CIMdata PLM Industry Summary Online Archive

25 July 2007

Financial News

Avatech Solutions Announces Operational Restructuring and Cost Reduction Program Supporting Updated Strategic Plan

Avatech Solutions, Inc . has implemented an operational restructuring and cost reduction program that is expected to save the company in excess of $2.5 million annually. The program supports Avatech's fiscal plan to achieve consistent profitability and enhanced shareholder value.

Once fully implemented, Avatech's cost reduction actions are projected to reduce ongoing operating expenses, as a percentage of sales, by approximately seven percentage points. Savings from the full program - which reduced overhead, elevated critical sales and services functions, and streamlined information flow and accountability - began in the second half of fiscal 2007 and will be fully realized beginning in the quarter that began on July 1, 2007.

President and Chief Executive Officer George Davis commented, "Over the past several years, Avatech's primary goal has been to aggressively grow our core business and become one of the largest solutions providers of Autodesk products in the U.S. The Company accomplished these important objectives through a combination of organic growth and strategic acquisitions.

"More recently, we have focused our attention on streamlining our organization and strengthening fiscal accountability at all levels. During the second half of fiscal 2007, we significantly reduced our work force through the elimination of 20 positions, including four senior managers. In addition, we have taken many other steps, including administrative and organizational changes, to contain costs and improve efficiency.

"We expect our actions to have a positive impact on Avatech's future financial results. However, due in part to the disruptions caused by the restructuring and cost reduction program, we now expect fiscal 2007 revenues to be between $50 - $51 million rather than $51 - $55 million, as previously estimated. In addition, due to severance charges of approximately $500,000 and previously disclosed changes in Autodesk's incentive program, we now expect an operating loss in the fourth quarter of 2007. As we return to normalized margins, we do not expect these losses to continue into fiscal 2008."

Mr. Davis added, "Our organizational changes have focused on improving accountability, communications and productivity. We have eliminated several layers of executive management and streamlined the organization by elevating Sales and Engineering Services leadership positions, which now will report directly to me. Along with my senior management team, including CFO Larry Rychlak, Senior Vice President, Sales Bruce White and Senior Vice President, Services Bill Zavadil, I am confident that this organizational structure will allow us to better focus on sales performance, engineering productivity and operational efficiencies - all crucial to improving bottom-line results.

"In addition to dramatically reducing costs, we have been working to improve our performance under Autodesk's new incentive program. As a result of the steps we are taking to enhance the training of our sales force, our marketing strategies, and our sales and services incentive structures, we expect our margins to improve significantly over those realized in the most recently reported quarters.

"Our updated business strategy is built on three core principles designed to leverage Avatech's existing strengths and to improve profits and shareholder value as rapidly as possible:

•  Maintain and profitably grow our strong position in the Autodesk value-added reseller economy.

•  Grow our engineering consultancy and services business by leveraging our core value as a proven, trusted technical advisor in the design engineering community.

•  Acquire and integrate diverse, yet complementary service businesses to extend our product offerings.

"The market's need for engineering services is growing, offering us many opportunities to diversify Avatech's activities and drive Services revenue. On a year-over-year basis, we increased Services revenue more than 40% through the third quarter of fiscal 2007. To continue to expand our Services division, our acquisition strategy is focused on providers of services and software to the architectural, engineering, construction, and manufacturing communities. Growing this critical segment of our business will demonstrate increased value to our customers, distinguish us from the competition, provide a recurring, profitable revenue base and help us enhance shareholder value. Our balance sheet remains strong and will facilitate this program.

"We believe the actions taken over the last several months have positioned Avatech well to build on our core strengths and advance our strategic vision in fiscal 2008 and beyond," concluded Mr. Davis.

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