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) |
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|
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) |
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|
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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