DoD Increases Drive Revenue Growth for the
Year
VSE Corporation (Nasdaq: VSEC) reported the following
consolidated financial results for the three months and twelve
months ended December 31, 2017.
CEO Commentary
“Our Federal Services Group was the primary driver of our
revenue increase in 2017 due to continued growth in our DoD work,”
said Maurice “Mo” Gauthier, VSE CEO. “That said, federal government
budget uncertainties in the fourth quarter of 2017 adversely
affected our contract funding and backlog. Our Supply Chain
Management Group revenues increased for the year and our Aviation
Group revenues increased in the fourth quarter as a result of new
work initiatives."
Mr. Gauthier continued, "Our increase in net income for the year
is due in large part to the enactment of the Tax Cuts and Jobs Act,
which resulted in a reduction in our deferred tax liabilities. We
are better positioned to consider a wider range of strategic
opportunities as we continue to reduce our debt, have increased our
borrowing capacity and will benefit from a reduction in our future
tax rates."
Fourth Quarter and Year-End Results
(in thousands, except per share data)
Three Months
ended December 31, Twelve Months ended December 31, 2017
2016 % Change 2017 2016 % Change
Revenues $194,795 $214,901 (9.4)% $760,113
$691,790 9.9% Operating income $12,887 $13,286
(3.0)% $54,325 $51,529 5.4% Net income $17,357
$7,184 141.6% $39,096 $26,793 45.9% EPS
(Diluted) $1.59 $0.66 140.9% $3.60 $2.47
45.7%
Year-End Highlights
- We recorded a one-time reduction in our
deferred tax liabilities under the Tax Cuts and Jobs Act ("Tax
Act") that lowered our provision for income taxes and
correspondingly increased our net income by approximately $10.6
million for 2017.
- Revenues from our Federal Services
Group increased by 16% for 2017 as compared to 2016. This increase
was the result of a full year of revenue from our equipment
refurbishment services at Red River Army Depot, and increased
revenue from our Foreign Military Sales ("FMS") support contract
with the Naval Sea Systems Command ("NAVSEA").
- Our Supply Chain Management Group sales
to the Department of Defense and commercial customers increased
approximately $9.6 million, or 40% in 2017.
- Our Aviation Group has opened an office
in Singapore to provide supply chain services in support of various
strategic partners, which expands our geographic distribution
footprint and extends new and existing product lines to new clients
and geographic markets.
- Bookings and funded contract backlog in
our Federal Services Group totaled $430 million for 2017 compared
to revenue of $411 million for the same period, resulting in a
book-to-bill ratio of 1.05. Funded contract backlog as of December
31, 2017 was $324 million, compared to $403 million as of September
30, 2017 and $322 million as of December 31, 2016.
- We reduced our bank debt during 2017 by
approximately $43 million and our leverage ratio has declined. In
January 2018 we amended our bank loan agreement to extend the
maturity date on our bank debt and increase our borrowing
capacity.
Financial Information
Revenues were $194.8 million in the fourth quarter of 2017
compared to $214.9 million in the fourth quarter of 2016. This
decline was primarily due to an exceptionally large amount of
services and materials ordered on our FMS contract in the fourth
quarter of 2016. For the full year, revenues were $760.1 million in
2017 compared to $691.8 million in 2016. The full year increase is
primarily due to increased revenue from our Federal Services Group
and our Supply Chain Management Group.
Operating income was $12.9 million in the fourth quarter of 2017
compared to $13.3 million in the fourth quarter of 2016. For the
full year, operating income was $54.3 million in 2017 compared to
$51.5 million in 2016. The increase in full year operating income
resulted primarily from the increase in our Federal Services Group
revenues.
Net income was $17.4 million in the fourth quarter of 2017, or
$1.59 per diluted share, compared to $7.2 million, or $0.66 per
diluted share in the fourth quarter of 2016. Net income was $39.1
million for the full year of 2017, or $3.60 per diluted share,
compared to $26.8 million, or $2.47 per diluted share for the full
year of 2016.
Tax Cuts and Jobs Act
The Tax Act was enacted on December 22, 2017, and is reflected
in our fourth quarter net income and EPS. Our fourth quarter net
income benefited from a reduction in our net deferred tax liability
of $10.6 million due to the lower tax rate under the Tax Act. On an
ongoing basis, our statutory federal income tax rate will be 21%
versus 35%. We expect our net effective tax rate in 2018 and beyond
to be approximately 24% under the Tax Act. The final impact,
however, of the Tax Act may differ materially due to various
factors, including further refinement of our calculations, changes
in interpretations and assumptions that we have made, additional
guidance that may be issued by the U.S. Government, and actions we
may take.
Non-GAAP Financial Information
The non-GAAP Financial Information (unaudited) set forth below
is not calculated in accordance with U.S. generally accepted
accounting principles (GAAP) under SEC Regulation G. These non-GAAP
financial measures consist of EBITDA and Adjusted EBITDA. We
consider these non-GAAP financial measures as important indicators
of performance and useful metrics for management and investors to
evaluate our business' ongoing operating performance on a
consistent basis across reporting periods. These adjusted financial
measures are intended to highlight non-operational, unusual or
non-recurring items. They should not, however, be considered in
isolation or as a substitute for performance measures prepared in
accordance with GAAP.
EBITDA represents net income before interest expense, income
taxes, amortization of intangible assets and depreciation and other
amortization. Adjusted EBITDA represents EBITDA (as defined above)
adjusted for changes in earn-out obligations from acquisitions.
Non-GAAP Financial Information (unaudited)
For the Three-Months and Twelve-Months ended December 31,
($ in thousands)
Three Month Results
Twelve Month Results 2017 2016
% Change 2017 2016 %
Change Net Income $ 17,357 $ 7,184 141.6 % $
39,096 $ 26,793 45.9 % Interest Expense 2,082 2,449 (15.0 )% 9,240
9,855 (6.2 )% Income Taxes (6,552 ) 3,653 (279.4 )% 5,989 14,881
(59.8 )% Amortization of Intangible Assets 4,004 4,004 — % 16,017
16,067 (0.3 )% Depreciation and Other Amortization 2,294
2,527 (9.2 )% 9,865 9,979 (1.1
)% EBITDA 19,185 19,817 (3.2 )% 80,207 77,575 3.4 % Earn-Out
Adjustments (Income)/Expense — — —
(1,329 ) Adjusted EBITDA $ 19,185
$ 19,817 (3.2 )% $ 80,207 $ 76,246
5.2 %
EBITDA was approximately $19.2 million for the fourth quarter of
2017 and approximately $80.2 million for 2017, compared to
approximately $19.8 million for the fourth quarter of 2016 and
approximately $77.6 million for 2016. Adjusted EBITDA was
approximately $19.2 million for the fourth quarter of 2017 and
approximately $80.2 million for 2017, compared to approximately
$19.8 million for the fourth quarter of 2016 and approximately
$76.2 million for 2016.
Capital Expenditures
Capital expenditures were $3.3 million for 2017, compared to
$7.4 million for 2016. The higher capital expenditures in 2016 were
primarily attributable to the purchase of property and equipment
related to our Supply Chain Management Group.
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 our 2017 Form 10-K 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.
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version on businesswire.com: http://www.businesswire.com/news/home/20180301006669/en/
VSE Investor RelationsChristine Kaineg, 703-329-3263
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