Press release

VSE Reports Financial Results for First Quarter 2019

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VSE Corporation (Nasdaq: VSEC) reported the following unaudited
consolidated financial results for the first quarter of 2019.

CEO Commentary

“As VSE’s newly appointed CEO, I look forward to building and executing
on a plan of revenue and profit growth for our three operating groups,
expanding our current customer, product, and service initiatives, and
pursuing new strategic opportunities,” said John Cuomo, VSE’s CEO and
President. “We remain focused on operational excellence and returning
value to our stockholders.”

Mr. Cuomo continued, “While revenues declined compared to the first
quarter of 2018, our operating income slightly improved. We are pleased
with the contributions of our 1st Choice Aerospace acquisition, which is
meeting expectations. Our international programs are growing, thus
providing further uplift to our Aviation Group revenues in the first
quarter. Our Supply Chain Management Group revenue decreases were
partially offset by continuing increases in parts sales and distribution
to new commercial customers. Despite revenue challenges in our Federal
Services Group, we have increased this group’s operating income through
margin and performance improvement.”

First Quarter Results (unaudited)

(in thousands, except per share data)
    Three months ended March 31,
2019     2018     % Change
Revenues $ 169,919     $ 176,897     (3.9 )%
Operating income $ 11,813     $ 11,593     1.9 %
Net income $ 6,603     $ 7,052     (6.4 )%
EPS (Diluted) $ 0.60     $ 0.65     (7.7 )%

Financial Information

Revenues were $169.9 million in the first quarter of 2019 compared to
$176.9 million in the first quarter of 2018. The decrease in revenues is
primarily attributable to our Federal Services and Supply Chain
Management groups. The decrease was partially offset by an increase in
revenue from our Aviation Group, which was primarily attributable to
revenues from our 1st Choice Aerospace acquisition and increased parts
distribution sales in our international markets.

Operating income was $11.8 million for the first quarter of 2019
compared to $11.6 million in the first quarter of 2018. The operating
income increase was primarily attributable to our Aviation Group, and
margin improvements in our Federal Services Group. Operating income for
the first quarter of 2019 was reduced by non-recurring costs associated
with our CEO transition and the acquisition of 1st Choice Aerospace.

Net income was $6.6 million for the first quarter of 2019, or $0.60 per
diluted share, compared to $7.1 million, or $0.65 per diluted share for
the first quarter of 2018. The decrease in net income is primarily
attributable to increased interest expense.

Bookings in our Federal Services Group were $51 million for the first
three months of 2019 compared to revenue for this group of $69 million.
Funded contract backlog at March 31, 2019 was $278 million, compared to
$290 million at December 31, 2018 and $261 million at March 31, 2018.

Non-GAAP Financial Information

The non-GAAP Financial Information (unaudited) listed below is not
calculated in accordance with U.S. generally accepted accounting
principles (“GAAP”) under SEC Regulation G. We consider EBITDA a
non-GAAP financial measure and an important indicator of performance and
useful metric for management and investors to evaluate our business’
ongoing operating performance on a consistent basis across reporting
periods. EBITDA should not 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 1st Choice Aerospace acquisition related and CEO transition

Non-GAAP Financial Information (unaudited)

(in thousands) Three Month Results ended March 31,
2019     2018     % Change
Net Income $ 6,603 $ 7,052 (6 )%
Interest Expense 3,158 2,175 45 %
Income Taxes 2,052 2,366 (13 )%
Amortization of Intangible Assets 4,991 4,004 25 %
Depreciation and Other Amortization   2,439       2,480     (2 )%
EBITDA $ 19,243 $ 18,077 6 %
Acquisition Related and CEO Transition Costs   1,121            
Adjusted EBITDA $ 20,364     $ 18,077     13 %

Capital Expenditures

Purchases of property and equipment were $601 thousand for the first
quarter of 2019 compared to $1.1 million for the first quarter of 2018.

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
or contact Christine Kaineg, VSE Investor Relations, at (703) 329-3263.

Please refer to the Form 10-Q that will be filed with the Securities and
Exchange Commission (SEC) on or about May 3, 2019 for more details on
our 2019 first quarter results. Also, refer to VSE’s Annual Report on
Form 10-K for the year ended December 31, 2018 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

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)


March 31,


December 31,

Current assets:
Cash and cash equivalents $ 829 $ 162
Receivables, net 64,746 60,004
Unbilled receivables, net 44,450 41,255
Inventories, net 181,069 166,392
Other current assets   18,456     13,407
Total current assets 309,550 281,220
Property and equipment, net 40,167 49,606
Intangible assets, net 152,901 94,892
Goodwill 259,212 198,622
Operating lease right-of-use assets 26,371
Other assets   15,844     14,488
Total assets $ 804,045   $ 638,828
Liabilities and Stockholders’ equity
Current liabilities:
Current portion of long-term debt $ 9,466 $ 9,466
Accounts payable 59,106 57,408
Current portion of earn-out obligation 10,700
Accrued expenses and other current liabilities 39,919 37,133
Dividends payable   876     871
Total current liabilities 120,067 104,878
Long-term debt, less current portion 265,681 151,133
Deferred compensation 20,909 17,027
Long-term lease obligations, less current portion 18,913
Long-term operating lease liabilities 26,845
Earn-out obligation 14,300
Deferred tax liabilities   18,712     18,482
Total liabilities   466,514     310,433
Commitments and contingencies
Stockholders’ equity:
Common stock, par value $0.05 per share, authorized 15,000,000
shares; issued and outstanding 10,949,775 and 10,881,106,
547 544
Additional paid-in capital 28,788 26,632
Retained earnings 308,742 301,073
Accumulated other comprehensive (loss) income   (546 )   146
Total stockholders’ equity   337,531     328,395
Total liabilities and stockholders’ equity $ 804,045   $ 638,828
VSE Corporation and Subsidiaries
Unaudited Consolidated Statements of Income

(in thousands except share and per share amounts)


For the three months ended
March 31,

2019     2018
Products $ 88,901 $ 88,673
Services   81,018   88,224
Total revenues 169,919 176,897
Costs and operating expenses:
Products 76,293 74,726
Services 75,440 85,755
Selling, general and administrative expenses 1,382 819
Amortization of intangible assets   4,991   4,004
Total costs and operating expenses   158,106   165,304
Operating income 11,813 11,593
Interest expense, net   3,158   2,175
Income before income taxes 8,655 9,418
Provision for income taxes   2,052   2,366
Net income $ 6,603 $ 7,052
Basic earnings per share $ 0.60 $ 0.65
Basic weighted average shares outstanding   10,920,171   10,860,555
Diluted earnings per share $ 0.60 $ 0.65
Diluted weighted average shares outstanding   10,974,081   10,896,504
Dividends declared per share $ 0.08 $ 0.07
VSE Corporation and Subsidiaries
Unaudited Consolidated Statements of Cash Flows

(in thousands)


For the three months ended
March 31,

2019     2018
Cash flows from operating activities:
Net income $ 6,603 $ 7,052
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 7,430 6,484
Deferred taxes (564 ) 283
Stock-based compensation 1,640 1,263
Changes in operating assets and liabilities, net of impact of
Receivables, net 2,667 (978 )
Unbilled receivables, net (3,195 ) 13,589
Inventories, net (7,798 ) (18,895 )
Other current assets and noncurrent assets (4,990 ) 3,169
Accounts payable and deferred compensation 2,653 11,681
Accrued expenses and other current and noncurrent liabilities (1,675 ) (9,949 )
Long-term lease obligations       (406 )
Net cash provided by operating activities   2,771     13,293  
Cash flows from investing activities:
Purchases of property and equipment (601 ) (1,053 )
Proceeds from the sale of property and equipment 3
Cash paid for acquisitions, net of cash acquired   (112,660 )    
Net cash used in investing activities   (113,258 )   (1,053 )
Cash flows from financing activities:
Borrowings on loan agreement 194,598 247,669
Repayments on loan agreement (80,183 ) (256,368 )
Payment of debt financing costs (1,702 ) (1,798 )
Payments on capital lease obligations (346 )
Payments of taxes for equity transactions (687 ) (641 )
Dividends paid   (872 )   (759 )
Net cash provided by (used in) financing activities   111,154     (12,243 )
Net increase (decrease) in cash and cash equivalents 667 (3 )
Cash and cash equivalents at beginning of period   162     624  
Cash and cash equivalents at end of period $ 829   $ 621