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| 8-K - VSE CORPORATION FORM 8-K - Q2 2017 EARNINGS RELEASE - VSE CORP | vse-prxq22017form8xk.htm |
VSE Reports Financial Results for Second Quarter 2017
Federal Services Group Drives Increases in Revenue and Operating Income
Alexandria, Virginia, July 27, 2017 - VSE Corporation (Nasdaq: VSEC) reported the following unaudited consolidated financial results for the second quarter of 2017.
CEO Commentary
“Revenue contributions from our Federal Services and Supply Chain Management groups have increased our consolidated revenue and operating income as compared to the second quarter of 2016,” said Maurice “Mo” Gauthier, VSE CEO. “Our NAVSEA Foreign Military Sales work and our equipment and logistics support for the U.S. Army continue to be the primary drivers behind our revenue and operating income increases. Our Supply Chain Management Group has made progress expanding into new commercial markets, and we are directing resources and management efforts toward these initiatives. Additionally, we have reduced our bank debt and leverage ratio this quarter.”
Second Quarter Results (unaudited)
(in thousands, except per share data) | ||||||||||||||||||||||
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||
2017 | 2016 | % Change | 2017 | 2016 | % Change | |||||||||||||||||
Revenues | $ | 193,860 | $ | 160,473 | 20.8 | % | $ | 391,154 | $ | 304,109 | 28.6 | % | ||||||||||
Operating income | $ | 15,005 | $ | 11,879 | 26.3 | % | $ | 29,201 | $ | 24,620 | 18.6 | % | ||||||||||
Net income | $ | 7,807 | $ | 5,969 | 30.8 | % | $ | 15,100 | $ | 12,521 | 20.6 | % | ||||||||||
EPS (Diluted)* | $ | 0.72 | $ | 0.55 | 30.9 | % | $ | 1.39 | $ | 1.16 | 19.8 | % | ||||||||||
*EPS amounts have been adjusted for all periods to reflect the two-for-one stock split that occurred on August 3, 2016
Operational Highlights
• | Revenue on our Foreign Military Sales (FMS) Program for the first six months of 2017 increased 72% year over year, primarily resulting from the transfer of two frigates to Taiwan completed in March 2017. Revenue also increased from our equipment sustainment, refurbishment, logistics support, and parts supply services for our U.S. Army clients. |
• | Our Federal Services Group was awarded a task order under the United States Air Force Contract Field Teams (CFT) Indefinite Delivery/Indefinite Quantity (ID/IQ) contract, supporting the 18th Equipment Maintenance Squadron at Kadena Air Base in Japan. The task order consists of a one year base period of performance with two one-year option periods and a total value of $22.3 million. |
• | Our Federal Services Group was awarded a task order to continue providing support services to the U.S. Army Reserve Command (USARC) for its Equipment, Engineering, Maintenance and Logistics Readiness Program. The task order consists of a one-year base period of performance and two one-year option periods, with a total value of $17.8 million. |
• | Our Federal Services Group was awarded several delivery orders during the second quarter of 2017 under our FMS support contract with the Naval Sea Systems Command (NAVSEA) International Fleet Support Program Office totaling $14.9 million. |
• | Bookings in our Federal Services Group were $281 million for the first six months of 2017 compared to revenue for this group of $214 million. Funded contract backlog at June 30, 2017 was $386 million, compared to $359 million at March 31, 2017 and $294 million at June 30, 2016. |
Financial Information
Revenues were $193.9 million in the second quarter of 2017 compared to $160.5 million in the second quarter of 2016. For the first six months, revenues were $391.2 million in 2017 compared to $304.1 million in 2016. These increases were primarily due to increased revenue from our Federal Services Group. Increased revenues from our Supply Chain Management Group also contributed to revenue growth in the second quarter.
Operating income was $15.0 million for the second quarter of 2017 compared to $11.9 million in the second quarter of 2016. For the first six months, operating income was $29.2 million in 2017 compared to $24.6 million in 2016. The operating income increase was primarily attributable to revenue increases in our Federal Services Group.
Net income was $7.8 million for the second quarter of 2017, or $0.72 per diluted share, compared to $6.0 million, or $0.55 per diluted share for the second quarter of 2016. Net income was $15.1 million for the first six months of 2017, or $1.39 per diluted share, compared to $12.5 million, or $1.16 per diluted share for the first six months of 2016.
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 changes in earn-out obligations from acquisitions.
Non-GAAP Financial Information (unaudited)
(in thousands) | Three Month Results | Six Month Results | |||||||||||||||||||||
2017 | 2016 | % Change | 2017 | 2016 | % Change | ||||||||||||||||||
Net Income | $ | 7,807 | $ | 5,969 | 31 | % | $ | 15,100 | $ | 12,521 | 21 | % | |||||||||||
Interest Expense | 2,376 | 2,400 | (1 | )% | 4,811 | 4,897 | (2 | )% | |||||||||||||||
Income Taxes | 4,822 | 3,510 | 37 | % | 9,290 | 7,202 | 29 | % | |||||||||||||||
Amortization of Intangible Assets | 4,004 | 4,021 | 0 | % | 8,008 | 8,041 | 0 | % | |||||||||||||||
Depreciation and Other Amortization | 2,489 | 2,673 | (7 | )% | 5,196 | 4,894 | 6 | % | |||||||||||||||
EBITDA | 21,498 | 18,573 | 16 | % | 42,405 | 37,555 | 13 | % | |||||||||||||||
Earn-Out Adjustments Expense (Income) | — | 55 | — | (1,329 | ) | ||||||||||||||||||
Adjusted EBITDA | $ | 21,498 | $ | 18,628 | 15 | % | $ | 42,405 | $ | 36,226 | 17 | % | |||||||||||
Capital Expenditures
Purchases of property and equipment totaled $1.3 million for the first six months of 2017 compared to $4.2 million for the first six months of 2016.
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 VSE's Form 10-Q that will be filed with the Securities and Exchange Commission (SEC) on or about July 27, 2017 for more details on our 2017 second quarter results. Also, refer to VSE’s Annual Report on Form 10-K for the year ended December 31, 2016 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, 2017 | December 31, 2016 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 717 | $ | 428 | |||
Receivables, net | 80,945 | 101,218 | |||||
Inventories, net | 135,812 | 136,340 | |||||
Other current assets | 10,932 | 20,477 | |||||
Total current assets | 228,406 | 258,463 | |||||
Property and equipment, net | 58,202 | 62,061 | |||||
Intangible assets, net | 118,917 | 126,926 | |||||
Goodwill | 198,622 | 198,622 | |||||
Other assets | 15,699 | 15,767 | |||||
Total assets | $ | 619,846 | $ | 661,839 | |||
Liabilities and Stockholders' equity | |||||||
Current liabilities: | |||||||
Current portion of long-term debt | $ | 23,835 | $ | 21,023 | |||
Accounts payable | 51,932 | 93,999 | |||||
Accrued expenses and other current liabilities | 31,638 | 32,772 | |||||
Dividends payable | 759 | 648 | |||||
Total current liabilities | 108,164 | 148,442 | |||||
Long-term debt, less current portion | 175,609 | 193,621 | |||||
Deferred compensation | 15,307 | 12,751 | |||||
Long-term lease obligations, less current portion | 21,292 | 21,959 | |||||
Deferred tax liabilities | 28,941 | 29,872 | |||||
Total liabilities | 349,313 | 406,645 | |||||
Commitments and contingencies | |||||||
Stockholders' equity: | |||||||
Common stock, par value $0.05 per share, authorized 15,000,000 shares; issued and outstanding 10,838,435 and 10,798,927, respectively | 542 | 540 | |||||
Additional paid-in capital | 24,455 | 22,876 | |||||
Retained earnings | 245,422 | 231,733 | |||||
Accumulated other comprehensive loss | 114 | 45 | |||||
Total stockholders' equity | 270,533 | 255,194 | |||||
Total liabilities and stockholders' equity | $ | 619,846 | $ | 661,839 | |||
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, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenues: | ||||||||||||||||
Products | $ | 89,254 | $ | 81,994 | $ | 178,271 | $ | 167,265 | ||||||||
Services | 104,606 | 78,479 | 212,883 | 136,844 | ||||||||||||
Total revenues | 193,860 | 160,473 | 391,154 | 304,109 | ||||||||||||
Costs and operating expenses: | ||||||||||||||||
Products | 74,222 | 66,827 | 148,928 | 136,117 | ||||||||||||
Services | 100,150 | 75,606 | 204,094 | 131,810 | ||||||||||||
Selling, general and administrative expenses | 479 | 2,140 | 923 | 3,521 | ||||||||||||
Amortization of intangible assets | 4,004 | 4,021 | 8,008 | 8,041 | ||||||||||||
Total costs and operating expenses | 178,855 | 148,594 | 361,953 | 279,489 | ||||||||||||
Operating income | 15,005 | 11,879 | 29,201 | 24,620 | ||||||||||||
Interest expense, net | 2,376 | 2,400 | 4,811 | 4,897 | ||||||||||||
Income before income taxes | 12,629 | 9,479 | 24,390 | 19,723 | ||||||||||||
Provision for income taxes | 4,822 | 3,510 | 9,290 | 7,202 | ||||||||||||
Net income | $ | 7,807 | $ | 5,969 | $ | 15,100 | $ | 12,521 | ||||||||
Basic earnings per share | $ | 0.72 | $ | 0.56 | $ | 1.39 | $ | 1.16 | ||||||||
Basic weighted average shares outstanding | 10,838,435 | 10,798,684 | 10,830,595 | 10,788,691 | ||||||||||||
Diluted earnings per share | $ | 0.72 | $ | 0.55 | $ | 1.39 | $ | 1.16 | ||||||||
Diluted weighted average shares outstanding | 10,861,769 | 10,826,490 | 10,855,632 | 10,816,507 | ||||||||||||
Dividends declared per share | $ | 0.070 | $ | 0.060 | $ | 0.130 | $ | 0.115 | ||||||||
VSE Corporation and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
(in thousands)
For the six months ended June 30, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 15,100 | $ | 12,521 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 13,204 | 12,935 | ||||||
Deferred taxes | (974 | ) | (1,161 | ) | ||||
Stock-based compensation | 1,464 | 1,361 | ||||||
Earn-out obligation adjustment | — | (1,329 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Receivables, net | 20,273 | (12,547 | ) | |||||
Inventories, net | 528 | (8,250 | ) | |||||
Other current assets and noncurrent assets | 9,725 | (5,762 | ) | |||||
Accounts payable and deferred compensation | (39,511 | ) | 15,474 | |||||
Accrued expenses and other current liabilities | (105 | ) | 2,492 | |||||
Long-term lease obligations | (667 | ) | (619 | ) | ||||
Net cash provided by operating activities | 19,037 | 15,115 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (1,252 | ) | (4,224 | ) | ||||
Proceeds from the sale of property and equipment | 400 | 28 | ||||||
Net cash used in investing activities | (852 | ) | (4,196 | ) | ||||
Cash flows from financing activities: | ||||||||
Borrowings on loan agreement | 181,673 | 133,279 | ||||||
Repayments on loan agreement | (197,142 | ) | (134,012 | ) | ||||
Earn-out obligation payments | — | (8,015 | ) | |||||
Payments on capital lease obligations | (627 | ) | (546 | ) | ||||
Payments of taxes for equity transactions | (500 | ) | (499 | ) | ||||
Dividends paid | (1,300 | ) | (1,186 | ) | ||||
Net cash used in financing activities | (17,896 | ) | (10,979 | ) | ||||
Net increase (decrease) in cash and cash equivalents | 289 | (60 | ) | |||||
Cash and cash equivalents at beginning of period | 428 | 740 | ||||||
Cash and cash equivalents at end of period | $ | 717 | $ | 680 | ||||