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TechTeam Global Reports Second Quarter 2007 Financial Results
SOUTHFIELD, Mich., Aug. 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 $1.5 million, or $0.14 per diluted common share, for the three months ended June 30, 2007. The Company reported a net loss of $(75,000), or $(0.01) per diluted common share, for the three months ended June 30, 2006, which included expenses related to a shareholder complaint and proxy contest that reduced net earnings by $0.06 per share.
Second quarter highlights include the following:
-- Total revenue increased 28.6% from the second quarter of 2006 to $52.5 million from a combination of organic and inorganic growth.
-- IT Outsourcing Services revenue increased 19.4% from the second quarter of 2006, primarily due to growth from new customer contracts.
-- The Company's subsidiary, TechTeam Government Solutions, completed the acquisition of NewVectors LLC ("NewVectors") on May 31, 2007, which contributed to a 32.7% increase in Government Technology Services revenue from the second quarter of 2006.
-- Total Company gross margin improved to 25.9% from 23.3% for the second quarter of 2006.
"Second quarter results were solid as broad-based growth contributed to another quarter of record revenue for TechTeam," said William C. (Chris) Brown, President and Chief Executive Officer. "I am pleased with our performance as we continue building a strong foundation for the company. We remain focused on the execution of our strategy and will continue to make sound investments that support our strategic objectives and our growth expectations. For example, during the second quarter, we announced the acquisition of NewVectors, a strategic investment that is already showing positive returns for our government business."
Brown added, "Our financial metrics are moving in the right direction, and TechTeam remains well positioned to realize low double digit organic growth for 2007. We are also confident that we will continue to achieve modest improvements in gross margins and SG&A expense management over the year as well. While challenges remain, we are making solid progress toward achieving these goals that we laid out at the beginning of the year."
Total revenue increased 28.6% to $52.5 million for the second quarter of 2007, from $40.9 million for the same period in 2006, due to a combination of organic and inorganic growth. Excluding revenue contributed by acquisitions completed in 2007, total revenue increased 14.1% to $46.6 million for the second quarter of 2007. This organic year-over-year change in revenue is primarily attributable to growth in IT Outsourcing Services from new customer contracts in the Americas and Europe. In addition, the Company's other business segments experienced approximately 8% organic revenue growth in aggregate over last year. Revenue for the second quarter of 2007 was favorably impacted by approximately $1.3 million due to the weakening of the U.S. dollar from the second quarter of 2006 relative to the European euro and other international currencies in which the Company conducts business.
Gross profit increased 43.2% to $13.6 million for the second quarter of 2007, from $9.5 million for the same period in 2006. The Company's gross margin (gross profit expressed as a percentage of revenue) increased to 25.9% for the second quarter of 2007 from 23.3% for the same period in 2006. Consistent with the reported revenue growth, the Company experienced significant growth in gross profit from IT Outsourcing Services and, to a lesser extent, from the Company's other business segments. All of the Company's business segments achieved an increase in gross margin over the second quarter of 2006, which resulted from a combination of improved performance on various accounts and the accretive impact of acquisitions. Excluding gross profit contributed by acquisitions completed in 2007, second quarter gross profit increased 25.0% to $11.9 million and gross margin increased to 25.5%.
Selling, general and administrative ("SG&A") expense increased to $11.2 million for the second quarter of 2007, or 21.4% of the Company's total revenue, from $9.7 million, or 23.7% of revenue, for the same period in 2006. Excluding acquisitions completed in 2007, SG&A expense was $9.9 million, or 21.3% of revenue, for the second quarter of 2007. 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 second quarter of 2006. Prior year SG&A expense includes professional fees totaling $851,000 related to a shareholder complaint, proxy contest and the related settlement agreement.
Operating income increased to $2.4 million, or 4.5% of revenue, for the second quarter of 2007, from an operating loss of $(166,000) 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 $685,000, or 1.7% 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 second quarter 2007 performance include the following:
-- Revenue from the Company's commercial business increased 26.9% to $37.2 million, from $29.3 million for the same period in 2006. Revenue from the Company's government business increased 32.7% to $15.3 million, from $11.5 million for the same period in 2006.
-- Within the commercial business, revenue from the Americas increased 6.6% to $16.5 million and revenue from Europe increased 49.8% to $20.7 million for the second quarter of 2007. Although revenue from Europe in 2007 was favorably impacted by the aforementioned weakening of the U.S. dollar by approximately $1.3 million relative to the second quarter of 2006, Europe continues to show strong growth in 2007 over 2006.
-- For the second quarter of 2007, earnings before interest, taxes, depreciation and amortization expense ("EBITDA") was $4.0 million, or 7.6% of revenue, compared with EBITDA of $991,000, or 2.4% 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 June 30, 2007, the Company had 10,593,477 common shares issued and outstanding.
Conference Call Information
TechTeam Global, Inc. will also host an investor teleconference to discuss its second quarter 2007 financial results at 4:30 p.m. EDT, today, Tuesday, August 7, 2007. To participate in the teleconference, including the question and answer session that will follow the results announcement and discussion, please call 800-299-0148. (Outside the United States, call +1-617-801-9711.) When prompted, enter the passcode: 88735449. 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. EDT, Tuesday, August 7, 2007. This toll-free replay will be available until 11:59 p.m. EDT, Tuesday, August 21, 2007. To listen to the teleconference replay, call 888-286-8010. (Outside the United States, call +1- 617-801-6888.) When prompted, enter the passcode: 42692894.
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 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 June 30, Six Months Ended June 30,
---------------------------- ---------------------------
2007 2006 % Change 2007 2006 % Change
----- ----- --------- ------ ------ ---------
Revenue
IT Outsourcing
Services $25,298 $21,180 19.4% $49,354 $41,083 20.1%
Government
Technology
Services 15,322 11,547 32.7% 26,680 23,548 13.3%
IT Consulting
and Systems
Integration 6,986 5,657 23.5% 13,834 11,838 16.9%
Other Services 4,938 2,485 98.7% 8,870 4,997 77.5%
------ ------ ------ ------
Total Revenue 52,544 40,869 28.6% 98,738 81,466 21.2%
------ ------ ------ ------
Cost of Revenue
IT Outsourcing
Services 18,903 16,427 15.1% 36,895 31,412 17.5%
Asset impairment
loss - - - - 580 -
------ ------ ------ ------
Total IT
Outsourcing
Services 18,903 16,427 15.1% 36,895 31,992 15.3%
Government
Technology
Services 11,024 8,614 28.0% 19,415 17,274 12.4%
IT Consulting
and Systems
Integration 5,322 4,327 23.0% 10,659 8,865 20.2%
Other Services 3,685 1,995 84.7% 6,583 4,015 64.0%
------ ------ ------ ------
Total Cost of
Revenue 38,934 31,363 24.1% 73,552 62,146 18.4%
------ ------ ------ ------
Gross Profit 13,610 9,506 43.2% 25,186 19,320 30.4%
Selling, general
and
administrative
expense 11,233 9,672 16.1% 21,823 19,151 14.0%
------ ------ ------ ------
Operating Income
(Loss) 2,377 (166) NM% 3,363 169 NM%
Net interest
income (expense) (7) 173 230 320
Foreign currency
transaction
gain (loss) (26) (106) 2 (98)
------ ------ ------ ------
Income (Loss) before
Income Taxes 2,344 (99) 3,595 391
Income tax
provision
(credit) 832 (24) 1,178 129
------ ------ ------ ------
Net Income (Loss) $1,512 $(75) $2,417 $262
====== ====== ====== ======
Diluted Earnings
(Loss) per Common
Share $0.14 $(0.01) $0.23 $0.03
====== ====== ====== ======
Diluted weighted
average common
shares and common
share
equivalents 10,528 10,025 10,486 10,157
====== ====== ====== ======
Condensed Consolidated Balance Sheet (unaudited)
(In thousands)
June 30, December 31,
2007 2006
--------- ------------
Current Assets
Cash and cash equivalents $20,883 $30,082
Accounts receivable, net 56,668 41,189
Prepaid expenses and other current assets 5,317 5,096
------ ------
Total current assets 82,868 76,367
------ ------
Property, Equipment and Software, Net 11,074 9,117
Goodwill and Other Intangible Assets, Net 73,891 31,703
Other Assets 486 743
------ ------
Total Assets $168,319 $117,930
======= =======
Current Liabilities
Current portion of long-term debt $6,684 $-
Accounts payable 14,251 8,350
Accrued payroll and related taxes 14,461 9,512
Accrued expenses and other current
liabilities 10,820 8,334
------ ------
Total current liabilities 46,216 26,196
------ ------
Long-Term Liabilities
Long-term debt, less current portion 29,548 3,174
Deferred income taxes 1,225 1,690
Other long-term liabilities 705 562
------ ------
Total long-term liabilities 31,478 5,426
------ ------
Shareholders' Equity
Preferred stock - -
Common stock 105 104
Additional paid-in capital 73,186 71,672
Retained earnings 14,512 12,095
Accumulated other comprehensive income 2,822 2,437
------ ------
Total shareholders' equity 90,625 86,308
------ ------
Total Liabilities and Shareholders' Equity $168,319 $117,930
======= =======
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
Six Months Ended June 30,
---------------------------
2007 2006
------------- -----------
Operating Activities
Net income $2,417 $262
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 2,980 2,482
Asset impairment loss - 580
Other adjustments, primarily changes
in working capital (568) (5,891)
Net operating cash flow from discontinued
operations - 66
------ ------
Net cash provided by (used in)
operating activities 4,829 (2,501)
------ ------
Investing Activities
Purchase of property, equipment and software (1,821) (2,174)
Cash paid for acquisitions, net of cash
acquired (44,767) (468)
------ ------
Net cash used in investing activities (46,588) (2,642)
------ ------
Financing Activities
Proceeds from issuance of long-term debt 35,000 -
Proceeds from issuance of common stock 597 1,927
Tax benefit from stock options 57 157
Payments on long-term debt (3,212) (3,877)
------ ------
Net cash provided by (used in) financing
activities 32,442 (1,793)
------ ------
Effect of exchange rate changes on cash and
cash equivalents 118 449
------ ------
Decrease in cash and cash equivalents (9,199) (6,487)
Cash and cash equivalents at beginning of
period 30,082 34,756
------ ------
Cash and cash equivalents at end of period $20,883 $28,269
====== ======
Reconciliation of Operating Income (Loss) to EBITDA
(In thousands)
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- --------------------------
2007 2006 2007 2006
------------- -------------- ------------ ------------
Reconciliation of
Operating Income
(Loss) to EBITDA
Operating income
(loss) $2,377 $(166) $3,363 $169
Depreciation and
amortization 1,651 1,263 2,980 3,062
Foreign currency
transaction gain
(loss) (26) (106) 2 (98)
------ ------ ------ ------
Earnings Before
Interest, Taxes,
Depreciation and
Amortization $4,002 $991 $6,345 $3,133
====== ====== ====== ======
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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