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VSE Reports Financial Results for Second Quarter 2017
Federal Services Group Drives Increases in Revenue and Operating Income

Alexandria, Virginia, July 27, 2017 - 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 Financial News Contact: Christine Kaineg -- (703) 329-3263.





















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