracts. The new standard is effective on a prospective basis for fiscal years and interim reporting periods within those fiscal years beginning after December 15, 2022, with early adoption permitted. We elected to early adopt this standard during the first quarter 2022 and will apply the guidance prospectively to business combinations entered into subsequent to adoption.


(2) Acquisitions

Global Parts Group, Inc.

On July 26, 2021, we acquired Global Parts Group, Inc. ("Global Parts") for a preliminary purchase price of $40 million, net of cash acquired. The preliminary purchase price includes $2 million of contingent consideration, representing the fair value recognized for potential future earn-out payments. During the third quarter of fiscal 2022, we settled the final payment of the obligation. See Note (8) "Fair
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VSE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
Table of Contents

recognized for potential future earn-out payments. See Note (8) "Fair Value Measurements," for additional information regarding the earn-out obligation. Global Parts operating results are included in our Aviation segment.

During the three and nine months ended September 30, 2021, we incurred $0.3 million and $0.5 million, respectively, of acquisition-related expenses, which are included in selling, general and administrative expenses.

HAECO Special Services, LLC

On March 1, 2021, we acquired HAECO Special Services, LLC ("HSS") from HAECO Airframe Services, LLC, a division of HAECO Americas ("HAECO") for the purchase price of $14.8 million. HSS operating results are included in our Federal and Defense segment. The acquisition was not material to our consolidated financial statements.

During the threenine months ended March 31,September 30, 2021, we incurred $0.3 million of acquisition-related expenses, which are included in selling, general and administrative expenses.


(3) Revenue

Disaggregation of Revenues
Our revenues are derived from the delivery of products to our customers and from services performed for commercial customers, various government agencies, the United States Department of Defense ("DoD") or federal civilian agencies.

Revenues by customer for our each of our operating segments for the three and nine months ended March 31,September 30, 2022 were as follows (in thousands):
Three months ended September 30, 2022
AviationFleetFederal and DefenseTotal
Commercial$101,735 $25,394 $129 $127,258 
DoD— 183 60,550 60,733 
Other government890 39,177 14,429 54,496 
     Total$102,625 $64,754 $75,108 $242,487 

Nine months ended September 30, 2022
AviationFleetFederal and DefenseTotal
Commercial$296,996 $79,257 $387 $376,640 
DoD— 3,176 170,205 173,381 
Other government3,938 114,093 47,387 165,418 
     Total$300,934 $196,526 $217,979 $715,439 

Revenues by customer for each of our operating segments for the three and nine months ended September 30, 2021 were as follows (in thousands):
Three months ended March 31, 2022
AviationFleetFederal and DefenseTotal
Commercial$91,912 $27,856 $92 $119,860 
DoD— 1,729 50,395 52,124 
Other government1,378 37,445 20,432 59,255 
     Total$93,290 $67,030 $70,919 $231,239 

Three months ended March 31, 2021
AviationFleetFederal and DefenseTotal
Commercial$44,346 $14,437 $318 $59,101 
DoD— 3,102 42,786 45,888 
Other government25 37,208 22,759 59,992 
     Total$44,371 $54,747 $65,863 $164,981 

Three months ended September 30, 2021
AviationFleetFederal and DefenseTotal
Commercial$72,542 $20,690 $931 $94,163 
DoD— 2,739 58,123 60,862 
Other government582 36,839 8,136 45,557 
     Total$73,124 $60,268 $67,190 $200,582 

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Nine months ended September 30, 2021
AviationFleetFederal and DefenseTotal
Commercial$164,353 $52,757 $1,434 $218,544 
DoD— 10,517 162,984 173,501 
Other government657 109,798 38,175 148,630 
     Total$165,010 $173,072 $202,593 $540,675 

Revenues by type for our each of our operating segments for the three and nine months ended March 31,September 30, 2022 were as follows (in thousands):
Three months ended September 30, 2022
AviationFleetFederal and DefenseTotal
Repair$28,979 $— $— $28,979 
Distribution73,646 64,754 — 138,400 
Cost Plus Contract— — 40,158 40,158 
Fixed Price Contract— — 18,430 18,430 
T&M Contract— — 16,520 16,520 
     Total$102,625 $64,754 $75,108 $242,487 

Nine months ended September 30, 2022
AviationFleetFederal and DefenseTotal
Repair$77,308 $— $— $77,308 
Distribution223,626 196,526 — 420,152 
Cost Plus Contract— — 105,290 105,290 
Fixed Price Contract— — 59,069 59,069 
T&M Contract— — 53,620 53,620 
     Total$300,934 $196,526 $217,979 $715,439 

Revenues by type for each of our operating segments for the three and nine months ended September 30, 2021 were as follows (in thousands):
Three months ended March 31, 2022Three months ended September 30, 2021
AviationFleetFederal and DefenseTotalAviationFleetFederal and DefenseTotal
RepairRepair$22,363 $— $— $22,363 Repair$18,714 $— $— $18,714 
DistributionDistribution70,927 67,030 — 137,957 Distribution54,410 60,268 — 114,678 
Cost Plus ContractCost Plus Contract— — 30,577 30,577 Cost Plus Contract— — 26,775 26,775 
Fixed Price ContractFixed Price Contract— — 18,361 18,361 Fixed Price Contract— — 25,729 25,729 
T&M ContractT&M Contract— — 21,981 21,981 T&M Contract— — 14,686 14,686 
Total Total$93,290 $67,030 $70,919 $231,239  Total$73,124 $60,268 $67,190 $200,582 

Three months ended March 31, 2021
AviationFleetFederal and DefenseTotal
Repair$18,316 $— $— $18,316 
Distribution26,055 54,747 — 80,802 
Cost Plus Contract— — 16,551 16,551 
Fixed Price Contract— — 23,931 23,931 
T&M Contract— — 25,381 25,381 
     Total$44,371 $54,747 $65,863 $164,981 
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Nine months ended September 30, 2021
AviationFleetFederal and DefenseTotal
Repair$56,051 $— $— $56,051 
Distribution108,959 173,072 — 282,031 
Cost Plus Contract— — 65,139 65,139 
Fixed Price Contract— — 82,090 82,090 
T&M Contract— — 55,364 55,364 
     Total$165,010 $173,072 $202,593 $540,675 

Contract Balances

Unbilled receivables (contract assets) represent our right to consideration in exchange for goods or services that we have transferred to the customer prior to us having the right to payment for such goods or services. Contract liabilities are recorded when customers remit contractual cash payments in advance of us satisfying related performance obligations under contractual arrangements, including those with performance obligations to be satisfied over a period of time.
We present our unbilled receivables and contract liabilities on a contract-by-contract basis. If a contract liability exists, it is netted against the unbilled receivables balance for that contract. Unbilled receivables were $31.2$44.1 million as of March 31,September 30, 2022 and $31.9 million as of December 31, 2021. Contract liabilities, which are included in accrued expenses and other current liabilities in our consolidated balance sheets, were $7.4$7.7 million as of March 31,September 30, 2022 and $7.1 million as of December 31, 2021. For the threenine months ended March 31,September 30, 2022 and 2021, we recognized revenue that was previously included in the beginning balance of contract liabilities of $2.1 million and $0.9 million, respectively.$2.7 million.

Performance Obligations

Our performance obligations are satisfied either at a point in time or over time as work progresses. Revenues from products and services transferred to customers at a point in time accounted for approximately 60% and 49% of our revenues for the three months ended March 31, 2022 and 2021, respectively,are primarily related to the salesales of vehicle and aircraft parts in our Fleet and Aviation segments. Revenues from products and services transferred to customers overat a point in time accounted for approximately 40%57% and 51%59% of our revenues for the three and nine months ended March 31,September 30, 2022, respectively, and approximately 57% and 52% for the three and nine months ended September 30, 2021, respectively,respectively. Revenues from products and services transferred to customers over time are primarily related to revenues in our Federal and Defense segment and MRO services in our Aviation segment. Revenues from products and services transferred to customers over time accounted for approximately 43% and 41% of our revenues for the three and nine months ended September 30, 2022, respectively, and 43% and 48% of our revenues for the three and nine months ended September 30, 2021, respectively.

As of March 31,September 30, 2022, the aggregate amount of transaction prices allocated to unsatisfied or partially unsatisfied performance obligations was $198$199 million. The performance obligations expected to be satisfied within one year and greater than one year are 92%96% and 8%4%, respectively. We have applied the practical expedient for certain parts sales and MRO services to exclude the amount of remaining performance obligations for (i) contracts with an original expected term of one year or less or (ii) contracts for which we recognize revenue in proportion to the amount we have the right to invoice for services performed.

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During the threenine months ended March 31,September 30, 2022 and 2021, revenue recognized from performance obligations satisfied in prior periods was not material.










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(4) Debt

Long-term debt consisted of the following (in thousands):
March 31,December 31,September 30,December 31,
20222021 20222021
Bank credit facility - term loanBank credit facility - term loan$56,425 $60,175 Bank credit facility - term loan$48,925 $60,175 
Bank credit facility - revolver loansBank credit facility - revolver loans249,375 226,559 Bank credit facility - revolver loans250,305 226,559 
Principal amount of long-term debtPrincipal amount of long-term debt305,800 286,734 Principal amount of long-term debt299,230 286,734 
Less debt issuance costsLess debt issuance costs(1,955)(2,165)Less debt issuance costs(1,537)(2,165)
Total long-term debtTotal long-term debt303,845 284,569 Total long-term debt297,693 284,569 
Less current portionLess current portion(14,162)(14,162)Less current portion(9,162)(14,162)
Long-term debt, less current portionLong-term debt, less current portion$289,683 $270,407 Long-term debt, less current portion$288,531 $270,407 

We had letters of credit outstanding totaling $1.2 million and $1.0 million as of March 31,September 30, 2022 and December 31, 2021.2021, respectively.

We pay interest on the term and revolving loan borrowings at LIBOR plus a base margin or at a base rate (typically the prime rate) plus a base margin. As of March 31,September 30, 2022, the LIBOR margin was 2.25% and the base margin was 3.50%6.25%. The margins increase or decrease in increments as our Total Funded Debt/EBITDA Ratio increases or decreases. As of March 31,September 30, 2022, interest rates on our outstanding debt ranged from 4.00%6.13% to 5.75%8.50%, and the effective interest rate on our aggregate outstanding debt was 4.09%6.42%.

Interest expense incurred on bank loan borrowings, andinclusive of the effect of interest rate hedges, was $3.4$4.6 million and $2.7 million for the three months ended March 31,September 30, 2022 and 2021, respectively. As of March 31,respectively, and $11.7 million and $7.9 million for the nine months ended September 30, 2022 there was no hedged portion of our debt as our 2 remaining hedges expired in February and March of 2022. As of December 31, 2021, the portion of our debt with interest rate swap agreements was $75 million.respectively.

Our required term and revolver loan principal payments after March 31,as of September 30, 2022 are as follows (in thousands):
Year EndingYear EndingTerm LoanRevolver LoanTotalYear EndingTerm LoanRevolver LoanTotal
Remainder of 2022Remainder of 2022$11,250 $— $11,250 Remainder of 2022$3,750 $— $3,750 
2023202315,000 — 15,000 202315,000 — 15,000 
2024202430,175 249,375 279,550 202430,175 250,305 280,480 
Total Total$56,425 $249,375 $305,800  Total$48,925 $250,305 $299,230 

We were in compliance with required ratios and other terms and conditions under our loan agreement as of March 31,September 30, 2022.

Subsequent Event

On October 7, 2022, we entered into a fourth amendment to our loan agreement which, among other things, (i) extended the maturity date from July 23, 2024 to October 7, 2025; (ii) reset the aggregate principal amount of the term loan to $100.0 million, (iii) modified the quarterly amortization payments on the term loan from $3.75 million to $2.50 million, (iv) increased the maximum Total Funded Debt to EBITDA Ratio from 4.25x to 4.50x, with such ratios decreasing thereafter, (v) changed the benchmark rate from LIBOR to Secured Overnight Financing Rate (SOFR) with a SOFR floor of 0.00%; and (vi) modified pricing to account for the change from LIBOR to SOFR.

After the amendment, our scheduled term loan payments are approximately $2.5 million for the remainder of 2022, $10.0 million in 2023, $10.0 million in 2024 and $77.5 million in 2025. We have classified the current portion of long-term debt in our consolidated balance sheets as of September 30, 2022 based on the amended amortization payment terms.




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September 30, 2022
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(5) Earnings Per Share

Basic earnings per share ("EPS") is computed by dividing net income by the weighted average number of shares of common stock outstanding during each period. Shares issued during the period are weighted for the portion of the period that they were outstanding. Our calculation of diluted earnings per common share includes the dilutive effects for the assumed vesting of outstanding stock-based awards. There were no antidilutiveAntidilutive common stock equivalents excluded from the diluted earnings per share calculation.calculation for the three and nine month ended September 30, 2022 and 2021 were not material.




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March 31, 2022
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The weighted-average number of shares outstanding used to compute basic and diluted EPS were as follows:
Three months ended March 31,Three months ended September 30,Nine months ended September 30,
20222021 2022202120222021
Basic weighted average common shares outstandingBasic weighted average common shares outstanding12,741,394 12,076,509 Basic weighted average common shares outstanding12,797,727 12,704,165 12,772,731 12,496,646 
Effect of dilutive sharesEffect of dilutive shares61,885 95,319 Effect of dilutive shares36,357 70,471 43,588 76,430 
Diluted weighted average common shares outstandingDiluted weighted average common shares outstanding12,803,279 12,171,828 Diluted weighted average common shares outstanding12,834,084 12,774,636 12,816,319 12,573,076 


(6) Commitments and Contingencies

Contingencies

We may have certainare involved in various claims and lawsuits arising in the normal courseconduct of its business, including legal proceedings, against us and against other parties. In our opinion, the resolutionnone of these claims will notwhich we believe, based on current information, is expected to have a material adverse effect on our financial position, results of operations financial position or cash flows. However, because the results of any legal proceedings cannot be predicted with certainty, the amount of loss, if any, cannot be reasonably estimated.

Further, from time-to-time, government agencies audit or investigate whether our operations are being conducted in accordance with applicable contractual and regulatory requirements. Government audits or investigations of us, whether relating to government contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including repayments, fines or penalties being imposed upon us, or could lead to suspension or debarment from future government contracting. Government investigations often take years to complete and many result in no adverse action against us. We believe, based upon current information, that the outcome of any such government disputes, audits and investigations will not have a material adverse effect on our results of operations, financial condition or cash flows.


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March 31, 2022
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(7) Business Segments and Customer Information

Business Segments

Management of our business operations is conducted under 3three reportable operating segments:

Aviation
Our Aviation segment provides aftermarket repair and distribution services to commercial, business and general aviation, cargo, military and defense, and rotorcraft customers globally. Core services include parts distribution, engine accessory maintenance, MRO services, rotable exchange and supply chain services.

Fleet
Our Fleet segment provides parts, inventory management, e-commerce fulfillment, logistics, supply chain support and other services to support the commercial aftermarket medium- and heavy-duty truck market, the United States Postal Service ("USPS"), and the DoD. Core services include vehicle parts distribution, sourcing, IT solutions, customized fleet logistics, warehousing, kitting, just-in-time supply chain management, alternative product sourcing, and engineering and technical support.





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Federal and Defense

Our Federal and Defense segment provides aftermarket MRO and logistics services to improve operational readiness and extend the life cycle of military vehicles, ships and aircraft for the DoD, federal agencies and international defense customers. Core services include procurement; supply chain management; vehicle, maritime and aircraft sustainment services; base operations support; IT services and energy consulting.

We evaluate segment performance based on consolidated revenues and operating income. Net sales of our business segments exclude inter-segment sales as these activities are eliminated in consolidation. Corporate expenses are primarily selling, general and administrative expenses not allocated to segments. Our segment information is as follows (in thousands):

 Three months ended March 31,
 20222021
Revenues:
Aviation$93,290 $44,371 
Fleet67,030 54,747 
Federal and Defense70,919 65,863 
Total revenues$231,239 $164,981 
Operating income (loss):  
Aviation$7,622 $(332)
Fleet6,381 5,741 
Federal and Defense(688)5,025 
Corporate/unallocated expenses(1,401)(831)
Operating income$11,914 $9,603 










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Customer Information

The USPS and U.S. Navy are our largest customers. Our customers also include various other commercial entities and government agencies. Our revenue by customer is as follows (in thousands):
 Three months ended March 31,
Customer2022%2021%
Commercial$119,860 52 $59,101 36 
DoD52,124 22 45,888 28 
Other government59,255 26 59,992 36 
     Total$231,239 100 $164,981 100 
 Three months ended September 30,Nine months ended September 30,
 2022202120222021
Revenues:
Aviation$102,625 $73,124 $300,934 $165,010 
Fleet64,754 60,268 196,526 173,072 
Federal and Defense75,108 67,190 217,979 202,593 
Total revenues$242,487 $200,582 $715,439 $540,675 
Operating income (loss):    
Aviation$10,017 $3,719 $24,089 $(18,885)
Fleet6,539 5,387 18,286 15,128 
Federal and Defense1,939 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

The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis as of March 31,September 30, 2022 and December 31, 2021 and the level they fall within the fair value hierarchy (in thousands):
Amounts Recorded at Fair ValueAmounts Recorded at Fair ValueFinancial Statement ClassificationFair Value HierarchyFair Value March 31, 2022Fair Value December 31, 2021Amounts Recorded at Fair ValueFinancial Statement ClassificationFair Value HierarchyFair Value September 30, 2022Fair Value December 31, 2021
Non-COLI assets held in Deferred Supplemental Compensation PlanNon-COLI assets held in Deferred Supplemental Compensation PlanOther assetsLevel 1$577 $598 Non-COLI assets held in Deferred Supplemental Compensation PlanOther assetsLevel 1$515 $598 
Interest rate swap agreementsAccrued expenses and other current liabilitiesLevel 2$— $234 
Interest rate swapsInterest rate swapsOther assetsLevel 2$7,131 $— 
Interest rate swapsInterest rate swapsAccrued expenses and other current liabilitiesLevel 2$— $234 
Earn-out obligation - short-termEarn-out obligation - short-termAccrued expenses and other current liabilitiesLevel 3$750 $1,000 Earn-out obligation - short-termAccrued expenses and other current liabilitiesLevel 3$— $1,000 
Earn-out obligation - long-termEarn-out obligation - long-termOther long-term liabilitiesLevel 3$— $250 Earn-out obligation - long-termOther long-term liabilitiesLevel 3$— $250 

Non-Company Owned Life Insurance ("COLI")

Non-COLI assets held in our deferred supplemental compensationcompensation plan consist of equity funds with fair value based on observable inputs such as quoted prices for identical assets in active markets and changes in fair value are recorded as selling, general and administrative expenses.

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Interest Rate Swap Derivatives

On July 22, 2022, we executed two SOFR-based forward-starting fixed interest rate swaps with a fixed rate of 2.8% that hedge the variability in interest payments of $150 million of floating rate debt. The tenor of these five-year swaps will begin on October 31, 2022. We have designated, and will account for, these fixed interest rate swaps as cash flow hedges. As of September 30, 2022, we had $5.4 million. net of an income tax effect of $1.8 million, included in accumulated other comprehensive income in the accompanying balance sheets related to these cash flow hedges. We estimate that we will reclassify $2.0 million of unrealized gains from accumulated other comprehensive income into earnings in the twelve months following September 30, 2022.

We were a party to two fixed interest rate swap agreementsswaps, entered into in fiscal 2011 and 2012, qualifying as cash flow hedges under which we hedged a portion of our variable-rate debt until the agreementsswaps expired in February and March 2022. As of December 31, 2021, the fair value of such swap agreementsswaps was $0.2 million, a liability recorded in accrued expenses and other current liabilities in our consolidated balance sheets. As of December 31, 2021, we had $0.2 million, net of an income tax effect of $58 thousand, included in accumulated other comprehensive income in the accompanying balance sheets related to the cash flow hedges. The amounts paid and received on the swap agreementsswaps are recorded in interest expense in the period during which the related floating-rate interest is incurred.

Contingent Consideration

In connection with the acquisition of Global Parts in July 2021, we may bewere required to pay earn-out obligation payments of up to $2.0 million should Global Parts meet certain financial targets during the twelve months following the acquisition and meet a certain milestone event on or before March 2023. Final settlement of the obligation was made during the three months ended September 30, 2022. Changes in the earn-out obligation measured at fair value on a recurring basis using unobservable inputs (Level 3) for the threenine months ended March 31,September 30, 2022 are as follows (in thousands):
Current portionLong-term portionTotal
Balance as of December 31, 2021$1,000 $250 $1,250 
Reclassification from long-term to current250 (250)— 
Earn-out payments(500)— (500)
Balance as of March 31, 2022$750 $— $750 
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Current portionLong-term portionTotal
Balance as of December 31, 2021$1,000 $250 $1,250 
Reclassification from long-term to current250 (250)— 
Earn-out payments(1,250)— (1,250)
Balance as of September 30, 2022$— $— $— 
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
Table of ContentsOther Financial Instruments

The carrying amounts of cash and cash equivalents, receivables, accounts payable and amounts included in other current assets and accrued expenses and other current liabilities that meet the definition of a financial instrument approximate fair value due to their relatively short maturity. The carrying value of our outstanding debt obligations approximates its fair value. The fair value of long-term debt is calculated using Level 2 inputs based on interest rates available for debt with terms and maturities similar to our existing debt arrangements.


(9) Income Taxes

Income tax expense during interim periods is based on our estimated annual effective income tax rate plus any discrete items that are recorded in the period in which they occur. Our tax rate is affected by discrete items that may occur in any given year but may not be consistent from year to year.

Our effective tax rate was 24.8%24.4% and 22.2%25.2% for the three and nine months ended March 31,September 30, 2022, respectively, and 18.8% and 23.4% for the three and nine months ended September 30, 2021, respectively. The effective tax rate was higher for the three and nine months ended March 31,September 30, 2022 as compared to the same period ofin the prior year primarily due to 1) book expense in connection with the fair marketdecline in value decrease inof our COLI planassets in the period ended March 31,September 30, 2022 that was reversed for tax purposes as opposed to book income in the same period in 2021, and 2) significantly lower tax deduction projected for foreign derived intangible income ("FDII") in 2022 due to reduced profitability within our Federal and Defense segment.2021.


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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Business Overview

We are a diversified aftermarket products and services company providing repair services, parts distribution, logistics, supply chain management and consulting services for land, sea and air transportation assets to government and commercial markets. We provide logistics and distribution services for legacy systems and equipment and professional and technical services to commercial customer and to the government, including federal and civilian agencies and the Department of Defense ("DoD"). Our operations include supply chain management solutions, parts supply and distribution, and maintenance, repair and overhaul ("MRO") services for vehicle fleet, aviation, and other customers. We also provide vehicle and equipment maintenance and refurbishment, logistics, engineering support, energy services, IT and health care IT solutions, and consulting services.

Our operations are conducted within three reportable segments aligned with our operating segments: (1) Aviation; (2) Fleet; and (3) Federal and Defense. We provide more information about each of these reportable segments under Item 1, "Business-History and Organization” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 ("2021 Form 10-K").

Recent Acquisitions

See Note (2) "Acquisitions" to our Consolidated Financial Statements included in Item 1 of this filing and our 2021 Form 10-K for additional information regarding our recent acquisitions.

Impact of the COVID-19 Pandemic

Our results ofThe coronavirus disease (COVID-19) pandemic continues to negatively affect the global economy, our business and operations, forsupply chains, and the three months ended March 31, 2022 continued to be impacted by the COVID-19 global pandemic. Weindustries in which we operate. However, we have seen continued improvement in our operating results during the threenine months ended March 31,September 30, 2022, which we expect to continue throughoutthrough the remainder of 2022. All of our repair, distribution and base operations facilities remain open and operational, and we continue to deliver products and services to customers without interruption. We continue to closely monitor and address the pandemic and related developments, including the impact to our business, our employees, our customers, and our suppliers.

Business Trends

The following discussion provides a brief description of some of the key business factors impacting our results of operations detailed by segment.

Aviation Segment

OurThe COVID-19 pandemic impacted our Aviation segment operations, were impacted by the COVID-19 pandemic.particularly in 2020 and 2021. We have seen continued improvement in our sequential quarterly revenue results due to the recovery in demand since the peak of the negative COVID-19 pandemic impact during the second quarter of 2020. Our Aviation segment results have benefited in the first quarter of 2022 from strong performance following prior investments in growth initiatives that have produced positive results with quarterly revenue of both$103 million, a 40% increase year-over-year.

Growth in our distribution andservices has been driven by several new distribution initiatives in providing “tip-to-tail” product-line management capabilities, while our repair businesses driven bybusiness has benefited from a broader recovery in commercial market activity, together with share gains within the business & general aviation (“B&GA”) market.

Our acquisition of Global Parts in July 2021 expands our product lines and client base. As we continue to experience recovery and growth in our operations, we see opportunities to strategically align platform offerings to include additional airframe components with our existing offerings. Market recovery and our growth initiatives have resulted in a 172%105% and 22%38% year-over-year increase in distribution and repair revenue, respectively, during the threefirst nine months ended March 31,of 2022 compared to the same period for the prior year.

During the quarter, we extendedWe have recently secured key multi-year distribution agreements to secure multi-year contracts thatboth domestic and new international geographic markets. We believe the new distribution initiatives will provide stable,sustainable and recurring revenue channels. We expect favorable long-termwith growth trends aspotential that will enhance our future results. The acquisition of Global Parts, in July 2021, broadens our product lines and client base, and we scale our industry-leading Aviation parts distributionsee opportunities to strategically align offerings with both domestic and MRO platform with new business wins with leading global commercial brands.international markets.

We expect that the current market conditions will result in strategic opportunities for near and long-term growth. We intend to continue capitalizing on opportunities in those markets, which may require future investment.


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Fleet Segment

Our Fleet segment continues to increase revenue from commercial fleet customers and e-commerce fulfillment sales. Our commercial client base includes companies insales as the business continues to progress towards becoming a wide array of businesses that have vehicle fleets required to meet mission critical delivery or service schedules.more diversified enterprise. We continue to execute on our revenue diversification strategy through sustainedas we capture new customers and increase revenue within e-commerce fulfillment. To support continued e-commerce and e-commerce fulfillment growth, the Fleet segment announced plans to open a new distribution warehouse and e-commerce fulfillment center of excellence in commercial revenueOlive Branch, Mississippi (in the greater Memphis, Tennessee area). This new center of excellence will double the size of Fleet's current warehouse footprint while extending Fleet’s geographic reach and expanding product offerings for customers. Operations are expected to expand our presence beyondcommence at this new location in early 2023 and will enable Fleet to successfully meet the long-term relationship withrapidly growing demand for the United States Postal Service ("USPS").
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e-commerce fulfillment business. Commercial customer revenue continues to see a strong growth trend, increasing approximately 93%23% and 50% during the threequarter and first nine months ended March 31,of 2022, respectively, compared to the same periodperiods in the prior year. Commercial revenues were 41.6%40% of total Fleet segment revenue for the nine months ended September 30, 2022 compared to 26.4%30% for the same period in 2021,the prior year, demonstrating the continued success of our strategic multi-year diversification strategy. We expect continued growth within the commercial channel, coupled with stable contributions from its USPS and government customers.

Federal and Defense Segment

Our Federal and Defense segment continues to focus on redefining VSE in the federal marketplace and recently hired new leadership in business development to buildbuilding our contract backlog and optimizing legacy programs. We recently announced a transition of leadership for our Federal and Defense segment as we work to grow our business and mitigate the impacts of delays in currentboth the timing of contract awards and new markets.the funding process. Strong revenue performance in our U.S. Air ForceU.S Navy work performed by our HSS acquisition enabled us to successfully grow our 2022third quarter revenue for this segment despite anticipated declines in our U.S. Army work due to program completions. In March 2022, we were awarded a 12-month, $100 million contract by Naval Sea Systems Command (NAVSEA) in providing Foreign Military Sales (FMS) and Follow-on Technical Support (FOTS) to NAVSEA. We expect that our investment infocused business development efforts will drive new revenue additions in subsequent years. Contract funding increases, including work to transfer a frigate to Bahrain under our FMS Program, have resulted in an increase in bookings of $29.0 million, or 46%, during the three months ended March 31, 2022, further supporting a stable outlook for our federal contracting revenue base.


Results of Operations

Quarter Ended March 31, 2022 Compared to Quarter Ended March 31, 2021

Consolidated Results of Operations

Our consolidated results of operations are as follows (in thousands):

Three months ended March 31, Three months ended September 30,Nine months ended September 30,
20222021Change ($)Change (%) 20222021Change ($)Change (%)20222021Change ($)Change (%)
RevenuesRevenues$231,239 $164,981 $66,258 40.2 %Revenues$242,487 $200,582 $41,905 21 %$715,439 $540,675 $174,764 32 %
Costs and operating expensesCosts and operating expenses219,325 155,378 63,947 41.2 %Costs and operating expenses225,215 186,690 38,525 21 %672,102 529,894 142,208 27 %
Operating incomeOperating income11,914 9,603 2,311 24.1 %Operating income17,272 13,892 3,380 24 %43,337 10,781 32,556 302 %
Interest expense, netInterest expense, net3,609 3,030 579 19.1 %Interest expense, net4,818 2,780 2,038 73 %12,299 8,476 3,823 45 %
Income before income taxesIncome before income taxes8,305 6,573 1,732 26.4 %Income before income taxes12,454 11,112 1,342 12 %31,038 2,305 28,733 1,247 %
Provision for income taxesProvision for income taxes2,061 1,462 599 41.0 %Provision for income taxes3,035 2,091 944 45 %7,827 539 7,288 1,352 %
Net incomeNet income$6,244 $5,111 $1,133 22.2 %Net income$9,419 $9,021 $398 %$23,211 $1,766 $21,445 1,214 %

Revenues

Revenues.
Revenues increases wereincreased for the three months ended September 30, 2022 as compared to the same period in the prior year primarily attributable to revenue growth within each of our segments: $48.9$29.5 million within our Aviation segment, $12.3$4.5 million within our Fleet segment, and $5.1$7.9 million within our Federal and Defense segment. See "Segment Operating Results" section below for further discussion of revenues by segment.

Revenues increased for the nine months ended September 30, 2022 as compared to the same period in the prior year primarily attributable to revenue growth within each of our segments: $135.9 million within our Aviation segment, $23.5 million within our Fleet segment, and $15.4 million within our Federal and Defense segment. See "Segment Operating Results" section below for further discussion of revenues by segment.

Costs and Operating Expenses
Expenses.
Costs and operating expenses increased for the three and nine months ended September 30, 2022 as compared to the same periods in the prior year primarily due to increases in revenue. CostsOur costs and operating expenses for our operating segments increase and decrease in conjunction with the level of business activity and revenues generated by each segment. See "Segment Operating Results" for discussion of cost and operating expenses by segment.

Operating Income
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Operating Income.
Operating income increased $8.0for the three months ended September 30, 2022 as compared to the same period in the prior year attributable to increases of $6.3 million for our Aviation segment and $0.6$1.2 million for our Fleet segment, partially offset by a decrease of $5.7$3.4 million for our Federal and Defense segment. See "Segment Operating Results" for a discussion of operating income by segment.

Operating income increased for the nine months ended September 30, 2022 as compared to the same period in the prior year attributable to increases of $43.0 million for our Aviation segment and $3.2 million for our Fleet segment, partially offset by a decrease of $13.6 million for our Federal and Defense segment. See "Segment Operating Results" for a discussion of operating income by segment.


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Interest Expense
Expense.
Interest expense increased for the three and nine months ended September 30, 2022 as compared to the same period in the prior year due to a higher average interest rates on borrowings outstanding.

Provision for Income Taxes
Taxes.
Our effective tax rate was 24.8%24.4% and 25.2% for the three and nine months ended March 31,September 30, 2022, respectively, and 22.2%18.8% and 23.4% for the same period of the prior year.three and nine months ended September 30, 2021, respectively. Our tax rate is affected by discrete items that may occur in any given year but may not be consistent from year to year. Permanent differences such as foreign derived intangible income ("FDII") deduction, Section 162(m) limitation, capital gains tax treatment, state income taxes, certain federal and state tax credits and other items caused differences between our statutory U.S. Federal income tax rate and our effective tax rate. The higher effective tax rate for the three and nine months ended March 31,September 30, 2022 primarily resulted from 1) book expense in connection with the fair marketdecline in the value decrease inof our Company Owned Life Insurance ("COLI") planassets in the period ended March 31,September 30 2022 that was reversed for tax purposes as opposed to book income in the same period in 2021, and 2) significantly lower tax deduction for FDII in 2022 due to reduced profitability within our Federal and Defense segment.2021.

Segment Operating Results

Aviation Segment Results

The results of operations for our Aviation segment are (in thousands):
 Three months ended March 31,
 20222021Change ($)Change (%)
Revenues$93,290 $44,371 $48,919 110 %
Costs and operating expenses85,668 44,703 40,965 92 %
Operating income (loss)$7,622 $(332)$7,954 2,396 %
Profit (loss) percentage8.2 %(0.7)% 
 Three months ended September 30,Nine months ended September 30,
 20222021Change ($)Change (%)20222021Change ($)Change (%)
Revenues$102,625 $73,124$29,501 40 %$300,934$165,010$135,924 82 %
Costs and operating expenses92,608 69,40523,203 33 %276,845 183,89592,950 51 %
Operating income (loss)$10,017 $3,719 $6,298 169 %$24,089 $(18,885)$42,974 228 %
Profit (loss) percentage9.8 %5.1 %8.0 %(11.4 %)
Revenues. Revenues increased for the three months ended September 30, 2022 as compared to the same period in the prior year primarily due to a $19.2 million, or 35%, growth in distribution revenue driven by contributions from recently initiated distribution contract wins and contributions from the acquisition of Global Parts, and a $10.3 million, or 55%, growth in repair revenue driven by improved demand in end markets as a result of market recovery and share gains with business and general aviation customers.

Revenues increased for our Aviation segment increasedthe nine months ended September 30, 2022 as compared to the same period in the prior year primarily due to distribution revenue growth of $44.9$114.7 million, or 172%105%, driven by contributions from recently initiated distribution contract wins and contributions from the acquisition of Global Parts, and repair revenue growth of $4.0$21.3 million, or 22%38%, driven by improved demand in end markets as a result of market recovery.

Costs and Operating Expenses.Costs and operating expenses increased for the three months ended September 30, 2022 as compared to the same period in the prior year primarily due to increased revenues.revenues. Costs and operating expenses for this segment included expenses for amortization of intangible assets associated with acquisitions and allocated corporate costs. Expense for amortization of intangible assets was $2.3 million for the three months ended March 31,September 30, 2022 compared to $2.1$2.4 million for the same period in the prior year. Allocated corporate costs were $2.9$3.3 million for the three months ended March 31,September 30, 2022 compared to $2.0$2.3 million for the same period in the prior year.

Costs and operating expenses increased for the nine months ended September 30, 2022 as compared to the same period in the prior year primarily due to increased revenues and a $2.3 million non-cash charge to write down accounts receivable and inventory related to the Russian and Ukrainian markets for the nine months 2022, offset by a $23.7 million inventory valuation adjustment recognized in the same period in the prior year. Costs and operating expenses for this segment included expenses for
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amortization of intangible assets associated with acquisitions and allocated corporate costs. Expense for amortization of intangible assets was $7.0 million for the nine months ended September 30, 2022 compared to $6.5 million for the same period in the prior year. Allocated corporate costs were $9.1 million for the nine months ended September 30, 2022, compared to $6.0 million for the same period in the prior year.

Operating income.Operating income increased for the three months ended September 30, 2022 as compared to the same period in the prior year largely due to growth in revenue growth driven byattributable to our new distribution programs, increases in higher sales volumes in our distribution contract winsmargin repair revenue, and contributions from the Global Parts acquisition.

Operating income increased for the nine months ended September 30, 2022 as compared to the same period in the prior year primarily due to current year growth in revenue attributable to our new distribution programs, increases in higher margin repair revenue, contributions from the Global Parts acquisition, and a $23.7 million inventory provision which negatively impacted operating income in the prior year.

Fleet Segment Results

The results of operations for our Fleet segment are (in thousands):
 Three months ended March 31,
 20222021Change ($)Change (%)
Revenues$67,030 $54,747 $12,283 22 %
Costs and operating expenses60,649 49,006 11,643 24 %
Operating income$6,381 $5,741 $640 11 %
Profit percentage9.5 %10.5 % 
 Three months ended September 30,Nine months ended September 30,
 20222021Change ($)Change (%)20222021Change ($)Change (%)
Revenues$64,754 $60,268 $4,486 %$196,526 $173,072 $23,454 14 %
Costs and operating expenses58,215 54,881 3,334 %178,240 157,944 20,296 13 %
Operating income$6,539 $5,387 $1,152 21 %$18,286 $15,128 $3,158 21 %
Profit percentage10.1 %8.9 %9.3 %8.7 %

Revenues.Revenues increased for our Fleet segment increasedthe three months ended September 30, 2022 as compared to the same period in the prior year as a result of increased revenue from sales to commercial customers of $13.4$4.7 million, or 92.9%22.7% and sales to other government customers of $2.3 million, or 6.3%, driven by growth in our e-commerce fulfillment business, partially offset by anticipated decreased revenuessales to DoD customers of $1.4$2.6 million or 44.3%,93.3%.

Revenues increased for the nine months ended September 30, 2022 as compared to the same period in the prior year as a result of increased revenue from sales to commercial customers of $26.5 million, or 50.2% and sales to other government customers of $4.3 million or 3.9%, partially offset by anticipated decreased sales to DoD customers.customers of $7.3 million or 69.8%.

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Table of ContentsCosts and Operating Expenses.
Costs and operating expenses increased for the three months ended September 30, 2022 as compared to the same period in the prior year primarily due to increased revenues. Costs and operating expenses for this segment included expenses for amortization of intangible assets associated with acquisitions and allocated corporate costs. Expense for amortization of intangible assets was $1.8$1.5 million for the three months ended March 31,September 30, 2022 and 2021.$1.8 million for the same period in the prior year. Expense for allocated corporate costs was$2.1 $2.0 millionfor the three months ended March 31,September 30, 2022 and $2.3$2.1 million for the same period in the prior year.

Costs and operating expenses increased for the nine months ended September 30, 2022 as compared to the same period in the prior year primarily due to increased revenues. Costs and operating expenses for this segment included expenses for amortization of intangible assets associated with acquisitions and allocated corporate costs. Expense for amortization of intangible assets was $5.0 million for the nine months ended September 30, 2022 and $5.3 million for the same period in the prior year. Expense for allocated corporate costs was $5.9 million for the nine months ended September 30, 2022 and $6.6 million for the same period in the prior year.

Operating income.Operating income increased for the three and nine months ended September 30, 2022 as compared to the same period in the prior year primarily due to increased commercial fleet customer revenuesand e-commerce fulfillment sales as described above.






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Federal and Defense Segment Results

The results of operations for our Federal and Defense segment are (in thousands):
Three months ended March 31, Three months ended September 30,Nine months ended September 30,
20222021Change ($)Change (%) 20222021Change ($)Change (%)20222021Change ($)Change (%)
RevenuesRevenues$70,919 $65,863 $5,056 %Revenues$75,108 $67,190 $7,918 12 %$217,979 $202,593 $15,386 %
Costs and operating expensesCosts and operating expenses71,607 60,838 10,769 18 %Costs and operating expenses73,169 61,804 11,365 18 %214,176 185,183 28,993 16 %
Operating incomeOperating income$(688)$5,025 $(5,713)(114)%Operating income$1,939 $5,386 $(3,447)(64)%$3,803 $17,410 $(13,607)(78)%
Profit percentage(1.0)%7.6 % 
Profit percentage2.6 %8.0 %1.7 %8.6 %

Revenues.Revenues increased for our Federalthe three and Defense segment increasednine months ended September 30, 2022 as compared to the same period in the prior year due to revenues from our FMSForeign Military Sales (FMS) program with the U.S. Navy, partially offset by declines in our U.S. Army work due to program completions.

Costs and Operating Expenses. Costs and operating expenses increased for the three months ended September 30, 2022 as compared to the same period in the prior year primarily due to increases in revenue and a shift in our contract mix to a larger proportion of cost-type contracts.

Costs and operating expenses increased for the nine months ended September 30, 2022 as compared to the same period in the prior year primarily due to increases in revenue, an increase in the proportion of cost-type contracts within our contract mix, and a $3.5 million loss recognized duringfor the periodnine months ended September 30, 2022 on a fixed-price, non-DoD contract with a foreign customer driven by higher than anticipated supply chain material and labor costs.

Operating income.Operating income decreased for the three months ended September 30, 2022 as compared to the same period in the prior year primarily due to the completion of a U.S. Army program and a shift in our contract mix to a larger portion of cost-type contracts, which generally provide lower profit margins than fixed-price and T&M contract types.

Operating income decreased for the nine months ended September 30, 2022 as compared to the same period in the prior year primarily due to the completion of a U.S. Army program, an increase in the portion of cost-type contracts, and the contract loss recognized during the period as described above.


Bookings and Funded Backlog

Our funded backlog represents the estimated remaining value of work to be performed under firm contracts. Bookings for our Aviation and Fleet segments occur at the time of sale. Accordingly, our Aviation and Fleet segments do not generally have funded contract backlog and backlog is not an indicator of their potential future revenues. Revenues for federal government contract work performed by our Federal and Defense segment depend on contract funding ("bookings”), and bookings generally occur when contract funding documentation is received. Funded contract backlog is an indicator of potential future revenue. While bookings and funded contract backlog generally result in revenue, we may occasionally have funded contract backlog that expires or is de-obligated upon contract completion and does not generate revenue.

A summary of our bookings and revenues for our Federal and Defense segment for the threenine months ended March 31,September 30, 2022 and 2021, and funded contract backlog as of March 31,September 30, 2022 and 2021 is as follows (in millions):
20222021 20222021
BookingsBookings$92 $63 Bookings$250 $234 
RevenuesRevenues$71 $66 Revenues$218 $203 
Funded Contract BacklogFunded Contract Backlog$198 $188 Funded Contract Backlog$199 $218 

For the threenine months ended March 31,September 30, 2022, Federal and Defense segment bookings increased 46%7% year-over-year to $92$250 million, while total funded backlog increased 5%decreased 9% year-over-year to $198$199 million.



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Liquidity and Capital Resources

Liquidity

Our internal sources of liquidity are primarily from operating activities, specifically from changes in our level of revenues and associated inventory, accounts receivable and accounts payable, and from profitability. Significant increases or decreases in revenues and inventory, accounts receivable and accounts payable can affect our liquidity. In addition to operating cash flows, other significant factors that affect our overall management of liquidity include capital expenditures; investments in expansion, improvement, and maintenance of our operational and administrative facilities; and investments in the acquisition of businesses.
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Our primary source of external financing is from our loan agreement with a bank group that expires in July 2024 and includes a term loan facility and a revolving loan facility, which also provides for letters of credit. The maximum amount of credit available under our loan agreement for revolving loans and letters of credit is $350 million. Under the loan agreement we may elect to increase the maximum availability of the term loan facility, the revolving loan facility, or a combination of both facilities, subject to customary lender commitment approvals. The aggregate limit of incremental increases is $100 million. Our bank debt increased approximately $19.1$12.5 million for the threenine months ended March 31,September 30, 2022. As of March 31,September 30, 2022, we had term loan borrowings outstanding of $56.4$48.9 million, revolving loan borrowings outstanding of $249.4$250.3 million, and outstanding letters of credit outstanding of $1.0$1.2 million. We had approximately $100$98 million of unused bank loan commitments as of March 31,September 30, 2022.

As of March 31,September 30, 2022, we were in compliance with required ratios and other terms and conditions of our loan agreement. We continue

Bank Loan Amendment

On October 7, 2022, we entered into a fourth amendment to monitorour loan agreement which, among other things, provides for the impactsfollowing: (i) an extension of COVID-19the maturity date from July 23, 2024 to October 7, 2025; (ii) a reset of the aggregate principal amount of the term loan to $100.0 million; (iii) a modification to the amortization payments on our results of operations and liquidity relativethe term loan from $3.75 million quarterly to compliance with financial covenants; at this time, we expect that we will remain$2.50 million quarterly; (iv) an increase in compliancethe maximum total leverage ratio from 4.25x to 4.50x, with such covenants overratios decreasing thereafter as indicated in the next twelve months.table below; (v) a change in the benchmark rate from LIBOR to SOFR with a SOFR floor of 0.00%; and (vi) a corresponding change in pricing to account for the change from LIBOR to SOFR.

Testing PeriodMaximum Total Funded Debt to EBITDA Ratio
From the Fourth Amendment Effective Date through and including June 30, 20234.50 to 1.00
From July 1, 2023 through and including December 31, 20234.25 to 1.00
From January 24, 2024 through and including June 30, 20244.00 to 1.00
From July 1, 2024 through and including September 30, 20243.75 to 1.00
From October 1, 2024 and thereafter3.50 to 1.00

Cash Flows

The following table summarizes our cash flows for the threenine months ended March 31,September 30, 2022 and 2021 (in thousand):

Three months ended March 31,Nine months ended September 30,
20222021 20222021
Net cash used in operating activitiesNet cash used in operating activities$(18,174)$(36,367)Net cash used in operating activities$(4,206)$(30,523)
Net cash provided by (used in) investing activities1,393 (16,468)
Net cash used in investing activitiesNet cash used in investing activities(3,181)(59,839)
Net cash provided by financing activitiesNet cash provided by financing activities16,761 52,804 Net cash provided by financing activities6,959 90,367 
Net decreases in cash and cash equivalents$(20)$(31)
Net (decrease) increase in cash and cash equivalentsNet (decrease) increase in cash and cash equivalents$(428)$

Cash used in operating activities decreased $18.2$26.3 million for the threenine months ended March 31,September 30, 2022 whenas compared to the same period ofin the prior year. The decrease was primarily due to strong cash collections of our receivables, lower use of cash for inventory purchases and timing of vendor payments.payments partially offset by increased accounts receivable as a result of revenue growth and timing of collections.

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Cash provided by investing activities was $1.4 million for the three months ended March 31, 2022 compared to cash used in investing activities of $16.5decreased $56.7 million for the nine months ended September 30, 2022 as compared to the same period ofin the prior year. The changedecrease was primarily due to cash paid for acquisitions, net of cash acquired, of $53.2 million related to the acquisitionacquisitions of our HSS and Global Parts subsidiaries in the prior year period.

Cash provided by financing activities decreased $36.0$83.4 million for the threenine months ended March 31,September 30, 2022, whenas compared to the same period ofin the prior year. The decrease was primarily due to $52.0 million of proceeds received in the prior year period related to our public underwritten offering of our common stock in February 2021 andoverall lower proceeds from net borrowings of our debt during the current period.

We paid cash dividends totaling $1.3$3.8 million or $0.10$0.30 per share during the threenine months ending March 31,September 30, 2022. Pursuant to our bank loan agreement, our payment of cash dividends is subject to annual restrictions. We have paid cash dividends each year since 1973.

Other Obligations and Commitments

There have not been any material changes to our other obligations and commitments that were included in our Annual Report on Form 10-K for the year ended December 31, 2021.


Inflation and Pricing

There have not been any material changes to this disclosure from those discussed in our most recently filed Annual Report on Form 10-K.





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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.


Disclosures About Market Risk

Interest Rate Risk

Our bank loan agreement provides available borrowing to us at variable interest rates. Accordingly, future interest rate changes could potentially put us at risk for a material adverse impact on future earnings and cash flows. Previously, we have employed the use ofWe enter into interest rate hedgesswap agreements from time to fix thetime to manage or hedge our interest rate onrisks.

In July 2022, we executed two SOFR-based forward-starting fixed interest rate swaps with a fixed rate of 2.8% for a total notional amount of $150 million in order to hedge a portion of our outstanding borrowings. Our interestfloating rate debt. The tenor of these swaps expired in February and March of 2022. As such, as of Marchwill begin on October 31, 2022 thereand is no portionfor a term of five years. Subsequent to September 30, 2022, on October 7, 2022, we entered into an amendment to our loan agreement. Among other things, the amendment provides for a modification of the reference rate from LIBOR to SOFR. See Notes (4) "Debt" and (8) "Fair Value Measurements," of Notes to our Unaudited Consolidated Financial Statements in Item 1 of this report for additional information regarding our debt covered underand interest rate swaps.

There have been no material changes, other than discussed above, to our market risks from those discussed in our most recently filed Annual Report on Form 10-K.


Critical Accounting Policies, Estimates and Judgments

Our consolidated financial statements are prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP"), which require us to make estimates and assumptions. Certain critical accounting policies affect the more significant accounts, particularly those that involve judgments, estimates and assumptions used in the preparation of our consolidated financial statements, including revenue recognition, inventory valuation, business combinations, goodwill and intangible assets, and income taxes. If any of these estimates, assumptions or judgments prove to be incorrect, our reported results
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could be materially affected. Actual results may differ significantly from our estimates under different assumptions or conditions. See "Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations" and Note (1) "Nature of Business and Summary of Significant Accounting Policies" in our 2021 Annual Report on Form 10-K for further discussions of our significant accounting policies and estimates. There have been no significant changes in our critical accounting estimates during the threenine months ended March 31,September 30, 2022 from those disclosed in our most recently filed Annual Report on Form 10-K.


Recently Issued Accounting Pronouncements

For a description of recently announced accounting standards, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see Note (1) "Nature of Business and Significant Accounting Policies — Recent Accounting Pronouncements” of the Notes to our Unaudited Consolidated Financial Statements in Item 1 of this report.


Item 3.    Quantitative and Qualitative Disclosures About Market Risks

See "Disclosures About Market Risk" in Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.


Item 4.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31,September 30, 2022, our disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and
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communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarterly period covered by this report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II.   Other Information

Item 1.    Legal Proceedings

None.


Item 1A. Risk Factors

There have been no material changes to the previously disclosed risk factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 ("2021 Form 10-K”). The risk factors disclosed in our 2021 Form 10-K should also be considered together with information included in this Quarterly Report on Form 10-Q for the quarter ended March 31,September 30, 2022 and under "Forward-Looking Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."


Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

We did not purchase any of our equity securities during the period covered by this report.

VSE's loan agreement prohibits VSE from paying cash dividends, except that if there is no event of default, no act, event or condition that would constitute an event of default with the giving of notice or the passage of time, or both, and no covenant breach would occur giving effect to the payment of the dividend, VSE may pay cash dividends that do not exceed $6 million in the aggregate in any fiscal year.




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Item 6.    Exhibits

(a) Exhibits  
Exhibit 10.1
Exhibit 31.1 
Exhibit 31.2 
Exhibit 32.1 
Exhibit 32.2 
Exhibit 101.INS XBRL Instance Document
Exhibit 101.SCH XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.DEF XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 101.LAB XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PRE XBRL Taxonomy Extension Presentation Document
Exhibit 104The cover page from this Quarterly Report on Form 10-Q, formatted in inline XBRL.


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VSE CORPORATION AND SUBSIDIARIES


SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

  VSE CORPORATION
Date:April 28,October 27, 2022By:/s/ John A. Cuomo
  John A. Cuomo
  Director, Chief Executive Officer and President
  (Principal Executive Officer)

Date:April 28,October 27, 2022By:/s/ Stephen D. Griffin
  Stephen D. Griffin
  Senior Vice President and Chief Financial Officer
  (Principal Financial Officer and Principal Accounting Officer)
  


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