Versar, Inc. Announces Improved Profitability In Third Quarter Of Fiscal Year 2012

Versar, Inc. (NYSE MKT: VSR) today announced its financial results for the third quarter of its fiscal year 2012 and nine months ended March 30, 2012.

Revenue for the third quarter of fiscal year 2012 was $25.7 million, a decrease of 18% compared to revenue of $31.5 million reported in the same quarter of fiscal year 2011. The decrease in revenue was primarily attributable to reduced activity from our projects in Iraq and lower revenue from our Environmental Services business segment.

The Company achieved gross profit in the current quarter of $4.3 million, or 17% of revenue, compared to gross profit of $4.2 million, or 13% of revenue in the third quarter last year. Quarter over quarter operating income improved 59% to $2.2 million compared to $1.4 million in the third quarter of last year. The improved margins were largely due to higher margin revenue in this year’s third quarter compared to last year and continued focus on controlling fixed costs and reduced G&A. Selling, general and administrative expenses were $2.1 million, a decrease of 13% compared to the corresponding period last year.

Versar recorded net income of $1.0 million, or $0.10 per basic and diluted share for the third quarter of fiscal year 2012, compared to net income of $0.6 million, or $0.07 per basic and diluted share, in the third quarter of fiscal 2011. Net income was negatively affected by a write-off of $0.5 million for the unreserved balance of a financing receivable we deemed to be uncollectible during the current quarter related to a long delayed green-energy development project.

Versar closed the third quarter of fiscal year 2012 with funded backlog of $97 million, an increase of 37% compared to approximately $71 million at April 1, 2011. This increase reflected the award of several large long term contracts and was indicative of the high quality proposals that were developed as a result of proposal preparation staff training and business development investments earlier this fiscal year.

For the first nine months of fiscal year 2012, Versar recorded revenue of $90.3 million, a decrease of 12% compared to $102.7 million in the first nine months of fiscal year 2011. The decrease in revenue was primarily attributable to a non-recurring equipment purchase of approximately $8.4 million, from our Tooele Chemical Demilitarization project in Utah, recorded in the second quarter of 2011, which was previously announced. Additionally, the Company had reduced activity from our Iraqi projects and fewer awards in the Environmental Services business segment.

Gross profit increased 7% to $11.5 million, or 13% of revenue, compared to gross profit of $10.7 million or 10% of revenue in the first nine months of fiscal year 2011. Operating income increased over 34% in the first nine months of fiscal year 2012 to $5.0 million from $3.7 million in the corresponding period last year. The improvements were due to higher margin revenue and flat G&A and overhead costs. Versar achieved net income of $2.6 million or $0.28 per basic and diluted share in the first nine months of fiscal year 2012, compared to $2.1 million or $0.23 per basic and diluted share in the first nine months of fiscal 2011.

Versar closed the third quarter with a cash balance of $5.1 million and working capital of $22.7 million, an increase of $3.1 million compared to working capital as of July 1, 2011

On May 10, 2012, Versar announced it had reached an agreement to acquire a 100% interest in Charron Construction Consulting, Inc., a national construction project management firm headquartered in Dulles, Virginia. The acquisition is expected to be accretive in the first year and to provide the Company with over $4.5 million in annualized gross revenue and contracted backlog of over $8.8 million.

Tony Otten, CEO of Versar said, “I’m very pleased with the results of our third quarter and our focus on profitable growth. The consistent improvement in our gross profit, operating income and earnings per share clearly shows we can perform in a challenging budget environment and the growth in funded backlog, in light of our investment during the year, bodes well for our future. Furthermore, the acquisition agreement announced last week to acquire Charron, a strategically attractive construction management company, will allow us to leverage our tremendous capability in International Title II Engineering stateside and will fold nicely into our business. Finally, our balance sheet remains a tremendous asset and provides a strong platform for future organic and M&A growth.”

Conference Call:

The Company will host a conference call today, May 14, 2012 at 2:00 p.m. Eastern Time to discuss its operational performance and financial results. The conference call may be accessed in the U.S. and Canada by dialing toll-free 877-407-8033. International callers may access the call by dialing 201-689-8033.

Participants should call in a few minutes before 2:00 p.m. Eastern Time. For those unable to attend the conference call, replays will be available on Versar’s website, www.versar.com.

VERSAR, INC., headquartered in Springfield, VA, is a publicly traded global project management company providing sustainable value oriented solutions to government and commercial clients in the construction management, environmental services, munitions response, and telecommunication and technology integration market areas.

VERSAR operates a number of web sites, including the corporate web sites, www.versar.com, www.homelanddefense.com, www.geomet.com; www.viap.com; www.dtaps.com; www.adventenv.com, and www.ppsgb.com.

This news release contains forward-looking information. The forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be significantly impacted by certain risks and uncertainties described herein and in Versar’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended July 1, 2011, as updated from time to time in the Company’s periodic filings. The forward-looking statements are made as of the date hereof and Versar does not undertake to update its forward-looking statements.
 
VERSAR, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets

(in thousands, except share amounts)
 
As of
March 30,   July 1,
2012 2011
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 5,122 $ 6,017
Accounts receivable, net 24,512 29,500
Inventory 1,382 1,386
Notes receivable --- 1,040
Prepaid expenses and other current assets 2,028 1,511
Deferred income taxes 2,060 1,554
Income tax receivable, net --- 424
Total current assets 35,104 41,432
 
Property and equipment, net 3,607 3,828
Goodwill 5,758 5,758
Intangible assets, net 1,296 1,539
Other assets 856 819
Total assets $ 46,621 $ 53,376
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable $ 5,147 $ 10,022
Accrued salaries and vacation 2,470 3,039
Income tax payable, net 490 ---
Other current liabilities 4,323 7,363
Notes payable --- 1,417
Total current liabilities 12,430 21,841
 
Deferred income taxes 431 332
Other long-term liabilities 1,035 977
Total liabilities 13,896 23,150
 
Commitments and contingencies
 
Stockholders’ equity

Common stock, $.01 par value; 30,000,000 shares authorized; 9,637,649 shares and 9,585,474 shares issued; 9,386,965 shares and 9,340,280 shares outstanding

 
96

95
Capital in excess of par value 28,987 28,806
Retained earnings 5,372 2,768
Treasury stock, at cost (250,684 and 245,194 shares, respectively) (1,158) (1,142)
Accumulated other comprehensive loss; foreign currency translation (572) (301)
Total stockholders’ equity 32,725 30,226
Total liabilities and stockholders’ equity $ 46,621 $ 53,376
 
VERSAR, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited - in thousands, except share amounts)
   
For the Three Months Ended For the Nine Months Ended
March 30,   April 1, March 30,   April 1,
2012 2011 2012 2011
 
GROSS REVENUE $ 25,748 $ 31,487 $ 90,312 $ 102,691
Purchased services and materials, at cost 9,950 14,457 42,193 53,565
Direct costs of services and overhead 11,507 12,818 36,648 38,443
GROSS PROFIT 4,291 4,212 11,471 10,683
 
Selling, general and administrative expenses 2,120 2,380 6,399 6,384
Other expense 2 464 55 564
OPERATING INCOME 2,169 1,368 5,017 3,735
 
OTHER (INCOME) EXPENSE
Interest (income) (4) (35) (72) (155)
Interest expense 13 44 62 144
Write-off of uncollectible financing receivable 465 -- 694 --
INCOME BEFORE INCOME TAXES 1,695 1,359 4,333 3,746
 
Income tax expense 732 730 1,729 1,654
       
NET INCOME $ 963 $ 629 $ 2,604 $ 2,092
 
NET INCOME PER SHARE – BASIC $ 0.10 $ 0.07 $ 0.28 $ 0.23

NET INCOME PER SHARE – DILUTED
$ 0.10 $ 0.07 $ 0.28 $ 0.23

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
– BASIC 9,383 9,270 9,361 9,247
 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
– DILUTED 9,406 9,302 9,379 9,270

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