NASDAQ-GM — “TEAM”
FOR IMMEDIATE RELEASE, Tuesday, August 5, 2008
TechTeam Global Reports Second Quarter 2008 Financial Results
Company continues transformation, records 29% revenue growth over 2007 and completes restructuring efforts
SOUTHFIELD, MICHIGAN, August 5, 2008…TechTeam Global, Inc. (the “Company”) (Nasdaq: TEAM), a worldwide provider of information technology, enterprise support and business process outsourcing services, today reported a net loss of $1.8 million, or $0.17 per diluted share, for the second quarter ended June 30, 2008. The net loss for the second quarter of 2008 included a charge of $3.9 million related to the Company’s corporate-wide organizational realignment and restructuring announced on May 28, 2008. Excluding the restructuring charge, the Company would have reported net income of $1.3 million, or $0.12 per diluted share, for the second quarter of 2008, as compared to net income of $1.5 million, or $0.14 per diluted share, reported for the same period last year. See the table following the financial statements in this press release for a reconciliation of second quarter earnings.
Second quarter highlights include the following:
| | · | Total revenue increased 29.2% over last year to $67.9 million. Organic growth (excludes acquisitions) was 17.7%. |
| | · | Revenue from the Company’s commercial business increased 22.7% over last year to $45.7 million, and revenue from the Company’s government business increased 44.9% to $22.2 million. |
| | · | Earnings per share, excluding the restructuring charge, of $0.12 for the quarter was impacted by a temporary increase in the income tax rate and related tax provision that was unique to second quarter results. If the Company’s estimated tax rate for the year of 36% is applied to the second quarter, reported earnings per share for the second quarter would have increased by $0.04 per share. |
| | · | The Company established its presence in Asia through its acquisition of Onvaio LLC (“Onvaio”), which provides global technical support outsourcing based in Manila, Philippines, and through a partnership with Rainmaker Asia, Inc. to jointly build delivery capability in the Philippines. |
| | · | The Company completed its corporate-wide organizational realignment and restructuring actions, which resulted in a $3.9 million charge to operating income during the quarter. |
“As part of the TechTeam’s continuing transformation, we completed a global reorganization, a restructuring initiative to improve profitability, a global expansion into Asia via an acquisition and a partnership, and a management transformation that added five new senior executives,” said Gary J. Cotshott, president and chief executive officer. “All of these strategic initiatives were promised earlier this year, and we delivered. And, despite this large volume of rapid change, we achieved another quarter of record revenue and solid operating income, which is a credit to our team who remained focused and executed well. We are now well into our strategy formulation, which we expect to have completed by the end of the third quarter to position the Company for significant future growth and further improved financial performance.”
27335 West 11 Mile Road, Southfield, Michigan 48033
· Telephone (248) 357-2866
· Fax (248) 357-2570
· www.techteam.com
Cotshott added, “TechTeam continues to be well positioned to deliver low double digit organic revenue growth for 2008. Our SG&A expenses as a percent of revenue in the second half of 2008 are expected to decrease, and we anticipate the Company’s operating margin will improve with a target range that approaches 7-8% for the second half of the year. We believe that the realignment and restructuring actions completed in the second quarter will improve our profit performance significantly, while enabling even higher quality service, improved account management, and continued strategic investments to expand our geographic coverage, increase the depth of our capabilities, improve our visibility in the market and expand our sales capacity.”
Total Company revenue increased 29.2% to $67.9 million for the second quarter of 2008, from $52.5 million for the same period in 2007, through a combination of organic and acquisition-driven growth. Excluding acquisitions that affect year-over-year comparability, total revenue increased 17.7%. Organic revenue growth was driven by 22.3% growth in the commercial business, led by IT Outsourcing Services, and 6.3% growth in the government business. Revenue from the commercial business for the second quarter of 2008 was favorably impacted by approximately $2.9 million from the weakening of the U.S. dollar over the second quarter of 2007 relative to the international currencies in which the Company conducts business.
Gross profit increased 25.9% to $17.1 million for the second quarter of 2008, from $13.6 million for the same period in 2007. The Company’s gross margin (gross profit as a percent of revenue) decreased on a-year-over-year basis from 25.9% in the second quarter of 2007 to 25.2% in 2008; however, gross margin increased sequentially from 24.9% in the first quarter of 2008. Gross margin for the Company’s commercial business declined year-over-year from 25.0% in 2007 to 23.4% in 2008. While commercial business margins improved in the Americas, the Company’s operations in Europe were impacted by excess capacity and increased labor and benefit-related costs. The Company has expanded its service delivery capabilities over the past three quarters with the establishment of new locations in Dresden, Germany; Sibiu, Romania; and Stockholm, Sweden. We expect the excess capacity will resolve itself over the next several quarters. Gross margin for the Company’s government business increased year-over-year from 28.1% in 2007 to 29.1% in 2008 due to the timing and mix of project-based work as compared to last year.
Selling, general, and administrative (“SG&A”) expense decreased to 20.8% of revenue for the second quarter of 2008, from 21.4% of revenue for the same period in 2007. As the Company’s revenue has grown, it has achieved greater leverage in its SG&A spending, but the leverage was somewhat offset by greater expenses related to expansion of service delivery locations in Europe, sales commissions, marketing expenses, and travel necessary to support the continuing globalization of the Company. SG&A expense also increased due to the weakening of the U.S. dollar from the second quarter of 2007. As noted earlier, the Company expects SG&A expense to decrease as a percentage of revenue in the second half of 2008.
The Company had an operating loss of $860,000 for the second quarter of 2008 as a result of incurring $3.9 million in restructuring charges. During the second quarter, the Company announced corporate-wide organizational realignment and restructuring actions to improve the Company’s operating efficiency, achieve greater global consistency and drive improved financial performance. The actions included reorganizing some of the Company’s business functions from regional models to a global structure and eliminating approximately 60 employee positions. Excluding the restructuring charges, operating income for the second quarter of 2008 increased to $3.0 million, or 4.5% of revenue, from $2.4 million, or 4.5% of revenue, for the same period in 2007.
27335 West 11 Mile Road, Southfield, Michigan 48033 · Telephone (248) 357-2866 · Fax (248) 357-2570 · www.techteam.com
Other components of TechTeam’s second quarter 2008 performance include the following:
| | · | In the Company’s commercial business, revenue in the Americas increased 11.7% to $18.5 million for the second quarter of 2008, and revenue from Europe increased 31.5% to $27.2 million. Revenue in the Americas increased primarily in the IT Consulting and Systems Integration segment and in technical staffing services, which are included in Other Services, from new customers and projects. Although revenue from Europe in 2008 was favorably impacted by the weakening of the U.S. dollar by approximately $2.9 million relative to the second quarter of 2007, Europe continued to show strong growth on a local currency basis as well. |
| | · | The Company’s effective tax rate reported each quarter generally reflects the Company’s estimate of its effective tax rate for the current fiscal year; however, the effective tax rate for the second quarter of 2008 was adversely impacted by providing valuation allowances on current foreign operating losses due to historical operating losses in certain countries. The level of current foreign operating losses is heightened because a significant portion of the Company’s restructuring charges were incurred in these countries. A tax benefit was recorded for the remaining portion of the restructuring charge that was incurred in other countries, including the United States. Excluding the restructuring charges, the effective tax rate for the second quarter of 2008 would have been 50.1%. The Company currently expects that its effective tax rate for the year, excluding restructuring charges, will be approximately 36%, and therefore, expects to record a significantly lower effective tax rate in the third and fourth quarters of 2008. For the three months ended June 30, 2007, the consolidated effective tax rate of 35.5% differs from the statutory tax rate of 34% primarily due to a change in estimate regarding the Company’s estimated annual tax rate for 2007. |
| | | The increase in the Company’s estimated effective annual tax rate of 36% for 2008 from 34.7% for fiscal 2007 is primarily due to a new income tax in the State of Michigan that took effect January 1, 2008. The Company recorded State of Michigan income tax expense of $198,000 for the second quarter of 2008. Prior to 2008, the State of Michigan had a value-added tax called the Single Business Tax that was not considered an income tax and was, therefore, included in SG&A expense. Single Business Tax included in SG&A expense totaled $120,000 for the second quarter of 2007. |
| | · | For the second quarter of 2008, earnings before interest, taxes, depreciation and amortization expense (“EBITDA”) was $1.1 million. Excluding the restructuring charges of $3.9 million, EBITDA for the second quarter of 2008 increased 25.2% to $5.0 million, or 7.4% of revenue, compared with EBITDA of $4.0 million, or 7.6% of revenue, for the same period in 2007. |
| | · | The Company believes EBITDA is an important “non-GAAP” measure of the Company’s financial performance. EBITDA presents information on earnings that may be more comparable to companies with different finance structures, capital investments or capitalization and depreciation policies. The most closely related GAAP measure is operating income. Some financial analysts also use EBITDA to assist in the determination of a company’s possible market valuation. See the table following the financial statements in this press release for a reconciliation of operating income to EBITDA excluding the restructuring charges. |
| | · | As of June 30, 2008, the Company had 10,795,075 common shares issued and outstanding. |
27335 West 11 Mile Road, Southfield, Michigan 48033
· Telephone (248) 357-2866
· Fax (248) 357-2570
· www.techteam.com
Conference Call Information
TechTeam Global, Inc. will also host an investor teleconference to discuss its second quarter 2008 financial results at 4:30 p.m. EDT, today, Tuesday, August 5, 2008. To participate in the teleconference, including the question and answer session that will follow the results announcement and discussion, please call 1-866-362-5158. Outside the United States, call +1-617-597-5397. When prompted, enter the passcode: 22347781. To access a simultaneous Web cast of the teleconference, go to the TechTeam Global Web site at http://www.techteam.com/investors and click on the Web cast icon. From this site, you can download the necessary software and listen to the teleconference. TechTeam encourages you to review the site before the teleconference to ensure that your computer is configured properly.
A taped replay of the call will be available beginning at approximately 6:30 p.m. EDT, Tuesday, August 5, 2008. This toll-free replay will be available through Tuesday, August 19, 2008. To listen to the teleconference replay, call 1-888-286-8010. Outside the United States, call +1-617-801-6888. When prompted, enter the passcode: 93073358.
About TechTeam Global, Inc.
TechTeam Global, Inc. is a worldwide provider of information technology, enterprise support and business process outsourcing services to Fortune 1000 corporations, multinational companies, product providers, small and medium-sized companies, and government entities. TechTeam’s ability to integrate computer services into a flexible, ITIL-based solution is a key element of its strategy. Partnerships with some of the world’s “best-in-class” corporations provide TechTeam with unique expertise and experience in providing information technology support solutions. For information about TechTeam Global, Inc. and its services, call 800-522-4451 from the United States or visit our Web sites at www.techteam.com and www.techteam.eu. TechTeam’s common stock is traded on the NASDAQ Global Market under the symbol “TEAM.”
Safe Harbor Statement
The statements contained in this press release that are not purely historical, including statements regarding the Company’s expectations, hopes, beliefs, intentions or strategies regarding the future, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding, among other things, the growth of the Company’s core business, revenue and earnings performance going forward, management of overhead expenses, productivity and operating expenses. Forward-looking statements may be identified by words including, but not limited to, “anticipates,” “believes,” “intends,” “estimates,” “promises,” “expects,” “should,” “conditioned upon” and similar expressions. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. Such factors include, but are not limited to, the award or loss of significant client assignments, timing of contracts, recruiting and new business solicitation efforts, the Company’s ability to recruit and retain highly-qualified executives, the market’s acceptance of and demand for the Company’s offerings, competition, unforeseen expenses, the costs and risks associated with executing an offshore strategy, demands upon and consumption of the Company’s cash and cash equivalent resources or changes in the Company’s access to working capital, currency fluctuations, changes in the quantity of the Company’s common stock outstanding, regulatory changes and other factors affecting the financial constraints on the Company’s clients, economic factors specific to the U.S. Federal Government and automotive industry, general economic conditions, unforeseen disruptions in transportation, communications or other infrastructure components, unforeseen or unplanned delays in the Company’s ability to consummate acquisitions, and the Company’s ability to successfully integrate acquisitions on a timely basis. All forward-looking statements included in this press release are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statement. Prospective investors should also review all aspects of the Company’s Reports on Forms 8-K, 10-Q, and 10-K filed with the United States Securities and Exchange Commission, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the risks described therein from time to time.
Financial Tables to Follow on the Next Page
27335 West 11 Mile Road, Southfield, Michigan 48033
· Telephone (248) 357-2866
· Fax (248) 357-2570
· www.techteam.com
Financial Data
TechTeam Global, Inc.
Condensed Consolidated Income Statements (unaudited)
(In thousands, except per share data)
| | | Second Quarter Ended June 30, | | Six Months Ended June 30, | |
| | | 2008 | | 2007 | | % Change | | 2008 | | 2007 | | % Change | |
Revenue | | | | | | | | | | | | | | | | | | | |
Commercial — | | | | | | | | | | | | | | | | | | | |
IT Outsourcing Services | | $ | 30,435 | | $ | 25,298 | | | 20.3 | % | $ | 60,703 | | $ | 49,354 | | | 23.0 | % |
IT Consulting and Systems Integration | | | 8,070 | | | 6,986 | | | 15.5 | % | | 14,944 | | | 13,834 | | | 8.0 | % |
Other Services | | | 7,165 | | | 4,938 | | | 45.1 | % | | 13,951 | | | 8,870 | | | 57.3 | % |
Total Commercial | | | 45,670 | | | 37,222 | | | 22.7 | % | | 89,598 | | | 72,058 | | | 24.3 | % |
Government Technology Services | | | 22,206 | | | 15,322 | | | 44.9 | % | | 44,242 | | | 26,680 | | | 65.8 | % |
Total Revenue | | | 67,876 | | | 52,544 | | | 29.2 | % | | 133,840 | | | 98,738 | | | 35.6 | % |
Cost of Revenue | | | | | | | | | | | | | | | | | | | |
Commercial — | | | | | | | | | | | | | | | | | | | |
IT Outsourcing Services | | | 23,279 | | | 18,903 | | | 23.1 | % | | 45,643 | | | 36,895 | | | 23.7 | % |
IT Consulting and Systems Integration | | | 6,226 | | | 5,322 | | | 17.0 | % | | 11,714 | | | 10,659 | | | 9.9 | % |
Other Services | | | 5,488 | | | 3,685 | | | 48.9 | % | | 10,722 | | | 6,583 | | | 62.9 | % |
Total Commercial | | | 34,993 | | | 27,910 | | | 25.4 | % | | 68,079 | | | 54,137 | | | 25.8 | % |
Government Technology Services | | | 15,751 | | | 11,024 | | | 42.9 | % | | 32,232 | | | 19,415 | | | 66.0 | % |
Total Cost of Revenue | | | 50,744 | | | 38,934 | | | 30.3 | % | | 100,311 | | | 73,552 | | | 36.4 | % |
Gross Profit | | | 17,132 | | | 13,610 | | | 25.9 | % | | 33,529 | | | 25,186 | | | 33.1 | % |
Selling, general and administrative expense | | | 14,108 | | | 11,233 | | | 25.6 | % | | 27,466 | | | 21,823 | | | 25.9 | % |
Restructuring charge | | | 3,884 | | | — | | | | | | 3,884 | | | — | | | | |
Operating Income (Loss) | | | (860 | ) | | 2,377 | | | NM | % | | 2,179 | | | 3,363 | | | (35.2 | )% |
Net interest income (expense) | | | (422 | ) | | (7 | ) | | | | | (866 | ) | | 230 | | | | |
Foreign currency transaction gain (loss) | | | 19 | | | (26 | ) | | | | | 231 | | | 2 | | | | |
Income (Loss) before Income Taxes | | | (1,263 | ) | | 2,344 | | | | | | 1,544 | | | 3,595 | | | | |
Income tax provision (credit) | | | 575 | | | 832 | | | | | | 1,691 | | | 1,178 | | | | |
Net Income (Loss) | | $ | (1,838 | ) | $ | 1,512 | | | | | $ | (147 | ) | $ | 2,417 | | | | |
Diluted Earnings (Loss) per Common Share | | $ | (0.17 | ) | $ | 0.14 | | | | | $ | (0.01 | ) | $ | 0.23 | | | | |
| Diluted weighted average common shares and common share equivalents | | | 10,505 | | | 10,528 | | | | | | 10,486 | | | 10,486 | | | | |
27335 West 11 Mile Road, Southfield, Michigan 48033
· Telephone (248) 357-2866
· Fax (248) 357-2570
· www.techteam.com
Condensed Consolidated Balance Sheet (unaudited)
(In thousands)
| | | June 30, | | December 31, | |
| | | 2008 | | 2007 | |
Current Assets | | | | | | | |
Cash and cash equivalents | | $ | 16,114 | | $ | 19,431 | |
Accounts receivable, net | | | 65,627 | | | 69,627 | |
Prepaid expenses and other current assets | | | 5,213 | | | 5,290 | |
| Total current assets | | | 86,954 | | | 94,348 | |
Property, Equipment and Software, Net | | | 10,508 | | | 10,562 | |
Goodwill and Other Intangible Assets, Net | | | 80,255 | | | 76,686 | |
Other Assets | | | 677 | | | 573 | |
Total Assets | | $ | 178,394 | | $ | 182,169 | |
| | | | | | | | |
Current Liabilities | | | | | | | |
Current portion of long-term debt | | $ | 6,610 | | $ | 5,850 | |
Accounts payable | | | 11,454 | | | 20,952 | |
Accrued payroll and related taxes | | | 14,346 | | | 14,237 | |
Accrued expenses and other current liabilities | | | 10,815 | | | 10,136 | |
| Total current liabilities | | | 43,225 | | | 51,175 | |
Long-Term Liabilities | | | | | | | |
Long-term debt, less current portion | | | 32,873 | | | 31,167 | |
Other long-term liabilities | | | 2,980 | | | 2,796 | |
| Total long-term liabilities | | | 35,853 | | | 33,963 | |
Shareholders’ Equity | | | | | | | |
Preferred stock | | | — | | | — | |
Common stock | | | 108 | | | 107 | |
Additional paid-in capital | | | 76,605 | | | 75,364 | |
Retained earnings | | | 18,244 | | | 18,391 | |
Accumulated other comprehensive income | | | 4,359 | | | 3,169 | |
| Total shareholders’ equity | | | 99,316 | | | 97,031 | |
Total Liabilities and Shareholders’ Equity | | $ | 178,394 | | $ | 182,169 | |
27335 West 11 Mile Road, Southfield, Michigan 48033
· Telephone (248) 357-2866
· Fax (248) 357-2570
· www.techteam.com
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
| | | Six Months Ended June 30, | |
| | | 2008 | | 2007 | |
Operating Activities | | | | | | | |
Net income (loss) | | $ | (147 | ) | $ | 2,417 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | | | 3,765 | | | 2,980 | |
Other adjustments, primarily changes in working capital | | | (2,581 | ) | | (568 | ) |
Net cash provided by operating activities | | | 1,037 | | | 4,829 | |
Investing Activities | | | | | | | |
Purchase of property, equipment and software | | | (1,438 | ) | | (1,821 | ) |
Cash paid for acquisitions, net of cash acquired | | | (5,457 | ) | | (44,767 | ) |
Net cash used in investing activities | | | (6,895 | ) | | (46,588 | ) |
Financing Activities | | | | | | | |
Proceeds from issuance of long-term debt | | | 5,000 | | | 35,000 | |
Proceeds from issuance of common stock | | | 129 | | | 597 | |
Tax benefit from stock options | | | (5 | ) | | 57 | |
Payments on long-term debt | | | (2,602 | ) | | (3,212 | ) |
Net cash provided by financing activities | | | 2,522 | | | 32,442 | |
Effect of exchange rate changes on cash and cash equivalents | | | 19 | | | 118 | |
Decrease in cash and cash equivalents | | | (3,317 | ) | | (9,199 | ) |
Cash and cash equivalents at beginning of period | | | 19,431 | | | 30,082 | |
Cash and cash equivalents at end of period | | $ | 16,114 | | $ | 20,883 | |
27335 West 11 Mile Road, Southfield, Michigan 48033
· Telephone (248) 357-2866
· Fax (248) 357-2570
· www.techteam.com
Reconciliation of Operating Income (Loss) to Earnings Before Interest, Taxes,
Depreciation and Amortization (“EBITDA”) Excluding Restructuring Charges
(In thousands)
| | | Three Months Ended June 30, | | Six Months Ended June 30, | |
| | | 2008 | | 2007 | | 2008 | | 2007 | |
| | | | | | | | | | |
Reconciliation of Operating Income (Loss) to EBITDA Excluding Restructuring Charges | | | | | | | | | | | | | |
Operating income (loss) | | $ | (860 | ) | $ | 2,377 | | $ | 2,179 | | $ | 3,363 | |
Depreciation and amortization | | | 1,967 | | | 1,651 | | | 3,765 | | | 2,980 | |
Foreign currency transaction gain (loss) | | | 19 | | | (26 | ) | | 231 | | | 2 | |
Restructuring charges | | | 3,884 | | | — | | | 3,884 | | | — | |
EBITDA Excluding Restructuring Charges | | $ | 5,010 | | $ | 4,002 | | $ | 10,059 | | $ | 6,345 | |
Reconciliation of Second Quarter Earnings Excluding Restructuring Charges
to Net Loss
(In thousands, except per share data)
| | | After-Tax Earnings | | Earnings (Loss) per Share | |
| | | | | | |
Reconciliation of Second Quarter Earnings Excluding Restructuring Charges to Net Loss | | | | | | | |
Second quarter earnings excluding restructuring charges | | $ | 1,307 | | $ | 0.12 | |
Restructuring charges, net of tax | | | (3,145 | ) | | (0.30 | ) |
Net Loss | | $ | (1,838 | ) | $ | (0.17 | ) |
###
Contacts:
TechTeam Global, Inc. Marc J. Lichtman Vice President, Chief Financial Officer and Treasurer (248) 357-2866 marc.lichtman@techteam.com |
27335 West 11 Mile Road, Southfield, Michigan 48033
· Telephone (248) 357-2866
· Fax (248) 357-2570
· www.techteam.com
