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VSE Reports Financial Results for Third Quarter 2017

Revenues Flat for Third Quarter and Up 19% Year-to-Date & Strong Cash Flows Result in Reduction of Bank Debt for Third Quarter

ALEXANDRIA, Va.--(BUSINESS WIRE)-- VSE Corporation (Nasdaq: VSEC) reported the following unaudited consolidated financial results for the third quarter of 2017.

CEO Commentary

“Revenue from our Federal Services Group increased 36% for the first nine months of 2017, primarily attributable to our Navy Foreign Military Sales (FMS) program and our U.S. Army clients," said Maurice “Mo” Gauthier, VSE CEO. "Our Supply Chain Management Group also has contributed to our revenue increases year-to-date, driven by growth of parts sales for the DoD and commercial vehicle fleets. Our commercial client base now includes companies in food distribution, oil field services, waste management, linen and uniform, commercial long haul shipping, bus transportation, and other clients that have vehicle fleets required to meet mission critical delivery or service schedules. Our Aviation Group had a challenging third quarter. We have launched initiatives to expand our geographic distribution footprint and strengthen our international business development efforts to boost revenues in this group."

Mr. Gauthier continued, "Our success in 2017 has enabled us to reduce our bank debt during the second and third quarters by an aggregate amount of approximately $35 million.”

Third Quarter Results (unaudited)

(in thousands, except per share data)

Three months ended
September 30,

Nine months ended
September 30,

2017 2016 % Change 2017 2016 % Change
Revenues $ 174,164 $ 172,780

0.8%

$ 565,318 $ 476,889 18.5%
Operating income $ 12,237 $ 13,623 (10.2)% $ 41,438 $ 38,243 8.4%
Net income $ 6,639 $ 7,088 (6.3)% $ 21,739 $ 19,609 10.9%
EPS (Diluted) $ 0.61 $ 0.65 (6.2)% $ 2.00 $ 1.81 10.5%

Operational Highlights

  • Our Federal Services Group was awarded several delivery orders during the third quarter of 2017 under our Foreign Military Sales (FMS) support contract by the Naval Sea Systems Command (NAVSEA) International Fleet Support Program Office totaling approximately $93 million, as previously reported.
  • Revenue from our equipment sustainment, refurbishment, logistics support, and parts supply services for our U.S. Army clients for the first nine months of 2017 increased 55% year over year.
  • Our Supply Chain Management Group has increased parts sales to DoD and other government agencies by 83%, and revenue from commercial customers has increased 25% for the first nine months of 2017.
  • Bookings in our Federal Services Group were $398 million for the first nine months of 2017 compared to revenue for this group of $306 million. Funded contract backlog at September 30, 2017 was $403 million, compared to $386 million at June 30, 2017 and $400 million at September 30, 2016.

Financial Information

Revenues were $174.2 million in the third quarter of 2017 compared to $172.8 million in the third quarter of 2016. For the first nine months, revenues were $565.3 million in 2017 compared to $476.9 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 for the first nine months of 2017.

Operating income was $12.2 million for the third quarter of 2017 compared to $13.6 million in the third quarter of 2016. For the first nine months, operating income was $41.4 million in 2017 compared to $38.2 million in 2016, primarily attributable to revenue increases in our Federal Services Group. Our 2017 operating results were adversely affected by one contract in our Federal Services Group that reduced operating income by approximately $1.2 million for the third quarter and $1.6 million for the first nine months of 2017. We expect no further loss on this contract prior to its expected completion in the fourth quarter of 2017.

Net income was $6.6 million for the third quarter of 2017, or $0.61 per diluted share, compared to $7.1 million, or $0.65 per diluted share for the third quarter of 2016. Net income was $21.7 million for the first nine months of 2017, or $2.00 per diluted share, compared to $19.6 million, or $1.81 per diluted share for the first nine 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 Nine Month Results
2017 2016 % Change 2017 2016 % Change
Net Income $ 6,639 $ 7,088 (6)% $ 21,739 $ 19,609 11%
Interest Expense 2,347 2,509 (6)% 7,158 7,406 (3)%
Income Taxes 3,251 4,026 (19)% 12,541 11,228 12%
Amortization of Intangible Assets 4,005 4,022 0% 12,013 12,063 0%
Depreciation and Other Amortization 2,375 2,558 (7)% 7,571 7,452 2%
EBITDA 18,617 20,203 (8)% 61,022 57,758 6%
Earn-Out Adjustments Income (1,329 )
Adjusted EBITDA $ 18,617 $ 20,203 (8)% $ 61,022 $ 56,429 8%

Capital Expenditures

Purchases of property and equipment totaled $2.4 million for the first nine months of 2017 compared to $5.4 million for the first nine 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 October 27, 2017 for more details on our 2017 third 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 Corporation and Subsidiaries

Unaudited Consolidated Balance Sheets

(in thousands except share and per share amounts)

September 30,
2017

December 31,
2016

Assets
Current assets:
Cash and cash equivalents $ 472 $ 428
Receivables, net 72,874 101,218
Inventories, net 135,525 136,340
Other current assets 24,376 20,477
Total current assets 233,247 258,463
Property and equipment, net 56,857 62,061
Intangible assets, net 114,913 126,926
Goodwill 198,622 198,622
Other assets 15,405 15,767
Total assets $ 619,044 $ 661,839
Liabilities and Stockholders' equity
Current liabilities:
Current portion of long-term debt $ 25,710 $ 21,023
Accounts payable 48,560 93,999
Accrued expenses and other current liabilities 47,852 32,772
Dividends payable 648
Total current liabilities 122,122 148,442
Long-term debt, less current portion 155,083 193,621
Deferred compensation 15,749 12,751
Long-term lease obligations, less current portion 20,917 21,959
Deferred tax liabilities 27,981 29,872
Total liabilities 341,852 406,645
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 252,061 231,733
Accumulated other comprehensive loss 134 45
Total stockholders' equity 277,192 255,194
Total liabilities and stockholders' equity $ 619,044 $ 661,839

VSE Corporation and Subsidiaries

Unaudited Consolidated Statements of Income

(in thousands except share and per share amounts)

For the three months
ended September 30,

For the nine months
ended September 30,

2017 2016 2017 2016
Revenues:
Products $ 82,314 $ 87,060 $ 260,585 $ 254,325
Services 91,850 85,720 304,733 222,564
Total revenues 174,164 172,780 565,318 476,889
Costs and operating expenses:
Products 68,678 70,884 217,606 207,001
Services 88,989 83,599 293,083 215,409
Selling, general and administrative expenses 255 652 1,178 4,173
Amortization of intangible assets 4,005 4,022 12,013 12,063
Total costs and operating expenses 161,927 159,157 523,880 438,646
Operating income 12,237 13,623 41,438 38,243
Interest expense, net 2,347 2,509 7,158 7,406
Income before income taxes 9,890 11,114 34,280 30,837
Provision for income taxes 3,251 4,026 12,541 11,228
Net income $ 6,639 $ 7,088 $ 21,739 $ 19,609
Basic earnings per share $ 0.61 $ 0.66 $ 2.01 $ 1.82
Basic weighted average shares outstanding 10,838,435 10,798,684 10,833,237 10,792,046
Diluted earnings per share $ 0.61 $ 0.65 $ 2.00 $ 1.81
Diluted weighted average shares outstanding 10,856,675 10,826,007 10,855,983 10,819,697
Dividends declared per share $ $ $ 0.130 $ 0.115

VSE Corporation and Subsidiaries

Unaudited Consolidated Statements of Cash Flows

(in thousands)

For the nine months ended
September 30,

2017 2016
Cash flows from operating activities:
Net income $ 21,739 $ 19,609
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 19,584 19,515
Deferred taxes (1,947 ) (3,047 )
Stock-based compensation 1,935 1,747
Earn-out obligation adjustment (1,329 )
Changes in operating assets and liabilities:
Receivables, net 28,344 (7,636 )
Inventories, net 815 (19,812 )
Other current assets and noncurrent assets (3,392 ) (8,015 )
Accounts payable and deferred compensation (42,441 ) 19,651
Accrued expenses and other current liabilities 15,916 8,639
Long-term lease obligations (1,042 ) (930 )
Net cash provided by operating activities 39,511 28,392
Cash flows from investing activities:
Purchases of property and equipment (2,387 ) (5,438 )
Proceeds from the sale of property and equipment 689 74
Cash paid for acquisitions, net of cash acquired (63 )
Net cash used in investing activities (1,698 ) (5,427 )
Cash flows from financing activities:
Borrowings on loan agreement 258,657 231,139
Repayments on loan agreement (292,913 ) (232,608 )
Earn-out obligation payments (18,515 )
Payments on capital lease obligations (954 ) (835 )
Payments of taxes for equity transactions (500 ) (499 )
Dividends paid (2,059 ) (1,834 )
Net cash used in financing activities (37,769 ) (23,152 )
Net increase (decrease) in cash and cash equivalents 44 (187 )
Cash and cash equivalents at beginning of period 428 740
Cash and cash equivalents at end of period $ 472 $ 553

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

Source: VSE Corporation