Emtec, Inc. Announces Third Quarter Results

MARLTON, N.J.--([ BUSINESS WIRE ])--Emtec, Inc. (OTCBB: ETEC) (aEmteca or the aCompanya) announced today that for the quarter ended May 31, 2010, revenue and gross profit increased by 9% and 6% respectively when compared to the quarter ended May 31, 2009.

"Since 2008 we have made infrastructure investments, added senior management, and streamlined our organization in order to improve profitability and grow our services business"

Revenue increased to $53.5 million in the third quarter of fiscal 2010 from $49.2 million in the third quarter of fiscal 2009, an increase of $4.3 million. Gross profit increased to $8.1 million in from $7.6 million in third quarter of fiscal 2009 an increase of $435,000. Earnings before interest, taxes, depreciation and amortization expenses (aEBITDAa) decreased to $676,000 from $1.3 million a decrease of $625,000 for the three months ended May 31, 2010. Adjusted EBITDA, which is defined by management as net income before interest, taxes, depreciation, amortization, retention bonuses, non-essential overhead, stock based compensation, executive recruiting fees, severance, discretionary bonuses, merger related professional fees and the recovery of prior year expenses (aAdjusted EBITDAa), decreased to $1.3 million from $1.5 million, a decrease of by $235,000. Net income for the three months ended May 31, 2010 decreased to a slight loss of $35,000 from a $273,000 profit, a decrease of $308,000. The decreases in EBITDA, net income, and Adjusted EBITDA are primarily attributable to a longer than anticipated economic downturn in the Companya�s commercial and state and local government business, the after effect of a yearlong reduction in billing rates by commercial customers and investments made in new management to position the Company to take advantage of services growth when the economy recovers. A reconciliation of EBITDA and Adjusted EBITDA to net income (loss) is attached to this press release.

EBITDA and Adjusted EBITDA are key financial metrics used by the Companya�s Board of Directors and management to evaluate and measure the Companya�s operating performance. These metrics are not in conformity with generally accepted accounting principles (aGAAPa) in the United States of America. Managementa�s calculation of EBITDA eliminates the effect of charges primarily associated with financing decisions, tax regulations and capital investments. Adjusted EBITDA also eliminates certain non-recurring or unusual costs, reflects certain changes in business made by management and includes adjustments which in the opinion of management are necessary to reflect the underlying ongoing operations of the business. Net income (loss) is the most comparable GAAP measure of the Companya�s operating results presented in the Companya�s consolidated financial statements. We have made a reconciliation of these non-GAAP measures to net income (loss), the most closely comparable GAAP measure, for the three and nine months ended May 31, 2010 and 2009 and discussed these adjustments below. EBITDA and Adjusted EBITDA should not be considered as an alternative to net income (loss) or any other GAAP measure of performance or liquidity, and may not be comparable to other similarly titled measures of other companies. Management believes that the presentation of EBITDA and Adjusted EBITDA is important to investors because Adjusted EBITDA is used by management to evaluate financial performance and continuing operations and to determine resource allocation for each of our business segments.

aSince 2008 we have made infrastructure investments, added senior management, and streamlined our organization in order to improve profitability and grow our services business,a said Dinesh Desai, Chairman, CEO, and President of Emtec. aWe intend to continue to make an investment in personnel and infrastructure as we grow higher margin services business. Our investments are showing some exciting results in our new wins including our new 2 Federal contracts, the city of Jacksonville managed services contract, and the addition of new clients in our Education vertical. We restructured our commercial infrastructure practice to focus on strategic clients and growth in IT services projects and managed services. While I would like to report a stronger increase in our consulting services practices, I firmly believe the quarter over quarter uptick is a positive sign. I am excited about our new practice areas which we have added. Specifically we now have the ability to provide consulting projects to Federal clients through our Secure Data, Inc. acquisition, offshore delivery to our commercial practice through our Sark acquisition, and new business intelligence and information management capabilities through the addition of the management team from Xcellor. We welcome our new associates and their management teams in this key growth era for Emtec.a

About Emtec:

Emtec, Inc. established in 1964, is a systems integrator providing IT services and products to the federal, state, local, education and commercial markets. Emtec helps clients identify and prioritize areas for improvement and then implement process, technology and business application improvements that reduce cost, improve service and align the delivery of IT with the needs of their organization. Emteca�s market leading value based management methods, coupled with best-in-class IT technology, consulting and development services, allow us to address a wide range of specific client needs, as well as support broader IT transformation initiatives. Emtec's service capabilities span the USA, Canada and countries around the globe. For more information visit: [ www.emtecinc.com ].

Certain statements in this document constitute aforward-looking statementsa within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company or industry results, to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. The Companya�s future operating results are dependent upon many factors, including but not limited to the Companya�s ability to: (i) obtain sufficient capital or a strategic business arrangement to fund its plan of operations when needed; (ii) build the management and human resources and infrastructure necessary to support the growth of its business; (iii) competitive factors and developments beyond the Companya�s control; and (iv) other risk factors discussed in the Companya�s periodic filings with the Securities and Exchange Commission which are available for review at [ www.sec.gov ] under aSearch for Company Filings.aWe undertake no obligation to publicly update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, or changes to future results over time


EMTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
	Three Months Ended May 31,						Nine Months Ended May 31,
	2010			2009			2010			2009
Revenues
Procurement services	$	39,536		$	35,321		$	122,193		$	121,094
Service and consulting		13,970			13,898			40,994			40,106
Total Revenues		53,506			49,219			163,187			161,200

Cost of Sales
Cost of procurement services		35,140			31,204			109,348			107,967
Service and consulting		10,285			10,369			29,310			30,666
Total Cost of Sales		45,425			41,573			138,658			138,633

Gross Profit
Procurement services		4,396			4,117			12,845			13,127
Procurement services %		11.1	%		11.7	%		10.5	%		10.8	%

Service and consulting		3,685			3,529			11,684			9,440
Service and consulting %		26.4	%		25.4	%		28.5	%		23.5	%

Total Gross Profit		8,081			7,646			24,529			22,567
Total Gross Profit %		15.1	%		15.5	%		15.0	%		14.0	%

Operating expenses:
Selling, general, and administrative expenses		7,243			6,198			20,962			18,134
Rent expense a" related party		162			147			473			452
Depreciation and amortization		551			632			1,718			1,734
Total operating expenses		7,956			6,977			23,153			20,320
Percent of revenues		14.9	%		14.2	%		14.2	%		12.6	%

Operating income (loss)		125			669			1,376			2,247
Percent of revenues		0.2	%		1.4	%		0.8	%		1.4	%

Other expense (income):
Interest income a" other		(3	)		(5	)		(18	)		(16	)
Interest expense		124			169			428			693
Other		(4	)		17			(12	)		21

Income (loss) before income taxes		8			488			978			1,549
Provision (benefit) for income taxes		43			215			456			655
Net income (loss)	$	(35	)	$	273		$	522		$	894


EMTEC, INC.
RECONCILIATION OF NET INCOME (LOSS) TO EBITDA AND ADJUSTED EBITDA
(In thousands)
	Three Months Ended May 31,						Nine Months Ended May 31,
	2010			2009			2010		2009
Net income (loss)	$	(35	)	$	273		$	522	$	894
Interest and other expense (income):		117			181			398		698
Provision (benefit) for income taxes		43			215			456		655
Depreciation and amortization		551			632			1,718		1,734
EBITDA		676			1,301			3,094		3,981

Retention bonuses (1)		284			133			374		133
Elimination of non-essential overhead (2)		-			134			-		847
Stock based compensation		118			3			393		87
Executive recruiting (3)		-			-			101		29
Severance		148			106			181		212
Temporary wage reductions- reinstated (4)		-			(191	)		-		(308	)
Discretionary Bonus (5)		-			-			181		-
Merger Related Professional Fees		24			-			118		-
Recovery of prior year expenses (6)		-			-			-		(270	)
Total Adjustments (7)		574			185			1,348		730
Adjusted EBITDA	$	1,250		$	1,486		$	4,442	$	4,711

1) Expenses associated with retention bonuses which were agreed to in connection with the closing of the Company's acquisition of Luceo, eBAS & Aveeva and EMS, a company of which certain assets were acquired through Koan-IT US.

2) Elimination of non-essential overhead includes expenses incurred, which were eliminated by management during the three and nine months ended May 31, 2009 and will not recur on an ongoing basis. These charges included $34,000 paid to the former owners of Westwood under contracts that were not renewed (net of ongoing consulting costs paid to an owner) and $100,000 in sales compensation changes implemented during the three months ended May 31, 2009. For the nine months ended May 31, 2009, these charges included $147,000 paid to the former owners of Westwood under contracts that were not renewed (net of ongoing consulting costs paid to an owner), $400,000 paid to a senior executive under a contract that was not renewed and paid to other at-will employees whose positions were terminated and $300,000 in sales compensation changes.

3) Reflects executive recruiting fees incurred in connection with a management launched search for a senior executive in 2009. Management made a one-time decision to invest in the business by hiring new senior executives to grow the business in 2010 and thereafter.

4) Due to the uncertain economic situation in late calendar 2008, management reduced wages by $191,000 and $308,000 during the three and nine months ended May 31, 2009 and later reinstated full wages at the end of the year.

5) Discretionary bonuses paid to the executive management team in December 2009.

6) Offset from recovered professional fees which the Company previously recorded as an expense that were associated with defending the Company's tax positions during the IRS' 2003 and 2004 tax audit and appeal process.

7) While management has made additional cost cuts in its commercial infrastructure business, it has not included these amounts as adjustments to EBITDA because the Company may invest these amounts in future periods in its consulting services business.

Contributing Sources

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Emtec, Inc. Announces Third Quarter Results