vsec-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _____ to _____

Commission File Number: 000-03676

VSE CORPORATION

(Exact Name of Registrant as Specified in its Charter)


Delaware			54-0649263
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)

6348 Walker Lane

Alexandria,

Virginia

22310

(Address of Principal Executive Offices)

(Zip Code)

Registrant's Telephone Number, Including Area Code: (703) 960-4600

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.05 per share

VSEC

The NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transaction period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Number of shares of Common Stock outstanding as of April 22, 2021: 12,704,165


	TABLE OF CONTENTS


		Page
PART I

ITEM 1.	Financial Statements

	Unaudited Consolidated Balance Sheets as of March 31 , 202 1 and December 31, 2 020	4

	Unaudited Consolidated Statements of Income for the three months ended March 31 , 202 1 and 2 02 0	5

	Unaudited Consolidated Statements of Comprehensive Income for the three months ended March 31 , 202 1 and 20 20	6

	Unaudited Consolidated Statements of Stockholders' Equity for the three months ended March 31 , 202 1 and 20 20	7

	Unaudited Consolidated Statements of Cash Flows for the three months ended March 31 , 202 1 and 20 20	8

	Notes to Unaudited Consolidated Financial Statements	9

ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risks	32

ITEM 4.	Controls and Procedures	32

PART II

ITEM 1.	Legal Proceedings	32

ITEM 1A.	Risk Factors	32

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

ITEM 5.	Other Information	32

ITEM 6.	Exhibits	33

Signatures		34

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Forward Looking Statements

This quarterly report on Form 10-Q (“Form 10-Q”) contains statements that, to the extent they are not recitations of historical fact, constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All such statements are intended to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and includes this statement for purposes of such safe harbor provisions.

“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, those identified elsewhere in this document, including in Item 1A, Risk Factors, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 3, Quantitative and Qualitative Disclosures About Market Risk, as well as with respect to the risks described in Item 1A, Risk Factors, to our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on March 5, 2021 (“2020 Form 10-K"). 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. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that occur or arise after the date hereof.

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PART I. Financial Information

Item 1. Financial Statements

VSE Corporation and Subsidiaries

Unaudited Consolidated Balance Sheets

(in thousands except share and per share amounts)


	March 31,		December 31,
	2021		2020
Assets
Current assets:
Cash and cash equivalents	$	347	$	378
Receivables, net	63,552		55,471
Unbilled receivables, net	43,694		22,358
Inventories, net	282,771		253,422
Other current assets	29,169		23,328
Total current assets	419,533		354,957

Property and equipment, net	38,318		36,363
Intangible assets, net	105,914		103,595
Goodwill	238,126		238,126
Operating lease - right-of-use assets	22,181		20,515
Other assets	29,016		26,525
Total assets	$	853,088	$	780,081

Liabilities and Stockholders' equity
Current liabilities:
Current portion of long-term debt	$	21,316	$	20,379
Accounts payable	73,816		72,682

Accrued expenses and other current liabilities	50,882		45,172
Dividends payable	1,142		995
Total current liabilities	147,156		139,228

Long-term debt, less current portion	232,247		230,714
Deferred compensation	17,186		16,027

Long-term operating lease obligations	23,673		22,815

Deferred tax liabilities	16,523		14,897
Other long-term liabilities	2,000		83
Total liabilities	438,785		423,764

Commitments and contingencies (Note 6)

Stockholders' equity:
Common stock, par value $0.05 per share, authorized 15,000,000 shares; issued and outstanding 12,691,570 and 11,055,037, respectively	635		553
Additional paid-in capital	85,296		31,870
Retained earnings	329,064		325,097
Accumulated other comprehensive loss	(692)		(1,203)
Total stockholders' equity	414,303		356,317
Total liabilities and stockholders' equity	$	853,088	$	780,081

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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VSE Corporation and Subsidiaries

Unaudited Consolidated Statements of Income

(in thousands except share and per share amounts)


	For the three months ended March 31,
		2021		2020
Revenues:
Products		$	78,580	$	76,342
Services		86,401		101,076
Total revenues		164,981		177,418

Costs and operating expenses:
Products		70,712		65,527
Services		80,340		90,758
Selling, general and administrative expenses		38		248
Amortization of intangible assets		4,288		4,723
Total costs and operating expenses		155,378		161,256

		9,603		16,162

Loss on sale of a business entity and certain assets		—		(7,536)
Gain on sale of property		—		1,108


Operating income		9,603		9,734

Interest expense, net		3,030		3,486

Income before income taxes		6,573		6,248

Provision for income taxes		1,462		2,916

Net income		$	5,111	$	3,332

Basic earnings per share		$	0.42	$	0.30

Basic weighted average shares outstanding		12,076,509		11,000,204

Diluted earnings per share		$	0.42	$	0.30

Diluted weighted average shares outstanding		12,171,828		11,100,506

Dividends declared per share		$	0.09	$	0.09

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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VSE Corporation and Subsidiaries

Unaudited Consolidated Statements of Comprehensive Income

(in thousands)


	For the three months ended March 31,
		2021		2020
Net income		$	5,111	$	3,332

Change in fair value of interest rate swap agreements, net of tax		511		(873)

Other comprehensive income (loss), net of tax		511		(873)

Comprehensive income		$	5,622	$	2,459

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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VSE Corporation and Subsidiaries

Unaudited Consolidated Statements of Stockholders' Equity

(in thousands except per share data)


	Three months ended March 31, 2021
				Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Common Stock
	Shares	Amount
Balance at December 31, 2020	11,055	$	553	$	31,870	$	325,097	$	(1,203)	$	356,317
Issuance of common stock	1,599	80		51,937		—		—		52,017

Net income	—	—		—		5,111		—		5,111
Stock-based compensation	37	2		1,489		—		—		1,491
Other comprehensive gain, net of tax	—	—		—		—		511		511
Dividends declared ($0.09 per share)	—	—		—		(1,144)		—		(1,144)
Balance at March 31, 2021	12,691	$	635	$	85,296	$	329,064	$	(692)	$	414,303


	Three months ended March 31, 2020
				Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Common Stock
	Shares	Amount
Balance at December 31, 2019	10,970	$	549	$	29,411	$	334,246	$	(1,105)	$	363,101

Net income	—	—		—		3,332		—		3,332
Stock-based compensation	59	2		1,833		—		—		1,835
Other comprehensive loss, net of tax	—	—		—		—		(873)		(873)
Dividends declared ($0.09 per share)	—	—		—		(994)		—		(994)
Balance at March 31, 2020	11,029	$	551	$	31,244	$	336,584	$	(1,978)	$	366,401

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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VSE Corporation and Subsidiaries

Unaudited Consolidated Statements of Cash Flows

(in thousands)


	For the three months ended March 31,
	2021		2020
Cash flows from operating activities:
Net income	$	5,111	$	3,332
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	5,944		6,475
Deferred taxes	1,457		1,592
Stock-based compensation	1,415		897
Loss on sale of a business entity and certain assets	—		7,536
Gain on sale of property and equipment	—		(1,127)



Earn-out obligation fair value adjustment	—		301
Changes in operating assets and liabilities, net of impact of acquisitions:
Receivables	(2,787)		(163)
Unbilled receivables	(17,341)		(2,041)
Inventories	(28,910)		(8,255)
Other current assets and noncurrent assets	(10,306)		2,777
Accounts payable and deferred compensation	1,051		395
Accrued expenses and other current and noncurrent liabilities	7,999		(4,961)




Net cash (used in) provided by operating activities	(36,367)		6,758

Cash flows from investing activities:
Purchases of property and equipment	(2,109)		(724)
Proceeds from the sale of property and equipment	14		2,424
Proceeds from payments on notes receivable

SEC Form 10-Q filed by VSE Corporation