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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, Virginia, April 30, 2018 - 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 Financial News Contact: Christine Kaineg -- (703) 329-3263.





















VSE Corporation and Subsidiaries

Unaudited Consolidated Balance Sheets
(in thousands except share and per share amounts)
 
March 31, 2018
 
December 31, 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