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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 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
VSE CORPORATION
(Exact Name of Registrant as Specified in its Charter)

Delaware | 54-0649263
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.)

6348 Walker Lane |  |  |  |
Alexandria, | Virginia |  |  |  | 22310
(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 class |  | Trading Symbol |  | Name of each exchange on which registered
Common Stock, par value $0.05 per share |  | VSEC |  | The 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 filer | ☐ | Accelerated filer | ☒ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging 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 October 21, 2022: 12,799,678

| TABLE OF CONTENTS |
|  | Page
PART I |  |
ITEM 1. | Financial Statements |
| Unaudited Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 | 4
| Unaudited Consolidated Statements of Income for the three and nine months ended September 30, 2022 and 2021 | 5
| Unaudited Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and 2021 | 6
| Unaudited Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2022 and 2021 | 8
| Unaudited Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2022 and 2021 | 9
| Notes to Unaudited Consolidated Financial Statements | 10
ITEM 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 18
ITEM 3. | Quantitative and Qualitative Disclosures About Market Risks | 25
ITEM 4. | Controls and Procedures | 25
PART II |  |
ITEM 1. | Legal Proceedings | 26
ITEM 1A. | Risk Factors | 26
ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 26
ITEM 6. | Exhibits | 27
Signatures |  | 28

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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)

| September 30, |  | December 31,
| 2022 |  | 2021
Assets |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 90 |  |  | $ | 518 |
Receivables (net of allowance of $3.4 million and $1.7 million, respectively) | 91,093 |  |  | 76,587 |
Unbilled receivables | 44,084 |  |  | 31,882 |
Inventories | 349,917 |  |  | 322,702 |
Other current assets | 28,154 |  |  | 32,304 |
Total current assets | 513,338 |  |  | 463,993 |
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) | 94,857 |  |  | 108,263 |
Goodwill | 248,837 |  |  | 248,753 |
Operating lease - right-of-use assets | 23,950 |  |  | 27,327 |
Other assets | 31,980 |  |  | 27,736 |
Total assets | $ | 957,526 |  |  | $ | 918,558 |
Liabilities and Stockholders' equity |  |  |
Current liabilities: |  |  |
Current portion of long-term debt | $ | 9,162 |  |  | $ | 14,162 |
Accounts payable | 119,093 |  |  | 115,064 |
Accrued expenses and other current liabilities | 50,791 |  |  | 49,465 |
Dividends payable | 1,280 |  |  | 1,273 |
Total current liabilities | 180,326 |  |  | 179,964 |
Long-term debt, less current portion | 288,531 |  |  | 270,407 |
Deferred compensation | 10,128 |  |  | 14,328 |
Long-term operating lease obligations | 22,947 |  |  | 27,168 |
Deferred tax liabilities | 10,166 |  |  | 9,108 |
Other long-term liabilities | — |  |  | 250 |
Total liabilities | 512,098 |  |  | 501,225 |
Commitments and contingencies (Note 6) |  |  |
Stockholders' equity: |  |  |
Common stock, par value $0.05 per share, authorized 23,000,000 shares; issued and outstanding 12,799,678 and 12,726,659, respectively | 640 |  |  | 636 |
Additional paid-in capital | 91,706 |  |  | 88,515 |
Retained earnings | 347,730 |  |  | 328,358 |
Accumulated other comprehensive income (loss) | 5,352 |  |  | (176) |
Total stockholders' equity | 445,428 |  |  | 417,333 |
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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VSE Corporation and Subsidiaries
Unaudited Consolidated Statements of Income
(in thousands except share and per share amounts)

|  | For the three months ended September 30, |  | For the nine months ended September 30,
|  | 2022 |  | 2021 |  | 2022 |  | 2021
Revenues: |  |  |  |  |  |  |  |
Products |  | $ | 138,216 |  |  | $ | 113,005 |  |  | $ | 419,023 |  |  | $ | 276,048 |
Services |  | 104,271 |  |  | 87,577 |  |  | 296,416 |  |  | 264,627 |
Total revenues |  | 242,487 |  |  | 200,582 |  |  | 715,439 |  |  | 540,675 |
Costs and operating expenses: |  |  |  |  |  |  |  |
Products |  | 123,348 |  |  | 101,044 |  |  | 376,781 |  |  | 273,081 |
Services |  | 96,653 |  |  | 79,916 |  |  | 279,163 |  |  | 241,104 |
Selling, general and administrative expenses |  | 981 |  |  | 809 |  |  | 2,752 |  |  | 1,897 |
Amortization of intangible assets |  | 4,233 |  |  | 4,921 |  |  | 13,406 |  |  | 13,812 |
Total costs and operating expenses |  | 225,215 |  |  | 186,690 |  |  | 672,102 |  |  | 529,894 |
Operating income |  | 17,272 |  |  | 13,892 |  |  | 43,337 |  |  | 10,781 |
Interest expense, net |  | 4,818 |  |  | 2,780 |  |  | 12,299 |  |  | 8,476 |
Income before income taxes |  | 12,454 |  |  | 11,112 |  |  | 31,038 |  |  | 2,305 |
Provision for income taxes |  | 3,035 |  |  | 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 outstanding |  | 12,797,727 |  |  | 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 outstanding |  | 12,834,084 |  |  | 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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VSE Corporation and Subsidiaries
Unaudited Consolidated Statements of Comprehensive Income
(in thousands)

|  | For the three months ended September 30, |  | For the nine months ended September 30,
|  | 2022 |  | 2021 |  | 2022 |  | 2021
Net income |  | $ | 9,419 |  |  | $ | 9,021 |  |  | $ | 23,211 |  |  | $ | 1,766 |
Change in fair value of interest rate swap agreements, net of tax |  | 5,352 |  |  | 173 |  |  | 5,528 |  |  | 836 |
Other comprehensive income, net of tax |  | 5,352 |  |  | 173 |  |  | 5,528 |  |  | 836 |
Comprehensive income |  | $ | 14,771 |  |  | $ | 9,194 |  |  | $ | 28,739 |  |  | $ | 2,602 |

The accompanying notes are an integral part of these unaudited consolidated financial statements.
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VSE Corporation and Subsidiaries
Unaudited Consolidated Statements of Stockholders' Equity
(in thousands except per share data)

| Three months ended September 30, 2022
|  |  |  |  | Additional Paid-In Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Income |  | Total Stockholders' Equity
| Common Stock |  |  |  |
| Shares |  | Amount |  |  |  |
Balance at June 30, 2022 | 12,795 |  |  | $ | 640 |  |  | $ | 91,051 |  |  | $ | 339,592 |  |  | $ | — |  |  | $ | 431,283 |
Net income | — |  |  | — |  |  | — |  |  | 9,419 |  |  | — |  |  | 9,419 |
Stock-based compensation | 5 |  |  | — |  |  | 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, 2022 | 12,800 |  |  | $ | 640 |  |  | $ | 91,706 |  |  | $ | 347,730 |  |  | $ | 5,352 |  |  | $ | 445,428 |

| Three months ended September 30, 2021
|  |  |  |  | Additional Paid-In Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  | Total Stockholders' Equity
| Common Stock |  |  |  |
| Shares |  | Amount |  |  |  |
Balance at June 30, 2021 | 12,704 |  |  | $ | 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, 2021 | 12,704 |  |  | $ | 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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VSE Corporation and Subsidiaries
Unaudited Consolidated Statements of Stockholders' Equity (continued)
(in thousands except per share data)

| Nine months ended September 30, 2022
|  |  |  |  | Additional Paid-In Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Income (Loss) |  | Total Stockholders' Equity
| Common Stock |  |  |  |
| Shares |  | Amount |  |  |  |
Balance at December 31, 2021 | 12,727 |  |  | $ | 636 |  |  | $ | 88,515 |  |  | $ | 328,358 |  |  | $ | (176) |  |  | $ | 417,333 |
Net income | — |  |  | — |  |  | — |  |  | 23,211 |  |  | — |  |  | 23,211 |
Stock-based compensation | 73 |  |  | 4 |  |  | 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, 2022 | 12,800 |  |  | $ | 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 |  |  |  |
| Shares |  | Amount |  |  |  |
Balance at December 31, 2020 | 11,055 |  |  | $ | 553 |  |  | $ | 31,870 |  |  | $ | 325,097 |  |  | $ | (1,203) |  |  | $ | 356,317 |
Issuance of common stock | 1,599 |  |  | 80 |  |  | 51,937 |  |  | — |  |  | — |  |  | 52,017 |
Net income | — |  |  | — |  |  | — |  |  | 1,766 |  |  | — |  |  | 1,766 |
Stock-based compensation | 50 |  |  | 2 |  |  | 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, 2021 | 12,704 |  |  | $ | 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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VSE Corporation and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
(in thousands)

|  | For the nine months ended September 30,
|  | 2022 |  | 2021
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 amortization |  | 19,277 |  |  | 18,996 |
Deferred taxes |  | (779) |  |  | (4,803) |
Stock-based compensation |  | 3,597 |  |  | 2,968 |
Inventory valuation adjustment |  | 1,094 |  |  | 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 assets |  | 6,189 |  |  | (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 receivable |  | 4,235 |  |  | 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 agreement |  | 358,051 |  |  | 394,079 |
Repayments on loan agreement |  | (345,554) |  |  | (350,956) |
Proceeds from issuance of common stock |  | 486 |  |  | 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 activities |  | 6,959 |  |  | 90,367 |
Net (decrease) increase in cash and cash equivalents |  | (428) |  |  | 5 |
Cash and cash equivalents at beginning of period |  | 518 |  |  | 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
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. We conduct our operations under three 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 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 purchase price of $40 million, net of cash acquired. The 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
September 30, 2022
Table of Contents
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 nine months ended 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 each of our operating segments for the three and nine months ended September 30, 2022 were as follows (in thousands):

|  | Three months ended September 30, 2022
|  | Aviation |  | Fleet |  | Federal and Defense |  | Total
Commercial |  | $ | 101,735 |  |  | $ | 25,394 |  |  | $ | 129 |  |  | $ | 127,258 |
DoD |  | — |  |  | 183 |  |  | 60,550 |  |  | 60,733 |
Other government |  | 890 |  |  | 39,177 |  |  | 14,429 |  |  | 54,496 |
Total |  | $ | 102,625 |  |  | $ | 64,754 |  |  | $ | 75,108 |  |  | $ | 242,487 |

|  | Nine months ended September 30, 2022
|  | Aviation |  | Fleet |  | Federal and Defense |  | Total
Commercial |  | $ | 296,996 |  |  | $ | 79,257 |  |  | $ | 387 |  |  | $ | 376,640 |
DoD |  | — |  |  | 3,176 |  |  | 170,205 |  |  | 173,381 |
Other government |  | 3,938 |  |  | 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 September 30, 2021
|  | Aviation |  | Fleet |  | Federal and Defense |  | Total
Commercial |  | $ | 72,542 |  |  | $ | 20,690 |  |  | $ | 931 |  |  | $ | 94,163 |
DoD |  | — |  |  | 2,739 |  |  | 58,123 |  |  | 60,862 |
Other government |  | 582 |  |  | 36,839 |  |  | 8,136 |  |  | 45,557 |
Total |  | $ | 73,124 |  |  | $ | 60,268 |  |  | $ | 67,190 |  |  | $ | 200,582 |

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VSE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
Table of Contents

|  | Nine months ended September 30, 2021
|  | Aviation |  | Fleet |  | Federal and Defense |  | Total
Commercial |  | $ | 164,353 |  |  | $ | 52,757 |  |  | $ | 1,434 |  |  | $ | 218,544 |
DoD |  | — |  |  | 10,517 |  |  | 162,984 |  |  | 173,501 |
Other government |  | 657 |  |  | 109,798 |  |  | 38,175 |  |  | 148,630 |
Total |  | $ | 165,010 |  |  | $ | 173,072 |  |  | $ | 202,593 |  |  | $ | 540,675 |

Revenues by type for each of our operating segments for the three and nine months ended September 30, 2022 were as follows (in thousands):

|  | Three months ended September 30, 2022
|  | Aviation |  | Fleet |  | Federal and Defense |  | Total
Repair |  | $ | 28,979 |  |  | $ | — |  |  | $ | — |  |  | $ | 28,979 |
Distribution |  | 73,646 |  |  | 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
|  | Aviation |  | Fleet |  | Federal and Defense |  | Total
Repair |  | $ | 77,308 |  |  | $ | — |  |  | $ | — |  |  | $ | 77,308 |
Distribution |  | 223,626 |  |  | 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 September 30, 2021
|  | Aviation |  | Fleet |  | Federal and Defense |  | Total
Repair |  | $ | 18,714 |  |  | $ | — |  |  | $ | — |  |  | $ | 18,714 |
Distribution |  | 54,410 |  |  | 60,268 |  |  | — |  |  | 114,678 |
Cost Plus Contract |  | — |  |  | — |  |  | 26,775 |  |  | 26,775 |
Fixed Price Contract |  | — |  |  | — |  |  | 25,729 |  |  | 25,729 |
T&M Contract |  | — |  |  | — |  |  | 14,686 |  |  | 14,686 |
Total |  | $ | 73,124 |  |  | $ | 60,268 |  |  | $ | 67,190 |  |  | $ | 200,582 |

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
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|  | Nine months ended September 30, 2021
|  | Aviation |  | Fleet |  | Federal and Defense |  | Total
Repair |  | $ | 56,051 |  |  | $ | — |  |  | $ | — |  |  | $ | 56,051 |
Distribution |  | 108,959 |  |  | 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 $44.1 million as of 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 $7.7 million as of September 30, 2022 and $7.1 million as of December 31, 2021. For the nine months ended September 30, 2022 and 2021, we recognized revenue that was previously included in the beginning balance of contract liabilities of $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 are primarily related to the sales of vehicle and aircraft parts in our Fleet and Aviation segments. Revenues from products and services transferred to customers at a point in time accounted for approximately 57% and 59% of our revenues for the three and nine months ended September 30, 2022, respectively, and approximately 57% and 52% for the three and nine months ended September 30, 2021, 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 September 30, 2022, the aggregate amount of transaction prices allocated to unsatisfied or partially unsatisfied performance obligations was $199 million. The performance obligations expected to be satisfied within one year and greater than one year are 96% and 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.
During the nine months ended September 30, 2022 and 2021, revenue recognized from performance obligations satisfied in prior periods was not material.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
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(4) Debt
Long-term debt consisted of the following (in thousands):

| September 30, |  | December 31,
| 2022 |  | 2021
Bank credit facility - term loan | $ | 48,925 |  |  | $ | 60,175 |
Bank credit facility - revolver loans | 250,305 |  |  | 226,559 |
Principal amount of long-term debt | 299,230 |  |  | 286,734 |
Less debt issuance costs | (1,537) |  |  | (2,165) |
Total long-term debt | 297,693 |  |  | 284,569 |
Less current portion | (9,162) |  |  | (14,162) |
Long-term debt, less current portion | $ | 288,531 |  |  | $ | 270,407 |

We had letters of credit outstanding totaling $1.2 million and $1.0 million as of September 30, 2022 and December 31, 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 September 30, 2022, the LIBOR margin was 2.25% and the base margin was 6.25%. The margins increase or decrease in increments as our Total Funded Debt/EBITDA Ratio increases or decreases. As of September 30, 2022, interest rates on our outstanding debt ranged from 6.13% to 8.50%, and the effective interest rate on our aggregate outstanding debt was 6.42%.
Interest expense incurred on bank loan borrowings, inclusive of the effect of interest rate hedges, was $4.6 million and $2.7 million for the three months ended September 30, 2022 and 2021, respectively, and $11.7 million and $7.9 million for the nine months ended September 30, 2022 and 2021, respectively.
Our required term and revolver loan principal payments as of September 30, 2022 are as follows (in thousands):

Year Ending |  | Term Loan |  | Revolver Loan |  | Total
Remainder of 2022 |  | $ | 3,750 |  |  | $ | — |  |  | $ | 3,750 |
2023 |  | 15,000 |  |  | — |  |  | 15,000 |
2024 |  | 30,175 |  |  | 250,305 |  |  | 280,480 |
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 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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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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. Antidilutive common stock equivalents excluded from the diluted earnings per share calculation for the three and nine month ended September 30, 2022 and 2021 were not material.
The weighted-average number of shares outstanding used to compute basic and diluted EPS were as follows:

|  |  |  | Three months ended September 30, |  | Nine months ended September 30,
|  |  |  |  |  | 2022 |  | 2021 |  | 2022 |  | 2021
Basic weighted average common shares outstanding |  |  |  |  |  | 12,797,727 |  |  | 12,704,165 |  |  | 12,772,731 |  |  | 12,496,646 |
Effect of dilutive shares |  |  |  |  |  | 36,357 |  |  | 70,471 |  |  | 43,588 |  |  | 76,430 |
Diluted weighted average common shares outstanding |  |  |  |  |  | 12,834,084 |  |  | 12,774,636 |  |  | 12,816,319 |  |  | 12,573,076 |

(6) Commitments and Contingencies
Contingencies
We are involved in various claims and lawsuits arising in the normal conduct of its business, none of which we believe, based on current information, is expected to have a material adverse effect on our financial position, results of operations 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.
(7) Business Segments and Customer Information
Business Segments
Management of our business operations is conducted under three 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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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
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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 September 30, |  | Nine months ended September 30,
|  | 2022 |  | 2021 |  | 2022 |  | 2021
Revenues: |  |  |  |  |  |  |  |
Aviation |  | $ | 102,625 |  |  | $ | 73,124 |  |  | $ | 300,934 |  |  | $ | 165,010 |
Fleet |  | 64,754 |  |  | 60,268 |  |  | 196,526 |  |  | 173,072 |
Federal and Defense |  | 75,108 |  |  | 67,190 |  |  | 217,979 |  |  | 202,593 |
Total revenues |  | $ | 242,487 |  |  | $ | 200,582 |  |  | $ | 715,439 |  |  | $ | 540,675 |
Operating income (loss): |  |  |  |  |  |  |  |
Aviation |  | $ | 10,017 |  |  | $ | 3,719 |  |  | $ | 24,089 |  |  | $ | (18,885) |
Fleet |  | 6,539 |  |  | 5,387 |  |  | 18,286 |  |  | 15,128 |
Federal and Defense |  | 1,939 |  |  | 5,386 |  |  | 3,803 |  |  | 17,410 |
Corporate/unallocated expenses |  | (1,223) |  |  | (600) |  |  | (2,841) |  |  | (2,872) |
Operating income |  | $ | 17,272 |  |  | $ | 13,892 |  |  | $ | 43,337 |  |  | $ | 10,781 |

(8) Fair Value Measurements
The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021 and the level they fall within the fair value hierarchy (in thousands):

Amounts Recorded at Fair Value |  | Financial Statement Classification |  | Fair Value Hierarchy |  | Fair Value September 30, 2022 |  | Fair Value December 31, 2021
Non-COLI assets held in Deferred Supplemental Compensation Plan |  | Other assets |  | Level 1 |  | $ | 515 |  |  | $ | 598 |
Interest rate swaps |  | Other assets |  | Level 2 |  | $ | 7,131 |  |  | $ | — |
Interest rate swaps |  | Accrued expenses and other current liabilities |  | Level 2 |  | $ | — |  |  | $ | 234 |
Earn-out obligation - short-term |  | Accrued expenses and other current liabilities |  | Level 3 |  | $ | — |  |  | $ | 1,000 |
Earn-out obligation - long-term |  | Other long-term liabilities |  | Level 3 |  | $ | — |  |  | $ | 250 |

Non-Company Owned Life Insurance ("COLI")
Non-COLI assets held in our deferred supplemental co mpensation 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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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
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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 swaps, 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 swaps expired in February and March 2022. As of December 31, 2021, the fair value of such swaps 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 swaps 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 were 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 nine months ended September 30, 2022 are as follows (in thousands):

|  | Current portion |  | Long-term portion |  | Total
Balance as of December 31, 2021 |  | $ | 1,000 |  |  | $ | 250 |  |  | $ | 1,250 |
Reclassification from long-term to current |  | 250 |  |  | (250) |  |  | — |
Earn-out payments |  | (1,250) |  |  | — |  |  | (1,250) |
Balance as of September 30, 2022 |  | $ | — |  |  | $ | — |  |  | $ | — |

Other 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 24.4% and 25.2% for the three and nine months ended 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 September 30, 2022 as compared to the same period in the prior year primarily due to book expense in connection with the decline in value of our COLI assets in the period ended September 30, 2022 that was reversed for tax purposes as opposed to book income in the same period in 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
The coronavirus disease (COVID-19) pandemic continues to negatively affect the global economy, our business and operations, supply chains, and the industries in which we operate. However, we have seen continued improvement in our operating results during the nine months ended September 30, 2022, which we expect to continue through 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
The COVID-19 pandemic impacted our Aviation segment operations, particularly in 2020 and 2021. We have seen continued improvement in our quarterly revenue results due to the recovery in demand since the peak of the COVID-19 pandemic impact during the second quarter of 2020. Our Aviation segment results have benefited from strong performance following prior investments in growth initiatives that have produced positive results with quarterly revenue of $103 million, a 40% increase year-over-year.
Growth in our distribution services has been driven by several new distribution initiatives in providing “tip-to-tail” product-line management capabilities, while our repair business has benefited from a broader recovery in commercial market activity, together with share gains within the business & general aviation (“B&GA”) market. Market recovery and our growth initiatives have resulted in a 105% and 38% year-over-year increase in distribution and repair revenue, respectively, during the first nine months of 2022 compared to the same period for the prior year.
We have recently secured key multi-year distribution agreements to both domestic and new international geographic markets. We believe the new distribution initiatives will provide sustainable and recurring revenue with growth potential that will enhance our future results. The acquisition of Global Parts, in July 2021, broadens our product lines and client base, and we see opportunities to strategically align offerings with both domestic and 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 as the business continues to progress towards becoming a more diversified enterprise. We continue to execute on our revenue diversification strategy as 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 Olive 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 commence at this new location in early 2023 and will enable Fleet to successfully meet the rapidly growing demand for the e-commerce fulfillment business. Commercial customer revenue continues to see a strong growth trend, increasing approximately 23% and 50% during the quarter and first nine months of 2022, respectively, compared to the same periods in the prior year. Commercial revenues were 40% of total Fleet segment revenue for the nine months ended September 30, 2022 compared to 30% for the same period in the prior year, demonstrating the continued success of our strategic multi-year diversification strategy.
Federal and Defense Segment
Our Federal and Defense segment continues to focus on building 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 both the timing of contract awards and the funding process. Strong revenue performance in U.S Navy work enabled us to successfully grow our third quarter revenue for this segment despite anticipated declines in our U.S. Army work due to program completions. We expect that our focused business development efforts will drive new revenue additions in subsequent years.
Results of Operations
Consolidated Results of Operations
Our consolidated results of operations are as follows (in thousands):

| Three months ended September 30, |  |  |  | Nine months ended September 30,
| 2022 |  | 2021 |  | Change ($) |  | Change (%) |  |  |  |  |  | 2022 |  | 2021 |  |  |  | Change ($) |  | Change (%)
Revenues | $ | 242,487 |  |  | $ | 200,582 |  |  | $ | 41,905 |  |  | 21 | % |  |  |  |  |  | $ | 715,439 |  |  | $ | 540,675 |  |  |  |  | $ | 174,764 |  |  | 32 | %
Costs and operating expenses | 225,215 |  |  | 186,690 |  |  | 38,525 |  |  | 21 | % |  |  |  |  |  | 672,102 |  |  | 529,894 |  |  |  |  | 142,208 |  |  | 27 | %
Operating income | 17,272 |  |  | 13,892 |  |  | 3,380 |  |  | 24 | % |  |  |  |  |  | 43,337 |  |  | 10,781 |  |  |  |  | 32,556 |  |  | 302 | %
Interest expense, net | 4,818 |  |  | 2,780 |  |  | 2,038 |  |  | 73 | % |  |  |  |  |  | 12,299 |  |  | 8,476 |  |  |  |  | 3,823 |  |  | 45 | %
Income before income taxes | 12,454 |  |  | 11,112 |  |  | 1,342 |  |  | 12 | % |  |  |  |  |  | 31,038 |  |  | 2,305 |  |  |  |  | 28,733 |  |  | 1,247 | %
Provision for income taxes | 3,035 |  |  | 2,091 |  |  | 944 |  |  | 45 | % |  |  |  |  |  | 7,827 |  |  | 539 |  |  |  |  | 7,288 |  |  | 1,352 | %
Net income | $ | 9,419 |  |  | $ | 9,021 |  |  | $ | 398 |  |  | 4 | % |  |  |  |  |  | $ | 23,211 |  |  | $ | 1,766 |  |  |  |  | $ | 21,445 |  |  | 1,214 | %

Revenues. Revenues increased 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: $29.5 million within our Aviation segment, $4.5 million within our Fleet segment, and $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. 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. Our 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.
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Operating Income. Operating income increased for 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 $1.2 million for our Fleet segment, partially offset by a decrease of $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.
Interest 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 higher average interest rates on borrowings outstanding.
Provision for Income Taxes. Our effective tax rate was 24.4% and 25.2% for the three and nine months ended September 30, 2022, respectively, and 18.8% and 23.4% for the 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 September 30, 2022 primarily resulted from book expense in connection with the decline in the value of our Company Owned Life Insurance ("COLI") assets in the period ended September 30 2022 that was reversed for tax purposes as opposed to book income in the same period in 2021.
Segment Operating Results
Aviation Segment Results
The results of operations for our Aviation segment are (in thousands):

| Three months ended September 30, |  | Nine months ended September 30,
| 2022 |  | 2021 |  | Change ($) |  | Change (%) |  | 2022 |  | 2021 |  | Change ($) |  | Change (%)
Revenues | $ | 102,625 |  |  | $ | 73,124 |  | $ | 29,501 |  |  | 40 | % |  | $ | 300,934 |  | $ | 165,010 |  | $ | 135,924 |  |  | 82 | %
Costs and operating expenses | 92,608 |  |  | 69,405 |  | 23,203 |  |  | 33 | % |  | 276,845 |  |  | 183,895 |  | 92,950 |  |  | 51 | %
Operating income (loss) | $ | 10,017 |  |  | $ | 3,719 |  |  | $ | 6,298 |  |  | 169 | % |  | $ | 24,089 |  |  | $ | (18,885) |  |  | $ | 42,974 |  |  | 228 | %

Profit (loss) percentage | 9.8 | % |  | 5.1 | % |  |  |  |  |  | 8.0 | % |  | (11.4 | %) |  |

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 the nine months ended September 30, 2022 as compared to the same period in the prior year primarily due to distribution revenue growth of $114.7 million, or 105%, driven by contributions from recently initiated distribution contract wins and contributions from the acquisition of Global Parts, and repair revenue growth of $21.3 million, or 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. 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 September 30, 2022 compared to $2.4 million for the same period in the prior year. Allocated corporate costs were $3.3 million for the three months ended September 30, 2022 compared to $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 attributable to our new distribution programs, increases in higher margin 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 September 30, |  | Nine months ended September 30, |  |
| 2022 |  | 2021 |  | Change ($) |  | Change (%) |  | 2022 |  | 2021 |  | Change ($) |  | Change (%) |  |
Revenues | $ | 64,754 |  |  | $ | 60,268 |  |  | $ | 4,486 |  |  | 7 | % |  | $ | 196,526 |  |  | $ | 173,072 |  |  | $ | 23,454 |  |  | 14 | % |  |
Costs and operating expenses | 58,215 |  |  | 54,881 |  |  | 3,334 |  |  | 6 | % |  | 178,240 |  |  | 157,944 |  |  | 20,296 |  |  | 13 | % |  |
Operating income | $ | 6,539 |  |  | $ | 5,387 |  |  | $ | 1,152 |  |  | 21 | % |  | $ | 18,286 |  |  | $ | 15,128 |  |  | $ | 3,158 |  |  | 21 | % |  |

Profit percentage | 10.1 | % |  | 8.9 | % |  |  |  |  |  | 9.3 | % |  | 8.7 | % |  |

Revenues. Revenues increased for the 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 $4.7 million, or 22.7% and sales to other government customers of $2.3 million, or 6.3%, partially offset by anticipated decreased sales to DoD customers of $2.6 million or 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 of $7.3 million or 69.8%.
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. 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 million for the three months ended September 30, 2022 and $1.8 million for the same period in the prior year. Expense for allocated corporate costs was $2.0 million for the three months ended September 30, 2022 and $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 and 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 September 30, |  | Nine months ended September 30,
| 2022 |  | 2021 |  | Change ($) |  | Change (%) |  | 2022 |  | 2021 |  | Change ($) |  | Change (%)
Revenues | $ | 75,108 |  |  | $ | 67,190 |  |  | $ | 7,918 |  |  | 12 | % |  | $ | 217,979 |  |  | $ | 202,593 |  |  | $ | 15,386 |  |  | 8 | %
Costs and operating expenses | 73,169 |  |  | 61,804 |  |  | 11,365 |  |  | 18 | % |  | 214,176 |  |  | 185,183 |  |  | 28,993 |  |  | 16 | %
Operating income | $ | 1,939 |  |  | $ | 5,386 |  |  | $ | (3,447) |  |  | (64) | % |  | $ | 3,803 |  |  | $ | 17,410 |  |  | $ | (13,607) |  |  | (78) | %

Profit percentage | 2.6 | % |  | 8.0 | % |  |  |  |  |  | 1.7 | % |  | 8.6 | % |  |  |  |

Revenues. Revenues increased for the three and nine months ended September 30, 2022 as compared to the same period in the prior year due to revenues from our Foreign 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 for the nine 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 nine months ended September 30, 2022 and 2021, and funded contract backlog as of September 30, 2022 and 2021 is as follows (in millions):

|  | 2022 |  | 2021
Bookings |  | $ | 250 |  |  | $ | 234 |
Revenues |  | $ | 218 |  |  | $ | 203 |
Funded Contract Backlog |  | $ | 199 |  |  | $ | 218 |

For the nine months ended September 30, 2022, Federal and Defense segment bookings increased 7% year-over-year to $250 million, while total funded backlog decreased 9% year-over-year to $199 million.
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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 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.
Our primary source of external financing is from our loan agreement with a bank group 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 $12.5 million for the nine months ended September 30, 2022. As of September 30, 2022, we had term loan borrowings outstanding of $48.9 million, revolving loan borrowings outstanding of $250.3 million, and letters of credit outstanding of $1.2 million. We had approximately $98 million of unused bank loan commitments as of September 30, 2022.
As of September 30, 2022, we were in compliance with required ratios and other terms and conditions of our loan agreement.
Bank Loan Amendment
On October 7, 2022, we entered into a fourth amendment to our loan agreement which, among other things, provides for the following: (i) an extension of the 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 the term loan from $3.75 million quarterly to $2.50 million quarterly; (iv) an increase in the maximum total leverage ratio from 4.25x to 4.50x, with such ratios decreasing thereafter as indicated in the 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 Period |  | Maximum Total Funded Debt to EBITDA Ratio
From the Fourth Amendment Effective Date through and including June 30, 2023 |  | 4.50 to 1.00
From July 1, 2023 through and including December 31, 2023 |  | 4.25 to 1.00
From January 24, 2024 through and including June 30, 2024 |  | 4.00 to 1.00
From July 1, 2024 through and including September 30, 2024 |  | 3.75 to 1.00
From October 1, 2024 and thereafter |  | 3.50 to 1.00

Cash Flows
The following table summarizes our cash flows for the nine months ended September 30, 2022 and 2021 (in thousand):

|  |  |  | Nine months ended September 30,
|  |  |  |  |  | 2022 |  | 2021
Net cash used in operating activities |  |  |  |  |  | $ | (4,206) |  |  | $ | (30,523) |
Net cash used in investing activities |  |  |  |  |  | (3,181) |  |  | (59,839) |
Net cash provided by financing activities |  |  |  |  |  | 6,959 |  |  | 90,367 |
Net (decrease) increase in cash and cash equivalents |  |  |  |  |  | $ | (428) |  |  | $ | 5 |

Cash used in operating activities decreased $26.3 million for the nine months ended September 30, 2022 as compared to the same period in the prior year. The decrease was primarily due to lower use of cash for inventory purchases and timing of vendor payments partially offset by increased accounts receivable as a result of revenue growth and timing of collections.
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Cash used in investing activities decreased $56.7 million for the nine months ended September 30, 2022 as compared to the same period in the prior year. The decrease was primarily due to cash paid for acquisitions, net of cash acquired, of $53.2 million related to the acquisitions of our HSS and Global Parts subsidiaries in the prior year period.
Cash provided by financing activities decreased $83.4 million for the nine months ended September 30, 2022, as compared to the same period in 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 and overall lower proceeds from net borrowings of our debt during the current period.
We paid cash dividends totaling $3.8 million or $0.30 per share during the nine months ending 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.
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. We enter into interest rate swap agreements from time to time to manage or hedge our interest rate risks.
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 floating rate debt. The tenor of these swaps will begin on October 31, 2022 and is for 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 and 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 nine months ended 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 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 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 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.
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Item 6. Exhibits

(a) Exhibits |  |
Exhibit 10.1 |  | Fourth Amendment to the Fourth Amended and Restated Business Loan and Security Agreement, dated as of October 7, 2022, by and among the Company, as a borrower, various subsidiaries of the Company party thereto as borrowers or guarantors, the lenders from time to time party thereto and Citizens Bank, N.A., as administrative agent
Exhibit 31.1 |  | Section 302 CEO Certification
Exhibit 31.2 |  | Section 302 CFO and PAO Certification
Exhibit 32.1 |  | Section 906 CEO Certification
Exhibit 32.2 |  | Section 906 CFO and PAO Certification
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 104 |  | The 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: | October 27, 2022 | By: | /s/ John A. Cuomo
|  |  | John A. Cuomo
|  |  | Director, Chief Executive Officer and President
|  |  | (Principal Executive Officer)

Date: | October 27, 2022 | By: | /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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