CONTACT:
KEVIN GREGORY, SENIOR VICE PRESIDENT, CFO
(859) 586-0600 X1424
kgregory@pomeroy.com
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POMEROY IT SOLUTIONS, INC. REPORTS EARNINGS FOR SECOND QUARTER 2006
Reports Second Quarter Diluted Earnings Per Share of $0.16
Hebron, KY - August 14, 2006 - Pomeroy IT Solutions, Inc. (NASDAQ:PMRY) a
technology and services solution provider, today reported net earnings of $2.0
million for the quarter ended July 5, 2006 and diluted earnings per share of
$0.16.
"During the second quarter, we saw improvement in both our gross and operating
margins," said Stephen E. Pomeroy, Pomeroy IT Solutions, President and Chief
Executive Officer. "The margin increase was driven by strong growth in service
revenue," added Pomeroy.
"We did see some improvement in product revenue in the second quarter. Product
revenue continues to be a challenge, but the recently added sales resources
should start to have a positive impact in the second half of the year," added
Pomeroy.
CONSOLIDATED FINANCIAL RESULTS
SECOND QUARTER 2006
- Revenue was $164.1 million compared to $192.0 million in second quarter of
2005.
o Product revenue was $92.1 million compared to $135.1 million
in second quarter 2005, a decline of $43.0 million. This decline
was due primarily to continuing competitive pressure in the
marketplace, reduction in IT spending by our customers, and
delays in IT project deployments by our customers.
o Service revenue was $72.0 million compared to $56.9 million
in second quarter 2005, an increase of 26.5 percent or $15.1
million. This increase relates primarily to the growth from new
service agreements.
- Gross Profit Margin was 15.1 percent compared to 13.1 percent in the second
quarter of 2005.
o Product revenue gross margin was 8.4 percent compared to 7.5
percent in the second quarter of 2005. Sequentially, product
gross margin increased compared to 7.8 percent in the first
quarter of 2006.
o Service revenue gross margin was 23.6 percent compared to
26.4 percent in the second quarter of 2005. Sequentially, service
revenue gross margin was higher compared to 22.9 percent for the
first quarter of 2006.
- Total Operating Expense was $21.4 million compared to $21.0 million in the
second quarter of 2005, an increase of $0.4 million. This increase was
primarily due to increased professional fees of $0.4 million, medical
claims of $0.5 million, and equity compensation expenses of $0.3 million.
- Net income was $2.0 million or $0.16 per fully diluted share compared to
net income of $2.4 million or $0.19 per fully diluted share in second
quarter 2005. Net income for the second quarter of 2005, adjusted for the
expensing of equity based compensation was $2.1 million or $0.17 per fully
diluted earnings per share.
- During the second quarter the Company did not finalized the second step of
the goodwill impairment testing. The Company has not changed its estimate
of the goodwill write-down and anticipates this testing will be complete in
the third quarter.
SIX MONTHS ENDED JULY 5, 2006
- Revenue was $314.8 million compared to $357.9 million in six months ended
July 5, of 2005, a decline of $43.1 million.
o Product revenue was $181.0 million compared to $246.3
million in six months ended July 5, 2005, a decline of $65.3
million. This decline was due primarily to continuing competitive
pressure in the marketplace, reduction in IT spending by our
customers, and delays in IT project deployments by our customers.
o Service revenue was $133.9 million compared to $111.5
million in six months ended July 5, 2005, an increase of $22.4
million. This increase relates primarily to the growth from new
service agreements.
- Gross Profit Margin was 14.6 percent compared to 13.4 percent in the six
months ended July 5, of 2005.
o Product revenue gross margin was 8.1 percent compared to 7.7
percent in the six months ended July 5, of 2005.
o Service revenue gross margin was 23.3 percent compared to
26.0 percent in the six months ended July 5, of 2005.
- Total Operating Expense was $44.3 million compared to $42.6 million in the
six months ended July 5, of 2005, an increase of $1.7 million. This
increase was primarily due to increased professional fees of $1.3 million,
medical claims of $1.5 million, and equity compensation expenses of $0.9
million.
- Net income was $0.6 million or $0.05 per fully diluted share compared to
net income of $2.9 million or $0.23 per fully diluted share in six months
ended July 5, 2005, a decline of $2.3 million. This decline was the result
of a decline in product revenue and an increase in operating expense. . Net
income for the six months ended July 5, 2005, adjusted for the expensing of
equity based compensation was $1.6 million or $0.12 per fully diluted
earnings per share
CONFERENCE CALL
To participate in a conference call and questions and answer session with senior
management regarding the second quarter 2006 results, call 877-842-7108 using
passcode 3916004 at 9:00 a.m. (ET) on Tuesday August 15, 2006. For your
convenience, a replay will be available shortly after the call. This replay
will be available after the call by dialing 1-800-642-1687.
ABOUT POMEROY IT SOLUTIONS, INC.
As an international technology services and solutions provider, Pomeroy IT
Solutions unites core competencies in IT Outsourcing Services and Professional
Services. Some of the Company's services include consulting, project
management, application development, integration, staffing, and technology
sourcing. Pomeroy's capabilities as an end-to-end services and technology
sourcing provider set the Company apart as a unique, one-stop alternative. This
combination helps its Fortune 1000, government, and mid-market clients realize
their business goals and objectives by leveraging information technology to
simplify complexities, increase productivity, reduce costs, and improve
profitability.
FORWARD-LOOKING STATEMENTS
Certain of the statements in the preceding paragraphs regarding financial
results constitute forward-looking statements. These statements related to
future events or our future financial performance and involve known and unknown
risks, uncertainties and other factors that may cause our markets' actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by such forward looking statements. These
risks and other factors you should specifically consider include but are not
limited to: changes in customer demands or industry standards, adverse
or uncertain economic conditions, loss of key personnel, litigation, the nature
and volume of products and services anticipated to be delivered, the mix of the
products and services businesses, the type of services delivered, the ability to
successfully attract and retain customers, sell additional products and service
to existing customers, the ability to timely bill and collect receivables, the
ability to maintain a broad customer base to avoid dependence on any single
customer, the need to successfully attract and retain outside consulting
services, new acquisitions by the Company, terms of vendor agreements and
certification programs and the assumptions regarding the ability to perform
thereunder, the ability to implement the company's best practices strategies,
the ability to manage risks associated with customer projects, existing market
and competitive conditions including the overall demand for IT products and
services, and the ability to attract and retain technical and other highly
skilled personnel. In some cases, you can identify forward-looking statements
by such terminology such as "may", "should", "expects", "plans", "anticipates",
"believes", "estimates", "predicts", "potential", "continue", "projects",
"intends", "prospects", "priorities", or negative of such terms or other
comparable terminology. These statements are only predictions. Actual events
or results may differ materially.
POMEROY IT SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands) July 5, January 5,
2006 2006
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(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 85 $ 447
Certificates of deposit 4,227 4,668
Accounts receivable:
Trade, less allowance of $4,112 at July 5, 2006 and
$4,355 at January 5, 2006 133,239 130,814
Vendor receivables, less allowance of $100 at
July 5, 2006 and January 5, 2006 5,974 4,952
Net investment in leases 2,334 1,998
Other 1,984 2,894
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Total receivables 143,531 140,658
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Inventories 14,941 13,665
Other 11,351 11,730
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Total current assets 174,135 171,168
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Equipment and leasehold improvements:
Furniture, fixtures and equipment 31,481 32,655
Leasehold improvements 8,768 6,796
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Total 40,249 39,451
Less accumulated depreciation 26,629 24,656
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Net equipment and leasehold improvements 13,620 14,795
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Net investment in leases, net of current portion 187 995
Goodwill 101,786 101,048
Intangible assets, net 2,963 3,007
Other assets 3,645 4,132
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Total assets $ 296,336 $ 295,145
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POMEROY IT SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data) July 5, January 5,
2006 2006
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(Unaudited)
LIABILITIES AND EQUITY
Current Liabilities:
Short-term borrowings $ - $ 15,304
Cash overdraft 1,992 -
Accounts payable 65,873 46,638
Deferred revenue 2,822 3,444
Employee compensation and benefits 8,326 8,039
Accrued restructuring and severance charges 4,655 5,791
Other current liabilities 6,468 11,443
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Total current liabilities 90,136 90,659
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Commitments and contingencies
Equity:
Preferred stock, $.01 par value; authorized 2,000 shares
(no shares issued or outstanding) - -
Common stock, $.01 par value; authorized 20,000 shares
(13,453 and 13,400 shares issued at July 5, 2006
and January 5, 2006, respectively) 135 135
Paid-in capital 89,179 89,126
Unearned compensation (1,198)
Accumulated other comprehensive income 20 24
Retained earnings 126,133 125,521
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215,467 213,608
Less treasury stock, at cost ( 830 and 810 shares at
July 5, 2006 and January 5, 2006) 9,267 9,122
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Total equity 206,200 204,486
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Total liabilities and equity $ 296,336 $ 295,145
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POMEROY IT SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands,except per share data) Three Months Ended
--------------------------
July 5, July 5,
2006 2005
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(Unaudited) (Unaudited)
Product and service revenues:
Product $ 92,081 $ 135,093
Service 72,037 56,932
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Total revenues 164,118 192,025
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Cost of product and service revenues:
Product 84,322 124,956
Service 55,013 41,922
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Total cost of revenues 139,335 166,878
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Gross profit 24,783 25,147
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Operating expenses:
Selling, general and administrative 20,151 19,538
Depreciation and amortization 1,235 1,428
Other 6 -
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Total operating expenses 21,392 20,966
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Income from operations 3,391 4,181
Interest expense, net 162 206
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Income before income tax 3,229 3,975
Income tax expense 1,198 1,610
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Net income $ 2,031 $ 2,365
============ ============
Weighted average shares outstanding:
Basic 12,629 12,573
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Diluted 12,637 12,656
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Earnings per common share:
Basic $ 0.16 $ 0.19
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Diluted $ 0.16 $ 0.19
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POMEROY IT SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands,except per share data) Six Months Ended
--------------------------
July 5, July 5,
2006 2005
------------ ------------
(Unaudited) (Unaudited)
Product and service revenues:
Product $ 180,958 $ 246,336
Service 133,852 111,521
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Total revenues 314,810 357,857
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Cost of product and service revenues:
Product 166,307 227,380
Service 102,684 82,514
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Total cost of revenues 268,991 309,894
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Gross profit 45,819 47,963
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Operating expenses:
Selling, general and administrative 41,632 39,582
Depreciation and amortization 2,569 2,897
Restructuring and severance charges 133 132
Other 11 1
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Total operating expenses 44,345 42,612
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Income from operations 1,474 5,351
Interest expense, net 471 427
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Income before income tax 1,003 4,924
Income tax expense 391 1,994
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Net income $ 612 $ 2,930
============ ============
Weighted average shares outstanding:
Basic 12,622 12,521
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Diluted 12,639 12,661
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Earnings per common share:
Basic $ 0.05 $ 0.23
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Diluted $ 0.05 $ 0.23
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