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TechTeam Global Reports Third Quarter 2007 Financial Results
SOUTHFIELD, Mich., Nov. 7 /PRNewswire-FirstCall/ -- TechTeam Global, Inc. (the "Company") (Nasdaq: TEAM), a worldwide provider of information technology, enterprise support and business process outsourcing services, today reported net income of $2.1 million, or $0.20 per diluted share, for the three months ended September 30, 2007. The Company reported a net income of $370,000, or $0.04 per diluted share, for the three months ended September 30, 2006, which included expenses related to a settlement that reduced net income by $0.04 per share.
Third quarter highlights include the following:
-- Total revenue increased 40.7% from the third quarter of 2006 to $59.2 million from a combination of growth through acquisitions and 12.7% growth in the base business.
-- Revenue from the Company's commercial business increased 27.3% from the third quarter of 2006, led by growth in IT Outsourcing Services from new customer contracts.
-- Revenue from the Company's government business increased 73.9% from the third quarter of 2006, primarily due to the acquisitions of NewVectors LLC on May 31, 2007 and RL Phillips, Inc. on August 31, 2007.
-- Gross margin from the Company's commercial business improved to 25.5% from 23.5% for the third quarter of 2006.
-- Gross margin from the Company's government business improved to 28.1% from 25.7% for the third quarter of 2006.
"We are pleased that TechTeam achieved record results for revenue and profitability in the third quarter," said William C. (Chris) Brown, President and Chief Executive Officer. "This was our fourth consecutive quarter of record revenue, and in addition we achieved a record for earnings per share of $0.20. TechTeam has achieved a solid foundation and, while challenges remain, we are focused on achieving our strategic growth objectives."
Brown added, "TechTeam should achieve the 2007 expectations for organic growth and improvements in gross margins and SG&A expense that we discussed at the beginning of the year. I'm very proud of the dedication and hard work of our people across the organization, without whom the progress we have made this past year would not have been possible."
Total revenue increased 40.7% to $59.2 million for the third quarter of 2007, from $42.0 million for the same period in 2006, due to a combination of growth through acquisitions and growth in the base business. Excluding revenue contributed by three acquisitions completed in 2007, total revenue increased 12.7% to $47.3 million for the third quarter of 2007. This "organic" year- over-year change in revenue is primarily attributable to 17.7% growth in IT Outsourcing Services from new customer contracts in the Americas and Europe. In addition, the Company's other business segments experienced approximately 7.1% organic growth in aggregate over last year. Revenue for the third quarter of 2007 was favorably impacted by approximately $1.4 million due to the weakening of the U.S. dollar from the third quarter of 2006 relative to the European euro and other international currencies in which the Company conducts business.
Gross profit increased 54.3% to $15.6 million for the third quarter of 2007, from $10.1 million for the same period in 2006. The Company's gross margin increased to 26.4% for the third quarter of 2007, from 24.1% for the same period in 2006. Consistent with the reported revenue growth, the Company experienced significant growth in gross profit due to acquisitions and the performance of IT Outsourcing Services and, to a lesser extent, from the Company's other business segments. All of the Company's major business segments achieved an increase in gross margin over the third quarter of 2006, which primarily resulted from a combination of improved execution and the accretive impact of acquisitions. Excluding gross profit contributed by acquisitions completed in 2007, third quarter gross profit increased 17.2% to $11.9 million and gross margin increased to 25.1%.
Selling, general and administrative ("SG&A") expense increased to $11.9 million for the third quarter of 2007, from $9.7 million for the same period in 2006. As a percentage of revenue, SG&A expense decreased to 20.1% of revenue for the third quarter of 2007, from 23.1% of revenue for the same period in 2006. Prior year SG&A expense includes professional fees and a settlement charge related to claims filed against the Company by former officers totaling $650,000. Excluding the prior year settlement-related expenses, SG&A expense was 21.6% of revenue for the third quarter of 2006. SG&A expense increased year-over-year due to investments the Company is making to support the Company's growth, global expansion and enhancement of its value-added service capabilities. SG&A also increased as a result of the weakening of the U.S. dollar from the third quarter of 2006.
Operating income increased to $3.7 million, or 6.3% of revenue, for the third quarter of 2007, from $417,000, or 1.0% of revenue, for the same period in 2006. Operating income in 2006 included the aforementioned professional fees that, when excluded, would have resulted in operating income of $1.1 million, or 2.5% of revenue, in 2006. The improvement in operating income and operating margin is primarily the result of revenue growth and improvements in gross margin.
Other components of TechTeam's third quarter 2007 performance include the following:
-- In the Company's commercial business, revenue from the Americas increased 9.0% to $17.2 million and revenue from Europe increased 47.7% to $20.8 million for the third quarter of 2007. Excluding acquisitions, revenue in Europe increased 26.8% to $17.9 million. Although revenue from Europe in 2007 was favorably impacted by the aforementioned weakening of the U.S. dollar by approximately $1.4 million relative to the third quarter of 2006, Europe continues to show strong growth in 2007 over 2006.
-- For the third quarter of 2007, earnings before interest, taxes, depreciation and amortization expense ("EBITDA") was $5.7 million, or 9.6% of revenue, compared with EBITDA of $1.7 million, or 4.1% of revenue, for the same period in 2006.
The Company believes EBITDA is an important "non-GAAP" measure of the Company's financial performance. EBITDA presents information on earnings that may be more comparable to companies with different finance structures, capital investments or capitalization and depreciation policies. The most closely related GAAP measure is operating income. Some financial analysts also use EBITDA to assist in the determination of a company's possible market valuation. (See the table following the financial statements contained in this press release for a reconciliation of operating income to EBITDA.)
-- As of September 30, 2007, the Company had 10,672,292 common shares issued and outstanding.
Conference Call Information
TechTeam Global, Inc. will also host an investor teleconference to discuss its third quarter 2007 financial results at 4:30 p.m. EST, today, Wednesday, November 7, 2007. To participate in the teleconference, including the question and answer session that will follow the results announcement and discussion, please call 1-800-659-2056. (Outside the United States, call +1-617-614-2714.) When prompted, enter the passcode: 90720204. To access a simultaneous Web cast of the teleconference, go to the TechTeam Global Web site at http://www.techteam.com/investors and click on the Web cast icon. From this site, you can download the necessary software and listen to the teleconference. TechTeam encourages you to review the site before the teleconference to ensure that your computer is configured properly.
A taped replay of the call will be available beginning at approximately 6:30 p.m. EST, Wednesday, November 7, 2007. This toll-free replay will be available through Wednesday, November 21, 2007. To listen to the teleconference replay, call 1-888-286-8010. (Outside the United States, call +1-617-801-6888.) When prompted, enter the passcode: 33764218.
About TechTeam Global, Inc.
TechTeam Global, Inc. is a worldwide provider of information technology, enterprise support and business process outsourcing services to Fortune 1000 corporations, multinational companies, product providers, small and medium- sized companies, and government entities. TechTeam's ability to integrate computer services into a flexible, ITIL-based solution is a key element of its strategy. Partnerships with some of the world's "best-in-class" corporations provide TechTeam with unique expertise and experience in providing information technology support solutions. For information about TechTeam Global, Inc. and its services, call 1-800-522-4451 or visit www.techteam.com. TechTeam's common stock is traded on the NASDAQ Global Market under the symbol "TEAM."
Safe Harbor Statement
The statements contained in this press release that are not purely historical, including statements regarding the Company's expectations, hopes, beliefs, intentions or strategies regarding the future, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding, among other things, the growth of the Company's core business, revenue and earnings performance going forward, management of overhead expenses, productivity and operating expenses. Forward-looking statements may be identified by words including, but not limited to, "anticipates," "believes," "intends," "estimates," "promises," "expects," "should," "conditioned upon" and similar expressions. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward- looking statements as a result of various factors. Such factors include, but are not limited to, the award or loss of significant client assignments, timing of contracts, recruiting and new business solicitation efforts, the Company's ability to recruit and retain highly-qualified executives, the market's acceptance of and demand for the Company's offerings, competition, unforeseen expenses, the costs and risks associated with executing an offshore strategy, demands upon and consumption of the Company's cash and cash equivalent resources or changes in the Company's access to working capital, currency fluctuations, changes in the quantity of the Company's common stock outstanding, regulatory changes and other factors affecting the financial constraints on the Company's clients, economic factors specific to the U.S. Federal Government and automotive industry, general economic conditions, unforeseen disruptions in transportation, communications or other infrastructure components, unforeseen or unplanned delays in the Company's ability to consummate acquisitions, and the Company's ability to successfully integrate acquisitions on a timely basis. All forward-looking statements included in this press release are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statement. Prospective investors should also review all aspects of the Company's Reports on Forms 8-K, 10-Q, and 10-K filed with the United States Securities and Exchange Commission, including Management's Discussion and Analysis of Financial Condition and Results of Operations, and the risks described therein from time to time.
Financial Tables to Follow on the Next Page
Financial Data
TechTeam Global, Inc.
Condensed Consolidated Statements of Operations (unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
% %
2007 2006 Change 2007 2006 Change
------- ------- ------ ------- ------- ------
Revenue
Commercial -
IT Outsourcing
Services $25,918 $22,022 17.7% $75,271 $63,105 19.3%
IT Consulting and
Systems Integration 6,746 5,603 20.4% 20,580 17,441 18.0%
Other Services 5,369 2,260 138% 14,239 7,258 96.2%
------- ------- ------- -------
Total Commercial 38,033 29,885 27.3% 110,090 87,804 25.4%
Government Technology
Services 21,118 12,142 73.9% 47,798 35,690 33.9%
------- ------- ------- -------
Total Revenue 59,151 42,027 40.7% 157,888 123,494 27.9%
------- ------- ------- -------
Cost of Revenue
Commercial -
IT Outsourcing
Services 19,111 16,586 15.2% 56,007 47,999 16.7%
Asset impairment loss - - - - 580 -
------- ------- ------- -------
Total IT Outsourcing
Services 19,111 16,586 15.2% 56,007 48,579 15.3%
IT Consulting and
Systems Integration 5,211 4,354 19.7% 15,869 13,219 20.0%
Other Services 3,998 1,923 108% 10,581 5,937 78.2%
------- ------- ------- -------
Total Commercial 28,320 22,863 23.9% 82,457 67,735 21.7%
Government Technology
Services 15,189 9,026 68.3% 34,604 26,300 31.6%
------- ------- ------- -------
Total Cost of
Revenue 43,509 31,889 36.4% 117,061 94,035 24.5%
------- ------- ------- -------
Gross Profit 15,642 10,138 54.3% 40,827 29,459 38.6%
Selling, general and
administrative expense 11,916 9,721 22.6% 33,739 28,872 16.9%
------- ------- ------- -------
Operating Income 3,726 417 NM% 7,088 587 NM%
Net interest income
(expense) (413) 205 (183) 525
Foreign currency
transaction loss (20) (5) (18) (104)
------- ------- ------- -------
Income before Income
Taxes 3,293 617 6,887 1,008
Income tax provision 1,218 236 2,396 365
------- ------- ------- -------
Income from Continuing
Operations 2,075 381 4,491 643
Loss from discontinued
operations, net - (11) - (11)
------- ------- ------- -------
Net Income $ 2,075 $ 370 $ 4,491 $ 632
======= ======= ======= =======
Diluted Earnings per
Common Share $0.20 $0.04 $0.43 $0.06
======= ======= ======= =======
Diluted weighted
average common shares
and common share
equivalents 10,519 10,242 10,518 10,217
======= ======= ======= =======
Condensed Consolidated Balance Sheet (unaudited)
(In thousands)
September 30, December 31,
2007 2006
------------- ------------
Current Assets
Cash and cash equivalents $ 15,054 $ 30,082
Accounts receivable, net 60,909 41,189
Prepaid expenses and other current assets 5,396 5,096
------------- ------------
Total current assets 81,359 76,367
Property, Equipment and Software, Net 9,985 9,117
Goodwill and Other Intangible Assets, Net 76,676 31,703
Other Assets 495 743
------------- ------------
Total Assets $168,515 $117,930
============= ============
Current Liabilities
Current portion of long-term debt $ 5,913 $ -
Accounts payable 10,946 8,350
Accrued payroll and related taxes 13,673 9,512
Accrued expenses and other current
liabilities 10,200 8,334
------------- ------------
Total current liabilities 40,732 26,196
------------- ------------
Long-Term Liabilities
Long-term debt, less current portion 30,467 3,174
Deferred income taxes 2,078 1,690
Other long-term liabilities 937 562
------------- ------------
Total long-term liabilities 33,482 5,426
------------- ------------
Shareholders' Equity
Preferred stock - -
Common stock 107 104
Additional paid-in capital 74,235 71,672
Retained earnings 16,586 12,095
Accumulated other comprehensive income 3,373 2,437
------------- ------------
Total shareholders' equity 94,301 86,308
------------- ------------
Total Liabilities and Shareholders' Equity $168,515 $117,930
============= ============
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
Nine Months Ended September 30,
2007 2006
----------- ----------
Operating Activities
Net income $ 4,491 $ 632
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 4,974 3,773
Asset impairment loss - 580
Other adjustments, primarily changes in
working capital (8,369) (6,982)
Net operating cash flow from discontinued
operations (3) 66
----------- ----------
Net cash provided by (used in) operating
activities 1,093 (1,931)
----------- ----------
Investing Activities
Purchase of property, equipment and software (2,417) (3,155)
Cash paid for acquisitions, net of cash
acquired (46,946) (494)
----------- ----------
Net cash used in investing
activities (49,363) (3,649)
----------- ----------
Financing Activities
Proceeds from issuance of long-term debt 36,500 -
Proceeds from issuance of common stock 787 2,186
Tax benefit from stock options 102 166
Payments on long-term debt (4,559) (5,819)
----------- ----------
Net cash provided by (used in) financing
activities 32,830 (3,467)
----------- ----------
Effect of exchange rate changes on cash and cash
equivalents 412 689
----------- ----------
Decrease in cash and cash equivalents (15,028) (8,358)
Cash and cash equivalents at beginning of period 30,082 34,756
----------- ----------
Cash and cash equivalents at end of period $15,054 $26,398
=========== ==========
Reconciliation of Operating Income to EBITDA from Continuing Operations
(In thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
2007 2006 2007 2006
------- -------- ------- -------
Reconciliation of Operating
Income to EBITDA
Operating income $3,726 $ 417 $7,088 $ 587
Depreciation and
amortization 1,994 1,291 4,974 4,353
Foreign currency
transaction loss (20) (5) (18) (104)
------- -------- ------- -------
EBITDA from Continuing
Operations $5,700 $1,703 $12,044 $4,836
======= ======== ======= =======
Contacts
Marc J. Lichtman
Vice President, Chief
Financial Officer and Treasurer
(248) 357-2866
marc.lichtman@techteam.com
SOURCE: TechTeam Global, Inc.
www.techteam.com
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