GALION, Ohio, Nov. 5 /PRNewswire-FirstCall/ -- PECO II, Inc.
(NASDAQ: PIII), a communications industry power systems and
services provider, today reported results for the third quarter
ended September 30, 2008. PECO II reported net sales of $12.0
million in the third quarter of 2008. This compares with $11.1
million in the second quarter of 2008, an 8.2 percent
quarter-to-quarter increase, and $10.7 million in the third quarter
of 2007, an 11.7 percent year-to-year increase. The Company
reported a net loss of $1.2 million, or $0.44 per diluted share (on
a post-split basis), for the third quarter of 2008, compared with a
net loss of $1.2 million, or $0.45 per diluted share (on a
post-split basis), for the second quarter of 2008 and a net loss of
$0.5 million, or $0.19 per diluted share (on a post-split basis),
for the third quarter of 2007. The $1.2 million net loss for the
third quarter of 2008 included an inventory obsolescence charge of
$0.4 million for raw material used in products in the process of
being discontinued. The $0.7 million increase in net loss for the
third quarter of 2008, compared with the third quarter of 2007, was
driven primarily by increased operating expenses related mostly to
the development and rollout of the Company's new small power
product line, combined with the inventory obsolescence charge noted
above. EBITDA was a negative $0.7 million in the third quarter of
2008, compared with negative EBITDA of $0.7 million for the second
quarter of 2008 and positive EBITDA of $0.1 million for the third
quarter of 2007. An explanation and reconciliation of GAAP net
income to EBITDA is included as Attachment A. Cash used for
operating activities for the nine months ended September 30, 2008,
was $1.8 million. This was primarily from the net loss, offset by
reductions in inventory and other non-cash charges. Bookings for
the third quarter of 2008 increased by 16.7 percent compared with
the third quarter of 2007, resulting in a sales backlog of $5.7
million. The Company believes this is evidence of its success in
growing market share by leveraging its industry-leading lead times
and corresponding deliveries. The third-quarter backlog was an 8.9
percent decrease from the $6.2 million backlog at the end of the
second quarter of 2008. The bookings-to-billings ratio reflects
customer orders received compared with the same period's billings,
and is an indication of future periods. For the third quarter of
2008, the ratio was 1 to 1. PECO II CEO John Heindel stated, "The
third-quarter financial performance reflects solid quarterly
revenue growth for both products and services. Revenues for the
quarter were the highest quarterly revenues recorded since the
third quarter of 2006. For the third quarter of 2008, product
revenues grew 3.9 percent sequentially and 12.2 percent
year-to-year. Product market share gains were realized among both
our large tier-one customers and our general markets customers. At
the same time, services revenues grew 22.6 percent sequentially and
10.1 percent year-to-year, with services market share gains
realized in the large tier-one customer market segment. The
year-to- year services revenue reduction for the first nine months
of the year was attributable primarily to reduced spending by two
customers." Heindel added, "Gross margins of 12.8 percent, or $1.5
million, in the third quarter were negatively impacted by the
write-off of inventory totaling $0.4 million. Services gross
margins for the third quarter 2008 increased by $0.1 million
compared with both the second quarter of 2008 and the third quarter
of 2007. This improvement was driven primarily by the quarterly
revenue growth. Product gross margin for the third quarter 2008
decreased by $0.1 million compared with the second quarter of 2008
and $0.3 million compared with the third quarter of 2007. This
reduction was driven primarily by the inventory write-off mentioned
previously." Third-quarter 2008 operating expenses of $2.8 million
were $0.1 million less than the second quarter of 2008 and $0.3
million more than the third quarter of 2007. On a year-to-date
basis, operating expenses included costs related to the development
and rollout of the Company's new small power product platform.
During the third quarter of 2008, the Company continued to develop
features for its Quantum Power System. New developments included
additional distribution options and configurations that enabled the
product to be deployed in more diverse applications. The Company
received its first orders and subsequent installations for the
Quantum Power System from a major wireline carrier. The Quantum
system will be deployed in two applications to power different
network elements. Additionally, systems were quoted to 10 other
customers during the third quarter. Lastly, PECO II augmented its
field sales team by adding a seasoned veteran in the Tier 2 and
nontraditional service provider markets, resulting in a marked
increase in quoting opportunities over the last four weeks of the
third quarter with the trend continuing into the first half of the
fourth quarter. The Company also introduced the high-capacity
5069HC BDFB (battery distribution fuse bay) in September 2008. The
5069HC is a modular power distribution solution offering 66 percent
improvement in current capacity. The 5069HC features an
industry-leading 1000 Amps per panel, enabling telecom power
engineers to significantly lower the cost of powering and cabling
new high-power network elements such as routers, optical equipment
and broadband delivery systems. The 5069HC also achieved NEBS
certification during the quarter. During the third quarter the
Company also achieved TL9000 recertification. The certification
process included evaluation of PECO II's core business processes
based on TL9000 Quality Management System Requirements Release 4.0,
an upgrade over previous assessments. The TL9000 standard defines
the telecommunications quality system requirements for the design
development, production, delivery, installation and maintenance of
products and services. Heindel stated, "With the introduction of
PECO II's small power products, the Company has an exciting
opportunity to grow its business in a space in which it has not
previously competed. Leveraging the Company's industry leading
responsiveness capability with this new technology platform
provides our customers with another reason to rely on PECO II for
their power requirements." Conference Call on the Web PECO II will
hold a conference call with investors and analysts on Wednesday,
November 5, 2008, at 10 a.m. Eastern time. The call will be
available over the Internet at http://www.peco2.com/. To listen to
the call, go to the Web site to register, download and install any
necessary audio software. For those unable to listen to the live
broadcast, a replay of the webcast will be archived and available
shortly after the call. About PECO II, Inc. PECO II, headquartered
in Galion, Ohio, provides engineering and on-site installation
services and designs, manufactures and markets communications power
systems and power distribution equipment. As the largest
independent full-service provider of telecommunications power
systems, the Company provides total power quality/reliability
solutions and supports the power infrastructure needs of
communications service providers in the local exchange,
long-distance, wireless, broadband and Internet markets. Additional
information about PECO II can be found at http://www.peco2.com/.
Forward-Looking Statements Statements in this release that are not
historical fact are forward- looking statements, which involve
risks and uncertainties that may cause actual results or events to
differ materially from those expressed or implied in such
statements. Factors that may cause actual results to differ
materially from those in the forward-looking statements include,
but are not limited to, a general economic recession; a downturn in
our principal customers' businesses; the growth in the
communications industry; the ability to develop and market new
products and product enhancements; the ability to attract and
retain customers; competition and technological change; and
successful implementation of the Company's business strategy. In
addition, this release contains time-sensitive information that
reflects management's best analysis only as of the date of this
release. PECO II does not undertake any obligation to publicly
update or revise any forward-looking statements to reflect future
events, information or circumstances that arise after the date of
this release. Further information concerning issues that could
materially affect financial performance related to forward-looking
statements can be found in PECO II's periodic filings with the
Securities and Exchange Commission. PECO II, INC. CONSOLIDATED
STATEMENTS OF OPERATIONS (In thousands, except for per share data)
(unaudited) For the Three For the Nine Months Ended Months Ended
September 30, September 30, 2008 2007 2008 2007 Net sales: Product
$8,834 $7,871 $24,629 $21,022 Services 3,129 2,843 7,402 8,340
11,963 10,714 32,031 29,362 Cost of goods sold: Product 7,877 6,536
21,684 18,282 Services 2,560 2,341 6,078 6,610 10,437 8,877 27,762
24,892 Gross margin: Product 957 1,335 2,945 2,740 Services 569 502
1,324 1,730 1,526 1,837 4,269 4,470 Operating expenses: Research,
development and engineering 622 485 1,932 1,820 Selling, general
and administrative 2,146 1,952 6,297 6,549 2,768 2,437 8,229 8,369
Loss from operations (1,242) (600) (3,960) (3,899) Interest income,
net 37 110 143 307 Loss before income taxes (1,205) (490) (3,817)
(3,592) Income tax expense (9) (17) (19) (44) Net loss $(1,214)
$(507) $(3,836) $(3,636) Net loss per common share: Basic and
diluted $(0.44) $(0.19) $(1.39) $(1.34) Weighted average common
shares outstanding: Basic and diluted 2,765 2,723 2,756 2,720 PECO
II, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except for
share data) September 30, December 31, 2008 2007 ASSETS (unaudited)
Current assets: Cash and cash equivalents $5,969 $7,935 Accounts
receivable, net of allowance of $110 at September 30, 2008 and $90
at December 31, 2007 4,825 3,685 Inventories, net of allowance of
$2,031 at September 30, 2008 and $1,906 at December 31, 2007 9,361
11,433 Cost and earnings in excess of billings on uncompleted
contracts 1,012 514 Prepaid expenses and other current assets 321
263 Assets held for sale 43 219 Restricted cash 641 - Total current
assets 22,172 24,049 Property and equipment, at cost: Land and land
improvements 195 195 Buildings and building improvements 7,251
7,251 Machinery and equipment 2,895 2,869 Furniture and fixtures
5,510 5,527 15,851 15,842 Less-accumulated depreciation: (11,651)
(11,360) Property and equipment, net 4,200 4,482 Other assets:
Goodwill 1,470 1,515 Intangibles, net 3,016 3,822 Investment in
joint venture 1 2 Note receivable 250 - Total assets $ 31,109 $
33,870 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Borrowings under line of credit $641 $- Accounts payable 4,349
4,485 Billings in excess of cost and estimated earnings on
uncompleted contracts 392 510 Accrued compensation expense 1,145
722 Accrued income taxes 33 81 Other accrued expenses 1,734 1,800
Total current liabilities 8,294 7,598 Shareholders' equity: Common
stock, no par value: 150,000,000 shares authorized; 2,756,252 and
2,739,157 shares issued at September 30, 2008 and December 31,
2007, respectively 3,508 3,475 Warrants - 5,078 Additional paid-in
capital 121,836 116,412 Accumulated deficit (102,529) (98,693)
Total shareholders' equity 22,815 26,272 Total liabilities and
shareholders' equity $ 31,109 $ 33,870 Attachment A EBITDA is not a
financial measure calculated in accordance with U.S. generally
accepted accounting principles (GAAP) and should not be considered
as an alternative to net income, operating income or any other
financial measure so calculated and presented. We define EBITDA as
net income/(loss) before interest expense, taxes, depreciation,
amortization, and non-cash stock compensation expense. Other
companies may define EBITDA differently. We present EBITDA because
we believe it to be an important supplemental measure of our
performance that is commonly used by securities analysts, investors
and other interested parties in the evaluation of companies in our
industry. Management also uses this information internally for
forecasting and budgeting. You should not consider EBITDA in
isolation, or as a substitute for analysis of our results as
reported under GAAP. Reconciliation of GAAP Net Loss to EBITDA
(unaudited) For the Three Months Ended September 30, (In thousands)
2008 2007 2008 and 2007 EBITDA Breakdown Net Loss per GAAP $(1,214)
$(507) Interest expense $5 $6 Taxes $9 $17 Depreciation/
amortization $379 $405 Non-cash stock-based compensation $150 $144
EBITDA $(671) $65 DATASOURCE: PECO II, Inc. CONTACT: Kevin Borders,
Vice President of Marketing and Product Development and Secretary,
+1-419-468-7600 Web site: http://www.peco2.com/
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