Thomas Group, Inc. (NasdaqGM: TGIS), a leading operations and
process improvement firm, today announced fourth quarter 2007 net
income of $1.4 million, or $0.13 per diluted share, on revenues of
$13.5 million, compared to $3.8 million, or $0.34 per diluted
share, on revenues of $14.8 million in the fourth quarter of 2006.
The fourth quarter of 2007 was fully taxed as compared to the
fourth quarter of 2006 which included a $1.5 million, or $0.13 per
diluted share, tax benefit related to the reversal of the deferred
tax asset valuation allowance. For the year ended December 31,
2007, net income was $7.0 million, or $0.63 per diluted share, on
revenues of $55.9 million. This reflects a decrease from the year
2006 in which net income was $11.5 million, or $1.04 per diluted
share, on revenues of $59.5�million. Jim Taylor, President and CEO,
stated, �Thomas Group achieved improved results from our efforts to
expand commercial revenues during 2007. During the last quarter of
2007, we experienced an increase both in the number and scope of
our commercial programs. These positive results though were
overshadowed by a slowdown in our government programs in the fourth
quarter. We remain committed to furthering our progress in our
commercial business and to expanding and replacing our affected
government programs across many sectors of the armed services and
the Department of Defense.� Fourth Quarter and Year 2007 Financial
Performance: Revenue Revenue for the fourth quarter of 2007
decreased $1.3 million, or 9%, to $13.5 million from $14.8 million
in the fourth quarter of 2006. Total revenue for the year 2007
decreased $3.6 million, or 6%, to $55.9 million from $59.5 million
for the year 2006. Gross Margins Gross profit margins for the
fourth quarter of 2007 were 53% and were 54% in the fourth quarter
2006. For the year 2007, gross profit margins dropped 1% to 52%
from 53% for the year 2006. The small drop in year-over-year and
fourth quarter margins is due to deterioration in our utilization
rates related to a slowdown of our government programs in the
fourth quarter and higher than normal utilization rates in the
first and second quarters of 2006. Selling, General &
Administrative (SG&A) SG&A costs for the fourth quarter of
2007 were $5.2 million, compared to $4.4 million in the fourth
quarter of 2006. The $0.8 million increase is primarily related to
a $0.5 million increase in stock-based compensation and executive
bonus, a $0.4 million increase in sales and marketing, and $0.1 in
other corporate cost. These costs were partially offset by
reductions in legal expense of $0.2 million related to the option
review that began in the fourth quarter of 2006. SG&A costs for
the year 2007 were $18.4 million compared to $16.6 million for the
year 2006. The $1.8 million increase is due to $0.9 million
increase in legal and accounting expenses, a $0.9 million increase
in sales and marketing costs, and $0.9 million of other corporate
costs, including SOX compliance, depreciation, recruiting, and our
self-insured cost of medical benefits. These increases were offset
by a reduction of $0.9 million in performance-based stock
compensation awards. Working Capital and Cash Flow Working capital
increased to $19.5 million at December 31, 2007 from $16.8 million
at December 31, 2006, primarily due to increases in cash balances
as the result of accounts receivable collections. For the year
2007, total cash and cash equivalents increased $3.5 million to
$12.0 million as compared to a $5.0 million increase in cash and
cash equivalents for the year 2006. For the year 2007, net cash
provided by operating activities was $9.4 million compared to $7.4
million for the year 2006. Lower operating profits in 2007 were
partially offset by significant decreases in trade accounts
receivable as compared to timing related increases in trade
accounts receivable in the prior year. Cash used for investing
activities during 2007 consisted primarily of improvements and an
expansion of our Dallas Training facility and totaled $0.8 million.
Cash used for investing activities in 2006 consisted primarily of
computer and office equipment and totaled $467,000. For the year
2007, net cash used in non-operating activities was $5.0 million.
The 2007 financing activity was comprised of $4.4 million in
dividend payments and $0.6 million for the net tax effect of stock
issuances. For the year 2006, net cash used in non-operating
activities was $1.9 million, comprised of $2.7 million used to pay
dividends, offset by $0.8 million in tax benefits related to the
exercise of stock options. Income Taxes During the year, tax
expense was $4.0 million compared to $3.8 million for the year
2006, resulting in an effective tax rate of 36% for 2007. The
effective tax rate for 2006 was 25% as the result of a reduction in
the deferred tax asset valuation allowance in the first and fourth
quarters of 2006. At December 31, 2006, after evaluation of
operating results of the most recent three-year period and
comparison of all positive and negative evidence, it was determined
that a valuation allowance established originally in 2001 was only
appropriate on approximately $117,000 of the NOL carryforward, due
to annual limitations under Section 382. At December 31, 2007,
approximately $2.8 million in remaining NOL carryforwards were
available to be used against future taxable income, subject to a
$0.2 million annual limitation under Section 382 of the Internal
Revenue Code, expiring in 2022. Business Development During the
fourth quarter of 2007, approximately $18.1 million in new and
extended business was contracted, contributing to the total of
contracted business during the year 2007 of $53.3 million. This
reflects a decrease from the fourth quarter of 2006 and the year
2006, in which new and extended business contracted for the quarter
and the year�totaled $18.3 million and $59.5 million, respectively.
Backlog At December 31, 2007, contractual backlog was $12.4,
inclusive of $0.9 million of incentive based fees conditional on
meeting certain performance based targets. At December 31, 2006,
the Company had signed backlog of $16.1 million contracted for
2007. Backlog does not include extensions or option periods, and
therefore does not always represent the full scope of the clients�
commitment to Thomas Group. However, backlog does accurately
represent the portion that has been contracted for in writing.
Changes in Government Business Revenues from the government
decreased during the fourth quarter of 2007 as compared to the
fourth quarter of 2006 due to the natural ending of some of our
U.S. Navy programs in the third quarter of 2007 and our inability
to expand our remaining U.S. Navy programs due to the government�s
efforts to consolidate these programs into a single contracting
vehicle. During the fourth quarter of 2007, we operated our two
largest programs on one to three month extensions in anticipation
of an award of the new contracting vehicle, which is known as the
Fleet Readiness Enterprise (�FRE�). In the spring of 2007, we
learned that the government was formally moving to combine many of
our U.S. Navy programs into one contracting vehicle using a
competitive RFP. Based on our consistent delivery of results,
access to multiple contracting vehicles, and the strength of our
bidding team�s major incumbents, we assessed the risk of an adverse
outcome of not being able to procure our government programs
through this or other contracting vehicles as low. In January 2008,
we learned that Thomas Group and the team with which it was
partnered were not named as a provider under the new FRE
contracting vehicle. Although this meant we would not be able to
contract to provide services for our two largest government
programs through the FRE contracting vehicle, we believed that
Thomas Group would continue to perform services for these programs
at reduced volumes through existing government contracting vehicles
that we already possess or new contracts we could obtain. We now
believe that there is a high likelihood that we will not continue
to provide services for these programs in significant volume beyond
April 2008. Revenues associated with these programs totaled
approximately $42.7 million, or 76%, of total revenues, for the
year 2007. Revenues associated with these programs totaled
approximately $9.5 million, or 70%, of total revenues for the
fourth quarter of 2007. In light of this new assessment, we are
adjusting our selling efforts and taking steps intended to
strengthen our ability to generate new government business in other
areas of the U.S. Navy and the Department of Defense. We are
diligently working to replace these programs with revenues from
other areas of the U.S. Navy; however, at the current time, we are
unable to determine what portion of these programs we will be able
to replace. We are also considering measures intended to reduce
costs in the event we are unable to continue or replace the
affected U.S. Navy programs. Dividend In light of the forgoing, the
board of directors of Thomas Group has suspended the payment of
future cash dividends. The board will continue to periodically
evaluate the Company�s dividend policy and the payment of future
cash dividends under the policy. Earnings Conference Call We would
like to invite you to participate in a conference call with the
senior management of Thomas Group, Inc. to discuss the earnings for
the year and fourth quarter 2007. Thursday, February 21, 2008 10:30
a.m. CST, 11:30 a.m. EST To participate in the conference call,
please call 800-351-6808 from the U.S. or 334-323-7224 from outside
the U.S. The event�s passcode is 35263. Although interactive
participation in the call will be limited to investment
professionals, any interested party may listen to a live broadcast
of the call via the internet by logging on to:
http://www.vcall.com/IC/CEPage.asp?ID=126196 Interested persons are
encouraged to log on to the website approximately 15 minutes prior
to the designated start time in case they need to download any
software. Webcast replay is available until February 21, 2009.
Approximately one hour after the earnings conference call, a
playback of the conference call will be available for sixty days.
To listen to the call, U.S. callers may call 877-919-4059 and
international callers may call 334-323-7226. The Conference Call
Replay Pass Code is 30293404#. Playback options: press 1 to begin;
4 to rewind 30 seconds; 5 to pause; 6 to fast forward 30 seconds; 0
for instructions; 9 to exit. Thomas Group, Inc. (NasdaqGM: TGIS) is
an international, publicly traded professional services firm
specializing in operational improvements. Thomas Group's unique
brand of process improvement and performance management services
enable businesses to enhance operations, improve productivity and
quality, reduce costs, generate cash and drive higher
profitability. Known for Breakthrough Process Performance, Thomas
Group creates and implements customized improvement strategies for
sustained performance improvements in all facets of the business
enterprise. Thomas Group has offices in Dallas, Detroit, and Hong
Kong. For more information, please visit www.thomasgroup.com. Safe
Harbor Statement under the Private Securities Litigation Reform
Act: Any statements in this release that are not strictly
historical statements, including statements about our beliefs and
expectations, are �forward-looking statements� within the meaning
of the United States Private Securities Litigation Reform Act of
1995. These forward-looking statements involve certain risks and
uncertainties that could cause actual results to differ materially
from those expressed or implied by these statements, including
general economic and business conditions that may impact clients
and the Company�s revenues, timing and awarding of customer
contracts, revenue recognition, competition and cost factors as
well as other factors detailed from time to time in the Company�s
filings with the Securities and Exchange Commission, including the
Company�s Form 10-K for the year ended December 31, 2006. These
forward-looking statements may be identified by words such as
�anticipate,� �expect,� �suggests,� �plan,� �believe,� �intend,�
�estimates,� �targets,� �projects,� �could,� �should,� �may,�
�would,� �continue,� �forecast,� and other similar expressions.
These forward-looking statements speak only as of the date of this
release. Except as required by law, the Company expressly disclaims
any obligation or undertaking to disseminate any updates or
revisions to any forward-looking statement contained herein to
reflect any change in the Company�s expectations with regard
thereto or any change in events, conditions or circumstances on
which any such statement is based. � � THOMAS GROUP, INC. Selected
Consolidated Financial Data (Amounts stated in thousands, except
per share amounts) � Three Months Ended December 31, Year
EndedDecember 31, 2007 (Unaudited) � 2006 (Audited) 2007
(Unaudited) � 2006 (Audited) Consulting revenue before
reimbursements $ 13,164 $ 14,541 $ 55,042 $ 58,843 Reimbursements �
371 � 212 � � 827 � 635 � Total revenue � 13,535 � 14,753 � �
55,869 � 59,478 � Cost of sales before reimbursable expenses 5,932
6,592 26,151 27,336 Reimbursable expenses � 371 � 212 � � 827 � 635
� Total cost of sales � 6,303 � 6,804 � � 26,978 � 27,971 � Gross
profit 7,232 7,949 28,891 31,507 Selling, general and
administrative 5,190 4,403 18,363 16,616 Sublease gain � � � � � �
� � (16 ) Operating income 2,042 3,546 10,528 14,907 Other income,
net � 144 � 129 � � 530 � 362 � Income from continuing operations
before income taxes 2,186 3,675 11,058 15,269 Income tax (benefit)
� 741 � (135 ) � 4,012 � 3,764 � Income from continuing operations
1,445 3,810 7,046 11,505 Gain from discontinued operations, net of
related income tax benefit � � � � � � � � 1 � Net income 1,445
3,810 7,046 11,506 � Earnings per share: Basic: Income from
continuing operations $ 0.13 $ 0.35 $ 0.64 $ 1.06 Gain on
discontinued operations, net of income tax benefit � � � � � � � �
� � Net Income $ 0.13 $ 0.35 $ 0.64 $ 1.06 � Diluted: Income from
continuing operations $ 0.13 $ 0.34 $ 0.63 $ 1.04 Gain on
discontinued operations, net of income tax benefit � � � � � � � �
� � Net Income $ 0.13 $ 0.34 $ 0.63 $ 1.04 Weighted average shares:
Basic 11,040 10,994 10,990 10,812 Diluted 11,181 11,176 11,191
11,065 � � THOMAS GROUP, INC. Selected Consolidated Financial Data
(Amounts stated in thousands) � Selected Segment Revenue Data �
Three Months Ended December 31, Year EndedDecember 31, 2007
(Unaudited) � 2006 (Audited) 2007 (Unaudited) � 2006 (Audited)
North America $ 13,132 $ 14,753 $ 55,398 $ 59,407 Europe 403 � 447
� Asia/Pacific � � � � � 24 � 71 Total revenue $ 13,535 $ 14,753 $
55,869 $ 59,478 � � Selected Balance Sheet Data � December 31,
2007(unaudited) December 31, 2006(audited) Cash $ 11,990 $ 8,484
Trade accounts receivables 9,487 12,318 Total current assets 23,480
22,064 Total assets 25,939 24,043 Total current liabilities 4,157
5,277 Total liabilities 4,395 5,380 Total stockholders� equity
21,544 18,663
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