Pinnacle Data Systems, Inc. ("PDSi") (NYSE Amex: PNS) today
reported its financial results for the three months ended June 30,
2010.
John D. Bair, Chairman of the Board, President and Chief
Executive Officer, stated, "Our continued profitable results in the
second quarter demonstrate our successful execution of the steps we
took in the fourth quarter of 2009. These actions included changes
in our top leadership, implementing a customer-focused sales and
marketing strategy, and focusing on developing our Service business
and Product programs where our engineering and operational
expertise are highly valued. In the first half of 2010 we have
returned to profitability, grown our Service business,
substantially paid down our debt, and dramatically reduced our
overhead cost structure. We have established a solid foundation for
profitable growth as we continue to add new customers in new
markets."
Sales were $8.0 million for the 2010 second quarter, down $0.8
million, or 10%, versus the first quarter of 2010. Gross profit as
a percentage of sales was 28% for the quarter -- the highest gross
margin since the first quarter of 2004. Timothy J. Harper, Chief
Operating Officer, added, "Although our revenue declined quarter
over quarter, we continue to see growth in our Service business,
with strong margins and overall profitability for the company. This
validates our recent strategic direction to grow our services
business and redefine our product direction to a market requiring
our high value-added engineering."
Cash generated from operations was $1.2 million, the sixth
sequential quarter with positive operating cash flow. The Company's
debt on its line of credit was reduced $0.9 million during the
quarter, ending the quarter at $0.2 million. "We are pleased with
the cash flow benefits we are realizing from our return to
profitability and our continued focus on managing our net working
capital," Mr. Bair added. "Cash flow generated from operations was
$1.7 million in the first half of 2010, and we have reduced our
debt from $2.4 million at the end of 2009, to $0.2 million at the
end of the second quarter."
Financial Results
Net Income (Loss)
Net income for the second quarter of 2010 was $0.3 million, or
$0.04 per diluted share. This compares to a net loss of $0.3
million, or $0.03 per diluted share, for the same quarter last
year, and is flat versus the first quarter of 2010.
Sales
Total sales declined 12% to $8.0 million for the 2010 second
quarter from $9.0 million for the same quarter a year ago. Second
quarter Product sales declined 27% to $4.8 million in 2010 from
$6.6 million in 2009. This decline was attributable to
significantly lower sales to larger imaging and medical OEM
customers. Service sales increased $0.7 million, or 28%, to $3.1
million for the 2010 second quarter, with the growth attributable
to the ramp of business in the U.S. and EMEA for both new customers
and new programs within existing customers.
Gross Profit
Gross profit improved 13% to $2.2 million for the 2010 second
quarter, from $2.0 million for the same quarter last year. Overall
gross margin as a percentage of revenue improved from 22% to 28%
compared to last year. The gross profit improvement on lower
year-on-year total sales revenue was attributable to the change in
mix driven by the growth of higher-margin Service segment revenue.
Within both the Product and Service segments, average margins as a
percentage of revenue also improved, driven by a shift toward
higher margin programs within each segment. Product gross margin
improved compared to prior year from 18% to 20%, while Service
gross margin improved from 32% to 40%.
Operating Expenses
Operating expenses were reduced 19% to $1.8 million for the 2010
second quarter from $2.3 million a year ago, reflecting cost
reduction actions taken over the past year to align expenses with
anticipated sales revenue, and to better focus resources on the
Company's services growth strategy. Wages and other employee costs
accounted for most of the $0.4 million reduction in year-on-year
operating expense. Additional savings were realized across multiple
areas, including company-funded R&D expenses, reflecting the
Company's strategic focus on developing customer-specific solutions
through customer-funded development projects.
Interest Expense
Interest expense for the 2010 second quarter was reduced 63% to
$18,000 from $49,000 for the same quarter last year due to lower
average debt outstanding. Debt outstanding was dramatically reduced
during the quarter to $0.2 million from $1.2 million as of March
31, 2010, and as compared to $3.0 million at the end of the prior
year second quarter.
Recent PDSi Highlights
-- On May 14th, PDSi announced that it had been awarded SGI's (Silicon
Graphics International Corp.'s) legacy Rackable products' return
management program. The contractual agreement covers the receipt and
management of all components and systems from SGI's Rackable products.
Under this agreement, PDSi will transact receipts, process warranties,
and test and repair all systems, motherboards, hard drives, power
supplies, memory and peripherals. In addition, PDSi has started
shipments and/or ramped several additional significant service programs
for new enterprise customers, contributing to the 28% year-on-year
growth in Service revenue in the recent second quarter.
-- On July 7, PDSi announced it had successfully completed a full
recertification audit of its quality systems registrations, which
include its ISO 9001:2008 Quality Management Systems; ISO 14001:2004
Environmental Management Systems; ISO 13485:2003 Medical
Devices-Quality Management Systems; and TL9000-H,V R5.0/R4.0, a
telecommunications standard published by the Quality Excellence for
Suppliers of Telecommunications (QuEST) Forum. These certifications
reflect PDSi's ongoing commitment to quality, and place it among the
best-in-class companies that have achieved and sustained the high
quality systems standards required for these registrations.
-- Q2 2010 represented the second highest quarter for Service segment
revenue since 2005, and was the most profitable for the Service
segment since 2006.
Conference Call
PDSi will host a conference call on Thursday, July 29, 2010, at
11 a.m. EDT. John D. Bair, President, Chief Executive Officer, and
Chief Technology and Innovation Officer; Timothy J. Harper, Chief
Operating Officer; and Nicholas J. Tomashot, Chief Financial
Officer, will discuss the Company's 2010 second quarter results.
Results will be released after market close on July 28th.
The telephone number to participate in the conference call is
(877) 485-3107. A slide presentation will be referenced during the
call, which may be accessed at the PDSi website (www.pinnacle.com)
by clicking on "Investor Relations" and then "Conference Calls." 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 a global provider of services and products for the
telecom, imaging, defense/aerospace, medical, semiconductor,
industrial automation and IT markets. PDSi provides a variety of
engineering and manufacturing services for global OEMs requiring
custom product design, system integration, repair programs,
warranty management, and/or specialized production capabilities.
With service centers in the U.S., Europe and Asia, we ensure
seamless support for solutions all around the world.
In addition to our service offerings, our product capabilities
range from board-level designs to globally-certified, fully
integrated systems. Our specialties include long-life computer
products and unique, customer-centric solutions.
PDSi's turnkey technical programs help our customers bring their
solutions to market faster and provide comprehensive service for
the lifecycle of their products.
For more information, visit the PDSi website at
www.pinnacle.com.
Safe Harbor Statement
Portions of this release include 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 the Company achieving its
financial growth and profitability goals, or its sales, earnings
and profitability expectations for the fiscal year ending December
31, 2010. The words "believe," "expect," "anticipate," "estimate,"
"intend," "seek," "may" and similar expressions identify
forward-looking statements that speak only as of the date of this
release. 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, but are not limited to, the
following:
-- changes in general economic conditions, including prolonged or
substantial economic downturn, and any related financial difficulties
experienced by original equipment manufacturers, end users, customers,
suppliers or others with whom the Company does business;
-- changes in customer order patterns;
-- changes in our business or our relationship with major technology
partners or significant customers;
-- failure to maintain adequate levels of inventory;
-- production components and service parts cease to be readily available
in the marketplace;
-- lack of adequate financing to meet working capital needs or to take
advantage of business and future growth opportunities that may arise;
-- inability of cost reduction initiatives to lead to a realization of
savings in labor, facilities or other operational costs;
-- deviation of actual results from estimates and/or assumptions used by
the Company in the application of its significant accounting policies;
-- lack of success in technological advancements;
-- inability to retain certifications, authorizations or licenses to
provide certain products and/or services;
-- risks associated with our new business practices, processes and
information systems;
-- impact of judicial rulings or government regulations, including related
compliance costs;
-- disruption in the business of suppliers, customers or service providers
due to adverse weather, casualty events, technological difficulty, acts
of war or terror, or other causes;
-- risks associated with doing business internationally, including
economic, political and social instability and foreign currency
exposure; and
-- other factors from time to time described in the Company's filings with
the United States Securities and Exchange Commission ("SEC").
The Company undertakes no obligation to publicly update or
revise any such statements, except as required by applicable law.
For more details, please refer to the Company's SEC filings,
including its most recent Annual Report on Form 10-K and Quarterly
Reports on Form 10-Q.
PINNACLE DATA SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
2010 2009
----------- -----------
ASSETS (Unaudited)
CURRENT ASSETS
Cash $ 135 $ 323
Accounts receivable, net of allowance for
doubtful accounts of $129 and $232,
respectively 4,938 5,932
Inventory, net 3,042 3,754
Prepaid expenses and other current assets 300 525
----------- -----------
Total current assets 8,415 10,534
----------- -----------
PROPERTY AND EQUIPMENT
Property and equipment, cost 5,888 5,899
Less accumulated depreciation and amortization (5,196) (5,038)
----------- -----------
Total property and equipment, net 692 861
----------- -----------
OTHER ASSETS
Goodwill 700 821
Other assets 343 359
----------- -----------
Total other assets 1,043 1,180
----------- -----------
TOTAL ASSETS $ 10,150 $ 12,575
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit $ 229 $ 2,413
Accounts payable 2,029 2,694
Accrued wages, payroll taxes and employee
benefits 685 1,014
Unearned revenue 280 85
Other current liabilities 653 555
----------- -----------
Total current liabilities 3,876 6,761
LONG-TERM LIABILITIES
Accrued other 185 226
----------- -----------
TOTAL LIABILITIES 4,061 6,987
----------- -----------
STOCKHOLDERS' EQUITY
Common stock 5,777 5,769
Additional paid-in capital 1,936 1,912
Accumulated other comprehensive income (loss) (169) (29)
Retained earnings (deficit) (1,455) (2,064)
----------- -----------
Total stockholders' equity 6,089 5,588
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 10,150 $ 12,575
=========== ===========
PINNACLE DATA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share)
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2010 2009 2010 2009
--------- -------- --------- --------
Sales $ 7,968 $ 9,038 $ 16,780 $ 19,925
Cost of sales 5,733 7,054 12,396 15,907
--------- -------- --------- --------
Gross profit 2,235 1,984 4,384 4,018
Operating expenses 1,835 2,272 3,563 5,250
--------- -------- --------- --------
Income (loss) from operations 400 (288) 821 (1,232)
Other expense
Interest expense 18 49 41 102
--------- -------- --------- --------
Income (loss) before income
taxes 382 (337) 780 (1,334)
Income tax expense (benefit) 82 (67) 171 (363)
--------- -------- --------- --------
Net income (loss) $ 300 $ (270) $ 609 $ (971)
========= ======== ========= ========
Weighted average common shares
outstanding:
Basic 7,826 7,825 7,825 7,825
Diluted 7,966 7,825 7,891 7,825
Earnings (loss) per common share:
Basic $ 0.04 $ (0.03) $ 0.08 $ (0.12)
Diluted 0.04 (0.03) 0.08 (0.12)
PINNACLE DATA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
For the Six Months Ended
June 30,
------------------------
2010 2009
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 609 $ (971)
----------- -----------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Bad debt expense (32) 109
Inventory reserves 135 404
Depreciation and amortization 201 291
Share-based payment expense 24 83
(Increase) decrease in assets:
Accounts receivable 953 3,918
Inventory 550 94
Prepaid expenses and other assets 202 31
Increase (decrease) in liabilities:
Accounts payable (907) (1,082)
Unearned revenue 195 496
Other current liabilities (197) (533)
----------- -----------
Total adjustments 1,124 3,811
----------- -----------
Net cash provided by operating
activities 1,733 2,840
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (62) (155)
----------- -----------
Net cash used in investing activities (62) (155)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in line of credit (2,184) (2,431)
Net change in outstanding checks 303 (264)
Other 40 (181)
----------- -----------
Net cash used in financing activities (1,841) (2,876)
----------- -----------
EFFECT OF EXCHANGE RATE ON CASH (18) 3
----------- -----------
INCREASE (DECREASE) IN CASH (188) (188)
Cash at beginning of period 323 282
----------- -----------
Cash at end of period $ 135 $ 94
=========== ===========
Contact: Nick Tomashot Chief Financial Officer (614) 748-1150
Email Contact
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