Pinnacle Data Systems, Inc. ("PDSi") (NYSE Amex: PNS) today
reported its financial results for the three months ended September
30, 2011.
John D. Bair, Chairman of the Board, President and Chief
Executive Officer, stated, "Today we have zero debt and are
accumulating cash for investment in growth; we have delivered seven
sequential quarters of profitability (including a record fiscal
2010); and have a flatter organization with a leaner overhead cost
structure. Today's 33% gross margins are ten points higher than
past years', and SG&A has been reduced by half. All of this was
accomplished in the worst economic environment in a generation. I
can't begin to tell you how pleased I am with the accomplishments
of the PDSi team, and the transformation of our business that is a
result of their hard work."
Total sales were $6.7 million for the 2011 third quarter, down
slightly compared to the second quarter of 2011. Timothy J. Harper,
Chief Operating Officer, added, "Revenue roughly plateaued in the
third quarter relative to Q2 -- when PDSi set a new record for
quarterly Service revenue. However, we have a lot of business
opportunities in front of us at all stages of sales development. To
help develop and execute these opportunities we have funded
strategic investments that have expanded our capability in both
products and services, and are adding resources to enable and
support growth. This includes investment in the capability to
service an array of new telecom technologies; starting up our new
Asia Pacific service center in Singapore; as well as strategically
adding resources to support current growth, anticipated new program
ramps, and the development of our new business pipeline."
The $0.2 million profit, or $0.03 per diluted share, for the
third quarter included a $0.06 million, or $0.01 per share, income
tax benefit associated with the finalization of the amended federal
and state tax returns for prior years impacted by the research and
development ("R&D") tax credit study. This offsets a related
net $0.07 million tax expense that impacted Q2 2011. In Q4 2010 and
Q1 2011, the Company recorded a $0.8 million cumulative benefit for
these credits, net of a reserve for uncertain tax positions.
Cash generated from operations during the quarter was $0.3
million, the eleventh sequential quarter with positive operating
cash flow. The Company did not utilize its line of credit during
the quarter, and cash on hand at the end of September grew to $1.5
million, up from $1.3 million at the end of June.
Financial Results
Net Income
Net income for the third quarter of 2011 was $0.2 million, or
$0.03 per diluted share. This compares to $1.7 million, or $0.21
per diluted share, for the same quarter last year. The third
quarter of last year was impacted by a $1.3 million, or $0.17 per
diluted share, non-cash net benefit related to the reversal of
substantially all of the Company's deferred tax asset valuation
allowance. The third quarter of 2011 was impacted by a nonrecurring
$0.06 million, or $0.01 per share, income tax benefit related to
the R&D tax credit study mentioned previously.
Sales
Total sales grew 6% to $6.7 million for the 2011 third quarter
from $6.3 million for the same quarter a year ago. Third quarter
Product sales declined 8% to $2.2 million in 2011 from $2.3 million
in 2010. This decline primarily was attributable to the ramp down
of legacy programs, partially offset by growth in defense and
imaging. Service sales increased $0.6 million, or 14%, to $4.5
million for the 2011 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 was flat at $2.2 million for the 2011 third quarter
compared to same quarter last year, while gross margin as a
percentage of revenue declined compared to last year from 35% to
33%. The gross margin percentage decline was attributable to the
mix of Service segment revenue, combined with investments made in
the Company's operations to add capability and support growth of
the business in the U.S., Europe and Asia.
Operating Expenses
Operating expenses were up to just under $2.0 million for the
2011 third quarter from more than $1.7 million a year ago,
reflecting investments in personnel necessary to support and grow
the business.
Interest Expense
Interest expense for the 2011 third quarter was reduced to zero
from $4,000 the same quarter last year. The Company has not used
its line of credit since the first quarter of this year, compared
to an average balance of approximately $0.6 million over fiscal
2010.
Recent PDSi Highlights
- During the third quarter, PDSi established PDSi Singapore, Pte.
Ltd., the Company's new Asia Pacific region service center.
- PDSi announced in July that it has entered into an OEM
agreement with IBM. This agreement provides the Company access to
market leading technologies that can be leveraged across all three
target markets to develop Products and Services designed for the
demanding requirements of the telecommunications, defense, medical
and ruggedized industrial markets.
Conference Call
PDSi will host a conference call on Friday, October 28, 2011, at
11:00 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 2011 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 year ending December 31,
2011. 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,
2011 2010
------------- -------------
ASSETS (Unaudited)
CURRENT ASSETS
Cash $ 1,529 $ 465
Accounts receivable, net of allowance for
doubtful accounts of $109 and $106,
respectively 4,076 4,469
Inventory, net 3,046 3,226
Deferred income taxes 771 762
Other current assets 425 492
------------- -------------
Total current assets 9,847 9,414
Property and equipment, net 1,015 685
Goodwill 767 767
Deferred income taxes 1,224 929
Other assets 105 193
------------- -------------
TOTAL ASSETS $ 12,958 $ 11,988
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit $ - $ 273
Accounts payable 1,707 1,404
Accrued wages, payroll taxes and employee
benefits 501 581
Unearned revenue 101 30
Other current liabilities 529 743
------------- -------------
Total current liabilities 2,838 3,031
Other liabilities 449 296
------------- -------------
TOTAL LIABILITIES 3,287 3,327
------------- -------------
STOCKHOLDERS' EQUITY
Common stock 5,802 5,790
Additional paid-in capital 2,022 1,962
Accumulated other comprehensive income (loss) (101) (90)
Retained earnings 1,948 999
------------- -------------
Total stockholders' equity 9,671 8,661
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 12,958 $ 11,988
============= =============
PINNACLE DATA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
----------------------- ------------------------
2011 2010 2011 2010
----------- ----------- ----------- -----------
Sales $ 6,695 $ 6,314 $ 19,921 $ 23,094
Cost of sales 4,479 4,088 13,378 16,484
----------- ----------- ----------- -----------
Gross profit 2,216 2,226 6,543 6,610
Operating expenses 1,981 1,732 5,700 5,295
----------- ----------- ----------- -----------
Income from operations 235 494 843 1,315
Other expense
Interest expense - 4 1 45
----------- ----------- ----------- -----------
Income before income
taxes 235 490 842 1,270
Income tax expense
(benefit) 21 (1,183) (107) (1,012)
----------- ----------- ----------- -----------
Net income $ 214 $ 1,673 $ 949 $ 2,282
=========== =========== =========== ===========
Weighted average common
shares outstanding:
Basic 7,880 7,842 7,870 7,831
Diluted 8,125 8,011 8,116 7,960
Earnings per common share:
Basic $ 0.03 $ 0.21 $ 0.12 $ 0.29
Diluted 0.03 0.21 0.12 0.29
PINNACLE DATA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
For the Nine Months Ended
September 30,
----------------------------
2011 2010
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 949 $ 2,282
------------- -------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Bad debt expense 29 (19)
Inventory reserves 124 246
Depreciation and amortization 273 298
Provision (benefit) for deferred income
taxes (304) (1,037)
Share-based payment expense 60 34
Decrease in assets:
Accounts receivable 353 1,111
Inventory 52 113
Other assets 93 16
Increase (decrease) in liabilities:
Accounts payable 196 (956)
Unearned revenue 71 62
Other liabilities (338) (357)
------------- -------------
Total adjustments 609 (489)
------------- -------------
Net cash provided by operating
activities 1,558 1,793
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (366) (110)
------------- -------------
Net cash used in investing activities (366) (110)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in line of credit (273) (2,076)
Net change in outstanding checks 132 136
Other 9 59
------------- -------------
Net cash used in financing activities (132) (1,881)
------------- -------------
EFFECT OF EXCHANGE RATE ON CASH 4 (1)
------------- -------------
INCREASE (DECREASE) IN CASH 1,064 (199)
Cash at beginning of period 465 323
------------- -------------
Cash at end of period $ 1,529 $ 124
============= =============
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY:
Acquisitions of equipment through capital
lease $ 196 $ 40
============= =============
Contact: Nick Tomashot Chief Financial Officer (614) 748-1150
Email Contact
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