VSE's Second Quarter: Company Continues to Grow

In a recent article, we noted that VSE Corporation (VSEC) has been growing nicely over the last 5 years. On an annualized basis, revenue growth is 49%, net income growth is 63%, and diluted EPS growth is 58%. It is instructive to examine the company's funded backlog. As noted in the company's Form 10-K, the "funded backlog for government contracts represents a measure of the Company's potential future revenues and is defined as the total value of contracts that has been appropriated and funded by the procuring agencies, less the amount of revenues that have already been recognized on such contracts." Funded backlog grew from 83M in 2003 to 408M in 2007.

This is a low-margin business due to very high contract costs. In 2005, 2006, and 2007 gross margins were 3.7%, 3.5%, and 3.6%, respectively, operating margins were 3.6%, 3.4%, and 3.5%, respectively, and net margins were 2.2%, 2.1%, and 2.2%, respectively.