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VSE Reports Financial Results for Third Quarter 2019

ALEXANDRIA, Va.--(BUSINESS WIRE)--

VSE Delivers 17.4% Revenue and 9.7% Operating Income Growth

VSE Corporation (VSEC), a leading provider of repair services, supply chain management support and consulting services for land, sea and air transportation assets in the public and private sectors, reported the following unaudited consolidated financial results for the third quarter of 2019.

Third Quarter Updates

  • Revenues were $198 million, up 17.4% as compared to the third quarter 2018.
  • Operating income was $17 million, up 9.7% as compared to the third quarter of 2018.
  • Net income was $11 million, up 4.9% as compared to the third quarter of 2018.
  • Earnings per share (diluted) was $0.95, up 3.3% as compared to the third quarter of 2018.
  • Adjusted EBITDA (non-GAAP, as described below) was $24.7 million, up 22.0% as compared to the third quarter of 2018.
  • Debt repayment for the quarter was approximately $10.7 million.
  • In September, Rob Moore joined VSE as President of our Federal Services Group.

John Cuomo, VSE President and Chief Executive Officer, commented, “Our third quarter growth was balanced and diverse, representing strong performance from our legacy Aviation businesses as well as our recent 1st Choice acquisition. We successfully executed on growth initiatives and the results reflect strong third quarter increases in both our Aviation and Supply Chain Management Groups. During the quarter, our Aviation Group expanded repair capabilities with new offerings and was awarded new distribution partnerships; additionally, Aviation won new repair work on strong platforms, supporting both near-term results and future backlog. Our Supply Chain Management Group continued its customer, product and service diversification strategy with success in the quarter. Both businesses have clearly defined strategies for growth and proven success in test markets.”

Mr. Cuomo continued, “We are pleased to welcome Rob Moore as President of our Federal Services Group. Rob brings broad federal experience and a proven track record in business development and market expansion that will drive a renewed focus on near and long-term growth opportunities in our federal and defense segment. We are focused on the future of this business group, redefining VSE in the federal marketplace, and aggressively building backlog.”

Third Quarter Results (unaudited)

(in thousands, except per share data)

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

2019

 

2018

 

% Change

 

2019

 

2018

 

% Change

 

Revenues

$

198,326

 

$

168,931

 

17.4%

 

$

557,356

 

$

516,222

 

8.0%

 

Operating income

$

17,215

 

$

15,697

 

9.7%

 

$

45,444

 

$

41,145

 

10.4%

 

Net income

$

10,527

 

$

10,034

 

4.9%

 

$

27,028

 

$

25,837

 

4.6%

 

EPS (Diluted)

$

0.95

 

$

0.92

 

3.3%

 

$

2.45

 

$

2.37

 

3.4%

 

VSE reported improved operating results for the third quarter of 2019 with increases in revenues and operating income over the third quarter of 2018. As previously reported, our operating income in the third quarter of 2018 included a one-time gain of $1.7 million for the sale of a contract recorded within our Federal Services Group.

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. 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, however, 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. Adjusted EBITDA represents EBITDA (as defined above) adjusted for executive succession costs, including our CEO and Federal Services Group President transitions and 1st Choice Aerospace acquisition-related costs.

Non-GAAP Financial Information (unaudited)

(in thousands)

 

Three Month Results ended September 30,

 

Nine Month Results ended September 30,

 

 

2019

 

2018

 

% Change

 

2019

 

2018

 

% Change

Net Income

 

$

10,527

 

 

$

10,034

 

 

4.9

%

 

$

27,028

 

 

$

25,837

 

 

4.6

%

Interest Expense

 

3,706

 

 

2,340

 

 

58.4

%

 

10,262

 

 

6,697

 

 

53.2

%

Income Taxes

 

2,982

 

 

3,323

 

 

(10.3

)%

 

8,154

 

 

8,611

 

 

(5.3

)%

Amortization of Intangible Assets

 

5,014

 

 

4,005

 

 

25.2

%

 

14,985

 

 

12,013

 

 

24.7

%

Depreciation and Other Amortization

 

1,971

 

 

2,256

 

 

(12.6

)%

 

5,637

 

 

6,971

 

 

(19.1

)%

EBITDA

 

24,200

 

 

21,958

 

 

10.2

%

 

66,066

 

 

60,129

 

 

9.9

%

Acquisition Related and Executive Succession Costs

 

518

 

 

 

 

%

 

2,290

 

 

 

 

%

Gain on sale of IT Contract

 

 

 

(1,700

)

 

%

 

 

 

(1,700

)

 

%

Adjusted EBITDA

 

$

24,718

 

 

$

20,258

 

 

22.0

%

 

$

68,356

 

 

$

58,429

 

 

17.0

%

 

 

 

 

 

 

 

 

 

 

 

Capital Expenditures

Purchases of property and equipment totaled $7.7 million for the first nine months of 2019 compared to $2.5 million for the same period of 2018. We purchased a new facility for one of our 1st Choice Aerospace locations for $5 million in the second quarter of 2019.

Third Quarter Segment Results

The following is a summary and commentary of revenues and operating income for the three- and nine-month periods ended September 30, 2019 and September 30, 2018:

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

2019

 

2018

 

2019

 

2018

Revenues:

 

 

 

 

 

 

 

 

Supply Chain Management Group

 

$

55,369

 

 

$

51,834

 

 

$

160,878

 

 

$

161,961

 

Aviation Group

 

59,186

 

 

34,000

 

 

163,553

 

 

102,554

 

Federal Services Group

 

83,771

 

 

83,097

 

 

232,925

 

 

251,707

 

Total revenues

 

$

198,326

 

 

$

168,931

 

 

$

557,356

 

 

$

516,222

 

 

 

 

 

 

 

 

 

 

Operating Income:

 

 

 

 

 

 

 

 

Supply Chain Management Group

 

$

7,843

 

 

$

7,783

 

 

$

22,388

 

 

$

23,547

 

Aviation Group

 

6,568

 

 

2,184

 

 

14,820

 

 

7,291

 

Federal Services Group

 

4,524

 

 

6,186

 

 

12,968

 

 

12,270

 

Corporate/unallocated expenses

 

(1,720

)

 

(456

)

 

(4,732

)

 

(1,963

)

Operating income

 

$

17,215

 

 

$

15,697

 

 

$

45,444

 

 

$

41,145

 

 

 

 

 

 

 

 

 

 

Supply Chain Management Group

Revenues for our Supply Chain Management Group increased approximately $3.5 million or 6.8% for the third quarter of 2019 and decreased approximately $1.1 million or 0.7% for the first nine months of 2019 compared to the same periods of 2018.

Operating income was substantially unchanged for the third quarter and decreased approximately $1.2 million or 4.9% for the nine months. The decrease in operating income was primarily attributable to an increase in administrative and growth-focused expenses.

Aviation Group

Revenues for our Aviation Group increased approximately $25.2 million, or 74.1% for the third quarter and approximately $61.0 million or 59.5% for the first nine months of 2019, compared to the same periods of 2018. The revenue increase was primarily driven by the addition of revenues from organic growth in both our distribution and repair businesses and results in our 1st Choice Aerospace acquisition from early January 2019.

Operating income increased approximately $4.4 million or 200.7% for the third quarter and approximately $7.5 million or 103.3% for the nine months. The increases in operating income were attributable primarily to our 1st Choice Aerospace acquisition and the increases in revenues from our legacy repair and distribution businesses.

Federal Services Group

Revenues for our Federal Services Group were substantially unchanged for the third quarter of 2019 and decreased approximately $18.8 million or 7.5% for the first nine months of 2019 as compared to the same periods of 2018.

Operating income decreased approximately $1.7 million or 26.9% for the third quarter and increased approximately $698 thousand or 5.7% for the nine months. The decrease in operating income for the quarter was primarily attributable to the gain on sale of a contract in 2018. Revenue declines for the nine months occurred in our lower margin work, resulting in minimal loss of operating income. We have increased operating income for this group through margin improvements on our other work.

Bookings in our Federal Services Group were $190 million for the first nine months of 2019 compared to revenue for this group of $233 million. Funded contract backlog on September 30, 2019 was $252 million, compared to $269 million on June 30, 2019 and $345 million on September 30, 2018.

About VSE

VSE maintains, extends and enhances legacy and next-generation systems and assets for our federal, defense and commercial clients by delivering solutions for fleet vehicle, ship, and aircraft sustainment, supply chain management, platform modernization, mission enhancement, and program management since 1959. VSE also provides 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 31, 2019 for more details on our 2019 third quarter results. Also, refer to VSE’s Annual Report on Form 10-K for the year ended December 31, 2018 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,

 

 

2019

 

2018

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

1,095

 

 

$

162

 

Receivables, net

 

69,793

 

 

60,004

 

Unbilled receivables, net

 

54,151

 

 

41,255

 

Inventories, net

 

202,811

 

 

166,392

 

Other current assets

 

12,652

 

 

13,407

 

Total current assets

 

340,502

 

 

281,220

 

 

 

 

 

 

Property and equipment, net

 

43,792

 

 

49,606

 

Intangible assets, net

 

142,907

 

 

94,892

 

Goodwill

 

259,212

 

 

198,622

 

Operating lease right-of-use assets

 

24,375

 

 

 

Other assets

 

16,845

 

 

14,488

 

Total assets

 

$

827,633

 

 

$

638,828

 

 

 

 

 

 

Liabilities and Stockholders' equity

 

 

 

 

Current liabilities:

 

 

 

 

Current portion of long-term debt

 

$

10,716

 

 

$

9,466

 

Accounts payable

 

71,668

 

 

57,408

 

Current portion of earn-out obligation

 

10,700

 

 

 

Accrued expenses and other current liabilities

 

45,314

 

 

37,133

 

Dividends payable

 

987

 

 

871

 

Total current liabilities

 

139,385

 

 

104,878

 

 

 

 

 

 

Long-term debt, less current portion

 

257,815

 

 

151,133

 

Deferred compensation

 

17,417

 

 

17,027

 

Long-term lease obligations, less current portion

 

 

 

18,913

 

Long-term operating lease liabilities

 

25,124

 

 

 

Earn-out obligation

 

14,300

 

 

 

Deferred tax liabilities

 

17,732

 

 

18,482

 

Total liabilities

 

471,773

 

 

310,433

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

Common stock, par value $0.05 per share, authorized 15,000,000 shares; issued and outstanding 10,970,123 and 10,886,036, respectively

 

549

 

 

544

 

Additional paid-in capital

 

29,411

 

 

26,632

 

Retained earnings

 

327,191

 

 

301,073

 

Accumulated other comprehensive (loss) income

 

(1,291

)

 

146

 

Total stockholders' equity

 

355,860

 

 

328,395

 

Total liabilities and stockholders' equity

 

$

827,633

 

 

$

638,828

 

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,

 

 

2019

 

2018

 

2019

 

2018

Revenues:

 

 

 

 

 

 

 

 

Products

 

$

96,832

 

 

$

85,886

 

 

$

279,608

 

 

$

264,678

 

Services

 

 

101,494

 

 

 

83,045

 

 

 

277,748

 

 

 

251,544

 

Total revenues

 

 

198,326

 

 

 

168,931

 

 

 

557,356

 

 

 

516,222

 

 

 

 

 

 

 

 

 

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

Products

 

 

81,988

 

 

 

72,256

 

 

 

237,661

 

 

 

222,816

 

Services

 

 

93,568

 

 

 

77,810

 

 

 

256,355

 

 

 

239,536

 

Selling, general and administrative expenses

 

 

541

 

 

 

863

 

 

 

2,911

 

 

 

2,412

 

Amortization of intangible assets

 

 

5,014

 

 

 

4,005

 

 

 

14,985

 

 

 

12,013

 

Total costs and operating expenses

 

 

181,111

 

 

 

154,934

 

 

 

511,912

 

 

 

476,777

 

 

 

 

 

 

 

 

 

 

Gain on sale of contract

 

 

 

 

1,700

 

 

 

 

 

1,700

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

17,215

 

 

 

15,697

 

 

 

45,444

 

 

 

41,145

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

3,706

 

 

 

2,340

 

 

 

10,262

 

 

 

6,697

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

13,509

 

 

 

13,357

 

 

 

35,182

 

 

 

34,448

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

2,982

 

 

 

3,323

 

 

 

8,154

 

 

 

8,611

 

 

 

 

 

 

 

 

 

 

Net income

 

$

10,527

 

 

$

10,034

 

 

$

27,028

 

 

$

25,837

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.96

 

 

$

0.92

 

 

$

2.47

 

 

$

2.38

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

 

10,970,123

 

 

 

10,881,106

 

 

 

10,953,581

 

 

 

10,874,331

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.95

 

 

$

0.92

 

 

$

2.45

 

 

$

2.37

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

 

11,060,081

 

 

 

10,935,112

 

 

 

11,035,951

 

 

 

10,916,989

 

 

 

 

 

 

 

 

 

 

Dividends declared per share

 

$

0.09

 

 

$

0.08

 

 

$

0.26

 

 

$

0.23

 

VSE Corporation and Subsidiaries

 

Unaudited Consolidated Statements of Cash Flows

(in thousands)

 

 

 

For the nine months ended
September 30,

 

 

2019

 

2018

Cash flows from operating activities:

 

 

 

 

Net income

 

$

27,028

 

 

$

25,837

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

Depreciation and amortization

 

20,622

 

 

18,984

 

Deferred taxes

 

(1,230

)

 

(1,733

)

Stock-based compensation

 

2,592

 

 

2,146

 

Gain on sale of contract

 

 

 

(1,700

)

Changes in operating assets and liabilities, net of impact of acquisitions:

 

 

 

 

Receivables, net

 

(2,380

)

 

738

 

Unbilled receivables, net

 

(12,896

)

 

11,298

 

Inventories, net

 

(29,540

)

 

(36,448

)

Other current assets and noncurrent assets

 

(481

)

 

3,518

 

Accounts payable and deferred compensation

 

11,793

 

 

(14,972

)

Accrued expenses and other current and noncurrent liabilities

 

1,931

 

 

(3,010

)

Long-term lease obligations

 

 

 

(1,237

)

 

 

 

 

 

Net cash provided by operating activities

 

17,439

 

 

3,421

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Purchases of property and equipment

 

(7,689

)

 

(2,522

)

Proceeds from the sale of property and equipment

 

4

 

 

51

 

Proceeds from the sale of contract

 

 

 

1,700

 

Cash paid for acquisitions, net of cash acquired

 

(112,660

)

 

 

 

 

 

 

 

Net cash used in investing activities

 

(120,345

)

 

(771

)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Borrowings on loan agreement

 

382,501

 

 

468,949

 

Repayments on loan agreement

 

(274,969

)

 

(465,521

)

Payment of debt financing costs

 

 

 

(1,702

)

Payments on capital lease obligations

 

 

 

(1,077

)

Payments of taxes for equity transactions

 

(955

)

 

(641

)

Dividends paid

 

(2,738

)

 

(2,393

)

 

 

 

 

 

Net cash provided by (used in) financing activities

 

103,839

 

 

(2,385

)

 

 

 

 

 

Net increase in cash and cash equivalents

 

933

 

 

265

 

Cash and cash equivalents at beginning of period

 

162

 

 

624

 

Cash and cash equivalents at end of period

 

$

1,095

 

 

$

889

 

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20191029006115/en/