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,June 30, 2023

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
vselogonewa01.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 21,July 24, 2023: 12,885,93715,372,544



 TABLE OF CONTENTS 
   
   
  Page
PART I 
   
ITEM 1. 
   
 
   
 
   
 
   
 
   
 
   
ITEM 2.
   
ITEM 3.
   
ITEM 4.
   
PART II 
   
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 5.
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 is included 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, such as 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, 2022 filed with the SEC on March 9, 2023 (“2022 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 InformationFINANCIAL 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,
20232022
Assets
Current assets:
Cash and cash equivalents$532 $478 
Receivables (net of allowance of $2.4 million and $2.1 million, respectively)113,512 103,193 
Unbilled receivables35,884 38,307 
Inventories416,667 380,707 
Other current assets24,169 26,193 
Total current assets590,764 548,878 
Property and equipment (net of accumulated depreciation of $75.5 million and $73.2 million, respectively)49,533 47,969 
Intangible assets (net of accumulated amortization of $128.7 million and $124.3 million, respectively)90,064 90,624 
Goodwill253,580 248,837 
Operating lease - right-of-use assets33,284 34,412 
Other assets27,178 29,069 
Total assets$1,044,403 $999,789 
Liabilities and Stockholders' equity  
Current liabilities:  
Current portion of long-term debt$10,000 $10,000 
Accounts payable141,851 159,600 
Accrued expenses and other current liabilities44,302 53,722 
Dividends payable1,289 1,282 
Total current liabilities197,442 224,604 
Long-term debt, less current portion341,855 276,300 
Deferred compensation7,551 7,398 
Long-term operating lease obligations30,743 32,340 
Deferred tax liabilities9,497 9,621 
Total liabilities587,088 550,263 
Commitments and contingencies (Note 7)
Stockholders' equity:  
Common stock, par value $0.05 per share, authorized 23,000,000 shares; issued and outstanding 12,885,937 and 12,816,613, respectively644 641 
Additional paid-in capital94,577 92,620 
Retained earnings359,124 351,297 
Accumulated other comprehensive income2,970 4,968 
Total stockholders' equity457,315 449,526 
Total liabilities and stockholders' equity$1,044,403 $999,789 

(Unaudited)
June 30,December 31,
(in thousands except share and per share amounts)20232022
Assets
Current assets:
Cash and cash equivalents$4,163 $305 
Receivables (net of allowance of $2.5 million and $2.0 million, respectively)114,154 90,599 
Unbilled receivables6,229 7,409 
Inventories427,822 380,438 
Other current assets14,797 15,202 
Current assets held-for-sale107,059 54,925 
Total current assets674,224 548,878 
Property and equipment (net of accumulated depreciation of $33.6 million and $30.7 million, respectively)43,992 40,501 
Intangible assets (net of accumulated amortization of $128.8 million and $121.3 million, respectively)82,818 86,558 
Goodwill222,023 217,262 
Operating lease - right-of-use assets20,194 21,558 
Other assets30,220 29,019 
Non-current assets held-for-sale— 56,013 
Total assets$1,073,471 $999,789 
Liabilities and Stockholders' Equity  
Current liabilities:  
Current portion of long-term debt$10,000 $10,000 
Accounts payable104,566 128,504 
Accrued expenses and other current liabilities30,295 31,889 
Dividends payable1,290 1,282 
Current liabilities held-for-sale64,070 52,929 
Total current liabilities210,221 224,604 
Long-term debt, less current portion365,110 276,300 
Deferred compensation7,651 7,398 
Long-term operating lease obligations17,609 19,154 
Deferred tax liabilities3,743 4,986 
Non-current liabilities held-for-sale— 17,821 
Total liabilities604,334 550,263 
Commitments and contingencies (Note 8)
Stockholders' equity:  
Common stock, par value $0.05 per share, authorized 23,000,000 shares; issued and outstanding 12,897,544 and 12,816,613, respectively645 641 
Additional paid-in capital96,471 92,620 
Retained earnings366,690 351,297 
Accumulated other comprehensive income5,331 4,968 
Total stockholders' equity469,137 449,526 
Total liabilities and stockholders' equity$1,073,471 $999,789 
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)(Unaudited)
 For the three months ended March 31,
 20232022
Revenues:
Products$159,066 $137,231 
Services96,367 94,008 
Total revenues255,433 231,239 
Costs and operating expenses:  
Products139,011 122,455 
Services92,031 91,228 
Selling, general and administrative expenses2,098 906 
Amortization of intangible assets4,360 4,736 
Total costs and operating expenses237,500 219,325 
Operating income17,933 11,914 
Interest expense, net5,977 3,609 
Income before income taxes11,956 8,305 
Provision for income taxes2,839 2,061 
Net income$9,117 $6,244 
Basic earnings per share$0.71 $0.49 
Basic weighted average shares outstanding12,844,458 12,741,394 
Diluted earnings per share$0.71 $0.49 
Diluted weighted average shares outstanding12,926,424 12,803,279 
Dividends declared per share$0.10 $0.10 




 For the three months ended June 30,For the six months ended June 30,
(in thousands except share and per share amounts)2023202220232022
Revenues:
Products$165,997 $142,003 $320,443 $278,172 
Services39,226 27,758 73,367 51,909 
Total revenues205,223 169,761 393,810 330,081 
Costs and operating expenses:    
Products147,139 129,617 282,388 250,714 
Services32,327 25,120 62,903 47,525 
Selling, general and administrative expenses1,519 473 3,564 1,180 
Amortization of intangible assets3,601 4,016 7,540 8,110 
Total costs and operating expenses184,586 159,226 356,395 307,529 
Operating income20,637 10,535 37,415 22,552 
Interest expense, net7,366 3,872 13,346 7,482 
Income from continuing operations before income taxes13,271 6,663 24,069 15,070 
Provision for income taxes3,182 1,908 5,860 4,026 
Income from continuing operations10,089 4,755 18,209 11,044 
(Loss) income from discontinued operations, net of tax(1,234)2,793 (237)2,748 
Net income$8,855 $7,548 $17,972 $13,792 
Earnings (loss) per share:
  Basic
     Continuing operations$0.78 $0.37 $1.42 $0.87 
     Discontinued operations(0.10)0.22 (0.02)0.21 
$0.68 $0.59 $1.40 $1.08 
  Diluted
     Continuing operations$0.78 $0.37 $1.42 $0.87 
     Discontinued operations(0.10)0.22 (0.02)0.21 
$0.68 $0.59 $1.40 $1.08 
Weighted average shares outstanding:
     Basic12,886,100 12,778,355 12,865,394 12,760,026 
     Diluted12,916,998 12,811,078 12,921,826 12,807,249 
Dividends declared per share$0.10 $0.10 $0.20 $0.20 








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)(Unaudited)
 For the three months ended March 31,
 20232022
Net income$9,117 $6,244 
Change in fair value of interest rate swap agreements, net of tax(1,998)176 
Other comprehensive (loss) income, net of tax(1,998)176 
Comprehensive income$7,119 $6,420 

 For the three months ended June 30,For the six months ended June 30,
 (in thousands)2023202220232022
Net income$8,855 $7,548 $17,972 $13,792 
Other comprehensive income, net of tax:
Change in fair value of interest rate swap agreements, net of tax2,361 — 363 176 
Total other comprehensive income, net of tax2,361 — 363 176 
Comprehensive income$11,216 $7,548 $18,335 $13,968 











































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)(Unaudited)

Three months ended March 31, 2023Three Months Ended June 30, 2023
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Total
Stockholders'
Equity
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Total
Stockholders'
Equity
Common Stock Common Stock
SharesAmount
Balance at December 31, 202212,817 $641 $92,620 $351,297 $4,968 $449,526 
(in thousands except per share data) (in thousands except per share data) SharesAmountAdditional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Total
Stockholders'
Equity
Balance at March 31, 2023Balance at March 31, 202312,886 $644 
Net incomeNet income— — — 9,117 — 9,117 Net income— — 
Stock-based compensationStock-based compensation69 1,957 — — 1,960 Stock-based compensation12 1,894 — — 1,895 
Other comprehensive loss, net of tax— — — — (1,998)(1,998)
Other comprehensive income, net of taxOther comprehensive income, net of tax— — — — 2,361 2,361 
Dividends declared ($0.10 per share)Dividends declared ($0.10 per share)— — — (1,290)— (1,290)Dividends declared ($0.10 per share)— — — (1,289)— (1,289)
Balance at March 31, 202312,886 $644 $94,577 $359,124 $2,970 $457,315 
Balance at June 30, 2023Balance at June 30, 202312,898 $645 $96,471 $366,690 $5,331 $469,137 

Three months ended March 31, 2022Three Months Ended June 30, 2022
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Equity
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Total
Stockholders'
Equity
Common Stock Common Stock
SharesAmount
Balance at December 31, 202112,727 $636 $88,515 $328,358 $(176)$417,333 
(in thousands except per share data) (in thousands except per share data) SharesAmountAdditional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Total
Stockholders'
Equity
Balance at March 31, 2022Balance at March 31, 202212,769 $638 
Net incomeNet income— — — 6,244 — 6,244 Net income— — 
Stock-based compensationStock-based compensation42 1,315 — — 1,317 Stock-based compensation2621,221 — — 1,223 
Other comprehensive income, net of taxOther comprehensive income, net of tax— — — — 176 176 Other comprehensive income, net of tax— — — — — — 
Dividends declared ($0.10 per share)Dividends declared ($0.10 per share)— — — (1,278)— (1,278)Dividends declared ($0.10 per share)— — — (1,280)— (1,280)
Balance at March 31, 202212,769 $638 $89,830 $333,324 $— $423,792 
Balance at June 30, 2022Balance at June 30, 202212,795 $640 $91,051 $339,592 $— $431,283 




























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)(Unaudited)
For the three months ended March 31,
 20232022
Cash flows from operating activities:
Net income$9,117 $6,244 
  Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization6,247 6,337 
Amortization of debt issuance cost213 210 
Deferred taxes540 1,177 
Stock-based compensation2,081 1,308 
Changes in operating assets and liabilities, net of impact of acquisitions:  
Receivables, net(9,801)(7,371)
Unbilled Receivables, net2,423 671 
Inventories, net(33,230)(9,321)
Other current assets and other assets1,409 4,892 
Operating lease assets and liabilities, net68 (178)
Accounts payable and deferred compensation(18,257)(20,997)
Accrued expenses and other current and noncurrent liabilities(9,484)(1,146)
Net cash used in operating activities(48,674)(18,174)
Cash flows from investing activities:  
Purchases of property and equipment(2,840)(1,269)
Proceeds from the payment on notes receivable— 2,662 
Cash paid for acquisitions, net of cash acquired(11,754)— 
Net cash (used in) provided by investing activities(14,594)1,393 
Cash flows from financing activities:  
Borrowings on loan agreement176,751 112,071 
Repayments on loan agreement(111,363)(93,005)
Proceeds from issuance of common stock248 — 
Earn-out obligation payments— (500)
Payment of taxes for equity transactions(1,031)(530)
Dividends paid(1,283)(1,275)
Net cash provided by financing activities63,322 16,761 
Net increase (decrease) in cash and cash equivalents54 (20)
Cash and cash equivalents at beginning of year478 518 
Cash and cash equivalents at end of year$532 $498 


Six months ended June 30, 2023
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Total
Stockholders'
Equity
 Common Stock
(in thousands except per share data)SharesAmount
Balance at December 31, 202212,817 $641 $92,620 $351,297 $4,968 $449,526 
Net income— — — 17,972 — 17,972 
Stock-based compensation81 3,851 — — 3,855 
Other comprehensive income, net of tax— — — — 363 363 
Dividends declared ($0.20 per share)— — — (2,579)— (2,579)
Balance at June 30, 202312,898 $645 $96,471 $366,690 $5,331 $469,137 
Six months ended June 30, 2022
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Equity
 Common Stock
(in thousands except per share data) SharesAmount
Balance at December 31, 202112,727 $636 $88,515 $328,358 $(176)$417,333 
Net income— — — 13,792 — 13,792 
Stock-based compensation68 2,536 — — 2,540 
Other comprehensive income, net of tax— — — — 176 176 
Dividends declared ($0.20 per share)— — — (2,558)— (2,558)
Balance at June 30, 202212,795 $640 $91,051 $339,592 $— $431,283 



























The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Table of Contents
VSE Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
For the six months ended June 30,
(in thousands)20232022
(a)(a)
Cash flows from operating activities:
Net income$17,972 $13,792 
Adjustments to reconcile net income to net cash provided by operating activities:  
  Depreciation and amortization12,011 12,430 
  Amortization of debt issuance cost420 420 
  Deferred taxes(1,533)(790)
  Stock-based compensation3,894 2,675 
  Provision for inventory742 1,094 
      Changes in operating assets and liabilities, net of impact of acquisitions:  
  Receivables, net(21,082)(25,607)
  Unbilled Receivables, net(110)(9,428)
  Inventories, net(45,580)(16,145)
  Other current assets and other assets(1,274)6,036 
  Operating lease assets and liabilities, net(67)(69)
  Accounts payable and deferred compensation(27,429)(4,848)
  Accrued expenses and other current and noncurrent liabilities(3,055)302 
       Net cash used in operating activities(65,091)(20,138)
Cash flows from investing activities:  
Purchases of property and equipment(6,137)(2,746)
Proceeds from the payment on notes receivable1,557 3,073 
Cash paid for acquisitions, net of cash acquired(11,711)— 
      Net cash (used in) provided by investing activities(16,291)327 
Cash flows from financing activities:  
Borrowings on loan agreement322,813 236,194 
Repayments on loan agreement(234,423)(212,572)
Proceeds from issuance of common stock456 486 
Earn-out obligation payments— (1,000)
Payment of taxes for equity transactions(1,031)(892)
Dividends paid(2,571)(2,552)
      Net cash provided by financing activities85,244 19,664 
Net increase (decrease) in cash and cash equivalents3,862 (147)
Cash and cash equivalents, beginning of period478 518 
Cash and cash equivalents, end of period$4,340 $371 

(a) The cash flows related to discontinued operations and held-for-sale assets and liabilities have not been segregated, and remain included in the major classes of assets and liabilities. Accordingly, the Consolidated Statements of Cash Flows include the results of continuing and discontinued operations.












The accompanying notes are an integral part of these consolidated financial statements.
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VSE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31,(UNAUDITED)
June 30, 2023
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 maintenance, repair and overhaul ("MRO") services, parts distribution, logistics, supply chain management and consulting services for land, sea and air transportation assets to commercial and government markets. Our operations are conducted under three operating segments: Aviation, Fleet, and Federal and Defense.

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 year ended December 31, 2022 ("2022 Form 10-K"). In our opinion, all adjustments, including normal recurring items, considered necessary for a fair presentation of results for the interim periods have been included in the accompanying unaudited consolidated financial statements. Operating results for the three and six months ended March 31,June 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023. 

On May 1, 2023, we entered into a definitive agreement to sell our Federal and Defense segment. The consolidated financial statements present the Federal and Defense segment's results of operations as discontinued operations, and the related assets and liabilities as held-for-sale for all periods presented. See Note (3) "Discontinued Operations" for further discussion. Following the completion of the sale transaction, our operations are conducted under two operating segments: Aviation and Fleet.

Certain reclassifications have been made to the prior period financial information in order to conformreflect discontinued operations classification. Unless otherwise noted, amounts and disclosures throughout these Notes to the current period's presentation, which include reclassifications within the disaggregated revenue disclosure of revenue by type as further described in Note (3) "Revenue." These reclassifications had no effect on the reported results ofConsolidated Financial Statements relate solely to continuing operations and exclude all discontinued operations.

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.


(2) Acquisitions

Precision Fuel Components, LLC

On February 1, 2023, our Aviation segment acquired Precision Fuel Components, LLC ("Precision Fuel") for a preliminary cash purchase price of $11.8 million, subject to post-closing adjustments.$11.7 million. Precision Fuel is a market-leading provider of maintenance, repair and overhaul ("MRO")provides MRO services for engine accessory and fuel systems supporting the business and general aviation ("B&GA") market. TheOur acquisition is intended to expand the Aviation segment's repairof Precision Fuel expanded our MRO capabilities across a diverse base of global rotorcraft, fixed wing, and B&GA customers and complement our existing service capabilities.client base. Precision Fuel operating results are included in the accompanying consolidated financial statements beginning on the acquisition date. The acquisition was not material to our consolidated financial statements.

The preliminary allocation of the preliminary purchase price resulted in net tangible assets of $3.1 million, goodwill of $4.7$4.8 million, and contract and customer-related intangible asset of $3.8 million, which is being amortized over a period of five years. During the threesix months ended March 31,June 30, 2023, we incurred $0.2 million of acquisition-related expenses, which are included in selling, general and administrative expenses.


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VSE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31,(UNAUDITED)
June 30, 2023
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(3) Discontinued Operations

On May 1, 2023, we entered into a definitive agreement to sell our Federal and Defense business to Bernhard Capital Partners Management LP for total consideration of up to $100.0 million, consisting of a $50.0 million cash payment at the closing of the transaction and an earn-out payment of up to $50.0 million subject to the achievement of certain milestones. The transaction is expected to close in late 2023 to early 2024 and is subject to customary closing conditions and approvals.

The results of operations from discontinued operations for the three and six months ended June 30, 2023 and 2022, consist of the following (in thousands):
For the three months ended June 30,For the six months ended June 30,
2023202220232022
Revenues$67,039 $71,953 $133,885 $142,871 
(Loss) income from discontinued operations before income taxes$(1,779)$3,616 $(621)$3,514 
Provision for income taxes(545)823 (384)766 
Net (loss) income from discontinued operations$(1,234)$2,793 $(237)$2,748 

The assets and liabilities reported as held for sale consist of the following (in thousands):
June 30,December 31,
20232022
Assets
Cash and cash equivalents$178 $173 
Accounts receivable, net12,385 14,340 
Unbilled receivables32,188 30,898 
Inventories453 270 
Other current assets8,760 9,244 
Property and equipment, net6,612 7,467 
Intangible assets, net3,505 4,066 
Goodwill31,575 31,575 
Operating lease right-of-use assets11,369 12,854 
Other assets34 51 
    Total assets held-for-sale(a)
$107,059 $110,938 
Liabilities
Accounts payable$27,810 $31,096 
Accrued expenses and other current liabilities20,609 21,833 
Long-term operating lease obligations11,186 13,186 
Deferred tax liabilities4,465 4,635 
    Total liabilities held-for-sale(a)
$64,070 $70,750 
(a) Amounts have been classified as current for the current period consolidated balance sheet and as current and non-current in the consolidated balance sheet for the prior year period.


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VSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 2023
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Selected financial information related to cash flows from discontinued operations is as follows (in thousands):

For the six months ended June 30,
20232022
Depreciation and amortization$1,437 $1,917 
Purchases of property and equipment$92 $144 
Stock-based compensation$73 $20 


(4) Revenue

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

A summary of revenues by customer for our each of our operating segments for the three and six months ended March 31,June 30, 2023 and 2022 is as follows (in thousands):
Three months ended March 31, 2023Three months ended June 30, 2023Six months ended June 30, 2023
AviationFleetFederal and DefenseTotalAviationFleetTotalAviationFleetTotal
CommercialCommercial$112,060 $32,544 $154 $144,758 Commercial$123,820 $38,037 $161,857 $235,880 $70,581 $306,461 
DoD— — 54,579 54,579 
Other governmentOther government1,175 42,808 12,113 56,096 Other government909 42,457 43,366 2,084 85,265 87,349 
Total Total$113,235 $75,352 $66,846 $255,433  Total$124,729 $80,494 $205,223 $237,964 $155,846 $393,810 

Three months ended March 31, 2022Three months ended June 30, 2022Six months ended June 30, 2022
AviationFleetFederal and DefenseTotalAviationFleetTotalAviationFleetTotal
CommercialCommercial$91,912 $27,856 $92 $119,860 Commercial$103,349 $26,007 $129,356 $195,261 $53,863 $249,124 
DoDDoD— 1,729 50,395 52,124 DoD— 1,264 1,264 — 2,993 2,993 
Other governmentOther government1,378 37,445 20,432 59,255 Other government1,670 37,471 39,141 3,048 74,916 77,964 
Total Total$93,290 $67,030 $70,919 $231,239  Total$105,019 $64,742 $169,761 $198,309 $131,772 $330,081 

A summary of revenues by type for our each of our operating segments for the three and six months ended March 31,June 30, 2023 and 2022 is as follows (in thousands):
Three months ended March 31, 2023Three months ended June 30, 2023Six months ended June 30, 2023
AviationFleetFederal and DefenseTotalAviationFleetTotalAviationFleetTotal
RepairRepair$32,054 $— $— $32,054 Repair$35,561 $— $35,561 $67,615 $— $67,615 
DistributionDistribution81,181 75,352 — 156,533 Distribution89,168 80,494 169,662 170,349 155,846 326,195 
Cost Plus Contract— — 33,901 33,901 
Fixed Price Contract— — 24,682 24,682 
T&M Contract— — 8,263 8,263 
Total Total$113,235 $75,352 $66,846 $255,433  Total$124,729 $80,494 $205,223 $237,964 $155,846 $393,810 

Three months ended March 31, 2022
AviationFleet
Federal and Defense(1)
Total
Repair$22,363 $— $— $22,363 
Distribution70,927 67,030 — 137,957 
Cost Plus Contract— — 30,577 30,577 
Fixed Price Contract— — 24,482 24,482 
T&M Contract— — 15,860 15,860 
     Total$93,290 $67,030 $70,919 $231,239 
(1) In the fourth quarter of fiscal 2022, we reclassified revenues associated with a certain program within our Federal and Defense Segment from T&M to Fixed Price contract type. Prior year amounts have been reclassified to conform with current year presentation.
Three months ended June 30, 2022Six months ended June 30, 2022
AviationFleetTotalAviationFleetTotal
Repair$25,966 $— $25,966 $48,329 $— $48,329 
Distribution79,053 64,742 143,795 149,980 131,772 281,752 
     Total$105,019 $64,742 $169,761 $198,309 $131,772 $330,081 



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VSE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31,(UNAUDITED)
June 30, 2023
Table of Contents



Contract Balances

Contract balances were as follows (in thousands):
March 31,December 31,June 30,December 31,
Financial Statement Classification20232022Financial Statement Classification20232022
Contract assetsContract assetsUnbilled receivables35,884 38,307 Contract assetsUnbilled receivables$6,229 $7,409 
Contract liabilitiesContract liabilitiesAccrued expenses and other current liabilities7,953 6,402 Contract liabilitiesAccrued expenses and other current liabilities$2,561 $963 

For the threesix months ended March 31,June 30, 2023 and 2022, we recognized revenue that was previously included in the beginning balance of contract liabilities of $1.4$0.8 million and $2.1$0.5 million, respectively.

Performance Obligations

As of March 31, 2023, the aggregate amount of transaction prices allocated to unsatisfied or partially unsatisfied performance obligations was $185 million. The performance obligations expected to be satisfied within one year and greater than one year are 94% and 6%, 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.
During the three months ended March 31, 2023 and 2022, revenue recognized from performance obligations satisfied in prior periods was not material.

(4)(5) Debt

Long-term debt consisted of the following (in thousands):
March 31,December 31,June 30,December 31,
20232022 20232022
Bank credit facility - term loanBank credit facility - term loan$97,500 $100,000 Bank credit facility - term loan$95,000 $100,000 
Bank credit facility - revolver loans256,498 188,610 
Bank credit facility - revolving facilityBank credit facility - revolving facility282,000 188,610 
Principal amount of long-term debtPrincipal amount of long-term debt353,998 288,610 Principal amount of long-term debt377,000 288,610 
Less debt issuance costsLess debt issuance costs(2,143)(2,310)Less debt issuance costs(1,890)(2,310)
Total long-term debtTotal long-term debt351,855 286,300 Total long-term debt375,110 286,300 
Less current portionLess current portion(10,000)(10,000)Less current portion(10,000)(10,000)
Long-term debt, less current portionLong-term debt, less current portion$341,855 $276,300 Long-term debt, less current portion$365,110 $276,300 

Borrowings under our term loan and revolving credit facilitiesfacility mature in October 2025. As of March 31,June 30, 2023, the interest rate on our outstanding term debtloan borrowings and weighted average interest rate on our aggregate outstanding revolver debtrevolving facility was 7.51% and 7.69%7.62%, respectively. Interest expense incurred on bank credit facilitiesour term loan and revolving facility was approximately $6.4$7.9 million and $3.4$14.3 million for the three and six months ended March 31,June 30, 2023, respectively, and $3.7 million and $7.1 million for the three and six months ended June 30, 2022, respectively. We had letters of credit outstanding of $0.7 million and $1.0 million as of March 31,June 30, 2023 and December 31, 2022, respectively.

Future required term loan and revolver loanrevolving facility payments as of March 31,June 30, 2023 are as follows (in thousands):

Year EndingYear EndingTerm LoanRevolver LoanTotalYear EndingTerm LoanRevolving FacilityTotal
Remainder of 2023Remainder of 2023$7,500 $— $7,500 Remainder of 2023$5,000 $— $5,000 
2024202410,000 — 10,000 202410,000 — 10,000 
2025202580,000 256,498 336,498 202580,000 282,000 362,000 
Total Total$97,500 $256,498 $353,998  Total$95,000 $282,000 $377,000 

We were in compliance with required ratios and other terms and conditions under our loancredit agreement as of March 31,June 30, 2023.

In July 2023, we entered into a fifth amendment to our credit agreement. Refer to Note (13) "Subsequent Events" for further details. After the amendment, our scheduled term loan payments are approximately $9.5 million for the remainder of 2023, $19.0 million in 2024, and $156.5 million in 2025.

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VSE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31,(UNAUDITED)
June 30, 2023
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(5)(6) Derivative Instruments and Hedging Activities

Our derivative instruments designated as cash flow hedges as of March 31,June 30, 2023 were (in thousands):

Notional AmountPaid Fixed RateReceive Variable RateSettlement and Termination
Interest rate swaps$150,0002.8%1-month term SOFRMonthly through October 31, 2027

We are party to fixed interest rate swap instruments that are designated and accounted for as cash flow hedges to manage risks associated with interest rate fluctuations on a portion of our floating rate debt. For the three and six months ended March 31,June 30, 2023, we reclassified $0.6$0.8 million and $1.5 million, respectively, from accumulated other comprehensive income to interest expense, net. We estimate that we will reclassify $2.6$3.6 million of unrealized gains from accumulated other comprehensive income into earnings in the twelve months following March 31,June 30, 2023.


(6)
(7) 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 antidilutive common stock equivalents excluded from the diluted per share calculation.

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 June 30,Six months ended June 30,
20232022 2023202220232022
Basic weighted average common shares outstandingBasic weighted average common shares outstanding12,844,458 12,741,394 Basic weighted average common shares outstanding12,886,100 12,778,355 12,865,394 12,760,026 
Effect of dilutive sharesEffect of dilutive shares81,966 61,885 Effect of dilutive shares30,898 32,723 56,432 47,223 
Diluted weighted average common shares outstandingDiluted weighted average common shares outstanding12,926,424 12,803,279 Diluted weighted average common shares outstanding12,916,998 12,811,078 12,921,826 12,807,249 


(7)(8) Commitments and Contingencies

Contingencies

We may have certain claims in the normal course of business, including legal proceedings, against us and against other parties. In our opinion, the resolution of these claims will not have a material adverse effect on our results of operations, financial position or cash flows.

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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VSE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31,(UNAUDITED)
June 30, 2023
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(8) Business Segments and Customer Information

(9) Business Segments

ManagementThe sale of the Federal and Defense segment is intended to allow us to advance our focus on long-term strategic growth areas. Following the completion of the sale transaction, management of our business operations is conducted under threetwo 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, and 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.

Federal and Defense
Our Federal and Defense segment provides aftermarket MRO and logistics and sustainment 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 base operations support; procurement; supply chain management; vehicle, maritime and aircraft sustainment services; 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,
 20232022
Revenues:
Aviation$113,235 $93,290 
Fleet75,352 67,030 
Federal and Defense66,846 70,919 
Total revenues$255,433 $231,239 
Operating income (loss):  
Aviation$15,663 $7,622 
Fleet5,899 6,381 
Federal and Defense(580)(688)
Corporate/unallocated expenses(3,049)(1,401)
Operating income$17,933 $11,914 









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VSE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
Table of Contents

 Three months ended June 30,Six months ended June 30,
 2023202220232022
Revenues:
Aviation$124,729 $105,019 $237,964 $198,309 
Fleet80,494 64,742 155,846 131,772 
Total revenues$205,223 $169,761 $393,810 $330,081 
Operating income (loss):    
Aviation$15,783 $6,450 $31,447 $14,072 
Fleet7,854 5,366 13,753 11,747 
Corporate/unallocated expenses(a)
(3,000)(1,281)(7,785)(3,267)
Operating income$20,637 $10,535 $37,415 $22,552 
(a) Certain corporate costs previously allocated to the Federal and Defense business for segment reporting purposes did not qualify for classification within discontinued operations and have been reallocated to continuing operations.


(9)(10) Goodwill and Intangible Assets

Goodwill

Changes in the carrying amount of goodwill by segment for the threesix months ended March 31,June 30, 2023 were as follows (in thousands):
AviationFleetFederal and DefenseTotal AviationFleetTotal
Balance as of December 31, 2022Balance as of December 31, 2022$154,072 $63,190 $31,575 $248,837 Balance as of December 31, 2022$154,072 $63,190 $217,262 
AcquisitionsAcquisitions4,743 — — 4,743 Acquisitions4,761 — 4,761 
Balance as of March 31, 2023$158,815 $63,190 $31,575 $253,580 
Balance as of June 30, 2023Balance as of June 30, 2023$158,833 $63,190 $222,023 

Goodwill increased during the threesix months ended March 31,June 30, 2023 in connection with the acquisition during the period as discussed in Note (2) "Acquisitions."
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VSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 2023
Table of Contents



Intangible Assets

Intangible assets consisted of the following (in thousands):
Gross carrying valueAccumulated amortizationNet carrying value Gross carrying valueAccumulated amortizationNet carrying value
March 31, 2023
June 30, 2023June 30, 2023
Contract and customer-relatedContract and customer-related$210,091 $(120,953)$89,138 Contract and customer-related$202,940 $(120,760)$82,180 
Trade namesTrade names8,670 (7,744)926 Trade names8,670 (8,032)638 
TotalTotal$218,761 $(128,697)$90,064 Total$211,610 $(128,792)$82,818 
December 31, 2022December 31, 2022   December 31, 2022   
Contract and customer-relatedContract and customer-related$206,291 $(116,881)$89,410 Contract and customer-related$199,140 $(113,796)$85,344 
Trade namesTrade names8,670 (7,456)1,214 Trade names8,670 (7,456)1,214 
TotalTotal$214,961 $(124,337)$90,624 Total$207,810 $(121,252)$86,558 

The gross carrying amount of contract and customer-related intangibles increased during the threesix months ended March 31,June 30, 2023 in connection with the acquisition during the period as discussed in Note (2) "Acquisitions."

As of March 31,June 30, 2023, the estimated future annual amortization expense related to intangible assets is as follows (in thousands):
Year EndingYear EndingYear Ending
Remainder of 2023Remainder of 2023$9,976 Remainder of 2023$5,114 
2024202410,819 20249,136 
202520259,775 20259,074 
202620268,950 20268,950 
202720277,204 20277,204 
ThereafterThereafter43,340 Thereafter43,340 
TotalTotal$90,064 Total$82,818 

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VSE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
Table of Contents

(10)(11) Fair Value Measurements

The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis as of March 31,June 30, 2023 and December 31, 2022 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, 2023Fair Value December 31, 2022Amounts Recorded at Fair ValueFinancial Statement ClassificationFair Value HierarchyFair Value June 30, 2023Fair Value December 31, 2022
Non-COLI assets held in Deferred Supplemental Compensation Plan(1)(a)
Non-COLI assets held in Deferred Supplemental Compensation Plan(1)(a)
Other assetsLevel 1$559 $539 
Non-COLI assets held in Deferred Supplemental Compensation Plan(1)(a)
Other assetsLevel 1$576 $539 
Interest rate swapsInterest rate swapsOther assetsLevel 2$3,957 $6,620 Interest rate swapsOther assetsLevel 2$7,103 $6,620 
(1) Non-Company Owned Life Insurance ("COLI") assets held in our deferred supplemental compensation plan consist of equity funds with fair value based on observable inputs such as quoted prices for identical assets in active markets and changes in fair value are recorded as selling, general and administrative expenses.
(a) Non-Company Owned Life Insurance ("COLI") assets held in our deferred supplemental compensation plan consist of equity funds with fair value based on observable inputs such as quoted prices for identical assets in active markets and changes in fair value are recorded as selling, general and administrative expenses.(a) Non-Company Owned Life Insurance ("COLI") assets held in our deferred supplemental compensation plan consist of equity funds with fair value based on observable inputs such as quoted prices for identical assets in active markets and changes in fair value are recorded as selling, general and administrative expenses.

The carrying amounts of cash and cash equivalents, receivables, accounts payable and amounts included in 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.
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VSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 2023
Table of Contents



(11)(12) 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 for continued operations was 23.7%24.0% and 24.8%24.3% for the three and six months ended March 31,June 30, 2023, respectively, and 28.6% and 26.7% for the three and six months ended June 30, 2022, respectively. The effective tax rate was lower for the three and six months ended March 31,June 30, 2023 compared to the same period of prior year primarily due to (1) book income in connection with the fair market value increase in our COLI plan in the period ended March 31,June 30, 2023 that was reversed for tax purposes as opposed to book expense in the same period in 2022, and (2) higher tax deduction projected for foreign derived intangible income ("FDII") in 2023.2022.


(12)(13) Subsequent Events

OnDesser Aerospace Acquisition

In July 2023, we completed our previously announced acquisition of Desser-Graham Partnership, L.P. ("Desser Aerospace"), pursuant to the terms of the purchase agreement dated May 1,3, 2023, for a preliminary purchase price of $124.0 million, subject to post-closing adjustments. Concurrent with the closing of the transaction, we sold, in a separate transaction, Desser Aerospace’s propriety solutions businesses to Loar Group Inc. (“Loar”) for cash consideration of $30.0 million (the “Loar Sale”). During the three and six months ended June 30, 2023, we incurred $0.6 million and $1.7 million, respectively, of acquisition-related expenses, which are included in selling, general and administrative expenses.

Credit Agreement Amendment

In July 2023, we entered into a definitivefifth amendment to our credit agreement which, among other things, provided for the following: (i) the extension of a new term loan in the aggregate principal amount of $90.0 million, which will mature on the same date as the existing term loan; (ii) a reduction in our capacity to sell our Federalincur incremental revolving or term loan credit facilities from $100.0 million to $25.0 million; (iii) quarterly amortization payments for the new term loan in the amount of $2.25 million; (iv) an increase in the maximum Total Funded Debt to EBITDA Ratio from 4.50x to 5.00x, with such ratios decreasing thereafter; (v) the addition of a tier to the top of the pricing grid if the Total Funded Debt to EBITDA ratio exceeds 4.50x; and Defense Segment(vi) expressly permitting the Desser acquisition and the Loar Sale. The net proceeds received under the new term loan were used to Bernhardfund a portion of the cash consideration for the Desser Aerospace acquisition.

Interest Rate Swap Derivative

In July 2023, we executed a fixed interest rate swap that hedges the variability in interest payments on $100.0 million of floating rate debt. We have designated, and will account for, this fixed interest rate swap as a cash flow hedge.

Underwritten Public Offering

In July 2023, we entered into an underwriting agreement with William Blair & Company, L.L.C and RBC Capital Partners,Markets, acting as representatives of several underwriters, relating to the issuance and sale of 2,475,000 shares of the Company's common stock at a public offering price of $48.50 per share. Under the terms of the agreement, we granted the underwriters an option, exercisable for total consideration of30 days, to purchase up to $100 million, consistingan additional 371,250 shares of $50common stock. The offering closed on July 24, 2023 and we received net proceeds of $112.7 million in cash proceeds and an earn-outconnection with the offering, net of up to $50 million subject to the achievement of certain milestones. The sale allows us to advance our focus on long-term strategic growth areas. The transaction is expected to close in late 2023 to early 2024 and is subject to customary closing conditions and approvals.issuance costs.



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Table of Contents
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 maintenance, repair and overhaul ("MRO") services, parts distribution, logistics, supply chain management and consulting services for land, sea and air transportation assets to commercial and government markets. We provide logistics and distribution services for legacy systems and equipment and professional and technical services to commercial customers; the government, including the United States Department of Defense ("DoD"); and federal civilian agencies. Our operations include supply chain management solutions, parts supply and distribution, and maintenance, repair and overhaul ("MRO") services for vehicle fleet, aviation, maritime and other customers. We also provide vehicle and equipment refurbishment, logistics, engineering support, data management and healthcare IT solutions, and clean energy consulting services.

Our operations are conducted within three reportable segments aligned with our operating segments: Aviation, Fleet andRecent Developments

Sale of Federal and Defense.Defense Segment

In May 2023, we entered into a definitive agreement to sell our Federal and Defense business to Bernhard Capital Partners Management LP for a total consideration of up to $100.0 million, consisting of a $50.0 million cash payment at the closing of the transaction and an earn-out payment of up to $50.0 million, subject to the achievement of certain milestones. The transaction is expected to close in late 2023 or early 2024. In accordance with ASC 205-20, Presentation of Financial Statements - Discontinued Operations, we determined that the criteria for discontinued operations presentation were met during the second quarter of 2023 and results for the three and six months ended June 30, 2023 and 2022 for our Federal and Defense segment are reported in income from discontinued operations within the consolidated statements of operations and the carrying value of the related assets and liabilities are presented within assets and liabilities held for sale on the consolidated balance sheets as of June 30, 2023 and December 31, 2022. See Note (3) "Discontinued Operations" to the consolidated financial statements for further information.

Desser Aerospace Acquisition

In July 2023, we completed our previously announced acquisition of Desser-Graham Partnership, L.P. ("Desser Aerospace"), pursuant to the terms of the purchase agreement dated May 3, 2023, for a preliminary purchase price of $124.0 million, subject to post-closing adjustments. Concurrent with the closing of the transaction, we sold, in a separate transaction, Desser Aerospace’s propriety solutions businesses to Loar Group Inc. (“Loar”) for cash consideration of approximately $30.0 million (the “Loar Sale”). The acquisition was funded with proceeds from a new term loan (see Note (13) "Subsequent Events" - Credit Agreement Amendment for further information), together with proceeds from the Loar Sale and additional borrowings under our revolving credit facility.

Underwritten Public Offering

In July 2023, we initiated a public offering of the Company's common stock relating to the issuance and sale of 2,475,000 shares at a public offering price of $48.50 per share. The offering closed on July 24, 2023 and we received net proceeds of $112.7 million in connection with the offering, net of issuance costs. We intend to use substantially all of the net proceeds from this offering to repay outstanding borrowings under our revolving credit facility and any remaining amounts for general corporate purposes.

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

InDuring the firstsecond quarter, ofour strong execution on new and existing distribution programs and increase in MRO activity produced positive results, with quarterly revenue reaching $124.7 million for the three months ended June 30, 2023, our Aviation segment results benefited from the strong performance of both our distribution and repair businesses driven by broader recovery in commercial market activity, together with share gains within the business & general aviation (“B&GA”) market.representing a 19% increase year-over-year. Market growth and share gains have resulted in a 14%37% and 43%13% year-over-year increase in distributionrepair and repairdistribution revenue, respectively, during the three months ended March 31,June 30, 2023, compared to the same period for the prior year. Our growth has been driven by several strategic initiatives, including the introduction of new products and service capabilities to our portfolio, further strengthening our position in the market. Additionally, expanding our partnerships with Original Equipment Manufacturers has provided us with a competitive edge, allowing successful entry into new markets with an established customer base. We believe our acquisition of Desser Aerospace in July 2023 will increase our exposure to the high-growth, higher-margin aviation distribution and MRO markets. We believe that the combination of Desser Aerospace’s distribution and repair capabilities with VSE Aviation’s aftermarket business creates a platform for geographic expansion into international markets and provides opportunities to cross-sell products and services.

As we continue to grow our operations, we see opportunities to strategically expand our platform offerings to include additional products and services that address the distinct needs
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Table of our aftermarket customers. Our acquisition of Precision Fuel in February 2023 expanded our product lines, client base and enabled cross-selling opportunities.

Contents
During the quarter, we extended key distribution agreements to secure multi-year contracts that provide stable, recurring revenue channels. We expect favorable long-term growth trends as we scale our industry-leading Aviation parts distribution and MRO platform capabilities with leading global commercial brands.

Fleet Segment

OurDuring the second quarter, growth in our Fleet segment growth was driven by strong contributions from commercial fleet customers, e-commerce fulfillment volume, and the United States Postal Service ("USPS"). Our commercial clientThe strong performance in our USPS program is supported by the expansion of our installed base includes companiesof vehicles and continued support of legacy vehicles. We have made significant progress in various industries that have vehicle fleets required to meet mission-critical delivery or service schedules. We continue to execute onexecuting our revenue diversification strategy through sustainedthe successful launch of our new e-commerce fulfillment and distribution center, including the completion of initial inventory investments. These strategic initiatives have been instrumental in our ability to capture new customers and drive revenue growth inwithin e-commerce fulfillment. Our commercial revenues were 47% of total Fleet segment revenue to expand our presence beyond the long-term relationship with the USPS. Commercial customer revenue continues to see a strong growth trend, increasing 17% duringfor the three months ended March 31,June 30, 2023 compared to 40% for the same period in the prior year. We expectyear, demonstrating the continued growth within the commercial channel, and steady contributions from the USPS and government customers.

Federal and Defense Segment

Our Federal and Defense segment continues to focus on redefining VSE in the federal marketplace. We have refocusedsuccess of our resources to build our contract backlog in current and new markets. In the first quarter, revenue declined 6%, driven by program completions. Segment profitability was negatively impacted by an increase in cost-plus contracts as a percentage of total sales.

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diversification strategy.

Results of Operations

Consolidated Results of Operations

The following table summarizes our consolidated results of operations (in thousands):

Three months ended March 31, Three months ended June 30,Six months ended June 30,
20232022Change ($)Change (%) 20232022Change ($)Change (%)20232022Change ($)Change (%)
RevenuesRevenues$255,433 $231,239 $24,194 10.5 %Revenues$205,223 $169,761 $35,462 21 %$393,810 $330,081 $63,729 19 %
Costs and operating expensesCosts and operating expenses237,500 219,325 18,175 8.3 %Costs and operating expenses184,586 159,226 25,360 16 %356,395 307,529 48,866 16 %
Operating incomeOperating income17,933 11,914 6,019 50.5 %Operating income20,637 10,535 10,102 96 %37,415 22,552 14,863 66 %
Interest expense, netInterest expense, net5,977 3,609 2,368 65.6 %Interest expense, net7,366 3,872 3,494 90 %13,346 7,482 5,864 78 %
Income before income taxes11,956 8,305 3,651 44.0 %
Income from continuing operations before income taxesIncome from continuing operations before income taxes13,271 6,663 6,608 99 %24,069 15,070 8,999 60 %
Provision for income taxesProvision for income taxes2,839 2,061 778 37.7 %Provision for income taxes3,182 1,908 1,274 67 %5,860 4,026 1,834 46 %
Net income$9,117 $6,244 $2,873 46.0 %
Net income from continuing operationsNet income from continuing operations$10,089 $4,755 $5,334 112 %$18,209 $11,044 $7,165 65 %

Revenues. Revenues increased attributablefor the three months ended June 30, 2023 as compared to the same period in the prior year primarily due to growth in our Aviation segment of $19.9$19.7 million and our Fleet segment of $8.3 million, partially offset by a decrease in our Federal and Defense segment of $4.1$15.8 million. See "Segment Operating Results" section below for further discussion of revenues by segment.

Revenues increased for the six months ended June 30, 2023 as compared to the same period in the prior year primarily due to growth in our Aviation segment of $39.7 million and our Fleet segment of $24.1 million. See "Segment Operating Results" section below for further discussion of revenues by segment.

Costs and Operating Expenses. Costs and operating expenses increased for the three and six months ended June 30, 2023 as compared to the same periods in the prior year primarily due to increases in revenue. 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. Operating income increased attributablefor the three months ended June 30, 2023 compared to the same period of the prior year primarily due to an increase of $8.0$9.3 million for our Aviation segment and $0.1 million for our Federal and Defense segment, partially offset by a decrease of $0.5$2.5 million for our Fleet segment. See "Segment Operating Results" for a discussion of operating income by segment. The operating income increase attributable to our segments was partially offset by an increase of $1.6 million of expenses related toin corporate costs, including acquisition integration and restructuringintegration costs incurred during the current period.

Operating income increased for the six months ended June 30, 2023 compared to the same period of the prior year primarily due to an increase of $17.4 million for our Aviation segment and an increase of $2.0 million for our Fleet segment. See "Segment Operating Results" for a discussion of operating income by segment. The operating income increase attributable to our segments was partially offset by an increase in corporate costs, including acquisition and integration costs incurred during the current period.

Interest Expense. Interest expense increased for the three and six months ended June 30, 2023 as compared to the same periods in the prior year primarily due to a higher average interest rate on borrowings outstanding.
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Provision for Income Taxes. Our effective tax rate for continued operations was 23.7%24.0% and 24.3% for the three and six months ended March 31,June 30, 2023, respectively, and 24.8%28.6% and 26.7% for the same period of the prior year.three and six months ended June 30, 2022, 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 lower effective tax rate for the three and six months ended March 31,June 30, 2023 primarily resulted from (1) book income in connection with the fair market value increase in our Company Owned Life Insurance ("COLI") plan in the period ended March 31,June 30, 2023 that was reversed for tax purposes as opposed to book expense in the same period in 2022, and (2) higher FDII tax deduction projected for 2023 compared to 2022.

Segment Operating Results

Aviation Segment Results

The results of operations for our Aviation segment were as follows (in thousands):
 Three months ended March 31,
 20232022Change ($)Change (%)
Revenues$113,235 $93,290 $19,945 21 %
Costs and operating expenses97,572 85,668 11,904 14 %
Operating income$15,663 $7,622 $8,041 105 %
Profit percentage13.8 %8.2 % 

 Three months ended June 30,Six months ended June 30,
 20232022Change ($)Change (%)20232022Change ($)Change (%)
Revenues$124,729$105,019$19,710 19 %$237,964$198,309 $39,655 20 %
Costs and operating expenses108,94698,56910,377 11 %206,517184,23722,280 12 %
Operating income$15,783$6,450$9,333 145 %$31,447$14,072$17,375 123 %
Profit percentage12.7 %6.1 %13.2 %7.1 % 

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Revenues. Revenues for our Aviation segment increased for the three months ended March 31,June 30, 2023 compared to the same period of the prior year primarily driven by contributions from recently initiated distribution contract wins and improved demand for our commercial aerospace products and services resulting from continued recovery in global commercial air travel. Aviation distribution revenue increased $10.3$10.1 million, or 14%13%, and repair revenue increased $9.7$9.6 million, or 43%37%, for the three months ended March 31,June 30, 2023 compared to the same period in the prior year.

Revenues for our Aviation segment increased for the six months ended June 30, 2023 compared to the same period of the prior year primarily driven by contributions from recently initiated distribution contract wins and improved demand for our commercial aerospace products and services resulting from continued recovery in global commercial air travel. Aviation distribution revenue increased $20.4 million, or 14%, and repair revenue increased $19.3 million, or 40%, for the six months ended June 30, 2023 compared to the same period in the prior year.

Costs and operating expenses. Costs and operating expenses increased for the three months ended March 31,June 30, 2023 compared to the same period of 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 $2.5 million for the three months ended March 31,June 30, 2023 compared to $2.3 million for the same period in the prior year. Allocated corporate costs were $3.2$3.0 million for the threesix months ended March 31,June 30, 2023 compared to $2.9$2.8 million for the same period in the prior year.

Costs and operating expenses increased for the six months ended June 30, 2023 compared to the same period of 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 six months ended June 30, 2023 compared to $4.7 million for the same period in the prior year. Allocated corporate costs were $6.2 million for the six months ended June 30, 2023 compared to $5.7 million for the same period in the prior year.

Operating income. Operating income increased for the three and six months ended March 31,June 30, 2023 compared to the same period of the prior year primarily due to revenue growth and a favorable shift in sales mix and pricing.


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Fleet Segment Results

The results of operations for our Fleet segment were as follows (in thousands):
Three months ended March 31, Three months ended June 30,Six months ended June 30,
20232022Change ($)Change (%) 20232022Change ($)Change (%)20232022Change ($)Change (%)
RevenuesRevenues$75,352 $67,030 $8,322 12 %Revenues$80,494$64,742$15,752 24 %$155,846$131,772$24,074 18 %
Costs and operating expensesCosts and operating expenses69,453 60,649 8,804 15 %Costs and operating expenses72,64059,37613,264 22 %142,093120,02522,068 18 %
Operating incomeOperating income$5,899 $6,381 $(482)(8)%Operating income$7,854$5,366$2,488 46 %$13,753$11,747$2,006 17 %
Profit percentageProfit percentage7.8 %9.5 % Profit percentage9.8 %8.3 %8.8 %8.9 % 

Revenues. Revenues for our Fleet segment increased for the three months ended March 31,June 30, 2023 compared to the same period of the prior year primarily attributabledue to increases from commercial customers of $4.7$12.0 million, or 17%46%, and other government customers of $5.4$5.0 million, or 14%13%. These increases were partially offset by decreased revenues from DoD customers of $1.7$1.3 million. Commercial customer revenue growth was driven by our commercial fleet and e-commerce fulfillment business. Revenues from other government customers increased attributableprimarily due to increased support of legacy USPS vehicle fleets.

Revenues for our Fleet segment increased for the six months ended June 30, 2023 compared to the same period of the prior year primarily due to increases from commercial customers of $16.7 million, or 31%, and other government customers of $10.3 million, or 14%. These increases were partially offset by decreased revenues from DoD customers of $3.0 million. Commercial customer revenue growth was driven by our commercial fleet and e-commerce fulfillment business. Revenues from other government customers increased primarily due to increased support of legacy USPS vehicle fleets.

Costs and operating expense. Costs and operating expenses increased for the three months ended March 31,June 30, 2023 compared to the same period of the prior year primarily due to increased revenues. In addition, 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 $1.5$1.1 million for the three months ended March 31,June 30, 2023 compared to $1.8$1.7 million for the same period in the prior year. Expense for allocated corporate costs was $2.0 million for the three months ended March 31,June 30, 2023 and $2.1$1.8 million for the same period in the prior year.

Costs and operating expenses increased for the six months ended June 30, 2023 compared to the same period of the prior year primarily due to increased revenues. In addition, 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 $2.6 million for the six months ended June 30, 2023 compared to $3.4 million for the same period in the prior year. Expense for allocated corporate costs was$4.0 millionfor the six months ended June 30, 2023 and $3.9 million for the same period in the prior year.

Operating income. Operating income decreasedincreased for the three and six months ended March 31,June 30, 2023 compared to the same period of the prior year primarily driven by costs for the newly launched e-commerce fulfillment and distribution center in the Memphis area.increased revenues.

Federal and Defense Segment Results

The results of operations for our Federal and Defense segment were as follows (in thousands):
 Three months ended March 31,
 20232022Change ($)Change (%)
Revenues$66,846 $70,919 $(4,073)(6)%
Costs and operating expenses67,426 71,607 (4,181)(6)%
Operating loss$(580)$(688)$108 (16)%
Loss percentage(0.9)%(1.0)% 

Revenues. Revenues for our Federal and Defense segment decreased for the three months ended March 31, 2023 compared to the same period of the prior year due to declines in our U.S. Army work due to program completions and volume declines related to a
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maintenance contract with the U.S. Air Force. These decreases were partially offset by an increase in logistics and distribution program sales.

Costs and operating expenses. Costs and operating expenses decreased for the three months ended March 31, 2023 compared to the same period of the prior year primary attributable to a decrease in revenue and a $3.5 million loss recognized in the prior year on a fixed-price contract.

Operating loss. Operating loss decreased for the three months ended March 31, 2023 compared to the same period of the prior year primarily due to decreased revenue, 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, and costs associated with restructure-related activities in the current period.

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 three months ended March 31, 2023 and 2022, and funded contract backlog as of March 31, 2023 and 2022 is as follows (in millions):
 20232022
Bookings$61 $92 
Revenues$67 $71 
Funded Contract Backlog$185 $198 

For the three months ended March 31, 2023, Federal and Defense segment bookings decreased 34% year-over-year to $61 million, while total funded backlog decreased 7% year-over-year to $185 million.

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. Our inventory and accounts payable levels can be affected by the timing of large opportunistic inventory purchases and by distributor agreement requirements. Our accounts receivable and accounts payable levels can be affected by changes in the level of contract work we perform and by the timing of large materials purchases and subcontractor efforts used in our contracts, and by delays in the award of contractual coverage and funding and payments.purchases. In addition to operating cash flows, other significant factors that affect our overall management of liquidity include capital expenditures; and investments in the acquisition of businesses.

Our primary source of external financing is our loancredit agreement with a bank group and includes a term loan facility and a revolving loan facility, with an aggregate maximum borrowing capacity of $350$350.0 million. Under the loancredit 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 increases is $100$100.0 million. Our bank debtoutstanding borrowings under the credit
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agreement increased approximately $65.4$88.4 million for the threesix months ended March 31,June 30, 2023. As of March 31,June 30, 2023, we had borrowings outstanding under our term loan of $95.0 million, borrowings outstanding under our revolving facility of $97.5 million, revolving loan borrowings outstanding of $256.5$282.0 million, outstanding letters of credit of $0.7 million, and $93$67.3 million of unused bank loan commitments.commitments under the credit agreement.


In July 2023, we entered into a fifth amendment to our credit agreement which, among other things, provided for the following: (i) the extension of a new term loan in the aggregate principal amount of $90.0 million, which will mature on the same date as the existing term loan; (ii) a reduction in our capacity to incur incremental revolving or term loan credit facilities from $100.0 million to $25.0 million; (iii) quarterly amortization payments for the new term loan in the amount of $2.25 million; (iv) an increase in the maximum Total Funded Debt to EBITDA Ratio from 4.50x to 5.00x, with such ratios decreasing thereafter as indicated in the table below; (v) the addition of a tier to the top of the pricing grid if the Total Funded Debt to EBITDA ratio exceeds 4.50x; and (vi) expressly permitting the Desser acquisition and the Loar Sale. The net proceeds received under the new term loan were used to fund a portion of the cash consideration for the Desser acquisition.


Testing PeriodMaximum Total Funded Debt to EBITDA Ratio
June 30, 2023 through and including September 30, 20235.00 to 1.00
December 31, 2023 through and including June 30, 20244.75 to 1.00
September 30, 20244.50 to 1.00
December 31, 2024 through and including March 31, 20254.25 to 1.00
June 30, 20254.00 to 1.00
September 30, 2025 and thereafter3.75 to 1.00

-19-In July 2023, we entered into an underwriting agreement with William Blair & Company, L.L.C and RBC Capital Markets, acting as representatives of several underwriters, relating to the issuance and sale of 2,475,000 shares of the Company's common stock at a public offering price of $48.50 per share. Under the terms of the agreement, we granted the underwriters an option, exercisable for 30 days, to purchase up to an additional 371,250 shares of common stock. The offering closed on July 24, 2023 and we received net proceeds of $112.7 million in connection with the offering, net of issuance costs.

Table
We believe our existing balances of Contentscash and cash equivalents, along with our cash flows from operations and debt instruments under our credit agreement mentioned above, will provide sufficient liquidity for our business operations as well as capital expenditures, dividends, and other capital requirements associated with our business operations over the next twelve months and thereafter for the foreseeable future.

Cash Flows

The following table summarizes our cash flows (in thousand)thousands):

Three months ended March 31,Six months ended June 30,
20232022 20232022
Net cash used in operating activitiesNet cash used in operating activities$(48,674)$(18,174)Net cash used in operating activities$(65,091)$(20,138)
Net cash (used in) provided by investing activitiesNet cash (used in) provided by investing activities(14,594)1,393 Net cash (used in) provided by investing activities(16,291)327 
Net cash provided by financing activitiesNet cash provided by financing activities63,322 16,761 Net cash provided by financing activities85,244 19,664 
Net increase (decrease) in cash and cash equivalentsNet increase (decrease) in cash and cash equivalents$54 $(20)Net increase (decrease) in cash and cash equivalents$3,862 $(147)

Cash used in operating activities increased $30.5$44.9 million for the threesix months ended March 31,June 30, 2023 as compared to the same period of the prior year. The increase was primarily due to greater use of cash for inventory purchases.

Cash used in investing activities was $14.6$16.3 million for the threesix months ended March 31,June 30, 2023 compared to cash provided by investing activities of $1.4$0.3 million for the same period of the prior year. The change was primarily due to cash paid for the acquisition of Precision Fuel in the current period.

Cash provided by financing activities increased $46.6$65.6 million for the threesix months ended March 31,June 30, 2023 as compared to the same period of the prior year. The increase was primarily due to overall higher proceeds from net borrowings of our debt during the current period.
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We paid cash dividends totaling $1.3$2.6 million or $0.10$0.20 per share during the threesix months ending March 31,June 30, 2023. 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, 2022.

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.

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.
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Disclosures About Market Risk

Interest Rate Risk

Our bank loancredit agreement provides available borrowing to us at variable interest rates. Our interest expense is impacted by the overall global economic and interest rate environment. The inflationary environment has also resulted in central banks raising short-term interest rates. Accordingly, future interest rate changes could potentially put us at risk for a material adverse impact on future earnings and cash flows. To mitigate the risks associated with future interest rate movements we have employed interest rate hedges to fix the rate on a portion of our outstanding borrowings for various periods.

In July 2023, we executed a fixed interest rate swap that hedges the variability in interest payments on $100.0 million of floating rate debt.

For additional information related to our debt and interest rate swap agreements, see Note (4)(5) and Note (5)(6), respectively, to our Consolidated Financial Statements contained in this report.

There have been no material changes 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 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 2022 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 threesix months ended March 31,June 30, 2023 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 Summary of Significant Accounting Policies
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— Recent Adopted Accounting Pronouncements” of the Notes to our Unaudited Consolidated Financial Statements included in Item 1 of this report.our Annual Report on Form 10-K for the year ended December 31, 2022.


Item 3.    Quantitative and Qualitative Disclosures About Market RisksRisk

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,June 30, 2023, 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 communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.




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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


PART II.   OTHER INFORMATION

Item 1.    Legal Proceedings

None.


Item 1A. Risk Factors

The risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 ("2022 Form 10-K”) should be considered together with information included in this Quarterly Report on Form 10-Q for the quarter ended March 31,June 30, 2023 and under "Forward-Looking Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The risk factors set forth in our Annual Report on2022 Form 10-K are updated by adding the following:

Circumstances associated with divestitures could adversely affect the Company's results of operations and financial condition.

We may periodically divest businesses, including businesses that are no longer a part of our ongoing strategic plan. These divestitures may require significant investment of time and resources and may disrupt our business, distract management from other responsibilities, and may result in losses on disposal or continued financial involvement in the divested business, including through indemnification or other arrangements, for a period of time following the transaction, which could adversely affect our financial results.


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.



Item 5.    Other Information


During the three months ended June 30, 2023, no director or "officer," as defined in Rule 16a-1(f) of the Exchange Act, of the Company adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408 of Regulation S-K.

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Item 6.    Exhibits

(a) Exhibits  
Exhibit 2.1
Exhibit 2.2


Exhibit 3.1
Exhibit 3.2
Exhibit 3.3
Exhibit 3.4


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


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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:May 2,July 27, 2023By:/s/ John A. Cuomo
  John A. Cuomo
  Director, Chief Executive Officer and President
  (Principal Executive Officer)

Date:May 2,July 27, 2023By:/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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