vsec-20210930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _____ to _____

Commission File Number: 000-03676

VSE CORPORATION

(Exact Name of Registrant as Specified in its Charter)


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

6348 Walker Lane

Alexandria,

Virginia

22310

(Address of Principal Executive Offices)

(Zip Code)

Registrant's Telephone Number, Including Area Code: (703) 960-4600

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.05 per share

VSEC

The NASDAQ Global Select Market

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transaction period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Number of shares of Common Stock outstanding as of October 22, 2021: 12,711,915


	TABLE OF CONTENTS


		Page
PART I

ITEM 1.	Financial Statements

	Unaudited Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020	4

	Unaudited Consolidated Statements of Income (Loss ) for the three and nine months ended September 30, 2021 and 2020	5

	Unaudited Consolidated Statements of Comprehensive Income (Loss ) for the three and nine months ended September 30, 2021 and 2020	6

	Unaudited Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2021 and 2020	7

	Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020	9

	Notes to Unaudited Consolidated Financial Statements	10

ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risks	39

ITEM 4.	Controls and Procedures	39

PART II

ITEM 1.	Legal Proceedings	39

ITEM 1A.	Risk Factors	39

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

ITEM 6.	Exhibits	40

Signatures		41

-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 includes this statement for purposes of such safe harbor provisions.

“Forward-looking” statements, as such term is defined by the Securities Exchange Commission (the “SEC”) in its rules, regulations and releases, represent our expectations or beliefs, including, but not limited to, statements concerning our operations, economic performance, financial condition, the impact of widespread health developments, such as the ongoing COVID-19 outbreak, the health and economic impact thereof and the governmental, commercial, consumer and other responses thereto, growth and acquisition strategies, investments and future operational plans. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “forecast,” “seek,” “plan,” “predict,” “project,” “could,” “estimate,” “might,” “continue,” “seeking” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. These statements, by their nature, involve substantial risks and uncertainties, certain of which are beyond our control, and actual results may differ materially depending on a variety of important factors, including, but not limited to, those identified elsewhere in this document, including in Item 1A, Risk Factors, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 3, Quantitative and Qualitative Disclosures About Market Risk, as well as with respect to the risks described in Item 1A, Risk Factors, to our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on March 5, 2021 (“2020 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

Unaudited Consolidated Balance Sheets

(in thousands except share and per share amounts)


	September 30,		December 31,
	2021		2020
Assets
Current assets:
Cash and cash equivalents	$	383	$	378
Receivables, net	76,495		55,471
Unbilled receivables, net	30,824		22,358
Inventories, net	314,705		253,422
Other current assets	37,454		23,328
Total current assets	459,861		354,957

Property and equipment, net	41,785		36,363
Intangible assets, net	117,041		103,595
Goodwill	240,826		238,126
Operating lease - right-of-use assets	26,410		20,515
Other assets	27,015		26,525
Total assets	$	912,938	$	780,081

Liabilities and Stockholders' equity
Current liabilities:
Current portion of long-term debt	$	14,162	$	20,379
Accounts payable	96,898		72,682

Accrued expenses and other current liabilities	54,492		45,172
Dividends payable	1,143		995
Total current liabilities	166,695		139,228

Long-term debt, less current portion	280,047		230,714
Deferred compensation	17,234		16,027

Long-term operating lease obligations	26,700		22,815

Deferred tax liabilities	10,983		14,897
Other long-term liabilities	258		83
Total liabilities	501,917		423,764

Commitments and contingencies (Note 6)

Stockholders' equity:
Common stock, par value $0.05 per share, authorized 15,000,000 shares; issued and outstanding 12,704,165 and 11,055,037, respectively	635		553
Additional paid-in capital	87,322		31,870
Retained earnings	323,431		325,097
Accumulated other comprehensive loss	(367)		(1,203)
Total stockholders' equity	411,021		356,317
Total liabilities and stockholders' equity	$	912,938	$	780,081

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

-4-

Table of Contents

VSE Corporation and Subsidiaries

Unaudited Consolidated Statements of Income (Loss)

(in thousands except share and per share amounts)


	For the three months ended September 30,				For the nine months ended September 30,
	2021		2020		2021		2020
Revenues:
Products	$	113,005	$	80,942	$	276,048	$	243,031
Services	87,577		84,563		264,627		268,607
Total revenues	200,582		165,505		540,675		511,638

Costs and operating expenses:
Products	101,044		72,526		273,081		214,575
Services	79,916		73,751		241,104		238,441
Selling, general and administrative expenses	809		885		1,897		2,428
Amortization of intangible assets	4,921		4,158		13,812		13,345
Total costs and operating expenses	186,690		151,320		529,894		468,789

	13,892		14,185		10,781		42,849

Loss on sale of a business entity and certain assets	—		—		—		(8,214)
Gain on sale of property	—		—		—		1,108
Goodwill and intangible asset impairment	—		—		—		(33,734)

Operating income	13,892		14,185		10,781		2,009

Interest expense, net	2,780		3,530		8,476		10,088

Income (Loss) before income taxes	11,112		10,655		2,305		(8,079)

Provision for income taxes	2,091		2,547		539		3,105

Net income (loss)	$	9,021	$	8,108	$	1,766	$	(11,184)

Basic earnings (loss) per share	$	0.71	$	0.73	$	0.14	$	(1.01)

Basic weighted average shares outstanding	12,704,165		11,043,246		12,496,646		11,028,283

Diluted earnings (loss) per share	$	0.71	$	0.73	$	0.14	$	(1.01)

Diluted weighted average shares outstanding	12,774,636		11,100,356		12,573,076		11,028,283

Dividends declared per share	$	0.09	$	0.09	$	0.27	$	0.27

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

-5-

Table of Contents

VSE Corporation and Subsidiaries

Unaudited Consolidated Statements of Comprehensive Income (Loss)

(in thousands)


	For the three months ended September 30,				For the nine months ended September 30,
	2021		2020		2021		2020
Net income (loss)	$	9,021	$	8,108	$	1,766	$	(11,184)

Change in fair value of interest rate swap agreements, net of tax	173		388		836		(564)

Other comprehensive income (loss), net of tax	173		388		836		(564)

Comprehensive income (loss)	$	9,194	$	8,496	$	2,602	$	(11,748)

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

-6-

Table of Contents

VSE Corporation and Subsidiaries

Unaudited Consolidated Statements of Stockholders' Equity

(in thousands except per share data)


	Three months ended September 30, 2021
				Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Common Stock
	Shares	Amount
Balance at June 30, 2021	12,704	$	635	$	85,844	$	315,555	$	(540)	$	401,494

Net income	—	—		—		9,021		—		9,021
Stock-based compensation	—	—		1,478		—		—		1,478
Other comprehensive income, net of tax	—	—		—		—		173		173
Dividends declared ($0.09 per share)	—	—		—		(1,145)		—		(1,145)
Balance at September 30, 2021	12,704	$	635	$	87,322	$	323,431	$	(367)	$	411,021


	Three months ended September 30, 2020
				Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Common Stock
	Shares	Amount
Balance at June 30, 2020	11,043	$	552	$	31,494	$	312,965	$	(2,057)	$	342,954
Net income	—	—		—		8,108		—		8,108

Other comprehensive income, net of tax	—	—		—		—		388		388
Dividends declared ($0.09 per share)	—	—		—		(993)		—		(993)
Balance at September 30, 2020	11,043	$	552	$	31,494	$	320,080	$	(1,669)	$	350,457

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

-7-

Table of Contents

VSE Corporation and Subsidiaries

Unaudited Consolidated Statements of Stockholders' Equity (continued)

(in thousands except per share data)


	Nine months ended September 30, 2021
				Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Common Stock
	Shares	Amount
Balance at December 31, 2020	11,055	$	553	$	31,870	$	325,097	$	(1,203)	$	356,317
Issuance of common stock	1,599	80		51,937		—		—		52,017

Net income	—	—		—		1,766		—		1,766
Stock-based compensation	50	2		3,515		—		—		3,517
Other comprehensive income, net of tax	—	—		—		—		836		836
Dividends declared ($0.27 per share)	—	—		—		(3,432)		—		(3,432)
Balance at September 30, 2021	12,704	$	635	$	87,322	$	323,431	$	(367)	$	411,021


	Nine months ended September 30, 2020
				Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Common Stock
	Shares	Amount
Balance at December 31, 2019	10,970	$	549	$	29,411	$	334,246	$	(1,105)	$	363,101
Net loss	—	—		—		(11,184)		—		(11,184)
Stock-based compensation	73	3		2,083		—		—		2,086
Other comprehensive loss, net of tax	—	—		—		—		(564)		(564)
Dividends declared ($0.27 per share)	—	—		—		(2,982)		—		(2,982)
Balance at September 30, 2020	11,043	$	552	$	31,494	$	320,080	$	(1,669)	$	350,457

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

-8-

Table of Contents

VSE Corporation and Subsidiaries

Unaudited Consolidated Statements of Cash Flows

(in thousands)


	For the nine months ended September 30,
	2021		2020
Cash flows from operating activities:
Net income (loss)	$	1,766	$	(11,184)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	18,996		18,213
Deferred taxes	(4,803)		(2,089)
Stock-based compensation	2,968		1,723
Inventory valuation adjustment	24,420		—
Loss on sale of a business entity and certain assets	—		8,214
Gain on sale of property and equipment	(48)		(928)
Goodwill and intangible asset impairment	—		33,734

Earn-out obligation fair value adjustment	—		(3,094)
Changes in operating assets and liabilities, net of impact of acquisitions:
Receivables	(9,321)		4,068
Unbilled receivables	(4,484)		15,099
Inventories	(66,518)		(27,566)
Other current assets and noncurrent assets	(18,912)		(2,119)
Accounts payable and deferred compensation	17,955		(3,290)
Accrued expenses and other current and noncurrent liabilities	7,458		4,454




Net cash (used in) provided by operating activities	(30,523)		35,235

Cash flows from investing activities:
Purchases of property and equipment	(7,606)		(2,956)
Proceeds from the sale of property and equipment	199		2,847
Proceeds from payments on notes receivable	1,550		838
Proceeds from the sale of a business entity and certain assets	—		19,915

Earn-out obligation payments	(750)		—
Cash paid for acquisitions, net of cash acquired	(53,232)		—

Net cash (used in) provided by investing activities	(59,839)		20,644

Cash flows from financing activities:
Borrowings on loan agreement	394,079		340,679
Repayments on loan agreement	(350,956)		(360,794)
Proceeds from issuance of common stock, net of underwriters' discounts and issuance costs	52,017		—
Earn-out obligation payments	—		(31,701)
Payment of debt financing costs	(808)		(636)

Payments of taxes for equity transactions	(681)		(635)
Dividends paid	(3,284)		(2,975)

Net cash provided by (used in) financing activities	90,367		(56,062)

Net increase (decrease) in cash and cash equivalents	5		(183)
Cash and cash equivalents at beginning of period	378		734
Cash and cash equivalents at end of period	$	383	$	551


Supplemental disclosure of noncash investing and financing activities:
Notes receivable from the sale of a business entity and certain assets	$	—	$	13,129
Earn-out obligation in connection with acquisitions	$	1,250	$	—

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

-9-

VSE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

Table of Contents

(1) 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 2020 Form 10-K. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021.

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 accruals for contract disallowance reserves, inventory reserves, costs to complete on fixed price contracts, and recoverability of goodwill and intangible assets.

Coronavirus (COVID-19) Pandemic

On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus disease, known as COVID-19, as a global pandemic. The pandemic and the containment and mitigation efforts by governments to attempt to control its spread created uncertainties and disruptions in the economic and financial markets. The pandemic triggered a decline in demand for our Aviation segment products and services beginning with the second quarter of 2020 and continues to have an impact on the segment. Our results of operations for the first nine months of 2021 continue to reflect the adverse impact from the COVID-19 pandemic. Although demand has improved since the onset of the pandemic, it remains below pre-pandemic levels in certain areas of our business. The extent to which the impact of COVID-19 may continue to have an adverse effect on our future business and results of operations is highly uncertain and unpredictable. However, we believe that the global vaccination effort underway may generate an increase in commercial air travel and result in a gradual recovery in demand for our Aviation segment products and services for the remainder of 2021. We are closely monitoring the effects and risks of COVID-19 to assess its continuing impact on our business, financial condition and results of operations. We maintain a robust continuity plan to adequately respond to situations such as the COVID-19 pandemic, including a framework for remote work arrangements, in order to effectively maintain operations, including financial reporting systems, internal controls over financial reporting and disclosure controls and procedures.

Underwritten Public Offering

On January 29, 2021, we completed the issuance and sale of 1,428,600 shares of the Company's common stock, in a public offering at a price of $35.00 per share. The underwriters exercised their option to purchase an additional 170,497 shares. The transaction closed on February 2, 2021. We received net proceeds of approximately $52 million after deducting underwriting discounts, commissions and offering related expenses.

(2) Acquisitions and Divestitures

Acquisitions

HAECO Special Services, LLC

On March 1, 2021, we acquired HAECO Special Services, LLC ("HSS") from HAECO Airframe Services, LLC, a division of HAECO Americas ("HAECO") for the purchase price of $14.8 million, subject to post-closing and working capital adjustments. HSS is a leading provider of fully integrated maintenance, repair and overhaul ("MRO") support solutions for military and government aircraft. HSS provides scheduled depot maintenance, contract field deployment and unscheduled drop-in maintenance for a United States Department of Defense ("DoD") contract specifically for the sustainment of the U.S. Air Force ("USAF") KC-10 fleet. The acquisition was not significant to our consolidated financial statements. HSS operating results are included in

-10-

VSE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

Table of Contents

our Federal and Defense segment in the accompanying unaudited consolidated financial statements beginning on the acquisition date of March 1, 2021.

The allocation of the total consideration for the acquisition to the tangible and identifiable intangible assets acquired and liabilities assumed is preliminary until we obtain final information regarding their fair values. Based on preliminary estimates, we allocated approximately $7.5 million to the fair value of net tangible assets (including $9.2 million of accounts receivable) and $7.3 million to customer relationship intangible asset, which is being amortized over approximately 4 years from the acquisition date.

Global Parts Group, Inc.

On July 26, 2021, we acquired Global Parts Group, Inc. ("Global Parts"), a privately owned company with operations in Augusta, Kansas. Global Parts provides distribution and MRO services for business and general aviation ("B&GA") aircraft families. The acquisition expands our existing B&GA focus and further diversifies our existing product and platform offerings to include additional airframe components, while expanding our customer base of regional and global B&GA customers. Global Parts will operate as a subsidiary of VSE Aviation, Inc. under our Aviation segment.

The initial cash purchase price for Global Parts was approximately $38 million, subject to certain post-closing and working capital adjustments, which was funded using our existing bank revolving loan. We may also be required to make earn-out payments of up to $2 million should Global Parts meet certain revenue targets during the first twelve months following the acquisition and a certain milestone event on or before March 2023. See Note (9) "Fair Value Measurements," for additional information regarding the contingent consideration obligation.

We are in the process of finalizing our valuation and the allocation of the total consideration for the acquisition to the tangible and identifiable intangible assets acquired and liabilities assumed is preliminary until we obtain final information regarding their fair values. The fair values assigned to our Global Parts earn-out obligation and intangible assets acquired were based on preliminary estimates, assumptions, and other information compiled by management, including independent valuations that utilized established valuation techniques. The total preliminary estimated purchase price has been allocated to assets acquired (including identifiable intangible assets and goodwill) and liabilities assumed, as follows (in thousands):


Description	Fair Value
Accounts receivable	$	6,410
Inventories	18,746
Prepaid expenses and other current assets	620
Property and equipment	433
Intangibles - customer related	19,957
Goodwill	2,088
Operating lease right-of-use-assets	3,066
Accounts payable	(6,176)
Accrued expenses and other current liabilities	(1,800)
Long-term operating lease liabilities	(2,897)
Net assets acquired, excluding cash	$	40,447

Cash consideration, net of cash acquired	$	38,447
Acquisition date estimated fair value of earn-out obligation	2,000
Total consideration	$	40,447

The estimated value attributed to the customer relationship intangible asset is being amortized on a straight-line basis using a useful life of 10 years. None of the value attributed to goodwill and customer relationships is deductible for income tax purposes. The preliminary amount of goodwill recorded for our Global Parts acquisition reflects the strategic advantage of expanding our supply chain management capabilities through the diversification our existing product and platform offerings to new customers.

-11-

VSE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

Table of Contents

We incurred approximately $532 thousand of acquisition-related expenses associated with our Global Parts acquisition during the nine months ended September 30, 2021, which are included in selling, general and administrative expenses.

Global Parts' results of operations are included in our Aviation segment in the accompanying unaudited consolidated financial statements beginning on the acquisition date of July 26, 2021. Had the acquisition occurred as of January 1, 2020, revenue and net income (loss) from consolidated operations, and basic and diluted earnings (loss) per share on a pro forma basis for the three and nine months ended September 30, 2021 and 2020 would not have been materially different than our reported amounts.

Divestitures

Prime Turbines Sale

In January 2020, VSE’s subsidiary VSE Aviation, Inc. entered into two definitive agreements to sell (1) Prime Turbines LLC ("Prime Turbines") and (2) certain related inventory assets to PTB Holdings USA, LLC ("PTB"). The transaction was completed on February 26, 2020 with cash proceeds of $20.0 million, including final working capital adjustments, and a note receivable of $8.3 million received as consideration. As a result of the sale of the business and inventory, we derecognized the assets and liabilities of Prime Turbines and recorded a $7.5 million loss in the first quarter of 2020 which was reflected within loss on sale of a business entity and certain assets in the consolidated statements of income. As of September 30, 2021 and December 31, 2020, the total outstanding balance of the note receivable from PTB was $5.0 million and $6.1 million, respectively, which represent the present value of the consideration to be received with an imputed interest rate discount, of which $1.5 million and $1.4 million were current as of September 30, 2021 and December 31, 2020, respectively. The note receivable balance is included in other assets and other current assets in our consolidated balance sheets.

CT Aerospace Asset Sale

In June 2020, VSE's subsidiary VSE Aviation, Inc. entered into an asset purchase agreement to sell CT Aerospace, LLC ("CT Aerospace") inventory and certain assets to Legacy Turbines, LLC ("Legacy Turbines") for $6.9 million, with a note receivable received as consideration. As a result of the sale, we recorded a $678 thousand loss in the second quarter of 2020. As of September 30, 2021 and December 31, 2020, the total outstanding balance of the note receivable from Legacy Turbines was $6.1 million and $6.4 million, respectively, net of a variable discount of $275 thousand, of which $1.7 million and $1.3 million were current as of September 30, 2021 and December 31, 2020, respectively. The note receivable balance is included in other assets and other current assets in our consolidated balance sheet.

(3) Revenue

Disaggregated Revenue

Our revenues are derived from the delivery of products to our customers and from contract services performed for the DoD or federal civilian agencies. Our customers also include various other government agencies and commercial clients.

A summary of revenues for our operating segments by customer for the three and nine months ended September 30, 2021 are as follows (in thousands):


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

-12-

VSE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

Table of Contents


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

A summary of revenues for our operating segments by customer for the three and nine months ended September 30, 2020 are as follows (in thousands):


	Three months ended September 30, 2020
	Aviation		Fleet		Federal and Defense		Total
Commercial	$	36,075	$	12,471	$	428	$	48,974
DoD	104		7,275		49,556		56,935
Other government	39		43,973		15,584		59,596
	$	36,218	$	63,719	$	65,568	$	165,505


	Nine months ended September 30, 2020
	Aviation		Fleet		Federal and Defense		Total
Commercial	$	125,295	$	29,818	$	1,317	$	156,430
DoD	941		16,937		168,078		185,956
Other government	283		141,390		27,579		169,252
	$	126,519	$	188,145	$	196,974	$	511,638

-13-

VSE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

Table of Contents

A summary of revenues for our operating segments by type for the three and nine months ended September 30, 2021 is as follows (in thousands):


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


	Nine months ended September 30, 2021
	Aviation		Fleet		Federal and Defense		Total
Repair	$	56,051	$	—	$	—	$	56,051
Distribution	108,959		173,072		—		282,031
Cost Plus Contract	—		—		65,139		65,139
Fixed Price Contract	—		—		82,090		82,090
T&M Contract	—		—		55,364		55,364
Total	$	165,010	$	173,072	$	202,593	$	540,675

A summary of revenues for our operating segments by type for the three and nine months ended September 30, 2020 is as follows (in thousands):


	Three months ended September 30, 2020
	Aviation		Fleet		Federal and Defense		Total
Repair	$	17,280	$	—	$	—	$	17,280
Distribution	18,938		63,719		—		82,657
Cost Plus Contract	—		—		18,194		18,194
Fixed Price Contract	—		—		32,937		32,937
T&M Contract	—		—		14,437		14,437
Total	$	36,218	$	63,719	$	65,568	$	165,505


	Nine months ended September 30, 2020
	Aviation		Fleet		Federal and Defense		Total
Repair	$	66,936	$	—	$	—	$	66,936
Distribution	59,583		188,145		—		247,728
Cost Plus Contract	—		—		61,182		61,182
Fixed Price Contract	—		—		107,932		107,932
T&M Contract	—		—		27,860		27,860
Total	$	126,519	$	188,145	$	196,974	$	511,638

-14-

VSE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

Table of Contents

Contract Balances

Unbilled receivables (contract assets) represent our right to consideration in exchange for goods or services that we have transferred to the customer prior to us having the right to payment for such goods or services. Contract liabilities are recorded when customers remit contractual cash payments in advance of us satisfying related performance obligations under contractual arrangements, including those with performance obligations to be satisfied over a period of time.

We present our unbilled receivables and contract liabilities on a contract-by-contract basis. If a contract liability exists, it is netted against the unbilled receivables balance for that contract. Unbilled receivables increased from $22.4 million as of December 31, 2020 to $30.8 million as of September 30, 2021, primarily due to the unbilled receivables acquired as a result of the HSS acquisition and revenues recognized as performance obligations are satisfied in excess of billings. Contract liabilities, which are included in accrued expenses and other current liabilities in our consolidated balance sheets, decreased from $10.1 million as of December 31, 2020 to $8.6 million as of September 30, 2021, primarily due to revenue recognized in excess of advance payments received. For the nine months ended September 30, 2021 and September 30, 2020, we recognized revenue that was previously included in the beginning balance of contract liabilities of $2.7 million and $2.0 million, respectively.

Performance Obligations

Our performance obligations are satisfied either at a point in time or over time as work progresses. The majority of our revenue recognized at a point in time is for the sale of vehicle and aircraft parts in our Fleet and Aviation segments. Revenues from products and services transferred to customers at a point in time accounted for approximately 57% of our revenues for the three and nine months ended September 30, 2021 and 50% of our revenues for the three and nine months ended September 30, 2020. Revenues from products and services transferred to customers over time accounted for approximately 43% of our revenues for the three and nine months ended September 30, 2021 and 50% of our revenues for the three and nine months ended September 30, 2020, primarily related to revenues in our Federal and Defense segment and MRO services in our Aviation segment.

As of September 30, 2021, the aggregate amount of transaction prices allocated to unsatisfied or partially unsatisfied performance obligations was $218 million. Performance obligations expected to be satisfied within one year and greater than one year are 90% and 10%, respectively. We have applied the practical expedient for certain parts sales and MRO services to exclude the amount of remaining performance obligations for (i) contracts with an original expected term of one year or less or (ii) contracts for which we recognize revenue in proportion to the amount we have the right to invoice for services performed.

During the nine months ended September 30, 2021 and September 30, 2020, revenue recognized from performance obligations satisfied in prior periods was not material.

(4) Debt

Long-term debt consisted of the following (in thousands):


	September 30,		December 31,
	2021		2020
Bank credit facility - term loan	$	63,925	$	77,988
Bank credit facility - revolver loans	232,659		175,473
Principal amount of long-term debt	296,584		253,461
Less debt issuance costs	(2,375)		(2,368)
Total long-term debt	294,209		251,093
Less current portion	(14,162)		(20,379)
Long-term debt, less current portion	$	280,047	$	230,714

We have a loan agreement with a group of banks from which we borrow amounts under the loan agreement to provide working capital support, fund letters of credit, and finance acquisitions. The loan agreement includes term and revolving loan facilities. The revolving loan facility provides for revolving loans and letters of credit.

-15-

VSE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

Table of Contents

On July 23, 2021, we entered into a third amendment to our loan agreement which, among other things, extended the maturity dates with respect to the revolving credit facility and term loan facility to July 2024, lowered the applicable LIBOR rate floor, and modified the maximum Total Funded Debt to EBITDA Ratio. Except as described above, the amended loan agreement has substantially the same terms as the existing loan agreement, including covenants and events of default.

The fair value of outstanding debt as of September 30, 2021 under our bank loan facilities approximates its carrying value using Level 2 inputs based on market data on companies with a corporate rating similar to ours that have recently priced credit facilities.

Our required term and revolver loan payments after September 30, 2021 are as follows (in thousands):


2021	3,750
2022	15,000
2023	15,000
2024*	262,834
Total	$	296,584

*Includes the revolver loan required payment of $232.7 million.

The maximum amount of credit available under the loan agreement for revolving loans and letters of credit as of September 30, 2021 was $350 million. We pay an unused commitment fee and fees on letters of credit that are issued. We had letters of credit outstanding totaling $803 thousand as of September 30, 2021 and no letters of credit outstanding as of December 31, 2020.

Under the loan agreement we may elect to increase the maximum availability of the term loan facility, the revolving loan facility, or both facilities, up to an aggregate additional amount of $100 million.

We pay interest on the term loan borrowings and revolving loan borrowings at LIBOR plus a base margin or at a base rate (typically the prime rate) plus a base margin. As of September 30, 2021, the LIBOR base margin was 2.25% and the base rate base margin was 1.75%. The base margins increase or decrease in increments as our Total Funded Debt/EBITDA Ratio increases or decreases.

We use interest rate hedges on a portion of our debt. The amount of our debt with interest rate swap agreements was $75 million and $145 million as of September 30, 2021 and December 31, 2020, respectively.

After taking into account the impact of interest rate swap agreements, as of September 30, 2021, interest rates on portions of our outstanding debt ranged from 3.50% to 6.18%, and the effective interest rate on our aggregate outstanding debt was 3.90%.

Interest expense incurred on bank loan borrowings and interest rate hedges was $2.7 million and $3.3 million for the three months ended September 30, 2021 and 2020, respectively, and $7.9 million and $9.5 million for the nine months ended September 30, 2021 and 2020, respectively.

The loan agreement contains collateral requirements to secure our loan agreement obligations, restrictive covenants, a limit on annual dividends, and other affirmative and negative covenants, conditions, and limitations. Restrictive covenants include a maximum Total Funded Debt to EBITDA Ratio and a minimum Fixed Charge Coverage Ratio. We were in compliance with required ratios and other terms and conditions as of September 30, 2021. We continue to monitor the impacts of COVID-19 on our results of operations and liquidity relative to compliance with financial covenants; at this time, we expect that we will remain in compliance with such covenants over the next twelve months.

(5) Earnings Per Share

Basic earnings per share ("EPS") is computed by dividing net income by the weighted average number of shares of common stock outstanding during each period. Shares issued during the period are weighted for the portion of the period that they were outstanding. Our calculation of diluted earnings per common share includes the dilutive effects for an assumed vesting of restricted stock awards. For the nine months ended September 30, 2020, diluted earnings per share does not include an adjustment