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PDSi Reports Strong Third Quarter 2007 Results
Contact:
George Troutman
Chief Financial Officer
(614) 748-1150
COLUMBUS, Ohio (November 8, 2007) Pinnacle Data Systems, Inc. (“PDSi”) (AMEX: PNS) today announced results for the three months and nine months ended September 30, 2007.
Michael R. Sayre, President and Chief Executive Officer stated, “Our strong third quarter 2007 results included solid organic sales growth, and benefits from the Operational Improvement Plan completed earlier this year and our continuing efforts to improve operating leverage and margins. For the first time since 2004, we are pleased to announce record quarterly net income for the Company.”
Mr. Sayre continued, “Progress in refining and executing our sales and marketing strategy, including geographic, customer and product diversification coupled with an absolute commitment to improved margins, is expected to contribute to a period of improved profitability for PDSi. We continue to challenge existing business that is performing below expected results and are seeking new opportunities that are more in line with our performance goals.”
Third Quarter 2007 Results
Total sales for the three months ended September 30, 2007 rose 13% to $17.4 million from $15.4 million for the same period in 2006. Product sales were $14.4 million for the third quarter 2007, which is 15% higher than the $12.5 million in Product sales a year ago. This was principally due to growth in new programs with existing customers. The 3% increase in Service sales to $3.0 million for the third quarter 2007 versus $2.9 million a year ago was due to new service business in Europe, the Middle East and Africa (“EMEA”), which was offset by lower billings for domestic accounts.
PDSi’s gross profit nearly doubled to $4.6 million for the third quarter 2007 from $2.4 million for the comparable period last year. Overall gross profit margin increased to 26.3% for the third quarter 2007 from 15.6% the prior year.
Gross profit on Product sales rose approximately 290% to $3.9 million for the third quarter 2007 from $1.0 million for the same period in 2006. This was due to the elimination of certain low margin business, improved margins on current business and initial implementation of two end-of-life programs. Gross profit on Service sales declined to $0.7 million for the third quarter 2007 from $1.4 million for the same period last year. The decrease was attributable to a change in sales mix and the ramp-up of a new repair program in Europe. PDSi currently shares the profit on Service sales generated within EMEA with Aspan Computer Repair Laboratories B.V. (“Aspan”), which also contributed to the lower reported gross profit margin on Service sales. The Company previously announced a non-binding letter of intent to acquire the stock of privately-held Aspan and is currently pursuing financing to complete this acquisition.
Operating expenses, which include selling, general and administrative (“SG&A”) expenses, declined to $3.3 million for the third quarter 2007 from $4.8 million for the same period in 2006. Expressed as a percentage of total sales, operating expenses were 18.8% and 31.2% for the third quarter 2007 and 2006, respectively. During the third quarter 2006, the Company incurred approximately $1.4 million of costs associated with the Operational Improvement Plan, which was partially offset by a $0.3 million recovery in its accounts receivable reserve. Additionally, the 2007 year-over-year decrease in operating expenses benefited from a decline in the number of permanent and temporary staff, consulting services, and travel expenses compared to the third quarter 2006.
Net income for the three months ended September 30, 2007 increased to a record $631,000, or $0.10 per diluted share, compared to a net loss of $(1.4) million, or $(0.22) per share, for the same period last year.
Nine Months Ended September 30, 2007
Total sales for the nine months ended September 30, 2007 increased 11% to $55.1 million compared to $49.6 million for the same period last year. Product sales and Service sales rose 13% and 1%, respectively, for the 2007 year-to-date period compared to 2006. The increase was primarily attributable to the initial set-up of a multi-program customer in the latter half of 2006 that has remained strong in 2007.
Gross profit rose 21% to $11.7 million for the first nine months of 2007 from $9.7 million for the same period of 2006, primarily due to sales mix. Gross profit margin increased to 21.2% for the 2007 year-to-date period, from 19.4% for the same period in the prior year.
Operating expenses, which include SG&A expenses, decreased to $10.4 million, or 18.8% of total sales, for the first nine months of 2007, from $12.5 million, or 25.2% of total sales, for the same period last year. The primary reason for change from year-to-year relates to the previously noted, one-time expenses recorded in 2006, as well as a reduction in total headcount, travel and other controllable expenses.
Net income was $335,000 or $0.05 per share, for the nine months ended September 30, 2007, compared to a net loss of $(1.9) million, or $(0.30) per share, for the same period in 2006.
2007 Third Quarter Highlights
During the quarter PDSi:
- Announced it has teamed with AMD (NYSE: AMD) to develop a new Reference Design Kit (“RDK”). This RDK will help original equipment manufacturer (“OEM”) designers incorporate AMD Sempron™ and AMD Turion™ processors into embedded computing systems built around COM Express™, a rapidly emerging computer-on-module board standard.
- Was selected by AMD to develop a third RDK around AMD’s embedded technology. This RDK is focused on the design and commercialization of a compact computing module conforming to the latest Advanced Mezzanine Card (“AdvancedMC™”) standard.
Conference Call
PDSi will host a conference call today at 11:00 a.m. Eastern Time. Michael R. Sayre, President and Chief Executive Officer, George A. Troutman, Chief Financial Officer, and Michael Darnell, Vice President of Global Sales and Marketing, will discuss the Company’s third quarter results, recent developments and its long-term growth strategy.
The telephone number to participate in the conference call is (800) 218-8862. A slide presentation will be referenced during the call which may be accessed at the PDSi website ( www.pinnacle.com) by clicking on “Company Information” and then “Investor Relations.”
An audio replay of the call will be available through the Investor Relations section of the Company’s website approximately one hour following the conference call.
About PDSi
PDSi is an embedded computing technology provider offering design, development, production, and repair services to OEMs. Industries served currently include medical, telecommunications, industrial/automation, military/aerospace and imaging. PDSi also helps major computer platform manufacturers respond to their customers’ requirements for customized solutions and extended service life. PDSi specializes in solving the challenges associated with complex technologies, multi-vendor integrations, low to medium volume production and long-term service of third party products.
PDSi is a collaborative and flexible outsourcing partner who helps clients create cost-effective solutions, respond to unplanned demand changes, improve customer satisfaction, and aggressively adapt to new trends in the technology market place. Through its innovative and proactive staff of engineering, design, manufacturing, program management and supply chain specialists, PDSi tailors solutions that meet the particular business and operational needs of each OEM client. For more information, visit the PDSi website at www.pinnacle.com.
Safe Harbor Statement: This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, but not limited to, statements regarding activities anticipated to benefit operating and financial performance during the last quarter of 2007. The words “expect”, “seek” and similar expressions identify forward-looking statements that speak only as of the date thereof. Investors are cautioned that such statements involve risks and uncertainties that could cause actual results to differ materially from historical or anticipated results due to many factors. These factors include changes in general economic conditions, changes in the specific markets for the Company’s products and services, changes in customer order patterns, changes in the Company’s business or its relationship with major technology partners or significant customers, pricing pressures, lack of adequate financing to take advantage of business opportunities that may arise, lack of success in technological advancements, and risks associated with the Company’s new business practices, processes and information systems. For more details, please refer to the Company’s Securities and Exchange Commission filings, including its most recent Annual Report on Form 10-K and quarterly reports on Form 10-Q.
PINNACLE DATA SYSTEMS, INC.
CONDENSED BALANCE SHEETS
(Dollars in thousands)
September 30, 2007 December 31, 2006
------------------ -----------------
(Unaudited)
ASSETS
---------------------------------
CURRENT ASSETS
Cash $67 $42
Accounts receivable, net of
allowance for doubtful
accounts of $94 and $138,
respectively 12,888 17,718
Inventory, net 8,519 11,732
Prepaid expenses 547 499
Income taxes receivable 42 1,030
Deferred income taxes 858 858
------------------ -----------------
Total current assets 22,921 31,879
------------------ -----------------
PROPERTY AND EQUIPMENT
Leasehold improvements 570 511
Furniture and fixtures 408 408
Computer equipment and related
software 3,574 3,373
Shop equipment 818 619
------------------ -----------------
Total property and equipment,
cost 5,370 4,911
Less accumulated depreciation
and amortization (4,064) (3,667)
------------------ -----------------
Total property and equipment,
net 1,306 1,244
------------------ -----------------
OTHER ASSETS
Deferred income taxes 597 597
Other assets 53 138
------------------ -----------------
Total other assets 650 735
------------------ -----------------
TOTAL ASSETS $24,877 $33,858
================== =================
LIABILITIES AND STOCKHOLDERS'
EQUITY
---------------------------------
CURRENT LIABILITIES
Line of credit $4,101 $9,109
Short-term note 4,000 4,000
Accounts payable 7,858 11,851
Accrued expenses:
Wages, payroll taxes and
benefits 1,081 1,053
Other 835 947
Unearned revenue 450 204
------------------ -----------------
Total current liabilities 18,325 27,164
------------------ -----------------
LONG-TERM LIABILITIES
Accrued other - 675
------------------ -----------------
Total long-term liabilities - 675
------------------ -----------------
TOTAL LIABILITIES 18,325 27,839
------------------ -----------------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock; no par value;
4,000,000 shares authorized;
no shares issued or
outstanding - -
Common stock; no par value;
25,000,000 shares authorized;
6,419,548 and 6,363,448 shares
issued and outstanding,
respectively
3,488 3,435
Additional paid-in capital 1,408 1,263
Retained earnings 1,656 1,321
------------------ -----------------
Total stockholders' equity 6,552 6,019
------------------ -----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $24,877 $33,858
================== =================
PINNACLE DATA SYSTEMS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands, except for per share totals)
For the Three Month Periods For the Nine Month Periods
Ended Ended
--------------------------- ---------------------------
September 30, September 30, September 30, September 30,
2007 2006 2007 2006
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
SALES
Product
sales $14,432 $12,521 $47,166 $41,769
Service
sales 2,974 2,874 7,974 7,878
------------ ------------- ------------ -------------
Total sales 17,406 15,395 55,140 49,647
------------ ------------- ------------ -------------
COST OF SALES
Product
sales 10,519 11,517 37,406 36,403
Service
sales 2,305 1,477 6,041 3,588
------------ ------------- ------------ -------------
Total cost
of sales 12,824 12,994 43,447 39,991
------------ ------------- ------------ -------------
GROSS PROFIT 4,582 2,401 11,693 9,656
OPERATING
EXPENSES 3,277 4,802 10,367 12,504
------------ ------------- ------------ -------------
INCOME (LOSS)
FROM
OPERATIONS 1,305 (2,401) 1,326 (2,848)
------------ ------------- ------------ -------------
OTHER EXPENSE
Interest
expense 208 221 719 551
------------ ------------- ------------ -------------
INCOME (LOSS)
BEFORE
INCOME TAXES 1,097 (2,622) 607 (3,399)
INCOME TAX
EXPENSE
(BENEFIT) 466 (1,224) 272 (1,535)
------------ ------------- ------------ -------------
NET INCOME
(LOSS) $631 $(1,398) $335 $(1,864)
============ ============= ============ =============
BASIC
EARNINGS
(LOSS) PER
COMMON SHARE $0.10 $(0.22) $0.05 $(0.30)
============ ============= ============ =============
DILUTED
EARNINGS
(LOSS) PER
COMMON SHARE $0.10 $(0.22) $0.05 $(0.30)
============ ============= ============ =============
WEIGHTED
AVERAGE
COMMON
SHARES
OUTSTANDING
Basic 6,393,637 6,297,108 6,377,559 6,199,777
============ ============= ============ =============
Diluted 6,456,925 6,297,108 6,456,925 6,199,777
============ ============= ============ =============
PINNACLE DATA SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
September 30, 2007 September 30, 2006
------------------ ------------------
(Unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $335 $(1,864)
------------------ ------------------
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation 397 300
Stock-based compensation
expense 145 122
Provision for doubtful
accounts 30 248
Inventory reserves 358 -
Decrease (increase) in assets:
Accounts receivable 4,800 898
Inventory 2,855 (4,210)
Prepaid expenses and other
assets 37 (206)
Income taxes receivable 988 (1,668)
(Decrease) increase in
liabilities:
Accounts payable (4,044) 2,927
Accrued expenses and taxes (759) 825
Unearned revenue 246 539
------------------ ------------------
Total adjustments 5,053 (225)
------------------ ------------------
Net cash provided by (used in)
operating activities 5,388 (2,089)
------------------ ------------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchases of property and
equipment (459) (568)
------------------ ------------------
Net cash used in investing
activities (459) (568)
------------------ ------------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Net payments on line of credit (5,008) (3,080)
Proceeds from short-term note - 4,000
Outstanding checks in excess of
funds on deposit 51 768
Proceeds from stock options
exercised 53 565
------------------ ------------------
Net cash (used in) provided by
financing activities (4,904) 2,253
------------------ ------------------
INCREASE (DECREASE) IN CASH 25 (404)
Cash at beginning of period 42 486
------------------ ------------------
Cash at end of period $67 $82
================== ==================
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