$ thousands Q3 2010 Q3 2009
-------- --------
Income (loss) before income taxes $ 490 ($ 752)
-------- --------
Income tax expense (benefit)
Income tax expense (benefit) related to the period 155 (274)
True-up 2010 year-to-date tax provision 93 -
Establish (reverse) deferred tax valuation allowance (1,431) 1,611
-------- --------
Net income tax expense (benefit) (1,183) 1,337
-------- --------
Net income (loss) $ 1,673 ($ 2,089)
======== ========
Sales
Total sales declined 10% to $6.3 million for the 2010 third quarter from
$7.1 million for the same quarter a year ago. Third quarter Product sales
declined 43% to $2.3 million in 2010 from $4.1 million in 2009. This
decline primarily was attributable to significantly lower sales to larger
imaging and diversified computing OEM customers. Service sales increased
$1.1 million, or 36%, to $4.0 million for the 2010 third quarter, with the
growth attributable to the ramp of business in the U.S. and EMEA for both
new customers and new programs within existing customers.
Gross Profit
Gross profit improved 42% to $2.2 million for the 2010 third quarter, from
$1.6 million for the same quarter last year. Gross margin as a percentage
of revenue improved from 22% to 35% compared to last year. The gross
profit improvement on lower year-on-year total sales revenue was
attributable to the change in mix driven by the growth of higher-margin
Service segment revenue. Within the Service segment, margins as a
percentage of revenue improved from 29% to 47%, driven by a shift toward
higher margin programs and improved operating leverage on increased sales.
Product gross margin declined compared to prior year from 18% to 16%,
driven by reduced operating leverage on reduced sales, partially offset by
a shift in mix toward higher-contribution Product business.
Operating Expenses
Operating expenses were reduced 24% to $1.7 million for the 2010 third
quarter from $2.3 million a year ago, reflecting the benefit of actions
taken over the past year to better focus resources on the Company's core
products and services growth strategy. Wages and other employee costs
accounted for most of the reduction. Additional savings were realized
across multiple areas, including company funded research and development
expenses, reflecting the Company's strategic focus on developing
customer-specific solutions through customer funded development projects.
Interest Expense
Interest expense for the 2010 third quarter was reduced 90% to $4,000 from
$40,000 for the same quarter last year due to lower average debt
outstanding. Debt outstanding was reduced to $0.3 million from $1.7
million at the end of the prior year third quarter.
Recent PDSi Highlights
-- Service segment revenue for Q3 2010 of $4.0 million set a new quarterly
record for PDSi, eclipsing the previous high of $3.5 million in Q4
2005.
-- On July 7, PDSi announced it had successfully completed a full
recertification audit of its quality systems registrations, which
include its ISO 9001:2008 Quality Management Systems; ISO 14001:2004
Environmental Management Systems; ISO 13485:2003 Medical
Devices-Quality Management Systems; and TL9000-H,V R5.0/R4.0, a
telecommunications standard published by the Quality Excellence for
Suppliers of Telecommunications (QuEST) Forum. These certifications
reflect PDSi's ongoing commitment to quality, and place it among the
best-in-class companies that have achieved and sustained the high
quality systems standards required for these registrations.
-- On October 4, PDSi announced that it had achieved Gold Partner status
in the Oracle PartnerNetwork (OPN). By attaining Gold Level membership,
Oracle has recognized PDSi for its capability and commitment to design,
deliver and support Oracle-based technology solutions customized to
customers' specialized needs.
Conference Call PDSi will host a conference call on Thursday, October 28, 2010, at 11 a.m. EDT. John D. Bair, President, Chief Executive Officer, and Chief Technology and Innovation Officer; Timothy J. Harper, Chief Operating Officer; and Nicholas J. Tomashot, Chief Financial Officer, will discuss the Company's 2010 third quarter results. The telephone number to participate in the conference call is (877) 485-3107. A slide presentation will be referenced during the call, which may be accessed at the PDSi website (www.pinnacle.com) by clicking on "Investor Relations" and then "Conference Calls." 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. About PDSi PDSi is a global provider of Electronics Repair and Reverse Logistics Services, ODM/OEM Integrated Computing Services, and Embedded Computing Products and Design Services for the Diversified Computing, Telecom, Imaging, Defense/Aerospace, Medical, Semiconductor and Industrial Automation markets. PDSi provides a variety of engineering and manufacturing services for global OEMs requiring custom product design, system integration, repair programs, warranty management, and/or specialized production capabilities. With facilities in the U.S., Europe and Asia, we ensure seamless support for solutions all around the world. More than just an ODM, integrator or reverse logistics provider, PDSi's engineering, technical and operational capabilities span the entire product lifecycle allowing us to better understand and develop custom solutions for each of our customer's unique requirements. Our product capabilities range from board-level designs to globally certified, fully integrated systems, specializing in long-life computer products and unique, customer-centric solutions. Our capability to perform higher-level repair services in-region allows us to customize solutions for our customers so that they can deliver world-class service levels to their customers with reduced logistics, component replacement and inventory costs. "PDSi puts computer technologies to work for our customers." For more information, visit the PDSi website at www.pinnacle.com.
Safe Harbor Statement Portions of this release include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, but not limited to, statements regarding the Company achieving its financial growth and profitability goals, or its sales, earnings and profitability expectations for the fiscal year ending December 31, 2010. The words "believe," "expect," "anticipate," "estimate," "intend," "seek," "may" and similar expressions identify forward-looking statements that speak only as of the date of this release. Investors are cautioned that such statements involve risks and uncertainties that could cause actual results to differ materially from historical or anticipated results due to many factors. These factors include, but are not limited to, the following:
-- changes in general economic conditions, including prolonged or
substantial economic downturn, and any related financial difficulties
experienced by original equipment manufacturers, end users, customers,
suppliers or others with whom the Company does business;
-- changes in customer order patterns;
-- changes in our business or our relationship with major technology
partners or significant customers;
-- failure to maintain adequate levels of inventory;
-- production components and service parts cease to be readily available
in the marketplace;
-- lack of adequate financing to meet working capital needs or to take
advantage of business and future growth opportunities that may arise;
-- inability of cost reduction initiatives to lead to a realization of
savings in labor, facilities or other operational costs;
-- deviation of actual results from estimates and/or assumptions used by
the Company in the application of its significant accounting policies;
-- lack of success in technological advancements;
-- inability to retain certifications, authorizations or licenses to
provide certain products and/or services;
-- risks associated with new business practices, processes and information
systems;
-- impact of judicial rulings or government regulations, including related
compliance costs;
-- disruption in the business of suppliers, customers or service providers
due to adverse weather, casualty events, technological difficulty, acts
of war or terror, or other causes;
-- risks associated with doing business internationally, including
economic, political and social instability and foreign currency
exposure; and
-- other factors from time to time described in the Company's filings with
the United States Securities and Exchange Commission ("SEC").
The Company undertakes no obligation to publicly update or revise any such
statements, except as required by applicable law. For more details, please
refer to the Company's SEC filings, including its most recent Annual Report
on Form 10-K and Quarterly Reports on Form 10-Q.
PINNACLE DATA SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
2010 2009
----------- -----------
ASSETS (Unaudited)
CURRENT ASSETS
Cash $ 124 $ 323
Accounts receivable, net of allowance for
doubtful accounts of $143 and $232,
respectively 4,830 5,932
Inventory, net 3,385 3,754
Deferred income taxes 809 22
Prepaid expenses and other current assets 473 503
----------- -----------
Total current assets 9,621 10,534
----------- -----------
PROPERTY AND EQUIPMENT
Property and equipment, cost 6,024 5,899
Less accumulated depreciation and amortization (5,297) (5,038)
----------- -----------
Total property and equipment, net 727 861
----------- -----------
OTHER ASSETS
Goodwill 780 821
Other assets 541 359
----------- -----------
Total other assets 1,321 1,180
----------- -----------
TOTAL ASSETS $ 11,669 $ 12,575
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit $ 337 $ 2,413
Accounts payable 1,857 2,694
Accrued wages, payroll taxes and employee
benefits 596 1,014
Unearned revenue 147 85
Other current liabilities 669 555
----------- -----------
Total current liabilities 3,606 6,761
LONG-TERM LIABILITIES
Accrued other 190 226
----------- -----------
TOTAL LIABILITIES 3,796 6,987
----------- -----------
STOCKHOLDERS' EQUITY
Common stock 5,779 5,769
Additional paid-in capital 1,947 1,912
Accumulated other comprehensive income (loss) (71) (29)
Retained earnings (deficit) 218 (2,064)
----------- -----------
Total stockholders' equity 7,873 5,588
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 11,669 $ 12,575
=========== ===========
PINNACLE DATA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share)
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
------------------ ------------------
2010 2009 2010 2009
-------- -------- -------- --------
Sales $ 6,314 $ 7,050 $ 23,094 $ 26,975
Cost of sales 4,088 5,478 16,484 21,385
-------- -------- -------- --------
Gross profit 2,226 1,572 6,610 5,590
Operating expenses 1,732 2,284 5,295 7,534
-------- -------- -------- --------
Income (loss) from operations 494 (712) 1,315 (1,944)
Other expense
Interest expense 4 40 45 142
-------- -------- -------- --------
Income (loss) before income
taxes 490 (752) 1,270 (2,086)
Income tax expense (benefit) (1,183) 1,337 (1,012) 974
-------- -------- -------- --------
Net income (loss) $ 1,673 $ (2,089) $ 2,282 $ (3,060)
======== ======== ======== ========
Weighted average common shares
outstanding:
Basic 7,842 7,825 7,831 7,825
Diluted 8,011 7,825 7,960 7,825
Earnings (loss) per common share:
Basic $ 0.21 $ (0.27) $ 0.29 $ (0.39)
Diluted 0.21 (0.27) 0.29 (0.39)
PINNACLE DATA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
For the Nine Months Ended
September 30,
------------------------
2010 2009
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 2,282 $ (3,060)
----------- -----------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Bad debt expense (19) 140
Inventory reserves 246 572
Depreciation and amortization 298 423
Provision for deferred income taxes (1,037) 1,611
Share-based payment expense 34 137
Decrease in assets:
Accounts receivable 1,111 5,977
Inventory 113 507
Prepaid expenses and other assets 16 84
Increase (decrease) in liabilities:
Accounts payable (956) (2,237)
Unearned revenue 62 213
Other current liabilities (317) (288)
----------- -----------
Total adjustments (449) 7,139
----------- -----------
Net cash provided by operating
activities 1,833 4,079
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (150) (237)
----------- -----------
Net cash used in investing activities (150) (237)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in line of credit (2,076) (3,679)
Net change in outstanding checks 136 (73)
Other 59 (155)
----------- -----------
Net cash used in financing activities (1,881) (3,907)
----------- -----------
EFFECT OF EXCHANGE RATE ON CASH (1) 8
----------- -----------
DECREASE IN CASH (199) (57)
Cash at beginning of period 323 282
----------- -----------
Cash at end of period $ 124 $ 225
=========== ===========
Contact Information: Contact: Nick Tomashot Chief Financial Officer (614) 748-1150