Strategic transformation underway, positioned
for organic and inorganic growth in 2021
VSE Corporation (NASDAQ: VSEC, “VSE”, or the “Company”), a
leading provider of aftermarket distribution and maintenance,
repair and overhaul ("MRO") services for land, sea and air
transportation assets for government and commercial markets, today
announced results for the fourth quarter and full-year 2020.
FOURTH QUARTER 2020 RESULTS (As compared to the Fourth
Quarter 2019)
- Total Revenues of $150.0 million declined 23.2%
- Total Revenues, excluding divestitures, declined
19.6%(1)
- GAAP Net Income of $6.0 million declined 39.8%
- Adjusted Net Income of $5.8 million declined 49.8%
- Adjusted EBITDA of $17.3 million declined 25.2%
(1) Excludes the previously announced divestitures of Prime
Turbines and CT Aerospace
For the three months ended December 31, 2020, the Company
reported total revenue of $150.0 million, versus $195.3 million for
the same period ended 2019. The Company reported adjusted net
income of $5.8 million or $0.52 per adjusted diluted share,
compared to $11.5 million or $1.04 per adjusted diluted share in
the prior-year period. Adjusted EBITDA declined to $17.3 million in
fourth quarter 2020, versus $23.1 million for the same period in
2019. The Company reported negative free cash flow of $0.9 million
during the fourth quarter 2020, which includes $10.7 million of
inventory purchases supporting the recently announced new product
distribution agreements in the Aviation segment.
Aviation segment revenue, excluding the previously divested
Prime Turbines and CT Aerospace assets, declined 26.2% on a
year-over-year basis in the fourth quarter 2020, as lower revenue
passenger miles at major airline customers resulted in reduced
commercial MRO activity. During the fourth quarter, Aviation
segment revenue increased 6.5% when compared to the third quarter
2020, supported by a combination of market share gains within the
parts distribution business, together with increased demand for
parts and services from business and general aviation (B&GA)
customers. Federal and Defense segment revenue declined 28.8% on a
year-over-year basis in the fourth quarter 2020, primarily due to
the completion of a DoD program during the first quarter 2020.
Fleet segment revenue increased 0.7% on a year-over-year basis in
the fourth quarter 2020, as growth in commercial fleet and
e-commerce fulfillment offset a slight decline in U.S. Postal
Service-related revenue.
For the twelve months ended December 31, 2020, the Company
reported total revenue of $661.7 million, versus $752.6 million in
2019. The Company reported adjusted net income of $29.1 million or
$2.63 per adjusted diluted share, compared to $40.2 million or
$3.64 per adjusted diluted share in the prior-year period. Adjusted
EBITDA declined to $75.2 million in 2020, versus $90.9 million for
the same period in 2019. The Company generated $31.3 million of
free cash flow in 2020, versus $8.4 million in 2019.
STRATEGY UPDATE
VSE continued to execute on a multi-year business transformation
plan during the fourth quarter. The management team remains focused
on accelerating the transformation with new business development
initiatives and product and service line expansions, in conjunction
with disciplined balance sheet management.
- New Business Development. Following a five-year, $100
million exclusive distribution agreement with Triumph Group
announced in third quarter 2020, VSE Aviation segment entered into
a new exclusive, life-of-program distribution agreement with Pratt
& Whitney Canada (P&WC) in January 2021. This agreement
expands the Company’s relationship with P&WC into APU parts
distribution while expanding its regional and business jet product
portfolios. VSE Fleet segment commercial revenue increased 82.5%
year-over-year in the fourth quarter and 92.8% for full-year 2020.
VSE Federal and Defense segment increased bidding activity by 37%
for the full-year 2020.
- Completed Follow-on Equity Offering. In the first
quarter of 2021, VSE completed a follow-on equity offering
resulting in net cash proceeds of approximately $52 million. Net
cash proceeds are expected to be used for general corporate
purposes, program launches, and to support complementary, bolt-on
acquisitions. VSE is focused on acquisition targets that expand
customers and/or product and service capabilities within its
existing segments.
- Acquired HAECO Special Services. On March 1, 2021, VSE
acquired HAECO Special Services (“HSS”), a division of HAECO
Americas (“HAECO”), a leading provider of fully integrated MRO
support solutions for military and government aircraft,
specifically the KC-10 fleet. This transaction expands VSE’s
value-added suite of MRO capabilities for military customers, while
positioning the Company to capitalize on higher-margin technical
service opportunities.
- Continued Balance Sheet Discipline. VSE is committed to
maintaining sufficient liquidity to support the long-term growth of
the business, while continuing to support a quarterly cash dividend
and conservative net leverage profile. As of December 31, 2020, the
Company had $175.5 million in cash and excess availability under
its line of credit. For the full-year 2020, VSE reduced total
outstanding debt by $19.3 million, supported by free cash flow from
operations. On December 31, 2020, the ratio of net debt to our
trailing twelve month Adjusted EBITDA was 3.3x, excluding the $52
million in net cash proceeds received from a follow-on equity
offering completed in early 2021.
MANAGEMENT COMMENTARY
“In 2020, we successfully navigated pandemic-related disruptions
to the global aviation market while continuing to execute on our
multi-year business transformation plan,” stated President and CEO
John Cuomo. “Throughout the year, we won new business, grew our
presence within both new and existing markets, expanded our product
and service capabilities into higher-margin verticals, increased
our contract bidding activity, divested non-core assets, reduced
overhead costs to align with demand conditions, and built a
leadership team capable of driving operational excellence at every
level of the organization. We are a leaner, more competitive
business today than we were entering 2020, laying the foundation
for profitable growth in 2021.”
“During the fourth quarter, our Aviation segment reported a
second consecutive quarter of sequential revenue growth, driven by
a combination of continued share gains and improved demand within
the domestic narrow-body aircraft and B&GA markets,” continued
Cuomo. “Within our Fleet segment, increased e-commerce fulfillment
orders and strong demand from ‘last-mile’ commercial truck fleets
contributed to improved year-over-year revenue growth. Although
Federal and Defense segment revenue declined on a year-over-year
basis, segment Adjusted EBITDA improved due to a more favorable
contract mix.”
“This week, in an all-cash transaction, we acquired HAECO
Special Services, a leading provider of fully integrated MRO
support solutions for military and government aircraft. This
transaction is immediately accretive, and positions us to
capitalize on higher-margin technical service opportunities within
our Federal and Defense Services segment,” continued Cuomo. “We
continue to evaluate similar bolt-on acquisitions that accelerate
new customer or capability expansion across each of our operating
segments.”
“During 2021, we intend to move forward with the next phase of
our business transformation plan. This year, our focus turns toward
expanding our product and service offerings, continuing to capture
share gains within underserved markets, executing inorganic growth
opportunities, and accelerating our cultural transformation for our
customers and employees,” concluded Cuomo.
“Given the net proceeds from our recently completed follow-on
equity offering and the existing availability under our credit
facilities, VSE is well-capitalized to support growth in 2021,”
stated Stephen Griffin, CFO of VSE Corporation. “This year, our
primary capital allocation priorities include working capital
investments associated with new distribution agreement wins and
investments in additional bolt-on acquisitions. While we expect to
allocate operating cash flow toward discretionary growth
investments during the first half of 2021, debt reduction remains a
key priority, consistent with our disciplined approach to long-term
balance sheet management.”
SEGMENT RESULTS
AVIATION Distribution & MRO Services
VSE’s Aviation segment provides aftermarket MRO and
distribution services to commercial, cargo, business and general
aviation, military/defense and rotorcraft customers globally. Core
services include parts distribution, component and engine accessory
MRO services, rotable exchange and supply chain services.
Aviation segment revenue, less contributions from divested Prime
Turbines and CT Aerospace businesses, decreased 26.2%
year-over-year to $38.6 million in the fourth quarter 2020. The
year-over-year revenue decline was attributable to the adverse
impact of the COVID-19 pandemic on commercial air traffic,
resulting in lower customer demand. On a sequential basis, Aviation
segment revenue increased 6.5%, when compared to the third quarter
2020. The Aviation segment recorded an operating loss of $0.8
million in the fourth quarter, versus operating income of $3.1
million in the prior-year period. Adjusted EBITDA decreased to $1.4
million in the fourth quarter 2020.
FLEET Distribution & Fleet Services
VSE's Fleet segment provides parts, inventory management,
e-commerce fulfillment, logistics, supply chain support and other
services for commercial aftermarket medium- and heavy-duty truck
customers and for the United States Postal Service (USPS) and the
United States Department of Defense (DoD). Core services include
parts distribution, sourcing, IT solutions, customized fleet
logistics, warehousing, kitting, just-in-time supply chain
management, alternative product sourcing, engineering and technical
support.
Fleet segment revenue increased 0.7% year-over-year to $54.0
million in the fourth quarter 2020. Revenues from commercial
customers increased approximately $5.8 million or 82.5%, driven by
growth in commercial fleet demand and the e-commerce fulfillment
business. Operating income declined 17.2% year-over-year to $6.2
million in the fourth quarter 2020 due to a less favorable sales
mix in the period and investment in the business to support
continued commercial growth. VSE Fleet segment Adjusted EBITDA
declined 16.1% year-over-year in the fourth quarter to $8.5
million.
FEDERAL & DEFENSE Logistics & Sustainment
Services
VSE's Federal and Defense segment provides aftermarket
MRO and logistics services to improve operational readiness and to
extend the life cycle of military vehicles, ships and aircraft for
the U.S. Armed Forces, federal agencies and international defense
customers. Core services include base operations support,
procurement, supply chain management, vehicle, maritime and
aircraft sustainment services, IT services and energy
consulting.
Federal and Defense segment revenue declined 28.8%
year-over-year to $57.4 million in the fourth quarter 2020,
primarily due to the expiration of DoD contracts during the first
and third quarters of 2020. Operating income increased 52.0%
year-over-year to $7.9 million in the fourth quarter 2020, while
Adjusted EBITDA increased 44.4% year-over-year to $8.5 million in
the period, due to a more favorable contract mix.
Federal and Defense segment fourth quarter bookings increased
97.4% year-over-year to $75 million. Funded backlog declined 14.1%
year-over-year to $183 million. The decline in funded backlog was
attributable to the expiration of contracts in the first and third
quarters of 2020. The Company continues to focus on revitalizing
this business with an emphasis on higher margin growth based on
increased technical competencies.
FINANCIAL RESOURCES AND LIQUIDITY
The Company generated $31.3 million of free cash flow in 2020,
versus $8.4 million in 2019. As of December 31, 2020, the Company
had $175.5 million in cash and unused commitment availability under
its $350 million revolving credit facility maturing in 2023. The
Company’s existing credit facility includes a $100 million
accordion provision, subject to customary lender commitment
approvals.
On January 29, 2021, the company priced a previously announced
underwritten public offering of common stock that resulted in
approximately $52 million net proceeds to the company. VSE expects
to use the net proceeds from this offering for general corporate
purposes, which may include among other things, financing strategic
acquisitions, working capital requirements for new program
launches, and repaying outstanding borrowings under its revolving
credit facility.
CONFERENCE CALL
A conference call will be held Friday, March 5, 2021 at 8:30
A.M. EST to review the Company’s financial results, discuss recent
events and conduct a question-and-answer session.
A webcast of the conference call and accompanying presentation
materials will be available in the Investor Relations section of
VSE’s website at https://ir.vsecorp.com. To listen to a live
broadcast, go to the site at least 15 minutes prior to the
scheduled start time in order to register, download, and install
any necessary audio software.
To participate in the live teleconference:
Toll Free: 1-877-407-0789 Toll/International: 1-201-689-8562
To listen to a replay of the teleconference through March 19,
2021:
Toll Free: 1-844-512-2921 Toll/International: 1-412-317-6671
Replay Pin Number: 13715744
FOURTH QUARTER RESULTS
(in thousands, except per share data)
Three months ended December
31,
For the years ended December
31,
2020
2019
% Change
2020
2019
% Change
Revenues
$
150,021
$
195,271
(23.2)
%
$
661,659
$
752,627
(12.1)
%
Operating income
$
11,914
$
14,813
(19.6)
%
$
13,923
$
60,257
(76.9)
%
Net income (loss)
$
6,013
$
9,996
(39.8)
%
$
(5,171)
$
37,024
(114.0)
%
EPS (Diluted)
$
0.54
$
0.90
(40.0)
%
$
(0.47)
$
3.35
(114.0)
%
FOURTH QUARTER SEGMENT RESULTS
The following is a summary of revenues and operating income
(loss) for the three and twelve months ended December 31, 2020 and
December 31, 2019:
Three months ended December
31,
For the years ended December
31,
(in thousands)
2020
2019
% Change
2020
2019
% Change
Revenues:
Aviation
$
38,551
$
60,993
(36.8)
%
$
165,070
$
224,546
(26.5)
%
Fleet
54,025
53,642
0.7
%
242,170
214,520
12.9
%
Federal and Defense
57,445
80,636
(28.8)
%
254,419
313,561
(18.9)
%
Total revenues
$
150,021
$
195,271
(23.2)
%
$
661,659
$
752,627
(12.1)
%
Operating Income (Loss):
Aviation
$
(833)
$
3,081
(127.0)
%
$
(35,513)
$
17,901
(298.4)
%
Fleet
6,150
7,431
(17.2)
%
26,659
29,819
(10.6)
%
Federal and Defense
7,868
5,176
52.0
%
26,309
18,144
45.0
%
Corporate/unallocated expenses
(1,271)
(875)
45.3
%
(3,532)
(5,607)
(37.0)
%
Operating Income
$
11,914
$
14,813
(19.6)
%
$
13,923
$
60,257
(76.9)
%
The Company reported total capital expenditures in the fourth
quarter and full-year 2020 of $1.5 million and $4.4 million,
respectively.
NON-GAAP MEASURES
In addition to the financial measures prepared in accordance
with generally accepted accounting principles (GAAP), this earnings
release also contains Non-GAAP financial measures. The reasons why
we believe these measures provide useful information to investors
and a reconciliation of these measures to the most directly
comparable GAAP measures and other information relating to these
Non-GAAP measures are included in the supplemental schedules
attached.
NON-GAAP FINANCIAL INFORMATION
Reconciliation of Adjusted Net Income and Adjusted EPS to Net
Income (Loss)
Three months ended December
31,
For the years ended December
31,
(in thousands)
2020
2019
% Change
2020
2019
% Change
Net Income (Loss)
$
6,013
$
9,996
(39.8)
%
$
(5,171)
$
37,024
(114.0)
%
Adjustments to Net Income (Loss):
Acquisition and CEO transition costs
—
259
(100.0)
%
—
2,403
(100.0)
%
Executive transition costs
1,026
—
—
%
1,026
—
—
%
German facility closure costs
1,132
—
—
%
1,132
—
—
%
Earn-out adjustment (1)
(2,447)
1,900
(228.8)
%
(5,541)
1,900
(391.6)
%
Loss on sale of a business entity and
certain assets
—
—
—
%
8,214
—
—
%
Gain on sale of property
—
—
—
%
(1,108)
—
—
%
Severance
—
—
—
%
739
—
—
%
Goodwill and intangible impairment
—
—
—
%
33,734
—
—
%
5,724
12,155
(52.9)
%
33,025
41,327
(20.1)
%
Tax impact of adjusted items
70
(620)
(111.3)
%
(3,973)
(1,153)
244.6
%
Adjusted Net Income
$
5,794
$
11,535
(49.8)
%
$
29,052
$
40,174
(27.7)
%
Weighted Average Dilutive Shares
11,141
11,071
0.6
%
11,034
11,045
(0.1)
%
Adjusted EPS (Diluted)
$
0.52
$
1.04
(50.0)
%
$
2.63
$
3.64
(27.7)
%
(1) includes impact of a Section
338(h)(10) election on corporate expenses
Reconciliation of Consolidated EBITDA and Adjusted EBITDA to
Net Income (Loss)
Three months ended December
31,
For the years ended December
31,
(in thousands)
2020
2019
% Change
2020
2019
% Change
Net Income (Loss)
$
6,013
$
9,996
(39.8)
%
$
(5,171)
$
37,024
(114.0)
%
Interest Expense
3,408
3,568
(4.5)
%
13,496
13,830
(2.4)
%
Income Taxes
2,493
1,249
99.6
%
5,598
9,403
(40.5)
%
Amortization of Intangible Assets
4,159
4,332
(4.0)
%
17,504
19,317
(9.4)
%
Depreciation and Other Amortization
1,472
1,759
(16.3)
%
5,575
6,997
(20.3)
%
EBITDA
17,545
20,904
(16.1)
%
37,002
86,571
(57.3)
%
Acquisition and CEO transition costs
—
259
(100.0)
%
—
2,403
(100.0)
%
Executive transition costs
1,026
—
—
%
1,026
—
—
%
German facility closure costs
1,132
—
—
%
1,132
—
—
%
Earn-out adjustment (1)
(2,447)
1,900
(228.8)
%
(5,541)
1,900
(391.6)
%
Loss on sale of a business entity and
certain assets
—
—
—
%
8,214
—
—
%
Gain on sale of property
—
—
—
%
(1,108)
—
—
%
Severance
—
—
—
%
739
—
—
%
Goodwill and intangible impairment
—
—
—
%
33,734
—
—
%
Adjusted EBITDA
$
17,256
$
23,063
(25.2)
%
$
75,198
$
90,874
(17.3)
%
(1) includes impact of a Section
338(h)(10) election on corporate expenses
Reconciliation of Segment EBITDA and Adjusted EBITDA to
Operating Income (Loss)
Three months ended December
31,
For the years ended December
31,
(in thousands)
2020
2019
% Change
2020
2019
% Change
Aviation
Operating Income (Loss)
$
(833)
$
3,081
(127.0)
%
$
(35,513)
$
17,901
(298.4)
%
Depreciation and Amortization
2,667
2,687
(0.7)
%
10,698
12,420
(13.9)
%
EBITDA
1,834
5,768
(68.2)
%
(24,815)
30,321
53.4
%
Executive transition costs
322
—
—
%
322
—
—
%
German facility closure costs
1,132
—
—
%
1,132
—
—
%
Earn-out adjustment
(1,905)
1,900
(200.3)
%
(5,000)
1,900
(363.2)
%
Loss on sale of a business entity and
certain assets
—
—
—
%
8,214
—
—
%
Gain on sale of property
—
—
—
%
(1,108)
—
—
%
Severance
—
—
—
%
382
—
—
%
Goodwill and intangible impairment
—
—
—
%
33,734
—
—
%
Adjusted EBITDA
$
1,383
$
7,668
(82.0)
%
$
12,861
$
32,221
(60.1)
%
Fleet
Operating Income
$
6,150
$
7,431
(17.2)
%
$
26,659
$
29,819
(10.6)
%
Depreciation and Amortization
2,361
2,713
(13.0)
%
9,983
10,979
(9.1)
%
EBITDA and Adjusted EBITDA
$
8,511
$
10,144
(16.1)
%
$
36,642
$
40,798
(10.2)
%
Federal and Defense
Operating Income
$
7,868
$
5,176
52.0
%
$
26,309
$
18,144
45.0
%
Depreciation and Amortization
604
691
(12.6)
%
2,630
3,047
(13.7)
%
EBITDA
8,472
5,867
44.4
%
28,939
21,191
36.6
%
Severance
—
—
—
%
112
—
—
%
Adjusted EBITDA
$
8,472
$
5,867
44.4
%
$
29,051
$
21,191
37.1
%
Reconciliation of Operating Cash to Free Cash Flow
Three months ended December
31,
For the years ended December
31,
(in thousands)
2020
2019
2020
2019
Net cash provided by operating
activities
$
526
$
555
$
35,761
$
17,994
Capital expenditures
(1,471)
(1,941)
(4,427)
(9,630)
Free cash flow
$
(945)
$
(1,386)
$
31,334
$
8,364
Reconciliation of Debt to Net Debt
For the years ended December
31,
(in thousands)
2020
2019
Principal amount of debt
$
253,461
$
272,800
Debt issuance costs
(2,368)
(2,789)
Cash and cash equivalents
(378)
(734)
Net debt
$
250,715
$
269,277
The non-GAAP Financial Information set forth in this document is
not calculated in accordance with U.S. generally accepted
accounting principles ("GAAP") under SEC Regulation G. We consider
Adjusted Net Income, Adjusted EPS (Diluted), EBITDA, Adjusted
EBITDA, trailing-twelve months Adjusted EBITDA, net debt and free
cash flow as non-GAAP financial measures and 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 non-GAAP financial
measures, however, should not be considered in isolation or as a
substitute for performance measures prepared in accordance with
GAAP. Adjusted Net Income represents Net Income adjusted for
executive succession costs, 1st Choice Aerospace
acquisition-related costs including any earn-out adjustments,
facility closures, loss on sale of a business entity and certain
assets, gain on sale of property, and related tax impact. Adjusted
EPS (Diluted) is computed by dividing net income, adjusted for the
discrete items as identified above and the related tax impacts, by
the diluted weighted average number of common shares outstanding.
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 discrete items as identified above, and
trailing-twelve months Adjusted EBITDA is defined as Adjusted
EBITDA for the most recent twelve (12) month period ending December
31, 2020. Net debt is defined as total debt less cash and cash
equivalents. Free cash flow represents operating cash flow less
capital expenditures.
ABOUT VSE CORPORATION
VSE is a leading provider of aftermarket distribution and repair
services for land, sea and air transportation assets for government
and commercial markets. Core services include maintenance, repair
and overhaul (MRO) services, parts distribution, supply chain
management and logistics, engineering support, and consulting and
training services for global commercial, federal, military and
defense customers. VSE also provides information technology and
energy consulting services. For additional information regarding
VSE’s services and products, visit www.vsecorp.com.
Please refer to the Form 10-K that will be filed with the
Securities and Exchange Commission (SEC) on or about March 5, 2021
for more details on our fourth quarter 2020 results. Also, refer to
VSE’s Annual Report on Form 10-K for the year ended December 31,
2020 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.
FORWARD LOOKING STATEMENTS
This document contains certain forward-looking statements. These
forward-looking statements, which are included in accordance with
the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, may involve known and unknown risks,
uncertainties and other factors that may cause VSE’s actual results
and performance in future periods to be materially different from
any future results or performance suggested by the forward-looking
statements in this document. Although we believe the expectations
reflected in such forward-looking statements are based upon
reasonable assumptions, we can give no assurance that actual
results will not differ materially from these expectations.
“Forward-looking” statements, as such term is defined by the
Securities Exchange Commission (the “SEC”) in its rules,
regulations and releases, represent our expectations or beliefs,
including, but not limited to, statements concerning our
operations, economic performance, financial condition, the impact
of widespread health developments, such as the ongoing COVID-19
outbreak, the health and economic impact thereof, and the
governmental, commercial, consumer and other responses thereto,
growth and acquisition strategies, investments and future
operational plans. Without limiting the generality of the
foregoing, words such as “may,” “will,” “expect,” “believe,”
“anticipate,” “intend,” “forecast,” “seek,” “plan,” “predict,”
“project,” “could,” “estimate,” “might,” “continue,” “seeking” or
the negative or other variations thereof or comparable terminology
are intended to identify forward-looking statements. These
statements, by their nature, involve substantial risks and
uncertainties, certain of which are beyond our control, and actual
results may differ materially depending on a variety of important
factors, including, but not limited to, the uncertainty surrounding
the ongoing COVID-19 outbreak and the other factors identified in
our reports filed or expected to be filed with the SEC including
our Annual Report on Form 10-K for the year ended December 31,
2020. All forward-looking statements made herein are qualified by
these cautionary statements and risk factors and there can be no
assurance that the actual results, events or developments
referenced herein will occur or be realized. Readers are cautioned
not to place undue reliance on these forward looking-statements,
which reflect management's analysis only as of the date hereof. We
undertake no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of
unanticipated events or changes to future operating results.
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INVESTORS Noel Ryan (720) 778-2415
investors@vsecorp.com
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