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Aviation segment revenue increased for the sixth consecutive quarter. Fourth quarter 2021 Aviation segment revenue increased 115% on a year-over-year basis, driven by growth within both distribution and repair markets and market share gains within the business and general aviation ("B&GA") market. Aviation distribution and repair revenue increased 174% and 27%, respectively, in the fourth quarter 2021 versus the prior-year period, with distribution continuing to operate above pre-pandemic levels.

For the twelve months ended December 31, 2021, the Company reported total revenue of $750.9 million, versus $661.7 million in 2020. The Company reported net income of $8.0 million or $0.63 per diluted share, compared to $(5.2) million or $(0.47) per diluted share in the prior-year period. On an adjusted basis, the Company reported adjusted net income of $29.5 million or $2.34 per adjusted diluted share, compared to $29.1 million or $2.63 per adjusted diluted share in the prior-year period.

For the full year 2021, VSE Aviation won significant new business awards supporting both distribution and MRO. During the fourth quarter 2021, VSE entered into an agreement with a major domestic airline (“Airline”) to become the exclusive end-of-life solutions provider for 737NG aircraft and surplus materials. Under the terms of the agreement, VSE will support the Airline with the dismantling and disposition of retired aircrafts. This program supports the Airline in fully optimizing its retired fleet and allows for the refurbishment of used parts for use by the Airline in fleet support and the sale of used components to third-party end users, brokers, and resellers. This award highlights VSE Aviation’s deep technical expertise and strong commercial relationships and further accelerates its global brand presence.

During the full year 2021, the Aviation segment grew 50% supported by new product distribution awards, new repair capability additions, and contributions from the Global Parts acquisition, all further positioning the Company for sustained growth in 2022. Management sees a significant, long-term opportunity for growth within the Aviation parts distribution and MRO services markets. VSE will continue to deploy capital toward its higher-growth and higher-margin Aviation segment, with a specific focus on integrated, “tip-to-tail” solutions in both the commercial and B&GA markets. The Company seeks to drive organic growth through product and service additions, and a combination of new program wins and increased cross-selling initiatives from previously announced awards. The Company will continue to pursue select, complementary acquisitions to enhance its capabilities, product offerings, geographic presence, and customer exposure.

The Fleet segment generated strong revenue, as commercial revenue increased by more than 61% in the fourth quarter 2021, and 72% in the full year 2021. Commercial revenue increased from 10% of total segment sales in 2019 to 32% in 2021, and VSE anticipates this market to remain the growth driver for the segment in 2022. VSE also continues to provide products and support to the United States Postal Service ("USPS") and its fleet of more than 230,000 vehicles. The Company remains well-positioned to support the USPS with distribution and new product introductions serving both the current fleet and the next generation delivery vehicle ("NGDV") transition.

The Company continues to build a high-performance, customer-focused culture, including a team of industry leaders that lead with purpose around shared, measurable objectives that position us to win in the markets we serve. In 2021, VSE continued to transform the business with the addition of strong technical talent at all levels of the organization. During the year, the Company made significant progress toward integrating legacy and newly acquired businesses, invested in systems and process upgrades, and built product and service capability centers-of-excellence to improve overall customer service quality and provide future scalability.

“2021 was a year of strong progress for VSE as we continued to execute on our multi-year business transformation plan to develop a market-leading, global aftermarket distribution and service solutions company,” stated John Cuomo, President and CEO of VSE Corporation. “Last year, we moved closer to the end-user, strengthened relationships with our supplier partners, and identified new methods to solve complex customer problems. We placed more emphasis on higher-margin, niche market opportunities, while pivoting from lower-margin, commoditized business. We penetrated new markets and customer accounts both organically and inorganically, while maintaining our disciplined approach to growth. We also aligned ourselves with both new and existing global, tier-one OEM supplier partners, many of whom engaged VSE in exclusive, long-term distribution agreements.”

“During the fourth quarter, revenue grew by more than 40% versus the prior-year-period, contributing to growth in both net income and adjusted EBITDA,” continued Cuomo. “Our Aviation segment had an outstanding finish to the year, as recent contract wins and improved customer activity across both our distribution and repair businesses contributed to the sixth consecutive quarter of growth in revenue and operating profit. VSE Aviation is now the largest segment within VSE.”

“During the fourth quarter of 2021, VSE Aviation was awarded an exclusive, multi-year asset optimization and partnership agreement with a major United States commercial airline,” continued Cuomo. “Under the terms of this contract, VSE will lead the disassembly and asset management of all 737NG aircraft and surplus materials scheduled for retirement within this partner’s fleet, positioning us to further leverage our integrated MRO, parts distribution, and repair management capabilities. Importantly, with this contract, VSE Aviation will become one of the largest suppliers of refurbished 737NG materials globally.”

“In 2022, we intend to pursue both organic and inorganic opportunities within complementary, adjacent Aviation markets,” continued Cuomo. “We will further establish ourselves as a leading player within both the commercial and business and general aviation MRO and parts distribution markets. We will also seek to capitalize on a steady improvement in MRO activity, a trend we believe is supportive of margin expansion as commercial air travel levels recover.”

“We ended the year with $122 million of available liquidity,” stated Stephen Griffin, CFO of VSE Corporation. “Looking ahead, we intend to prioritize capital allocation increasingly toward organic and inorganic growth opportunities that support our focus on long-term sustainable revenue and higher margin businesses. In 2022, we expect to be free cash flow positive as full year contributions from recently launched programs and completed acquisitions support incremental growth in EBITDA.”

VSE Aviation segment revenue increased 115% year-over-year to $82.8 million in the fourth quarter 2021. The year-over-year revenue improvement was attributable to contributions from recently announced contract wins and market share gains, specifically within the B&GA markets, as well as contributions of $18.6 million from the acquisition of Global Parts. The Aviation segment reported operating income of $4.5 million in the fourth quarter, compared to $(0.8) million in the same period of 2020. Segment Adjusted EBITDA increased by 464% in the fourth quarter to $7.8 million, versus $1.4 million in the prior-year period. Aviation segment Adjusted EBITDA margins were 9.4%, up 582 basis points versus the prior-year period, driven by improved sales mix, end-market recovery and operating efficiencies.

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

VSE Fleet segment revenue increased 12% year-over-year to $60.5 million in the fourth quarter 2021. Revenues from commercial customers increased 61% on a year-over-year basis, driven by growth in commercial fleet demand and the e-commerce fulfillment business, and as of the fourth quarter 2021 commercial revenue represented 32% of total Fleet segment revenue. Segment Adjusted EBITDA declined 10% year-over-year to $7.6 million in the fourth quarter. Fleet segment Adjusted EBITDA margins declined to 12.6% versus 15.8% in the prior-year period, given the previously communicated mix impact from increased commercial revenue as a percentage of total segment revenue and continued investment in commercial channel growth.

VSE's 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 U.S. Armed Forces, federal agencies and international, allied defense customers. Core services include base operations support, procurement, supply chain management, vehicle, maritime and aircraft sustainment services, IT and data management services and energy consulting.

VSE Federal and Defense segment revenue increased 16% year-over-year to $66.9 million in the fourth quarter 2021, driven by the contributions from the recent acquisition of HAECO Special Services (HSS), contract wins and successful recompetes, which more than offset the expiration of an Army contract. Segment Adjusted EBITDA declined 58% year-over-year to $3.6 million in the period, given a higher mix of cost plus contracts and supply chain related disruptions. VSE Federal and Defense funded backlog increased 1% year-over-year to $185 million, while bookings increased 7% on a year-over-year basis, given an increased focused on new business development activities.

As of December 31, 2021, the Company had $122 million in cash and unused commitment availability under its $350 million revolving credit facility maturing in 2024. The business generated $10 million of free cash flow in the quarter and on a year-to-date basis, has invested more than $70 million in new programs, primarily within the Aviation segment, to support long-term growth. As of December 31, 2021, VSE had total net debt outstanding of $284 million and $73.6 million of trailing-twelve months Adjusted EBITDA, which excludes full year contributions from recently launched programs and the HAECO Special Services and Global Parts acquisitions.


(in thousands, except per share data)
	Three months ended December 31,						For the years ended December 31,
	2021		2020		% Change		2021		2020		% Change
Revenues	$	210,178	$	150,021	40.1	%	$	750,853	$	661,659	13.5	%
Operating income	$	10,739	$	11,914	(9.9)	%	$	21,520	$	13,923	54.6	%
Net income (loss)	$	6,200	$	6,013	3.1	%	$	7,966	$	(5,171)	(254.1)	%
EPS (Diluted)	$	0.48	$	0.54	(11.1)	%	$	0.63	$	(0.47)	(234.0)	%


	Three months ended December 31,						For the years ended December 31,
(in thousands)	2021		2020		% Change		2021		2020		% Change
Revenues:
Aviation	$	82,842	$	38,551	114.9	%	$	247,852	$	165,070	50.1	%
Fleet	60,460		54,025		11.9	%	233,532		242,170		(3.6)	%
Federal and Defense	66,876		57,445		16.4	%	269,469		254,419		5.9	%
Total revenues	$	210,178	$	150,021	40.1	%	$	750,853	$	661,659	13.5	%

Operating income (loss):
Aviation	$	4,512	$	(833)	(641.7)	%	$	(14,373)	$	(35,513)	(59.5)	%
Fleet	5,298		6,150		(13.9)	%	20,426		26,659		(23.4)	%
Federal and Defense	2,487		7,868		(68.4)	%	19,897		26,309		(24.4)	%
Corporate/unallocated expenses	(1,558)		(1,271)		22.6	%	(4,430)		(3,532)		25.4	%
Operating income	$	10,739	$	11,914	(9.9)	%	$	21,520	$	13,923	54.6	%

In addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), this earnings release also contains Non-GAAP financial measures. These measures provide useful information to investors, and a reconciliation of these measures to the most directly comparable GAAP measures and other information relating to these Non-GAAP measures is included in the supplemental schedules attached.


		Three months ended December 31,						For the years ended December 31,
(in thousands)		2021		2020		% Change		2021		2020		% Change
Net income (loss)		$	6,200	$	6,013	3.1	%	$	7,966	$	(5,171)	(254.1)	%
Adjustments to net income (loss):
	Acquisition and restructuring costs	387		1,132		(65.8)	%	1,809		1,132		59.8	%
	Earn-out adjustment(1)	—		(2,447)		(100.0)	%	—		(5,541)		(100.0)	%
	Loss on sale of business entity and certain assets	—		—		—	%	—		8,214		(100.0)	%
	Gain on sale of property	—		—		—	%	—		(1,108)		(100.0)	%
	Severance	—		—		—	%	—		739		(100.0)	%
	Goodwill and intangible impairment	—		—		—	%	—		33,734		(100.0)	%
	Executive transition costs	25		1,026		(97.6)	%	1,014		1,026		(1.2)	%
	Inventory reserve	—		—		—	%	24,420		—		—	%
	Non-recurring professional fees	357		—		—	%	357		—		—	%
		6,969		5,724		21.8	%	35,566		33,025		7.7	%
	Tax impact of adjusted items	(192)		70		(374.3)	%	(6,045)		(3,973)		52.2	%
Adjusted net income		$	6,777	$	5,794	17.0	%	$	29,521	$	29,052	1.6	%
Weighted average dilutive shares		12,810		11,141		15.0	%	12,633		11,034		14.5	%
Adjusted EPS (Diluted)		$	0.53	$	0.52	1.9	%	$	2.34	$	2.63	(11.0)	%

(1) Includes impact of a Section 338(h)(10) election on corporate expenses.

Reconciliation of Consolidated EBITDA and Adjusted EBITDA to Net Income (Loss)


		Three months ended December 31,						For the years ended December 31,
(in thousands)		2021		2020		% Change		2021		2020		% Change
Net income (loss)		$	6,200	$	6,013	3.1	%	$	7,966	$	(5,171)	(254.1)	%
	Interest expense	3,593		3,408		5.4	%	12,069		13,496		(10.6)	%
	Income taxes	946		2,493		(62.1)	%	1,485		5,598		(73.5)	%
	Amortization of intangible assets	4,670		4,159		12.3	%	18,482		17,504		5.6	%
	Depreciation and other amortization	1,635		1,472		11.1	%	6,018		5,575		7.9	%
EBITDA		17,044		17,545		(2.9)	%	46,020		37,002		24.4	%
	Acquisition and restructuring costs	387		1,132		(65.8)	%	1,809		1,132		59.8	%
	Earn-out adjustment(1)	—		(2,447)		(100.0)	%	—		(5,541)		(100.0)	%
	Loss on sale of business entity and certain assets	—		—		—	%	—		8,214		(100.0)	%
	Gain on sale of property	—		—		—	%	—		(1,108)		(100.0)	%
	Severance	—		—		—	%	—		739		(100.0)	%
	Goodwill and intangible impairment	—		—		—	%	—		33,734		(100.0)	%
	Executive transition costs	25		1,026		(97.6)	%	1,014		1,026		(1.2)	%
	Inventory reserve	—		—		—	%	24,420		—		—	%
	Non-recurring professional fees	357		—		—	%	357		—		—	%
Adjusted EBITDA		$	17,813	$	17,256	3.2	%	$	73,620	$	75,198	(2.1)	%


(1) Includes impact of a Section 338(h)(10) election on corporate expenses.


		Three months ended December 31,						For the years ended December 31,
(in thousands)		2021		2020		% Change		2021		2020		% Change
Aviation
	Operating income (loss)	$	4,512	$	(833)	(641.7)	%	$	(14,373)	$	(35,513)	(59.5)	%
	Depreciation and amortization	2,898		2,667		8.7	%	11,068		10,698		3.5	%
EBITDA		7,410		1,834		304.0	%	(3,305)		(24,815)		53.4	%
	Acquisition and restructuring costs	387		1,132		(65.8)	%	888		1,132		(21.6)	%
	Earn-out adjustment	—		(1,905)		(100.0)	%	—		(5,000)		(100.0)	%
	Loss on sale of business entity and certain assets	—		—		—	%	—		8,214		(100.0)	%
	Gain on sale of property	—		—		—	%	—		(1,108)		(100.0)	%
	Severance	—		—		—	%	—		382		(100.0)	%
	Goodwill and intangible impairment	—		—		—	%	—		33,734		(100.0)	%
	Executive transition costs	—		322		(100.0)	%	—		322		(100.0)	%
	Inventory reserve	—		—		—	%	23,727		—		—	%
Adjusted EBITDA		$	7,797	$	1,383	463.8	%	$	21,310	$	12,861	65.7	%

Fleet
	Operating income	$	5,298	$	6,150	(13.9)	%	$	20,426	$	26,659	(23.4)	%
	Depreciation and amortization	2,336		2,361		(1.1)	%	9,369		9,983		(6.2)	%
EBITDA		7,634		8,511		(10.3)	%	29,795		36,642		(18.7)	%
	Inventory reserve	—		—		—	%	693		—		—	%
Adjusted EBITDA		$	7,634	$	8,511	(10.3)	%	$	30,488	$	36,642	(16.8)	%

Federal and Defense
	Operating income	$	2,487	$	7,868	(68.4)	%	$	19,897	$	26,309	(24.4)	%
	Depreciation and amortization	1,072		604		77.5	%	4,063		2,630		54.5	%
EBITDA		3,559		8,472		(58.0)	%	23,960		28,939		(17.2)	%
	Severance	—		—		—	%	—		112		(100.0)	%
Adjusted EBITDA		$	3,559	$	8,472	(58.0)	%	$	23,960	$	29,051	(17.5)	%


		Three months ended December 31,						For the years ended December 31,
(in thousands)		2021		2020		% Change		2021		2020		% Change
Adjusted EBITDA Summary
	Aviation	$	7,797	$	1,383	463.8	%	$	21,310	$	12,861	65.7	%
	Fleet	7,634		8,511		(10.3)	%	30,488		36,642		(16.8)	%
	Federal and Defense	3,559		8,472		(58.0)	%	23,960		29,051		(17.5)	%
	Adjusted Corporate expenses (1)	(1,177)		(1,110)		6.0	%	(2,138)		(3,356)		(36.3)	%
Adjusted EBITDA		$	17,813	$	17,256	3.2	%	$	73,620	$	75,198	(2.1)	%

(1) Includes certain adjustments not directly attributable to any of our segments.

The non-GAAP Financial Information set forth in this document is not calculated in accordance with GAAP under SEC Regulation G. We consider Adjusted Net Income, Adjusted EPS (Diluted), EBITDA, Adjusted EBITDA, net debt and free cash flow as non-GAAP financial measures and important indicators of performance and useful metrics for management and investors to evaluate our business' ongoing operating performance on a consistent basis across reporting periods. These non-GAAP financial measures, however, should not be considered in isolation or as a substitute for performance measures prepared in accordance with GAAP. Adjusted Net Income represents Net Income adjusted for acquisition-related costs including any earn-out adjustments, loss on sale of a business entity and certain assets, gain on sale of property, other discrete items, and related tax impact. Adjusted EPS (Diluted) is computed by dividing net income, adjusted for the discrete items as identified above and the related tax impacts, by the diluted weighted average number of common shares outstanding. EBITDA represents net income before interest expense, income taxes, amortization of intangible assets and depreciation and other amortization. Adjusted EBITDA represents EBITDA (as defined above) adjusted for discrete items as identified above. Net debt is defined as total debt less cash and cash equivalents. Free cash flow represents operating cash flow less capital expenditures.

VSE is a leading provider of aftermarket distribution and repair services for land, sea and air transportation assets for government and commercial markets. Core services include MRO services, parts distribution, supply chain management and logistics, engineering support, and consulting and training services for global commercial, federal, military and defense customers. VSE also provides information technology and energy consulting services. For additional information regarding VSE’s services and products, visit www.vsecorp.com.

Please refer to the Form 10-K that will be filed with the Securities and Exchange Commission (SEC) on or about March 10, 2022 for more details on our fourth quarter and full year 2021 results. VSE encourages investors and others to review the detailed reporting and disclosures contained in VSE’s public filings for additional discussion about the status of customer programs and contract awards, risks, revenue sources and funding, dependence on material customers, and management’s discussion of short- and long-term business challenges and opportunities.

This document contains certain forward-looking statements. These forward-looking statements, which are included in accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, may involve known and unknown risks, uncertainties and other factors that may cause VSE’s actual results and performance in future periods to be materially different from any future results or performance suggested by the forward-looking statements in this document. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that actual results will not differ materially from these expectations. “Forward-looking” statements, as such term is defined by 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, including federal contractor vaccine mandates, 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, the uncertainty surrounding the ongoing COVID-19 outbreak and the impacts thereof, risks related to our work on large government programs, our ability to successfully integrate recently acquired businesses, risk related to the performance of the aviation aftermarket, global economic and political conditions, prolonged periods of inflation and our ability to mitigate the impact thereof, our dependence on third-party package delivery companies, risks related to technology security and cyber-attack, risks related to our outstanding indebtedness, and the other factors identified in our reports filed or expected to be filed with the SEC including our Annual Report on Form 10-K for the year ended December 31, 2021. 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. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.


	Three months ended December 31,				For the years ended December 31,
(in thousands)	2021		2020		2021		2020
Net cash provided by operating activities	$	12,921	$	526	$	(17,602)	$	35,761
Capital expenditures	(2,914)		(1,471)		(10,520)		(4,427)
Free cash flow	$	10,007	$	(945)	$	(28,122)	$	31,334


	For the years ended December 31,
(in thousands)	2021		2020
Principal amount of debt	$	286,734	$	253,461
Debt issuance costs	(2,165)		(2,368)
Cash and cash equivalents	(518)		(378)
Net debt	$	284,051	$	250,715


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