Velocity Express Announces Third Quarter and Nine Months Results, and Successful...

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

WESTPORT, Conn.--(Business Wire)--
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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Financial Summary for the quarter: March March
($ thousands) Qtr 2008 Qtr 2007
------------------------------------------------ ---------------------

Revenue $ 82,159 $ 98,180

Gross Profit excluding Depreciation (included
below) * 20,896 22,181
Gross Margin 25.4% 22.6%
Operating Expenses Included in Adjusted EBITDA * 22,550 24,012

Adjusted EBITDA * (1,654) (1,831)

Depreciation, Amortization, Non-Cash
Compensation, Integration & Transaction
Expenses* 2,012 4,414

Operating Loss (3,666) (6,245)
*T

* 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.

Gross profit

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.
The gross margin percent reflects a 6.7% improvement in driver
settlement margin based on the success of our program to properly
align driver settlements with prevailing local market rates and pay
only for work performed with the least possible use of guaranteed pay
contracts. These efficiencies were partly offset by the higher fuel
costs for which we reimbursed our drivers but were not reimbursed by
our customers and by costs to exit unfavorable contracts and targeted
additions to the warehouse staff to handle our growing retail
replenishment business with its increased sorting requirements. As
stated earlier, we have corrected or we expect to correct most of the
remaining customer agreements with uneconomic fuel indexing
provisions.

Operating expenses

Operating expenses (occupancy and SG&A) for the quarter were $22.6
million, compared to operating expenses of $24.2 million in the same
quarter last year. The reduction in operating expense reflects the
realization of post-acquisition payroll integration savings, partly
offset by higher warehouse occupancy costs to handle our growing
retail business and higher professional fees in support of our
Sarbanes-Oxley Section 404 compliance program.

Net interest expense of $5.0 million in the quarter increased from
$4.6 million in the prior year quarter reflecting a 1% rate increase
on our Senior Notes due 2010 beginning on July 25, 2007 and greater
borrowing under our revolving credit facility.

Adjusted EBITDA and Net Loss

Adjusted EBITDA for the March quarter was a loss of $1.65 million,
compared to an Adjusted EBITDA loss of $1.83 million in the prior year
quarter. Adjusted EBITDA improved from last year as improvements in
gross margin and operating expense reductions more than offset the
decrease in revenue.

Net loss for the quarter ended March 29, 2008 was $8.8 million
compared to a loss of $11.0 million in the March quarter last year.
The improvement in net loss from last year reflects the substantial
completion of all merger integration activities in the September
quarter of 2007. Net loss attributable to common shareholders for the
quarter was $10.6 million, or $3.78 per fully diluted share. The
difference between net loss and net loss attributable to common
shareholders is the result of the non-cash beneficial conversion and
pay-in-kind features of our preferred stock, dominantly driven by the
issuance of the Series Q preferred stock as part of the financing for
the CD&L acquisition.

Senior Secured Note Restructuring

Major changes in the terms of the Senior Secured Notes Due 2010
are: (1) the interest payments due on June 30 and December 30, 2008
may be paid in kind instead of in cash, (2) half of the interest
payments due in 2009 may be paid in kind instead of in cash, (3)
existing financial covenants through 2010 are replaced with new
covenants, (4) the note holders will receive an additional $7.8
million face value of the Senior Notes for a new total of $86 million
face value outstanding, (5) the interest rate will rise to 18%, (6) up
to 50% of any interest paid in-kind may be paid in the form of common
shares at specified prices and conditions, (7) the exercise price of
the warrants originally sold with the notes in July 2006 will be
reduced to $1.35 per share, (8) the Company will issue additional
warrants to the note-holders equal to 15% of the common stock of the
Company at specified prices and conditions with a forced conversion
feature at 150%, (10) a portion or all cash proceeds from certain
events will be used to prepay the Senior Notes, and (11) the
note-holders will have the right to name two representatives on the
Company's Board of Directors.

Conference Call

Velocity will host a conference call on Tuesday, May 20 at 9:00
a.m. ET to discuss the company's second quarter results. To
participate in the call by phone, dial 800-218-2154 approximately five
minutes prior to the scheduled start time. International callers
please dial 913-312-9312. A webcast will be available at
www.InvestorCalendar.com. A replay of the webcast can be heard by
visiting the investor relations section of the Velocity Express
website. A replay of the teleconference will be available for 14 days
after the call and may be accessed domestically by dialing
866-245-6755 and international callers may dial 416-915-1035. Callers
should use passcode 932547.

About Velocity Express

Velocity Express has one of the largest time definite nationwide
delivery networks, providing a national footprint for customers
desiring same day service throughout the United States. The Company's
services are supported by a customer-focused technology
infrastructure, providing customers with the reliability and
information they need to manage their transportation and logistics
systems, including a proprietary package tracking system that enables
customers to view the status of any package via a flexible web
reporting system.

Forward Looking Statements

Certain statements in this press release, and other written or
oral statements made by or on behalf of the Company, may constitute
"forward-looking statements" within the meaning of the federal
securities laws. Statements regarding future events and developments
and the Company's future performance that are not historical facts, as
well as management's expectations, beliefs, plans, objectives,
assumptions and projections about future events or future performance,
are forward looking statements within the meaning of these laws.
Forward-looking statements include statements that are preceded by,
followed by, or include words such as "believes," "expects,"
"anticipates," "plans," "estimates," "intends," or similar expressions
and include statements about our ability to control driver pay, reduce
claims costs and improve gross margins, our ability to generate
revenues and profits from potential customers in our pipeline, our
ability to be successful with our new franchise strategy, our ability
to successfully execute our global alliance initiative, and our
ability to comply with the new financial covenants in our revolving
credit facility. Forward-looking statements are only predictions and
are not guarantees of performance. These statements are based on
beliefs and assumptions of the Company's management, which in turn are
based on currently available information. These assumptions could
prove inaccurate. Forward-looking statements are also affected by
known and unknown risks that may cause the actual results of the
Company to differ materially from any future results expressed or
implied by such forward-looking statements. Many of these risks are
beyond the ability of the Company to control or predict. Such factors
include, but are not limited to, the following: we may be unable to
improve gross margins and achieve or sustain positive cash flow or
profitability; we may be unable to increase revenues from retail and
healthcare customers; we may not be able to sign new franchisees; we
may not generate in-bound delivery volumes from overseas partners; we
may be unable to fund our future capital needs and we may need funds
sooner than anticipated; our large customers could reduce or
discontinue using our services; we could be exposed to litigation
stemming from the accidents or other activities of our drivers; we
could be required to pay withholding taxes and extend employee
benefits to our independent contractors; we could fail to comply with
the covenants in our credit agreement, including those related to
EBITDA and available cash; we have a substantial amount of debt and
preferred stock outstanding, and our ability to operate and financial
flexibility are limited by the agreements governing our debt and
preferred stock; we may be required to redeem our debt at a time when
we do not have the funds to do so; and the other risks identified in
the section entitled "Risk Factors" in the Company's Annual Report on
Form 10-K for the year ended June 30, 2007 as updated in Quarterly
Report on Form 10-Q for the quarter ended March 29, 2008, as well as
in the other documents that the Company files from time to time with
the Securities and Exchange Commission. Management believes that the
forward-looking statements contained in this release are reasonable;
however, undue reliance should not be placed on any forward-looking
statements contained herein, which are based on current expectations.
Further, forward-looking statements speak only as of the date they are
made, and management undertakes no obligation to publicly update any
of them in light of new information or future events.

EXHIBIT A:

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VELOCITY EXPRESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except par value)

March 29, June 30,
2008 2007
---------- ----------
ASSETS

Current assets:
Cash $ 5,899 $ 14,418

Accounts receivable, net of allowance of $1,607
and $3,277 at March 29, 2008 and June 30,
2007, respectively 26,436 32,597
Accounts receivable - other 884 1,250
Prepaid workers' compensation and auto
liability insurance 1,553 3,404
Other prepaid expenses and other current assets 641 1,031
---------- ----------
Total current assets 35,413 52,700

Property and equipment, net 8,396 8,457
Assets held for sale - 101

Goodwill 81,791 81,791
Intangible assets, net 22,104 24,327
Deferred financing costs, net 4,614 6,246
Other assets 2,774 2,888
---------- ----------

Total assets $ 155,092 $ 176,510
========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Trade accounts payable $ 25,856 $ 28,413
Accrued wages and benefits 3,674 3,643
Accrued legal and claims 4,900 5,854
Accrued insurance and claims 3,535 3,697
Accrued interest 3,128 5,867
Related party liabilities - 574
Other accrued liabilities 2,082 3,383
Revolving line of credit 9,101 7,467
Current portion of long-term debt 1,278 558
---------- ----------
Total current liabilities 53,554 59,456

Long-term debt, less current portion 61,741 55,510
Accrued insurance and claims 1,521 1,882
Other long-term liabilities 4,158 4,018

Commitments and contingencies

March 29, June 30,
2008 2007
---------- ----------
Shareholders' equity:
Preferred stock, $0.004 par value, 299,515
shares authorized 12,024 and 12,239 shares
issued and outstanding at March 29, 2008 and
June 30, 2007, respectively 68,844 68,902
Common stock, $0.004 par value, 700,000 shares
authorized 2,834 and 32,820 shares issued and
outstanding at March 29, 2008 and June 30,
2007, respectively 11 131
Stock subscription receivable (170) -
Additional paid-in-capital 387,684 376,041
Accumulated deficit (421,991) (389,497)
Accumulated other comprehensive income (260) 67
---------- ----------
Total shareholders' equity 34,118 55,644
---------- ----------
Total liabilities and shareholders' equity $ 155,092 $ 176,510
========== ==========
*T

EXHIBIT A:

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VELOCITY EXPRESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTH PERIODS ENDED MARCH 29, 2008 AND MARCH
31, 2007
(Unaudited)
(Amounts in thousands, except per share data)

Three Months Ended Nine Months Ended
------------------- -------------------
March 29, March 31, March 29, March 31,
2008 2007 2008 2007
--------- --------- --------- ---------

Revenue $ 82,159 $ 98,180 $261,567 $311,546

Cost of services 61,263 75,999 196,923 239,792
Depreciation 351 79 952 155
--------- --------- --------- ---------
Gross profit 20,545 22,102 63,692 71,599

Operating expenses:
Occupancy 4,975 4,423 14,036 13,431
Selling, general and
administrative 17,578 19,803 54,140 63,650
--------- --------- --------- ---------
22,553 24,226 68,176 77,081
Transaction and
integration costs - 1,458 501 5,444
Restructuring charges and
asset impairments 176 975 680 2,880
Depreciation and
amortization 1,482 1,688 4,450 5,591
--------- --------- --------- ---------

Total operating expenses 24,211 28,347 73,807 90,996
--------- --------- --------- ---------

Loss from operations (3,666) (6,245) (10,115) (19,397)

Other income (expense):
Interest expense, net (5,018) (4,630) (14,831) (15,256)
Other 3 (116) 4 (130)
--------- --------- --------- ---------

Loss before income taxes and
minority interest (8,681) (10,991) (24,942) (34,783)

Income taxes 105 22 276 37
Minority interest - - - 367
--------- --------- --------- ---------

Net loss $ (8,786) $(11,013) $(25,218) $(35,187)
========= ========= ========= =========

Net loss applicable to common
shareholders $(10,602) $(13,345) $(32,483) $(59,800)
========= ========= ========= =========

Basic and diluted net loss per
share $ (3.78) $ (7.32) $ (11.77) $ (36.24)
========= ========= ========= =========

Weighted average common stock
shares outstanding used in
the basic and diluted net
loss per share calculation 2,807 1,822 2,761 1,650
========= ========= ========= =========
(adjusted for 1 for 15 reverse
stock split)
*T

EXHIBIT B: USE OF NON-GAAP FINANCIAL MEASURES

This press release includes disclosures regarding "Adjusted
EBITDA", which is a non-GAAP financial measure. Adjusted EBITDA, is
comprised of historical EBITDA, as adjusted for certain non-cash
expenses. EBITDA is defined as net earnings (loss) before interest
expenses, income taxes, depreciation and amortization on an historical
basis. We believe net income (loss) is the most directly comparable
financial measure to EBITDA under GAAP.

We present Adjusted EBITDA for several reasons. Management
believes Adjusted EBITDA is useful as a means to evaluate our ability
to fund our estimated uses of cash, including the payment of interest
on our debt. In addition, we have presented Adjusted EBITDA to
investors in the past because it is frequently used by investors,
securities analysts and other interested parties in the evaluation of
companies in our industry, and management believes presenting it here
provides a measure of consistency in our financial reporting. Adjusted
EBITDA (also referred to in our Indenture as Consolidated Cash Flow
and in our Revolving Credit Agreement as EBITDA) is also a component
of the restrictive covenants and financial ratios contained in the
agreement(s) governing our debt that require us to maintain compliance
with these covenants and limit certain activities, such as our ability
to incur additional debt and to pay dividends. The definitions in
these covenants and ratios are based on Adjusted EBITDA. As a result,
management believes the presentation of Adjusted EBITDA provides
important additional information to investors.

While we use Adjusted EBITDA in managing and analyzing our
business and financial condition and believe it is useful to our
management and investors for the reasons described above, it has
certain shortcomings. In particular, Adjusted EBITDA does not
represent the residual cash flows available for discretionary
expenditures, since items such as debt repayment and interest payments
are not deducted from such measure. Accordingly, it should not be
construed as an alternative to net cash from operating or investing
activities, cash flows from operations or net income (loss) as defined
by GAAP and is not, on its own, necessarily indicative of cash
available to fund our cash needs as determined in accordance with
GAAP. In addition, not all companies use identical calculations of
Adjusted EBITDA, and our calculation of Adjusted EBITDA may not be
comparable to Adjusted EBITDA or other similarly titled measures of
other companies.

A reconciliation of the differences between Adjusted EBITDA and
the most directly comparable financial measure presented in accordance
with GAAP is included in the table that follows.

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Reconciliation of Non-GAAP Financial Measures
VELOCITY EXPRESS CORPORATION AND SUBSIDIARIES
FOR THE THREE AND NINE MONTH PERIODS ENDED MARCH 29, 2008 AND MARCH
31, 2007
(Amounts in thousands)

Three Months Ended Nine Months Ended
March 29, March 31, March 29, March 31,
2008 2007 2008 2007
--------- --------- --------- ---------

Net loss $ (8,786) $(11,013) $(25,218) $(35,187)
Interest Income/Expense 5,018 4,630 14,831 15,256
Income Taxes 105 22 276 37
Depreciation 1,062 975 3,179 3,367
Amortization of Intangible
Assets 771 792 2,223 2,379
Stock Based Compensation - 214 151 808
Other non-operating expense - 116 - 130
Transaction / Restructuring /
Integration / Change in pre-
acquisition contingent
liability 176 2,433 1,475 8,324
Minority Interest in CD&L - - - 367
--------- --------- --------- ---------
Adjusted EBITDA $ (1,654) $ (1,831) $ (3,083) $ (4,519)
--------- --------- --------- ---------
*T

Velocity Express Corporation
Edward W. (Ted) Stone, 203-349-4199
tstone@velocityexp.com
or
Institutional Marketing Services (IMS)
John G. Nesbett / Jennifer Belodeau, 203-972-9200
jnesbett@institutionalms.com

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