CIMdata PLM Industry Summary Online Archive
October 26, 2004
Financial News
PDSi Reports Results for 2005 Third Quarter; Acquisition Contributes to Record Quarterly Sales and Strong Earnings
Pinnacle Data Systems, Inc. (PDSi) announced results for the third quarter ended September 30, 2005.
John D. Bair, Chairman and CEO, commented, "We are pleased to report record quarterly sales of $14.3 million and strong earnings per diluted share of $0.05 for the third quarter of 2005, which benefited from the acquisition of GNP Computers, Inc. on August 15, 2005. This required a tremendous effort by the entire team to make it all happen."
Mr. Bair continued, "We expect to achieve all time record sales in the 2005 fourth quarter and year. As anticipated, organic growth increased in the third quarter and has been greatly enhanced by the company's growth strategies, which includes acquisitions. We will continue our efforts to accelerate the growth of the company utilizing both avenues."
Third Quarter Results
The results of the third quarter of 2005 specifically benefited from the August 2005 acquisition of GNP. Sales for the third quarter ended September 30, 2005, increased 62% to $14.3 million from $8.8 million for the third quarter ended September 25, 2004. Gross profit for the third quarter of 2005 increased 103% to $3.1 million from $1.5 million for the same period of 2004 based on the increased volume and higher service revenue.
Operating expenses, including selling, general and administrative (SG&A) expenses increased 64% to $2.5 million for the third quarter of 2005 compared to $1.5 million in the third quarter of 2004 due to additional expenses related to the acquisition, on-going investment in sales and marketing, and profitability-based expenses. Operating expenses for both periods were 17% of sales.
Net income increased to $339,000, or $0.05 per diluted share, for the third quarter of 2005 from $1,000, or $0.00 per diluted share for the third quarter of 2004.
Nine Month Results
The results of the first nine months of 2005 also benefited from the August acquisition of GNP. Sales for the nine months ended September 30, 2005, increased 6% to $28.7 million from $27.1 million for the comparable period ended September 25, 2004. Gross profit for the first nine months of 2005 was $6.8 million, a 4% increase from $6.5 million for the nine months of 2004.
In the first nine months of 2005, operating expenses increased 16% to $5.7 million from $4.9 million in the first nine months of 2004, mostly due to the third quarter increases. Operating expenses for the first nine months of 2005 were 20% of sales compared to 18% of sales in the comparable period of 2004.
Net income for the first nine months of 2005 was $548,000, or $0.09 per diluted share, compared to $860,000, or $0.14 per diluted share, for the first nine months of 2004.
Additional Operating Results
For the third quarter of 2005, product sales totaled $11.7 million, an increase of 55% from $7.6 million in the third quarter of 2004. Gross profit on products increased 32% to $1.5 million in the third quarter of 2005 from $1.2 million in the same quarter of 2004 due to increased sales volume, which was partially offset by lower margin mix. The gross profit margin on product sales was 13% for the third quarter of 2005 compared to 15% for the third quarter of 2004.
For the first nine months of 2005, product sales totaled $22.0 million, a decrease of 3% from $22.8 million in the first nine months of 2004. Gross profit on products declined 39% to $3.0 million in the first nine months of 2005 from $4.9 million in the first nine months of 2004 due to a lower margin mix. The gross profit margin on product sales was 13% for the first nine months of 2005 compared to 21% for the first nine months of 2004.
For the third quarter of 2005, service sales totaled $2.5 million, an increase of 106% from approximately $1.2 million in the third quarter of 2004, due to new repair and hardware management programs started last year and programs acquired with GNP. Gross profit on service sales for the 2005 third quarter increased 328% to $1.6 million from $365,000 for the same period in 2004. The gross profit margin on service sales improved to 62% in the third quarter of 2005 from 30% in the 2004 third quarter due to higher service sales volume and the resulting increase in operating leverage.
For the first nine months of 2005, service sales totaled $6.7 million, an increase of 53% from $4.4 million in the first nine months of 2004. Gross profit on service sales for the first nine months of 2005 increased 136% to $3.8 million from $1.6 million for the comparable period in 2004. The gross profit margin on service sales improved to 57% in the first nine months of 2005 from 37% in the 2004 first nine months due to higher service sales volume resulting in increased operating leverage.
Highlights of the Quarter
• During the third quarter of 2005, PDSi
• won a new account with a leading Italy-based telecommunications equipment provider,
• won new programs with a major imaging equipment manufacturer,
• won multiple new accounts in the emerging network appliance space, and
acquired the assets and hired certain employees of GNP to obtain that business.
Acquisition Highlights
PDSi acquired GNP's assets totaling approximately $8.7 million, of which $8.3 million was receivables and inventory.
PDSi immediately benefited from:
• over 20 customers with similar profiles and expansion opportunities as PDSi's existing business,
• a suburban Los Angeles sales office and production facility,
• an expanded international presence with an Asia-based sales office and customers in Asia and Europe,
• an expanded product line including telecommunications platforms and application-specific devices, and
• additional technical and engineering expertise and capabilities.
During the third quarter, the Company increased its asset-based line of credit with KeyBank NA to $11 million from $6 million. PDSi paid for the acquisition by paying off a $2.3 million asset-based line of credit and assuming payables and other accrued liabilities of approximately $6.4 million, including the transaction fees for both parties.
The market value of the assets was essentially equal to the total of the assumed liabilities and capitalized transaction expenses. As a result, no goodwill was recorded on the transaction and no long term debt was assumed or incurred.
Christopher L. Winslow, President and COO, said "The acquisition of GNP was attractive from both a business and financial perspective. Importantly, it met our criteria for acquisitions and immediately enabled us to extend our capabilities. GNP had built an outstanding customer base, a robust infrastructure and a great reputation for quality and service in the industry. Based on our due diligence, we believed that we could significantly improve the former operations of GNP. The company just needed to be right-sized in the areas of facilities and human resources, by far its two largest expenses. We are excited about the opportunities to accelerate the growth of PDSi and to achieve higher levels of long-term performance."
Outlook
Michael R. Sayre, Executive Vice President and CFO, stated, "As a result of the acquisition and the expected organic growth of the combined organizations, we anticipate another record sales year in 2006. We will continue evaluating viable acquisition opportunities that meet our established criteria, including strategic fit and accretive performance in less than a year. However, we are not planning any additional acquisitions before the second half of 2006. Further integration of the two businesses and infrastructure development for growth in the future will occur simultaneously for about the next year. Over that period, we plan to spend up to $1 million in those areas, mostly in information technology and systems, with about half of that amount being capitalized as fixed assets. We expect to begin those expenditures in the fourth quarter of 2005. We anticipate continuing profitability in the fourth quarter of 2005 and growing annual earnings in the 2006 year."
Conference Call
PDSi will host a conference call today at 11:00 a.m. Eastern Time. John D. Bair, Chairman and CEO, Christopher L. Winslow, President and COO, and Michael R. Sayre, Executive Vice President and CFO, will discuss the Company's third quarter results, recent acquisition of GNP Computers, Inc., and long-term growth strategy.
The telephone number to participate in the conference call is (800) 257-1836. A slide presentation will be referenced during the call which may be accessed at the PDSi website (www.pinnacle.com) by clicking on "Company Information" and then "Investor Relations."
An audio replay of the call will be available through the Investor Relations section of the Company's website approximately one hour following the conference call.
More details including the financial charts are available on http://www.pinnacle.com .
Become a member of the CIMdata PLM Community to receive your daily PLM news and much more.
Tell us what you think of the CIMdata Newsletter. Send your feedback.
CIMdata is committed to your privacy. Your personal information will never be sold or shared outside of CIMdata without your express permission.