Market Overview

VSE Reports Financial Results for Fourth Quarter and Year Ended December 31, 2018

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Revenue Decline in Federal Services Group Partially Offset by Revenue
Increase in Aviation Group

VSE Corporation (NASDAQ:VSEC) reported the following consolidated
financial results for the three months and twelve months ended December
31, 2018.

CEO Commentary

"Our lower revenues in 2018 resulted from a reduction of work in our
Federal Services Group's U.S. Navy Foreign Military Sales (FMS) and our
U.S. Army programs," said Maurice "Mo" Gauthier, VSE's CEO and
President. "Our Aviation Group's revenue increased approximately 8%, led
by our Singapore operation. Our acquisition of 1st Choice
Aerospace in January 2019 is expected to provide us with sustainable
revenue sources and viable growth potential for our Aviation Group. We
expect this acquisition to be accretive to earnings in 2019. Our Supply
Chain Management Group revenues remained steady, with decreases in USPS
sales offset by increased sales to Department of Defense and commercial
customers."

Mr. Gauthier continued, "Despite the revenue decline, our operating
income was relatively consistent with the prior year, primarily due to
the increase in operating income provided by our Aviation Group and
increased margins in our Federal Services Group." Mr. Gauthier added,
"We continue to diversify our business to reduce our concentration of
revenue through organic growth initiatives and strategic acquisitions."

Fourth Quarter and Year-End Results

(in thousands, except per share data)
  Three Months ended December 31,   Twelve Months ended December 31,
2018   2017   % Change 2018   2017   % Change
Revenues $180,996   $194,795   (7.1 )% $697,218   $760,113   (8.3 )%
Operating income $13,085   $12,887   1.5 % $54,230   $54,325   (0.2 )%
Net income $9,243   $17,357   (46.7 )% $35,080   $39,096   (10.3 )%
EPS (Diluted) $0.84   $1.59   (47.2 )% $3.21   $3.60   (10.8 )%

The Tax Cuts and Jobs Act enacted in December 2017 resulted in a
one-time reduction in our deferred tax liabilities that lowered our
provision for income taxes and correspondingly increased our net income
by approximately $10.6 million, or $0.97 cents per share, for the fourth
quarter and full year for 2017. The Tax Cuts and Jobs Act also lowered
our federal income tax rate from 35% to 21% for 2018, which benefited
our net income in 2018.

Year-End Highlights

  • Operating Income from our Aviation Group increased by 14% for 2018 as
    compared to 2017. This increase was the result of an increase in
    revenues, including sales from our Singapore operation.
  • In January 2019, we acquired 1st Choice Aerospace, a
    privately owned aviation company with operations in Florida and
    Kentucky that provides component maintenance, repair and overhaul
    (MRO) services and products for new generation and legacy commercial
    aircraft. The initial purchase price paid at closing was $112 million
    in cash. In addition, post-closing payments for the acquisition of up
    to $40 million will be payable if 1st Choice Aerospace
    surpasses certain performance thresholds during 2019 and 2020.
  • Our Supply Chain Management Group sales to the Department of Defense
    and commercial customers increased approximately $5.3 million in 2018,
    or 16%.
  • In the fourth quarter of 2018, our free cash flow was $14.8 million
    and we reduced our bank debt by $14.4 million.

Financial Information

Revenues were $181.0 million in the fourth quarter of 2018 compared to
$194.8 million in the fourth quarter of 2017. For the full year,
revenues were $697.2 million in 2018 compared to $760.1 million in 2017.
This decline was primarily due to declines in work on our FMS contract
and U.S. Army programs.

Operating income was $13.1 million in the fourth quarter of 2018
compared to $12.9 million in the fourth quarter of 2017. For the full
year, operating income was $54.2 million in 2018 compared to $54.3
million in 2017.

Net income was $9.2 million in the fourth quarter of 2018, or $0.84 per
diluted share, compared to $17.4 million, or $1.59 per diluted share in
the fourth quarter of 2017. Net income was $35.1 million for the full
year of 2018, or $3.21 per diluted share, compared to $39.1 million, or
$3.60 per diluted share for the full year of 2017.

Bookings in our Federal Services Group totaled $321 million for 2018
compared to revenue of $337 million for the same period. Bookings in our
Federal Services Group were $430 million in 2017. Funded contract
backlog as of December 31, 2018 was $290 million, compared to $345
million as of September 30, 2018 and $324 million as of December 31,
2017.

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. These non-GAAP financial
measures consist of EBITDA and Adjusted EBITDA. We consider these
non-GAAP financial measures as important indicators of performance and
useful metrics for management and investors to evaluate our business'
ongoing operating performance on a consistent basis across reporting
periods. These adjusted financial measures are intended to highlight
non-operational, unusual or non-recurring items. They should not,
however, 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 acquisition related costs and the gain on the sale of an IT
contract.

Non-GAAP Financial Information (unaudited)

For the Three Months and Twelve Months ended December 31,    
($ in thousands)   Three Month Results   Twelve Month Results
        2018   2017  

%
Change

2018   2017  

%
Change

Net Income $ 9,243   $ 17,357   (46.7 )% $ 35,080 $ 39,096 (10.3 )%
Interest Expense 2,285 2,082 9.8 % 8,982 9,240 (2.8 )%
Income Taxes 1,557 (6,552 ) (123.8 )% 10,168 5,989 69.8 %
Amortization of Intangible Assets 4,004 4,004 % 16,017 16,017 %
Depreciation and Other Amortization 2,236     2,294     (2.5 )% 9,207     9,865     (6.7 )%
EBITDA 19,325 19,185 0.7 % 79,454 80,207 (0.9 )%
Acquisition Related Costs 569 569
Gain on Sale of IT Contract           (1,700 )        
Adjusted EBITDA $ 19,894     $ 19,185     3.7 % $ 78,323     $ 80,207     (2.3 )%

EBITDA was $19.3 million for the fourth quarter of 2018 and $79.5
million for 2018, compared to $19.2 million for the fourth quarter of
2017 and $80.2 million for 2017. Adjusted EBITDA was $19.9 million for
the fourth quarter of 2018 and $78.3 million for 2018, compared to $19.2
million for the fourth quarter of 2017 and $80.2 million for 2017.

Capital Expenditures

Capital expenditures were $3.1 million for 2018, compared to $3.3
million for 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 our 2018 Form 10-K, to be filed with the Securities and
Exchange Commission (SEC) on or about March 4, 2019, 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 with the SEC
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.

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