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| 8-K - VSE 8-K Q2 2018 EARNINGS RELEASE - VSE CORP | vse-prxq22018form8xk.htm |
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 | ||||