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TechTeam Global Reports Fourth Quarter 2006 Financial Results
SOUTHFIELD, Mich., Feb. 15 /PRNewswire-FirstCall/ -- TechTeam Global, Inc. (the "Company") (Nasdaq: TEAM), a worldwide provider of information technology and business process outsourcing services, today reported net income of $1.2 million, or $0.12 per diluted share, for the three months ended December 31, 2006, compared to net income of $911,000, or $0.09 per diluted share, for the same period last year. For the year ended December 31, 2006, the Company reported net income of $1.8 million, or $0.18 per diluted share, compared to net income of $5.5 million, or $0.54 per diluted share, in 2005.
Significant items during the forth quarter include:
* Total revenue increased 7.4% from the fourth quarter of 2005 to $43.9 million, the highest quarterly revenue in the Company's history.
* IT Outsourcing Services revenue increased 24.0% compared to the fourth quarter of 2005, primarily due to growth from new customer contracts.
* Revenue from Government Technology Services and IT Consulting and Systems Integration decreased 7.1% in total from the fourth quarter of 2005 due to the conclusion of certain work.
* Gross margin during the fourth quarter of 2006 was 110 basis points higher than the same period last year.
"Our continuing commitment to discipline in business development and operations has produced the best revenue quarter in TechTeam history," said William C. (Chris) Brown, President and Chief Executive Officer. "We have shown strong customer growth and deepening relationships with existing customers, and we are poised for continued geographic expansion, all of which were part of the strategy we outlined earlier in the year. We enter 2007 with noteworthy improvements in our management processes across a variety of disciplines including sales, service delivery and financial management. I believe that the revenue momentum we are beginning to experience across our businesses will continue into 2007 and beyond."
Brown added, "While I am pleased with our results, to continue our recent successes into 2007 we will focus our efforts on two main areas: further expanding our global customer base and thereby market presence; and rolling out additional, higher value-add services that will allow us to go even deeper with our clients. Our goal is to continue to maximize profitable, organic growth in the coming years, supplemented by accretive and synergistic acquisitions. Our recent acquisition in Sweden is a good example as it bolsters our existing business, improves our geographic footprint and unlocks additional revenue potential for SQM. In all, our board and management team are dedicated to fostering a vibrant and growing TechTeam in the coming years."
Total revenue increased 7.4% to $43.9 million for the fourth quarter of 2006, from $40.9 million for the same period in 2005. The year-over-year quarterly change in revenue is primarily attributable to growth in IT Outsourcing from new customer contracts. This growth was somewhat offset by the conclusion of certain contracts in Government Technology Services and the wind-down of certain systems implementation and training projects in the Company's IT Consulting and Systems Integration segment. For the year ended December 31, 2006, total revenue increased slightly to $167.4 million from $166.5 million in 2005.
Gross profit increased 12.1% to $11.2 million for the fourth quarter of 2006, from $10.0 million for the same period in 2005. The Company's gross margin (gross profit expressed as a percentage of revenue) increased to 25.6% for the fourth quarter of 2006, from 24.5% for the same period in 2005. Gross margin also improved sequentially from 24.7% for the third quarter of 2006. Consistent with revenue, gross profit improvement was driven by new customer contracts in IT Outsourcing Services, and was partially offset by the conclusion of certain contracts and projects. Gross margin in the fourth quarter of 2005 was adversely affected in part by the start-up costs associated with the launch of two new customer contracts in North America.
Note that in the fourth quarter of 2006, certain projects were reclassified between the Company's three main business segments -- IT Outsourcing Services, Government Technology Services and IT Consulting and Systems Integration. These reclassifications allow TechTeam to track business unit results more appropriately. While these changes do not affect total reported gross margin, they do effect a reduction in gross margin in Government Technology Services and a corresponding increase in gross margin in IT Outsourcing Services and IT Consulting and Systems Integration. Prior year amounts for 2005 have been reclassified to be consistent with the current year presentation. Additional information will be made available in the Company's 2006 Form 10-K.
Selling, general and administrative ("SG&A") expense was $9.7 million for the fourth quarter of 2006, or 22.0% of the Company's total revenue. SG&A expense was $9.1 million, or 22.3% of revenue, for the same period in 2005. The year-over-year quarterly increase in SG&A expense is primarily attributable to expenses resulting from increased investment in technology infrastructure and management and sales resources, which were partially offset by a reduction in the costs of complying with the Sarbanes-Oxley Act of 2002.
Operating income increased to $1.6 million for the fourth quarter of 2006, from $907,000 for the same period in 2005 primarily due to growth in IT Outsourcing and the overall improvement in gross margin.
Other components of TechTeam's fourth quarter 2006 performance include the following:
* Revenue from the Company's U.S. operations, excluding government-based subsidiaries, increased 4.9% to $16.4 million for the fourth quarter of 2006, from $15.6 million for the same period in 2005.
* Revenue from the Company's European operations increased 21.1% to $15.8 million for the fourth quarter of 2006, from $13.0 million during the same period in 2005, due to revenue growth from new and existing customer programs and fluctuations in exchange rates. Excluding the impact of exchange rate fluctuations, revenue in Europe increased approximately 10.3% during the fourth quarter.
* For the fourth quarter of 2006, earnings before interest, taxes, depreciation and amortization expense ("EBITDA") was $2.9 million, or 6.5% of revenue, compared with EBITDA of $2.5 million, or 6.1% of revenue, for the same period in 2005, an increase of 14.2%. 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.)
* Net cash provided by operating activities was $4.3 million for the fourth quarter of 2006, compared to net cash provided by operating activities of $2.6 million for the same period in 2005.
* Total cash and cash equivalents were $29.1 million as of December 31, 2006. Cash and cash equivalents, net of long-term debt, was $2.49 per common share outstanding as of December 31, 2006. This compares to net cash and cash equivalents per common share outstanding of $2.40 as of the end of 2005.
* Long-term debt decreased from $10.9 million at December 31, 2005 to $3.2 million at December 31, 2006.
* As of December 31, 2006, the Company had 10,385,993 common shares issued and outstanding.
Brown concluded, "Looking ahead to 2007, we believe TechTeam is well positioned to deliver organic growth in the low double-digit range. We also believe we will realize modest improvements in gross margins and SG&A expense management as we continue our focus on maximizing shareholder value."
Conference Call Information
TechTeam Global, Inc. will host an investor teleconference to discuss its fourth quarter 2006 financial results at 4:30 p.m. EST, today, Thursday, February 15, 2007. To participate in the teleconference, including the question and answer session that will follow the results announcement and discussion, please call 866-800-8651. (Outside the United States, call +1-617-614-2704.) When prompted, enter the passcode: 32601582.
To access a simultaneous Webcast of the teleconference, go to the TechTeam Global Web site at http://www.techteam.com/investors and click on the Webcast 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, Thursday, February 15, 2007. This toll-free replay will be available until 11:59 p.m. EST, Thursday, March 1, 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: 89928074.
About TechTeam Global, Inc.
TechTeam Global, Inc. is a worldwide provider of information technology and business process outsourcing services to Fortune 1000 corporations, multinational companies, product providers, small and mid-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, including IT outsourcing services, government technology services, IT consulting and systems integration, technical staffing and learning services. 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, Sweden; Krakow, Poland; 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 Company's ability to add higher margin value-add services to its services portfolio, the market's acceptance of and demand for the Company's offerings, competition, unforeseen expenses, the costs and risks associated with our global expansion and in executing an offshore strategy, the Company's ability to balance the need to invest in its infrastructure and human capital with the reducing SG&A expenses as a percentage of revenue, 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 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 December 31, Years Ended December 31,
------------------------------ -----------------------
2006 2005 % Change 2006 2005 % Change
---- ---- -------- ---- ---- --------
Revenue
IT outsourcing
services $23,356 $18,838 24.0% $86,461 $76,845 12.5%
Government
technology
services 11,702 12,208 (4.1)% 47,393 56,159 (15.6)%
IT consulting
and systems
integration 6,573 7,459 (11.9)% 24,013 24,483 (1.9)%
Other services 2,240 2,355 (4.9)% 9,497 9,010 5.4%
------ ------ ------ ------
Total Revenue 43,871 40,860 7.4% 167,364 166,497 0.5%
------ ------ ------ ------
Cost of Revenue
IT outsourcing
services 17,135 14,244 20.3% 64,459 57,530 12.0%
Asset impairment
loss -- -- -- 580 -- --
------ ------ ------ ------
Total IT
outsourcing 17,135 14,244 20.3% 65,039 57,530 13.1%
Government
technology
services 8,489 8,996 (5.6)% 34,789 41,279 (15.7)%
IT consulting
and systems
integration 5,053 5,558 (9.1)% 18,272 18,416 (0.8)%
Other services 1,950 2,031 (4.0)% 7,887 7,189 9.7%
------ ------ ------ ------
Total Cost of
Revenue 32,627 30,829 5.8% 125,987 124,414 1.3%
------ ------ ------ ------
Gross Profit 11,244 10,031 12.1% 41,377 42,083 (1.7)%
Selling,
general and
administrative
expense 9,670 9,124 6.0% 39,217 34,892 12.4%
------ ------ ------ ------
Operating Income 1,574 907 73.5% 2,160 7,191 (70.0)%
Net interest
income 251 75 776 390
Foreign currency
transaction gain
(loss) (83) 218 (186) 215
------ ------ ------ ------
Income before Income
Taxes 1,742 1,200 2,750 7,796
Income tax
provision 508 304 873 2,402
------ ------ ------ ------
Income from
Continuing
Operations 1,234 896 1,877 5,394
Income (loss)
from discontinued
operations, net of
tax (32) 15 (43) 74
------ ------ ------ ------
Net Income $1,202 $911 31.9% $1,834 $5,468 (66.5)%
====== ====== ====== ======
Diluted Earnings per
Share
Continuing
operations $0.12 $0.09 $0.18 $0.54
====== ====== ====== ======
Discontinued
operations $-- $-- $-- $0.01
====== ====== ====== ======
Total $0.12 $0.09 $0.18 $0.54
====== ====== ====== ======
Diluted weighted
average shares
and share
equivalents 10,300 10,115 10,176 10,076
====== ====== ====== ======
Condensed Consolidated Balance Sheet (unaudited)
(In thousands)
As of December 31,
-----------------
2006 2005
---- ----
Current Assets
Cash and cash equivalents $29,082 $34,756
Accounts receivable, net 41,189 43,696
Other current assets 5,096 2,738
------ ------
Total current assets 75,367 81,190
------ ------
Net Property, Equipment and Purchased Software 9,117 8,063
Other Assets
Goodwill 22,458 22,104
Intangibles, net 9,245 11,213
Other 743 440
------ ------
Total other assets 32,446 33,757
------ ------
Total Assets $116,930 $123,010
====== ======
Current Liabilities
Accounts payable $7,350 $12,753
Accrued payroll and related taxes
and withholdings 9,512 10,020
Accrued liabilities, taxes and other 8,334 7,882
------ ------
Total current liabilities 25,196 30,655
------ ------
Long-Term Liabilities
Long-term debt 3,174 10,937
Deferred income taxes 1,690 2,614
Other long-term liabilities 562 564
------ ------
Total long-term liabilities 5,426 14,115
------ ------
Shareholders' Equity
Preferred stock -- --
Common stock 104 99
Additional paid-in capital 71,672 69,148
Unamortized deferred compensation -- (866)
Retained earnings 12,095 10,261
Accumulated other comprehensive income (loss) 2,437 (402)
------ ------
Total shareholders' equity 86,308 78,240
------ ------
Total Liabilities and Shareholders' Equity $116,930 $123,010
====== ======
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
Year Ended December 31,
----------------------
2006 2005
------ ------
Operating Activities
Net income $1,834 $5,468
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 5,728 5,489
Other adjustments, primarily changes
in working capital (5,276) 63
(Income) loss from discontinued operations 43 (74)
Net operating cash flow from discontinued
operations 62 65
------ ------
Net cash provided by operating activities 2,391 11,011
------ ------
Investing Activities
Purchase of property, equipment and software (4,182) (3,669)
Cash paid for acquisitions, net of cash acquired (494) (25,232)
------ ------
Net cash used in investing activities (4,676) (28,901)
------ ------
Financing Activities
Proceeds from issuance of Company stock 2,542 3,006
Tax benefit from stock options 497 --
Payments on long-term debt (7,763) (7,122)
Proceeds from issuance of long-term debt -- 18,033
Net financing cash flow from discontinued operations -- (11)
------ ------
Net cash provided by (used in) financing
activities (4,724) 13,906
------ ------
Effect of exchange rate changes on cash and
cash equivalents 1,335 (1,696)
------ ------
Decrease in cash and cash equivalents (5,674) (5,680)
Cash and cash equivalents at beginning of period 34,756 40,436
------ ------
Cash and cash equivalents at end of period $29,082 $34,756
====== ======
Reconciliation of Operating Income to EBITDA
(In thousands)
Three Months Ended Year Ended
December 31, December 31,
------------------ -----------
2006 2005 2006 2005
---- ---- ---- ----
Reconciliation of Operating
Income to EBITDA
Operating income $1,574 $907 $2,160 $7,191
Depreciation and
amortization 1,375 1,384 5,728 5,489
Foreign currency
transaction gain (loss) (83) 218 (186) 215
------ ------ ------ ------
EBITDA from Continuing
Operations $2,866 $2,509 $7,702 $12,895
====== ====== ====== ======
Contacts
William C. (Chris) Brown
President and Chief Executive Officer
(248) 357-2866
wcbrown@techteam.com
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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