Market Overview

VSE Reports Financial Results for Second Quarter 2019

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VSE Delivers Strong Q2 Revenue and Operating Earnings Growth

VSE Corporation (NASDAQ:VSEC), a leading provider of supply chain management support and consulting services for land, air and sea transportation assets in the public and private sectors, reported the following unaudited consolidated financial results for the second quarter of 2019.

Second Quarter Results (unaudited)

(in thousands, except per share data)

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2019

 

2018

 

% Change

 

2019

 

2018

 

% Change

 

Revenues

$

 

189,111

 

 

$

 

170,394

 

 

11.0

%

 

$

 

359,030

 

 

$

 

347,291

 

 

3.4

%

 

Operating income

$

 

16,416

 

 

$

 

13,855

 

 

18.5

%

 

$

 

28,229

 

 

$

 

25,448

 

 

10.9

%

 

Net income

$

 

9,898

 

 

$

 

8,751

 

 

13.1

%

 

$

 

16,501

 

 

$

 

15,803

 

 

4.4

%

 

EPS (Diluted)

$

 

0.89

 

 

$

 

0.80

 

 

11.3

%

 

$

 

1.50

 

 

$

 

1.45

 

 

3.4

%

 

VSE reported improved operating results for the second quarter, with strong increases in both revenue and operating income. Our acquisition of 1st Choice Aerospace in January 2019 and execution of new organic aerospace programs in international markets drove the revenue growth for the business. Although revenue from our Federal Services and Supply Chain Management Groups were essentially flat from second quarter 2018 to 2019, revenue for both groups increased from first quarter to second quarter of 2019. The operating income improvements were driven by increased profits in our Aviation Group and our Federal Services Group, from both new organic revenue and revenue from our new 1st Choice Aerospace subsidiary.

"We are focused on our customer value proposition, building and executing our plans for revenue and profit growth and expanding customer markets, products and service capabilities for all of our operating groups," said John Cuomo, VSE's recently appointed CEO and President. "We remain keenly focused on operational excellence and returning value to our stockholders. Our revenue and operating income improved for the second quarter, reflecting an increase in our Aviation Group sales, improved operating profit from our Federal Services Group, and cost management initiatives across the business. We are pleased with the contributions of our 1st Choice Aerospace acquisition, which is exceeding financial and strategic expectations. While our second quarter Supply Chain Management Group revenue was essentially flat compared to the prior year, we gained increases in parts and services revenue from new commercial customers as we continue to expand our customer base. Our Federal Services Group's results showed operating income growth through customer mix, margin, and performance improvement."

Second Quarter Updates

  • Revenues were $189.1 million, up 11.0% as compared to the second quarter 2018.
  • Operating income was $16.4 million, up 18.5% as compared to the second quarter of 2018.
  • Net income was $9.9 million, up 13.1% as compared to the second quarter of 2018.
  • Earnings per share (diluted) was $0.89, up 11.3% as compared to the second quarter of 2018.
  • Adjusted EBITDA (non-GAAP, as described below) was $23.1 million, up 15.1% as compared to the second quarter of 2018.

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 our 1st Choice Aerospace acquisition-related and CEO succession costs.

Non-GAAP Financial Information (unaudited)

(in thousands)

 

Three Month Results ended June 30,

 

Six Month Results ended June 30,

 

 

 

2019

 

2018

 

% Change

 

2019

 

2018

 

% Change

Net Income

 

$

9,898

 

 

$

8,751

 

 

13.1

%

 

$

16,501

 

 

$

15,803

 

 

4.4

%

Interest Expense

 

3,398

 

 

2,182

 

 

55.7

%

 

6,556

 

 

4,357

 

 

50.5

%

Income Taxes

 

3,120

 

 

2,922

 

 

6.8

%

 

5,172

 

 

5,288

 

 

(2.2

)%

Amortization of Intangible Assets

 

4,980

 

 

4,004

 

 

24.4

%

 

9,971

 

 

8,008

 

 

24.5

%

Depreciation and Other Amortization

 

1,227

 

 

2,235

 

 

(45.1

)%

 

3,666

 

 

4,715

 

 

(22.2

)%

EBITDA

 

22,623

 

 

20,094

 

 

12.6

%

 

41,866

 

 

38,171

 

 

9.7

%

Acquisition Related and CEO Succession Costs

 

505

 

 

 

 

%

 

1,626

 

 

 

 

%

Adjusted EBITDA

 

$

23,128

 

 

$

20,094

 

 

15.1

%

 

$

43,492

 

 

$

38,171

 

 

13.9

%

Corporate Costs

Operating income was reduced by approximately $500 thousand for the second quarter and $1.6 million year to date due to costs associated with our CEO succession and our acquisition of 1st Choice Aerospace.

Capital Expenditures

Purchases of property and equipment totaled $6.3 million for the second quarter of 2019 compared to $1.9 million for the second quarter of 2018. We purchased a new facility for one of our 1st Choice Aerospace locations for $5 million in the second quarter of 2019.

Second Quarter Segment Results

The following is a summary and commentary of revenues and operating income for the three- and six-month periods ended June 30, 2019 and June 30, 2018:

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

2019

 

2018

 

2019

 

2018

Revenues:

 

 

 

 

 

 

 

 

Supply Chain Management Group

 

$

53,805

 

 

$

54,263

 

 

$

105,509

 

 

$

110,127

 

Aviation Group

 

54,997

 

 

35,804

 

 

104,367

 

 

68,554

 

Federal Services Group

 

80,309

 

 

80,327

 

 

149,154

 

 

168,610

 

Total revenues

 

$

189,111

 

 

$

170,394

 

 

$

359,030

 

 

$

347,291

 

 

 

 

 

 

 

 

 

 

Operating Income:

 

 

 

 

 

 

 

 

Supply Chain Management Group

 

$

7,557

 

 

$

8,168

 

 

$

14,545

 

 

$

15,764

 

Aviation Group

 

5,204

 

 

2,846

 

 

8,252

 

 

5,107

 

Federal Services Group

 

5,059

 

 

3,606

 

 

8,444

 

 

6,084

 

Corporate/unallocated expenses

 

(1,404

)

 

(765

)

 

(3,012

)

 

(1,507

)

Operating income

 

$

16,416

 

 

$

13,855

 

 

$

28,229

 

 

$

25,448

 

Supply Chain Management Group

Revenues for our Supply Chain Management Group were substantially unchanged for the second quarter of 2019 and decreased approximately $4.6 million or 4.2% for the first six months of 2019 compared to the same periods of 2018. The revenue decline was primarily due to decreased sales to Department of Defense customers of approximately $1.1 million for the quarter and approximately $4.4 million for the six months.

Operating income decreased approximately $611 thousand or 7.5% for the second quarter and approximately $1.2 million or 7.7% for the six months. The decreases in operating income were primarily attributable to decreased sales and an increase in sales, general, and administrative expenses.

Aviation Group

Revenues for our Aviation Group increased approximately $19.2 million, or 53.6% for the first quarter and approximately $35.8 million or 52.2% for the first six months of 2019, compared to the same periods of 2018. The revenue increase was primarily driven by the addition of revenues from our 1st Choice Aerospace acquisition in early January 2019 and from organic growth in international markets.

Operating income increased approximately $2.4 million or 82.9% for the second quarter and approximately $3.1 million or 61.6% for the six months. The increases in operating income were attributable primarily to the increases in revenues from our 1st Choice Aerospace acquisition and from parts distribution sales in our international markets.

Federal Services Group

Revenues for our Federal Services Group were substantially unchanged for the second quarter of 2019 and decreased approximately $19.5 million or 11.5% for the first six months of 2019 as compared to the same periods of 2018. For the first six months of 2019, our revenue from two large contracts declined by approximately $38 million due to decreased customer demand. These declines were partially offset by increased revenue in other programs and new business.

Operating income increased approximately $1.5 million or 40.3% for the second quarter and approximately $2.4 million or 38.8% for the six months. The revenue declines have occurred in our lower margin work, resulting in minimal loss of operating income, and we have increased operating income for this group through cost reductions and margin improvements on other work.

Bookings in our Federal Services Group were $123 million for the first six months of 2019 compared to revenue for this group of $149 million. Funded contract backlog on June 30, 2019 was $269 million, compared to $278 million on March 31, 2019 and $339 million on June 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 innovative 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 July 31, 2019 for more details on our 2019 second-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)

 

June 30,

 

December 31,

 

2019

 

2018

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

760

 

 

$

162

 

Receivables, net

74,012

 

 

60,004

 

Unbilled receivables, net

45,961

 

 

41,255

 

Inventories, net

197,213

 

 

166,392

 

Other current assets

15,232

 

 

13,407

 

Total current assets

333,178

 

 

281,220

 

 

 

 

 

Property and equipment, net

44,216

 

 

49,606

 

Intangible assets, net

147,921

 

 

94,892

 

Goodwill

259,212

 

 

198,622

 

Operating lease right-of-use assets

25,256

 

 

 

Other assets

16,992

 

 

14,488

 

Total assets

$

826,775

 

 

$

638,828

 

 

 

 

 

Liabilities and Stockholders' equity

 

 

 

Current liabilities:

 

 

 

Current portion of long-term debt

$

10,091

 

 

$

9,466

 

Accounts payable

74,310

 

 

57,408

 

Current portion of earn-out obligation

10,700

 

 

 

Accrued expenses and other current liabilities

39,428

 

 

37,133

 

Dividends payable

987

 

 

871

 

Total current liabilities

135,516

 

 

104,878

 

 

 

 

 

Long-term debt, less current portion

268,985

 

 

151,133

 

Deferred compensation

17,201

 

 

17,027

 

Long-term lease obligations, less current portion

 

 

18,913

 

Long-term operating lease liabilities

25,716

 

 

 

Earn-out obligation

14,300

 

 

 

Deferred tax liabilities

18,720

 

 

18,482

 

Total liabilities

480,438

 

 

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

317,652

 

 

301,073

 

Accumulated other comprehensive (loss) income

(1,275

)

 

146

 

Total stockholders' equity

346,337

 

 

328,395

 

Total liabilities and stockholders' equity

$

826,775

 

 

$

638,828

 

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,

 

 

2019

 

2018

 

2019

 

2018

Revenues:

 

 

 

 

 

 

 

 

Products

 

$

93,875

 

 

$

90,119

 

 

$

182,776

 

 

$

178,792

 

Services

 

95,236

 

 

80,275

 

 

176,254

 

 

168,499

 

Total revenues

 

189,111

 

 

170,394

 

 

359,030

 

 

347,291

 

 

 

 

 

 

 

 

 

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

Products

 

79,380

 

 

75,834

 

 

155,673

 

 

150,560

 

Services

 

87,347

 

 

75,971

 

 

162,787

 

 

161,726

 

Selling, general and administrative expenses

 

988

 

 

730

 

 

2,370

 

 

1,549

 

Amortization of intangible assets

 

4,980

 

 

4,004

 

 

9,971

 

 

8,008

 

Total costs and operating expenses

 

172,695

 

 

156,539

 

 

330,801

 

 

321,843

 

 

 

 

 

 

 

 

 

 

Operating income

 

16,416

 

 

13,855

 

 

28,229

 

 

25,448

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

3,398

 

 

2,182

 

 

6,556

 

 

4,357

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

13,018

 

 

11,673

 

 

21,673

 

 

21,091

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

3,120

 

 

2,922

 

 

5,172

 

 

5,288

 

 

 

 

 

 

 

 

 

 

Net income

 

$

9,898

 

 

$

8,751

 

 

$

16,501

 

 

$

15,803

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.90

 

 

$

0.80

 

 

$

1.51

 

 

$

1.45

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

10,969,899

 

 

10,881,106

 

 

10,945,172

 

 

10,870,887

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.89

 

 

$

0.80

 

 

$

1.50

 

 

$

1.45

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

11,072,745

 

 

10,918,927

 

 

11,023,685

 

 

10,907,777

 

 

 

 

 

 

 

 

 

 

Dividends declared per share

 

$

0.09

 

 

$

0.08

 

 

$

0.17

 

 

$

0.15

 

VSE Corporation and Subsidiaries

Unaudited Consolidated Statements of Cash Flows

(in thousands)

 

 

For the six months ended June 30,

 

 

2019

 

2018

Cash flows from operating activities:

 

 

 

 

Net income

 

$

16,501

 

 

$

15,803

 

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

 

 

 

 

Depreciation and amortization

 

13,637

 

 

12,723

 

Deferred taxes

 

(312

)

 

(888

)

Stock-based compensation

 

1,982

 

 

1,676

 

Changes in operating assets and liabilities, net of impact of acquisitions:

 

 

 

 

Receivables, net

 

(6,599

)

 

1,131

 

Unbilled receivables, net

 

(4,706

)

 

9,604

 

Inventories, net

 

(23,942

)

 

(34,352

)

Other current assets and noncurrent assets

 

(3,914

)

 

4,227

 

Accounts payable and deferred compensation

 

14,149

 

 

(6,164

)

Accrued expenses and other current and noncurrent liabilities

 

(2,744

)

 

(6,568

)

Long-term lease obligations

 

 

 

(816

)

 

 

 

 

 

Net cash provided by (used in) operating activities

 

4,052

 

 

(3,624

)

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Purchases of property and equipment

 

(6,303

)

 

(1,880

)

Proceeds from the sale of property and equipment

 

4

 

 

46

 

Cash paid for acquisitions, net of cash acquired

 

(112,660

)

 

 

 

 

 

 

 

Net cash used in investing activities

 

(118,959

)

 

(1,834

)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Borrowings on loan agreement

 

300,726

 

 

359,554

 

Repayments on loan agreement

 

(182,516

)

 

(349,534

)

Payment of debt financing costs

 

 

 

(1,692

)

Payments on capital lease obligations

 

 

 

(707

)

Payments of taxes for equity transactions

 

(955

)

 

(641

)

Dividends paid

 

(1,750

)

 

(1,522

)

 

 

 

 

 

Net cash provided by financing activities

 

115,505

 

 

5,458

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

598

 

 

 

Cash and cash equivalents at beginning of period

 

162

 

 

624

 

Cash and cash equivalents at end of period

 

$

760

 

 

$

624

 

 

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