VSE Corporation (Nasdaq: VSEC) reported the following unaudited consolidated financial results for the first quarter of 2019.
CEO Commentary
“As VSE’s newly appointed CEO, I look forward to building and executing on a plan of revenue and profit growth for our three operating groups, expanding our current customer, product, and service initiatives, and pursuing new strategic opportunities,” said John Cuomo, VSE’s CEO and President. “We remain focused on operational excellence and returning value to our stockholders.”
Mr. Cuomo continued, “While revenues declined compared to the first quarter of 2018, our operating income slightly improved. We are pleased with the contributions of our 1st Choice Aerospace acquisition, which is meeting expectations. Our international programs are growing, thus providing further uplift to our Aviation Group revenues in the first quarter. Our Supply Chain Management Group revenue decreases were partially offset by continuing increases in parts sales and distribution to new commercial customers. Despite revenue challenges in our Federal Services Group, we have increased this group’s operating income through margin and performance improvement.”
First Quarter Results (unaudited)
| (in thousands, except per share data) | ||||||||||||
| Three months ended March 31, | ||||||||||||
| 2019 | 2018 | % Change | ||||||||||
| Revenues | $ | 169,919 | $ | 176,897 | (3.9 | )% | ||||||
| Operating income | $ | 11,813 | $ | 11,593 | 1.9 | % | ||||||
| Net income | $ | 6,603 | $ | 7,052 | (6.4 | )% | ||||||
| EPS (Diluted) | $ | 0.60 | $ | 0.65 | (7.7 | )% | ||||||
Financial Information
Revenues were $169.9 million in the first quarter of 2019 compared to $176.9 million in the first quarter of 2018. The decrease in revenues is primarily attributable to our Federal Services and Supply Chain Management groups. The decrease was partially offset by an increase in revenue from our Aviation Group, which was primarily attributable to revenues from our 1st Choice Aerospace acquisition and increased parts distribution sales in our international markets.
Operating income was $11.8 million for the first quarter of 2019 compared to $11.6 million in the first quarter of 2018. The operating income increase was primarily attributable to our Aviation Group, and margin improvements in our Federal Services Group. Operating income for the first quarter of 2019 was reduced by non-recurring costs associated with our CEO transition and the acquisition of 1st Choice Aerospace.
Net income was $6.6 million for the first quarter of 2019, or $0.60 per diluted share, compared to $7.1 million, or $0.65 per diluted share for the first quarter of 2018. The decrease in net income is primarily attributable to increased interest expense.
Bookings in our Federal Services Group were $51 million for the first three months of 2019 compared to revenue for this group of $69 million. Funded contract backlog at March 31, 2019 was $278 million, compared to $290 million at December 31, 2018 and $261 million at March 31, 2018.
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. Adjusted EBITDA represents EBITDA (as defined above) adjusted for 1st Choice Aerospace acquisition related and CEO transition costs.
Non-GAAP Financial Information (unaudited)
| (in thousands) | Three Month Results ended March 31, | |||||||||||
| 2019 | 2018 | % Change | ||||||||||
| Net Income | $ | 6,603 | $ | 7,052 | (6 | )% | ||||||
| Interest Expense | 3,158 | 2,175 | 45 | % | ||||||||
| Income Taxes | 2,052 | 2,366 | (13 | )% | ||||||||
| Amortization of Intangible Assets | 4,991 | 4,004 | 25 | % | ||||||||
| Depreciation and Other Amortization | 2,439 | 2,480 | (2 | )% | ||||||||
| EBITDA | $ | 19,243 | $ | 18,077 | 6 | % | ||||||
| Acquisition Related and CEO Transition Costs | 1,121 | — | — | |||||||||
| Adjusted EBITDA | $ | 20,364 | $ | 18,077 | 13 | % | ||||||
Capital Expenditures
Purchases of property and equipment were $601 thousand for the first quarter of 2019 compared to $1.1 million for the first quarter of 2018.
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 3, 2019 for more details on our 2019 first 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) | |||||||||
March 31, |
December 31, | ||||||||
| Assets | |||||||||
| Current assets: | |||||||||
| Cash and cash equivalents | $ | 829 | $ | 162 | |||||
| Receivables, net | 64,746 | 60,004 | |||||||
| Unbilled receivables, net | 44,450 | 41,255 | |||||||
| Inventories, net | 181,069 | 166,392 | |||||||
| Other current assets | 18,456 | 13,407 | |||||||
| Total current assets | 309,550 | 281,220 | |||||||
| Property and equipment, net | 40,167 | 49,606 | |||||||
| Intangible assets, net | 152,901 | 94,892 | |||||||
| Goodwill | 259,212 | 198,622 | |||||||
| Operating lease right-of-use assets | 26,371 | — | |||||||
| Other assets | 15,844 | 14,488 | |||||||
| Total assets | $ | 804,045 | $ | 638,828 | |||||
| Liabilities and Stockholders' equity | |||||||||
| Current liabilities: | |||||||||
| Current portion of long-term debt | $ | 9,466 | $ | 9,466 | |||||
| Accounts payable | 59,106 | 57,408 | |||||||
| Current portion of earn-out obligation | 10,700 | — | |||||||
| Accrued expenses and other current liabilities | 39,919 | 37,133 | |||||||
| Dividends payable | 876 | 871 | |||||||
| Total current liabilities | 120,067 | 104,878 | |||||||
| Long-term debt, less current portion | 265,681 | 151,133 | |||||||
| Deferred compensation | 20,909 | 17,027 | |||||||
| Long-term lease obligations, less current portion | — | 18,913 | |||||||
| Long-term operating lease liabilities | 26,845 | — | |||||||
| Earn-out obligation | 14,300 | — | |||||||
| Deferred tax liabilities | 18,712 | 18,482 | |||||||
| Total liabilities | 466,514 | 310,433 | |||||||
| Commitments and contingencies | |||||||||
| Stockholders' equity: | |||||||||
| Common stock, par value $0.05 per share, authorized 15,000,000 shares; issued and outstanding 10,949,775 and 10,881,106, respectively | 547 | 544 | |||||||
| Additional paid-in capital | 28,788 | 26,632 | |||||||
| Retained earnings | 308,742 | 301,073 | |||||||
| Accumulated other comprehensive (loss) income | (546 | ) | 146 | ||||||
| Total stockholders' equity | 337,531 | 328,395 | |||||||
| Total liabilities and stockholders' equity | $ | 804,045 | $ | 638,828 | |||||
| VSE Corporation and Subsidiaries | ||||||||
| Unaudited Consolidated Statements of Income | ||||||||
(in thousands except share and per share amounts) | ||||||||
For the three months ended | ||||||||
| 2019 | 2018 | |||||||
| Revenues: | ||||||||
| Products | $ | 88,901 | $ | 88,673 | ||||
| Services | 81,018 | 88,224 | ||||||
| Total revenues | 169,919 | 176,897 | ||||||
| Costs and operating expenses: | ||||||||
| Products | 76,293 | 74,726 | ||||||
| Services | 75,440 | 85,755 | ||||||
| Selling, general and administrative expenses | 1,382 | 819 | ||||||
| Amortization of intangible assets | 4,991 | 4,004 | ||||||
| Total costs and operating expenses | 158,106 | 165,304 | ||||||
| Operating income | 11,813 | 11,593 | ||||||
| Interest expense, net | 3,158 | 2,175 | ||||||
| Income before income taxes | 8,655 | 9,418 | ||||||
| Provision for income taxes | 2,052 | 2,366 | ||||||
| Net income | $ | 6,603 | $ | 7,052 | ||||
| Basic earnings per share | $ | 0.60 | $ | 0.65 | ||||
| Basic weighted average shares outstanding | 10,920,171 | 10,860,555 | ||||||
| Diluted earnings per share | $ | 0.60 | $ | 0.65 | ||||
| Diluted weighted average shares outstanding | 10,974,081 | 10,896,504 | ||||||
| Dividends declared per share | $ | 0.08 | $ | 0.07 | ||||
| VSE Corporation and Subsidiaries | ||||||||||
| Unaudited Consolidated Statements of Cash Flows | ||||||||||
(in thousands) | ||||||||||
For the three months ended | ||||||||||
| 2019 | 2018 | |||||||||
| Cash flows from operating activities: | ||||||||||
| Net income | $ | 6,603 | $ | 7,052 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
| Depreciation and amortization | 7,430 | 6,484 | ||||||||
| Deferred taxes | (564 | ) | 283 | |||||||
| Stock-based compensation | 1,640 | 1,263 | ||||||||
| Changes in operating assets and liabilities, net of impact of acquisitions: | ||||||||||
| Receivables, net | 2,667 | (978 | ) | |||||||
| Unbilled receivables, net | (3,195 | ) | 13,589 | |||||||
| Inventories, net | (7,798 | ) | (18,895 | ) | ||||||
| Other current assets and noncurrent assets | (4,990 | ) | 3,169 | |||||||
| Accounts payable and deferred compensation | 2,653 | 11,681 | ||||||||
| Accrued expenses and other current and noncurrent liabilities | (1,675 | ) | (9,949 | ) | ||||||
| Long-term lease obligations | — | (406 | ) | |||||||
| Net cash provided by operating activities | 2,771 | 13,293 | ||||||||
| Cash flows from investing activities: | ||||||||||
| Purchases of property and equipment | (601 | ) | (1,053 | ) | ||||||
| Proceeds from the sale of property and equipment | 3 | — | ||||||||
| Cash paid for acquisitions, net of cash acquired | (112,660 | ) | — | |||||||
| Net cash used in investing activities | (113,258 | ) | (1,053 | ) | ||||||
| Cash flows from financing activities: | ||||||||||
| Borrowings on loan agreement | 194,598 | 247,669 | ||||||||
| Repayments on loan agreement | (80,183 | ) | (256,368 | ) | ||||||
| Payment of debt financing costs | (1,702 | ) | (1,798 | ) | ||||||
| Payments on capital lease obligations | — | (346 | ) | |||||||
| Payments of taxes for equity transactions | (687 | ) | (641 | ) | ||||||
| Dividends paid | (872 | ) | (759 | ) | ||||||
| Net cash provided by (used in) financing activities | 111,154 | (12,243 | ) | |||||||
| Net increase (decrease) in cash and cash equivalents | 667 | (3 | ) | |||||||
| Cash and cash equivalents at beginning of period | 162 | 624 | ||||||||
| Cash and cash equivalents at end of period | $ | 829 | $ | 621 | ||||||
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Contacts:
Christine Kaineg -- (703) 329-3263
