VSE (VSEC) - 2023 Q1 - Quarterly Report

PART I - Financial Information This section presents the company's unaudited financial statements and management's analysis of its financial performance and condition Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Q1 2023, highlighting significant year-over-year increases in revenue and net income Financial Metric | Financial Metric | March 31, 2023 | March 31, 2022 | | :--- | :--- | :--- | | Total Revenues | $255.4 million | $231.2 million | | Operating Income | $17.9 million | $11.9 million | | Net Income | $9.1 million | $6.2 million | | Diluted EPS | $0.71 | $0.49 | Balance Sheet Item | Balance Sheet Item | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $1,044.4 million | $999.8 million | | Total Liabilities | $587.1 million | $550.3 million | | Total Stockholders' Equity | $457.3 million | $449.5 million | - The company operates through three segments: Aviation, Fleet, and Federal and Defense, providing aftermarket products and services for transportation assets to commercial and government markets[24] - On February 1, 2023, the Aviation segment acquired Precision Fuel Components, LLC for a preliminary cash purchase price of $11.8 million to expand its MRO service capabilities[28] - Subsequent to the quarter end, on May 1, 2023, VSE entered into a definitive agreement to sell its Federal and Defense Segment for up to $100 million[58] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management provides an analysis of the company's financial condition and operational results for Q1 2023, detailing revenue and income drivers Consolidated Results of Operations This section details the company's consolidated financial performance, highlighting key revenue and income trends Consolidated Financial Performance (in thousands) | Metric | Q1 2023 | Q1 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $255,433 | $231,239 | $24,194 | 10.5% | | Operating Income | $17,933 | $11,914 | $6,019 | 50.5% | | Net Income | $9,117 | $6,244 | $2,873 | 46.0% | - The increase in revenue was primarily driven by growth in the Aviation segment ($19.9 million) and Fleet segment ($8.3 million), partially offset by a decrease in the Federal and Defense segment ($4.1 million)[68] - Interest expense increased by 65.6% to $6.0 million due to higher average interest rates on outstanding borrowings[68][71] Segment Operating Results This section provides a detailed breakdown of revenue and operating income across the company's business segments Segment Revenue | Segment | Q1 2023 Revenue | Q1 2022 Revenue | % Change | | :--- | :--- | :--- | :--- | | Aviation | $113.2M | $93.3M | 21% | | Fleet | $75.4M | $67.0M | 12% | | Federal and Defense | $66.8M | $70.9M | (6)% | Segment Operating Income (Loss) | Segment | Q1 2023 Operating Income (Loss) | Q1 2022 Operating Income (Loss) | % Change | | :--- | :--- | :--- | :--- | | Aviation | $15.7M | $7.6M | 105% | | Fleet | $5.9M | $6.4M | (8)% | | Federal and Defense | ($0.6M) | ($0.7M) | (16)% | - Aviation segment growth was driven by a 14% increase in distribution revenue and a 43% increase in repair revenue, benefiting from the recovery in global commercial air travel[74] - Fleet segment operating income decreased primarily due to costs associated with a newly launched e-commerce fulfillment and distribution center[79] Bookings and Funded Backlog This section details the Federal and Defense segment's bookings and funded contract backlog Federal and Defense Segment (in millions) | Federal and Defense Segment (in millions) | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Bookings | $61 | $92 | | Funded Contract Backlog | $185 | $198 | - For the three months ended March 31, 2023, Federal and Defense segment bookings decreased 34% year-over-year, and total funded backlog decreased 7% year-over-year[84] Liquidity and Capital Resources This section analyzes the company's cash flows, debt, and available credit, detailing its liquidity and capital structure Cash Flow Summary (in thousands) | Cash Flow Summary (in thousands) | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(48,674) | $(18,174) | | Net cash (used in) provided by investing activities | $(14,594) | $1,393 | | Net cash provided by financing activities | $63,322 | $16,761 | - The increase in cash used in operating activities was primarily due to greater use of cash for inventory purchases[88] - As of March 31, 2023, the company had $97.5 million in term loan borrowings, $256.5 million in revolving loan borrowings, and $93 million of unused bank loan commitments[86] Item 3. Quantitative and Qualitative Disclosures About Market Risks The company's primary market risk is interest rate risk associated with its variable-rate bank loan agreement, mitigated by interest rate hedges - The company's main market risk exposure is to variable interest rates on its bank loan agreement[96] - VSE utilizes interest rate hedges to fix the rate on a portion of its outstanding borrowings to mitigate risks from interest rate movements[96] Item 4. Controls and Procedures The company's disclosure controls and procedures were deemed effective as of March 31, 2023, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that as of March 31, 2023, the company's disclosure controls and procedures were effective[102] - No changes were made during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[103] PART II - Other Information This section provides other essential information, including legal proceedings, updated risk factors, and regulatory exhibits Item 1. Legal Proceedings The company reported no material legal proceedings during the period - The company reports no legal proceedings for the quarter[105] Item 1A. Risk Factors This section updates the risk factors from the 2022 Annual Report on Form 10-K by adding a new risk related to business divestitures - A new risk factor was added regarding the potential adverse effects of business divestitures, which may require significant time and resources, disrupt business, and result in losses or continued financial involvement[107] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not purchase any of its own equity securities during the quarter ended March 31, 2023 - The company did not purchase any of its equity securities during the period covered by the report[108] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - The exhibits filed with the report include CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and XBRL instance documents[110]