What changed in this filing

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Item 1. Business

2024-03-08 compared with 2023-03-10 · 65 added, 103 removed, 43 unchanged (80% of the section changed)

History and Organization

VSE Corporation is a diversified aftermarket products and services company providing repair services, parts distribution, logistics, supply chain management and consulting services for land, sea and air transportation assets to commercial and government markets.

The terms "we," "us," "our," "VSE" and the "Company" means VSE Corporation and its operating businesses unless the context indicates otherwise.

We provide logistics and distribution services for legacy systems and equipment and professional and technical services to commercial customers;

the government, including the United States Department of Defense ("DoD");

and federal civilian agencies.

Our operations include supply chain management solutions, parts supply and distribution, and maintenance, repair and overhaul ("MRO") services for vehicle fleet, aviation, maritime and other customers.

We also provide vehicle and equipment refurbishment, logistics, engineering support, data management and healthcare IT solutions, and clean energy consulting services.

VSE was incorporated in Delaware in 1959 and the parent company serves as a centralized managing and consolidating entity for our three operating segments:

Aviation, Fleet and Federal and Defense, each of which consists of one or more wholly owned subsidiaries or unincorporated divisions that perform our services.

VSE Corporation, together with its consolidated subsidiaries, is a leading provider of aftermarket distribution and maintenance, repair and overhaul ("MRO") services for air and land transportation assets for commercial and government markets.

VSE was incorporated in Delaware in 1959.

The terms "we," "us," "our," "VSE" and the "Company" mean VSE Corporation and its operating businesses unless the context indicates otherwise.

Purpose, Vision and Our Core Values

Purpose and Vision Statement

We deliver trusted solutions to inspire the performance of tomorrow.

Our Aviation segment accounted for 43%, 33%, and 25% of our consolidated revenues in 2022, 2021 and 2020, respectively.

The Aviation segment provides international parts supply and distribution, supply chain solutions, and component and engine accessory MRO services supporting global aftermarket commercial and business and general aviation customers.

We are focused on enhancing the productivity and longevity of our customer's high-value, business-critical assets.

We strive to achieve this through our dedication to creating better solutions, anticipating global needs, and building stronger relationships with our customers.

• Customer Obsessed:

Our exceptional service sets us apart

Accountability is our responsibility

Our experience and our voice matters

• Better Together:

We collaborate to win

• Results Matter:

We inspire and deliver our key results

Business Operations

Our business operations are managed under two reportable operating segments:

Aviation and Fleet.

Prior to the sale of the Federal and Defense segment, as discussed below, we operated in three reportable operating segments.

The Aviation segment is a leading provider of aftermarket parts distribution and MRO services for components and engine accessories supporting commercial, business and general aviation operators ("B&GA").

This business offers a range of services to a diversified global client base of commercial airlines, regional airlines, cargo transporters, MRO integrators and providers, aviation manufacturers, corporate and private aircraft owners, and fixed-base operators ("FBOs").

In 2021, we acquired Global Parts Group, Inc.

("Global Parts"), which 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 product and platform offerings to include additional airframe components, while expanding our customer base of regional and global B&GA customers.

Our Fleet segment accounted for 27%, 31%, and 37% of our consolidated revenues in 2022, 2021 and 2020, respectively.

The Fleet segment provides parts distribution, inventory management, e-commerce fulfillment, logistics and other services to assist aftermarket commercial and government agencies with their supply chain management.

Our Aviation segment accounted for 63%, 61%, and 51% of our consolidated revenues in 2023, 2022 and 2021, respectively.

The Fleet segment specializes in part distribution, engineering solutions, and supply chain management services supporting the medium and heavy-duty fleet market.

Fleet segment operations are conducted under the brand Wheeler Fleet Solutions, which supports government and commercial truck fleets with parts, sustainment solutions and managed inventory services.

Revenues for this business are derived from the sale of vehicle parts and mission critical supply chain services to support client truck fleets.

Our Fleet segment accounted for 37%, 39%, and 49% of our consolidated revenues in 2023, 2022 and 2021, respectively.

Federal and Defense

Our Federal and Defense segment accounted for 30%, 36%, and 38% of our consolidated revenues in 2022, 2021 and 2020, respectively.

The Federal and Defense segment provides aftermarket refurbishment and sustainment services to extend and maintain the life cycle of military vehicles, ships and aircraft for the DoD.

The segment provides foreign military sales services, engineering, logistics, maintenance, configuration management, prototyping, technology, and field support services to the DoD and other customers.

We also provide energy consulting services and IT solutions to various DoD, federal civilian agencies and commercial clients.

In 2021, we acquired HAECO Special Services, LLC ("HSS"), which offers scheduled depot maintenance, contract field deployment and unscheduled drop-in maintenance for the DoD, primarily for the sustainment of the U.S.

Air Force ("USAF") KC-10 fleet.

The segment provides foreign military sales services, engineering, logistics, maintenance, field support services, energy consulting services and IT solutions to the DoD, federal civilian agencies and commercial customers.

In May 2023, we announced our decision to sell our Federal and Defense segment.

As a result, we have reflected the results of operations for the Federal and Defense segment as discontinued operations for all periods presented.

"Discontinued Operations" to our Consolidated Financial Statements included in Item 8 of this annual report on Form 10-K for further information.

In February 2024, we entered into two separate agreements to sell substantially all of the Federal and Defense segment assets.

See Note (18) "Subsequent Events" to our Consolidated Financial Statements for further information.

Products and Services

We provide a broad array of capabilities and resources to support our clients’ aftermarket transportation assets, vehicle fleets, aircraft, systems, equipment and processes.

We focus on creating value by sustaining and extending the life and improving the performance of our client assets through core offerings in supply chain management, parts supply and distribution, MRO, equipment refurbishment, logistics and engineering.

We also provide IT solutions and energy consulting services.

Typical offerings include supply chain and inventory management services;

vehicle fleet sustainment programs;

vehicle fleet parts supply and distribution;

We provide a broad array of aftermarket parts distribution and service capabilities to support our clients’ aircraft and vehicle fleets.

We focus on creating value by sustaining and extending the life and improving the performance of our client transportation assets through core offerings in parts supply and distribution, supply chain management, and MRO services.

Typical offerings include aircraft and airframe parts supply and distribution, supply chain and inventory management services;

MRO of aircraft components and engine accessories;

aircraft and airframe parts supply and distribution;

engineering support for military vehicles;

military equipment refurbishment and modification;

ship MRO and follow-on technical support;

logistics management support;

sustainable energy supply and electric power grid modernization projects, IT infrastructure and data management, and IT data services for health and public safety.

See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below for more information regarding our business.

Revenues and Contracts

We offer our products and professional services through various ordering arrangements, including master service agreements (MSAs), commercial contracts, and federal contract awards.

Our revenues are derived from the delivery of products and from contract services performed for our customers for each of our three segments as follows:

• Our Aviation segment revenues result from the sale of aircraft parts and performance of MRO services to private and commercial aircraft owners, aviation MRO providers, and other clients.

• Our Fleet segment revenues result from the sale of aftermarket vehicle parts to government and commercial clients.

• Our Federal and Defense segment revenues result from providing professional and technical services primarily to U.S.

government customers on a contract basis.

The three primary types of contracts used are cost-type, fixed-price, and time-and-materials.

Our customers include various commercial entities and government clients.

In 2022, our commercial customers represented 53% of our consolidated revenues, up from 43% and 31% in 2021 and 2020, respectively.

Our consolidated revenue by customer type are as follows (in thousands):

Year ended December 31,

2022 % 2021 % 2020 %

Commercial $ 507,900 53 $ 322,318 43 $ 208,305 31

DoD 227,722 24 233,422 31 236,397 36

Other government (a)

214,140 23 195,113 26 216,957 33

Total $ 949,762 100 $ 750,853 100 $ 661,659 100

(a) Includes USPS revenue

Our largest customers by revenue for each of the last three fiscal years were the USPS and the U.S.

The USPS revenues, reported within our Fleet segment, comprised approximately 16%, 20%, and 27% of our consolidated revenues in 2022, 2021 and 2020, respectively.

Navy revenue, reported within our Federal and Defense segment, comprised approximately 15%, 13%, and 16% of our consolidated revenues in 2022, 2021 and 2020, respectively.

Our funded backlog represents the estimated remaining value of work to be performed under firm contracts under our Federal and Defense segment.

Bookings for our Aviation and Fleet segments occur at the time of sale, and therefore, these segments do not generally have funded contract backlog and backlog is not an indicator of their potential future revenues.

Our funded backlog for our Federal and Defense segment as of December 31, 2022, 2021 and 2020 was approximately $187 million, $185 million and $183 million, respectively.

For a complete description of our backlog, see "Bookings and Funded Backlog" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of this report.

Our marketing activities are conducted by each of our businesses by industry-specific sales representatives and professional marketing and business development staff.

New customer contacts and information concerning new programs, requirements and opportunities become available through sales calls and client visits, negotiation with key business partners, and formal and informal briefings.

We participate in various professional organizations and trade associations, and also attend industry trade shows and events in order to increase our brand awareness and strengthen our service offerings.

vehicle fleet sustainment programs;

vehicle fleet parts supply and parts distribution.

We supply parts through our global distribution centers of excellence and provide MRO services from our strategically positioned repair facilities ensuring expedient delivery and turn-around of customers products enabling aircraft and fleet vehicles to return to service on time.

See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information regarding our business.

Our marketing activities are conducted separately by each of our two business segments by industry-specific sales representatives and professional marketing and business development staff.

New customer contacts and information concerning new parts or programs, requirements and opportunities become available through sales calls and client visits, negotiation with key customer and supplier business partners, and formal and informal briefings.

We participate in various professional organizations and trade associations, and attend global industry trade shows and events in order to increase our brand awareness and strengthen our service offerings.

Human Capital Resources

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Our employees have a variety of specialized experience, training and skills that provide the expertise required to service our customers.

As of December 31, 2022, we employed over 2,000 employees.

Principal employee categories include (a) mechanics and vehicle, aircraft and equipment technicians, (b) logisticians, (c) warehouse and sales personnel, (d) engineers and technicians in mechanical, electronic, industrial, energy services, and (e) information technology professionals in computer systems, applications and data management disciplines.

As of December 31, 2023, we employed approximately 1,200 employees.

Principal employee categories include (a) mechanics and vehicle, aircraft and equipment technicians, (b) logisticians, (c) finance, information technology, and human resources support personnel, (d) warehouse and sales personnel, and (e) engineers.

Employee Health and Safety

We are committed to providing a safe working environment for our employees.

Supported by our Health, Environmental and Safety Program, we strive to minimize the risk of injury or illness to workers.

We provide our employees with upfront and ongoing safety training to communicate and implement safety policies and procedures.

Supported by a Health, Environmental and Safety Program, we strive to minimize the risk of injury or illness to workers.

We provide our employees with upfront and continuing safety training to communicate and implement safety policies and procedures.

We also provide our employees with any additional information, leadership, support and equipment needed to safely perform their job function.

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We strive to attract and retain top talent at all levels of the company.

To support this objective, we seek to provide opportunities for professional development and career growth and recognize and reward our employees for their contributions and accomplishments.

To support this objective, we seek to provide opportunities for professional development and career growth to recognize and reward our employees for their contributions and accomplishments.

We encourage employees to provide feedback about their experience and we regularly conduct employee engagement surveys to gauge employee satisfaction and to understand the effectiveness of engaging our employees on all levels.

2 unchanged sentences

Company culture is a priority.

We model our values and focus on our cultural beliefs through recognition, storytelling and creating experiences.

We model our values and focus on reinforcing these through employee recognition.

Our people and teams remain a key market differentiator for our business.

We offer competitive pay and comprehensive benefits to attract, reward and retain a qualified and diverse workforce to achieve our vision and mission and meet the dynamic needs of employees and their families.

In addition to competitive base pay, we offer bonus opportunities, a Company matched 401(k) plan, an employee stock purchase plan, healthcare insurance benefits, health savings and flexible spending accounts, paid time off, holiday pay, flexible work schedules, and education reimbursement and employee assistance programs.

Developing internal talent and sourcing for new talent that fits our culture is a key part of our strategy.

We offer competitive compensation and comprehensive benefits to attract, reward and retain a qualified and diverse workforce to achieve our vision and mission and meet the dynamic needs of employees and their families.

In addition to competitive base pay, we offer bonus opportunities, a Company matched 401(k) plan, an employee stock purchase plan, healthcare insurance benefits, health savings and flexible spending accounts, paid time off, holiday pay, flexible work schedules, education reimbursement, and employee assistance programs.

Inclusion and Diversity

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Our I&D Council regularly hosts roundtable discussions aimed at increasing cultural awareness and promoting dialogue to encourage a culture that values inclusive behavior in our workplace.

We also support employee resource groups, which are voluntary, employee-led groups that are open to all employees and provide a forum for diverse employees and allies from a variety of different backgrounds to share experiences and support our company's diversity initiatives.

We believe our employee resource groups, which include Women in the Workforce, Pride, and Latinos Unidos, help foster a diverse and inclusive workplace, build

awareness and drive change within our organization.

Additionally, we actively seek initiatives and participate in outreach programs to assist individuals who served in the U.S.

We also support employee resource groups, which are voluntary, employee-led groups that are open to all employees and provide a forum for diverse employees and allies from a variety of backgrounds to share experiences and support our company's diversity initiatives.

We firmly believe in the power of our employee resource groups, which include Women in the Workforce, Pride, Latinos Unidos, and Veterans, to foster diversity and inclusivity in our workplace.

These groups serve as platforms for employees from different backgrounds to connect, share experiences, and advocate for continuous improvement within our organization.

We actively seek initiatives and participate in outreach programs to assist individuals who served in the U.S.

Armed Forces.

These efforts include an emphasis on hiring military veterans to enhance the quality of our workforce.

In our continuous pursuit of creating a more inclusive and diverse workplace, we recently launched an inclusion and diversity training program.

The goal of this initiative is to increase awareness and promote cultural sensitivity among our employees.

Code of Business Conduct and Ethics

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Our Code of Business Conduct and Ethics (the "Code") sets forth our policies and expectations on what is appropriate behavior and guides ethical business decisions that maintain a commitment to integrity.

In addition, we require annual ethics and compliance training for all of our employees to provide them with the knowledge necessary to maintain our standards of ethics and compliance.

Government Regulation and Supervision

In addition, we require annual ethics and compliance training for our employees to provide them with the knowledge necessary to maintain our standards of ethics and compliance.

Regulation and Supervision

Our businesses are subject to extensive regulation in the markets we serve.

We work with numerous U.S.

government agencies and entities, including but not limited to, all branches of the DoD and the Federal Aviation Administration ("FAA").

government agencies and entities, including but not limited to, the Federal Aviation Administration ("FAA"), the United States Postal Service ("USPS"), and the Department of Defense ("DoD").

Similar government authorities and regulations exist in the other countries in which we do business.

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Its regulations are designed to ensure that all aircraft and aviation equipment are continuously maintained in proper condition to ensure safe operation of the aircraft.

The inspection, maintenance and repair procedures for various types of aircraft and equipment are prescribed by these regulatory authorities and can be performed only by certified repair facilities utilizing certified technicians.

Certification and conformance is required prior to installation of a part on an aircraft.

The FAA requires that various maintenance routines be performed on aircraft components, and we currently satisfy these maintenance standards in our repair and overhaul services.

Government Contracts

We must comply with and are affected by a variety of laws and regulations relating to the award, administration, and performance of U.S.

Government contracts.

We are routinely audited and reviewed by the U.S.

Government and its agencies, including the Defense Contract Audit Agency and the Defense Contract Management Agency.

These agencies evaluate our contract performance, cost structures, and compliance with applicable laws, regulations, and standards, as well as review the adequacy of our business systems and processes relative to U.S.

Government requirements.

Government has the ability to terminate contracts, in whole or in part, with little or no prior notice, for convenience or for default based on our failure to meet specified performance requirements.

In the event of termination of a contract for convenience, we would be able to recover costs already incurred on the contract and receive profit on those costs up to the amount authorized under the contract, but not the anticipated profit that would have been earned had the contract been completed.

Such a termination could also result in the cancellation of future work on the related program.

Termination resulting from our default could expose us to various liabilities, including excess re-procurement costs, and could have a material effect on our ability to compete for future contracts.

The inspection, maintenance, and repair procedures for various types of aircraft and equipment are prescribed by these regulatory authorities and can be performed only at certified repair facilities utilizing certified technicians.

Certification and conformance are required prior to installation of a part on an aircraft.

The FAA requires that various maintenance routines be performed on aircraft components, and we currently satisfy these maintenance standards in our MRO services.

For additional information on regulations and risks affecting our business, refer to Item 1A., "Risk Factors".

All of our businesses operate in highly competitive industries that include numerous competitors, many of which are larger in size and have greater name recognition, financials resources and larger technical staff than we do.

Our businesses operate in highly competitive industries that include numerous competitors, many of which are larger in size and have greater name recognition, financial resources, and larger technical staff than we do.

We also compete against smaller, more specialized competitors that concentrate their resources on narrower service offerings.

Government agencies emphasize awarding contracts on a competitive basis, as opposed to a sole source or other noncompetitive basis.

Most of the significant contracts under which our Federal and Defense segment currently performs services were either initially awarded on a competitive basis or have been renewed at least once on a competitive basis.

These contracts may be indefinite delivery/indefinite quantity type contracts for which the government makes awards for work among several other eligible contract holders, or they may be single award contracts with multiple option years that may or may not be exercised.

Accordingly, there can be no assurance regarding the level of work we may obtain under some of these contracts.

Government budgets, and in particular the budgets of certain government agencies, can also affect competition in our business.

A reallocation of government spending priorities or reallocation of work for small business set-aside programs that results in lower levels of potential business in the markets we serve or the services we offer can cause increased competition.

The extent of competition that we will encounter as a result of changing economic or competitive conditions, customer requirements or technological developments is unpredictable.

We believe the principal competitive factors for our business are customer knowledge, technical and financial qualifications, past performance, government budgetary priorities, sales force initiatives and price.

The extent of competition that we will encounter because of changing economic or competitive conditions, customer requirements or technological developments is unpredictable.

We believe the principal competitive factors for our business are customer knowledge, product availability, technical and financial qualifications, past performance, repair turnaround time, government budgetary priorities, sales force initiatives and price.

Available Information

We maintain an internet website at www.vsecorp.com .

We make available free of charge through our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed with or otherwise furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after the reports are electronically filed with the SEC.

The information on or obtainable through our website is not intended to be incorporate into this Annual Report on Form 10-K.

The information on or obtainable through our website is not intended to be incorporated into this Annual Report on Form 10-K.

The SEC also maintains an internet website ( http://www.sec.gov ) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business