National Technical Systems Reports Fiscal Year 2014 Second Quarter & Six-Month Financial Results
CALABASAS, Calif., Sept. 12, 2013 /PRNewswire/ -- National Technical Systems, Inc. (NASDAQ: NTSC) (NTS), a leading provider of testing and engineering services, today reported its financial results for the second quarter and six months ended July 31, 2013.
Revenues for the second quarter of fiscal year 2014 were $46.2 million compared to $47.3 million for the second quarter a year ago. The year-over-year decrease in quarterly revenue was primarily related to decreases in the defense and energy markets, partially offset by an increase in revenue in the aerospace market. Sequentially, revenues were up 2.6 percent from $45.0 million for the first quarter of fiscal year 2014.
Gross profit for the second quarter of fiscal year 2014 was $14.5 million, up 12.9 percent compared to $12.8 million in the second quarter a year ago, and up 6.9 percent compared to $13.5 million in the first quarter of fiscal year 2014. The increase in gross profit in the second quarter of fiscal year 2014 was primarily due to price increases and project mix, as well as the volume increase from the first quarter of this fiscal year. In addition, approximately $0.6 million of support-related expenses, which were included in cost of sales in the second quarter of fiscal year 2013, were recorded to selling, general and administrative (SG&A) expense in the second quarter of 2014, due to the centralization of administrative functions that began in the first quarter of the current fiscal year. Gross profit percentage was 31.3 percent for the second quarter of fiscal year 2014, compared to 27.1 percent for the second quarter a year ago and 30.1 percent for the first quarter of fiscal year 2014.
SG&A expense for the second quarter of fiscal year 2014 was $11.5 million, up 33.1 percent from $8.7 million in the second quarter a year ago and up 14.9 percent from $10.0 million in the first quarter of fiscal year 2014. The sequential and year-over-year increase is mainly due to share-based compensation expense driven by the significant increase in the Company's stock price in this fiscal year, one-time transaction costs relating to the recently announced proposed transaction with an affiliate of Aurora Capital Group and incentive compensation expense. SG&A was also impacted by the $0.6 million in support-related expenses that were previously included in cost of sales.
During the quarter, the Company also incurred approximately $1.0 million of restructuring costs, principally driven by the centralization of administrative functions, and $1.2 million of expense relating to the early payment of the $7.0 million Mill Road subordinated note.
Net loss attributable to NTS in the second quarter of fiscal year 2014 was $144,000, or $0.01 loss per basic and diluted share, compared to net income attributable to NTS of $1.6 million, or $0.14 per basic share and $0.13 per diluted share, in the second quarter a year ago, and net income attributable to NTS of $1.4 million, or $0.12 per basic and diluted share, in the first quarter of fiscal year 2014. The decrease was primarily due to higher SG&A expense and restructuring and debt-related costs noted above.
Adjusted EBITDA was $6.9 million for the second quarter of fiscal year 2014, compared to $7.0 million in the year ago quarter and $6.7 million in the first quarter of fiscal year 2014. The Company calculates Adjusted EBITDA, a non-GAAP financial measure, by taking net income (loss) and adding back the expenses related to interest, taxes, depreciation, amortization, as well as share-based compensation expense, as each of those elements are reported in accordance with GAAP. A reconciliation of the Company's Adjusted EBITDA to net income (loss) is included in the tables below.
Weighted average common shares outstanding assuming dilution for the second quarter of fiscal year 2014 was 12,209,000 shares compared to 11,892,000 shares in the second quarter a year ago and 12,094,000 shares in the first quarter of fiscal year 2014.
President and CEO William C. McGinnis said, "We have the largest geographic footprint and broadest service offerings in our markets and our relationships with clients remain strong. A modest pullback in the defense and energy sectors pushed our revenues down slightly year-over-year, but our aerospace business continues to expand. We had a number of unusual expenses in the quarter which impacted net income. Overall, we are satisfied with our core operating results, particularly the impact that our investment in the ERP (enterprise resource planning) system and restructuring has had on our ability to improve gross profit."
Six-Month Results
Revenues for the first six months of fiscal year 2014 were $91.2 million compared to $90.8 million for the first six months of the prior year.
Gross profit for the first six months of fiscal year 2014 was $28.0 million, up 16.0 percent compared to $24.1 million in the prior year period. The increase in gross profit in the first six months of fiscal year 2014 was primarily due to price increases and project mix, as well as the volume increase from the first quarter of this fiscal year. In addition, approximately $1.3 million of support-related expenses which were included in cost of sales in the second quarter of fiscal 2013 were recorded to SG&A expense in the second quarter of 2014, due to the centralization of administrative functions that began in the first quarter of the current fiscal year. Gross profit percentage was 30.7 percent for the first six months of fiscal year 2014, compared to 26.6 percent for the first six months of fiscal year 2013.
SG&A expense for the first six months of fiscal year 2014 was $21.6 million, up 26.3 percent from $17.1 million in the prior year period impacted by the items noted above.
Net income attributable to NTS in the first six months of fiscal year 2014 was $1.3 million, or $0.11 per basic and diluted share, compared to net income attributable to NTS of $2.6 million, or $0.23 per basic share and $0.22 per diluted share, in the prior year period.
Adjusted EBITDA was $13.6 million for the first six months of fiscal year 2014, compared to $12.5 million in the prior year comparable period.
On August 15, 2013, NTS entered into an Agreement and Plan of Merger (the "merger agreement") with an affiliate of Aurora Capital Group, a Los Angeles-based private equity firm. Under the terms of that merger agreement, NTS would be merged into an affiliate of Aurora Capital Group, and as part of the merger NTS shareholders would receive $23.00 per share in cash for each share of NTS common stock outstanding immediately prior to the effective time of the merger. The closing of the merger is subject to the satisfaction of customary closing conditions, including (i) approval of the principal terms of the merger by NTS shareholders, (ii) receipt of applicable antitrust approval or the expiration of applicable waiting periods, (iii) absence of any order or injunction prohibiting the consummation of the merger and (iv) subject to certain exceptions, the accuracy of NTS' representations and warranties and fulfillment of its covenants contained in the merger agreement. Additional information concerning the merger agreement can be found in NTS' Current Report on Form 8-K filed with the Securities and Exchange Commission (SEC) on August 16, 2013.
Non-GAAP Financial Measure – Adjusted EBITDA
This news release includes Adjusted EBITDA, which is a non-GAAP financial measure as defined by SEC Regulation G, that management believes is among the more important measures of performance in its industry because it provides insight into operating cash flows independent of a company's capital structure or tax position and is a key factor in determining a company's valuation. Management also believes Adjusted EBITDA provides a meaningful trend of operating performance, as well as a measure of liquidity and the Company's ability to service debt. Adjusted EBITDA should not be construed as a substitute for net income (loss) (as determined in accordance with GAAP) for the purpose of analyzing the Company's operating performance or financial position, as Adjusted EBITDA is not defined by GAAP.
NTS defines Adjusted EBITDA as earnings (net income) before interest, taxes, depreciation and amortization, as adjusted to eliminate the effects of share-based compensation and non-cash impairment loss.
About National Technical Systems
National Technical Systems is a leading provider of testing and engineering services to the aerospace, defense, telecommunications, automotive, energy and high technology markets. Through a world-wide network of resources, NTS provides full product life-cycle support, offering world class design engineering, compliance, testing, certification, quality registration and program management. For additional information about NTS, visit the Company's website at www.nts.com or call 800-270-2516.
Forward-Looking Statements
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: With the exception of historical information, statements in this press release concerning future operations, plans or events are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Those forward looking statements, including statements about the Company's anticipated future operating results, are based on management's expectations at this time. Actual results may vary significantly from those suggested by the forward-looking statements due to uncertainties and a number of important risk factors. Those factors include, but are not limited to, the risk factors noted in NTS' Annual Report on 10-K and other filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. NTS undertakes no obligation to release publicly the result of any revisions to these forward-looking statements that may be made to reflect circumstances or unanticipated events occurring after the date of this release.
Important Additional Information:
The Company will file a proxy statement and other relevant documents concerning the merger agreement, the proposed merger and related matters with the U.S. Securities and Exchange Commission ("SEC"). The proxy statement and other materials filed with the SEC will contain important information regarding the merger, including, among other things, the recommendation of the Company's board of directors with respect to the merger. SHAREHOLDERS ARE ENCOURAGED TO READ THE PROXY STATEMENT AND OTHER PROXY MATERIALS THAT THE COMPANY FILES WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE MERGER AND RELATED MATTERS. You will be able to obtain the proxy statement, as well as other filings containing information about the Company, free of charge, at the website maintained by the SEC at www.sec.gov. Copies of the proxy statement and other filings made by the Company with the SEC can also be obtained, free of charge, by directing a request to National Technical Systems, Inc., 24007 Ventura Blvd., Calabasas, CA 91302, Attention: Corporate Secretary.
The Company and its directors and executive officers and other persons may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction described in this release. Information regarding the Company's directors and executive officers is available in the Company's annual report on Form 10-K for the year ended January 31, 2013, which was filed with the SEC on April 30, 2013. If and to the extent that any of the Company participants will receive any additional benefits in connection with the proposed transaction that are unknown as of the date of this release, the details of those benefits will be described in the definitive proxy statement relating to the proposed Merger. Investors and shareholders can obtain more detailed information regarding the direct and indirect interests of the Company's directors and executive officers in the proposed merger by reading the definitive proxy statement when it becomes available.
| Contact: Allen & Caron Inc |
National Technical Systems |
| Jill Bertotti (investors) |
Michael El-Hillow, CFO |
| Len Hall (media) |
Aaron Cohen, Vice Chairman |
| (949) 474-4300 |
(818) 591-0776 |
TABLES FOLLOW
| NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES |
|||||
| Unaudited Consolidated Statements of Operations |
|||||
| Three Months Ended |
Six Months Ended |
||||
| July 31, |
July 31, |
||||
| 2013 |
2012 |
2013 |
2012 |
||
| Net revenues |
$ 46,186,000 |
$ 47,329,000 |
$ 91,203,000 |
$ 90,782,000 |
|
| Cost of sales |
31,719,000 |
34,519,000 |
63,206,000 |
66,651,000 |
|
| Gross profit |
14,467,000 |
12,810,000 |
27,997,000 |
24,131,000 |
|
| Selling, general and administrative expense |
11,539,000 |
8,667,000 |
21,578,000 |
17,079,000 |
|
| Restructuring costs |
1,037,000 |
- |
1,037,000 |
- |
|
| Equity loss from non-consolidated subsidiary |
6,000 |
123,000 |
38,000 |
136,000 |
|
| Operating income |
1,885,000 |
4,020,000 |
5,344,000 |
6,916,000 |
|
| Other income (expense): |
|||||
| Interest expense, net |
(1,864,000) |
(922,000) |
(2,655,000) |
(1,799,000) |
|
| Legal and settlement expense |
- |
- |
- |
- |
|
| Other income (expense), net |
68,000 |
65,000 |
82,000 |
93,000 |
|
| Total other income (expense), net |
(1,796,000) |
(857,000) |
(2,573,000) |
(1,706,000) |
|
| Income before income taxes and noncontrolling interests |
89,000 |
3,163,000 |
2,771,000 |
5,210,000 |
|
| Income taxes |
38,000 |
1,313,000 |
1,104,000 |
2,146,000 |
|
| Net income from continuing operations |
51,000 |
1,850,000 |
1,667,000 |
3,064,000 |
|
| Loss from discontinued operations, net of tax |
- |
(12,000) |
- |
(4,000) |
|
| Net income |
51,000 |
1,838,000 |
1,667,000 |
3,060,000 |
|
| Net income attributable to noncontrolling interests |
(195,000) |
(236,000) |
(380,000) |
(504,000) |
|
| Net (loss) income attributable to NTS |
$ (144,000) |
$ 1,602,000 |
$ 1,287,000 |
$ 2,556,000 |
|
| Net (loss) income from continuing operations attributable to NTS |
$ (144,000) |
$ 1,614,000 |
$ 1,287,000 |
$ 2,560,000 |
|
| Net loss from discontinued operations attributable to NTS |
$ - |
$ (12,000) |
$ - |
$ (4,000) |
|
| Basic earnings attributable to NTS per common share: |
|||||
| Net (loss) income from continuing operations |
$ (0.01) |
$ 0.14 |
$ 0.11 |
$ 0.23 |
|
| Net loss from discontinued operations |
- |
- |
- |
- |
|
| Net (loss) income attributable to NTS |
$ (0.01) |
$ 0.14 |
$ 0.11 |
$ 0.23 |
|
| Diluted earnings attributable to NTS per common share: |
|||||
| Net (loss) income from continuing operations |
$ (0.01) |
$ 0.14 |
$ 0.11 |
$ 0.22 |
|
| Net loss from discontinued operations |
- |
- |
- |
- |
|
| Net (loss) income attributable to NTS |
$ (0.01) |
$ 0.13 |
$ 0.11 |
$ 0.22 |
|
| Weighted average common shares outstanding |
11,598,000 |
11,340,000 |
11,544,000 |
11,330,000 |
|
| Dilutive effect of stock options, nonvested shares and warrants |
611,000 |
552,000 |
621,000 |
531,000 |
|
| Weighted average common shares outstanding, |
|||||
| assuming dilution |
12,209,000 |
11,892,000 |
12,165,000 |
11,861,000 |
|
|
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES Reconciliation of Non-GAAP Measure Adjusted EBITDA to Net Income |
|||||
| Three Months Ended |
Six Months Ended |
||||
| July 31, |
July 31, |
||||
| 2013 |
2012 |
2013 |
2012 |
||
| Net Income |
$ 51,000 |
$ 1,838,000 |
$ 1,667,000 |
$ 3,060,000 |
|
| Add |
|||||
| Interest |
1,864,000 |
922,000 |
2,655,000 |
1,799,000 |
|
| Taxes |
38,000 |
1,313,000 |
1,104,000 |
2,146,000 |
|
| Depreciation |
2,048,000 |
2,003,000 |
4,136,000 |
3,934,000 |
|
| Amortization |
506,000 |
506,000 |
1,016,000 |
1,009,000 |
|
| EBITDA |
4,507,000 |
6,582,000 |
10,578,000 |
11,948,000 |
|
| Add |
|||||
| Share based compensation |
2,403,000 |
420,000 |
2,991,000 |
572,000 |
|
| Adjusted EBITDA |
$ 6,910,000 |
$ 7,002,000 |
$ 13,569,000 |
$ 12,520,000 |
|
SOURCE National Technical Systems, Inc.
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