VSE Reports Financial Results for Third Quarter 2015

Third Quarter Revenue and Profit Improve

ALEXANDRIA, Va.--()--VSE Corporation (Nasdaq: VSEC) reported the following unaudited consolidated financial results for its third fiscal quarter ended September 30, 2015.

       
(in thousands, except per share data)
 
Third Quarter Results Nine Month Results
2015   2014   % Change 2015   2014   % Change
Revenues $137,396   $101,749   35.0% $389,313   $329,120   18.3%
Operating income $13,243   $7,183   84.4% $35,423   $29,243   21.1%
Net income $6,474   $3,883   66.7% $17,173   $15,202   13.0%
EPS (Diluted) $1.20   $0.72   66.7% $3.19   $2.83   12.7%
 

“Our improved operating results this quarter are a result of the execution of our long term strategy to expand our logistics services and product offerings to a more diverse customer base,” said Maurice “Mo” Gauthier, VSE CEO. “The successful performance of our Supply Chain Management Group and the inclusion of our aviation maintenance, repair and overhaul (MRO) and parts supply and distribution businesses acquired on January 28, 2015 (Aviation Group) are the primary drivers behind our revenue and profit growth in 2015. We have also increased bookings in our Federal Government markets in September to provide further momentum going forward. Overall, we have experienced modest organic revenue growth on a quarterly basis compared to the same quarter of the previous year.”

Revenues were $137 million in the third quarter of 2015 compared to $102 million in the third quarter of 2014. For the first nine months, revenues were $389 million in 2015 compared to $329 million in 2014. The increases were primarily due to the addition of commercial revenue from our Aviation Group and increases from our Supply Chain Management Group.

Operating income was $13.2 million for the third quarter of 2015 compared to $7.2 million in the third quarter of 2014. For the first nine months, operating income was $35 million in 2015 compared to $29 million in 2014. The increases in operating income were primarily attributable to the increases in our revenues. Differences in the amount of expense related to adjustments to earn-out obligations associated with our Wheeler Bros., Inc. and Aviation Group acquisitions also contributed to the operating income increases. Earn-out obligation expense for 2015 was approximately $508 thousand for the third quarter and $1 million for the nine months, compared to approximately $2 million for the third quarter and $2.8 million for the nine months for 2014.

Net income was $6.5 million for the third quarter of 2015, or $1.20 per diluted share, compared to $3.9 million, or $0.72 per diluted share for the third quarter of 2014. Net income was $17.2 million for the first nine months of 2015, or $3.19 per diluted share, compared to $15.2 million, or $2.83 per diluted share for the first nine months of 2014.

Net cash provided by operating activities was $18.5 million for the first nine months of 2015, compared to $3.9 million for the first six months of 2015. The $14.6 million of cash from operating activities in the third quarter was used primarily to make our final earn-out payment of approximately $10 million related to our Wheeler Bros., Inc. acquisition and an earn-out payment of $5 million related to our Aviation Group acquisition.

Our disclosure relative to bookings and funded contract backlog include only our Federal Services and IT, Energy and Management Consulting groups. Bookings were $184 million for the first nine months of 2015 compared to revenue of $157 million for the same period. Funded contract backlog at September 30, 2015 was $214 million, compared to $176 million at June 30, 2015 and $192 million at September 30, 2014.

Non-GAAP Financial Information (Unaudited)

           
For the third quarter and nine-month periods ended September 30, 2015
(in thousands)
Third Quarter Results   Nine Month Results
2015   2014   % Change   2015   2014   % Change
Net Income $ 6,474 $ 3,883 67 % $ 17,173 $ 15,202 13 %
Interest Expense 2,441 871 180 % 7,001 3,158 122 %
Income Taxes 4,328 2,425 78 % 11,249 9,985 13 %
Depreciation and Amortization (1)   6,437     4,720   36 %     19,215     14,274   35 %
EBITDA 19,680 11,899 65 % 54,638 42,619 28 %
Earn Out Adjustments Expense 508 1,971 -74 % 1,035 2,758 -62 %
Acquisition Transaction Costs   75     277   -73 %     488     277   76 %
Adjusted EBITDA $ 20,263   $ 14,147   43 %   $ 56,161   $ 45,654   23 %
 
 
(1) Amortization Expense from Acquisitions Included Above $ 4,162 $ 2,628 58 % $ 12,280 $ 7,885 56 %
 

EBITDA was $19.7 million for the third quarter and $54.6 million for the first nine months of 2015, compared to $11.9 million for the third quarter and $42.6 for the first nine months of 2014. Adjusted EBITDA was approximately $20.3 million for the third quarter and approximately $56.2 for the first nine months of 2015, compared to approximately $14.1 million for the third quarter and approximately $45.7 million for the first nine months of 2014.

Third Quarter Operational Highlights

  • Revenues from our Supply Chain Management Group, which provides supply chain support for truck fleets, increased by 13% for the first nine months of 2015 as compared to the same period of 2014.
  • Our combined Federal Services and IT, Management and Consulting groups had increased bookings in the third quarter, resulting in a book to bill of approximately 1.2 for the first nine months of 2015. The book to bill is a ratio of the bookings of $184 million divided by the revenues of $157 million for the nine-month period.
  • Our Federal Services Group was recently awarded a Firm Fixed Price (FFP) task order under its SeaPort-e contract vehicle to provide technical, maintenance and test support to the U.S. Marine Corps Systems Command in Quantico, VA. This task order has a period of performance that includes a six-month base period and four one-year options with a total value of $37 million. This award represents an increase in contract value, scope, and capabilities to work currently performed by VSE.
  • In September, our Federal Services Group received several delivery orders totaling more than $27.9 million to continue work under its Foreign Military Sales (FMS) Naval Ship Transfer and Repair (N*STAR) contract through the Naval Sea Systems Command (NAVSEA) International Fleet Support Program.
  • Our Energetics subsidiary was awarded two subcontracts through the U.S. Department of Energy (DOE) National Nuclear Security Administration (NNSA) Technical, Engineering & Programmatic Support Services Blanket Purchase Agreement. The two task order awards consist of technical and program management support for DOE Office of International Affairs and for the DOE Office of Energy Policy and Systems Analysis. The task orders have a three-year period of performance and a total combined estimated value to Energetics of $7 million.

About VSE

Established in 1959, VSE is a diversified logistics and services company with experience in solving issues of global significance 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, program management, 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 Annual Report on Form 10-K for the year ended December 31, 2014 and subsequent reports filed with the Securities and Exchange Commission (“SEC”) 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 specific 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.

Non-GAAP Financial Information

This earnings release contains financial measures above under the caption “Non-GAAP Financial Information” that are not calculated in accordance with U.S. generally accepted accounting principles ("GAAP") under SEC Regulation G, including EBITDA and Adjusted EBITDA. EBITDA represents net income before net interest, income taxes and depreciation and amortization. Adjusted EBITDA represents EBITDA, as defined above, adjusted for earn-out expenses and other transaction costs associated with acquisitions. VSE prepares adjusted financial measures to eliminate the impact of items it does not consider indicative of ongoing operating performance due to their inherent unusual, extraordinary or non-recurring nature.

We have included a discussion on EBITDA and Adjusted EBITDA in this press release, which are non-GAAP financial measures. We believe that these supplemental performance measures provide another basis for comparing period to period results by excluding potential differences caused by non-operational and unusual or non-recurring items. EBITDA and Adjusted EBITDA are not measures of financial performance under GAAP and should not be considered as an alternative to any other performance measure derived in accordance with GAAP. This information is not audited.

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)
 
 
September 30, December 31,
  2015     2014  
Assets
Current assets:
Cash and cash equivalents $ 194 $ 263
Receivables 75,762 59,391
Inventories 113,728 49,363
Deferred tax assets 4,897 1,834
Other current assets   10,635     11,517  
Total current assets 205,216 122,368
 
Property and equipment, net 65,237 52,911
Intangible assets, net 153,640 72,209
Goodwill 184,384 92,052
Other assets   16,212     15,790  
Total assets $ 624,689   $ 355,330  
 
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt $ 16,620 $ 24,837
Accounts payable 36,677 29,424
Current portion of earn-out obligation 9,038 9,455
Accrued expenses and other current liabilities 26,101 23,245
Dividends payable   -     536  
Total current liabilities 88,436 87,497
 
Long-term debt, less current portion 228,214 23,563
Deferred compensation 10,905 12,563
Long-term lease obligations, less current portion 23,635 24,584
Earn-out obligation, less current portion 12,576 -
Deferred income taxes   38,767     1,634  
Total liabilities   402,533     149,841  
 
Commitments and contingencies
 
Stockholders’ equity:
Common stock, par value $0.05 per share, authorized 15,000,000 shares; issued and outstanding 5,374,863 and 5,358,261 respectively 269 268
Additional paid-in capital 21,597 20,348
Retained earnings 200,916 184,873
Accumulated other comprehensive loss   (626 )   -  
Total stockholders’ equity   222,156     205,489  
Total liabilities and stockholders’ equity $ 624,689   $ 355,330  
 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
           
VSE Corporation and Subsidiaries
 
Unaudited Consolidated Statements of Income          
(in thousands except share and per share amounts)
 
For the three months For the nine months
ended September 30, ended September 30,
  2015     2014     2015     2014  
 
Revenues:
Products $ 83,644 $ 44,567 $ 233,603 $ 127,550
Services   53,752     57,182     155,710     201,570  
Total revenues 137,396 101,749 389,313 329,120
 
Contract costs:
Products 72,371 36,440 200,531 103,223
Services   51,281     56,948     150,741     194,257  
Total contract costs 123,652 93,388 351,272 297,480
 
Selling, general and administrative expenses   501     1,178     2,618     2,397  
 
Operating income 13,243 7,183 35,423 29,243
 
Interest expense, net   2,441     871     7,001     3,158  
 
Income before income taxes 10,802 6,312 28,422 26,085
 
Provision for income taxes   4,328     2,425     11,249     9,985  
 
Income from continuing operations 6,474 3,887 17,173 16,100
 
Loss from discontinued operations, net of tax   -     (4 )   -     (898 )
 
Net income $ 6,474   $ 3,883   $ 17,173   $ 15,202  
 
Basic earnings per share:
Income from continuing operations $ 1.20 $ 0.73 $ 3.20 $ 3.01
Loss income from discontinued operations   -     -     -     (0.17 )
Net income $ 1.20   $ 0.73   $ 3.20   $ 2.84  
 
Basic weighted average shares outstanding   5,374,863     5,355,968     5,373,159     5,353,065  
 
Diluted earnings per share:
Income from continuing operations $ 1.20 $ 0.72 $ 3.19 $ 3.00
Loss from discontinued operations   -     -     -     (0.17 )
Net income $ 1.20   $ 0.72   $ 3.19   $ 2.83  
 
Diluted weighted average shares outstanding   5,396,174   5,371,995     5,389,129   5,368,224  
 
Dividends declared per share $ - $ -   $ 0.21 $ 0.19  
 
 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

   
VSE Corporation and Subsidiaries
 
Unaudited Consolidated Statements of Cash Flows    
(in thousands)
 
For the nine months
ended September 30,
  2015     2014  
Cash flows from operating activities:
Net income $ 17,173 $ 15,202

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

Depreciation and amortization 19,215 14,274
Deferred taxes (1,400 ) 2,551
Stock-based compensation 1,698 1,610
Earn-out obligation adjustment 1,035 2,758
Changes in operating assets and liabilities, net of impact of acquisition:
Receivables, net (5,267 ) 14,548
Inventories (8,821 ) (7,672 )
Other current assets and noncurrent assets 4,110 (2,560 )
Accounts payable and deferred compensation (3,235 ) 2,429
Accrued expenses and other current liabilities (1,811 ) (2,587 )
Earn-out obligation (3,269 ) -
Long-term lease obligations   (926 )   (835 )
 
Net cash provided by operating activities   18,502     39,718  
 
Cash flows from investing activities:
Purchases of property and equipment (7,819 ) (2,725 )
Proceeds from the sale of property and equipment 273 -
Cash paid for acquisitions, net of cash acquired   (191,181 )   -  
 
Net cash used in investing activities   (198,727 )   (2,725 )
 
Cash flows from financing activities:
Borrowings on loan arrangement 435,377 210,552
Repayments on loan arrangement (238,071 ) (243,023 )
Earn-out obligation payments (11,713 ) (1,972 )
Payment of debt financing costs (2,699 ) -
Payments on capital lease obligations (730 ) (629 )
Payments of taxes for equity transactions (342 ) (314 )
Dividends paid   (1,666 )   (1,499 )
 
Net cash provided by (used in) financing activities   180,156     (36,885 )
 
 
Net (decrease) increase in cash and cash equivalents (69 ) 108
Cash and cash equivalents at beginning of period   263     220  
Cash and cash equivalents at end of period $ 194   $ 328  
 
 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Contacts

VSE Financial News Contact:
Christine Kaineg, 703-329-3263

Contacts

VSE Financial News Contact:
Christine Kaineg, 703-329-3263