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Versar Inc. (NYSEMKT:VSR)

F4Q2013 Earnings Conference Call

September 4, 2013; 10:00 a.m. ET

Executives

Tony Otten - Chief Executive Officer

Jeff Wagonhurst - President & Chief Operating Officer

Cynthia Downes - Executive Vice President & Chief Financial Officer

David Gray - Director of Investor Relations

Analysts

Vincent Staunton - Wedbush Securities

Igor Novgorodtsev - Lares Capital

Jeremy Hellman - Avenue T Fund

Operator

Greetings, and welcome to the Versar Incorporated, fiscal year 2013 earrings conference call.

At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder this conference is being recorded.

It is now my pleasure to introduce your host, Dave Gray, Director of Investor Relations. Thank you Mr. Gray. You may now begin.

David Gray

Thank you, Rob. Good morning. Again, I’m Dave Gray, Versar’s Director of Financial Reporting. Welcome to Versar’s investor’s conference call for the fourth quarter and year-end of fiscal year 2013.

Joining me on today’s call are Versar’s Chief Executive Officer, Tony Otten; Versar's President and Chief Operating Officer, Jeff Wagonhurst; and Cynthia Downes, our Executive Vice President and Chief Financial Officer.

Before we begin, let me make a brief statement about the contents of this call. Statements on this call may include forward-looking statements, which are based on management's current expectations, estimates, forecasts and projections about the company’s business.

These statements are forward-looking statements within the meaning of Section 27(a) of the Securities Act of 1933, Section 21(e) of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995 and are subject to Safe Harbors created by such laws.

Words such as expects, anticipates, plans and believes and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions, which are difficult to predict. Therefore actual outcomes and results may differ materially from what is expressed on this call.

We do not undertake to update publicly any forward-looking statements, except as required by law. For a description of factors that could cause actual results to differ materially from that anticipated on this call, you are referred to the company’s public filings.

I’d like to now introduce Versar’s CEO, Tony Otten.

Tony Otten

Good morning. Before I discuss our financial results for fiscal 2013, let me briefly recap the exciting announcement we made yesterday afternoon concerning Versar’s acquisition of Geo-Marine.

In addition of adding profitable revenue, this acquisition had several key strategic ID/IQs to our already robust pipeline and further leverage Versar’s expertise in the environmental and domestic construction market places. We are all very pleased with the enhancement of offerings this acquisition allows Versar to bring to market and look forward to discussing the benefits of this acquisition throughout fiscal 2014. So now allow me to transaction discussing our financial results for fiscal 2013.

Despite a challenging environment during this year, our company made steady progress executing on our strategic initiatives. Reduced government spending affected our revenue performance for the year, but our backlog grew and remained profitable. We continued our focus on securing contract related to non-discretionary funding in our areas of expertise, plus a sustainable range management, construction management and performance based remediation to our PBRs.

As expected revenue for the year was down, specifically related to reduced spending in Iraq, the reduced level of our Title II work with the US, Air Force in Afghanistan and the completing of the Tooele Chemical Demilitarization project.

However, we closed fiscal 2013 with a backlog of $108 million, an increase of 16% compared to our backlog at the end of fiscal 2012. This increase is directly related to our PBR awards, our Afghan personnel services contract, extensions or the reduced levels of our Title II work in Afghanistan and our continuing work in Iraq.

This backlog includes task orders, awarded another $170 million personnel services ID/IQ contract we announced in October 2012, under which we provide the on site construction management support to U.S.A.-s engineered districts in Afghanistan.

In May 2013 we announced that our joint venture with Parsons was awarded a five year prime, single award ID/IQ contract, with a maximum capacity of $90 million for five construction based services throughout 18 countries in support of the U.S. Army core of engineers. Given these significant awards and our expansion in the area, we believe the Middle East region continues to represent a solid opportunity for Versar and we are focusing our international business development efforts in that area, both with the U.S. government and with non-government agencies.

In fiscal 2013 we also experienced a decrease in revenues from our domestic construction projects. This decline was related to our strategic decision to become more selective in our construction operations focusing on specific locations and projects that thus meet our capabilities. As we fine-tune this approach, we expect domestic revenue to improve.

We are pleased with our backlog position at this time and believe that our strong pipeline reflects the investments we have made and our business development efforts to refine our sales, marketing and proposal processes.

Our fourth quarter results were not where we wanted them to be. We experienced declines in revenue, gross margin and net income. These declines were partially related to timing issues with certain of our PBR project awards. We have successfully pursued these projects, but the timeline for transitioning these awards to revenue generating projects has taken longer than expected. On the plus side, we anticipate realizing these revenues during fiscal 2014.

In previous calls we have discussed our drive to become a more streamlined and nimble organization. With that in mind we have discontinued the operations of three of our small non-core businesses; our chemical laboratory, our domestic telecommunications and our domestic protective equipment operations.

By discontinuing these operations we have not only enhanced the focus and alignment of our company on our core competencies, but also improved the inherent profitability of Versar, since these businesses were detracting from the overall profitability of the company.

We are well aware of the near term challenges we face as a government contractor, as demonstrated by the impact on our revenues over the past year by sequestration and reduced federal spending.

There are however certain non-discretion areas of government expenditures such as sustainable military range management, contingency operation support and environmental assessments and remediation that Versar has the unique experience to handle and we will continue to pursue these non-discretionary projects. Simply put, the U.S. government is a great long-term client and we’ve built a strong reputation servicing them.

As a small player with a broad range of critical capabilities, we are confident about our ability to deliver for our shareholders. With a healthy cash position and minimal levels of debt, our balance sheet remains strong and is a key asset of our company, providing a solid platform to drive shareholder value.

I will now turn it over to our Executive Vice President and CFO, Ms. Cynthia Downes, to review our financial results for the fourth quarter and fiscal year 2013.

Cynthia Downes

Thank you, Tony. Please note that the results presented in yesterday afternoon’s press release and in my discussion are presented at continuing operations, excluding the results of the discontinued operations mentioned earlier in Tony’s remarks.

Versar recorded gross revenue of $102.6 million in fiscal year 2013, a decrease of 11% compared to $115 million last year. The decrease in revenue is primarily related to the completion of the Tooele Chemical Demilitarization project in 2012 and decreased revenue from domestic instruction in FY13.

Gross margin decreased slightly to 13% compared to 14% last year and operating income decreased 23% to $6.3 million. Net income from continuing operations decreased 8% to $4.1 million, about $0.43 per basic and diluted share.

For the fourth quarter Versar recorded gross revenue of $25 million, a decrease of 10% compared to the fourth quarter of fiscal year 2012. As outlined earlier, the decrease in revenue was mainly due to the completion of the Tooele Demilitarization project and decreased domestic construction activity. Gross profit margin for the fourth quarter decreased to 8% compared to 22% for the prior fiscal year.

SG&A expense were $1.6 million during the quarter, a decrease of 8% when compared to the fourth quarter of the prior fiscal year. This decrease is primarily due to a reduction of rent expense as we reduced the size of our space at our headquarters in Springfield. We also continued our focus on cost saving initiatives in such areas that interrupt labor and travel during the quarter.

The company reported they had income from continued operations at $450,000 or $0.05 per basic and diluted share in the fourth quarter of 2013, a surge in net income from continuing operations of 1.1, with $0.04 per basic and diluted share in the fourth quarter of 2012.

For the remainder of the third quarter our margins were impacted by a shift in revenue mix, with the completion of two particularly high profit margin projects, delays in new work come on line (inaudible) labor dollars, a significant [counter sequel] (ph) write-off in our professional services group, which I will discuss in greater detail in the second session below.

Now focusing on the operating results of our business segment for fiscal year 2012. Note that in discussing the business segment operations, all prior period amounts have been reclassified to conform to the current segment presentation.

Engineering and construction management. Gross revenue was $49.3 million, a decrease of 29% compared to last year. The decrease was mainly a result of reduction in government spending for international reconstruction projects, for electrical and special service in Iraq, a decrease of the U.S. Air Force spending in Afghanistan.

The slowdown was coupled with reduced domestic revenue, related to the completion of the Tooele Demilitarization project during fiscal year 2012 and reduced revenue from domestic construction related to the company’s more selective focus on location and projects.

Gross profit margins in this segment was 23% as compared to 24% last year, despite decreases related to the previous inventions, mission of Tooele and the Iraq electrical expansion service program.

Environmental Services Group. Revenue was $38.9 million, an increase of 26% compared to $30.9 million last year. The increase was primarily due to a $9.5 million increase in PBR work for the U.S. Air Force at various instillations across the U.S.

Additionally we continue to see revenue increases related to our unexploded ordnance projects at Irwin, California and Nellis Air Force based in Nevada. We also had an increase in municipal stormwater contract awards, reflecting growth in our national resources services.

Gross profit for the segment was $1.2 million with gross margin of 3%, compared to a loss of $1.8 million in the prior fiscal year. The improved margin primarily reflects increased revenues from stormwater projects, EPPR Awards and our U.S.’s broad range of management projects.

Professional Services Segment. Gross revenue was $14.4 million, a decrease of 3% as compared to $14.9 million last year. We have noticed that our clients have increased requirement towards the small businesses and we continue to look for new ways to increase our prime sub-contractor relationships, with smaller firms to bring value to our customers.

Gross profit was $1 million, a decrease of 27% compared to last year, primarily related to a $430,000 write off of an on collective receivable. As such, gross margin was down to 7% compared to gross margin of 9% in fiscal year 2012.

With that I will turn it back to Tony to wrap up.

Tony Otten

We made solid progress in fiscal 2013 growing our backlog, maintaining a strong balance sheet to support future growth and addressing a number of legacy, non-core areas of our company. Versar’s advantage in the marketplace is our ability to tailor a broad range of capabilities to meet the needs of our customers around the world at both high and low risk settings.

Our expertise in managing diverse situations ranging from standard construction management projects in the United States to more complex projects like PBR task orders, our work in remote international locations such as Afghanistan, position us as a guide of the resource to our partners and clients. Not every project we work on or location we visit is high risk, but Versar is unique in its ability to successfully complete the more challenging ones.

Looking forward we remain focused on four initiatives to drive growth. First, pursuing larger contracts and expanding our pool of opportunities. We continue to strengthen our relationships with other contractors to create teaming out arrangements that better serve our clients and create future opportunities.

Second, leveraging the combination of our multiple skill sets and broad service offerings, which includes sustainable risk management services, energy and environmental expertise and complex project oversight.

Third, expanding our already strong international presence in the construction management business by also offering our non-construction services to our overseas client base. This will allow us to replication our proven domestic skills in the international market and position us to meet the growing needs overseas.

And fourth acquisitions; as our announcement yesterday indicates, we remain committed to smart M&A. We will continue to assess companies that will enhance Versar’s existing capabilities and are committed to adding profitable revenue to our top line through strategic acquisitions.

Our management team remains committed to our goal of profitable growth and we believe that our unique capabilities leave us well positioned to meet the future needs and demands of our existing client base and also to capitalize on new opportunities.

Thank you all for your continued support and I’ll now turn it over to Dave to begin the Q&A portion of the call.

David Gray

Thanks Tony. Rob will help me queue up these questions as they come in.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question is coming from the line of Vincent Staunton with Wedbush. Please proceed with your question.

Vincent Staunton - Wedbush Securities

Hi Guys.

Cynthia Downes

Hi.

Tony Otten

Good morning. How are you? You got up early.

Vincent Staunton - Wedbush Securities

Yes. First question with regards to gross margin. Gross margin for the quarter was notably lower than its been in a long time. Do you see this as a one-time event? Do you see gross margin returning to what its been historically in the past few quarters?

Tony Otten

I think last quarter our gross margin was down a bit as well and we had issued some guidance if you will or made a comment that we thought our traditional, our long range gross margins was in the 13% to 14% range. This is what we did for the year.

If you recall, in the fourth quarter Cynthia mentioned the $430,000 AR write-off within Professional Services. So if you did a calculation on that, that’s about two or three percentage points of gross margin right there for the quarter on $25 million of revenue, maybe its two percentage points. So its not where we want it to be. We do feel comfortable that it will move back up and its actually – when you factor in the write-off, its not quite as bad as it shows up in that quarter.

Vincent Staunton - Wedbush Securities

Okay, and in terms of the discontinued operations, is this the PPS acquisition?

Tony Otten

We had a long-term business domestically selling proprietary suit product that was made by third party, as well as selling other suits with very low margin, and its been declining over the years because people just aren’t buying the suits domestically anymore and so over the last couple of years we’ve seen a precipitous decline and so we decided it was time to shut that down.

PPS is continuing and doing well and actually it’s turning out to be very, very valuable in helping us penetrate the Middle Eastern market. There is great interest in the Middle East in the full range of PPS products. Obviously we did well with PPS in the prior years, because of the Olympics.

Europe obviously is slow, but we are seeing pretty good interest in demand for PPS products into the Middle East, which allows us to approach our clients or potential clients in the Middle East with a much broader range of services. So that’s getting well received there. So its two separate items.

Vincent Staunton - Wedbush Securities

Okay. Thanks guys.

Tony Otten

Thank you.

Operator

Thank you. Our next question is from the line of (inaudible) with B. Riley. Please proceed with your question.

Unidentified Participant

Hi Tony.

Tony Otten

Hi Mark. You’re another person who is up early this morning.

Unidentified Participant

Yes. Well congratulations on the acquisition. My first question is, what kind of a bit has the producers paid for the acquisition of Geo-Marine.

Tony Otten

Right. We are not actually disclosing that, but I will tell you that you and others have heard me talk a great length about how we put deals together and how we value these transaction, and this is very much square in the middle of what I’ve been outlining in the past in terms of how we look at acquisitions.

Unidentified Participant

Okay. So with the acquisitions, what kind of synergies do you expect to realize on the operating expense line?

Tony Otten

Well we see a number of opportunities, strategic as well as operational on this. Obviously we feel that we’ve shown this year, as well as in the last three plus years that we know how to run this business profitably, but we also have talked to that, the need to drive the top line profitably.

So when we look at the $20 plus million of revenue that Geo-Marine will bring to us, plus solid backlog and I’ll talk in a second about some of the ID/IQs they are brining, we obviously see some ability to just leverage our G&A cost as they exist today, because obviously we have built and we talked about how we built up a backbone and a back office that we believe has the capability to handle significantly more revenue than we are running today.

We have identified a number of areas as we always do, in terms of areas where we think we’ll be able to reduce cost; whether its real-estate, whether its staffing or just more efficiencies. We do now price those into our valuations really. We’ve always talked about that, that we expect to get them as we have in our previous acquisitions, but they are not part of the valuation when we go in and so its going to be the sort of normal synergies in terms of operationally of back office that you would expect.

From a strategic point of view, an example that was mentioned in the announcement, we have talked for a number of years about how we see navy as a prime objective for us and we were thinking we were going to have to do this the hard, slog way of multiple years of business development and hiring a key person within, who has the ability to be the end market into the navy. This brings a long history of navy relationships, plus a significant new award in the $75 million ID/IQ that they just won. There are two other competitors as well, so three parties over five years and so we are very excited about that.

This company also has a large natural resources business, as well as a cultural resources business where we operate in. So we see the ability to now present Versar with a combination of Geo-Marine as a national player in both natural resources and cultural resources, which we think will open up significant new opportunities for us to chase.

So we see this is as very consistent with what we talked about all along in terms of how we do acquisitions. The multiples are where we want them to be, it’s bringing solid backlog, its bringing very strong pipeline in ID/IQ awards; its not a dramatic change in what we do, but it’s a geographic and a client expansion for the same things we do.

So we see the ability to leverage this skill sets across the broad, to go after new clients that we’ve never been able to go after before and then as we said, we always expect to get some cost savings in synergies.

Unidentified Participant

Perfect. Sounds great. So post the discontinuation of your non-core operating areas and your latest acquisition, so how does it position the company for future growth now?

Tony Otten

Well we are very excited. As I talked just recently, in terms of it allows us – as always is the case, when you have money loosing operations its sucks management time, and given the revenue size of those business and given the complexity of those business, its sucks it disproportionately from running of a day-to-day business and the strategic business of growth.

So with the shut down of these three operations, which was certainly talking a fair amount of senior management time, its really allowing us now to focus our resources and our efforts on the areas we’ve talked about and the areas we operate in. So the engineering construction area, both domestically and worldwide, the environmental services growth with the acquisition of Geo-Marine, but also as we try to expand our presence in the environmental area internationally into the Middle East and then the staffing area.

So to us it’s a win-win. Unfortunately its hit earnings this year and we hope that the investors and the market understands that on a continuing basis, really when you adjust for that write-off, we weren’t very far short of last year on revenue that was down 15%.

We know we need to grow the top-line. I talked about the fact that we are not going to do a stupid deal just to grow the top-line. We have been very, very disciplined in our approach. This one we think pushes all the right buttons and will allow us both organically to now lever new opportunities, as well as to add immediately significant revenue to the top line.

Unidentified Participant

All right. So in the near term, what areas of your end markets are you seeing most of the growth opportunities?

Tony Otten

It’s really across the board. We are continuing to see on the construction management side significant opportunities in the Middle East and elsewhere. Obviously we have not yet won any awards under the CPSS contract or the joint venture with Parsons, we think those will be coming, we are confident on that

We are seeing great opportunities on the performance-based area, not just within the Air Force, but now also within EPAs and other areas that we are seeing the opportunities. We are actually staring to see the state and local governments come back in terms of the environmental natural resources. For example, the comment that simply we made about the new awards in the stormwater area.

That was work that in 2008 state and local business made up 15% of our revenue. Today its less than 10%, but now growing again. And on the staffing side we are seeing the pressure on the small business, but we are also seeing larger opportunities that we are chasing, that don’t have the small business pressure, while at the same time developing teaming. So we are pretty comfortable that there are some really interesting opportunities in all three of our operating areas.

Unidentified Participant

Okay. And my last question is, do you have any kind of update or visibility on the release of the contract awards relating to MMRP and the PES.

Tony Otten

Okay, so the PES, the Afghan Personal Services contract, that one the year-ends at the end of September. Our thought would be that we’ve heard nothing that says they are not going to talk up the option and we would think that they would do it before the end of the fiscal year. So that’s our best guess right now on what we’re hearing.

On the MMRP, I thought we announced Fort Irwin was renewed. I think we made an announcement on that. On Nellis, I think that one actually has three or four more years to run before there’s any issue. So in terms of our two major MMRP contracts, we are good for at least the next 12 months, but not longer.

Unidentified Participant

Perfect, sounds great. Thank you very much.

Tony Otten

Thank you.

Operator

Thank you. (Operator Instructions). Our next question is from the line of Igor Novgorodtsev with Lares Capital. Please proceed with your question.

Igor Novgorodtsev - Lares Capital

Hello Tony, how are you?

Tony Otten

Hello Igor, how are you?

Igor Novgorodtsev - Lares Capital

Pretty good. I have several questions. So can we get a little more details; you took a write-off on (inaudible). If I understand correctly it was $3.4 million.

Tony Otten

No, it was $430,000.

Igor Novgorodtsev - Lares Capital

That’s it. Because I know that your accounts receivable was a little bit elevated last quarter compared to the previous quarter. So could you just give a little bit more detail or do you got any further write-offs on accounts receivable or just was a one-time deal.

Tony Otten

Well, I can never guarantee that. But this was – we believe this was a one-time. This was a government project and so that’s somewhat surprising to us. We were a sub, but the client had – it was a small business client, but they had to pull the contract from us. They directed us to a new, a small business that they thought was a reliable vendor. We went with them, because the client still wanted us involved and unfortunately the new vendor was not as reliable as either we or the client thought, so we do think that was a one time.

Our receivables are elevated really because of the PBR work. Obviously Cynthia mentioned that we had a $9.5 million of more PBR work or revenue in the environmental services group this year over last year; a lot of that was PBR related, and the PBRs are not time and material.

They approve on fixed price and they have milestones payments. So they have to reach a certain milestone before you can invoice the government, and so in this case we had built up, just because of timing on some things, we had built up some unbilled receivables and some small billed receivables that we have subsequently been able to actually bill now and would expect that those receivables will be coming down.

We see no concerns in terms of collect ability of any of those ARs. And to the extent in terms of any other problem ARs, we believe right now we are fully reserved and adequately reserved on the balance sheet as issued.

Igor Novgorodtsev - Lares Capital

Okay. My next question involves the backlog. First of all, the backlog this year I’m not kind of making any move with the backlog from a new acquisition or this is just a backlog for the acquisition.

Tony Otten

I’m not sure I understood the question.

Igor Novgorodtsev - Lares Capital

Well are you acquiring (inaudible) as a backlog.

Tony Otten

No, the backlog excludes the acquisition. The acquisition was a post-closing event. I think we really set the backlog and the acquisition was around $15 million plus, so that would take us up over $120 million. But the $108 million is all internal and as always, we book our backlog very conservatively. That is only funded money that does not include anything, any of our ID/IQs that have not had actually task orders issued.

Igor Novgorodtsev - Lares Capital

Okay. Now out of the backlog, I think you had a historical conversion of something like 70% right, from a backlog to bill.

Tony Otten

What we have typically said is that we expect to realize most of that backlog and we realize in and around – we figure around a 12-month type cycle and we are still comfortable with that kind of comment.

Igor Novgorodtsev - Lares Capital

Okay. So if anything gets canceled out of this backlog due to sequester or any other reasons or is it just some of the things you said that the backlog has just got delayed or pushed out in time.

Tony Otten

Yes. No, we’ve had nothing canceled. Its been more of shifting to the right and it seems to becoming a reoccurring drumbeat. Maybe we need to really factor that in a little more, but we are very confident that we are going to realize that its just – that it took a little longer than we thought this year and its flowed into 2014.

Igor Novgorodtsev - Lares Capital

Okay, and just one last question. Declarations that you have discontinued, out of the loss that you took this quarter, how much was the one time charge for winding down this operations versus basically continuous – I mean I understand that this operating is for losing money, right.

Tony Otten

Yes.

Igor Novgorodtsev - Lares Capital

For operations. So how much was the drag, like quarter-over-quarter, roughly speaking as this operation is a one-time change.

Tony Otten

My recollection is that for the year the discontinued operations were about $0.18 and I believe for quarter – Dave, I’m going to ask you to conform this, but my recollection was the quarter was about $0.09.

David Gray

That’s correct.

Tony Otten

So the quarter, we made $0.05 on continuing operations, including the receivable write-off, and then on top of the $0.05 we had a $0.09 loss from discontinued operations. So on a combined basis we’ve lost about $0.04 for the quarter and obviously if we hadn’t had the receivable write-off, we would have been pretty close to breakeven for quarter.

Igor Novgorodtsev - Lares Capital

Actually that’s what I was asking. I was just curious, the continuous operations that it is continuous. In operations, how much was a drop over the previous quarters.

Tony Otten

Right. Okay, so I think last year – I mean quarter-to-quarter a year ago I think we disclosed it was $0.12 quarter four 2012; it was $0.05 quarter four of 2013 and then including that receivable write-off. So it was really the adjusted, maybe it was on a true apples-to-apples; it was $0.12 to $0.08.

Igor Novgorodtsev - Lares Capital

Okay, that’s pretty significant. All right, I don’t have anything else. Thank you very much.

Tony Otten

Thank you.

Operator

Our next question is from the line of Jeremy Hellman of Avenue T Fund. Please proceed with your question.

Jeremy Hellman - Avenue T Fund

Hey, good morning everybody.

Tony Otten

Good morning Jeremy.

Jeremy Hellman - Avenue T Fund

Hey, I had some questions about the acquisition of Geo-Marine. First off kind of looking for some feedback on how many employees you are going to adding that are – I think the right word maybe production in years, billable employees and kind of a Part B to that, do you see any of those having skill sets that are going to overlap any of your other so called areas and vise versa.

Tony Otten

So to your point Geo-Marines got probably a little over 100 full time people, of which 90 are direct labor. That’s the term we use, direct, so those are all billable. So we are a little under 500 people, so we are adding 20 to our labor force, most of it direct build, which is obviously what you want.

To your point, the second question, in terms of overlap. I don’t know if I’ll call it overlap. There’s a lot of great complementary skills. So as I mentioned, they do a lot in natural resources, we do a fair paramount. They are actually a larger operation on natural resources than we are. Our office is primarily the Colombia office. The have a large presence in Hampton Roads, which is the navy. They also do some natural resources throughout the Midwest and the West.

Additionally they have a large cultural resources group, again larger than ours, but again very complementary and in fact they worked together on a number of projects in the past and so we see it really as brining that teaming relationship inside the house if you will.

On the construction side, they have a pretty strong footprint in the energy audit area. Its an area that we recognize as one of the areas that we continue to think that we are gong to see growth and we have some skill sets, but probably not as deep as theirs. So again, we are going to be able to complement and deepen the bench and broaden our ability to go after larger projects and more projects in all those areas.

Jeremy Hellman - Avenue T Fund

Okay. And would you say that their current utilization rate is kind of consistent with legacy Versar, better or worse.

Tony Otten

I think the right way to say this is that there’s some fine-tuning that we want to do in a number of areas to make it more in-line with how Versar operates as a company.

Jeremy Hellman - Avenue T Fund

Okay, and then just on the structure of the transaction. It was cash and notes – I think it was, and just what was the split on that. If you can speak to that.

Tony Otten

I think it was about pretty typical, about 4 times cash or 3.5 times cash and 1.5 times in that sort of timeframe. So if you guys do your add, it will get you to 5 times and that’s sort of time frame.

We have as you guys know a lot of cash on the balance sheet. In fact I think you will see when we issue our first quarter results that our cash balance is still very, very strong even after this transaction.

Jeremy Hellman - Avenue T Fund

Yes. No, as you know this is something I’ve asked about probably for multiple quarts, so defiantly happy to see you guys find the right fit out there.

Just a couple of last ones for me. Just with the discontinued ops, do you have any special charges going through the income statement in the September quarter and kind of with maybe relative magnitude of that versus the SG&A add that you’ll get from Geo-Marines.

Tony Otten

Well, what we said in our – I think in the 8-K and in the discussion today is that those operations have been fully wound down and so without going further in that, I think that gives you a sense of where we are.

And I’m sorry what was the second quarter; I apologies.

Jeremy Hellman - Avenue T Fund

Just wondering, in terms of ongoing savings and maybe I guess you kind of answered that. But were there any other – since the wind down was in the September quarter or was it in the June quarter.

Tony Otten

It was the June quarter, by the Q. The K will be coming out we think next week and I think we’ll have a little more disclosure on that in terms of all that, but we are pretty much done.

In terms of the G&A, I thought I heard that was the other question you had asked about G&A. We still are always looking for a way to improve our efficiency in savings and we continue to do things on the margin. When you add them up it becomes significant, but certainly to be honest, I’m not sure that we have anything as significant out there as we did in terms of the ability to renegotiate a couple of leases that we’ve had in both at the corporate office and a few other places and that had a nice impact this year on our G&A cost.

Jeremy Hellman - Avenue T Fund

Right. Okay thanks.

Tony Otten

That’s Jeremy. I appreciate it.

Operator

(Operator Instructions). Thank you. It appears we have no further questions at this time. I would like to turn the floor back over to Dave Gray for closing comments.

David Gray

Thank you everybody. We’ll be posting this broadcast to our website in the next couple of hours for anyone who would like to access it. We’ll also be releasing our Q1 2014 results in early November and as always, we’ll continue to announce our wins and awards as they occur.

And lastly, thanks again for your continued support of Versar and we look forward to talking with you again soon.

Tony Otten

Thank you everybody. I appreciate it.

Operator

This concludes today’s teleconference. You may now disconnect your lines at this time. Thank you for your participation.

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Source: Versar's CEO Discusses F4Q2013 Results - Earnings Call Transcript

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