EX-99.1 3 a09-24239_1ex99d1.htm EX-99.1

Exhibit 99.1

 

GRAPHIC

 

NEWS RELEASE

 

Date:

August 27, 2009

 

FOR IMMEDIATE RELEASE

 

 

Contact:

Dave Mossberg

 

Three Point Advisors, LLC

 

817-310-0051

 

XETA Technologies Reports Third Quarter Fiscal 2009 Financial Results

 

·                  3Q09 Revenue: $17.2 million vs. 3Q08 Revenue: $23.2 million

·                  3Q09 GAAP loss per share: ($0.84) vs. 3Q08 GAAP EPS $0.06

·                  Non-cash goodwill and other asset impairment charges of $14.0 million

·                  Non-GAAP 3Q09 loss per share: ($0.01), excluding impairment charges

 

XETA Technologies (Nasdaq:XETA) today reported a GAAP loss of ($8.6 million), or ($0.84) per diluted share, on revenue of $17.2 million for the third fiscal quarter ended July 31, 2009.  This compares to earnings of $591,000, or $0.06 per diluted share, on revenue of $23.2 million for the third fiscal quarter ended July 31, 2008.

 

Due to a continued decline in systems sales to commercial customers during the quarter, uncertainty related to a pending change of ownership of a significant vendor—Nortel, and the sustained level of market capitalization below book value, the Company conducted impairment tests for goodwill and other long-lived assets, specifically its ERP system, in connection with the preparation of its third quarter financial report.  As a result, the Company recorded non-cash impairment charges of $11 million and $3 million to goodwill and fixed assets, respectively. The impairment charge to goodwill represents the Company’s best estimate at the time of reporting third quarter results, and may be adjusted after completing the impairment test during the fourth fiscal quarter.  The impairment charges do not result in any cash expenditures or affect the Company’s cash position, cash flow from operations, or availability under its credit facility.  Excluding these charges, non-GAAP net loss for the third fiscal quarter was ($87,000), or ($0.01) per diluted share.

 

For the nine months ended July 31, 2009, the Company reported a GAAP loss of ($8.4 million), or ($0.82) per diluted share, on revenue of $53.5 million compared to net income of $1,351,000, or $0.13 per diluted share on revenue of $62.0 million for the same period ended July 31, 2008.  Excluding non-cash charges, non-GAAP net income for the nine months ended July 31, 2009 was $314,000, or $0.03 per diluted share.

 

Revenue Table (in thousands)

 

 

 

3Q09

 

3Q08

 

 

 

Line of Businesses

 

Revenue

 

Revenue

 

% Change

 

 

 

 

 

 

 

 

 

Recurring (Contract & Time and Materials)

 

$

7,357

 

$

7,202

 

2

 

Implementation

 

$

2,469

 

$

3,864

 

-36

 

Cabling

 

$

698

 

$

962

 

-27

 

Total Services

 

$

10,524

 

$

12,028

 

-13

 

 

 

 

 

 

 

 

 

Commercial

 

$

4,032

 

$

8,366

 

-52

 

Hospitality

 

$

2,491

 

$

2,296

 

8

 

Total Systems

 

$

6,523

 

$

10,662

 

-39

 

 


 

Third quarter services revenue was $10.5 million, a 13 percent decline from the same period last year, and a 7 percent sequential increase from the second quarter of 2009.  The year-over-year decline in services revenue was primarily related to lower implementation and cabling revenue associated with lower systems sales.  “The sequential improvement in service revenue is indicative of success in on-boarding several sizable, multi-year service contracts during the first nine months of the year,” said Greg Forrest, President and CEO of XETA Technologies.  “The sequential improvement was also the result of growth in our wholesale business, which we provide services on behalf of our partners.  Wholesale services are not tied directly to the sale of equipment.  Therefore, as the wholesale business grows, our revenue becomes less dependent on equipment sales, which can fluctuate significantly from quarter to quarter, as was the case during this last period.  We remain strategically focused on growing our wholesale and direct service business, which provides stable recurring revenue, requires less working capital investment, produces higher margin and typically performs better during the bottom of economic cycles.”

 

During the third quarter of fiscal 2009, systems revenue decreased by 39 percent to $6.5 million versus $10.7 million recorded in the third quarter of 2008.  Mr. Forrest commented “Our systems revenue faced tough comparisons with large orders that were delivered during third quarter last year.  Excluding these orders, the significant drop in systems revenue was consistent, or slightly better than, the numbers reported by the major communications equipment vendors.”

 

Another key to understanding the Company’s third quarter results was the decline in Other Revenues compared to last year.  These revenues primarily represent commissions earned from Avaya on the sale of their maintenance agreements.  “Customers chose to defer decisions on renewals of existing contracts during the third quarter, which negatively impacted our profitability,” said Mr. Forrest.

 

Gross Margin Table

 

 

 

3Q09

 

3Q08

 

 

 

Line of Business

 

Gross Margin

 

Gross Margin

 

Change

 

Systems

 

28.9

%

26.4

%

+ 250 basis points

 

Services

 

28.7

%

30.4

%

- 170 basis points

 

Overall Gross Margin

 

26.8

%

26.7

%

+ 10 basis points

 

 

During the third quarter of 2009, gross margin was 26.8 percent of revenue versus 26.7 percent during the third quarter of 2008, as an increase in systems margin was offset by a decline in services margin.   “Lower systems sales and the resulting decrease in implementation revenue directly affected the fixed cost absorption of our implementation services.  All other service categories showed improvements in margin,” said Mr. Forrest.  “Gross margin on systems revenue remained above targeted levels, reflecting our discipline to focus on business where we compete based on our differentiated offering, instead of price.”

 

“While gross margin remained relatively unchanged from the prior year, as a result of lower sales volumes, gross margin dollars declined $1.6 million.  We were able to offset a portion of this decline by taking appropriate actions to right size the organization and reduce spending, which aided in producing an 8% decline in third quarter operating expenses, excluding impairment charges,” stated Robert Wagner, XETA’s Chief Financial Officer.  “As a result of the actions we’ve taken during the third quarter, we expect to reduce operating expense by more than $1 million annually.”

 

“We made significant improvements to our balance sheet this quarter, generating $4 million in operating cash flow, building a cash balance of nearly $3 million  and zero drawn on our line of credit,” said Mr. Forrest.  “The combination of improvement in some macro economic indicators and our own observations of increased

 


 

activity by some customers during the last 30 days lead us to be cautiously optimistic regarding our fourth quarter and fiscal 2010 financial results.  We have maintained our investment in sales infrastructure to capitalize on growth opportunities should these early indicators mature.”

 

The Company will host a conference call and webcast to discuss these results at 4:00 p.m. Central Time on Thursday, August 27, 2009.  Interested parties may access the conference call via telephone by dialing 877-407-8033. The call is being webcast and can be accessed at XETA’s website www.xeta.com under the investor relations section of the website. A replay of the webcast will be archived on the Company’s website for 60 days.

 

Condensed Consolidated Statements of Income

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

July 31,

 

July 31,

 

 

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

Sales

 

Services

 

$

10,524

 

$

12,028

 

$

30,359

 

$

31,888

 

 

 

Systems

 

6,523

 

10,662

 

22,897

 

28,648

 

 

 

Other

 

136

 

513

 

263

 

1,429

 

 

 

Total

 

17,183

 

23,203

 

53,519

 

61,965

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of Sales

 

Services

 

7,506

 

8,373

 

21,258

 

23,104

 

 

 

Systems

 

4,640

 

7,846

 

16,792

 

21,175

 

 

 

Other

 

425

 

782

 

1,308

 

1,707

 

 

 

Total

 

12,571

 

17,001

 

39,358

 

45,986

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

 

4,612

 

6,202

 

14,161

 

15,979

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

 

 

27

%

27

%

26

%

26

%

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expense

 

 

 

 

 

 

 

 

 

 

 

Selling, General and Administrative

 

 

 

4,388

 

4,870

 

12,926

 

12,796

 

Amortization

 

 

 

345

 

265

 

1,002

 

722

 

Impaiment of Goodwill and Other Assets

 

 

 

14,000

 

—

 

14,000

 

—

 

Total Operating Expenses

 

 

 

18,733

 

5,135

 

27,928

 

13,518

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Operations

 

 

 

(14,121

)

1,067

 

(13,767

)

2,461

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

 

(21

)

(96

)

(79

)

(268

)

Interest and Other Income (Expense)

 

 

 

(1

)

—

 

14

 

27

 

Total Interest and Other Expense

 

 

 

(22

)

(96

)

(65

)

(241

)

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) Before Provision for Income Taxes

 

 

 

(14,143

)

971

 

(13,832

)

2,220

 

Provision for Income Taxes

 

 

 

(5,544

)

380

 

(5,418

)

869

 

Net Income after Tax

 

 

 

$

(8,599

)

$

591

 

$

(8,414

)

$

1,351

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings Per Share

 

 

 

$

(0.84

)

$

0.06

 

$

(0.82

)

$

0.13

 

Diluted Earnings Per Share

 

 

 

$

(0.84

)

$

0.06

 

$

(0.82

)

$

0.13

 

Wt. Avg. Common Shares Outstanding

 

 

 

10,224

 

10,254

 

10,224

 

10,242

 

Wt. Avg. Common Equivalent Shares

 

 

 

10,226

 

10,254

 

10,224

 

10,247

 

 

(The information is unaudited and is presented in thousands except percentages and per-share data.)

 


 

Consolidated Balance Sheet Highlights

 

 

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

July 31, 2009

 

October 31, 2008

 

Assets

 

Current

 

Cash

 

$

2,981

 

$

64

 

 

 

 

 

Receivables (net)

 

11,383

 

19,995

 

 

 

 

 

Inventories (net)

 

5,109

 

5,237

 

 

 

 

 

Other

 

2,438

 

2,615

 

 

 

 

 

Subtotal

 

21,911

 

27,911

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Current

 

PPE (net)

 

6,998

 

10,725

 

 

 

 

 

Goodwill & Intangibles (net)

 

16,576

 

27,654

 

 

 

 

 

Noncurrent Deferred Tax Asset

 

213

 

—

 

 

 

 

 

Other

 

359

 

103

 

 

 

 

 

Subtotal

 

24,146

 

38,482

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

 

 

 

$

46,057

 

$

66,393

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

Current

 

Revolving Line of Credit

 

$

—

 

$

2,524

 

 

 

 

 

Notes Payable

 

1,226

 

1,355

 

 

 

 

 

Accounts Payable

 

4,002

 

6,692

 

 

 

 

 

Accrued Liabilities

 

3,679

 

4,742

 

 

 

 

 

Unearned Revenue

 

3,211

 

3,237

 

 

 

 

 

Subtotal

 

12,118

 

18,550

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Current

 

Noncurrent Deferred Tax Liability

 

—

 

5,546

 

 

 

 

 

Other

 

345

 

460

 

 

 

 

 

Subtotal

 

345

 

6,006

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

 

12,463

 

24,556

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

$

33,594

 

$

41,837

 

 

(The information is unaudited and is presented in thousands.)

 

Reconciliation of Adjusted-EBITDA(1) to Net Income

 

 

 

Quarter Ending
July 31,

 

Nine Months Ending
July 31,

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

$

(8,599

)

$

591

 

$

(8,414

)

$

1,351

 

Interest

 

21

 

96

 

79

 

268

 

Provision for Income Taxes

 

(5,544

)

380

 

(5,418

)

869

 

Impairment of Goodwill and Other Assets

 

14,000

 

—

 

14,000

 

—

 

Depreciation

 

269

 

190

 

723

 

529

 

Amortization

 

345

 

265

 

1,002

 

722

 

EBITDA(1)

 

$

492

 

$

1,522

 

$

1,972

 

$

3,739

 

 

(The information is presented in thousands.)

 

(1)The Company uses Adjusted-EBITDA (earnings before net interest, income taxes, depreciation and amortization), which excludes non-cash charges for impairment of goodwill and other assets, as part of its overall assessment and comparison of financial performance between accounting periods. XETA believes that EBITDA is often used by the financial community as a method of measuring the Company’s performance and of evaluating the market value of companies considered to be in similar businesses. EBITDA is a non-GAAP financial measure and should not be considered an alternative to net income or cash provided by operating

 


 

activities, as defined by accounting principles generally accepted in the United States (“GAAP”). A reconciliation of EBITDA to net income is provided above.

 

The following table reconciles reported GAAP net income per the income statement to non-GAAP net income:

 

 

 

Quarter Ending
July 31,

 

Nine Months Ending
July 31,

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

Net Income as Reported

 

$

(8,599

)

$

591

 

$

(8,414

)

$

1,351

 

Impairment of Goodwill and Other Assets (Net of Tax)

 

8,512

 

—

 

8,512

 

—

 

Reserve for Bad Debt (Net of Tax)

 

—

 

—

 

216

 

—

 

Non-GAAP net income

 

$

(87

)

$

591

 

$

314

 

$

1,351

 

 

(The information is presented in thousands.)

 

The following table reconciles reported GAAP diluted earnings (loss) per share (“EPS”) to non-GAAP diluted EPS:

 

 

 

Quarter Ending
July 31,

 

Nine Months Ending
July 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

EPS, Diluted - as Reported

 

$

(0.84

)

$

0.06

 

$

(0.82

)

$

0.13

 

EPS Impact of Impairment of Goodwill and Other Assets (Net of Tax)

 

0.83

 

0.00

 

0.83

 

0.00

 

EPS Impact of Reserve for Bad Debt, Net of Tax

 

0.00

 

0.00

 

0.02

 

0.00

 

EPS, Diluted - Non-GAAP

 

$

(0.01

)

$

0.06

 

$

0.03

 

$

0.13

 

 

About XETA Technologies

 

XETA Technologies sells, installs and services advanced communication technologies for small, medium, and Fortune 1000 enterprise customers. The Company maintains the highest level of technical competencies with multiple vendors including Avaya, Mitel, Nortel, Hitachi and Samsung. With a 27-year operating history and over 16,000 customers from coast to coast, XETA has maintained a commitment to extraordinary customer service. The Company’s in-house 24/7/365 call center, combined with a nationwide service footprint offers customers comprehensive equipment service programs that ensure network reliability and maximized network up-time. More information about XETA Technoloiges (Nasdaq: XETA) is available at www.xeta.com. Click on the following link to join our e-mail alert list: http://www.b2i.us/irpass.asp?BzID=1585&to=ea&s=0.

 

This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements concerning expected reductions in operating expenses and 2009 financial results. These and other forward-looking statements (generally identified by such words as “expects,” “plans,” “believes,” “likely,” “anticipates” and similar words or expressions) reflect management’s current expectations, assumptions, and beliefs based upon information currently available to management. Investors are cautioned that all forward-looking statements are subject to certain risks and uncertainties which are difficult to predict and that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to: the condition of the U.S.  economy and its impact on capital spending in the Company’s markets; reduced availability of credit;  the  Nortel Networks bankruptcy filing  and the impact that such action will continue to have on the Company’s Nortel products and services offering;

 


 

unpredictable quarter to quarter revenues;  continuing success of our Mitel product  and service offerings; the Company’s ability to maintain and improve upon current gross profit margins; intense competition and industry consolidation; dependence upon a few large wholesale customers for the recent growth in the Company’s Managed Services offering; and the availability and retention of revenue professionals and certified technicians.