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TechTeam Global Reports First Quarter 2007 Financial Results
SOUTHFIELD, Mich., May 3 /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 $904,000, or $0.09 per diluted common share, for the three months ended March 31, 2007. For the three months ended March 31, 2006, the Company reported net income of $337,000, or $0.03 per diluted common share.
Significant items during the first quarter include:
* Total revenue increased 13.8% from the first quarter of 2006 to $46.2 million.
* IT Outsourcing Services revenue increased 20.9% from the first quarter of 2006, primarily due to growth from new customer contracts.
* The Company completed the acquisition of SQM Sverige AB ("SQM"), an information technology outsourcing and solutions company headquartered in Stockholm, Sweden.
* Profits were negatively impacted by launching IT support services for a major new customer in Europe and a contract renegotiation with another customer in Europe that resulted in severance costs to reduce redundant staff. These items reduced first quarter earnings by approximately $0.02 per share.
"I am pleased to report that TechTeam has achieved another record revenue quarter," said William C. (Chris) Brown, President and Chief Executive Officer. "Our commitment to building a strong foundation to support future growth continued to show positive results. While challenges certainly remain, we are growing our customer base, we have deepened relationships with a number of existing customers, and we continue our geographic expansion. We expect that our investments in the business will continue to support our strategic goals and our growth expectations for the remainder of the year."
Brown added, "While I am pleased with our performance, we are hard at work making continued improvements. We are making prudent investments in our infrastructure and sales and marketing functions. We also are enhancing our value-added set of services within our enterprise support services model. As I have discussed previously, these investments are vital components of our strategy and we believe that they will provide the foundation to support the growth of the business over the coming years. TechTeam is well positioned to achieve the low double digit organic growth for 2007 that we discussed last quarter, and we continue to believe that we will realize modest improvements in gross margins and SG&A expense management over the year as well."
Total revenue increased 13.8% to $46.2 million for the first quarter of 2007 over the same period in 2006. Excluding the acquisition of SQM, acquired on February 9, 2007, total first quarter revenue increased 9.4% to $44.4 million. Revenue growth in IT Outsourcing Services in the Americas and Europe was due to new customer contracts and existing customer relationships. The growth in IT Consulting and Systems Integration was driven by our subsidiaries in Europe. This growth was somewhat offset by revenue declines from Government Technology Services from the conclusion of a contract at the end of March 2006, and from IT Consulting and Systems Integration in the Americas. Revenue for the first quarter of 2007 also was favorably impacted by approximately $1.5 million due to the weakening of the U.S. dollar from the first quarter of 2006 relative to the European euro and other international currencies in which the Company conducts business.
Gross profit increased 17.9% to $11.6 million for the first quarter of 2007 over the same period in 2006. The Company's gross margin (gross profit expressed as a percentage of revenue) increased to 25.1% for the first quarter of 2007 from 24.2% for the same period in 2006. Gross margin for the first quarter of 2007 was negatively affected by launching IT support services for a major new customer in Europe and a contract renegotiation with another customer in Europe that resulted in severance costs to reduce redundant staff. These items were partially offset by gross margin improvement in the Americas, including improved performance on two specific accounts that impaired the America's gross margin while they were ramping up during the first quarter of 2006. Gross margin for the first quarter of 2006 was negatively affected by a pre-tax asset impairment charge to income of $580,000 related to the Company's decision to discontinue using certain software. Excluding the pre-tax charge to income, gross margin was 25.6% for the first quarter of 2006.
Selling, general and administrative ("SG&A") expense increased 11.7% to $10.6 million, or 22.9% of the Company's total revenue, for the first quarter of 2007, from $9.5 million, or 23.3% of revenue, for the same period in 2006. Excluding the acquisition of SQM, SG&A expense was $10.1 million for the first quarter of 2007. SG&A expense has increased year-over-year as the Company is making investments to support the Company's growth and global expansion and enhance its value-added service capabilities. SG&A also increased as a result of the weakening of the U.S. dollar from the first quarter of 2006. Prior year SG&A expense includes professional fees related to a potential proxy contest, responding to a previously reported complaint filed by a shareholder, and the placement of the Company's new President and Chief Executive Officer.
Operating income increased to $986,000 for the first quarter of 2007, from $336,000 for the same period in 2006. However, operating income in 2006 included the aforementioned asset impairment loss and professional fees that, when excluded, would have resulted in operating income of $1.5 million in 2006. The resulting decrease in adjusted operating income in 2007 is primarily due to the aforementioned items -- a major new customer launch, a contract renegotiation, business declines in our Government business and IT Consulting and Systems Integration business in the Americas, and higher SG&A investments to support the Company's growth initiatives.
Other components of TechTeam Global's first quarter 2007 performance include the following:
* Revenue from the Company's European operations increased 44.5% to $18.4 million for the first quarter of 2007 over the same period in 2006. Excluding the revenue contributed by SQM, total first quarter revenue increased 30.5% to $16.7 million primarily due to new customer accounts and the weakening of the U.S. dollar from the first quarter of 2006 relative to the European euro and other international currencies in which the Company conducts business, which favorably affected revenue by approximately $1.5 million.
* Net cash provided by operating activities was $2.5 million for the first quarter of 2007, versus cash used of ($4.6 million) for the same period in 2006.
* For the first quarter of 2007, earnings before interest, taxes, depreciation and amortization expense ("EBITDA") was $2.3 million, or 5.1% of revenue, compared with EBITDA of $2.1 million, or 5.3% 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 EBITDA to operating income.)
* Total cash and cash equivalents were $25.5 million as of March 31, 2007. Cash and cash equivalents, net of long-term debt, was $2.23 per common share outstanding as of March 31, 2007. This compares to net cash and cash equivalents per common share outstanding of $2.59 as of the end of 2006.
* As of March 31, 2007, the Company had 10,439,343 common shares issued and outstanding.
Conference Call Information
TechTeam Global, Inc. will host an investor teleconference to discuss its first quarter 2007 financial results at 4:30 p.m. EDT, today, Thursday, May 3, 2007. To participate in the teleconference, including the question and answer session that will follow the results announcement and discussion, please call 866-202-3109. (Outside the United States, call +1-617-213-8844.) When prompted, enter the passcode: 95561336. 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, Thursday, May 3, 2007. This toll-free replay will be available until 11:59 p.m. EDT, Thursday, May 17, 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: 53565797.
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."
Headquartered in Southfield, Michigan, TechTeam also has locations in Dearborn, Michigan; Davenport, Iowa; Chantilly, Virginia; Portsmouth, Rhode Island; Bethesda, Maryland; Brussels and Gent, Belgium; Uxbridge, United Kingdom; Cologne, Germany; Gothenburg and Stockholm, Sweden; and Bucharest, Romania.
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 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 statements. 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, 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 March 31, %
---------------------------
2007 2006 Change
-------- -------- --------
Revenue
IT Outsourcing Services $24,056 $19,903 20.9%
Government Technology Services 11,358 12,002 (5.4)%
IT Consulting and
Systems Integration 6,848 6,181 10.8%
Other Services 3,932 2,512 56.5%
-------- --------
Total Revenue 46,194 40,598 13.8%
-------- --------
Cost of Revenue
IT Outsourcing Services 17,992 14,985 20.1%
Asset impairment loss - 580 -
-------- --------
Total IT Outsourcing Services 17,992 15,565 15.6%
Government Technology Services 8,391 8,660 (3.1)%
IT Consulting and
Systems Integration 5,337 4,538 17.6%
Other Services 2,898 2,020 43.5%
-------- --------
Total Cost of Revenue 34,618 30,783 12.5%
-------- --------
Gross Profit 11,576 9,815 17.9%
Selling, general and
administrative expense 10,590 9,479 11.7%
-------- --------
Operating Income 986 336 194%
Net interest income 237 146
Foreign currency transaction gain 27 7
-------- --------
Income before Income Taxes 1,250 489
Income tax provision 346 152
-------- --------
Net Income $904 $337
======== ========
Diluted Earnings per Common Share $0.09 $0.03
======== ========
Diluted weighted average common
shares and common share
equivalents 10,424 10,127
======== ========
Condensed Consolidated Balance Sheets (unaudited)
(In thousands)
March 31, December 31,
2007 2006
--------- ---------
Current Assets
Cash and cash equivalents $25,472 $30,082
Accounts receivable, net 44,449 41,189
Prepaid expenses and other current assets 5,882 5,096
--------- ---------
Total current assets 75,803 76,367
--------- ---------
Property, Equipment and Software, Net 10,456 9,117
Goodwill and Other Intangible Assets, Net 35,906 31,703
Other Assets 588 743
--------- ---------
Total Assets $122,753 $117,930
========= =========
Current Liabilities
Accounts payable $11,948 $8,350
Accrued payroll and related taxes 9,508 9,512
Accrued expenses and other
current liabilities 9,293 8,334
--------- ---------
Total current liabilities 30,749 26,196
--------- ---------
Long-Term Liabilities
Long-term debt, less current portion 2,219 3,174
Deferred income taxes 1,473 1,690
Other long-term liabilities 619 562
--------- ---------
Total long-term liabilities 4,311 5,426
--------- ---------
Shareholders' Equity
Preferred stock - -
Common stock 104 104
Additional paid-in capital 72,032 71,672
Retained earnings 12,999 12,095
Accumulated other comprehensive income 2,558 2,437
--------- ---------
Total shareholders' equity 87,693 86,308
--------- ---------
Total Liabilities and Shareholders' Equity $122,753 $117,930
========= =========
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
Three Months Ended March 31,
----------------------------
2007 2006
-------- --------
Operating Activities
Net income $904 $337
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 1,329 1,219
Asset impairment loss - 580
Other adjustments, primarily changes
in working capital 254 (6,756)
Net operating cash flow from
discontinued operations - 36
-------- --------
Net cash provided by (used in)
operating activities 2,487 (4,584)
-------- --------
Investing Activities
Purchase of property, equipment and software (917) (1,307)
Cash paid for acquisitions,
net of cash acquired (4,543) (468)
-------- --------
Net cash used in investing activities (5,460) (1,775)
-------- --------
Financing Activities
Proceeds from issuance of common stock 239 560
Tax benefit from stock options 60 96
Payments on long-term debt (1,954) (1,938)
-------- --------
Net cash used in financing activities (1,655) (1,282)
-------- --------
Effect of exchange rate changes on
cash and cash equivalents 18 100
-------- --------
Decrease in cash and cash equivalents (4,610) (7,541)
Cash and cash equivalents
at beginning of period 30,082 34,756
-------- --------
Cash and cash equivalents at end of period $25,472 $27,215
======== ========
Reconciliation of Operating Income to Earnings Before Interest, Taxes,
Depreciation and Amortization
(In thousands)
Three Months Ended March 31,
----------------------------
2007 2006
------ ------
Reconciliation of Operating Income to EBITDA
Operating income $986 $336
Depreciation and amortization 1,329 1,799
Foreign currency transaction gain 27 7
Earnings Before Interest, Taxes,
Depreciation and Amortization $2,342 $2,142
Contacts
Marc J. Lichtman
Vice President, Chief
Financial Officer and Treasurer
(248) 357-2866
marc.lichtman@techteam.com
Laura C. Szczybor
Director of Corporate Communications
(703) 956-8198
laura.szczybor@techteam.com
SOURCE: TechTeam Global, Inc.
www.techteam.com
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