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VSE Reports Financial Results for Third Quarter 2016
Organic Growth Drives Revenue Increases

Alexandria, Virginia, October 26, 2016 - 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 Financial News Contact: Christine Kaineg -- (703) 329-3263.

















VSE Corporation and Subsidiaries

Unaudited Consolidated Balance Sheets
(in thousands except share and per share amounts)
 
September 30, 2016
 
December 31, 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 September 30,
 
For the nine months ended 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