Emtec, Inc. Announces First Quarter 2012 Results

Springfield, NJ. – Emtec, Inc. (OTCBB: ETEC) (“Emtec” or the “Company”) announced today that, for the quarter ended November 30, 2011, consulting and outsourcing revenue increased to $25.6 million for quarter ended November 30, 2011 from $16.7 million in quarter ended November 30, 2010, an increase of $8.9 million or 53.5%. Overall revenue decreased from $76.9 million to $72.0 million as procurement services revenues declined by $13.8 million from $60.2 million to $46.4 million. The decline in procurement revenue is due to purchasing decision delays by our education clients and delivery delays due to component shortages. The Company believes it is more important for investors to focus on the growth of the Company’s consulting and outsourcing business as it provides higher gross margins and recurring revenue. Gross profit increased by approximately $1.4 million to $11.9 million for the quarter ended November 30, 2011 from $10.5 million for the quarter ended November 30, 2010. Earnings before interest, taxes, depreciation and amortization expenses (“EBITDA”) was $2.8 million for the quarter ended November 30, 2011 compared with $2.2 million for the quarter ended November 30, 2010. Adjusted EBITDA, which is defined by management as net income before interest, taxes, depreciation, amortization, retention bonuses, stock-based compensation, executive recruiting fees, severance, earnout liability adjustments and stock warrant expense (“Adjusted EBITDA”), was $2.6 million for the quarter ended November 30, 2011 versus $2.5 million for the quarter ended November 30, 2010. A reconciliation of net income to EBITDA and Adjusted EBITDA is attached to this press release. Also attached, for comparability purposes, is an income statement and reconciliation of net loss to EBITDA and Adjusted EBITDA for the years ended August 31, 2011 and 2010, as we did not previously issue an earnings release for the year ended August 31, 2011.

EBITDA and Adjusted EBITDA are key financial metrics used by the Company’s Board of Directors and management to evaluate and measure the Company’s operating performance. These metrics are not in conformity with generally accepted accounting principles (“GAAP”) in the United States of America. Management’s calculation of EBITDA eliminates the effect of charges primarily associated with financing decisions, tax regulations and capital investments. Adjusted EBITDA also eliminates certain unusual costs and reflects certain changes in the 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 Company’s operating results presented in the Company’s consolidated financial statements. We have made a reconciliation of net income (loss), which is the most closely comparable GAAP measure, to these non-GAAP measures for the quarters ended November 30, 2011 and 2010 and the years ended August 31, 2011 and 2010 and discussed these adjustments in this release. 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.

Dinesh Desai, Chairman and CEO of Emtec commented, “We have crossed an important milestone with our consulting and outsourcing revenue for the quarter by breaking the $100 million annual revenue run rate. We were also pleased that our Federal procurement revenues returned to their historical levels during the quarter. Our 2011 was a disappointing fiscal year for us, so it was important that we started off the year on a positive note. We are looking forward to our education business returning to its normal run rates in the upcoming quarters, as well as continued growth in our commercial sector. During 2011 we positioned the Company for a better future, with new management additions, new service offerings through three acquisitions, new financial partners, and a $4 million annualized cost cutting program. These steps have started to pay off with our first quarter results.”

Gregory Chandler, Chief Financial Officer of Emtec added, “The procurement revenue decline was the result of the end of a five-year purchasing cycle by one of our clients. That client has renewed its funding and has tax revenues in place for the next five years. We look forward to helping them improve the use of their technology over the next several years. Because of the recurring services revenue we added in 2011, and a higher gross margin of our procurement revenues, we were able to weather the $14 million drop in procurement revenue and maintain the bottom line. As this services revenue continues into the rest of the year it should help show improved bottom line results. Our Selling, General and Administrative (“SG&A”) expenses increased by $2.2 million from the acquisitions we purchased in 2011. So we were pleased that the cost cutting we carried out during 2011 resulted in the net cost increase being held to only $1.4 million. Our capital expenditures have returned to normal levels since our ERP implementation is complete. Capital expenditures for the first quarter of 2012 were approximately $340,000 versus $310,000 in the same quarter last year but well below the quarterly average for 2011 of approximately $625,000 per quarter. The overall gross margin improved mainly due to higher margins on our procurement business. This also reflects the shift in mix of types of business we are providing. Our liquidity situation has also improved with a new line of credit which we closed on in December, as well as additional Mezzanine financing. Both of these investors provided us growth capital which was needed because a number of government agencies we work with continue to be slow payers. We are focusing on ways to work with these agencies to bring our DSO down to more reasonable levels. We have provided below both our fourth quarter results as well as our full 2011 results in this press release.”


Deanna Evers
Phone : 973.232.7897
Email : [email protected]


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