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Volt Information Sciences reports Q3 net loss

On a proforma basis the company reported a net loss for the quarter of $2.3 million compared to a net loss of $3.7 million in 2013. On a GAAP basis the company reported a net loss for the quarter of $0.5 million, or $0.02 per share, compared with net income of $2.1 million, or $0.10 per share in 2013. Proforma amounts include Unrecognized Revenue (defined below).

“The third quarter of fiscal 2014 showed improving operating margin rates in our Staffing Services segment leading to better profitability compared to 2013. Contributing to the segment’s improved profitability, North America traditional staffing services average daily revenue increased approximately 1.0% from the second quarter of 2014, the first sequential increase since the first quarter of 2013, with stronger demand from both enterprise and retail customers,” said Ron Kochman, President and Chief Executive Officer. “We continued to take the necessary steps to deliver on our long-term goals of returning the company to profitability. We are also pleased to have delivered on our commitment to relist on the NYSE MKT after more than three years of trading on the OTC, as this provides our shareholders with enhanced market maker support, improved liquidity and greater visibility.”

Third Quarter Revenue and Operating Results

Net revenue in the third quarter of fiscal 2014 decreased $67.2 million to $437.0 million from $504.2 million in fiscal 2013, and proforma net revenue decreased $63.3 million, or 12.7%, to $435.1 million from $498.4 million in fiscal 2013. The decrease in revenue was primarily the result of decreased Staffing Services revenues of $58.8 million (proforma of $59.3 million) resulting from lower demand primarily at our enterprise customers, but also to a lesser extent at our retail customers, and our continuing initiative to reduce exposure to customers with unfavorable business terms. The Computer Systems segment revenues decreased $1.2 million resulting from 14% lower directory assistance transaction revenue at slightly lower rates and lower maintenance and system revenue while sales of our full-featured call center software (“On-Demand”) were flat, and information technology infrastructure services revenue decreased driven primarily by the recognition of $4.8 million in 2013 of previously unrecognized revenue.

GAAP operating income in the third quarter of fiscal 2014 decreased to $1.3 million from $2.3 million in 2013, and GAAP net results for the third quarter of 2014 decreased to a loss of $0.5 million from net income of $2.1 million in 2013. However, including Unrecognized Revenue our proforma operating results improved to a loss of $0.5 million from a loss of $3.4 million in 2013, and proforma net loss decreased in 2014 to $2.3 million from $3.7 million in 2013. Despite the decrease in revenue, our Staffing Services segment operating income and direct margin rate improved as a result of actions taken in recent quarters including the reorganization of our traditional staffing business, the divestiture of the ProcureStaff business, and our continuing initiative to reduce exposure to customers with unfavorable business terms. The Computer Systems segment operating income improved $1.3 million primarily from lower administrative and delivery costs, and there were no restatement, investigations and remediation costs in the third quarter of 2014 compared to $1.2 million in the third quarter of 2013. These improvements were partially offset by a decline in operating results in our Other segment of $5.3 million ($1.0 million proforma) primarily from decreased margins on information technology infrastructure services and the recognition in the third quarter of 2013 of $4.8 million of previously unrecognized information technology infrastructure services revenue.

Condensed Consolidated Results of Operations by Segment
Unaudited (in Thousands)

Results of Operations by Segment (Third Quarter 2014 vs. Third Quarter 2013)

 

Three months ended August 3, 2014

Three months ended July 28, 2013

 

Total

Staffing

Services

Computer

Systems

Other

Total

Staffing

Services

Computer

Systems

Other

Revenue

 

 

 

 

Staffing service revenue

 

$396,979

 

$396,979

 

$ -

 

$ -

 

$455,848

 

$455,848

 

$ -

 

$ -

Other revenue

39,992

-

14,322

25,670

48,365

-

15,500

32,865

Net revenue

 

436,971

 

396,979

 

14,322

 

25,670

 

504,213

 

455,848

 

15,500

 

32,865

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Direct cost of staffing services

revenue

 

338,704

 

338,704

 

-

 

-

 

390,432

 

390,432

 

-

 

-

Cost of other revenue

 

35,890

 

-

 

13,572

 

22,318

 

37,595

 

-

 

14,390

 

23,205

Selling, administrative and other

operating costs

 

58,417

 

49,667

 

4,349

 

4,401

 

69,689

 

58,602

 

5,792

 

5,295

Amortization of purchased

intangible assets

 

195

 

26

 

169

 

-

 

337

 

3

 

214

 

120

Restructuring costs

117

42

(24)

99

223

141

82

-

Segment operating income (loss)

 

3,648

 

8,540

 

(3,744)

 

(1,148)

 

5,937

 

6,670

 

(4,978)

 

4,245

Corporate general and

administrative

 

2,319

 

 

 

 

 

2,439

 

 

 

 

Restatement, investigations and

remediation

-

 

 

 

1,159

 

 

 

Operating income

 

1,329

 

 

 

 

 

2,339

 

 

 

 

Other income (expense), net

 

(1,219)

 

 

 

 

 

(727)

 

 

 

 

Income tax provision (benefit)

590

 

 

 

(444)

 

 

 

Net income (loss)

$(480)

 

 

 

$2,056

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NON-GAAP PROFORMA

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended August 3, 2014

Three months ended July 28, 2013

 

Total

Staffing Services

Computer Systems

Other

Total

Staffing Services

Computer Systems

Other

Net revenue

 

$436,971

 

$396,979

 

$14,322

 

$25,670

 

$504,213

 

$455,848

 

$15,500

 

$32,865

Recognition of previously

unrecognized revenue

 

(4,523)

 

(4,511)

 

-

 

(12)

 

(12,590)

 

(7,798)

 

-

 

(4,792)

Additions to unrecognized

revenue

2,687

2,600

-

87

6,823

6,381

-

442

Net non-GAAP proforma

adjustment

(1,836)

(1,911)

-

75

(5,767)

(1,417)

-

(4,350)

 

 

 

 

 

 

 

 

 

 

 

 

Proforma net revenue

435,135

395,068

14,322

25,745

498,446

454,431

15,500

28,515

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Direct cost of staffing services

revenue

 

338,704

 

338,704

 

-

 

-

 

390,432

 

390,432

 

-

 

-

Cost of other revenue

 

35,890

 

-

 

13,572

 

22,318

 

37,595

 

-

 

14,390

 

23,205

Selling, administrative and other

operating costs

 

58,417

 

49,667

 

4,349

 

4,401

 

69,689

 

58,602

 

5,792

 

5,295

Amortization of purchased

intangible assets

 

195

 

26

 

169

 

-

 

337

 

3

 

214

 

120

Restructuring costs

117

42

(24)

99

223

141

82

-

Proforma segment operating

income (loss)

 

1,812

 

6,629

 

(3,744)

 

(1,073)

 

170

 

5,253

 

(4,978)

 

(105)

 

 

 

 

 

 

 

 

 

 

 

 

Proforma operating loss

 

(507)

 

 

 

 

 

(3,428)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proforma net loss

$(2,316)

 

 

 

$(3,711)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrecognized Revenue - Non-GAAP Proforma Measures – Volt sometimes provides services despite a customer arrangement not yet being finalized, or continues 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 discussion herein 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.

Year-to-date Revenue and Operating Results

Net revenue in the first nine months of fiscal 2014 decreased $218.5 million to $1,325.6 million from $1,544.1 million in fiscal 2013, and proforma net revenue decreased $217.4 million, or 14.1%, to $1,323.0 million from $1,540.4 million in 2013. The change in revenue was the result of decreased Staffing Services revenues of $210.9 million (proforma of $209.0 million) resulting from lower demand primarily at our large enterprise customers, our continuing initiative to reduce exposure to customers with unfavorable business terms, and with respect to GAAP results $1.9 million higher net staffing Unrecognized Revenue. The Computer Systems segment also showed decreased revenues of $9.3 million resulting from several large directory assistance implementations reaching the end of the maintenance periods over which the projects were being amortized, approximately 14% lower transaction volumes, and lower pricing and maintenance levels. These decreases were partially offset by higher information technology infrastructure services revenue driven primarily by new customers and net expanded business with existing customers, partially offset by lower publishing and printing revenue.

Operating results for the first nine months of fiscal 2014 improved $18.3 million to a loss of $13.1 million from a loss of $31.4 million in 2013, and proforma results improved $19.4 million to a proforma loss of $15.7 million from a proforma loss of $35.1 million in 2013. The Staffing Services segment operating income decreased $0.7 million to $11.5 million from $12.2 million, however proforma operating income increased $1.2 million primarily due to lower direct margins resulting from lower revenues, although at higher direct margin rates, and a decrease in selling, administrative and other operating costs as a result of our reorganization of our North American staffing operations and our continuing initiative to reduce exposure to customers with unfavorable business terms. Direct margin and proforma direct margin ratios improved in 2014 to 14.2% and 14.0% from 13.6% and 13.3% in 2013, respectively. The Computer Services segment improved $2.0 million primarily from lower delivery and administrative costs.

Operating loss in the first nine months of 2014 included restatement, investigations and remediation costs of $5.3 million, restructuring costs of $2.4 million ($0.3 million reflected in corporate general and administrative) primarily in our Staffing Services segment in connection with workforce reductions related to our reorganization and the sale of our vendor management system assets and in the Computer Systems business related to the continued decline in the directory assistance business, and $1.1 million higher Unrecognized Revenue between 2014 and 2013. Excluding these items we would have had an operating loss of $5.4 million and a proforma loss of $8.0 million.

Operating loss in the first nine months of 2013 of $31.4 million included restatement, investigations and remediation costs of $22.4 million, restructuring costs of $1.9 million, and a $3.0 million indirect tax recovery related to multiple years. Without these items we would have had an operating loss of $10.1 million and a proforma operating loss of $13.8 million.

Condensed Consolidated Results of Operations by Segment
Unaudited (in Thousands)

Results of Operations by Segment (First Nine Months 2014 vs. First Nine Months 2013)

 

Nine months ended August 3, 2014

Nine months ended July 28, 2013

 

Total

Staffing Services

Computer Systems

Other

Total

Staffing Services

Computer Systems

Other

Revenue

 

 

 

 

Staffing service revenue

 

$1,195,981

 

$1,195,981

 

$ -

 

$ -

 

$1,406,939

 

$1,406,939

 

$ -

 

$ -

Other revenue

129,623

-

45,247

84,376

137,203

-

54,478

82,725

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

1,325,604

 

1,195,981

 

45,247

 

84,376

 

1,544,142

 

1,406,939

 

54,478

 

82,725

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Direct cost of staffing

services revenue

 

1,026,063

 

1,026,063

 

-

 

-

 

1,215,541

 

1,215,541

 

-

 

-

Cost of other revenue

 

111,824

 

-

 

41,307

 

70,517

 

117,221

 

-

 

48,947

 

68,274

Selling, administrative and

other operating costs

 

185,142

 

157,108

 

14,537

 

13,497

 

210,348

 

178,603

 

17,345

 

14,400

Amortization of purchased

intangible assets

 

754

 

76

 

598

 

80

 

1,028

 

27

 

643

 

358

Restructuring costs

2,076

1,276

599

201

1,911

559

1,352

-

Segment operating income

(loss)

 

(255)

 

11,458

 

(11,794)

 

81

 

(1,907)

 

12,209

 

(13,809)

 

(307)

Corporate general and

administrative

 

7,556

 

 

 

 

 

7,109

 

 

 

 

Restatement, investigations

and remediation

5,261

 

 

 

22,366

 

 

 

Operating loss

 

(13,072)

 

 

 

 

 

(31,382)

 

 

 

 

Other income (expense), net

 

(3,960)

 

 

 

 

 

(398)

 

 

 

 

Income tax provision

4,017

 

 

 

715

 

 

 

Net loss

$(21,049)

 

 

 

$(32,495)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NON-GAAP PROFORMA

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended August 3, 2014

Nine months ended July 28, 2013

 

Total

Staffing Services

Computer Systems

Other

Total

Staffing Services

Computer Systems

Other

Net revenue

 

$1,325,604

 

$1,195,981

 

$45,247

 

$84,376

 

$1,544,142

 

$1,406,939

 

$54,478

 

$82,725

Recognition of previously

unrecognized revenue

 

(5,307)

 

(5,082)

 

-

 

(225)

 

(11,140)

 

(11,140)

 

-

 

-

Additions to unrecognized

revenue

2,717

2,630

-

87

7,409

6,713

-

696

Net non-GAAP proforma

adjustment

(2,590)

(2,452)

-

(138)

(3,731)

(4,427)

-

696

 

 

 

 

 

 

 

 

 

 

 

 

Proforma net revenue

1,323,014

1,193,529

45,247

84,238

1,540,411

1,402,512

54,478

83,421

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Direct cost of staffing

services revenue

 

1,026,063

 

1,026,063

 

-

 

-

 

1,215,541

 

1,215,541

 

-

 

-

Cost of other revenue

 

111,824

 

-

 

41,307

 

70,517

 

117,221

 

-

 

48,947

 

68,274

Selling, administrative and

other operating costs

 

185,142

 

157,108

 

14,537

 

13,497

 

210,348

 

178,603

 

17,345

 

14,400

Amortization of purchased

intangible assets

 

754

 

76

 

598

 

80

 

1,028

 

27

 

643

 

358

Restructuring costs

2,076

1,276

599

201

1,911

559

1,352

-

Proforma segment

operating income (loss)

 

(2,845)

 

9,006

 

(11,794)

 

(57)

 

(5,638)

 

7,782

 

(13,809)

 

389

 

 

 

 

 

 

 

 

 

 

 

 

Proforma operating loss

 

(15,662)

 

 

 

 

 

(35,113)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proforma net loss

$(23,639)

 

 

 

$(36,226)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liquidity

During the fiscal third quarter 2014, the company disbursed $2.4 million in connection with the restatement, investigations and remediation costs and used cash in all other operating activities of $0.3 million. The company used $1.6 million for capital expenditures and received $0.2 million from the sale of investments, net of purchases. Borrowing under the accounts receivable securitization program and other short-term borrowings decreased by $5.3 million and the collateral for foreign currency credit lines and banking facilities decreased by $3.8 million.

During the first nine months of 2014, the company disbursed $6.6 million in connection with the restatement, investigations and remediation costs and provided cash from all other operating activities of $25.2 million. The company used $4.2 million for capital expenditures, received $3.0 million from the sale of software related assets, and received $0.7 million from the sale of investments, net of purchases. Borrowing under the accounts receivable securitization program and other short-term borrowings decreased by $24.9 million and the collateral for foreign currency credit lines and banking facilities decreased by $6.8 million.

Condensed Consolidated Statements of Cash Flows
Unaudited (in Thousands)

 

Three months ended

Nine months ended

 

August 3,

2014

July 28,

2013

August 3,

2014

July 28,

2013

Cash and cash equivalents, beginning of the period

 

$16,552

$35,910

 

$11,114

$26,483

 

 

 

 

 

 

Cash used in connection with restatement, investigations and remediation costs

 

(2,410)

 

(11,156)

 

(6,574)

 

(34,618)

Other changes in operating assets and liabilities

 

(2,694)

 

(16,311)

 

32,994

 

36,550

Cash provided by (used in) all other operating activities

2,362

5,783

(7,832)

(24,005)

Net cash provided by (used in) operating activities

(2,742)

(21,684)

18,588

(22,073)

 

 

 

 

 

 

Net cash provided by (used in) investing activities

(1,417)

(2,715)

(479)

(6,600)

 

 

 

 

 

 

Net release of cash restricted as collateral for borrowings

 

3,847

 

141

 

6,807

 

4,410

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

(5,483)

9,788

(25,476)

19,407

Net cash provided by (used in) financing activities

(1,636)

9,929

(18,669)

23,817

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

(308)

 

(51)

 

(105)

 

(238)

 

 

 

 

 

 

Net decrease in cash and cash equivalents

(6,103)

(14,521)

(665)

(5,094)

 

 

 

 

 

 

Cash and cash equivalents, end of the period

$10,449

$21,389

$10,449

$21,389

 

 

 

 

 

 

Cash paid during the period:

 

 

 

 

 

 

Interest

 

$844

 

$703

 

$2,729

 

$2,114

Income taxes

 

$2,199

 

$905

 

$4,246

 

$9,823

 

 

 

 

 

 

On August 3, 2014, excluding $8.3 million of long-term debt, the company’s consolidated borrowings were $142.3 million, which included $22.3 million of foreign currency borrowings that are fully collateralized by restricted cash used primarily to hedge net investments in foreign subsidiaries, and $120.0 million drawn under the short-term financing program. The company had cash and cash equivalents of $10.4 million and an additional $25.0 million of cash restricted as collateral for foreign currency credit lines and banking facilities. Based on current collateral levels (certain staffing segment receivables) the company also had approximately $20.7 million available under the short-term financing program.

Condensed Consolidated Balance Sheets
Unaudited (in Thousands, except share amounts)

August 3, 2014

November 3, 2013

ASSETS

 

 

 

CURRENT ASSETS:

 

 

 

Cash and cash equivalents

 

$10,449

 

$11,114

Restricted cash and short-term investments

 

46,282

 

53,500

Trade accounts receivable, net of allowances of $1,059 and $1,811, respectively

 

251,229

 

293,305

Recoverable income taxes

 

18,051

 

17,150

Prepaid insurance and other current assets

30,882

35,345

TOTAL CURRENT ASSETS

 

356,893

 

410,414

Prepaid insurance and other assets, excluding current portion

 

46,859

 

52,574

Property, equipment and software, net

29,924

37,324

TOTAL ASSETS

$433,676

$500,312

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

CURRENT LIABILITIES:

 

 

 

Accrued compensation

 

$44,038

 

$53,474

Accounts payable

 

53,070

 

57,165

Accrued taxes other than income taxes

 

18,369

 

19,520

Accrued insurance and other

 

39,687

 

44,133

Deferred revenue, net, current portion

 

10,825

 

13,335

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

143,196

168,114

TOTAL CURRENT LIABILITIES

 

309,185

 

355,741

Accrued insurance and other, excluding current portion

 

13,036

 

14,705

Deferred revenue, net, excluding current portion

 

3,225

 

2,839

Income taxes payable, excluding current portion

 

9,109

 

8,659

Long-term debt, excluding current portion

7,451

8,127

TOTAL LIABILITIES

 

342,006

 

390,071

 

 

 

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 - 23,560,102 and 23,536,769, respectively Outstanding - 20,872,795 and 20,849,462, respectively

 

2,356

 

2,354

Paid-in capital

 

72,399

 

72,003

Retained earnings

 

62,226

 

83,007

Accumulated other comprehensive loss

 

(3,431)

 

(5,243)

Treasury stock, at cost 2,687,307 shares

(41,880)

(41,880)

TOTAL STOCKHOLDERS' EQUITY

91,670

110,241

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$433,676

$500,312

 

 

 

 

David Head
Director

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