0000102752 December 31 2023 Q2 false 0000102752 2023-01-01 2023-06-30 0000102752 2023-07-24 xbrli:shares 0000102752 2023-06-30 iso4217:USD 0000102752 2022-12-31 iso4217:USD xbrli:shares 0000102752 us-gaap:ProductMember 2023-04-01 2023-06-30 0000102752 us-gaap:ProductMember 2022-04-01 2022-06-30 0000102752 us-gaap:ProductMember 2023-01-01 2023-06-30 0000102752 us-gaap:ProductMember 2022-01-01 2022-06-30 0000102752 us-gaap:ServiceMember 2023-04-01 2023-06-30 0000102752 us-gaap:ServiceMember 2022-04-01 2022-06-30 0000102752 us-gaap:ServiceMember 2023-01-01 2023-06-30 0000102752 us-gaap:ServiceMember 2022-01-01 2022-06-30 0000102752 2023-04-01 2023-06-30 0000102752 2022-04-01 2022-06-30 0000102752 2022-01-01 2022-06-30 0000102752 us-gaap:CommonStockMember 2023-03-31 0000102752 us-gaap:AdditionalPaidInCapitalMember 2023-03-31 0000102752 us-gaap:RetainedEarningsMember 2023-03-31 0000102752 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-03-31 0000102752 2023-03-31 0000102752 us-gaap:RetainedEarningsMember 2023-04-01 2023-06-30 0000102752 us-gaap:CommonStockMember 2023-04-01 2023-06-30 0000102752 us-gaap:AdditionalPaidInCapitalMember 2023-04-01 2023-06-30 0000102752 us-gaap:CommonStockMember 2023-06-30 0000102752 us-gaap:AdditionalPaidInCapitalMember 2023-06-30 0000102752 us-gaap:RetainedEarningsMember 2023-06-30 0000102752 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-06-30 0000102752 us-gaap:CommonStockMember 2022-03-31 0000102752 us-gaap:AdditionalPaidInCapitalMember 2022-03-31 0000102752 us-gaap:RetainedEarningsMember 2022-03-31 0000102752 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-03-31 0000102752 2022-03-31 0000102752 us-gaap:CommonStockMember 2022-04-01 2022-06-30 0000102752 us-gaap:AdditionalPaidInCapitalMember 2022-04-01 2022-06-30 0000102752 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-04-01 2022-06-30 0000102752 us-gaap:RetainedEarningsMember 2022-04-01 2022-06-30 0000102752 us-gaap:CommonStockMember 2022-06-30 0000102752 us-gaap:AdditionalPaidInCapitalMember 2022-06-30 0000102752 us-gaap:RetainedEarningsMember 2022-06-30 0000102752 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-06-30 0000102752 2022-06-30 0000102752 us-gaap:CommonStockMember 2022-12-31 0000102752 us-gaap:AdditionalPaidInCapitalMember 2022-12-31 0000102752 us-gaap:RetainedEarningsMember 2022-12-31 0000102752 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-12-31 0000102752 us-gaap:RetainedEarningsMember 2023-01-01 2023-06-30 0000102752 us-gaap:CommonStockMember 2023-01-01 2023-06-30 0000102752 us-gaap:AdditionalPaidInCapitalMember 2023-01-01 2023-06-30 0000102752 us-gaap:CommonStockMember 2021-12-31 0000102752 us-gaap:AdditionalPaidInCapitalMember 2021-12-31 0000102752 us-gaap:RetainedEarningsMember 2021-12-31 0000102752 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-12-31 0000102752 2021-12-31 0000102752 us-gaap:RetainedEarningsMember 2022-01-01 2022-06-30 0000102752 us-gaap:CommonStockMember 2022-01-01 2022-06-30 0000102752 us-gaap:AdditionalPaidInCapitalMember 2022-01-01 2022-06-30 0000102752 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-01-01 2022-06-30 vsec:segment 0000102752 vsec:PrecisionFuelMember 2023-02-01 2023-02-01 0000102752 vsec:NetTangibleAssetsExcludingCustomerRelationshipsMember vsec:PrecisionFuelMember 2023-02-01 0000102752 vsec:PrecisionFuelMember 2023-02-01 0000102752 us-gaap:CustomerRelationshipsMember vsec:PrecisionFuelMember 2023-02-01 0000102752 vsec:PrecisionFuelMember 2023-01-01 2023-06-30 0000102752 us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember vsec:FederalAndDefenseSegmentMember 2023-05-01 0000102752 us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember vsec:FederalAndDefenseSegmentMember 2023-05-01 2023-05-01 0000102752 us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember vsec:FederalAndDefenseSegmentMember 2023-04-01 2023-06-30 0000102752 us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember vsec:FederalAndDefenseSegmentMember 2022-04-01 2022-06-30 0000102752 us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember vsec:FederalAndDefenseSegmentMember 2023-01-01 2023-06-30 0000102752 us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember vsec:FederalAndDefenseSegmentMember 2022-01-01 2022-06-30 0000102752 us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember vsec:FederalAndDefenseSegmentMember 2023-06-30 0000102752 us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember vsec:FederalAndDefenseSegmentMember 2022-12-31 0000102752 us-gaap:DiscontinuedOperationsDisposedOfBySaleMember vsec:FederalAndDefenseSegmentMember 2023-01-01 2023-06-30 0000102752 us-gaap:DiscontinuedOperationsDisposedOfBySaleMember vsec:FederalAndDefenseSegmentMember 2022-01-01 2022-06-30 0000102752 vsec:AviationSegmentMember vsec:CommercialMember 2023-04-01 2023-06-30 0000102752 vsec:WheelerFleetSegmentMember vsec:CommercialMember 2023-04-01 2023-06-30 0000102752 vsec:CommercialMember 2023-04-01 2023-06-30 0000102752 vsec:AviationSegmentMember vsec:CommercialMember 2023-01-01 2023-06-30 0000102752 vsec:WheelerFleetSegmentMember vsec:CommercialMember 2023-01-01 2023-06-30 0000102752 vsec:CommercialMember 2023-01-01 2023-06-30 0000102752 vsec:AviationSegmentMember vsec:OtherGovernmentMember 2023-04-01 2023-06-30 0000102752 vsec:WheelerFleetSegmentMember vsec:OtherGovernmentMember 2023-04-01 2023-06-30 0000102752 vsec:OtherGovernmentMember 2023-04-01 2023-06-30 0000102752 vsec:AviationSegmentMember vsec:OtherGovernmentMember 2023-01-01 2023-06-30 0000102752 vsec:WheelerFleetSegmentMember vsec:OtherGovernmentMember 2023-01-01 2023-06-30 0000102752 vsec:OtherGovernmentMember 2023-01-01 2023-06-30 0000102752 vsec:AviationSegmentMember 2023-04-01 2023-06-30 0000102752 vsec:WheelerFleetSegmentMember 2023-04-01 2023-06-30 0000102752 vsec:AviationSegmentMember 2023-01-01 2023-06-30 0000102752 vsec:WheelerFleetSegmentMember 2023-01-01 2023-06-30 0000102752 vsec:AviationSegmentMember vsec:CommercialMember 2022-04-01 2022-06-30 0000102752 vsec:WheelerFleetSegmentMember vsec:CommercialMember 2022-04-01 2022-06-30 0000102752 vsec:CommercialMember 2022-04-01 2022-06-30 0000102752 vsec:AviationSegmentMember vsec:CommercialMember 2022-01-01 2022-06-30 0000102752 vsec:WheelerFleetSegmentMember vsec:CommercialMember 2022-01-01 2022-06-30 0000102752 vsec:CommercialMember 2022-01-01 2022-06-30 0000102752 vsec:DepartmentofDefenseMember vsec:AviationSegmentMember 2022-04-01 2022-06-30 0000102752 vsec:DepartmentofDefenseMember vsec:WheelerFleetSegmentMember 2022-04-01 2022-06-30 0000102752 vsec:DepartmentofDefenseMember 2022-04-01 2022-06-30 0000102752 vsec:DepartmentofDefenseMember vsec:AviationSegmentMember 2022-01-01 2022-06-30 0000102752 vsec:DepartmentofDefenseMember vsec:WheelerFleetSegmentMember 2022-01-01 2022-06-30 0000102752 vsec:DepartmentofDefenseMember 2022-01-01 2022-06-30 0000102752 vsec:AviationSegmentMember vsec:OtherGovernmentMember 2022-04-01 2022-06-30 0000102752 vsec:WheelerFleetSegmentMember vsec:OtherGovernmentMember 2022-04-01 2022-06-30 0000102752 vsec:OtherGovernmentMember 2022-04-01 2022-06-30 0000102752 vsec:AviationSegmentMember vsec:OtherGovernmentMember 2022-01-01 2022-06-30 0000102752 vsec:WheelerFleetSegmentMember vsec:OtherGovernmentMember 2022-01-01 2022-06-30 0000102752 vsec:OtherGovernmentMember 2022-01-01 2022-06-30 0000102752 vsec:AviationSegmentMember 2022-04-01 2022-06-30 0000102752 vsec:WheelerFleetSegmentMember 2022-04-01 2022-06-30 0000102752 vsec:AviationSegmentMember 2022-01-01 2022-06-30 0000102752 vsec:WheelerFleetSegmentMember 2022-01-01 2022-06-30 0000102752 vsec:PropertyRepairMember vsec:AviationSegmentMember 2023-04-01 2023-06-30 0000102752 vsec:PropertyRepairMember vsec:WheelerFleetSegmentMember 2023-04-01 2023-06-30 0000102752 vsec:PropertyRepairMember 2023-04-01 2023-06-30 0000102752 vsec:PropertyRepairMember vsec:AviationSegmentMember 2023-01-01 2023-06-30 0000102752 vsec:PropertyRepairMember vsec:WheelerFleetSegmentMember 2023-01-01 2023-06-30 0000102752 vsec:PropertyRepairMember 2023-01-01 2023-06-30 0000102752 vsec:AviationSegmentMember vsec:PropertyDistributionMember 2023-04-01 2023-06-30 0000102752 vsec:WheelerFleetSegmentMember vsec:PropertyDistributionMember 2023-04-01 2023-06-30 0000102752 vsec:PropertyDistributionMember 2023-04-01 2023-06-30 0000102752 vsec:AviationSegmentMember vsec:PropertyDistributionMember 2023-01-01 2023-06-30 0000102752 vsec:WheelerFleetSegmentMember vsec:PropertyDistributionMember 2023-01-01 2023-06-30 0000102752 vsec:PropertyDistributionMember 2023-01-01 2023-06-30 0000102752 vsec:PropertyRepairMember vsec:AviationSegmentMember 2022-04-01 2022-06-30 0000102752 vsec:PropertyRepairMember vsec:WheelerFleetSegmentMember 2022-04-01 2022-06-30 0000102752 vsec:PropertyRepairMember 2022-04-01 2022-06-30 0000102752 vsec:PropertyRepairMember vsec:AviationSegmentMember 2022-01-01 2022-06-30 0000102752 vsec:PropertyRepairMember vsec:WheelerFleetSegmentMember 2022-01-01 2022-06-30 0000102752 vsec:PropertyRepairMember 2022-01-01 2022-06-30 0000102752 vsec:AviationSegmentMember vsec:PropertyDistributionMember 2022-04-01 2022-06-30 0000102752 vsec:WheelerFleetSegmentMember vsec:PropertyDistributionMember 2022-04-01 2022-06-30 0000102752 vsec:PropertyDistributionMember 2022-04-01 2022-06-30 0000102752 vsec:AviationSegmentMember vsec:PropertyDistributionMember 2022-01-01 2022-06-30 0000102752 vsec:WheelerFleetSegmentMember vsec:PropertyDistributionMember 2022-01-01 2022-06-30 0000102752 vsec:PropertyDistributionMember 2022-01-01 2022-06-30 0000102752 us-gaap:LoansPayableMember 2023-06-30 0000102752 us-gaap:LoansPayableMember 2022-12-31 0000102752 us-gaap:RevolvingCreditFacilityMember 2023-06-30 0000102752 us-gaap:RevolvingCreditFacilityMember 2022-12-31 0000102752 vsec:LoansPayableAndRevolvingCreditFacilityMember 2023-06-30 xbrli:pure 0000102752 vsec:LoansPayableAndRevolvingCreditFacilityMember 2023-04-01 2023-06-30 0000102752 vsec:LoansPayableAndRevolvingCreditFacilityMember 2023-01-01 2023-06-30 0000102752 vsec:LoansPayableAndRevolvingCreditFacilityMember 2022-04-01 2022-06-30 0000102752 vsec:LoansPayableAndRevolvingCreditFacilityMember 2022-01-01 2022-06-30 0000102752 vsec:TermLoanMember 2023-06-30 0000102752 us-gaap:RevolvingCreditFacilityMember us-gaap:SubsequentEventMember 2023-07-31 0000102752 us-gaap:CashFlowHedgingMember us-gaap:InterestRateSwapMember 2023-06-30 0000102752 us-gaap:CashFlowHedgingMember us-gaap:InterestRateSwapMember 2023-04-01 2023-06-30 0000102752 us-gaap:CashFlowHedgingMember us-gaap:InterestRateSwapMember 2023-01-01 2023-06-30 0000102752 us-gaap:CashFlowHedgingMember 2023-06-30 0000102752 vsec:AviationSegmentMember us-gaap:OperatingSegmentsMember 2023-04-01 2023-06-30 0000102752 vsec:AviationSegmentMember us-gaap:OperatingSegmentsMember 2022-04-01 2022-06-30 0000102752 vsec:AviationSegmentMember us-gaap:OperatingSegmentsMember 2023-01-01 2023-06-30 0000102752 vsec:AviationSegmentMember us-gaap:OperatingSegmentsMember 2022-01-01 2022-06-30 0000102752 vsec:WheelerFleetSegmentMember us-gaap:OperatingSegmentsMember 2023-04-01 2023-06-30 0000102752 vsec:WheelerFleetSegmentMember us-gaap:OperatingSegmentsMember 2022-04-01 2022-06-30 0000102752 vsec:WheelerFleetSegmentMember us-gaap:OperatingSegmentsMember 2023-01-01 2023-06-30 0000102752 vsec:WheelerFleetSegmentMember us-gaap:OperatingSegmentsMember 2022-01-01 2022-06-30 0000102752 us-gaap:CorporateNonSegmentMember 2023-04-01 2023-06-30 0000102752 us-gaap:CorporateNonSegmentMember 2022-04-01 2022-06-30 0000102752 us-gaap:CorporateNonSegmentMember 2023-01-01 2023-06-30 0000102752 us-gaap:CorporateNonSegmentMember 2022-01-01 2022-06-30 0000102752 vsec:AviationSegmentMember 2022-12-31 0000102752 vsec:WheelerFleetSegmentMember 2022-12-31 0000102752 vsec:FederalAndDefenseSegmentMember 2022-12-31 0000102752 vsec:FederalAndDefenseSegmentMember 2023-01-01 2023-06-30 0000102752 vsec:AviationSegmentMember 2023-06-30 0000102752 vsec:WheelerFleetSegmentMember 2023-06-30 0000102752 vsec:FederalAndDefenseSegmentMember 2023-06-30 0000102752 us-gaap:ContractualRightsMember 2023-06-30 0000102752 us-gaap:TradeNamesMember 2023-06-30 0000102752 us-gaap:ContractualRightsMember 2022-12-31 0000102752 us-gaap:TradeNamesMember 2022-12-31 0000102752 us-gaap:OtherAssetsMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2023-06-30 0000102752 us-gaap:OtherAssetsMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2022-12-31 0000102752 us-gaap:FairValueInputsLevel2Member us-gaap:OtherAssetsMember us-gaap:FairValueMeasurementsRecurringMember 2023-06-30 0000102752 us-gaap:FairValueInputsLevel2Member us-gaap:OtherAssetsMember us-gaap:FairValueMeasurementsRecurringMember 2022-12-31 0000102752 vsec:DesserAerospaceMember 2023-05-01 2023-05-31 0000102752 vsec:LoarMember 2023-05-01 2023-05-31 0000102752 us-gaap:LineOfCreditMember us-gaap:SecuredDebtMember us-gaap:SubsequentEventMember 2023-07-27 0000102752 us-gaap:LineOfCreditMember us-gaap:SubsequentEventMember us-gaap:RevolvingCreditFacilityMember 2023-07-26 0000102752 us-gaap:LineOfCreditMember us-gaap:SubsequentEventMember us-gaap:RevolvingCreditFacilityMember 2023-07-27 0000102752 us-gaap:LineOfCreditMember us-gaap:SecuredDebtMember us-gaap:SubsequentEventMember 2023-07-01 2023-07-27 0000102752 us-gaap:LineOfCreditMember us-gaap:SecuredDebtMember us-gaap:SubsequentEventMember 2023-07-26 0000102752 us-gaap:SubsequentEventMember 2023-07-01 2023-07-27 0000102752 us-gaap:SubsequentEventMember 2023-07-27
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 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
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 (§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 July 24, 2023: 15,372,544

| TABLE OF CONTENTS |
|  | Page
PART I | FINANCIAL INFORMATION |
ITEM 1. | Financial Statements |
| Unaudited Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022 | 4
| Unaudited Consolidated Statements of Income for the three and six months ended June 30, 2023 and 2022 | 5
| Unaudited Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2023 and 2022 | 6
| Unaudited Consolidated Statements of Stockholders' Equity for the three and six months ended June 30, 2023 and 2022 | 8
| Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 | 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 Risk | 24
ITEM 4. | Controls and Procedures | 24
PART II | OTHER INFORMATION |
ITEM 1. | Legal Proceedings | 25
ITEM 1A. | Risk Factors | 25
ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 25
ITEM 5. | Other Information | 25
ITEM 6. | Exhibits | 26
Signatures |  | 27

-2-

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 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, 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.
-3-

Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
VSE Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)

| June 30, |  | December 31,
(in thousands except share and per share amounts) | 2023 |  | 2022
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 receivables | 6,229 |  |  | 7,409 |
Inventories | 427,822 |  |  | 380,438 |
Other current assets | 14,797 |  |  | 15,202 |
Current assets held-for-sale | 107,059 |  |  | 54,925 |
Total current assets | 674,224 |  |  | 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 |
Goodwill | 222,023 |  |  | 217,262 |
Operating lease - right-of-use assets | 20,194 |  |  | 21,558 |
Other assets | 30,220 |  |  | 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 payable | 104,566 |  |  | 128,504 |
Accrued expenses and other current liabilities | 30,295 |  |  | 31,889 |
Dividends payable | 1,290 |  |  | 1,282 |
Current liabilities held-for-sale | 64,070 |  |  | 52,929 |
Total current liabilities | 210,221 |  |  | 224,604 |
Long-term debt, less current portion | 365,110 |  |  | 276,300 |
Deferred compensation | 7,651 |  |  | 7,398 |
Long-term operating lease obligations | 17,609 |  |  | 19,154 |
Deferred tax liabilities | 3,743 |  |  | 4,986 |
Non-current liabilities held-for-sale | — |  |  | 17,821 |
Total liabilities | 604,334 |  |  | 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, respectively | 645 |  |  | 641 |
Additional paid-in capital | 96,471 |  |  | 92,620 |
Retained earnings | 366,690 |  |  | 351,297 |
Accumulated other comprehensive income | 5,331 |  |  | 4,968 |
Total stockholders' equity | 469,137 |  |  | 449,526 |
Total liabilities and stockholders' equity | $ | 1,073,471 |  |  | $ | 999,789 |

The accompanying notes are an integral part of these consolidated financial statements.
-4-

Table of Contents
VSE Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)

|  | For the three months ended June 30, |  | For the six months ended June 30,
(in thousands except share and per share amounts) |  | 2023 |  | 2022 |  | 2023 |  | 2022
Revenues: |  |  |  |  |  |  |  |
Products |  | $ | 165,997 |  |  | $ | 142,003 |  |  | $ | 320,443 |  |  | $ | 278,172 |
Services |  | 39,226 |  |  | 27,758 |  |  | 73,367 |  |  | 51,909 |
Total revenues |  | 205,223 |  |  | 169,761 |  |  | 393,810 |  |  | 330,081 |
Costs and operating expenses: |  |  |  |  |  |  |  |
Products |  | 147,139 |  |  | 129,617 |  |  | 282,388 |  |  | 250,714 |
Services |  | 32,327 |  |  | 25,120 |  |  | 62,903 |  |  | 47,525 |
Selling, general and administrative expenses |  | 1,519 |  |  | 473 |  |  | 3,564 |  |  | 1,180 |
Amortization of intangible assets |  | 3,601 |  |  | 4,016 |  |  | 7,540 |  |  | 8,110 |
Total costs and operating expenses |  | 184,586 |  |  | 159,226 |  |  | 356,395 |  |  | 307,529 |
Operating income |  | 20,637 |  |  | 10,535 |  |  | 37,415 |  |  | 22,552 |
Interest expense, net |  | 7,366 |  |  | 3,872 |  |  | 13,346 |  |  | 7,482 |
Income from continuing operations before income taxes |  | 13,271 |  |  | 6,663 |  |  | 24,069 |  |  | 15,070 |
Provision for income taxes |  | 3,182 |  |  | 1,908 |  |  | 5,860 |  |  | 4,026 |
Income from continuing operations |  | 10,089 |  |  | 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: |  |  |  |  |  |  |  |
Basic |  | 12,886,100 |  |  | 12,778,355 |  |  | 12,865,394 |  |  | 12,760,026 |
Diluted |  | 12,916,998 |  |  | 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 consolidated financial statements.
-5-

Table of Contents
VSE Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)

|  | For the three months ended June 30, |  | For the six months ended June 30,
(in thousands) |  | 2023 |  | 2022 |  | 2023 |  | 2022
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 tax |  | 2,361 |  |  | — |  |  | 363 |  |  | 176 |
Total other comprehensive income, net of tax |  | 2,361 |  |  | — |  |  | 363 |  |  | 176 |
Comprehensive income |  | $ | 11,216 |  |  | $ | 7,548 |  |  | $ | 18,335 |  |  | $ | 13,968 |

The accompanying notes are an integral part of these consolidated financial statements.
-6-

Table of Contents
VSE Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Unaudited)

| Three 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) | Shares |  | Amount |  |  |  |
Balance at March 31, 2023 | 12,886 |  |  | $ | 644 |  |  | $ | 94,577 |  |  | $ | 359,124 |  |  | $ | 2,970 |  |  | $ | 457,315 |
Net income | — |  |  | — |  |  | — |  |  | 8,855 |  |  | — |  |  | 8,855 |
Stock-based compensation | 12 |  |  | 1 |  |  | 1,894 |  |  | — |  |  | — |  |  | 1,895 |
Other comprehensive income, net of tax | — |  |  | — |  |  | — |  |  | — |  |  | 2,361 |  |  | 2,361 |
Dividends declared ($0.10 per share) | — |  |  | — |  |  | — |  |  | (1,289) |  |  | — |  |  | (1,289) |
Balance at June 30, 2023 | 12,898 |  |  | $ | 645 |  |  | $ | 96,471 |  |  | $ | 366,690 |  |  | $ | 5,331 |  |  | $ | 469,137 |

| Three Months Ended June 30, 2022
|  |  |  |  | Additional Paid-In Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Income |  | Total Stockholders' Equity
| Common Stock |  |  |  |
(in thousands except per share data) | Shares |  | Amount |  |  |  |
Balance at March 31, 2022 | 12,769 |  |  | $ | 638 |  |  | $ | 89,830 |  |  | $ | 333,324 |  |  | $ | — |  |  | $ | 423,792 |
Net income | — |  |  | — |  |  | — |  |  | 7,548 |  |  | — |  |  | 7,548 |
Stock-based compensation | 26 |  | 2 |  | 1,221 |  |  | — |  |  | — |  |  | 1,223 |
Other comprehensive income, net of tax | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Dividends declared ($0.10 per share) | — |  |  | — |  |  | — |  |  | (1,280) |  |  | — |  |  | (1,280) |
Balance at June 30, 2022 | 12,795 |  |  | $ | 640 |  |  | $ | 91,051 |  |  | $ | 339,592 |  |  | $ | — |  |  | $ | 431,283 |

The accompanying notes are an integral part of these consolidated financial statements.
-7-

Table of Contents
VSE Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity (continued)
(Unaudited)

| 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) | Shares |  | Amount |  |  |  |
Balance at December 31, 2022 | 12,817 |  |  | $ | 641 |  |  | $ | 92,620 |  |  | $ | 351,297 |  |  | $ | 4,968 |  |  | $ | 449,526 |
Net income | — |  |  | — |  |  | — |  |  | 17,972 |  |  | — |  |  | 17,972 |
Stock-based compensation | 81 |  |  | 4 |  |  | 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, 2023 | 12,898 |  |  | $ | 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) | Shares |  | Amount |  |  |  |
Balance at December 31, 2021 | 12,727 |  |  | $ | 636 |  |  | $ | 88,515 |  |  | $ | 328,358 |  |  | $ | (176) |  |  | $ | 417,333 |
Net income | — |  |  | — |  |  | — |  |  | 13,792 |  |  | — |  |  | 13,792 |
Stock-based compensation | 68 |  |  | 4 |  |  | 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, 2022 | 12,795 |  |  | $ | 640 |  |  | $ | 91,051 |  |  | $ | 339,592 |  |  | $ | — |  |  | $ | 431,283 |

The accompanying notes are an integral part of these consolidated financial statements.
-8-

Table of Contents
VSE Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)

|  | For the six months ended June 30,
(in thousands) |  | 2023 |  | 2022
|  | (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 amortization |  | 12,011 |  |  | 12,430 |
Amortization of debt issuance cost |  | 420 |  |  | 420 |
Deferred taxes |  | (1,533) |  |  | (790) |
Stock-based compensation |  | 3,894 |  |  | 2,675 |
Provision for inventory |  | 742 |  |  | 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 receivable |  | 1,557 |  |  | 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 agreement |  | 322,813 |  |  | 236,194 |
Repayments on loan agreement |  | (234,423) |  |  | (212,572) |
Proceeds from issuance of common stock |  | 456 |  |  | 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 activities |  | 85,244 |  |  | 19,664 |
Net increase (decrease) in cash and cash equivalents |  | 3,862 |  |  | (147) |
Cash and cash equivalents, beginning of period |  | 478 |  |  | 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.
-9-

VSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 transportation assets to commercial and government markets.
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 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 to reflect discontinued operations classification. Unless otherwise noted, amounts and disclosures throughout these Notes to Consolidated 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 purchase price of $11.7 million. Precision Fuel provides MRO services for engine accessory and fuel systems supporting the business and general aviation ("B&GA") market. Our acquisition of Precision Fuel expanded our MRO capabilities and 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 purchase price resulted in net tangible assets of $3.1 million, goodwill of $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 six months ended June 30, 2023, we incurred $0.2 million of acquisition-related expenses, which are included in selling, general and administrative expenses.
-10-

VSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 2023
Table of Contents
(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,
|  | 2023 |  | 2022 |  | 2023 |  | 2022
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,
|  |  | 2023 |  | 2022
Assets |  |  |  |
| Cash and cash equivalents |  | $ | 178 |  |  | $ | 173 |
| Accounts receivable, net |  | 12,385 |  |  | 14,340 |
| Unbilled receivables |  | 32,188 |  |  | 30,898 |
| Inventories |  | 453 |  |  | 270 |
| Other current assets |  | 8,760 |  |  | 9,244 |
| Property and equipment, net |  | 6,612 |  |  | 7,467 |
| Intangible assets, net |  | 3,505 |  |  | 4,066 |
| Goodwill |  | 31,575 |  |  | 31,575 |
| Operating lease right-of-use assets |  | 11,369 |  |  | 12,854 |
| Other assets |  | 34 |  |  | 51 |
| Total assets held-for-sale(a) |  | $ | 107,059 |  |  | $ | 110,938 |
Liabilities |  |  |  |
| Accounts payable |  | $ | 27,810 |  |  | $ | 31,096 |
| Accrued expenses and other current liabilities |  | 20,609 |  |  | 21,833 |
| Long-term operating lease obligations |  | 11,186 |  |  | 13,186 |
| Deferred tax liabilities |  | 4,465 |  |  | 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.

-11-

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

|  | For the six months ended June 30,
|  | 2023 |  | 2022
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 and governmental customers.
A summary of revenues by customer for each of our operating segments for the three and six months ended June 30, 2023 and 2022 is as follows (in thousands):

|  | Three months ended June 30, 2023 |  | Six months ended June 30, 2023
|  | Aviation |  | Fleet |  | Total |  | Aviation |  | Fleet |  | Total
Commercial |  | $ | 123,820 |  |  | $ | 38,037 |  |  | $ | 161,857 |  |  | $ | 235,880 |  |  | $ | 70,581 |  |  | $ | 306,461 |
Other government |  | 909 |  |  | 42,457 |  |  | 43,366 |  |  | 2,084 |  |  | 85,265 |  |  | 87,349 |
Total |  | $ | 124,729 |  |  | $ | 80,494 |  |  | $ | 205,223 |  |  | $ | 237,964 |  |  | $ | 155,846 |  |  | $ | 393,810 |

|  | Three months ended June 30, 2022 |  | Six months ended June 30, 2022
|  | Aviation |  | Fleet |  | Total |  | Aviation |  | Fleet |  | Total
Commercial |  | $ | 103,349 |  |  | $ | 26,007 |  |  | $ | 129,356 |  |  | $ | 195,261 |  |  | $ | 53,863 |  |  | $ | 249,124 |
DoD |  | — |  |  | 1,264 |  |  | 1,264 |  |  | — |  |  | 2,993 |  |  | 2,993 |
Other government |  | 1,670 |  |  | 37,471 |  |  | 39,141 |  |  | 3,048 |  |  | 74,916 |  |  | 77,964 |
Total |  | $ | 105,019 |  |  | $ | 64,742 |  |  | $ | 169,761 |  |  | $ | 198,309 |  |  | $ | 131,772 |  |  | $ | 330,081 |

A summary of revenues by type for each of our operating segments for the three and six months ended June 30, 2023 and 2022 is as follows (in thousands):

|  | Three months ended June 30, 2023 |  | Six months ended June 30, 2023
|  | Aviation |  | Fleet |  | Total |  | Aviation |  | Fleet |  | Total
Repair |  | $ | 35,561 |  |  | $ | — |  |  | $ | 35,561 |  |  | $ | 67,615 |  |  | $ | — |  |  | $ | 67,615 |
Distribution |  | 89,168 |  |  | 80,494 |  |  | 169,662 |  |  | 170,349 |  |  | 155,846 |  |  | 326,195 |
Total |  | $ | 124,729 |  |  | $ | 80,494 |  |  | $ | 205,223 |  |  | $ | 237,964 |  |  | $ | 155,846 |  |  | $ | 393,810 |

|  | Three months ended June 30, 2022 |  | Six months ended June 30, 2022
|  | Aviation |  | Fleet |  | Total |  | Aviation |  | Fleet |  | Total
Repair |  | $ | 25,966 |  |  | $ | — |  |  | $ | 25,966 |  |  | $ | 48,329 |  |  | $ | — |  |  | $ | 48,329 |
Distribution |  | 79,053 |  |  | 64,742 |  |  | 143,795 |  |  | 149,980 |  |  | 131,772 |  |  | 281,752 |
Total |  | $ | 105,019 |  |  | $ | 64,742 |  |  | $ | 169,761 |  |  | $ | 198,309 |  |  | $ | 131,772 |  |  | $ | 330,081 |

-12-

VSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 2023
Table of Contents
Contract Balances
Contract balances were as follows (in thousands):

|  |  |  | June 30, |  | December 31,
|  | Financial Statement Classification |  | 2023 |  | 2022
Contract assets |  | Unbilled receivables |  | $ | 6,229 |  |  | $ | 7,409 |
Contract liabilities |  | Accrued expenses and other current liabilities |  | $ | 2,561 |  |  | $ | 963 |

For the six months ended June 30, 2023 and 2022, we recognized revenue that was previously included in the beginning balance of contract liabilities of $0.8 million and $0.5 million, respectively.
(5) Debt
Long-term debt consisted of the following (in thousands):

| June 30, |  | December 31,
| 2023 |  | 2022
Bank credit facility - term loan | $ | 95,000 |  |  | $ | 100,000 |
Bank credit facility - revolving facility | 282,000 |  |  | 188,610 |
Principal amount of long-term debt | 377,000 |  |  | 288,610 |
Less debt issuance costs | (1,890) |  |  | (2,310) |
Total long-term debt | 375,110 |  |  | 286,300 |
Less current portion | (10,000) |  |  | (10,000) |
Long-term debt, less current portion | $ | 365,110 |  |  | $ | 276,300 |

Borrowings under our term loan and revolving facility mature in October 2025. As of June 30, 2023, the interest rate on our outstanding term loan borrowings and weighted average interest rate on our aggregate outstanding revolving facility was 7.51% and 7.62%, respectively. Interest expense incurred on our term loan and revolving facility was $7.9 million and $14.3 million for the three and six months ended 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 June 30, 2023 and December 31, 2022, respectively.
Future required term loan and revolving facility payments as of June 30, 2023 are as follows (in thousands):

Year Ending |  | Term Loan |  | Revolving Facility |  | Total
Remainder of 2023 |  | $ | 5,000 |  |  | $ | — |  |  | $ | 5,000 |
2024 |  | 10,000 |  |  | — |  |  | 10,000 |
2025 |  | 80,000 |  |  | 282,000 |  |  | 362,000 |
Total |  | $ | 95,000 |  |  | $ | 282,000 |  |  | $ | 377,000 |

We were in compliance with required ratios and other terms and conditions under our credit agreement as of 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.
-13-

VSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 2023
Table of Contents
(6) Derivative Instruments and Hedging Activities
Our derivative instruments designated as cash flow hedges as of June 30, 2023 were (in thousands):

| Notional Amount | Paid Fixed Rate | Receive Variable Rate | Settlement and Termination
Interest rate swaps | $150,000 | 2.8% | 1-month term SOFR | Monthly 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 June 30, 2023, we reclassified $0.8 million and $1.5 million, respectively, from accumulated other comprehensive income to interest expense, net. We estimate that we will reclassify $3.6 million of unrealized gains from accumulated other comprehensive income into earnings in the twelve months following June 30, 2023.
(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 June 30, |  | Six months ended June 30,
|  | 2023 |  | 2022 |  | 2023 |  | 2022
Basic weighted average common shares outstanding |  | 12,886,100 |  |  | 12,778,355 |  |  | 12,865,394 |  |  | 12,760,026 |
Effect of dilutive shares |  | 30,898 |  |  | 32,723 |  |  | 56,432 |  |  | 47,223 |
Diluted weighted average common shares outstanding |  | 12,916,998 |  |  | 12,811,078 |  |  | 12,921,826 |  |  | 12,807,249 |

(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.
-14-

VSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 2023
Table of Contents
(9) Business Segments
The 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 two 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"). 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.
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 June 30, |  | Six months ended June 30,
|  | 2023 |  | 2022 |  | 2023 |  | 2022
Revenues: |  |  |  |  |  |  |  |
Aviation |  | $ | 124,729 |  |  | $ | 105,019 |  |  | $ | 237,964 |  |  | $ | 198,309 |
Fleet |  | 80,494 |  |  | 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 |
Fleet |  | 7,854 |  |  | 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.

(10) Goodwill and Intangible Assets
Goodwill
Changes in the carrying amount of goodwill by segment for the six months ended June 30, 2023 were as follows (in thousands):

|  | Aviation |  | Fleet |  | Total
Balance as of December 31, 2022 |  | $ | 154,072 |  |  | $ | 63,190 |  |  | $ | 217,262 |
Acquisitions |  | 4,761 |  |  | — |  |  | 4,761 |
Balance as of June 30, 2023 |  | $ | 158,833 |  |  | $ | 63,190 |  |  | $ | 222,023 |

Goodwill increased during the six months ended June 30, 2023 in connection with the acquisition during the period as discussed in Note (2) "Acquisitions."
-15-

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 value |  | Accumulated amortization |  | Net carrying value
June 30, 2023 |  |  |  |  |  |
Contract and customer-related |  | $ | 202,940 |  |  | $ | (120,760) |  |  | $ | 82,180 |
Trade names |  | 8,670 |  |  | (8,032) |  |  | 638 |
Total |  | $ | 211,610 |  |  | $ | (128,792) |  |  | $ | 82,818 |
December 31, 2022 |  |  |  |  |  |
Contract and customer-related |  | $ | 199,140 |  |  | $ | (113,796) |  |  | $ | 85,344 |
Trade names |  | 8,670 |  |  | (7,456) |  |  | 1,214 |
Total |  | $ | 207,810 |  |  | $ | (121,252) |  |  | $ | 86,558 |

The gross carrying amount of contract and customer-related intangibles increased during the six months ended June 30, 2023 in connection with the acquisition during the period as discussed in Note (2) "Acquisitions."
As of June 30, 2023, the estimated future annual amortization expense related to intangible assets is as follows (in thousands):

Year Ending |  |
Remainder of 2023 |  | $ | 5,114 |
2024 |  | 9,136 |
2025 |  | 9,074 |
2026 |  | 8,950 |
2027 |  | 7,204 |
Thereafter |  | 43,340 |
Total |  | $ | 82,818 |

(11) Fair Value Measurements
The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022 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 June 30, 2023 |  | Fair Value December 31, 2022
Non-COLI assets held in Deferred Supplemental Compensation Plan(a) |  | Other assets |  | Level 1 |  | $ | 576 |  |  | $ | 539 |
Interest rate swaps |  | Other assets |  | Level 2 |  | $ | 7,103 |  |  | $ | 6,620 |
(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.
-16-

VSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 2023
Table of Contents
(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 24.0% and 24.3% for the three and six months ended 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 June 30, 2023 compared to the same period of prior year primarily due to book income in connection with the fair market value increase in our COLI plan in the period ended June 30, 2023 that was reversed for tax purposes as opposed to book expense in the same period in 2022.
(13) Subsequent Events
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 $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 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; (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 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 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.
-17-

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 transportation assets to commercial and government markets.
Recent Developments
Sale of Federal and 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
During the second quarter, our 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, representing a 19% increase year-over-year. Market growth and share gains have resulted in a 37% and 13% year-over-year increase in repair and distribution revenue, respectively, during the three months ended 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.
-18-

Table of Contents
Fleet Segment
During the second quarter, growth in our Fleet segment was driven by strong contributions from commercial fleet customers, e-commerce fulfillment volume, and the United States Postal Service ("USPS"). The strong performance in our USPS program is supported by the expansion of our installed base of vehicles and continued support of legacy vehicles. We have made significant progress in executing our revenue diversification strategy through the 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 within e-commerce fulfillment. Our commercial revenues were 47% of total Fleet segment revenue for the three months ended June 30, 2023 compared to 40% for the same period in the prior year, demonstrating the continued success of our diversification strategy.
Results of Operations
Consolidated Results of Operations
The following table summarizes our consolidated results of operations (in thousands):

|  | Three months ended June 30, |  | Six months ended June 30,
|  | 2023 |  | 2022 |  | Change ($) |  | Change (%) |  | 2023 |  | 2022 |  | Change ($) |  | Change (%)
Revenues |  | $ | 205,223 |  |  | $ | 169,761 |  |  | $ | 35,462 |  |  | 21 | % |  | $ | 393,810 |  |  | $ | 330,081 |  |  | $ | 63,729 |  |  | 19 | %
Costs and operating expenses |  | 184,586 |  |  | 159,226 |  |  | 25,360 |  |  | 16 | % |  | 356,395 |  |  | 307,529 |  |  | 48,866 |  |  | 16 | %
Operating income |  | 20,637 |  |  | 10,535 |  |  | 10,102 |  |  | 96 | % |  | 37,415 |  |  | 22,552 |  |  | 14,863 |  |  | 66 | %
Interest expense, net |  | 7,366 |  |  | 3,872 |  |  | 3,494 |  |  | 90 | % |  | 13,346 |  |  | 7,482 |  |  | 5,864 |  |  | 78 | %
Income from continuing operations before income taxes |  | 13,271 |  |  | 6,663 |  |  | 6,608 |  |  | 99 | % |  | 24,069 |  |  | 15,070 |  |  | 8,999 |  |  | 60 | %
Provision for income taxes |  | 3,182 |  |  | 1,908 |  |  | 1,274 |  |  | 67 | % |  | 5,860 |  |  | 4,026 |  |  | 1,834 |  |  | 46 | %
Net income from continuing operations |  | $ | 10,089 |  |  | $ | 4,755 |  |  | $ | 5,334 |  |  | 112 | % |  | $ | 18,209 |  |  | $ | 11,044 |  |  | $ | 7,165 |  |  | 65 | %

Revenues. Revenues increased for 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 $19.7 million and our Fleet segment of $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 for the three months ended June 30, 2023 compared to the same period of the prior year primarily due to an increase of $9.3 million for our Aviation segment and $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 in corporate costs, including acquisition and integration 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.
-19-

Table of Contents
Provision for Income Taxes. Our effective tax rate for continued operations was 24.0% and 24.3% for the three and six months ended June 30, 2023, respectively, and 28.6% and 26.7% for the 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 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 June 30, 2023 primarily resulted from book income in connection with the fair market value increase in our Company Owned Life Insurance plan in the period ended June 30, 2023 that was reversed for tax purposes as opposed to book expense in the same period in 2022.
Segment Operating Results
Aviation Segment Results
The results of operations for our Aviation segment were as follows (in thousands):

|  | Three months ended June 30, |  | Six months ended June 30,
|  | 2023 |  | 2022 |  | Change ($) |  | Change (%) |  | 2023 |  | 2022 |  | Change ($) |  | Change (%)
Revenues |  | $ | 124,729 |  | $ | 105,019 |  | $ | 19,710 |  |  | 19 | % |  | $ | 237,964 |  | $ | 198,309 |  |  | $ | 39,655 |  |  | 20 | %
Costs and operating expenses |  | 108,946 |  | 98,569 |  | 10,377 |  |  | 11 | % |  | 206,517 |  | 184,237 |  | 22,280 |  |  | 12 | %
Operating income |  | $ | 15,783 |  | $ | 6,450 |  | $ | 9,333 |  |  | 145 | % |  | $ | 31,447 |  | $ | 14,072 |  | $ | 17,375 |  |  | 123 | %
Profit percentage |  | 12.7 | % |  | 6.1 | % |  |  |  |  |  | 13.2 | % |  | 7.1 | % |  |  |  |

Revenues. Revenues for our Aviation segment increased for the three 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 $10.1 million, or 13%, and repair revenue increased $9.6 million, or 37%, for the three months ended 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 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 June 30, 2023 compared to $2.3 million for the same period in the prior year. Allocated corporate costs were $3.0 million for the six months ended June 30, 2023 compared to $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 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.
-20-

Table of Contents
Fleet Segment Results
The results of operations for our Fleet segment were as follows (in thousands):

| Three months ended June 30, |  | Six months ended June 30,
| 2023 |  | 2022 |  | Change ($) |  | Change (%) |  | 2023 |  | 2022 |  | Change ($) |  | Change (%)
Revenues | $ | 80,494 |  | $ | 64,742 |  | $ | 15,752 |  |  | 24 | % |  | $ | 155,846 |  | $ | 131,772 |  | $ | 24,074 |  |  | 18 | %
Costs and operating expenses | 72,640 |  | 59,376 |  | 13,264 |  |  | 22 | % |  | 142,093 |  | 120,025 |  | 22,068 |  |  | 18 | %
Operating income | $ | 7,854 |  | $ | 5,366 |  | $ | 2,488 |  |  | 46 | % |  | $ | 13,753 |  | $ | 11,747 |  | $ | 2,006 |  |  | 17 | %
Profit percentage | 9.8 | % |  | 8.3 | % |  |  |  |  |  | 8.8 | % |  | 8.9 | % |  |  |  |

Revenues. Revenues for our Fleet segment increased for the three months ended June 30, 2023 compared to the same period of the prior year primarily due to increases from commercial customers of $12.0 million, or 46%, and other government customers of $5.0 million, or 13%. These increases were partially offset by decreased revenues from DoD customers of $1.3 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.
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 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 $1.1 million for the three months ended June 30, 2023 compared to $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 June 30, 2023 and $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 million for the six months ended June 30, 2023 and $3.9 million for the same period in the prior year.
Operating income. Operating income increased for the three and six months ended June 30, 2023 compared to the same period of the prior year primarily driven by increased revenues.
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 work we perform and by the timing of large 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 credit agreement with a bank group and includes a term loan and a revolving facility, with an aggregate maximum borrowing capacity of $350.0 million. Under the credit agreement we may elect to increase the maximum availability of the term loan, the revolving facility, or a combination of both, subject to customary lender commitment approvals. The aggregate limit of increases is $100.0 million. Our outstanding borrowings under the credit
-21-

Table of Contents
agreement increased approximately $88.4 million for the six months ended June 30, 2023. As of June 30, 2023, we had borrowings outstanding under our term loan of $95.0 million, borrowings outstanding under our revolving facility of $282.0 million, outstanding letters of credit of $0.7 million, and $67.3 million of unused 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 Period |  | Maximum Total Funded Debt to EBITDA Ratio
June 30, 2023 through and including September 30, 2023 |  | 5.00 to 1.00
December 31, 2023 through and including June 30, 2024 |  | 4.75 to 1.00
September 30, 2024 |  | 4.50 to 1.00
December 31, 2024 through and including March 31, 2025 |  | 4.25 to 1.00
June 30, 2025 |  | 4.00 to 1.00
September 30, 2025 and thereafter |  | 3.75 to 1.00

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.
We believe our existing balances of cash 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 thousands):

|  |  |  | Six months ended June 30,
|  |  |  |  |  | 2023 |  | 2022
Net cash used in operating activities |  |  |  |  |  | $ | (65,091) |  |  | $ | (20,138) |
Net cash (used in) provided by investing activities |  |  |  |  |  | (16,291) |  |  | 327 |
Net cash provided by financing activities |  |  |  |  |  | 85,244 |  |  | 19,664 |
Net increase (decrease) in cash and cash equivalents |  |  |  |  |  | $ | 3,862 |  |  | $ | (147) |

Cash used in operating activities increased $44.9 million for the six months ended 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 $16.3 million for the six months ended June 30, 2023 compared to cash provided by investing activities of $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 $65.6 million for the six months ended 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.
-22-

Table of Contents
We paid cash dividends totaling $2.6 million or $0.20 per share during the six months ending 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.
Disclosures About Market Risk
Interest Rate Risk
Our credit 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 (5) and Note (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 six months ended 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
-23-

Table of Contents
— Recent Adopted Accounting Pronouncements” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2022.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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 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.
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.
-24-

Table of Contents
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 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 2022 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.
-25-

Item 6. Exhibits

(a) Exhibits |  |
Exhibit 2.1 |  | Membership Interest Purchase Agreement, dated as of May 1, 2023, by and among VSE Corporation, a wholly-owned subsidiary of VSE Corporation, and ASG Operations, LLC. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the SEC on May 5, 2023)
Exhibit 2.2 |  | Agreement and Plan of Merger by and among VSE Aviation, Inc., Diamond Merger Sub 1, LLC, Desser-Graham Partnership, L.P. and Desser Holdings Partnership GP, LLC, as the Representative, dated as of May 3, 2023 (incorporated by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K filed with the SEC on May 5, 2023)
Exhibit 3.1 |  | Restated Certificate of Incorporation of VSE Corporation dated as of March 4, 1996 (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K filed with the SEC on March 10, 2023)
Exhibit 3.2 |  | Certificate of Amendment of the Restated Certificate of Incorporation of VSE Corporation dated as of May 2, 2006 (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 1, 2006)
Exhibit 3.3 |  | Certificate of Amendment of the Restated Certificate of Incorporation of VSE Corporation dated as of May 4, 2022 (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K filed with the SEC on March 10, 2023)
Exhibit 3.4 |  | By-Laws of VSE Corporation as amended through October 22, 2022 (filed herewith)
Exhibit 10.1 |  | Fifth Amendment to the Fourth Amended and Restated Business Loan and Security Agreement, dated as of July 3, 2023, 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 |  | 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 104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

-26-

Table of Contents
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: | July 27, 2023 | By: | /s/ John A. Cuomo
|  |  | John A. Cuomo
|  |  | Director, Chief Executive Officer and President
|  |  | (Principal Executive Officer)

Date: | July 27, 2023 | By: | /s/ Stephen D. Griffin
|  |  | Stephen D. Griffin
|  |  | Senior Vice President and Chief Financial Officer
|  |  | (Principal Financial Officer and Principal Accounting Officer)

-27-