vselogoa06.jpg
VSE Reports Financial Results for Second Quarter 2018
Federal Group Revenue Declines; Aviation Group Increases

Alexandria, Virginia, July 26, 2018 - VSE Corporation (Nasdaq: VSEC) reported the following unaudited consolidated financial results for the second quarter of 2018.

CEO Commentary
"We continue to experience a reduction in revenue from our Federal Services Group; however, contract backlog improved at the end of the second quarter. We are attaining encouraging results from our strategic efforts in our Aviation Group. Our Singapore operation began generating revenue in the second quarter as we extend new product lines to new geographic and end-user markets,” said Maurice “Mo” Gauthier, VSE CEO.

Mr. Gauthier continued, “Our Supply Chain Management Group’s revenue decreased slightly due to a reduction of parts ordered by the U.S. Postal Service, which was partially offset by increases in commercial and DoD revenue during the second quarter. Our Supply Chain Management Group has experienced double digit growth in both the commercial and DoD markets and we will continue to focus on these key markets.”
 
Second Quarter Results (unaudited)
(in thousands, except per share data)
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2018
 
2017
 
% Change
 
2018
 
2017
 
% Change
 
Revenues
$
170,394

 
$
193,860

 
(12.1
)%
 
$
347,291

 
$
391,154

 
(11.2
)%
 
Operating income
$
13,855

 
$
15,005

 
(7.7
)%
 
$
25,448

 
$
29,201

 
(12.9
)%
 
Net income
$
8,751

 
$
7,807

 
12.1
 %
 
$
15,803

 
$
15,100

 
4.7
 %
 
EPS (Diluted)
$
0.80

 
$
0.72

 
11.1
 %
 
$
1.45

 
$
1.39

 
4.3
 %
 

Operational Highlights
Our Aviation Group’s subsidiary, VSE Aviation Singapore Pte Ltd., was appointed a Honeywell Asia Pacific distributor for Boeing 777 and 737 display units.
VSE Aviation Inc. has signed a contract with El Colono of Costa Rica for the overhaul of eight PT6A-34AG turboprop engines. This effort has an 18-month period of performance and a total value of approximately $2.2 million.
VSE Aviation Singapore Pte Ltd. was appointed a BendixKing distributor for the Asia Pacific region to supply a wide range of avionics, flight controls, display units and installation kits.






Our Federal Services Group was awarded several delivery orders in the latter part of the second quarter by the Naval Sea Systems Command (NAVSEA) International Fleet Support Program Office to provide support under its Foreign Military Sales (FMS) contract. The periods of performance for these delivery orders range between 10 and 21 months, and have a combined funded value of approximately $29 million.

Financial Information
Revenues were $170.4 million in the second quarter of 2018 compared to $193.9 million in the second quarter of 2017. For the first six months, revenues were $347.3 million in 2018 compared to $391.2 million in 2017. These decreases were primarily attributable to a reduction in work in our Federal Services Group.

Operating income was $13.9 million for the second quarter of 2018 compared to $15.0 million in the second quarter of 2017. For the first six months, operating income was $25.4 million in 2018 and $29.2 million in 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, which was partially offset by a revenue increase for the Aviation Group.

Net income was $8.8 million for the second quarter of 2018, or $0.80 per diluted share, compared to $7.8 million, or $0.72 per diluted share for the second quarter of 2017. Net income was $15.8 million for the first six months of 2018, or $1.45 per diluted share, compared to $15.1 million, or $1.39 per diluted share for the first six months of 2017. The increase in net income was due to the enactment of the Tax Cuts and Jobs Act in December 2017, which reduced the federal income tax rate from 35% to 21% effective January 1, 2018.

Bookings in our Federal Services Group were $189 million for the first six months of 2018 compared to revenue for this group of $169 million. Funded contract backlog at June 30, 2018 was $338 million, compared to $261 million at March 31, 2018 and $386 million at June 30, 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
 
Six Month Results
 
 
 
2018
 
2017
 
% Change
 
2018
 
2017
 
% Change
Net Income
 
$
8,751

 
$
7,807

 
12
 %
 
$
15,803

 
$
15,100

 
5
 %
 
Interest Expense
 
2,182

 
2,376

 
(8
)%
 
4,357

 
4,811

 
(9
)%
 
Income Taxes
 
2,922

 
4,822

 
(39
)%
 
5,288

 
9,290

 
(43
)%
 
Amortization of Intangible Assets
 
4,004

 
4,004

 
0
 %
 
8,008

 
8,008

 
0
 %
 
Depreciation and Other Amortization
 
2,235

 
2,489

 
(10
)%
 
4,715

 
5,196

 
(9
)%
EBITDA
 
$
20,094

 
$
21,498

 
(7
)%
 
$
38,171

 
$
42,405

 
(10
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Capital Expenditures
Purchases of property and equipment were $1.9 million for the first six months of 2018 compared to $1.3 million for the first six months 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 July 27, 2018 for more details on our 2018 second 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)
 
June 30, 2018

December 31, 2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
624

 
$
624

Receivables, net
54,629

 
55,760

Unbilled receivables, net
37,955

 
42,577

Inventories, net
164,390

 
132,591

Other current assets
13,551

 
16,988

Total current assets
271,149

 
248,540

 
 
 
 
Property and equipment, net
52,670

 
55,146

Intangible assets, net
102,901

 
110,909

Goodwill
198,622

 
198,622

Other assets
15,401

 
15,796

Total assets
$
640,743

 
$
629,013

 
 
 
 
Liabilities and Stockholders' equity
 

 
 

Current liabilities:
 

 
 

Current portion of long-term debt
$
9,468

 
$
6,960

Accounts payable
57,648

 
66,015

Accrued expenses and other current liabilities
32,619

 
40,243

Dividends payable
870

 
759

Total current liabilities
100,605

 
113,977

 
 
 
 
Long-term debt, less current portion
171,857

 
165,614

Deferred compensation
18,028

 
16,323

Long-term lease obligations, less current portion
19,765

 
20,581

Deferred tax liabilities
19,172

 
19,423

Total liabilities
329,427

 
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
283,767

 
267,902

Accumulated other comprehensive income
515

 
181

Total stockholders' equity
311,316

 
293,095

Total liabilities and stockholders' equity
$
640,743

 
$
629,013








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,
 
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
 
Products
 
$
90,119

 
$
89,254

 
$
178,792

 
$
178,271

Services
 
80,275

 
104,606

 
168,499

 
212,883

Total revenues
 
170,394

 
193,860

 
347,291

 
391,154

 
 
 
 
 
 
 
 
 
Costs and operating expenses:
 
 

 
 

 
 

 
 

Products
 
75,834

 
74,222

 
150,560

 
148,928

Services
 
75,971

 
100,150

 
161,726

 
204,094

Selling, general and administrative expenses
 
730

 
479

 
1,549

 
923

Amortization of intangible assets
 
4,004

 
4,004

 
8,008

 
8,008

Total costs and operating expenses
 
156,539

 
178,855

 
321,843

 
361,953

 
 
 
 
 
 
 
 
 
Operating income
 
13,855

 
15,005

 
25,448

 
29,201

 
 
 
 
 
 
 
 
 
Interest expense, net
 
2,182

 
2,376

 
4,357

 
4,811

 
 
 
 
 
 
 
 
 
Income before income taxes
 
11,673

 
12,629

 
21,091

 
24,390

 
 
 
 
 
 
 
 
 
Provision for income taxes
 
2,922

 
4,822

 
5,288

 
9,290

 
 
 
 
 
 
 
 
 
Net income
 
$
8,751

 
$
7,807

 
$
15,803

 
$
15,100

 
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
0.80

 
$
0.72

 
$
1.45

 
$
1.39

 
 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
 
10,881,106

 
10,838,435

 
10,870,887

 
10,830,595

 
 
 
 
 
 
 
 
 
Diluted earnings per share
 
$
0.80

 
$
0.72

 
$
1.45

 
$
1.39

 
 
 
 
 
 
 
 
 
Diluted weighted average shares outstanding
 
10,918,927

 
10,861,769

 
10,907,777

 
10,855,632

 
 
 
 
 
 
 
 
 
Dividends declared per share
 
$
0.08

 
$
0.07

 
$
0.15

 
$
0.13








VSE Corporation and Subsidiaries

Unaudited Consolidated Statements of Cash Flows
(in thousands)

 
 
For the six months ended June 30,
 
 
2018
 
2017
Cash flows from operating activities:
 
 
 
 
Net income
 
$
15,803

 
$
15,100

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

 
 

Depreciation and amortization
 
12,723

 
13,204

Deferred taxes
 
(888
)
 
(974
)
Stock-based compensation
 
1,676

 
1,464

  Changes in operating assets and liabilities:
 
 

 
 

Receivables, net
 
1,131

 
6,412

Unbilled receivables, net
 
9,604

 
13,861

Inventories, net
 
(34,352
)
 
528

Other current assets and noncurrent assets
 
4,227

 
9,725

Accounts payable and deferred compensation
 
(6,164
)
 
(39,511
)
Accrued expenses and other current liabilities
 
(6,568
)
 
(105
)
Long-term lease obligations
 
(816
)
 
(667
)
 
 
 
 
 
Net cash (used in) provided by operating activities
 
(3,624
)
 
19,037

 
 
 
 
 
Cash flows from investing activities:
 
 

 
 

Purchases of property and equipment
 
(1,880
)
 
(1,252
)
Proceeds from the sale of property and equipment
 
46

 
400

 
 
 
 
 
Net cash used in investing activities
 
(1,834
)
 
(852
)
 
 
 
 
 
Cash flows from financing activities:
 
 

 
 

Borrowings on loan agreement
 
359,554

 
181,673

Repayments on loan agreement
 
(349,534
)
 
(197,142
)
Payment of debt financing costs
 
(1,692
)
 

Payments on capital lease obligations
 
(707
)
 
(627
)
Payments of taxes for equity transactions
 
(641
)
 
(500
)
Dividends paid
 
(1,522
)
 
(1,300
)
 
 
 
 
 
Net cash provided by (used in) financing activities
 
5,458

 
(17,896
)
 
 
 
 
 
Net (decrease) increase in cash and cash equivalents
 

 
289

Cash and cash equivalents at beginning of period
 
624

 
428

Cash and cash equivalents at end of period
 
$
624

 
$
717





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