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Volt Information Sciences' fiscal 2014 results show strong improvement in operating results

The reported net loss for fiscal year 2014 was $19.0 million, or $0.91 per share, compared with $30.9 million, or $1.48 per share, in 2013. Operating results from continuing operations improved $12.1 million in 2014 to income of $4.8 million from a loss of $7.3 million in 2013. Including Unrecognized Revenue, proforma operating results from continuing operations improved $15.4 million in 2014 to proforma operating income of $2.1 million from a proforma loss of $13.3 million in 2013. Proforma amounts include Unrecognized Revenue (defined below).

“Consistent with our primary goal of a more highly focused and profitable Volt, we have now exited our software businesses. Each of these had significant upfront capital investments with extended payback periods and were producing significant losses, and we are now concentrating on our core staffing and services businesses that have similar profitability, risks and returns on capital,” said Ron Kochman, President and Chief Executive Officer. “We have also made substantial progress in adjusting our expense structure, and are pleased with our improvements to operating income. We continue to focus on streamlining costs and are well positioned to increase profitability in the future, particularly when revenues increase.”

Fiscal Year 2014 Operating Results and Revenue

Net loss in 2014 of $19.0 million (proforma $21.7 million) included restatement, investigations and remediation expenses of $5.3 million, restructuring costs of $2.5 million ($0.5 million reflected in corporate general and administrative), losses from discontinued operations of $15.6 million, a $1.0 million cost in our workers compensation program related to multiple previous years, and a $1.4 million true-up of non-U.S. income taxes related to multiple previous years. Without these items net income in 2014 would have been $6.8 million and proforma net income $4.1 million.

Net loss in 2013 of $30.9 million (proforma $37.0 million) included restatement, investigations and remediation expenses of $24.8 million, restructuring costs of $0.8 million, losses from discontinued operations of $18.1 million, a $3.0 million indirect tax recovery related to multiple years, and approximately $1.1 million of operating income from the 53rd week in 2013. Without these items net income in 2013 would have been $8.7 million and proforma net income $2.6 million.

Excluding the $3.0 million multi-year indirect tax recovery and approximately $1.1 million from the 53rd week in 2013, the Staffing Services segment operating income and direct margin percentage improved as a result of decreased administrative and other operating costs, the reorganization of the traditional staffing business, the divestiture of the Vendor Management Software business, and management’s continuing initiative to reduce exposure to customers with unfavorable business terms and improved results in Volt’s call center, games testing and other project-based staffing services. Increased or flat direct margin percentages were achieved in each quarter of 2014 compared to the comparative quarter in 2013.

Net revenue from continuing operations in 2014 decreased approximately 15% compared to 2013 and in the Staffing Services segment decreased approximately 16% as a result of lower demand primarily at large enterprise customers and management’s continuing initiative to reduce exposure to customers with unfavorable business terms, and the impact of 2014 consisting of 52 weeks while 2013 consisted of 53 weeks. However, a modest increase in average daily revenue was achieved sequentially in both the third and fourth quarters of 2014, marking the first two sequential quarterly increases since the company began its initiative to exit or reduce business levels with customers where profitability or business terms are unfavorable.

As previously reported, the Company sold its Computer Systems segment in the first quarter of fiscal 2015. The results of the Computer Systems segment are presented as discontinued operations and, as such, have been excluded from continuing operations and from segment results for all periods presented.

Condensed Consolidated Results of Operations by Segment

Unaudited (in Thousands)

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

 

Twelve months ended November 2, 2014

Twelve months ended November 3, 2013

 

Total

Staffing
Services

Other

Total

Staffing
Services

Other

Revenue

 

 

 

Staffing service revenue

$

1,599,046

$

1,599,046

$ -

 

 

$

1,899,723

$

1,899,723

$-

Other revenue

110,982

-

110,982

117,749

-

117,749

Net revenue

 

1,710,028

 

1,599,046

110,982

 

 

2,017,472

 

1,899,723

 

117,749

Expenses

 

 

 

 

 

Direct cost of staffing services revenue

 

1,359,048

 

1,359,048

-

 

 

1,627,166

 

1,627,166

 

-

Cost of other revenue

 

92,440

 

-

92,440

 

 

94,519

 

-

 

94,519

Selling, administrative and other operating costs

 

231,104

 

212,471

18,633

 

 

267,969

 

246,964

 

21,005

Amortization of purchased intangible assets

 

181

 

101

80

 

 

511

 

34

 

477

Restructuring costs

 

2,010

 

1,431

579

 

 

781

 

781

 

-

Indirect tax recovery

-

-

-

(2,967

)

(2,967

)

-

Segment operating income (loss)

 

25,245

 

25,995

(750

)

 

 

29,493

 

27,745

 

1,748

Corporate general and administrative

 

15,198

 

 

 

11,917

 

Restatement, investigations and remediation

5,261

 

 

24,828

 

Operating income (loss)

 

4,786

 

 

 

(7,252

)

 

Other income (expense), net

 

(2,947

)

 

 

 

(2,569

)

 

Income tax provision

5,226

 

 

2,922

 

Net loss from continuing operations

 

(3,387

)

 

 

 

(12,743

)

 

Loss from discontinued operations, net of taxes

(15,601

)

 

 

(18,132

)

 

Net loss

$

(18,988

)

 

 

$

(30,875

)

 

 

 

 

 

 

NON-GAAP PROFORMA

 

 

 

 

 

 

Twelve months ended November 2, 2014

Twelve months ended November 3, 2013

 

Total

Staffing
Services

Other

Total

Staffing
Services

Other

Net revenue

$

1,710,028

$

1,599,046

$110,982

 

 

$

2,017,472

$

1,899,723

$

117,749

Recognition of previously unrecognized revenue

 

(5,313

)

(5,088

)

(225

)

 

 

(11,166

)

(11,166

)

-

Additions to unrecognized revenue

2,625

2,563

62

5,094

4,869

225

Net non-GAAP proforma adjustment

(2,688

)

(2,525

)

(163

)

(6,072

)

(6,297

)

225

Proforma net revenue

1,707,340

1,596,521

110,819

2,011,400

1,893,426

117,974

Expenses

 

 

 

 

 

Direct cost of staffing services revenue

 

1,359,048

 

1,359,048

-

 

 

1,627,166

 

1,627,166

 

-

Cost of other revenue

 

92,440

 

-

92,440

 

 

94,519

 

-

 

94,519

Selling, administrative and other operating costs

 

231,104

 

212,471

18,633

 

 

267,969

 

246,964

 

21,005

Amortization of purchased intangible assets

 

181

 

101

80

 

 

511

 

34

 

477

Restructuring costs

 

2,010

 

1,431

579

 

 

781

 

781

 

-

Indirect tax recovery

-

-

-

(2,967

)

(2,967

)

-

Proforma segment operating income (loss)

 

22,557

 

23,470

(913

)

 

 

23,421

 

21,448

 

1,973

 

 

 

 

 

Proforma operating income (loss)

 

2,098

 

 

 

(13,324

)

 

 

 

 

 

 

Proforma net loss from continuing operations

$

(6,075

)

 

 

$

(18,815

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fourth Quarter Revenue and Operating Results

Net revenue in the fourth quarter of fiscal 2014 decreased $98.1 million to $429.7 million from $527.8 million in fiscal 2013, and proforma net revenue decreased $95.9 million, or 18.2%, to $429.6 million from $525.5 million in 2013. The decrease in revenue was primarily the result of decreased Staffing Services revenues of $89.7 million (proforma of $87.9 million) to $403.1 million (proforma $403.0 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 and the impact of 2014 consisting of 52 weeks while 2013 consisted of 53 weeks. The Other segment revenues decreased $8.4 million to $26.6 million primarily from lower volume in the information technology infrastructure services, telecommunication infrastructure and security services and printing businesses.

Net income in the fourth quarter of 2014 of $2.1 million, or $0.10 per share, (proforma $2.0 million) included restructuring costs of $0.7 million ($0.2 million reflected in corporate general and administrative), losses from discontinued operations of $2.4 million, and a $1.0 million cost in our workers compensation program related to multiple years. Without these items net income in the fourth quarter of 2014 would have been $6.2 million and proforma net income $6.1 million.

Net income in the fourth quarter of 2013 of $1.6 million, or $0.08 per share, (proforma loss $0.7 million) included restatement, investigations and remediation expenses of $2.4 million, restructuring costs of $0.2 million, losses from discontinued operations of $8.3 million, and approximately $1.1 million of operating income from the 53rd week in 2013. Without these items net income in the fourth quarter of 2013 would have been $11.4 million and proforma net income $9.1 million.

Despite the decrease in revenue, the Staffing Services segment operating income and direct margin rate improved as a result of actions taken in recent quarters including the reorganization of the traditional staffing business, the divestiture of the ProcureStaff business, the continuing initiative to reduce exposure to customers with unfavorable business terms, and approximately $1.1 million of operating income from the 53rdweek in 2013. These improvements were offset by a decline in operating results in our Other segment of $2.9 million (proforma $2.4 million) primarily from decreased volume and lower margins.

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 because it provides 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.

Condensed Consolidated Results of Operations by Segment

Unaudited (in Thousands)

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

 

Three months ended November 2, 2014

 

Three months ended November 3, 2013

 

Total

Staffing
Services

Other

 

Total

Staffing
Services

Other

Revenue

 

 

 

Staffing service revenue

$

403,065

 

$

403,065

 

$

-

 

$

492,784

 

$

492,784

 

$

-

Other revenue

26,606

-

26,606

 

35,024

-

35,024

Net revenue

 

429,671

 

403,065

 

26,606

 

 

527,808

 

492,784

 

35,024

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

Direct cost of staffing services revenue

 

337,045

 

337,045

 

-

 

 

416,669

 

416,669

 

-

Cost of other revenue

 

21,922

 

-

 

21,922

 

 

26,245

 

-

 

26,245

Selling, administrative and other operating costs

 

56,440

 

51,301

 

5,139

 

 

66,951

 

60,346

 

6,605

Amortization of purchased intangible assets

 

25

 

25

 

-

 

 

126

 

7

 

119

Restructuring costs

533

155

378

 

222

222

-

Segment operating income (loss)

 

13,706

 

14,539

 

(833

)

 

17,595

 

15,540

 

2,055

Corporate general and administrative

 

7,642

 

 

 

 

4,812

 

 

Restatement, investigations and remediation

-

 

 

 

2,462

 

 

Operating income

 

6,064

 

 

 

 

10,321

 

 

Other income (expense), net

 

(391

)

 

 

 

(760

)

 

 

Income tax provision (benefit)

1,164

 

 

 

(340

)

 

 

Net income from continuing operations

 

4,509

 

 

 

 

9,901

 

 

Loss from discontinued operations, net of taxes

(2,448

)

 

 

 

(8,281

)

 

 

Net income

$

2,061

 

 

 

$

1,620

 

 

 

 

 

 

 

 

NON-GAAP PROFORMA

 

 

 

 

 

 

 

Three months ended November 2, 2014

 

Three months ended November 3, 2013

 

Total

Staffing
Services

Other

 

Total

Staffing
Services

Other

Net revenue

$

429,671

 

$

403,065

 

$

26,606

 

$

527,808

 

$

492,784

 

$

35,024

Recognition of previously unrecognized revenue

 

(2,719

)

 

(2,635

)

 

(84

)

 

(7,396

)

 

(6,809

)

 

(587

)

Additions to unrecognized revenue

2,621

2,563

58

 

5,055

4,939

116

Net non-GAAP proforma adjustment

(98

)

(72

)

(26

)

 

(2,341

)

(1,870

)

(471

)

Proforma net revenue

429,573

402,993

26,580

 

525,467

490,914

34,553

Expenses

 

 

 

 

 

 

Direct cost of staffing services revenue

 

337,045

 

337,045

 

-

 

 

416,669

 

416,669

 

-

Cost of other revenue

 

21,922

 

-

 

21,922

 

 

26,245

 

-

 

26,245

Selling, administrative and other operating costs

 

56,440

 

51,301

 

5,139

 

 

66,951

 

60,346

 

6,605

Amortization of purchased intangible assets

 

25

 

25

 

-

 

 

126

 

7

 

119

Restructuring costs

533

155

378

 

222

222

-

Proforma segment operating income (loss)

 

13,608

 

14,467

 

(859

)

 

15,254

 

13,670

 

1,584

 

 

 

 

 

 

Proforma operating income

 

5,966

 

 

 

 

7,980

 

 

 

 

 

 

 

 

Proforma net income from continuing operations

$

4,411

 

 

 

$

7,560

 

 

 

 

 

 

 

 

Liquidity

During fiscal 2014, in connection with continuing operations the Company disbursed $7.3 million for the restatement, investigations and remediation in the first half of the year and provided cash from all other operating activities $42.9 million. Of this amount, $18.1 million was used to reduce borrowing as our receivable collateral amount reduced and $17.5 million in funding the discontinued Computer Systems segment. The Company used $2.2 million for capital expenditures, net of $3.1 million received from the sale of property, equipment and software, and received $0.9 million for the sale of investments net of purchases.

Condensed Consolidated Statements of Cash Flows

(in Thousands)

 

Twelve months ended

 

November 2,
2014

November 3,
2013

Cash and cash equivalents, beginning of the period

$9,846

$24,415

 

 

Cash used in connection with restatement, investigations and remediation costs

(7,255)

 

(37,292)

Other changes in operating assets and liabilities

33,898

 

24,422

Cash provided by (used in) all other operating activities

8,937

(1,050)

Net cash provided by (used in) operating activities

35,580

(13,920)

 

 

Net cash used in investing activities

(1,281)

(8,558)

 

 

Net release of cash restricted as collateral for borrowings

21,349

 

3,796

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

(39,476)

21,499

Net cash provided by (used in) financing activities

(18,127)

25,295

 

 

Effect of exchange rate changes on cash and cash equivalents

(386)

 

1,376

 

 

Net cash used in discontinued operations

(17,513)

 

(19,563)

 

Net decrease in cash and cash equivalents

(1,727)

(15,370)

 

 

Change in cash from discontinued operations

986

801

 

 

Cash and cash equivalents, end of the period

$9,105

$9,846

 

 

Cash paid during the period:

 

 

Interest

$3,539

 

$2,925

Income taxes

$4,948

 

$10,557

 

 

On November 2, 2014, excluding $8.1 million of long-term debt, the company’s consolidated borrowings were $128.5 million, which included $8.5 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 $9.1 million and an additional $10.4 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 $27.4 million available under the short-term financing program. One of the Company’s credit agreements contains a covenant that limits cash dividends, capital stock purchases and redemptions in any one fiscal year to the greater of $5.0 million or 50% of the prior year’s consolidated net income, as defined.

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