VSE Reports Financial Results for First Quarter 2018

First Quarter Revenue and Operating Income Impacted by DoD Delays;
EPS of $0.65 Compared to $0.67 Year-Over-Year

ALEXANDRIA, Va.–(BUSINESS WIRE)–VSE Corporation (Nasdaq: VSEC) reported the following unaudited
consolidated financial results for the first quarter of 2018.

CEO Commentary

“Budget uncertainties at the beginning of the government fiscal year and
delays in the issuance of work orders have delayed the funding on
contracts in our Federal Services Group,” said Maurice “Mo” Gauthier,
VSE CEO. “These funding delays contributed to a decrease in revenues
from our Department of Defense work in the first quarter of 2018 as
compared to the prior year. Year-over-year revenues for our Aviation and
Supply Chain Management groups were substantially unchanged. Our
Aviation Group has expanded product lines and distribution services to
new clients and international geographic markets. Our Supply Chain
Management Group’s continuing revenue growth from commercial and
government parts sales has offset a decrease in sales to the U.S. Postal
Service.”

Mr. Gauthier continued, “We also amended our bank loan agreement to
extend the maturity date on our bank debt and increase our borrowing
capacity. This strengthens our balance sheet, enhances our liquidity,
and positions us to better support our current business and strategic
efforts.”

 

First Quarter Results (unaudited)

 

(in thousands, except per share data)
 
Three months ended March 31,
2018   2017   % Change
Revenues $ 176,897   $ 197,294   (10.3 )%
Operating income $ 11,593   $ 14,196   (18.3 )%
Net income $ 7,052   $ 7,293   (3.3 )%
EPS (Diluted) $ 0.65   $ 0.67   (3.0 )%
   

Operational Highlights

  • Our Supply Chain Management Group increased commercial and government
    revenue by 21% year-over-year.
  • Our Federal Services Group was awarded a task order under the United
    States Air Force Contract Field Teams (CFT) Indefinite
    Delivery/Indefinite Quantity (ID/IQ) contract, supporting the 314th
    Air Wing at Little Rock Air Force Base in Little Rock, Arkansas. This
    task order consists of a one year base period of performance with one
    one-year option period and an additional six-month option period, and
    total potential value of $28.5 million.
  • Our Federal Services Group in conjunction with our Aviation Group
    completed an overhaul of an LM2500 Marine Gas Turbine engine under our
    NAVSEA FMS contract for the Taiwanese Navy.
  • Our Aviation Group signed three new distribution agreements, including
    agreements for commercial airline cockpit display units and Business
    and General Aviation (B&GA) navigation equipment in support of
    customers in Europe and Asia-Pacific. These agreements increase our
    international footprint and they will be executed from our locations
    in Germany and Singapore.
  • Our Aviation Group agreed in principle to extend its worldwide
    exclusive agreement with one of our key suppliers for small turbine
    engine fuel accessories through 2024.

Financial Information

Revenues were $176.9 million in the first quarter of 2018 compared to
$197.3 million in the first quarter of 2017. The decrease in revenues is
primarily attributable to a reduction in work in our Federal Services
Group.

Operating income was $11.6 million for the first quarter of 2018
compared to $14.2 million in the first quarter of 2017. The operating
income decrease was primarily attributable to revenue decreases in our
Federal Services Group and lower U.S. Postal Service revenues in our
Supply Chain Management Group. Net income was $7.1 million for the first
quarter of 2018, or $0.65 per diluted share, compared to $7.3 million,
or $0.67 per diluted share for the first quarter of 2017. The decrease
in net income was not as significant as our decrease in operating income
primarily due to the enactment of the Tax Cuts and Jobs Act in December
2017, which reduced the federal corporate income tax rate from 35% to
21% effective January 1, 2018.

Bookings in our Federal Services Group were $33 million for the first
three months of 2018 compared to revenue for this group of $88 million.
Funded contract backlog at March 31, 2018 was $261 million, compared to
$324 million at December 31, 2017 and $359 million at March 31, 2017.

Non-GAAP Financial Information

The non-GAAP Financial Information (unaudited) listed below is not
calculated in accordance with U.S. generally accepted accounting
principles (“GAAP”) under SEC Regulation G. We consider EBITDA a
non-GAAP financial measure and an important indicator of performance and
useful metric for management and investors to evaluate our business’
ongoing operating performance on a consistent basis across reporting
periods. EBITDA should not be considered in isolation or as a substitute
for performance measures prepared in accordance with GAAP.

EBITDA represents net income before interest expense, income taxes,
amortization of intangible assets and depreciation and other
amortization.

Non-GAAP Financial Information (unaudited)

     
(in thousands) Three Month Results ended March 31,
2018   2017   % Change
Net Income $ 7,052 $ 7,293 (3 )%
Interest Expense 2,175 2,435 (11 )%
Income Taxes 2,366 4,468 (47 )%
Amortization of Intangible Assets 4,004 4,004 0 %
Depreciation and Other Amortization 2,480   2,707   (8 )%
EBITDA $ 18,077   $ 20,907   (14 )%
 

Capital Expenditures

Purchases of property and equipment were $1.1 million for the first
quarter of 2018 compared to $414 thousand for the first quarter of 2017.

About VSE

Established in 1959, VSE is a diversified products and services company
providing logistics solutions with integrity, agility, and value. VSE is
dedicated to making our federal and commercial clients successful by
delivering innovative solutions for vehicle, ship, and aircraft
sustainment, supply chain management, platform modernization, mission
enhancement, and program management, and providing energy, IT, and
consulting services. For additional information regarding VSE services
and products, please see the Company’s web site at www.vsecorp.com
or contact Christine Kaineg, VSE Investor Relations, at (703) 329-3263.

Please refer to the Form 10-Q that will be filed with the Securities and
Exchange Commission (SEC) on or about May 1, 2018 for more details on
our 2018 first quarter results. Also, refer to VSE’s Annual Report on
Form 10-K for the year ended December 31, 2017 for further information
and analysis of VSE’s financial condition and results of operations. VSE
encourages investors and others to review the detailed reporting and
disclosures contained in VSE’s public filings for additional discussion
about the status of customer programs and contract awards, risks,
revenue sources and funding, dependence on material customers, and
management’s discussion of short and long term business challenges and
opportunities.

Safe Harbor

This news release contains statements that to the extent they are not
recitations of historical fact, constitute “forward looking statements”
under federal securities laws. All such statements are intended to be
subject to the safe harbor protection provided by applicable securities
laws. For discussions identifying some important factors that could
cause actual VSE results to differ materially from those anticipated in
the forward looking statements in this news release, see VSE’s public
filings with the SEC.

   
VSE Corporation and Subsidiaries
 
Unaudited Consolidated Balance Sheets

(in thousands except share and per share amounts)

 
March 31, December 31,
2018 2017
Assets
Current assets:
Cash and cash equivalents $ 621 $ 624
Receivables, net 56,738 55,760
Unbilled receivables, net 33,970 42,577
Inventories, net 148,933 132,591
Other current assets 14,580   16,988
Total current assets 254,842 248,540
 
Property and equipment, net 53,988 55,146
Intangible assets, net 106,905 110,909
Goodwill 198,622 198,622
Other assets 15,266   15,796
Total assets $ 629,623   $ 629,013
 
Liabilities and Stockholders’ equity
Current liabilities:
Current portion of long-term debt $ 9,450 $ 6,960
Accounts payable 75,603 66,015
Accrued expenses and other current liabilities 29,162 40,243
Dividends payable 762   759
Total current liabilities 114,977 113,977
 
Long-term debt, less current portion 152,938 165,614
Deferred compensation 17,918 16,323
Long-term lease obligations, less current portion 20,175 20,581
Deferred tax liabilities 20,302   19,423
Total liabilities 326,310   335,918
 
Commitments and contingencies
Stockholders’ equity:
Common stock, par value $0.05 per share, authorized 15,000,000
shares; issued and outstanding 10,881,106 and 10,838,747,
respectively
544 542
Additional paid-in capital 26,490 24,470
Retained earnings 275,887 267,902
Accumulated other comprehensive loss 392   181
Total stockholders’ equity 303,313   293,095
Total liabilities and stockholders’ equity $ 629,623   $ 629,013
 
 
VSE Corporation and Subsidiaries
 
Unaudited Consolidated Statements of Income

(in thousands except share and per share amounts)

 

For the three months
ended March 31,

2018   2017
Revenues:
Products $ 88,673 $ 89,017
Services 88,224   108,277
Total revenues 176,897 197,294
 
Costs and operating expenses:
Products 74,726 74,706
Services 85,755 103,944
Selling, general and administrative expenses 819 444
Amortization of intangible assets 4,004   4,004
Total costs and operating expenses 165,304   183,098
 
Operating income 11,593 14,196
 
Interest expense, net 2,175   2,435
 
Income before income taxes 9,418 11,761
 
Provision for income taxes 2,366   4,468
 
Net income 7,052   7,293
 
Basic earnings per share 0.65   0.67
 
Basic weighted average shares outstanding 10,860,555   10,822,669
 
Diluted earnings per share 0.65   $ 0.67
 
Diluted weighted average shares outstanding 10,896,504   10,849,427
 
Dividends declared per share $ 0.070   $ 0.060
 
 
VSE Corporation and Subsidiaries
 
Unaudited Consolidated Statements of Cash Flows

(in thousands)

 

For the three months ended
March 31,

2018   2017
Cash flows from operating activities:
Net income $ 7,052 $ 7,293
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 6,484 6,711
Deferred taxes 283 (223 )
Stock-based compensation 1,263 1,084
Changes in operating assets and liabilities:
Receivables, net (978 ) 4,946
Unbilled receivables, net 13,432 5,725
Inventories, net (18,895 ) (4,782 )
Other current assets and noncurrent assets 3,169 5,010
Accounts payable and deferred compensation 11,681 (20,955 )
Accrued expenses and other current liabilities (9,792 ) (3,851 )
Long-term lease obligations (406 ) (307 )
 
Net cash provided by operating activities 13,293   651  
 
Cash flows from investing activities:
Purchases of property and equipment (1,053 ) (414 )
 
Net cash used in investing activities (1,053 ) (414 )
 
Cash flows from financing activities:
Borrowings on loan agreement 247,669 96,124
Repayments on loan agreement (256,368 ) (94,875 )
Payment of debt financing costs (1,798 )
Payments on capital lease obligations (346 ) (307 )
Payments of taxes for equity transactions (641 ) (500 )
Dividends paid (759 ) (650 )
 
Net cash used in financing activities (12,243 ) (208 )
 
Net increase (decrease) in cash and cash equivalents (3 ) 29
Cash and cash equivalents at beginning of period 624   428  
Cash and cash equivalents at end of period $ 621   $ 457  
 

Contacts

VSE Financial News Contact
Christine Kaineg, 703-329-3263