EXHIBIT 99.1
CONTACT:
KEVIN GREGORY, SENIOR VICE PRESIDENT, CFO
(859) 586-0600 X1424
kgregory@pomeroy.com
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POMEROY IT SOLUTIONS, INC. REPORTS THIRD QUARTER RESULTS
Hebron, KY - November 14, 2006 - Pomeroy IT Solutions, Inc. (NASDAQ:PMRY) a
technology and services solution provider, today reported third quarter revenue
of $154.9 million and a service revenue increase of 10 percent compared to the
third quarter of 2005.
"We have improved gross margins, reduced costs and increased cash flow," said
Stephen E. Pomeroy, Pomeroy IT Solutions, President and Chief Executive Officer.
"Our revenue clearly is not were it needs to be. Reversing the revenue trend and
building sales momentum needs to be our top priority as we finish out the year
and into 2007," said Pomeroy.
"At this time, we are revising our guidance for the year, and expect earnings
per share, excluding the charge for the goodwill write down, to be $0.25 to
$0.30 per share," added Pomeroy.
The Company disclosed at fiscal year end 2005, that there was an impairment of
goodwill primarily as a result of the decline in the stock price during the
fourth quarter of 2005. At that time, an estimate of the goodwill write down was
made and the second step of the required goodwill analysis was started. During
the third quarter this process was finalized and based on the analysis the
Company incurred an additional goodwill write down of $3.5 million. This write
down of goodwill is primarily the result of allocating assignable asset value to
intangible assets such as customer list and trade name that correspondingly
reduced the amount of goodwill.
"We finalized the goodwill analysis during the third quarter," said Pomeroy.
"The reduction in goodwill is a non-cash charge that did not affect our cash
flow. In fact, our cash flow from operations increased over the prior year by
over $12 million," added Pomeroy.
CONSOLIDATED FINANCIAL RESULTS
THIRD QUARTER 2006
- REVENUE was $154.9 million compared to $185.0 million in third quarter of
2005.
- Product revenue was $93.7 million compared to $129.3 million in
third quarter 2005, a decline of $35.6 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.
- Service revenue was $61.3 million compared to $55.7 million
in third quarter 2005, an increase of 10.1 percent or $5.6
million. The increase in service revenues relates primarily to
the growth from new service agreements offset by a decline in
non-recurring project engagements.
- GROSS PROFIT MARGIN was 14.6 percent compared to 12.2 percent in the third
quarter of 2005.
- Product revenue gross margin was 7.9 percent compared to 7.1
percent in the third quarter of 2005.
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- Service revenue gross margin was 25.0 percent compared to
23.9 percent in the third quarter of 2005. Sequentially, service
revenue gross margin also improved compared to 23.6 percent for
the second quarter of 2006.
- TOTAL OPERATING EXPENSE was $24.3 million compared to $24.9 million in the
third quarter of 2005, a decrease of $0.6 million.
- During the third quarter, the Company completed the second
step of the goodwill analysis as required under SFAS 142. Based
on the analysis completed in the third quarter the Company
incurred an additional goodwill write down of $3.5 million which
is included in total operating expense. This write down of
goodwill is primarily the result of allocating assignable asset
value to intangible assets such as customer list and trade name
that corresponding reduced the amount of goodwill.
- NET LOSS was $1.0 million or $(0.08) per fully diluted share. Non-GAAP net
income was $1.3 million or $0.10 per fully diluted share. For the third
quarter of 2005, there was a net loss of $1.5 million or $(0.12) per fully
diluted share.
NINE MONTHS ENDED OCTOBER 5, 2006
- REVENUE was $469.7 million compared to $542.9 million in nine months ended
October 5, of 2005, a decline of $73.2 million.
- Product revenue was $274.6 million compared to $375.6
million in nine months ended October 5, 2005, a decline of $101
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.
- Service revenue increased 16.7 percent to $195.1 million
compared to $167.2 million in nine months ended October 5, 2005.
This increase of $27.9 million relates primarily to the growth
from new service agreements.
- GROSS PROFIT MARGIN was 14.6 percent compared to 13.0 percent in the nine
months ended October 5, of 2005.
- Product revenue gross margin was 8.0 percent compared to 7.5
percent in the nine months ended October 5, of 2005.
- Service revenue gross margin was 23.8 percent compared to
25.3 percent in the nine months ended October 5, of 2005.
- TOTAL OPERATING EXPENSE was $68.7 million compared to $67.5 million in the
nine months ended October 5, of 2005, an increase of $1.2 million.
Operating expenses increased as a result of $3.5 million recorded for write
down of goodwill, an increase in stock option and restricted stock expense
of $1.2 million and an increase in professional fees of $1.8 million. These
increases were offset by a decrease in bad debt expense and restructuring
charge of $4.0 million and a decrease in other operating expenses.
- NET LOSS was $0.4 million or $(0.03) per fully diluted share. Non-GAAP net
income was $2.4 million or $0.19 per fully diluted share. For the nine
months ended October 5, 2005, net income was $1.5 million or $0.11 per
fully diluted share.
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- OTHER FINANCIAL INFORMATION
- Debt - $0
- Capital Expenditures - $1.2 million
- Cash Flow From Operating Activities - $16.9 million
- Working Capital - $86.5 million
- EBITDA - $ 3.6 million
Conference Call
To participate in a conference call and questions and answer session with senior
management regarding the third quarter 2006 results, call 877-842-7108 using
passcode 2258107 at 10:00 a.m. (ET) on Wednesday November 15, 2006. For your
convenience, a replay will be available shortly after the call. This replay will
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, existing market
and competitive conditions including the overall demand for IT products and
services, 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, adverse or uncertain economic conditions, loss of key personnel,
litigation 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.
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Non-GAAP Financial Measures
The non-GAAP financial measures contained in this earnings press release exclude
the charge for write-down of goodwill and stock based compensation expense. The
Company uses these measures for planning and forecasting its future business, as
well as analyzing such forecasts against past performance. In addition,
excluding these charges enhances the Company's understanding of trends
developing in its operations, as well as its performance in its market and
against its competitors. The Company believes that providing non-GAAP net income
measures that exclude such items, best allows investors to understand the
Company's ongoing business activities during the quarter. The Company believes
that inclusion of certain non-GAAP financial measures provides comparability to
other publicly traded companies. The non-GAAP financial measures should not be
considered as a substitute for, or preferable to, measures of financial
performance prepared in accordance with GAAP and may be different from non-GAAP
financial measures used by others.
The Company believes that these non-GAAP financial measures provide an
additional tool for investors to evaluate its ongoing operating results and
trends. Investors are encouraged to review the reconciliation of these non-GAAP
financial measures to the most directly comparable GAAP financial measures as
detailed below:
(in thousands, except per share data)
Three Months Ended October 5, 2006
--------------------------------------------
Basic Diluted
Net Earnings Earnings
loss Per Share Per Share
--------------------------------------------
As reported GAAP financial measures $ (1,012) $ (0.08) $ (0.08)
Adjustments
Goodwill writedown 3,472 0.28 0.27
Stock based compensation 290 0.02 0.02
Income tax effect on non-GAAP adjustments and
applying the same current year effective rate to prior year (1,467) (0.12) (0.12)
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Total adustments 2,295 0.18 0.18
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Non-GAAP financial measures $ 1,283 $ 0.10 $ 0.10
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(in thousands, except per share data)
Nine Months Ended October 5, 2006
-------------------------------------------
Basic Diluted
Net Earnings Earnings
Loss Per Share Per Share
-------------------------------------------
As reported GAAP financial measures $ (400) $ (0.03) $ (0.03)
Adjustments
Goodwill writedown 3,472 0.28 0.27
Stock based compensation 1,186 0.09 0.09
Income tax effect on non-GAAP adjustments and
applying the same current year effective rate to prior year (1,816) (0.14) (0.14)
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Total adustments 2,842 0.23 0.22
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Non-GAAP financial measures $ 2,442 $ 0.19 $ 0.19
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POMEROY IT SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands) October 5, January 5,
2006 2006
------------ ------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 2,572 $ 1,486
Certificates of deposit 1,049 3,629
Accounts receivable:
Trade, less allowance of $4,101 at October 5, 2006 and
$4,355 at January 5, 2006 141,826 130,814
Vendor receivables, less allowance of $117 at
October 5, 2006 and $100 at January 5, 2006 5,709 4,952
Net investment in leases 2,054 1,998
Other 1,387 2,894
Inventories 15,075 13,665
Other 11,475 11,730
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Total current assets 181,147 171,168
Equipment and leasehold improvements:
Equipment and leasehold improvements 36,656 39,451
Less accumulated depreciation 23,707 24,656
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Net equipment and leasehold improvements 12,949 14,795
Net investment in leases, net of current portion 150 995
Goodwill 98,314 101,048
Intangible assets, net 2,797 3,007
Other assets 3,737 4,132
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Total assets $ 299,094 $ 295,145
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LIABILITIES AND EQUITY
Current Liabilities:
Short-term borrowings $ - $ 15,304
Accounts payable 69,488 46,638
Deferred revenue 2,956 3,444
Employee compensation and benefits 11,305 8,300
Accrued restructuring and severance charges 4,193 5,791
Other current liabilities 6,739 11,182
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Total current liabilities 94,681 90,659
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Equity:
Common stock, $.01 par value; authorized 20,000 shares
(13,476 and 13,400 shares issued at October 5, 2006
and January 5, 2006, respectively) 136 135
Paid-in capital 89,609 89,126
Unearned compensation - (1,198)
Accumulated other comprehensive income 19 24
Retained earnings 125,121 125,521
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214,885 213,608
Less treasury stock, at cost (982 and 810 shares at
October 5, 2006 and January 5, 2006) 10,472 9,122
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Total equity 204,413 204,486
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Total liabilities and equity $ 299,094 $ 295,145
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POMEROY IT SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands,except per share data) Three Months Ended
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October 5, October 5,
2006 2005
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(Unaudited) Non-GAAP (Unaudited)
Product and service revenues:
Product $ 93,678 $ 93,678 $ 129,281
Service 61,255 61,255 55,720
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Total revenues 154,933 154,933 185,001
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Cost of product and service revenues:
Product 86,307 86,307 120,058
Service 45,966 45,966 42,427
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Total cost of revenues 132,273 132,273 162,485
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Gross profit 22,660 22,660 22,516
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Operating expenses:
Selling, general and administrative 19,504 19,214 ** 23,497
Depreciation and amortization 1,250 1,250 1,351
Goodwill charge 3,472 - ** -
Other 89 89 4
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Total operating expenses 24,315 20,553 24,852
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Income (loss) from operations (1,655) 2,107 (2,336)
Interest expense, net 4 4 152
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Income (loss) before income tax (1,659) 2,103 (2,488)
Income tax expense (benefit) (647) 820 (1,008)
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Net income (loss) $ (1,012) $ 1,283 $ (1,480)
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Weighted average shares outstanding:
Basic 12,591 12,591 12,583
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Diluted 12,591 12,737 * 12,583 *
============= ============ ==============
Earnings (loss) per common share:
Basic $ (0.08) $ 0.10 $ (0.12)
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Diluted $ (0.08) $ 0.10 * $ (0.12) *
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* Dilutive loss per common share for the three months ended October 5, 2006 and
2005 would have been anit-dilutive if the number of weighted average shares
outstanding were adjusted to reflect the dilutive effect of outstanding stock
options.
** Non-GAAP numbers exclude the non cash charge for write down of goodwill of
$3.5 million and stock based compensation of $0.3 million for the three months
ended October 5, 2006. See discussion above on non-GAAP Financial Measures.
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POMEROY IT SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands,except per share data) Nine Months Ended
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October 5, October 5,
2006 2005
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(Unaudited) Non-GAAP (Unaudited)
Product and service revenues:
Product $ 274,636 $ 274,636 $ 375,617
Service 195,107 195,107 167,241
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Total revenues 469,743 469,743 542,858
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Cost of product and service revenues:
Product 252,614 252,614 347,438
Service 148,650 148,650 124,941
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Total cost of revenues 401,264 401,264 472,379
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-
Gross profit 68,479 68,479 70,479
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Operating expenses:
Selling, general and administrative 61,269 60,083 ** 63,211
Depreciation and amortization 3,819 3,819 4,248
Goodwill charge 3,472 - ** -
Other 99 99 5
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Total operating expenses 68,659 64,001 67,464
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Income (loss) from operations (180) 4,478 3,015
Interest expense, net 475 475 579
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Income (loss) before income tax (655) 4,003 2,436
Income tax expense (benefit) (255) 1,561 986
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Net income (loss) $ (400) $ 2,442 $ 1,450
=========================== ============
Weighted average shares outstanding:
Basic 12,611 12,611 12,542
=========================== ============
Diluted 12,611 12,670 * 12,652
=========================== ============
Earnings (loss) per common share:
Basic $ (0.03) $ 0.19 $ 0.12
=========================== ============
Diluted $ (0.03) $ 0.19 * $ 0.11
=========================== ============
* Dilutive loss per common share for the nine months ended October 5, 2006 would
have been anit-dilutive if the number of weighted average shares outstanding
were adjusted to reflect the dilutive effect of outstanding stock options.
** Non-GAAP numbers exclude the non cash charge for write down of goodwill of
$3.5 million and stock based compensation of $1.2 million for the nine months
ended October 5, 2006. See discussion above on non-GAAP Financial Measures.
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POMEROY IT SOLUTIONS, INC.
SELECTED CASH FLOW DATA
Nine Months Ended
---------------------------
October 5, October 5,
2006 2005
------------ -------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income (loss) $ (400) $ 1,450
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 3,819 4,248
Stock option, restricted stock compensation and Employee Stock
Purchase Plan Expense 1,186 -
Restructuring and severance charges 133 1,794
Goodwill impairment chage 3,472 -
Provision for doubtful accounts 190 2,000
Deferred income taxes 605 3,177
Loss on disposal of fixed assets 67 4
Changes in working capital accounts, net of
effects of acquisitions:
Accounts receivable (10,525) 9,560
Inventories (1,780) 2,267
Other current assets (62) (1,769)
Net investment in leases 862 1,492
Accounts payable 22,850 (15,245)
Deferred revenue (488) (122)
Income tax payable (705) (174)
Employee compensation and benefits 3,005 (349)
Other, net (5,364) (3,971)
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Net operating activities 16,865 4,362
------------ -------------
Investing activities:
Capital expenditures (1,172) (1,314)
Proceeds from sale of fixed assets - 6
Payment for covenant not-to-compete (285) -
Acquisition of businesses (738) (1,185)
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