VSE Reports Financial Results for Third Quarter 2016

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ALEXANDRIA, Va.--(BUSINESS WIRE)-- VSE Corporation (Nasdaq: VSEC) reported the following unaudited consolidated financial results for the third quarter of 2016.

         
(in thousands, except per share data)
  Three months ended September 30, Nine months ended September 30,
2016   2015   % Change 2016   2015   % Change
Revenues $172,780   $137,396   25.75 % $476,889   $389,313   22.50 %
Operating income $13,623   $13,243   2.87 % $38,243   $35,423   7.96 %
Net income $7,088   $6,474   9.48 % $19,609   $17,173   14.19 %
EPS (Diluted) $0.65   $0.60   8.33 % $1.81   $1.59   13.84 %

*EPS amounts have been adjusted for all periods to reflect the two-for-one stock split that occurred on August 3, 2016

 

“Our contracted services in support of the DoD and other federal government clients have been the largest contributor to our revenue increases for the third quarter and year to date,” said Maurice “Mo” Gauthier, VSE CEO, President and COO. “Recent awards in our Federal Services Group position us well for steady improvement in our federal markets based on a strong booking quarter. We also are pleased to report increases in both revenue and operating income for our Aviation Group for the third quarter.”

Revenues were $172.8 million in the third quarter of 2016 compared to $137.4 million in the third quarter of 2015. For the first nine months, revenues were $476.9 million in 2016 compared to $389.3 million in 2015. The increases were primarily due to the revenue increase from our Federal Services Group. Our Supply Chain Management and Aviation groups also contributed to revenue growth.

Operating income was $13.6 million for the third quarter of 2016 compared to $13.2 million in the third quarter of 2015. For the first nine months, operating income was $38.2 million in 2016 compared to $35.4 million in 2015. Our Aviation Group was the largest contributor to the increase in our operating income.

Net income was $7.1 million for the third quarter of 2016, or $0.65 per diluted share, compared to $6.5 million, or $0.60 per diluted share for the third quarter of 2015. Net income was $19.6 million for the first nine months of 2016, or $1.81 per diluted share, compared to $17.2 million, or $1.59 per diluted share for the first nine months of 2015.

Bookings in our Federal Services and IT, Energy and Management Consulting groups were $405 million for the first nine months of 2016 compared to revenue for these groups of $225 million for the period. Funded contract backlog at September 30, 2016 was $400 million, compared to $294 million at June 30, 2016 and $214 million at September 30, 2015.

 
Non-GAAP Financial Information (unaudited)
 
For the three-month and nine-month periods ended September 30, 2016
(in thousands)
  Three Month Results     Nine Month Results
2016   2015   % Change     2016   2015   % Change
Net Income $ 7,088   $ 6,474   9%     $ 19,609   $ 17,173 14%
Interest Expense 2,509 2,441 3% 7,406 7,001 6%
Income Taxes 4,026 4,328 -7% 11,228 11,249 -
Amortization of Intangible Assets 4,022 4,027 - 12,063 11,769 2%
Depreciation and Other Amortization   2,558     2,410   6%       7,452     7,446   -
EBITDA 20,203 19,680 3% 57,758 54,638 6%
Earn-Out Adjustments (Income)/Expense - 508 (1,329) 1,035

Acquisition Transaction Costs

  -     75           -     488    
Adjusted EBITDA $ 20,203   $ 20,263   -     $ 56,429   $ 56,161   -
 

EBITDA was approximately $20.2 million for the third quarter and approximately $57.8 million for the first nine months of 2016, compared to approximately $19.7 million for the third quarter and approximately $54.6 for the first nine months of 2015. Adjusted EBITDA was approximately $20.2 million for the third quarter and approximately $56.4 for the first nine months of 2016, compared to approximately $20.3 million for the third quarter and approximately $56.2 million for the first nine months of 2015.

Capital Expenditures

Capital expenditures were $1.2 million for the third quarter and $5.4 million for the nine months of 2016, compared to $2.6 million for the third quarter and $7.8 million for the first nine months of 2015. The majority of our capital expenditures for 2016 have supported our Supply Chain Management and Aviation groups.

Operational Highlights

  • Our Federal Services Group was awarded several delivery orders during the third quarter of 2016 to provide support under our Foreign Military Sales (FMS) support contract with the Naval Sea Systems Command (NAVSEA) International Fleet Support Program Office. The periods of performance for these delivery orders range between 9 and 20 months, and the delivery orders have a combined funded value of approximately $150.5 million.
  • Our Federal Services Group also was awarded an Equipment Related Services (ERS) task order under the TACOM Strategic Services Solutions (TS3) contract to support supply chain management for the reset of family of medium tactical vehicles at Red River Army Depot (RRAD). This task order consists of a base year with two one-year options for a potential value of up to $63 million.
  • Our Akimeka subsidiary was awarded a “time and materials” task order to support the Army Analytics Group (AAG) under the Chief Information Officer Solutions and Partners (CIO-SP3) Government Wide Acquisition Contract. The task order has a period of performance of one base year plus four option years and potential value of $28 million.
  • Contract funding in the third quarter of 2016 totaled $211 million out of $405 million funding year to date for our federal contracting businesses.

Non-GAAP Financial Information

This financial results release contains financial measures above under the caption “Non-GAAP Financial Information (unaudited)” that are not calculated in accordance with U.S. generally accepted accounting principles ("GAAP") under SEC Regulation G, including EBITDA and Adjusted EBITDA. EBITDA represents net income before interest expense, income taxes, amortization of intangible assets and depreciation and other amortization. Adjusted EBITDA represents EBITDA, as defined above, adjusted for changes in earn-out obligations from acquisitions and transaction costs associated with acquisitions. These adjusted financial measures are intended to highlight non-operational, unusual or non-recurring items. They should not be considered in isolation or as a substitute for performance measures prepared in accordance with GAAP.

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 October 26, 2016 for more details on our 2016 third quarter results. Also, refer to VSE’s Annual Report on Form 10-K for the year ended December 31, 2015 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)
 
 
September 30, December 31,
2016 2015
Assets
Current assets:
Cash and cash equivalents $ 553 $ 740
Receivables, net 86,107 78,471
Inventories, net 128,935 109,123
Other current assets   14,886     9,138  
Total current assets 230,481 197,472
 
Property and equipment, net 63,161 64,308
Intangible assets, net 130,930 143,043
Goodwill 198,622 198,545
Other assets   16,158     13,986  
Total assets $ 639,352   $ 617,354  
 
Liabilities and Stockholders' equity
Current liabilities:
Current portion of long-term debt $ 20,085 $ 17,272
Accounts payable 58,768 40,084
Current portion of earn-out obligation — 9,678
Accrued expenses and other current liabilities 37,521 29,067
Dividends payable   —     591  
Total current liabilities 116,374 96,692
 
Long-term debt, less current portion 211,371 215,243
Deferred compensation 12,595 11,169
Long-term lease obligations, less current portion 22,321 23,251
Earn-out obligation, less current portion — 10,166
Deferred tax liabilities   27,751     31,524  
Total liabilities   390,412     388,045  
 
Commitments and contingencies
 
Stockholders' equity:
Common stock, par value $0.05 per share, authorized 15,000,000 shares; issued and outstanding 10,798,684 and 10,751,064, respectively 540 538
Additional paid-in capital 22,866 21,368
Retained earnings 225,844 207,478
Accumulated other comprehensive loss   (310 )   (75 )
Total stockholders' equity   248,940     229,309  
Total liabilities and stockholders' equity $ 639,352   $ 617,354  
 
       
VSE Corporation and Subsidiaries
 
Unaudited Consolidated Statements of Income
(in thousands except share and per share amounts)
 
For the three months ended For the nine months ended
September 30, September 30,
2016 2015 2016 2015
Revenues:
Products $ 87,060 $ 83,644 $ 254,325 $ 233,603
Services   85,720   53,752   222,564   155,710
Total revenues 172,780 137,396 476,889 389,313
 
Costs and operating expenses:
Products 70,884 68,719 207,001 190,072
Services 83,599 50,906 215,409 149,431
Selling, general and administrative expenses 652 501 4,173 2,618
Amortization of intangible assets   4,022   4,027   12,063   11,769
Total costs and operating expenses   159,157   124,153   438,646   353,890
 
Operating income 13,623 13,243 38,243 35,423
 
Interest expense, net   2,509   2,441   7,406   7,001
 
Income before income taxes 11,114 10,802 30,837 28,422
 
Provision for income taxes   4,026   4,328   11,228   11,249
 
Net income   7,088   6,474   19,609   17,173
 
Basic earnings per share $ 0.66 $ 0.60 $ 1.82 $ 1.60
 
Basic weighted average shares outstanding   10,798,684   10,749,726   10,792,046   10,746,318
 
Diluted earnings per share $ 0.65 $ 0.60 $ 1.81 $ 1.59
 
Diluted weighted average shares outstanding   10,826,007   10,792,348   10,819,697   10,778,258
 
Dividends declared per share $ — $ —

$

0.115

$

0.105
 
   
VSE Corporation and Subsidiaries
 
Unaudited Consolidated Statements of Cash Flows
(in thousands)
For the nine months ended
September 30,
2016 2015
Cash flows from operating activities:
Net income $ 19,609 $ 17,173
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 19,515 19,215
Deferred taxes (3,047 ) (1,400 )
Stock-based compensation 1,747 1,698
Earn-out obligation adjustment (1,329 ) 1,035
Changes in operating assets and liabilities, net of impact of acquisition:
Receivables, net (7,636 ) (5,267 )
Inventories, net (19,812 ) (8,821 )
Other current assets and noncurrent assets (8,015 ) 4,110
Accounts payable and deferred compensation 19,651 (3,235 )
Accrued expenses and other current liabilities 8,639 (1,811 )
Long-term lease obligations (930 ) (926 )
Earn-out obligations   —     (3,269 )
 
Net cash provided by operating activities   28,392     18,502  
 
Cash flows from investing activities:
Purchases of property and equipment (5,438 ) (7,819 )
Proceeds from the sale of property and equipment 74 273
Cash paid for acquisitions, net of cash acquired   (63 )   (191,181 )
 
Net cash used in investing activities   (5,427 )   (198,727 )
 
Cash flows from financing activities:
Borrowings on loan agreement 231,139 435,377
Repayments on loan agreement (232,608 ) (238,071 )
Earn-out obligation payment (18,515 ) (11,713 )
Payment of debt financing costs — (2,699 )
Payments on capital lease obligations (835 ) (730 )
Payments of taxes for equity transactions (499 ) (342 )
Dividends paid   (1,834 )   (1,666 )
 
Net cash (used in) provided by financing activities   (23,152 )   180,156  
 
 
Net decrease in cash and cash equivalents (187 ) (69 )
Cash and cash equivalents at beginning of period   740     263  
Cash and cash equivalents at end of period $ 553   $ 194  
 

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

Source: VSE Corporation

Released October 26, 2016