Velocity Express Corporation, US largest provider of time definite regional delivery solutions,released operating results for its fourth quarter and fiscal year ended 30 June 2007, presenting an
increase in profit and revenues for the fourth quarter of 2007, compared to the third quarter and apositive adjusted EBITDA in quarter ended 30 June, 2007.The company reported a gross profit for the fourth quarter of $26.4 million (EUR 18.47million), or 26.8% of sales, compared to $22.1 million (EUR 15.46 million), or 22.5% of sales inthe third quarter of fiscal year 2007. The sequential improvement reflects reduced total driver payas a result of the improved driver pay management and route engineering made possible by theintegrated customer and route management databases.
Fourth quarter revenue amounted to $98.6 million (EUR 68.98 million) compared to $98.2million (EUR 68.7 million)in the third quarter of fiscal 2007. Revenues declined from 2006 due tothe previously disclosed loss of office depot of $7 million (EUR 4.9 million), declines infinancial services revenue of $7 million (EUR 4.9 million), $3 million (EUR 2.1 million) perquarter in merger-related customer losses, and a slight economic slowdown in the current period.
These losses were partly offset by $2.5 million (EUR 1.7 million) in revenue from newbusiness starts with new and existing customers in the March and June quarters and $1.5 million(EUR 1.05 million) from the amortization into revenue of an unfavourable contract. Revenueincreased from the March quarter because new business starts and the unfavourable contractamortization exceeded the decline in financial services revenue during the quarter.
Operating expenses (occupancy and SG&A) for the fourth quarter accounted for $23.7million (EUR 16.58 million), or 24.1% of sales, compared to $24.0 million (EUR 16.79 million), or24.5% of sales in the third quarter of fiscal 2007. The decrease in operating expense reflects therealization of post-acquisition integration savings partly offset by legal expenses associated withthe resolution of a pre-2004 contract dispute.
Adjusted EBITDA for the fourth quarter amounted to $2.8 million (EUR 1.96 million), comparedto $1.8 million (EUR 1.26 million) in the third quarter of fiscal 2007. Adjusted EBITDA improvedsequentially due to improved gross margins and reduced operating expenses.
Velocity has launched a new franchise strategy to expand its technology-driven servicecapability into additional areas that enhance and increase service coverage. To date, Velocity hassigned franchisees in Fargo, ND; Columbus, OH; St. Louis, MO and Kansas City, MO and expects tosign two more cities before the end of October. The Company expects these first 6 franchisees toprovide more than $5 million (EUR3.5 million) of service for Velocity customers on an annual basis,from which Velocity will record the franchise fee income.
Furthermore, Velocity expects to expand its franchise program into three or four additionalgeographies each quarter, equivalent to $15-20 million (EUR 10.5-14 million) annual value ofservice for Velocity customers by June 2008. Beyond the benefit to customers, franchising alsoallows Velocity to use capital more efficiently by eliminating the expenditures needed to open newmarkets while earning franchise fees that assure “day one” profitability comparable to a maturedirect operation.
Vincent A. Wasik, Velocity’s Chairman and Chief Executive Officer, stated, “During the thirdquarter we achieved a positive adjusted EBITDA, reflecting the considerable progress we have madewith our acquisition of CD&L. We have realized all of the $22 million (EUR 15.39 million) inacquisition synergies we had anticipated and, with a significant effort, aided by Alvarez &Marsal, we have been able to migrate all of our customer and route management information to asingle database and operating system. The company can now apply our unique route management systemsto capture the full $16 million (EUR 11.2 million) of routing efficiencies we had anticipated whenwe merged with CD&L. During the quarter, we saw the first benefits of the integrated databasesas our route management and route engineering systems allowed us to improve driver pay by 370 basispoints in the June quarter compared to the March quarter, while increasing the average settlementpaid to our independent contractor drivers.”
