Revenue Decline in Federal Services Group
Partially Offset by Revenue Increase in Aviation Group
VSE Corporation (Nasdaq: VSEC) reported the following
consolidated financial results for the three months and twelve
months ended December 31, 2018.
CEO Commentary
“Our lower revenues in 2018 resulted from a reduction of work in
our Federal Services Group’s U.S. Navy Foreign Military Sales (FMS)
and our U.S. Army programs,” said Maurice “Mo” Gauthier, VSE's CEO
and President. “Our Aviation Group’s revenue increased
approximately 8%, led by our Singapore operation. Our acquisition
of 1st Choice Aerospace in January 2019 is expected to provide us
with sustainable revenue sources and viable growth potential for
our Aviation Group. We expect this acquisition to be accretive to
earnings in 2019. Our Supply Chain Management Group revenues
remained steady, with decreases in USPS sales offset by increased
sales to Department of Defense and commercial customers.”
Mr. Gauthier continued, “Despite the revenue decline, our
operating income was relatively consistent with the prior year,
primarily due to the increase in operating income provided by our
Aviation Group and increased margins in our Federal Services
Group.” Mr. Gauthier added, “We continue to diversify our business
to reduce our concentration of revenue through organic growth
initiatives and strategic acquisitions."
Fourth Quarter and Year-End Results
(in thousands, except per share data)
Three Months ended
December 31, Twelve Months ended December 31,
2018 2017 % Change 2018 2017 % Change
Revenues $180,996 $194,795 (7.1 )% $697,218
$760,113 (8.3 )% Operating income $13,085 $12,887
1.5 % $54,230 $54,325 (0.2 )% Net income
$9,243 $17,357 (46.7 )% $35,080 $39,096
(10.3 )% EPS (Diluted) $0.84 $1.59 (47.2 )% $3.21
$3.60 (10.8 )%
The Tax Cuts and Jobs Act enacted in December 2017 resulted in a
one-time reduction in our deferred tax liabilities that lowered our
provision for income taxes and correspondingly increased our net
income by approximately $10.6 million, or $0.97 cents per share,
for the fourth quarter and full year for 2017. The Tax Cuts and
Jobs Act also lowered our federal income tax rate from 35% to 21%
for 2018, which benefited our net income in 2018.
Year-End Highlights
- Operating Income from our Aviation
Group increased by 14% for 2018 as compared to 2017. This increase
was the result of an increase in revenues, including sales from our
Singapore operation.
- In January 2019, we acquired 1st Choice
Aerospace, a privately owned aviation company with operations in
Florida and Kentucky that provides component maintenance, repair
and overhaul (MRO) services and products for new generation and
legacy commercial aircraft. The initial purchase price paid at
closing was $112 million in cash. In addition, post-closing
payments for the acquisition of up to $40 million will be payable
if 1st Choice Aerospace surpasses certain performance thresholds
during 2019 and 2020.
- Our Supply Chain Management Group sales
to the Department of Defense and commercial customers increased
approximately $5.3 million in 2018, or 16%.
- In the fourth quarter of 2018, our free
cash flow was $14.8 million and we reduced our bank debt by $14.4
million.
Financial Information
Revenues were $181.0 million in the fourth quarter of 2018
compared to $194.8 million in the fourth quarter of 2017. For the
full year, revenues were $697.2 million in 2018 compared to $760.1
million in 2017. This decline was primarily due to declines in work
on our FMS contract and U.S. Army programs.
Operating income was $13.1 million in the fourth quarter of 2018
compared to $12.9 million in the fourth quarter of 2017. For the
full year, operating income was $54.2 million in 2018 compared to
$54.3 million in 2017.
Net income was $9.2 million in the fourth quarter of 2018, or
$0.84 per diluted share, compared to $17.4 million, or $1.59 per
diluted share in the fourth quarter of 2017. Net income was $35.1
million for the full year of 2018, or $3.21 per diluted share,
compared to $39.1 million, or $3.60 per diluted share for the full
year of 2017.
Bookings in our Federal Services Group totaled $321 million for
2018 compared to revenue of $337 million for the same period.
Bookings in our Federal Services Group were $430 million in 2017.
Funded contract backlog as of December 31, 2018 was $290 million,
compared to $345 million as of September 30, 2018 and $324 million
as of December 31, 2017.
Non-GAAP Financial Information
The non-GAAP Financial Information (unaudited) set forth below
is not calculated in accordance with U.S. generally accepted
accounting principles (GAAP) under SEC Regulation G. These non-GAAP
financial measures consist of EBITDA and Adjusted EBITDA. We
consider these non-GAAP financial measures as important indicators
of performance and useful metrics for management and investors to
evaluate our business' ongoing operating performance on a
consistent basis across reporting periods. These adjusted financial
measures are intended to highlight non-operational, unusual or
non-recurring items. They should not, however, be considered in
isolation or as a substitute for performance measures prepared in
accordance with GAAP.
EBITDA represents net income before interest expense, income
taxes, amortization of intangible assets and depreciation and other
amortization. Adjusted EBITDA represents EBITDA (as defined above)
adjusted for acquisition related costs and the gain on the sale of
an IT contract.
Non-GAAP Financial Information (unaudited)
For the Three Months and Twelve Months ended December 31,
($ in thousands)
Three Month Results
Twelve Month Results
2018 2017
%Change
2018 2017
%Change
Net Income $ 9,243 $ 17,357 (46.7 )% $ 35,080 $
39,096 (10.3 )% Interest Expense 2,285 2,082 9.8 % 8,982 9,240 (2.8
)% Income Taxes 1,557 (6,552 ) (123.8 )% 10,168 5,989 69.8 %
Amortization of Intangible Assets 4,004 4,004 — % 16,017 16,017 — %
Depreciation and Other Amortization 2,236 2,294
(2.5 )% 9,207 9,865 (6.7
)% EBITDA 19,325 19,185 0.7 % 79,454 80,207 (0.9 )% Acquisition
Related Costs 569 — 569 — Gain on Sale of IT Contract —
— (1,700 ) —
Adjusted EBITDA $ 19,894 $ 19,185
3.7 % $ 78,323 $ 80,207 (2.3 )%
EBITDA was $19.3 million for the fourth quarter of 2018 and
$79.5 million for 2018, compared to $19.2 million for the fourth
quarter of 2017 and $80.2 million for 2017. Adjusted EBITDA was
$19.9 million for the fourth quarter of 2018 and $78.3 million for
2018, compared to $19.2 million for the fourth quarter of 2017 and
$80.2 million for 2017.
Capital Expenditures
Capital expenditures were $3.1 million for 2018, compared to
$3.3 million for 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 our 2018 Form 10-K, to be filed with the
Securities and Exchange Commission (SEC) on or about March 4, 2019,
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 with the SEC 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: https://www.businesswire.com/news/home/20190228005529/en/
Christine Kaineg, VSE Investor Relations(703) 329-3263
VSE (NASDAQ:VSEC)
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