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
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190730006009/en/
VSE Financial News Contact: Christine Kaineg -- (703)
329-3263.
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