Exhibit 99.1
NEWS RELEASE
Date: |
| May 28, 2009 |
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| FOR IMMEDIATE RELEASE |
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Contact: |
| Dave Mossberg |
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| Three Point Advisors |
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| 817-310-0051 |
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| XETA Technologies Reports Second Quarter Fiscal 2009 Financial Results |
· 2Q09 Revenue: $17.8 million (decrease of 15% year over year)
· 2Q09 GAAP EPS: $0.02 vs. Q208 EPS $0.04
· 1H09 Revenue: $36.3 million (decrease of 6% year over year)
· 1H09 GAAP EPS: $0.02 vs. 1H08 EPS of $0.07
· 1H09 Non-GAAP EPS: $0.04 vs. 1H08 EPS of $0.07
XETA Technologies (NASDAQ:XETA) today reported earnings of $183,000, or $0.02 per diluted share, on revenue of $17.8 million for the second fiscal quarter ended April 30, 2009. This compares to earnings of $371,000, or $0.04 per diluted share, on revenue of $20.8 million for the second fiscal quarter ended April 30, 2008.
For the six months ended April 30, 2009, the Company reported earnings of $186,000, or $0.02 per diluted share, on revenue of $36.3 million compared to net income of $760,000 or $0.07 per share diluted on revenue of $38.8 million for the same period ended April 30, 2008. As previously announced, during the first quarter of 2009, the Company estimated and recorded a $350,000 reserve related to unpaid receivables due from Nortel Networks, Inc. Excluding this reserve, non-GAAP net income for the six months ended April 30, 2009 was $402,000, or $0.04 per diluted share.
Revenue Table (in thousands)
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| 2Q09 |
| 2Q08 |
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Line of Businesses |
| Revenue |
| Revenue |
| % Change |
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Recurring (Contract & Time and Materials) |
| $ | 7,050 |
| $ | 7,028 |
| unch |
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Implementation |
| $ | 2,272 |
| $ | 2,344 |
| -3 |
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Cabling |
| $ | 520 |
| $ | 762 |
| -32 |
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Total Services |
| $ | 9,842 |
| $ | 10,134 |
| -3 |
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Commercial |
| $ | 5,280 |
| $ | 8,775 |
| -40 |
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Hospitality |
| $ | 2,509 |
| $ | 1,497 |
| 68 |
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Total Systems |
| $ | 7,789 |
| $ | 10,272 |
| -24 |
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Second quarter services revenue decreased by 3 percent to $9.8 million, as fewer cabling projects slightly offset stable recurring service and implementation revenue comparisons. “During the first half of fiscal 2009, we announced two of the largest service contract wins in our history,” said Greg Forrest, President and Chief Executive Officer of XETA Technologies. “Although they did not move the needle during the second quarter, these relationships are progressing according to plan and should restore growth in our services business during the second half of fiscal 2009.”
During the second quarter of fiscal 2009, systems revenue decreased by 24 percent to $7.8 million versus $10.3 million recorded in the second quarter of 2008. Mr. Forrest commented “In addition to a challenging economic environment, systems sales faced tough comparisons with the large orders that we enjoyed in last year’s second quarter. Hospitality continued to be a bright spot during the second quarter, as systems sales in this vertical increased 68% and 51% during the second quarter and first half of 2009, respectively.”
Gross Margin Table
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| 2Q09 |
| 2Q08 |
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Line of Business |
| Gross Margin |
| Gross Margin |
| Change |
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Systems |
| 25.4 | % | 26.6 | % | - 120 basis points |
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Services |
| 31.2 | % | 25.0 | % | + 620 basis points |
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Total |
| 26.7 | % | 24.9 | % | + 180 basis points |
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During the second quarter of 2009, gross margin was 26.7 percent of revenue versus 24.9 percent during the second of 2008. “Improvement in gross margin is a result of the mix shift to higher margin recurring services revenue,” said Mr. Forrest. In addition, our team made sustainable improvements to our implementation operations which should continue to benefit profitability going forward. Despite the decrease in systems margin, it remains above our targeted levels.”
Cost containment efforts were sufficient to offset increases in amortization and other SG&A costs, resulting in a $102,000, or 2 percent, year-over-year decrease in operating expenses. Operating expense as a percentage of revenue increased to 24.9%, 320 basis points greater than the same period last year. Robert Wagner, XETA’s Chief Financial Officer commented “Given our strong cash flows, we considered it appropriate to maintain operating expenses above our targets in the near term, thereby preserving sufficient sales and marketing muscle in the organization to accelerate growth as economic conditions recover. In the long term, we continue to target operating expenses of 18% to 20% of revenue as we realize economies of scale.”
Highlights of the second quarter of fiscal 2009 included:
· During the quarter, XETA signed an agreement to provide professional services for Samsung customers in North America. The agreement is estimated to generate more than $2 million in annual service revenue for XETA.
· XETA acquired the operations of Massachusetts-based Summatis, LLC, a privately-held Company that provides communications solutions and integration and maintenance services. Summatis’ historic annual revenue is greater than $5 million with a revenue mix of 70% systems sales and 30% recurring services.
Commenting on the outlook, Mr. Forrest said, “Given the service wins achieved during the first half of the year, we have greater near term visibility for our service revenue and expect this business to grow during the second half of the fiscal year. This growth combined with the contribution from Summatis should help to at least partially offset difficult revenue comparisons and contracted IT spending rates facing our systems business. With our focus on recurring service revenue and maintaining our strong competitive position and balance sheet, we are well positioned to broaden and deepen the scope of our customer and partner relationships. Our strategy is to aggressively gain market share during the downturn while maintaining profitability, and to position the Company to accelerate growth as we move out of the bottom of this economic cycle.”
The Company will host a conference call and webcast to discuss these results at 4:00 p.m. Central Time on Thursday, May 28, 2009. Interested parties may access the conference call via telephone by dialing 877-407-8033. The call is being webcast and can be accessed at XETA’s website www.xeta.com under the investor relations section of the website. A replay of the webcast will be archived on the Company’s website for 60 days.
Condensed Consolidated Statements of Income
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| Three Months Ended |
| Six Months Ended |
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| April 30, |
| April 30, |
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| 2009 |
| 2008 |
| 2009 |
| 2008 |
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| (Unaudited) |
| (Unaudited) |
| (Unaudited) |
| (Unaudited) |
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Sales |
| Services |
| $ | 9,842 |
| $ | 10,134 |
| $ | 19,835 |
| $ | 19,859 |
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| Systems |
| 7,789 |
| 10,272 |
| 16,375 |
| 17,986 |
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| Other |
| 126 |
| 406 |
| 127 |
| 916 |
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| Total |
| 17,757 |
| 20,812 |
| 36,337 |
| 38,761 |
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Cost of Sales |
| Services |
| 6,769 |
| 7,600 |
| 13,753 |
| 14,731 |
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| Systems |
| 5,810 |
| 7,542 |
| 12,152 |
| 13,328 |
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| Other |
| 435 |
| 484 |
| 883 |
| 925 |
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| Total |
| 13,014 |
| 15,626 |
| 26,788 |
| 28,984 |
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Gross Profit |
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| 4,743 |
| 5,186 |
| 9,549 |
| 9,777 |
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Gross Profit Margin |
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| 27 | % | 25 | % | 26 | % | 25 | % | ||||
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Operating Expense |
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Selling, General and Administrative |
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| 4,081 |
| 4,264 |
| 8,537 |
| 7,926 |
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Amortization |
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| 335 |
| 254 |
| 657 |
| 457 |
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Total Operating Expenses |
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| 4,416 |
| 4,518 |
| 9,194 |
| 8,383 |
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Income from Operations |
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| 327 |
| 668 |
| 355 |
| 1,394 |
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Interest Expense |
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| (29 | ) | (69 | ) | (58 | ) | (172 | ) | ||||
Interest and Other Income (Expense) |
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| 4 |
| 10 |
| 15 |
| 27 |
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Total Interest and Other Expense |
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| (25 | ) | (59 | ) | (43 | ) | (145 | ) | ||||
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Income Before Provision for Income Taxes |
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| 302 |
| 609 |
| 312 |
| 1,249 |
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Provision for Income Taxes |
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| 119 |
| 238 |
| 126 |
| 489 |
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Net Income after Tax |
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| $ | 183 |
| $ | 371 |
| $ | 186 |
| $ | 760 |
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Basic Earnings Per Share |
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| $ | 0.02 |
| $ | 0.04 |
| $ | 0.02 |
| $ | 0.07 |
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Diluted Earnings Per Share |
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| $ | 0.02 |
| $ | 0.04 |
| $ | 0.02 |
| $ | 0.07 |
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Wt. Avg. Common Shares Outstanding |
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| 10,225 |
| 10,254 |
| 10,224 |
| 10,231 |
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Wt. Avg. Common Equivalent Shares |
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| 10,225 |
| 10,263 |
| 10,224 |
| 10,246 |
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(The information is unaudited and is presented in thousands except percentages and per-share data.)
Consolidated Balance Sheet Highlights
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| (Unaudited) |
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| April 30, 2009 |
| October 31, 2008 |
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Assets |
| Current |
| Cash |
| $ | 6 |
| $ | 64 |
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| Receivables (net) |
| 14,827 |
| 19,995 |
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| Inventories (net) |
| 5,106 |
| 5,237 |
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| Other |
| 4,100 |
| 2,615 |
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| Subtotal |
| 24,039 |
| 27,911 |
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| Non-Current |
| PPE (net) |
| 10,231 |
| 10,725 |
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| Goodwill & Intangibles |
| 27,677 |
| 27,654 |
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| Other |
| 150 |
| 103 |
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| Subtotal |
| 38,058 |
| 38,482 |
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| Total Assets |
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| $ | 62,097 |
| $ | 66,393 |
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Liabilities |
| Current |
| Revolving Line of Credit |
| $ | 759 |
| $ | 2,524 |
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| Notes Payable |
| 1,269 |
| 1,355 |
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| Accounts Payable |
| 4,945 |
| 6,692 |
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| Accrued Liabilities |
| 3,588 |
| 4,742 |
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| Unearned Revenue |
| 3,310 |
| 3,237 |
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| Subtotal |
| 13,871 |
| 18,550 |
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| Non-Current |
| Noncurrent Deferred Tax Liability |
| 5,711 |
| 5,546 |
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| Other |
| 398 |
| 460 |
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| Subtotal |
| 6,109 |
| 6,006 |
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| Total Liabilities |
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| 19,980 |
| 24,556 |
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Equity |
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| $ | 42,117 |
| $ | 41,837 |
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(The information is unaudited and is presented in thousands.)
Reconciliation of EBITDA(1) to Net Income
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| Quarter Ending |
| Six Months Ending |
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| 2009 |
| 2008 |
| 2009 |
| 2008 |
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Net Income (Loss) |
| $ | 183 |
| $ | 371 |
| $ | 186 |
| $ | 760 |
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Interest |
| 29 |
| 69 |
| 58 |
| 172 |
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Provision for Income Taxes |
| 119 |
| 238 |
| 126 |
| 489 |
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Depreciation |
| 229 |
| 172 |
| 454 |
| 339 |
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Amortization |
| 335 |
| 254 |
| 657 |
| 457 |
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EBITDA(1) |
| $ | 895 |
| $ | 1,104 |
| $ | 1,481 |
| $ | 2,217 |
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(The information is presented in thousands.)
(1)The Company uses EBITDA (earnings before net interest, income taxes, depreciation and amortization) as part of its overall assessment and comparison of financial performance between accounting periods. XETA believes that EBITDA is often used by the financial community as a method of measuring the Company’s performance and of evaluating the market value of companies considered to be in similar businesses. EBITDA is a non-GAAP financial measure and should not be considered an alternative to net income or cash provided by operating activities, as defined by accounting principles generally accepted in the United States (“GAAP”). A reconciliation of EBITDA to net income is provided above.
The following table reconciles reported GAAP net income per the income statement to non-GAAP net income:
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| Quarter Ending |
| Six Months Ending |
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| 2009 |
| 2008 |
| 2009 |
| 2008 |
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Net Income as Reported |
| $ | 183 |
| $ | 371 |
| $ | 186 |
| $ | 760 |
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Reserve for Bad Debt (Net of Tax) |
| — |
| — |
| 216 |
| — |
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Non-GAAP net income |
| $ | 183 |
| $ | 371 |
| $ | 402 |
| $ | 760 |
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(The information is presented in thousands.)
The following table reconciles reported GAAP diluted earnings (loss) per share (“EPS”) to non-GAAP diluted EPS:
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| Quarter Ending |
| Six Months Ending |
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| 2009 |
| 2008 |
| 2009 |
| 2008 |
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EPS, Diluted - as Reported |
| $ | 0.02 |
| $ | 0.04 |
| $ | 0.02 |
| $ | 0.07 |
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EPS Impact of Reserve for Bad Debt, Net of Tax |
| — |
| — |
| 0.02 |
| — |
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EPS, Diluted - Non-GAAP |
| $ | 0.02 |
| $ | 0.04 |
| $ | 0.04 |
| $ | 0.07 |
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About XETA Technologies
XETA sells, installs and services advanced communication technologies for small, medium, and fortune 1000 enterprise customers. The Company maintains the highest level of technical competencies with multiple vendors including Avaya, Mitel, Nortel, Hitachi and Samsung. With a 27-year operating history and over 16,000 customers from coast to coast, XETA has maintained a commitment to extraordinary customer service. The Company’s in-house 24/7/365 call center, combined with a nationwide service footprint offers customers comprehensive equipment service programs that ensure network reliability and maximized network up-time. More information about XETA (Nasdaq: XETA) is available at www.xeta.com. Click on the following link to join our e-mail alert list: http://www.b2i.us/irpass.asp?BzID=1585&to=ea&s=0.
This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements concerning sales revenue, expectations and managing expense structure. These and other forward-looking statements (generally identified by such words as “expects,” “plans,” “believes,” “likely,” “anticipates” and similar words or expressions) reflect management’s current expectations, assumptions, and beliefs based upon information currently available to management. Investors are cautioned that all forward-looking statements are subject to certain risks and uncertainties which are difficult to predict and that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to: the U.S. and global economic crisis and its impact on capital spending trends in the Company’s markets; the filing by Nortel for bankruptcy protection and the impact that such action will have on the Company’s Nortel products and services offering; the probability of dramatic changes by Nortel to its business plan and strategies and their impact on the Company’s relationship with Nortel both as a business partner and a business vendor; the Company’s ability to maintain and improve upon current gross profit margins; the Company’s ability to acquire and retain the technical competencies needed to implement new advanced communications technologies; intense competition and industry consolidation; dependence upon a single customer for the recent growth in the Company’s Managed Services offering; and the availability and retention of revenue professionals and certified technicians. Additional factors that could affect actual results are described in Item 1.A entitled “Risk Factors” contained in Part I of the Company’s Form 10-K for its fiscal year ended October 31, 2008, and in the Risk Factors section of the Company’s quarterly reports on Form 10-Q filed and to be filed for fiscal 2009.