Velocity Express Announces Third Quarter and Nine Months Results, and Successful Debt Re-Structuring

Business Wire, May 20, 2008

WESTPORT, Conn. -- Velocity Express Corporation (NASDAQ: VEXP), the nation's largest provider of time definite regional delivery solutions, announced operating results for the third quarter and nine-month period ended March 29, 2008 and its recently completed re-structuring of the terms of its Senior Secured Notes Due 2010.

Revenue for the quarter ended March 29, 2008 was $82.2 million compared to $98.2 million in the March quarter of 2007. The Company reported gross profit excluding depreciation for the quarter of $20.9 million, or 25.4% of sales, compared to gross profit of $22.2 million, or 22.6% of sales, for the same quarter last year. Operating expenses included in Adjusted EBITDA were $22.3 million, compared to $24.0 million in the same quarter last year. Adjusted EBITDA improved $0.18 million to a loss of $1.65 million, compared to a loss of $1.83 million in the prior year quarter. Operating loss for the quarter was $3.7 million compared to an operating loss of $6.2 million in 2007.

Vincent A. Wasik, Velocity's Chairman and Chief Executive Officer, stated, "Despite the challenges of the significant fuel cost increases and the impact of a slowing economy, the Company was profitable in the months of March and April. During the quarter, we completed our project to re-align driver settlements with prevailing market rates and we continued to renegotiate or exit from unfavorable, low margin legacy-CD&L contracts, including a number with uneconomic fuel indexing provisions. More work remains to be done, particularly with regard to establishing a fair basis for fuel indexing, but we are pleased with our progress to date."

"Because of these efforts, we improved our gross margin from 22.6% of sales last year to 25.4% of sales for the most recent quarter and, absent the uneconomic fuel index provisions we inherited with many legacy-CD&L contracts, we would have improved an additional 1.5% and achieved our 27% gross margin goal for the quarter. We still expect to exceed 30% gross margin before the calendar year-end but this milestone has been delayed by the need to negotiate economically viable fuel indexing programs with a number of customers."

"Despite, and perhaps because of, the economic downturn, we continue to see strong demand from retail and healthcare companies seeking to lower costs by outsourcing their last mile delivery requirements to take advantage of Velocity's "asset light," time definite service. As a result, our sales pipeline exceeds $150 million for these market sectors. We also continue to build our franchise strategy, with 4 new signings during the quarter, bringing total franchise markets to 24."

"Finally, we successfully concluded negotiations with the holders of our Senior Secured Notes Due 2010 to eliminate the cash interest payments otherwise due on June 30 and December 30, 2008. In addition, the noteholders have waived or modified all existing financial covenants through 2010 to provide the Company with the necessary resources to complete our operating turnaround and expansion of the business with minimal dilution to the ownership positions of our current common and preferred equity holders."

Mr. Wasik concluded, "We appreciate the confidence our bond-holders have expressed in our ability to finish the job we started with the CD&L merger and capture the substantial value we see in retail replenishment and healthcare delivery services, both domestically and internationally. I look forward to my meetings in China later this quarter to further advance our Global Alliance initiative."

Financial Overview

The presentation of Velocity's financial results in the following table and in Exhibit A presents financial results for the quarters ended March 29, 2008 and March 31, 2007 separating nonrecurring expenses associated with the acquisition, integration and restructuring of CD&L that began in July 2006. The Company measures its performance using Adjusted EBITDA; i.e., Operating Income before Depreciation, Amortization, Non-Cash Stock-based Compensation and these non-recurring, acquisition-related expenses. Adjusted EBITDA is a non-GAAP financial measure as defined by the SEC. Please see Exhibit B for a description of the reasons the Company uses this measure and a reconciliation of Adjusted EBITDA to its nearest GAAP equivalent, Net Income.

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* see Exhibit B

Revenue

Revenue for the March quarter of 2008 was $82.2 million compared to $98.2 million in the March quarter of 2007. New business starts and growth within continuing customers generated $6.8 million in revenue growth which was more than offset by $2.8 million of merger-related customer losses, $4.3 million of revenue associated with now-terminated, unfavorable, legacy-CD&L contracts, the loss of a large financial services customer ($3.2 million), a $2.3 million decline in other financial services revenue, $5.5 million of non-merger customer attrition and $4.7 million of volume declines with continuing customers which we believe to be an effect of the economic slowdown.