Versar (NYSE-Alt: VSR) Positioned to Profit From Government Stimulus Spending

Ted Prociv
Theodore M. Prociv Ph.D, President

Company Info
Versar, Inc. (Versar) is a professional services firm that provides the government and the private sector with value-added solutions for infrastructure, facilities management, construction, environmental quality, defense and homeland security needs. The Company operates in four primary business segments: Program Management, Compliance and Environmental Programs, Professional Services and National Security.


WSR: Good day from Wall Street. This is Juan Costello, Senior Analyst with Wall Street Reporter. Joining me today is Dr. Ted Prociv, President and CEO of Versar, which trades on the New York Stock Exchange, Alternext, ticker symbol VSR. Versar is a global project management company. Thanks for joining me today Dr. Prociv.

Ted Prociv: Thank you very much for the invitation.

WSR: Start off by telling us about the joint venture through VIAP.

Ted Prociv: The joint venture is part of an expanding attempt on the part of our company to get into new businesses. I’ve been here since about the year 2000, just a little before that, where this company was really just focused on small, environmental type contracts more in the consulting area. Unfortunately, that business was drying up, and we really had to go do something else. As we call that a transformation, we didn’t invent that term, we copied that term. As we started transforming, we moved more and more into construction.

As construction became a viable business, we were able to capture a nice piece of business with the US government in the Middle East, essentially being their quality assurance contractor for everything that they do there. As we were there in the Middle East, of course everybody knows that that’s a situation that’s tenuous and could change, we opted to move into some commercial business in the UAE, which is a very prosperous country, not so much hurt by a lot of the activities that were going on with the other Middle Eastern countries. We were able to capture an early contract but founded in order to continue doing business there that our best bet was to move into a joint venture with individuals that were already engaged there. And we did a little searching. We worked the other market. We found the right company, the Drifford Group, and we have now completed the joint venture and we are about to get our second project there. So, the joint venture really was a way to anchor us, establish us, and get us off to a very rapid start in the Middle East in a commercial endeavor there.

WSR: The joint venture was with Technical Resources International, correct?

Ted Prociv: Right.

WSR: The business operates in four primary segments; program management, compliance and environmental programs, professional services as well as national security. So, talk a little bit more about some of the I guess, the applications, some of the ways they use the business to maximize the customer.

Ted Prociv: The real part of the transformation that has been very successful is our move into large program management. We didn’t just say we are going to be program managers. We went out and we hired the program management institute. We had number of our people trained; about 10% of our professionals now are certified program managers. And this allowed us to get away from the small, one man one project type of contracts and move into much larger contracts. So, with that, of course, much larger contracts typically are in the area of construction and construction management, quality control management etcetera. And we have gotten into some very interesting type projects. In the construction management area, for instance, we have done a number of recreational facilities in the Southwest, and this is not just a swimming pool, this is the entire complex. It could include a pool, a skate park or kids park with the roads, the buildings, the picnic grounds etcetera; great projects for multifaceted, multi-disciplinary program management teams.

Over the last few years, we have had a number of different projects in redesigning mail-handling facilities. We have a longtime pedigree in the ability to handle toxic and hazardous materials, and we did some work with like a number of clients where we were able to protect their facilities against things like explosives and chemicals and biologicals and radioactive materials etcetera. We have taken that knowledge and that system that we have learned how to develop, and taken it to a number of other mail-handling facilities for both government and commercial areas. And again, these are large project management in a sense that we control it from the top-down. We pick the technologies. We hire the subcontractors. We do all the things that normally a customer would do, but we do it in a more efficient manner.

As we started to expand internationally, the construction services — we had a difficult time figuring out how to move out internationally. Originally, when Iraq, Baghdad and such became of interest for the restoration side of the business, we were kind of reluctant to get into it. But eventually, we had found a niche, and that niche was essentially to manage what the government calls Title 2 services or the quality control. So, if you go to Baghdad or Kabul in Afghanistan, you will find the Versar teams basically being the construction inspectors, the QA inspectors, materials inspectors, steel, concrete all of that. We are working as the US government’s agent in their quality control, also a very complex project management system. And since then, we have also won a number of construction management jobs in the Middle East, and that essentially spurred us to start the commercial venture that I mentioned earlier.

WSR: Continue talking about some of the — how the company is affected by some of the trends in the market, and how well positioned Versar is to capitalize on the trends?

Ted Prociv: Moving into this market has really helped in a sense that where we were before in the environmental services, environmental cleanup area, was at that time kind of — was not a strong market. The margins were poor. The volume was poor. That is changing, and while we were moving off into the construction world, we were able to maintain a good core discipline in the compliance and environmental world, and then market is coming back strong and we were also very well positioned for that market. And that market, of course, had those things like environmental remediation, pollution prevention, risk assessments, water and air management, and of course the word sustainability.

We have taken sustainability and defined it as the intersection between construction, environment, and — I am sorry, the third one is the sustainability. It’s construction, environment, and sustainability. As we pull all those together, we are one of the few companies that have an ability to actually manage all three of those. We have skill sets in all three of those. In fact, we have made a little change to our logo, where we –underneath the word Versar, we now added a green-collar company, because we are trying to impress our customers and our own employees that we are entering into the green-collar world. We are going to be the construction leaders. We are going to be the green environmental company, as we move more and more into the future. We’ve positioned ourselves very well to continue to evolve in that direction.

WSR: What are some of the other things that differentiate Versar from other players in your sector?

Ted Prociv: I think the two things that differentiate us the strongest, is one I mentioned earlier, our ability to deal with toxic and hazardous materials. And secondly, it’s our ability to deal with classified materials. We do have a substantial contingent of people that are cleared with the US government. And even though those projects are not well advertised and not well talked about, they are a very, very good source of technology and of course of revenue. So, those two specialties put us in that position. Adding this green flavor to our company puts us in a very, very strong market position. So, I think that will become kind of the third leg of the stool as to what our real specialties are.

We have another business that fits very nicely into this, and that’s our national security business, where we do Homeland Security as well as other protective type engineering projects. And it fits very well because even in the green world, even in the construction world, there are always issues of vulnerability, there are always issues of potential threat, there are issues of danger, health and safety monitoring, heat stress monitoring, things like these that where we actually have that part of the component of our projects in-house already. So, we can add that to our project management, we can add that to our systems program, and essentially do a one-stop shopping for all the control systems that we would put in for a customer’s project.

WSR: In terms of your company’s growth, will it be primarily organic or would you consider strategic acquisitions?

Ted Prociv: It’s actually both. We are working very hard at looking at external growth, at looking for potential acquisitions. We did one last year, a very small one. We needed some cultural resources growth, and we were able to find a nice little company there. We have had a couple of fault starts since then. With the market the way it is, it’s a little difficult to get accurate evaluations, and that’s kind of slowed us down a little bit. But we believe that we can do 10% to 12% growth internally with no problem. The last two years, we have had dramatic growth, but that’s because — internal growth, and that’s because we’ve shifted market sectors very, very rapidly. The internal growth is starting to slow down and we are looking towards an external growth to meet our goals.

Our goal is to really double the size of the company every five years. Of course, our profitability goals are in the — most of it, you have seen that. Our profitability goals are in the 8% to 10% range, but we have been exceeding those.

WSR: What other objectives has management set for the company over the next 12 to 24 months?

Ted Prociv: Growth is the key objective. That is the number one objective, and it’s one that we drive. We hit our people pretty hard with that. Everyone is out looking for ways to either grow internally or externally. Secondly, we like to be known as a company that’s at the state of the market. If you’ve looked at our recent history, when anthrax became an issue, we were right in the middle of it. When brownfields were an issue, we got right in the middle of it. We have the ability to move very, very quickly into new markets. So, our goal is to continue that kind of strive to look at one or two markets a year.

We are now starting to evaluate whether we have a position in the telecom market, for instance. It’s not going to be this year. It probably won’t be next year. But, I think soon after that, if we are successful and if the numbers prove right, we will be entering into that market, more into the communications world, using of course the skills that we already have. So, I think the ability — the growth through agility and market awareness is probably the most important part of our strategic plan right now.

WSR: This is an interview with Dr. Prociv, President and CEO of Versar, which trades on the New York Stock Exchange, Alternext. Ticker symbol, VSR; currently trading at $2.33 a share. Before we conclude Dr. Prociv, can you go through some of the key reasons why VSR represents a good long-term investment opportunity to investors?

Ted Prociv: Probably, the one that’s on my mind all the time is that we are tremendously undervalued. We are trading at a PE ratio of about 8, which I know if this happened a couple of years ago people would be scarfing us up like crazy. I think we have got a lot to add to the future markets. I think the fact that we have proven that we can change, we have proven that we have the agility to move from market to market. I’ve got a very stable management team that has gone through this transformation and knows how to get into the new market areas and how to grow. And if our growth is where we think it’s going to be, I think we are going to really impress the marketplace.

WSR: We certainly do look forward to that as well as continuing to track Versar’s progress. I’d like to thank you for joining us today, Dr. Prociv.

Ted Prociv: Thank you very much. I really enjoyed the interview. Thank you.

WSR: Thank you.

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