VSE Reports Financial Results for Second Quarter 2017

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Federal Services Group Drives Increases in Revenue and Operating Income

ALEXANDRIA, Va.--(BUSINESS WIRE)-- VSE Corporation (Nasdaq: VSEC) reported the following unaudited consolidated financial results for the second quarter of 2017.

CEO Commentary

“Revenue contributions from our Federal Services and Supply Chain Management groups have increased our consolidated revenue and operating income as compared to the second quarter of 2016,” said Maurice “Mo” Gauthier, VSE CEO. “Our NAVSEA Foreign Military Sales work and our equipment and logistics support for the U.S. Army continue to be the primary drivers behind our revenue and operating income increases. Our Supply Chain Management Group has made progress expanding into new commercial markets, and we are directing resources and management efforts toward these initiatives. Additionally, we have reduced our bank debt and leverage ratio this quarter.”

Second Quarter Results (unaudited)

 
(in thousands, except per share data)
  Three months ended June 30,   Six months ended June 30,
2017   2016   % Change 2017   2016   % Change
Revenues $ 193,860 $ 160,473 20.8% $ 391,154 $ 304,109 28.6%
Operating income $ 15,005 $ 11,879 26.3% $ 29,201 $ 24,620 18.6%
Net income $ 7,807 $ 5,969 30.8% $ 15,100 $ 12,521 20.6%
EPS (Diluted)* $ 0.72 $ 0.55 30.9% $ 1.39 $ 1.16 19.8%
 

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

 

Operational Highlights

  • Revenue on our Foreign Military Sales (FMS) Program for the first six months of 2017 increased 72% year over year, primarily resulting from the transfer of two frigates to Taiwan completed in March 2017. Revenue also increased from our equipment sustainment, refurbishment, logistics support, and parts supply services for our U.S. Army clients.
  • 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 18th Equipment Maintenance Squadron at Kadena Air Base in Japan. The task order consists of a one year base period of performance with two one-year option periods and a total value of $22.3 million.
  • Our Federal Services Group was awarded a task order to continue providing support services to the U.S. Army Reserve Command (USARC) for its Equipment, Engineering, Maintenance and Logistics Readiness Program. The task order consists of a one-year base period of performance and two one-year option periods, with a total value of $17.8 million.
  • Our Federal Services Group was awarded several delivery orders during the second quarter of 2017 under our FMS support contract with the Naval Sea Systems Command (NAVSEA) International Fleet Support Program Office totaling $14.9 million.
  • Bookings in our Federal Services Group were $281 million for the first six months of 2017 compared to revenue for this group of $214 million. Funded contract backlog at June 30, 2017 was $386 million, compared to $359 million at March 31, 2017 and $294 million at June 30, 2016.

Financial Information

Revenues were $193.9 million in the second quarter of 2017 compared to $160.5 million in the second quarter of 2016. For the first six months, revenues were $391.2 million in 2017 compared to $304.1 million in 2016. These increases were primarily due to increased revenue from our Federal Services Group. Increased revenues from our Supply Chain Management Group also contributed to revenue growth in the second quarter.

Operating income was $15.0 million for the second quarter of 2017 compared to $11.9 million in the second quarter of 2016. For the first six months, operating income was $29.2 million in 2017 compared to $24.6 million in 2016. The operating income increase was primarily attributable to revenue increases in our Federal Services Group.

Net income was $7.8 million for the second quarter of 2017, or $0.72 per diluted share, compared to $6.0 million, or $0.55 per diluted share for the second quarter of 2016. Net income was $15.1 million for the first six months of 2017, or $1.39 per diluted share, compared to $12.5 million, or $1.16 per diluted share for the first six months of 2016.

Non-GAAP Financial Information

The non-GAAP Financial Information (unaudited) set forth below is not calculated in accordance with U.S. generally accepted accounting principles (GAAP) under SEC Regulation G. These non-GAAP financial measures consist of EBITDA and Adjusted EBITDA. We consider these non-GAAP financial measures as important indicators of performance and useful metrics for management and investors to evaluate our business' ongoing operating performance on a consistent basis across reporting periods. These adjusted financial measures are intended to highlight non-operational, unusual or non-recurring items. They should not, however, 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. Adjusted EBITDA represents EBITDA (as defined above) adjusted for changes in earn-out obligations from acquisitions.

Non-GAAP Financial Information (unaudited)

 
(in thousands)   Three Month Results   Six Month Results
2017   2016   % Change   2017   2016   % Change
Net Income $ 7,807 $ 5,969 31 % $ 15,100 $ 12,521 21 %
Interest Expense 2,376 2,400 (1 )% 4,811 4,897 (2 )%
Income Taxes 4,822 3,510 37 % 9,290 7,202 29 %
Amortization of Intangible Assets 4,004 4,021 0 % 8,008 8,041 0 %
Depreciation and Other Amortization   2,489   2,673 (7 )%   5,196   4,894   6 %
EBITDA 21,498 18,573 16 % 42,405 37,555 13 %
Earn-Out Adjustments Expense (Income)   —   55     —   (1,329 )  
Adjusted EBITDA $ 21,498 $ 18,628 15 % $ 42,405 $ 36,226   17 %
 

Capital Expenditures

Purchases of property and equipment totaled $1.3 million for the first six months of 2017 compared to $4.2 million for the first six months of 2016.

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 VSE's Form 10-Q that will be filed with the Securities and Exchange Commission (SEC) on or about July 27, 2017 for more details on our 2017 second quarter results. Also, refer to VSE’s Annual Report on Form 10-K for the year ended December 31, 2016 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)

 
 

June 30,
2017

 

December 31,
2016

Assets
Current assets:
Cash and cash equivalents $ 717 $ 428
Receivables, net 80,945 101,218
Inventories, net 135,812 136,340
Other current assets   10,932   20,477
Total current assets 228,406 258,463
 
Property and equipment, net 58,202 62,061
Intangible assets, net 118,917 126,926
Goodwill 198,622 198,622
Other assets   15,699   15,767
Total assets $ 619,846 $ 661,839
 
Liabilities and Stockholders' equity
Current liabilities:
Current portion of long-term debt $ 23,835 $ 21,023
Accounts payable 51,932 93,999
Accrued expenses and other current liabilities 31,638 32,772
Dividends payable   759   648
Total current liabilities 108,164 148,442
 
Long-term debt, less current portion 175,609 193,621
Deferred compensation 15,307 12,751
Long-term lease obligations, less current portion 21,292 21,959
Deferred tax liabilities   28,941   29,872
Total liabilities   349,313   406,645
 
Commitments and contingencies
Stockholders' equity:
Common stock, par value $0.05 per share, authorized 15,000,000 shares; issued and outstanding 10,838,435 and 10,798,927, respectively 542 540
Additional paid-in capital 24,455 22,876
Retained earnings 245,422 231,733
Accumulated other comprehensive loss   114   45
Total stockholders' equity   270,533   255,194
Total liabilities and stockholders' equity $ 619,846 $ 661,839
 
 

VSE Corporation and Subsidiaries

 

Unaudited Consolidated Statements of Income

(in thousands except share and per share amounts)

 
 

For the three months
ended June 30,

 

For the six months
ended June 30,

2017   2016 2017   2016
Revenues:
Products $ 89,254 $ 81,994 $ 178,271 $ 167,265
Services   104,606   78,479   212,883   136,844
Total revenues 193,860 160,473 391,154 304,109
 
Costs and operating expenses:
Products 74,222 66,827 148,928 136,117
Services 100,150 75,606 204,094 131,810
Selling, general and administrative expenses 479 2,140 923 3,521
Amortization of intangible assets   4,004   4,021   8,008   8,041
Total costs and operating expenses   178,855   148,594   361,953   279,489
 
Operating income 15,005 11,879 29,201 24,620
 
Interest expense, net   2,376   2,400   4,811   4,897
 
Income before income taxes 12,629 9,479 24,390 19,723
 
Provision for income taxes   4,822   3,510   9,290   7,202
 
Net income $ 7,807 $ 5,969 $ 15,100 $ 12,521
 
Basic earnings per share $ 0.72 $ 0.56 $ 1.39 $ 1.16
 
Basic weighted average shares outstanding   10,838,435   10,798,684   10,830,595   10,788,691
 
Diluted earnings per share $ 0.72 $ 0.55 $ 1.39 $ 1.16
 
Diluted weighted average shares outstanding   10,861,769   10,826,490   10,855,632   10,816,507
 
Dividends declared per share $ 0.070 $ 0.060 $ 0.130 $ 0.115
 
 

VSE Corporation and Subsidiaries

 

Unaudited Consolidated Statements of Cash Flows

(in thousands)

 
 

For the six months ended
June 30,

2017   2016
Cash flows from operating activities:
Net income $ 15,100 $ 12,521
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 13,204 12,935
Deferred taxes (974 ) (1,161 )
Stock-based compensation 1,464 1,361
Earn-out obligation adjustment — (1,329 )
Changes in operating assets and liabilities:
Receivables, net 20,273 (12,547 )
Inventories, net 528 (8,250 )
Other current assets and noncurrent assets 9,725 (5,762 )
Accounts payable and deferred compensation (39,511 ) 15,474
Accrued expenses and other current liabilities (105 ) 2,492
Long-term lease obligations   (667 )   (619 )
 
Net cash provided by operating activities   19,037     15,115  
 
Cash flows from investing activities:
Purchases of property and equipment (1,252 ) (4,224 )
Proceeds from the sale of property and equipment   400     28  
 
Net cash used in investing activities   (852 )   (4,196 )
 
Cash flows from financing activities:
Borrowings on loan agreement 181,673 133,279
Repayments on loan agreement (197,142 ) (134,012 )
Earn-out obligation payments — (8,015 )
Payments on capital lease obligations (627 ) (546 )
Payments of taxes for equity transactions (500 ) (499 )
Dividends paid   (1,300 )   (1,186 )
 
Net cash used in financing activities   (17,896 )   (10,979 )
 
Net increase (decrease) in cash and cash equivalents 289 (60 )
Cash and cash equivalents at beginning of period   428     740  
Cash and cash equivalents at end of period $ 717   $ 680  
 

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

Source: VSE Corporation

Released July 27, 2017