Exhibit 99.1
NEWS RELEASE
Date: | August 27, 2009 |
| FOR IMMEDIATE RELEASE |
|
|
Contact: | Dave Mossberg |
| Three Point Advisors, LLC |
| 817-310-0051 |
XETA Technologies Reports Third Quarter Fiscal 2009 Financial Results
· 3Q09 Revenue: $17.2 million vs. 3Q08 Revenue: $23.2 million
· 3Q09 GAAP loss per share: ($0.84) vs. 3Q08 GAAP EPS $0.06
· Non-cash goodwill and other asset impairment charges of $14.0 million
· Non-GAAP 3Q09 loss per share: ($0.01), excluding impairment charges
XETA Technologies (Nasdaq:XETA) today reported a GAAP loss of ($8.6 million), or ($0.84) per diluted share, on revenue of $17.2 million for the third fiscal quarter ended July 31, 2009. This compares to earnings of $591,000, or $0.06 per diluted share, on revenue of $23.2 million for the third fiscal quarter ended July 31, 2008.
Due to a continued decline in systems sales to commercial customers during the quarter, uncertainty related to a pending change of ownership of a significant vendor—Nortel, and the sustained level of market capitalization below book value, the Company conducted impairment tests for goodwill and other long-lived assets, specifically its ERP system, in connection with the preparation of its third quarter financial report. As a result, the Company recorded non-cash impairment charges of $11 million and $3 million to goodwill and fixed assets, respectively. The impairment charge to goodwill represents the Company’s best estimate at the time of reporting third quarter results, and may be adjusted after completing the impairment test during the fourth fiscal quarter. The impairment charges do not result in any cash expenditures or affect the Company’s cash position, cash flow from operations, or availability under its credit facility. Excluding these charges, non-GAAP net loss for the third fiscal quarter was ($87,000), or ($0.01) per diluted share.
For the nine months ended July 31, 2009, the Company reported a GAAP loss of ($8.4 million), or ($0.82) per diluted share, on revenue of $53.5 million compared to net income of $1,351,000, or $0.13 per diluted share on revenue of $62.0 million for the same period ended July 31, 2008. Excluding non-cash charges, non-GAAP net income for the nine months ended July 31, 2009 was $314,000, or $0.03 per diluted share.
Revenue Table (in thousands)
|
| 3Q09 |
| 3Q08 |
|
|
| ||
Line of Businesses |
| Revenue |
| Revenue |
| % Change |
| ||
|
|
|
|
|
|
|
| ||
Recurring (Contract & Time and Materials) |
| $ | 7,357 |
| $ | 7,202 |
| 2 |
|
Implementation |
| $ | 2,469 |
| $ | 3,864 |
| -36 |
|
Cabling |
| $ | 698 |
| $ | 962 |
| -27 |
|
Total Services |
| $ | 10,524 |
| $ | 12,028 |
| -13 |
|
|
|
|
|
|
|
|
| ||
Commercial |
| $ | 4,032 |
| $ | 8,366 |
| -52 |
|
Hospitality |
| $ | 2,491 |
| $ | 2,296 |
| 8 |
|
Total Systems |
| $ | 6,523 |
| $ | 10,662 |
| -39 |
|
Third quarter services revenue was $10.5 million, a 13 percent decline from the same period last year, and a 7 percent sequential increase from the second quarter of 2009. The year-over-year decline in services revenue was primarily related to lower implementation and cabling revenue associated with lower systems sales. “The sequential improvement in service revenue is indicative of success in on-boarding several sizable, multi-year service contracts during the first nine months of the year,” said Greg Forrest, President and CEO of XETA Technologies. “The sequential improvement was also the result of growth in our wholesale business, which we provide services on behalf of our partners. Wholesale services are not tied directly to the sale of equipment. Therefore, as the wholesale business grows, our revenue becomes less dependent on equipment sales, which can fluctuate significantly from quarter to quarter, as was the case during this last period. We remain strategically focused on growing our wholesale and direct service business, which provides stable recurring revenue, requires less working capital investment, produces higher margin and typically performs better during the bottom of economic cycles.”
During the third quarter of fiscal 2009, systems revenue decreased by 39 percent to $6.5 million versus $10.7 million recorded in the third quarter of 2008. Mr. Forrest commented “Our systems revenue faced tough comparisons with large orders that were delivered during third quarter last year. Excluding these orders, the significant drop in systems revenue was consistent, or slightly better than, the numbers reported by the major communications equipment vendors.”
Another key to understanding the Company’s third quarter results was the decline in Other Revenues compared to last year. These revenues primarily represent commissions earned from Avaya on the sale of their maintenance agreements. “Customers chose to defer decisions on renewals of existing contracts during the third quarter, which negatively impacted our profitability,” said Mr. Forrest.
Gross Margin Table
|
| 3Q09 |
| 3Q08 |
|
|
|
Line of Business |
| Gross Margin |
| Gross Margin |
| Change |
|
Systems |
| 28.9 | % | 26.4 | % | + 250 basis points |
|
Services |
| 28.7 | % | 30.4 | % | - 170 basis points |
|
Overall Gross Margin |
| 26.8 | % | 26.7 | % | + 10 basis points |
|
During the third quarter of 2009, gross margin was 26.8 percent of revenue versus 26.7 percent during the third quarter of 2008, as an increase in systems margin was offset by a decline in services margin. “Lower systems sales and the resulting decrease in implementation revenue directly affected the fixed cost absorption of our implementation services. All other service categories showed improvements in margin,” said Mr. Forrest. “Gross margin on systems revenue remained above targeted levels, reflecting our discipline to focus on business where we compete based on our differentiated offering, instead of price.”
“While gross margin remained relatively unchanged from the prior year, as a result of lower sales volumes, gross margin dollars declined $1.6 million. We were able to offset a portion of this decline by taking appropriate actions to right size the organization and reduce spending, which aided in producing an 8% decline in third quarter operating expenses, excluding impairment charges,” stated Robert Wagner, XETA’s Chief Financial Officer. “As a result of the actions we’ve taken during the third quarter, we expect to reduce operating expense by more than $1 million annually.”
“We made significant improvements to our balance sheet this quarter, generating $4 million in operating cash flow, building a cash balance of nearly $3 million and zero drawn on our line of credit,” said Mr. Forrest. “The combination of improvement in some macro economic indicators and our own observations of increased
activity by some customers during the last 30 days lead us to be cautiously optimistic regarding our fourth quarter and fiscal 2010 financial results. We have maintained our investment in sales infrastructure to capitalize on growth opportunities should these early indicators mature.”
The Company will host a conference call and webcast to discuss these results at 4:00 p.m. Central Time on Thursday, August 27, 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
|
|
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
|
|
| July 31, |
| July 31, |
| ||||||||
|
|
|
| 2009 |
| 2008 |
| 2009 |
| 2008 |
| ||||
|
|
|
| (Unaudited) |
| (Unaudited) |
| (Unaudited) |
| (Unaudited) |
| ||||
Sales |
| Services |
| $ | 10,524 |
| $ | 12,028 |
| $ | 30,359 |
| $ | 31,888 |
|
|
| Systems |
| 6,523 |
| 10,662 |
| 22,897 |
| 28,648 |
| ||||
|
| Other |
| 136 |
| 513 |
| 263 |
| 1,429 |
| ||||
|
| Total |
| 17,183 |
| 23,203 |
| 53,519 |
| 61,965 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of Sales |
| Services |
| 7,506 |
| 8,373 |
| 21,258 |
| 23,104 |
| ||||
|
| Systems |
| 4,640 |
| 7,846 |
| 16,792 |
| 21,175 |
| ||||
|
| Other |
| 425 |
| 782 |
| 1,308 |
| 1,707 |
| ||||
|
| Total |
| 12,571 |
| 17,001 |
| 39,358 |
| 45,986 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross Profit |
|
|
| 4,612 |
| 6,202 |
| 14,161 |
| 15,979 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross Profit Margin |
|
|
| 27 | % | 27 | % | 26 | % | 26 | % | ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating Expense |
|
|
|
|
|
|
|
|
|
|
| ||||
Selling, General and Administrative |
|
|
| 4,388 |
| 4,870 |
| 12,926 |
| 12,796 |
| ||||
Amortization |
|
|
| 345 |
| 265 |
| 1,002 |
| 722 |
| ||||
Impaiment of Goodwill and Other Assets |
|
|
| 14,000 |
| — |
| 14,000 |
| — |
| ||||
Total Operating Expenses |
|
|
| 18,733 |
| 5,135 |
| 27,928 |
| 13,518 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income from Operations |
|
|
| (14,121 | ) | 1,067 |
| (13,767 | ) | 2,461 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest Expense |
|
|
| (21 | ) | (96 | ) | (79 | ) | (268 | ) | ||||
Interest and Other Income (Expense) |
|
|
| (1 | ) | — |
| 14 |
| 27 |
| ||||
Total Interest and Other Expense |
|
|
| (22 | ) | (96 | ) | (65 | ) | (241 | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income (Loss) Before Provision for Income Taxes |
|
|
| (14,143 | ) | 971 |
| (13,832 | ) | 2,220 |
| ||||
Provision for Income Taxes |
|
|
| (5,544 | ) | 380 |
| (5,418 | ) | 869 |
| ||||
Net Income after Tax |
|
|
| $ | (8,599 | ) | $ | 591 |
| $ | (8,414 | ) | $ | 1,351 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic Earnings Per Share |
|
|
| $ | (0.84 | ) | $ | 0.06 |
| $ | (0.82 | ) | $ | 0.13 |
|
Diluted Earnings Per Share |
|
|
| $ | (0.84 | ) | $ | 0.06 |
| $ | (0.82 | ) | $ | 0.13 |
|
Wt. Avg. Common Shares Outstanding |
|
|
| 10,224 |
| 10,254 |
| 10,224 |
| 10,242 |
| ||||
Wt. Avg. Common Equivalent Shares |
|
|
| 10,226 |
| 10,254 |
| 10,224 |
| 10,247 |
|
(The information is unaudited and is presented in thousands except percentages and per-share data.)
Consolidated Balance Sheet Highlights
|
|
|
|
|
| (Unaudited) |
|
|
| ||
|
|
|
|
|
| July 31, 2009 |
| October 31, 2008 |
| ||
Assets |
| Current |
| Cash |
| $ | 2,981 |
| $ | 64 |
|
|
|
|
| Receivables (net) |
| 11,383 |
| 19,995 |
| ||
|
|
|
| Inventories (net) |
| 5,109 |
| 5,237 |
| ||
|
|
|
| Other |
| 2,438 |
| 2,615 |
| ||
|
|
|
| Subtotal |
| 21,911 |
| 27,911 |
| ||
|
|
|
|
|
|
|
|
|
| ||
|
| Non-Current |
| PPE (net) |
| 6,998 |
| 10,725 |
| ||
|
|
|
| Goodwill & Intangibles (net) |
| 16,576 |
| 27,654 |
| ||
|
|
|
| Noncurrent Deferred Tax Asset |
| 213 |
| — |
| ||
|
|
|
| Other |
| 359 |
| 103 |
| ||
|
|
|
| Subtotal |
| 24,146 |
| 38,482 |
| ||
|
|
|
|
|
|
|
|
|
| ||
|
| Total Assets |
|
|
| $ | 46,057 |
| $ | 66,393 |
|
|
|
|
|
|
|
|
|
|
| ||
Liabilities |
| Current |
| Revolving Line of Credit |
| $ | — |
| $ | 2,524 |
|
|
|
|
| Notes Payable |
| 1,226 |
| 1,355 |
| ||
|
|
|
| Accounts Payable |
| 4,002 |
| 6,692 |
| ||
|
|
|
| Accrued Liabilities |
| 3,679 |
| 4,742 |
| ||
|
|
|
| Unearned Revenue |
| 3,211 |
| 3,237 |
| ||
|
|
|
| Subtotal |
| 12,118 |
| 18,550 |
| ||
|
|
|
|
|
|
|
|
|
| ||
|
| Non-Current |
| Noncurrent Deferred Tax Liability |
| — |
| 5,546 |
| ||
|
|
|
| Other |
| 345 |
| 460 |
| ||
|
|
|
| Subtotal |
| 345 |
| 6,006 |
| ||
|
|
|
|
|
|
|
|
|
| ||
|
| Total Liabilities |
|
|
| 12,463 |
| 24,556 |
| ||
|
|
|
|
|
|
|
|
|
| ||
Equity |
|
|
|
|
| $ | 33,594 |
| $ | 41,837 |
|
(The information is unaudited and is presented in thousands.)
Reconciliation of Adjusted-EBITDA(1) to Net Income
|
| Quarter Ending |
| Nine Months Ending |
| ||||||||
|
| 2009 |
| 2008 |
| 2009 |
| 2008 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Income (Loss) |
| $ | (8,599 | ) | $ | 591 |
| $ | (8,414 | ) | $ | 1,351 |
|
Interest |
| 21 |
| 96 |
| 79 |
| 268 |
| ||||
Provision for Income Taxes |
| (5,544 | ) | 380 |
| (5,418 | ) | 869 |
| ||||
Impairment of Goodwill and Other Assets |
| 14,000 |
| — |
| 14,000 |
| — |
| ||||
Depreciation |
| 269 |
| 190 |
| 723 |
| 529 |
| ||||
Amortization |
| 345 |
| 265 |
| 1,002 |
| 722 |
| ||||
EBITDA(1) |
| $ | 492 |
| $ | 1,522 |
| $ | 1,972 |
| $ | 3,739 |
|
(The information is presented in thousands.)
(1)The Company uses Adjusted-EBITDA (earnings before net interest, income taxes, depreciation and amortization), which excludes non-cash charges for impairment of goodwill and other assets, 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:
|
| Quarter Ending |
| Nine Months Ending |
| ||||||||
|
| 2009 |
| 2008 |
| 2009 |
| 2008 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Income as Reported |
| $ | (8,599 | ) | $ | 591 |
| $ | (8,414 | ) | $ | 1,351 |
|
Impairment of Goodwill and Other Assets (Net of Tax) |
| 8,512 |
| — |
| 8,512 |
| — |
| ||||
Reserve for Bad Debt (Net of Tax) |
| — |
| — |
| 216 |
| — |
| ||||
Non-GAAP net income |
| $ | (87 | ) | $ | 591 |
| $ | 314 |
| $ | 1,351 |
|
(The information is presented in thousands.)
The following table reconciles reported GAAP diluted earnings (loss) per share (“EPS”) to non-GAAP diluted EPS:
|
| Quarter Ending |
| Nine Months Ending |
| ||||||||
|
| 2009 |
| 2008 |
| 2009 |
| 2008 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
EPS, Diluted - as Reported |
| $ | (0.84 | ) | $ | 0.06 |
| $ | (0.82 | ) | $ | 0.13 |
|
EPS Impact of Impairment of Goodwill and Other Assets (Net of Tax) |
| 0.83 |
| 0.00 |
| 0.83 |
| 0.00 |
| ||||
EPS Impact of Reserve for Bad Debt, Net of Tax |
| 0.00 |
| 0.00 |
| 0.02 |
| 0.00 |
| ||||
EPS, Diluted - Non-GAAP |
| $ | (0.01 | ) | $ | 0.06 |
| $ | 0.03 |
| $ | 0.13 |
|
About XETA Technologies
XETA Technologies 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 Technoloiges (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 expected reductions in operating expenses and 2009 financial results. 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 condition of the U.S. economy and its impact on capital spending in the Company’s markets; reduced availability of credit; the Nortel Networks bankruptcy filing and the impact that such action will continue to have on the Company’s Nortel products and services offering;
unpredictable quarter to quarter revenues; continuing success of our Mitel product and service offerings; the Company’s ability to maintain and improve upon current gross profit margins; intense competition and industry consolidation; dependence upon a few large wholesale customers for the recent growth in the Company’s Managed Services offering; and the availability and retention of revenue professionals and certified technicians.