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VSE Reports Financial Results for Third Quarter 2019

VSE Corporation (Nasdaq: 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

Contacts:

VSE Financial News Contact:
Christine Kaineg -- (703) 329-3263

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