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Volt Information Sciences reports Q4 and fiscal year results

For the full fiscal year the Company reported a net loss in 2013 of $30.9 million, or $1.48 per share compared to a net loss of $13.6 million, or $0.65 per share, in fiscal 2012.

Non-GAAP Proforma Measures – Unrecognized Revenue – Volt subsidiaries sometimes provide services despite a customer arrangement not yet being finalized, or continue to provide services under an expired arrangement while a renewal arrangement is being finalized. Generally Accepted Accounting Principles (“GAAP”) usually requires that services revenue be deferred until arrangements are finalized or in some cases until cash is received, which causes some periods to include the expense of providing services although the related revenue is not recognized until a subsequent period (“Unrecognized Revenue”). The following discussion refers to financial data determined both using GAAP as well as on a non-GAAP proforma basis. The non-GAAP proforma basis includes adjustments for Unrecognized Revenue so that revenue is shown in the same period as the related services are provided. This non-GAAP financial information is used by management and provided herein primarily to provide a more complete understanding of the Company’s business results and trends. In addition, the Company believes that lenders, analysts and others in the investment community use this non-GAAP financial information to assess the Company’s historical results, and that failure to report this non-GAAP measure could result in a potentially misplaced perception that the Company’s results have either met, exceeded or underperformed expectations. This non-GAAP information should not be considered an alternative for, or in isolation from, the financial information prepared and presented in accordance with GAAP. In addition, this measure may not be comparable to similarly titled measures used by other companies.

Fourth Fiscal Quarter Results

Operating income of $2.8 million in the fourth quarter of 2013 included restructuring costs of $2.8 million, restatement and associated investigation expenses of $2.5 million and recognition of previously deferred software systems revenues and costs, net of current period deferrals, of $4.6 million. Without these items the Company would have had operating income of $3.5 million and a proforma operating income of $1.6 million.

Operating loss in the fourth quarter of fiscal 2012 of $0.5 million included restatement and associated investigation expenses of $14.9 million, recognition of previously deferred software systems revenues and costs, net of current period deferrals, of $1.3 million and a gain on the sale of building of $4.4 million. Without these items the Company would have had operating income of $8.7 million and proforma operating income of $6.3 million.

In addition to the above, operating results and proforma operating results decreased in the fourth quarter of 2013 over 2012 due to a decrease in Computer Systems results of approximately $6.0 million due to lower transaction volumes, pricing and maintenance levels with relatively fixed costs and investment in developing the Company’s directory assistance software platform into full-featured call center software, partially offset by an increase in Staffing Services results of approximately $0.7 million primarily due to higher traditional staffing margins.

Net revenue in the fourth quarter of 2013 decreased $24.8 million to $546.8 million from $571.6 million in 2012, and proforma net revenue decreased by $24.3 million, or 4.3%, to $544.9 million from $569.2 million in the fourth quarter of 2012. The change in revenue was primarily the result of decreased Staffing Services revenues by $26.2 million (proforma of $25.7 million) resulting from the Company’s increased focus on exiting or reducing business levels with customers where profitability or business terms are unfavorable, lower staffing levels at a few large customers related to their particular business demand level, slightly lower managed services revenue, and from lower Computer Systems revenues from several large implementations reaching the end of the maintenance periods over which the projects were being amortized and lower transaction volumes, pricing and maintenance levels.

Fiscal Year Results

Unaudited (in Thousands)

Results of Operations by Segment (Fiscal 2013 vs. 2012)

Year ended November 3, 2013

Year ended October 28, 2012

(in thousands)

 

Total

Staffing Services

Computer Systems

Other

Total

Staffing Services

Computer Systems

Other

Net Revenue

 

$2,090,937

$1,899,723

$73,465

$117,749

$2,246,127

$2,027,601

$99,679

$118,847

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Direct cost of staffing services revenue

 

1,634,365

 

1,634,365

 

-

 

-

 

1,738,933

 

1,738,933

 

-

 

-

Cost of other revenue

 

160,199

 

-

 

65,680

 

94,519

 

163,853

 

-

 

68,281

 

95,572

Selling, administrative and other operating costs

 

284,748

 

239,105

 

24,314

 

21,329

 

300,116

 

251,410

 

26,897

 

21,809

Amortization of purchased intangible assets

 

1,369

 

34

 

858

 

477

 

1,382

 

47

 

859

 

476

Restructuring costs

 

4,726

781

3,945

-

-

-

-

-

Segment operating income (loss)

 

5,530

 

25,438

 

(21,332)

 

1,424

 

41,843

 

37,211

 

3,642

 

990

Corporate general and administrative

 

9,286

 

 

 

 

 

10,731

 

 

 

 

Gain on sale of building

 

-

 

 

 

 

 

(4,418)

 

 

 

 

Restatement and associated investigations

 

24,828

 

 

 

 

 

42,906

 

 

 

 

Operating loss

 

(28,584)

 

 

 

 

 

(7,376)

 

 

 

 

Other expense, net

 

(1,822)

 

 

 

 

 

(3,836)

 

 

 

 

Income tax provision

 

469

 

 

 

 

 

2,391

 

 

 

 

Net loss

 

$(30,875)

 

 

 

 

 

$(13,603)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NON-GAAP PROFORMA TABLE

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended November 3, 2013

Year ended October 28, 2012

(in thousands)

 

Total

Staffing Services

Computer Systems

Other

Total

Staffing Services

Computer Systems

Other

Net Revenue

 

$2,090,937

 

$1,899,723

 

$73,465

 

$117,749

 

$2,246,127

 

$2,027,601

 

$99,679

 

$118,847

Recognition of previously unrecognized revenue

 

(11,166)

 

(11,166)

 

-

 

-

 

(30,090)

 

(30,090)

 

-

 

-

Additions to unrecognized revenue

 

4,869

4,869

-

-

11,731

11,731

-

-

Net non-GAAP proforma adjustment

 

(6,297)

 

(6,297)

 

-

 

-

 

(18,359)

 

(18,359)

 

-

 

-

 

Non-GAAP proforma net revenue

 

2,084,640

1,893,426

73,465

117,749

2,227,768

2,009,242

99,679

118,847

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Direct cost of staffing services revenue

 

1,634,365

 

1,634,365

 

-

 

-

 

1,738,933

 

1,738,933

 

-

 

-

Cost of other revenue

 

160,199

 

-

 

65,680

 

94,519

 

163,853

 

-

 

68,281

 

95,572

Selling, administrative and other operating costs

 

284,748

 

239,105

 

24,314

 

21,329

 

300,116

 

251,410

 

26,897

 

21,809

Amortization of purchased intangible assets

 

1,369

 

34

 

858

 

477

 

1,382

 

47

 

859

 

476

Restructuring costs

 

4,726

781

3,945

-

-

-

-

-

Non-GAAP proforma segment operating income (loss)

 

(767)

 

19,141

 

(21,332)

 

1,424

 

23,484

 

18,852

 

3,642

 

990

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP proforma operating loss

 

(34,881)

 

 

 

 

 

(25,735)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP proforma net loss

 

$(37,172)

 

 

 

 

 

$(31,962)

 

 

 

 

Operating loss of $28.6 million included restatement and associated investigation expenses of $24.8 million, restructuring costs of $4.7 million and recognition of previously deferred software systems revenues and costs of $7.9 million. Without these items the Company would have had an operating loss of $7.0 million and a proforma operating loss of $13.3 million.

Operating loss of $7.4 million in fiscal 2012 included restatement and associated investigation expenses of $42.9 million and recognition of previously deferred software systems revenues and costs, net of current period deferrals, of $19.1 million. Without these items the Company would have had operating income of $16.4 million and a proforma operating loss of $2.0 million.

Operating results and proforma operating results were lower in fiscal 2013 than fiscal 2012 due to the above reasons and a decrease in Computer Systems results of $9.8 million due to lower transaction volumes, pricing and maintenance levels with relatively fixed costs of revenue and investment in developing the Company’s directory assistance software platform into full-featured call center software and a gain on sale of building of $4.4 million in 2012 with no similar gain in 2013. The decreases were partially offset by an increase in Staffing Services results of $1.0 million primarily due to higher traditional staffing margins.

Net revenue in fiscal 2013 decreased $155.2 million to $2,090.9 million from $2,246.1 million in fiscal 2012, and proforma net revenue decreased by $143.2 million, or 6.4%, to $2,084.6 million from $2,227.8 million in fiscal 2012. The change in revenue, including the impact of fiscal 2013 consisting of 53 weeks while fiscal 2012 consisted of 52 weeks, was primarily the result of decreased Staffing Services revenues by $127.9 million (proforma of $115.8 million) resulting from the company’s increased focus on exiting or reducing business levels with customers where profitability or business terms are unfavorable, lower staffing levels at a few large customers related to their particular business demand level, slightly lower managed services revenue, and $12.1 million lower recognition of previously unrecognized staffing revenues, and from lower Computer Systems revenues of $26.2 million from lower transaction volumes, pricing and maintenance levels as well as several large implementations reaching the end of the maintenance periods over which the projects were being amortized. Revenue and proforma revenue included recognition of previously deferred software systems revenues, net of current period deferrals, of $7.6 million in fiscal 2013 and $31.6 million in fiscal 2012, a decrease of $24.0 million.

Fiscal Year Results By Segment

The Company’s Staffing Services segment operating income in fiscal 2013 decreased $11.8 million to $25.4 million from $37.2 million in fiscal 2012, and proforma operating income in fiscal 2013 increased by $0.2 million, or 1.5%, to $19.1 million from $18.9 million in fiscal 2012. The change in operating income is primarily due to a $3.0 million indirect tax recovery, lower traditional staffing revenue, although at higher margin ratios, and selling, administrative and other operating costs decreases lagging the decrease in revenue. GAAP results include $12.1 million lower recognition of previously unrecognized staffing revenue.

Staffing Services net revenue in fiscal 2013 decreased $127.9 million to $1,899.7 million from $2,027.6 million in fiscal 2012, and proforma net revenue decreased by $115.8 million, or 5.8%, to $1,893.4 million from $2,009.2 million in fiscal 2012. This decrease is primarily due to the Company’s increased focus on exiting or reducing business levels with customers where profitability or business terms are unfavorable, lower staffing levels at a few large customers related to their particular business demand level, slightly lower managed services revenue, and $12.1 million lower recognition of previously unrecognized staffing revenues.

The Company’s Computer Systems segment operating results in fiscal 2013 decreased by $24.9 million to a loss of $21.3 million compared to income of $3.6 million in fiscal 2012 primarily due to lower amortization of previously deferred revenue and previously deferred costs of $11.2 million as several large system implementations reaching the end of the maintenance periods over which the revenue and costs of projects are being amortized. Without the recognition of previously deferred software systems revenues and costs, the segment operating loss would have been $29.3 million in 2013 and $15.5 million in 2012. The decline was primarily due to $9.9 million of lower transaction and maintenance revenues with relatively fixed data acquisition costs and restructuring costs of $3.9 million as we reduced headcount in response to lower revenue levels.

Computer Systems net revenue in fiscal 2013 decreased by $26.2 million, or 26.3%, to $73.5 million from $99.7 million in fiscal 2012. This decrease was primarily a result of lower transaction revenues by $12.4 million due to both lower volumes and pricing, lower maintenance revenue by $5.0 million, and lower systems revenues by $8.8 million as several large implementations reaching the end of the maintenance periods over which the revenue of projects were being amortized and were not replaced by similar levels of new system implementations.

The Company’s Other reportable segment operating income remained relatively flat at $1.4 million in fiscal 2013 from $1.0 million in fiscal 2012. The segment’s net revenue in fiscal 2013 decreased $1.1 million, or 0.9%, to $117.7 million from $118.8 million in fiscal 2012. The decrease was due to lower telecommunications infrastructure services revenue primarily due to lower volume of projects partially offset by higher information technology infrastructure services revenue driven primarily by a higher volume of business resulting primarily from new customers and to a lesser extent from net expanded business with existing customers at billing rates that remained relatively consistent between the periods.

Liquidity

During fiscal 2013, the Company disbursed $37.3 million in connection with the restatement and related investigations and provided cash of from all other operating activities $7.6 million. The Company used $11.3 million for capital expenditures, net of $0.3 million received from the sale of property and equipment, and received $0.4 million for the sale of investments net of purchases. Borrowing under the accounts receivable securitization program increased by $22.0 million and decreases in restricted cash as collateral for foreign currency borrowings and banking facilities provided $3.8 million, partially offset by repayment of approximately $0.8 million of long-term debt.

VOLT INFORMATION SCIENCES, INC.

Condensed Statements of Cash Flows

Unaudited (in Thousands)

Three Months Ended

Fiscal Year Ended

 

November 3, 2013

October 28, 2012

November 3, 2013

October 28, 2012

 

 

Cash and cash equivalents at beginning of the period

 

$21,389

 

$33,118

 

$26,483

 

$44,567

 

 

 

 

 

 

Cash used in connection with restatement and related investigations

 

(2,674)

 

(11,826)

 

(37,292)

 

(37,160)

Net cash provided by (used in) all other operating activities

 

(4,726)

2,010

7,581

(3,637)

Net cash used in operating activities

 

(7,400)

 

(9,816)

 

(29,711)

 

(40,797)

 

 

 

 

 

 

Net cash used in investing activities

 

(4,353)

 

2,257

 

(10,953)

 

(7,642)

 

 

 

 

 

 

Net cash released (restricted) as collateral for borrowings

 

(614)

 

(328)

 

3,796

 

(1,391)

Net cash provided by all other financing activities

 

2,092

1,252

21,499

31,746

Net cash provided by financing activities

 

1,478

 

924

 

25,295

 

30,355

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

(10,275)

 

(6,635)

 

(15,369)

 

(18,084)

Cash and cash equivalents at end of the period

 

$11,114

 

$26,483

 

$11,114

 

$26,483

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental information:

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$811

 

$732

 

$2,925

 

$2,866

Income taxes

 

$999

 

$1,246

 

$10,822

 

$3,740

On November 3, 2013, the Company had cash and cash equivalents of $11.1 million and an additional $31.8 million of cash restricted as collateral for foreign currency credit lines and banking facilities. The Company also had approximately $25.5 million available from its short-term financing program. Excluding $8.9 million of long-term debt, the Company’s consolidated borrowings were $167.3 million at November 3, 2013, which included $22.3 million of foreign currency borrowings used primarily to hedge net investments in foreign subsidiaries that are fully collateralized by restricted cash, and $142.0 million drawn under the $200.0 million short-term financing program. The amount drawn under the short-term borrowing financing program was subsequently decreased to $120.0 million in January 2014 at which time there was approximately $20.3 million additional borrowing available.

Balance Sheets

Unaudited (in Thousands, except share amounts)

November 3, 2013

October 28, 2012

ASSETS

 

CURRENT ASSETS:

 

 

 

Cash and cash equivalents

 

$11,114

 

$26,483

Restricted cash

 

47,356

 

61,927

Short-term investments

 

6,144

 

5,611

Trade accounts receivable, net of allowances of $1,811 and $1,899, respectively

 

293,305

 

334,947

Recoverable income taxes

 

17,150

 

13,884

Prepaid insurance

 

14,248

 

11,138

Other current assets

 

21,097

15,406

TOTAL CURRENT ASSETS

 

410,414

 

469,396

Prepaid insurance and other assets, excluding current portion

 

43,473

 

38,479

Property, equipment and software, net

 

37,324

 

39,052

Purchased intangible assets, net and goodwill

 

9,101

10,645

TOTAL ASSETS

 

$500,312

$557,572

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

CURRENT LIABILITIES:

 

 

 

Accrued compensation

 

$53,474

 

$58,183

Accounts payable

 

57,165

 

86,523

Accrued taxes other than income taxes

 

19,520

 

29,361

Accrued insurance and other

 

44,133

 

34,927

Deferred revenue, net, current portion

 

13,335

 

24,240

Short-term borrowings, including current portion of long-term debt

 

168,114

145,727

TOTAL CURRENT LIABILITIES

 

355,741

 

378,961

Accrued insurance, excluding current portion

 

13,003

 

9,010

Deferred revenue, net, excluding current portion

 

2,839

 

4,268

Income taxes payable, excluding current portion

 

8,659

 

10,424

Deferred income taxes

 

1,702

 

2,759

Long-term debt, excluding current portion

 

8,127

9,033

TOTAL LIABILITIES

 

390,071

 

414,455

 

 

 

Commitments and contingencies

 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

Preferred stock, par value $1.00 Authorized - 500,000 shares Issued - none

 

-

 

-

Common stock, par value $0.10 Authorized - 120,000,000 shares

 

 

 

Issued - 23,536,769 and 23,500,103, respectively Outstanding - 20,849,462 and 20,812,796, respectively

 

2,354

 

2,350

Paid-in capital

 

72,003

 

71,591

Retained earnings

 

83,007

 

113,795

Accumulated other comprehensive loss

 

(5,243)

 

(2,739)

Treasury stock, at cost 2,687,307 shares

 

(41,880)

(41,880)

TOTAL STOCKHOLDERS' EQUITY

 

110,241

143,117

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$500,312

$557,572

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