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VSE Corporation Announces Third Quarter 2022 Results

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 third quarter 2022.

THIRD QUARTER 2022 RESULTS

(As compared to the Third Quarter 2021)

  • Total Revenues of $242.5 million increased 21%
  • GAAP Net Income of $9.4 million decreased 4%
  • GAAP EPS (Diluted) of $0.73 decreased 3%
  • Adjusted EBITDA of $24.0 million increased 12%
  • Adjusted Net Income of $9.8 million remained flat
  • Adjusted EPS (Diluted) of $0.76 remained flat

MANAGEMENT COMMENTARY

“VSE delivered a strong quarter with growth in revenue, profitability and free cash flow; as our teams continue to successfully execute our long-term business transformation strategy,” stated John Cuomo, President and CEO of VSE Corporation. “All three business segments reported year-over-year revenue growth, with the Aviation and Fleet segments recording their highest year-to-date revenue in company history,” continued Cuomo.

“Our Aviation segment reported revenue increases of 40% and an adjusted EBITDA increase of 86% or 326 basis points in the third quarter. Strong margins drove the quarter, along with revenue increases supported by growth in both MRO and distribution across all customer market segments. In addition to a strong quarter of financial results and program execution, we announced significant new business that expands our geographic presence and leverage our proven distribution and product line management capabilities. These include four new exclusive distribution agreements valued at approximately $350 million,” continued Cuomo.

“In the Fleet segment, commercial revenue increased by 23% on a year-over-year basis, representing approximately 40% of total Fleet segment revenue for the third consecutive quarter. To meet growing commercial demand and drive our revenue diversification strategy, we announced a new distribution facility outside of Memphis, Tennessee which will be dedicated to supporting commercial and e-commerce fulfillment customers,” continued Cuomo.

“Through the first nine months of 2022, we’ve won significant new business, accelerated our long-term business transformation strategy, and generated strong year-over-year organic growth in revenue, net income, and EBITDA. I’m proud of the VSE team, the strong customer and supplier focused implementation of new programs, and the many recent new business awards,” concluded Cuomo.

“Disciplined balance sheet management remains a key area of focus for our team,” stated Stephen Griffin, CFO of VSE Corporation. “VSE generated strong free cash flow of $11.3 million in the third quarter, in line with our previously communicated expectations. In October, we amended the existing loan agreement with our commercial banking syndicate and extended the term to 2025. This amendment supports the flexibility to grow revenue through organic and inorganic investments, including the recent new business announcements. We expect strong cash flow to continue following these new investments, which will further our goal of driving sustainable, long-term revenue.”

STRATEGIC UPDATE

During the third quarter, VSE continued to effectively execute its business transformation roadmap, with a focus on developing a leading aftermarket parts distribution and MRO services platform that addresses underserved, high-growth market segments. This value creation strategy is driven by a focus on new business and sustainable recurring revenue channels, growth in adjusted EBITDA, and optimization of legacy programs.

New Business and Long-Term, Sustainable Revenue Channels:

  • In October 2022, the Aviation segment announced an expansion of the existing Pratt & Whitney Canada distribution agreement to now include the Asia Pacific region. Under the terms of this new expanded agreement, VSE Aviation will provide engine spare parts and engine accessory exchange support to Business & General Aviation (B&GA) engine operators, customers, and maintenance providers throughout the Asia Pacific region. This 15-year agreement expands the Company’s international reach and builds upon the success of recent program execution excellence.
  • During the quarter, the Aviation segment secured a new 2-year agreement to distribute over 200,000 spare parts supporting Embraer business jets, including Phenom, Praetor, Legacy, and Lineage airframes. This new agreement builds on the VSE brand of supporting airframe OEMs with aftermarket support for both in-production and late-in-life stages in the B&GA market.
  • The Fleet segment revenue diversification strategy continued to progress in the quarter with commercial revenue growth of 23% year-over-year. Year-to-date commercial revenue represented 39% of total segment revenue.
  • To support continued e-commerce and e-commerce fulfillment growth, the Fleet segment announced plans to open a new distribution warehouse and e-commerce fulfillment center of excellence in the greater Memphis, Tennessee area. This new, state-of-the-art, 425,000 square foot facility will double the company’s existing warehouse footprint. The facility is scheduled to begin servicing customers in the first quarter of 2023, with on-hand stock of more than 175,000 SKUs once fully operational.
  • The Federal & Defense segment secured $5 million in new bookings with the new VSE Distribution and Logistics capability and delivered a book to bill of 2.6x in the third quarter 2022. This new capability and revenue opportunity remains a growth channel for the segment.

Growing Adjusted EBITDA:

  • Aviation segment adjusted EBITDA grew to $13.6 million in the third quarter, an increase of 86% versus the prior-year period, with segment EBITDA margin expansion of +326 bps year-over-year. The successful implementation of recently awarded distribution programs and increased MRO activity drove profitability improvements.
  • Fleet segment adjusted EBITDA grew to $8.7 million, up 13% year-over-year. Steady contributions from USPS revenue combined with strong commercial growth contributed to adjusted EBITDA growth. Growing total segment adjusted EBITDA remains a critical component of Fleet segment strategy.

Optimizing Legacy Programs:

  • The Aviation segment secured multiple multi-year contract renewals supporting sustained revenue while expanding VSE's scope and improving cross-selling opportunities. In October 2022, VSE Aviation entered into two exclusive distribution agreements with an established OEM partner to distribute inertial reference systems globally and fuselage mounted antenna (FMA) systems in Europe, Middle East, Africa and India (EMEAI). The expanded agreements will generate revenue opportunities as both new and existing business jet customers leverage the full breadth of the Company’s combined distribution and repair capabilities.
  • Fleet segment USPS revenue grew to $39.1 million, up 7% in the third quarter versus the prior-year period. For the past 33 years, the Fleet segment has been, and continues to be, an essential part of USPS maintenance operations in support of its complex supply chain, servicing all vehicle types in the 230,000+ unit USPS fleet.
  • Federal & Defense segment revenue increased in the quarter supported by the Naval Sea Systems Command (NAVSEA) program, which increased 82% year-over-year in the third quarter, primarily resulting from Foreign Military Sales (FMS) support. Activity on our FMS Program increased over the past year, driven by work to transfer a naval frigate to Bahrain. Additionally, in August 2022, the Federal & Defense segment was awarded an $86 million ceiling addition to the existing NAVSEA bridge contract in support of FMS requirements for the Egyptian Navy, supporting follow on technical services through 2024.

SEGMENT RESULTS

Aviation segment revenue increased 40% year-over-year to a record $102.6 million in the third quarter 2022. The year-over-year revenue improvement was attributable to share gains within the B&GA market and continued commercial aftermarket recovery, aligned with global revenue passenger kilometers. Aviation distribution and repair revenue increased 35% and 55%, respectively, in the third quarter versus the prior-year period. The Aviation segment reported operating income of $10.0 million in the third quarter, compared to $3.7 million in the same period of 2021. Segment adjusted EBITDA increased by 86% in the third quarter to $13.6 million, versus $7.3 million in the prior-year period. Adjusted EBITDA margins were 13.2%, an increase of 326 basis points versus the prior-year period, driven by execution of new program awards and continued end-market recovery.

Fleet segment revenue increased 7% year-over-year to $64.8 million in the third quarter 2022. Revenues from commercial customers increased 23% on a year-over-year basis, driven by growth in commercial fleet demand and e-commerce fulfillment sales. Commercial revenue represented more than 39% of total Fleet segment revenue in the period for the third consecutive quarter. Segment adjusted EBITDA increased 13% year-over-year to $8.7 million, while adjusted EBITDA margin was 13.5%, an increase of 64 basis points versus the prior-year period.

Federal & Defense segment revenue increased 12% year-over-year to $75.1 million in the third quarter 2022, driven by growth in the Foreign Military Sales (FMS) program with the U.S. Navy along with a steady increase in Defense Logistics Agency (DLA) distribution services. The Federal & Defense segment reported operating income of $1.9 million in the third quarter 2022. Segment adjusted EBITDA declined 57% year-over-year to $2.8 million in the period, given a higher mix of cost-plus contracts. Funded backlog increased 8% year-to-date to $199 million, while bookings increased 7% on a year-to-date basis.

FINANCIAL RESOURCES AND LIQUIDITY

As of September 30, 2022, the Company had $99 million in cash and unused commitment availability under its $350 million revolving credit facility maturing in 2024. As of September 30, 2022, VSE had total net debt outstanding of $298 million and $86.9 million of trailing-twelve months adjusted EBITDA.

In October 2022, the Company entered into an amendment to its loan agreement which, among other things, extended the maturity dates with respect to the revolving credit facility and term loan facility to October 2025, transitioned its index to Secured Overnight Financing Rate (SOFR) term rates, and lowered the applicable base margins with modified Total Funded Debt to EBITDA Ratio requirements.

THIRD QUARTER RESULTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

(in thousands, except per share data)

 

 

2022

 

 

2021

 

% Change

 

 

2022

 

 

2021

 

% Change

Revenues

 

$

242,487

 

$

200,582

 

20.9

%

 

$

715,439

 

$

540,675

 

32.3

%

Operating income

 

$

17,272

 

$

13,892

 

24.3

%

 

$

43,337

 

$

10,781

 

302.0

%

Net income

 

$

9,419

 

$

9,021

 

4.4

%

 

$

23,211

 

$

1,766

 

1,214.3

%

EPS (Diluted)

 

$

0.73

 

$

0.71

 

2.8

%

 

$

1.81

 

$

0.14

 

1,192.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

THIRD QUARTER SEGMENT RESULTS

The following is a summary of revenues and operating income (loss) for the three and nine months ended September 30, 2022 and September 30, 2021:

 

 

Three months ended September 30,

 

Nine months ended September 30,

(in thousands)

 

 

2022

 

 

 

2021

 

 

% Change

 

 

2022

 

 

 

2021

 

 

% Change

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Aviation

 

$

102,625

 

 

$

73,124

 

 

40.3

%

 

$

300,934

 

 

$

165,010

 

 

82.4

%

Fleet

 

 

64,754

 

 

 

60,268

 

 

7.4

%

 

 

196,526

 

 

 

173,072

 

 

13.6

%

Federal & Defense

 

 

75,108

 

 

 

67,190

 

 

11.8

%

 

 

217,979

 

 

 

202,593

 

 

7.6

%

Total revenues

 

$

242,487

 

 

$

200,582

 

 

20.9

%

 

$

715,439

 

 

$

540,675

 

 

32.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Aviation

 

$

10,017

 

 

$

3,719

 

 

169.3

%

 

$

24,089

 

 

$

(18,885

)

 

NM(1)

Fleet

 

 

6,539

 

 

 

5,387

 

 

21.4

%

 

 

18,286

 

 

 

15,128

 

 

20.9

%

Federal & Defense

 

 

1,939

 

 

 

5,386

 

 

(64.0

)%

 

 

3,803

 

 

 

17,410

 

 

(78.2

)%

Corporate/unallocated expenses

 

 

(1,223

)

 

 

(600

)

 

103.8

%

 

 

(2,841

)

 

 

(2,872

)

 

(1.1

)%

Operating income

 

$

17,272

 

 

$

13,892

 

 

24.3

%

 

$

43,337

 

 

$

10,781

 

 

302.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Not meaningful as prior period was a net loss

The Company reported $4.7 million and $7.4 million of total capital expenditures for three and nine months ended September 30, 2022.

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. 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 is included in the supplemental schedules attached.

NON-GAAP FINANCIAL INFORMATION

Reconciliation of Adjusted Net Income and Adjusted EPS to Net Income

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

(in thousands)

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Net income

 

$

9,419

 

 

$

9,021

 

 

$

23,211

 

 

$

1,766

 

Adjustments to net income:

 

 

 

 

 

 

 

 

 

Acquisition, integration and restructuring costs

 

 

353

 

 

 

876

 

 

 

985

 

 

 

1,422

 

 

Executive transition costs

 

 

 

 

 

84

 

 

 

 

 

 

905

 

 

Inventory reserve

 

 

 

 

 

 

 

 

 

 

 

24,420

 

 

Non-recurring professional fees

 

 

111

 

 

 

 

 

 

329

 

 

 

 

 

Forward contract loss provision

 

 

 

 

 

 

 

 

3,482

 

 

 

 

 

Russia/Ukraine conflict (1)

 

 

 

 

 

 

 

 

2,335

 

 

 

 

 

 

 

9,883

 

 

 

9,981

 

 

 

30,342

 

 

 

28,513

 

 

Tax impact of adjusted items

 

 

(116

)

 

 

(240

)

 

 

(1,781

)

 

 

(5,838

)

Adjusted net income

 

$

9,767

 

 

$

9,741

 

 

$

28,561

 

 

$

22,675

 

Weighted average dilutive shares

 

 

12,834

 

 

 

12,775

 

 

 

12,816

 

 

 

12,573

 

Adjusted EPS (Diluted)

 

$

0.76

 

 

$

0.76

 

 

$

2.23

 

 

$

1.80

 

 

 

 

 

 

 

 

 

 

 

(1) Adjustment represents a non-cash charge recorded to reduce the carrying amount of accounts receivable and inventory related to the Russia/Ukraine military conflict.

Reconciliation of Consolidated EBITDA and Adjusted EBITDA to Net Income

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

(in thousands)

 

 

2022

 

 

2021

 

 

2022

 

 

2021

Net income

 

$

9,419

 

$

9,021

 

$

23,211

 

$

1,766

 

Interest expense

 

 

4,818

 

 

2,780

 

 

12,299

 

 

8,476

 

Income taxes

 

 

3,035

 

 

2,091

 

 

7,827

 

 

539

 

Amortization of intangible assets

 

 

4,233

 

 

4,921

 

 

13,406

 

 

13,812

 

Depreciation and other amortization

 

 

1,986

 

 

1,599

 

 

5,244

 

 

4,383

EBITDA

 

 

23,491

 

 

20,412

 

 

61,987

 

 

28,976

 

Acquisition, integration and restructuring costs

 

 

353

 

 

876

 

 

985

 

 

1,422

 

Executive transition costs

 

 

 

 

84

 

 

 

 

905

 

Inventory reserve

 

 

 

 

 

 

 

 

24,420

 

Non-recurring professional fees

 

 

111

 

 

 

 

329

 

 

 

Forward contract loss provision

 

 

 

 

 

 

3,482

 

 

 

Russia/Ukraine conflict (1)

 

 

 

 

 

 

2,335

 

 

Adjusted EBITDA

 

$

23,955

 

$

21,372

 

$

69,118

 

$

55,723

 

 

 

 

 

 

 

 

 

 

(1) Adjustment represents a non-cash charge recorded to reduce the carrying amount of accounts receivable and inventory related to the Russia/Ukraine military conflict.

Adjusted EBITDA Summary

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

(in thousands)

 

2022

 

 

 

2021

 

 

% Change

 

 

2022

 

 

 

2021

 

 

% Change

 

Aviation

$

13,570

 

 

$

7,282

 

 

86.3

%

 

$

36,369

 

 

$

13,514

 

 

169.1

%

 

Fleet

 

8,719

 

 

 

7,732

 

 

12.8

%

 

 

25,251

 

 

 

22,854

 

 

10.5

%

 

Federal & Defense

 

2,778

 

 

 

6,498

 

 

(57.2

) %

 

 

9,987

 

 

 

20,401

 

 

(51.0

) %

 

Adjusted Corporate expenses (2)

 

(1,112

)

 

 

(140

)

 

694.3

%

 

 

(2,489

)

 

 

(1,046

)

 

138.0

%

Adjusted EBITDA

$

23,955

 

 

$

21,372

 

 

12.1

%

 

$

69,118

 

 

$

55,723

 

 

24.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

(2) Includes certain adjustments not directly attributable to any of our segments.

Reconciliation of Segment EBITDA and Adjusted EBITDA to Operating Income (Loss)

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

(in thousands)

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Aviation

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

$

10,017

 

$

3,719

 

$

24,089

 

$

(18,885

)

 

Depreciation and amortization

 

 

3,413

 

 

3,062

 

 

9,558

 

 

8,171

 

EBITDA

 

 

13,430

 

 

6,781

 

 

33,647

 

 

(10,714

)

 

Acquisition, integration and restructuring costs

 

 

140

 

 

501

 

 

387

 

 

501

 

 

Inventory reserve

 

 

 

 

 

 

 

 

23,727

 

 

Russia/Ukraine conflict (1)

 

 

 

 

 

 

2,335

 

 

 

Adjusted EBITDA

 

$

13,570

 

$

7,282

 

$

36,369

 

$

13,514

 

 

 

 

 

 

 

 

 

 

Fleet

 

 

 

 

 

 

 

 

 

Operating income

 

$

6,539

 

$

5,387

 

$

18,286

 

$

15,128

 

 

Depreciation and amortization

 

 

2,037

 

 

2,345

 

 

6,611

 

 

7,033

 

EBITDA

 

 

8,576

 

 

7,732

 

 

24,897

 

 

22,161

 

 

Acquisition, integration and restructuring costs

 

 

143

 

 

 

 

354

 

 

 

 

Inventory reserve

 

 

 

 

 

 

 

 

693

 

Adjusted EBITDA

 

$

8,719

 

$

7,732

 

$

25,251

 

$

22,854

 

 

 

 

 

 

 

 

 

 

 

Federal & Defense

 

 

 

 

 

 

 

 

 

Operating income

 

$

1,939

 

$

5,386

 

$

3,803

 

$

17,410

 

 

Depreciation and amortization

 

 

769

 

 

1,112

 

 

2,480

 

 

2,991

 

EBITDA

 

$

2,708

 

$

6,498

 

$

6,283

 

$

20,401

 

 

Forward contract loss provision

 

 

 

 

 

 

3,482

 

 

 

 

Acquisition, integration and restructuring costs

 

 

70

 

 

 

 

222

 

 

 

Adjusted EBITDA

 

$

2,778

 

$

6,498

 

$

9,987

 

$

20,401

 

 

 

 

 

 

 

 

 

 

 

(1) Adjustment represents a non-cash charge recorded to reduce the carrying amount of accounts receivable and inventory related to the Russia/Ukraine military conflict.

Reconciliation of Operating Cash to Free Cash Flow

 

 

Three months ended September 30,

 

Nine months ended September 30,

(in thousands)

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Net cash provided by (used in) operating activities

 

$

15,932

 

 

$

23,445

 

 

$

(4,206

)

 

$

(30,523

)

Capital expenditures

 

 

(4,670

)

 

 

(2,448

)

 

 

(7,416

)

 

 

(7,606

)

Free cash flow

 

$

11,262

 

 

$

20,997

 

 

$

(11,622

)

 

$

(38,129

)

Reconciliation of Debt to Net Debt

 

 

September 30,

 

December 31,

(in thousands)

 

 

2022

 

 

 

2021

 

Principal amount of debt

 

$

299,230

 

 

$

286,734

 

Debt issuance costs

 

 

(1,537

)

 

 

(2,165

)

Cash and cash equivalents

 

 

(90

)

 

 

(518

)

Net debt

 

$

297,603

 

 

$

284,051

 

The non-GAAP Financial Information set forth in this document is not calculated in accordance with GAAP under SEC Regulation G. We consider Adjusted Net Income, Adjusted EPS (Diluted), EBITDA, 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 acquisition-related costs, forward contract loss provision and other discrete items, 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 the discrete items as identified above. Net debt is defined as total debt less cash and cash equivalents. Free cash flow represents operating cash flow less capital expenditures.

CONFERENCE CALL

A conference call will be held Thursday, October 27, 2022 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 the 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:

Domestic Live:

(877) 407-0789

International Live:

(201) 689-8562

Audio Webcast:

https://viavid.webcasts.com/starthere.jsp?ei=1574666&tp_key=728cde2732

To listen to a replay of the teleconference through November 10, 2022:

Domestic Replay:

(844) 512-2921

International Replay:

(412) 317-6671

Replay PIN Number:

13733403

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 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.

AVIATION

Distribution & MRO Services

VSE’s Aviation segment provides aftermarket MRO and distribution services to commercial, business and general aviation, cargo, military/defense and rotorcraft customers globally. Core services include parts distribution, component and engine accessory MRO services, rotable exchange and supply chain services.

FLEET

Distribution & Fleet Services

VSE's Fleet segment provides parts, inventory management, e-commerce fulfillment, logistics, supply chain support and other services to the commercial aftermarket medium- and heavy-duty truck market, the United States Postal Service (USPS), and the United States Department of Defense. 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.

FEDERAL & DEFENSE

Logistics & Sustainment Services

VSE's Federal & Defense segment provides aftermarket MRO and logistics services to improve operational readiness and extend the lifecycle 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 and data management services and energy consulting.

Please refer to the Form 10-Q that will be filed with the Securities and Exchange Commission (SEC) on or about October 27, 2022 for more details on our third quarter 2022 results. Also, refer to VSE’s Annual Report on Form 10-K for the year ended December 31, 2021 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 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, 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, 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, 2021. 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.

VSE Corporation and Subsidiaries

Unaudited Consolidated Balance Sheets

(in thousands except share and per share amounts)

 

 

September 30,

 

December 31,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

90

 

$

518

 

Receivables (net of allowance of $3.4 million and $1.7 million, respectively)

 

 

91,093

 

 

76,587

 

Unbilled receivables

 

 

44,084

 

 

31,882

 

Inventories

 

 

349,917

 

 

322,702

 

Other current assets

 

 

28,154

 

 

32,304

 

Total current assets

 

 

513,338

 

 

463,993

 

 

 

 

 

 

Property and equipment (net of accumulated depreciation of $72 million and $66 million, respectively)

 

 

44,564

 

 

42,486

 

Intangible assets (net of accumulated amortization of $120 million and $135 million, respectively)

 

 

94,857

 

 

108,263

 

Goodwill

 

 

248,837

 

 

248,753

 

Operating lease right-of-use asset

 

 

23,950

 

 

27,327

 

Other assets

 

 

31,980

 

 

27,736

 

Total assets

 

$

957,526

 

$

918,558

 

 

 

 

 

 

Liabilities and Stockholders' equity

 

 

 

 

Current liabilities:

 

 

 

 

Current portion of long-term debt

 

$

9,162

 

$

14,162

 

Accounts payable

 

 

119,093

 

 

115,064

 

Accrued expenses and other current liabilities

 

 

50,791

 

 

49,465

 

Dividends payable

 

 

1,280

 

 

1,273

 

Total current liabilities

 

 

180,326

 

 

179,964

 

 

 

 

 

 

Long-term debt, less current portion

 

 

288,531

 

 

270,407

 

Deferred compensation

 

 

10,128

 

 

14,328

 

Long-term lease obligations under operating leases

 

 

22,947

 

 

27,168

 

Deferred tax liabilities

 

 

10,166

 

 

9,108

 

Other long-term liabilities

 

 

 

 

250

 

Total liabilities

 

 

512,098

 

 

501,225

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

Common stock, par value $0.05 per share, authorized 23,000,000 shares; issued and outstanding 12,799,678 and 12,726,659, respectively

 

 

640

 

 

636

 

Additional paid-in capital

 

 

91,706

 

 

88,515

 

Retained earnings

 

 

347,730

 

 

328,358

 

Accumulated other comprehensive income (loss)

 

 

5,352

 

 

(176

)

Total stockholders' equity

 

 

445,428

 

 

417,333

 

Total liabilities and stockholders' equity

 

$

957,526

 

$

918,558

 

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,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

Revenues:

 

 

 

 

 

 

 

 

Products

 

$

138,216

 

$

113,005

 

$

419,023

 

$

276,048

Services

 

 

104,271

 

 

87,577

 

 

296,416

 

 

264,627

Total revenues

 

 

242,487

 

 

200,582

 

 

715,439

 

 

540,675

 

 

 

 

 

 

 

 

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

Products

 

 

123,348

 

 

101,044

 

 

376,781

 

 

273,081

Services

 

 

96,653

 

 

79,916

 

 

279,163

 

 

241,104

Selling, general and administrative expenses

 

 

981

 

 

809

 

 

2,752

 

 

1,897

Amortization of intangible assets

 

 

4,233

 

 

4,921

 

 

13,406

 

 

13,812

Total costs and operating expenses

 

 

225,215

 

 

186,690

 

 

672,102

 

 

529,894

 

 

 

 

 

 

 

 

 

Operating income

 

 

17,272

 

 

13,892

 

 

43,337

 

 

10,781

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

4,818

 

 

2,780

 

 

12,299

 

 

8,476

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

12,454

 

 

11,112

 

 

31,038

 

 

2,305

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

3,035

 

 

2,091

 

 

7,827

 

 

539

 

 

 

 

 

 

 

 

 

Net income

 

$

9,419

 

$

9,021

 

$

23,211

 

$

1,766

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.74

 

$

0.71

 

$

1.82

 

$

0.14

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

 

12,797,727

 

 

12,704,165

 

 

12,772,731

 

 

12,496,646

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.73

 

$

0.71

 

$

1.81

 

$

0.14

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

 

12,834,084

 

 

12,774,636

 

 

12,816,319

 

 

12,573,076

 

 

 

 

 

 

 

 

 

Dividends declared per share

 

$

0.10

 

$

0.09

 

$

0.30

 

$

0.27

VSE Corporation and Subsidiaries

Unaudited Consolidated Statements of Cash Flows

(in thousands)

 

 

For the nine months ended September 30,

 

 

 

2022

 

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

Net income

 

$

23,211

 

 

$

1,766

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

Depreciation and amortization

 

 

19,277

 

 

 

18,996

 

Deferred taxes

 

 

(779

)

 

 

(4,803

)

Stock-based compensation

 

 

3,597

 

 

 

2,968

 

Inventory valuation adjustment

 

 

1,094

 

 

 

24,420

 

Loss on sale of PPE

 

 

 

 

 

(48

)

Changes in operating assets and liabilities, net of impact of acquisitions:

 

 

 

 

Receivables

 

 

(14,506

)

 

 

(9,321

)

Unbilled receivables

 

 

(12,202

)

 

 

(4,484

)

Inventories

 

 

(28,309

)

 

 

(66,518

)

Other current assets and noncurrent assets

 

 

6,189

 

 

 

(18,912

)

Accounts payable and deferred compensation

 

 

(171

)

 

 

17,955

 

Accrued expenses and other current and noncurrent liabilities

 

 

(1,607

)

 

 

7,458

 

 

 

 

 

 

Net cash used in operating activities

 

 

(4,206

)

 

 

(30,523

)

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Purchases of property and equipment

 

 

(7,416

)

 

 

(7,606

)

Proceeds from the sale of property and equipment

 

 

 

 

 

199

 

Proceeds from the payment on notes receivable

 

 

4,235

 

 

 

1,550

 

Earn-out obligation payments

 

 

 

 

 

(750

)

Cash paid for acquisitions, net of cash acquired

 

 

 

 

 

(53,232

)

 

 

 

 

 

Net cash used in investing activities

 

 

(3,181

)

 

 

(59,839

)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Borrowings on loan agreement

 

 

358,051

 

 

 

394,079

 

Repayments on loan agreement

 

 

(345,554

)

 

 

(350,956

)

Proceeds from issuance of common stock

 

 

486

 

 

 

52,017

 

Earn-out obligation payments

 

 

(1,250

)

 

 

(808

)

Payments of taxes for equity transactions

 

 

(942

)

 

 

(681

)

Dividends paid

 

 

(3,832

)

 

 

(3,284

)

 

 

 

 

 

Net cash provided by financing activities

 

 

6,959

 

 

 

90,367

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

 

(428

)

 

 

5

 

Cash and cash equivalents at beginning of period

 

 

518

 

 

 

378

 

Cash and cash equivalents at end of period

 

$

90

 

 

$

383

 

 

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