Emtec, Inc. Announces Second Quarter 2013 Results

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Emtec, Inc. Announces Second Quarter 2013 Results

As expected, fiscal cliff impacted the quarter and the sequester continues to take its toll, Adjusted EBITDA consistent with same period in the prior year.

SPRINGFIELD, N.J.--(BUSINESS WIRE)-- Emtec, Inc. (OTCQB: ETEC) ("Emtec" or the "Company") announced today that for the quarter ended February 28, 2013, its Adjusted EBITDA, which is defined by management as net earnings (loss) before interest, taxes, depreciation, amortization, retention bonuses, stock-based compensation, severance, earn out liability adjustment, stock warrant expense, restructuring charge, impairment of identifiable intangible assets and impairment of goodwill ("Adjusted EBITDA") increased by $102,000 to $110,000 compared to the second fiscal quarter of last year. Adjusted EBITDA for the six months ended February 28, 2013 was relatively consistent with the same period in 2012. A reconciliation of net loss to Adjusted EBITDA is attached to this press release.


Total revenue for the quarter ended February 28, 2013 decreased by $5.9 million or 12.3% compared to the quarter ended February 28, 2012. Consulting and outsourcing gross profit for the six months ended February 28, 2013 increased by $581,000 or 5.4% versus the six months ended February 29, 2012, which is consistent with the Company's focus on higher margin consulting and outsourcing revenues.

"We continue to experience weakness in demand for both procurement services and consulting services. Numerous projects were put on hold during the quarter. We have remained focused on finding higher margin business and longer term outsourcing engagements with our clients. Despite the drop we continued to improve our profitability through cautious investing and consolidation of our shared services functions. We have attracted and invested in high level sales and delivery talent and are prepared for a rebound in demand," commented Dinesh Desai, the Company's Chief Executive Officer.

Greg Chandler, Chief Financial Officer added, "There was some procurement during the quarter where the client ordered and paid for the project but held off on its delivery. Had we been able to record the procurement revenue associated with this order during the quarter, our Adjusted EBITDA for the quarter would have been approximately $340,000 higher. We believe the sequester, the new tax and other laws including the healthcare laws and the mixed economic news have caused numerous clients to delay their technology buying decisions."

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 accounting principles generally accepted in the United States of America "(GAAP"). 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 loss is the most comparable GAAP measure of the Company's operating results presented in the Company's consolidated financial statements. The Company has made a reconciliation of net loss, the most closely comparable GAAP measure, to these non-GAAP measures for the quarters and six months ended February 28, 2013 and February 29, 2012, 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.

About Emtec:

Emtec, established in 1964, provides technology-empowered business solutions for world-class organizations in the enterprise, federal, state and local government, and education markets. With offices in 14 cities in the U.S., Canada and India, Emtec is big enough to address our client needs but small enough to care. Our local offices, highly-skilled associates, and global delivery capabilities ensure the accessibility and scale to align client's technology solutions with their business needs. Emtec's singular mission is to create "Clients for Life" - long-term relationships that deliver rapid, meaningful, and lasting business value. Our offerings span the entire IT lifecycle: from Consulting through Packaged, Custom, and Cloud Applications as well as a variety of Infrastructure Services.

Certain statements in this document constitute "forward-looking statements" 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 Company's future operating results are dependent upon many factors, including but not limited to: (i) the Company's ability to obtain sufficient capital or a strategic business arrangement to fund its plan of operations when needed; (ii) the Company's ability to build the management and human resources and infrastructure necessary to support the growth of its business; (iii) competitive factors and developments beyond the Company's control; and (iv) other risk factors discussed in the Company's periodic filings with the Securities and Exchange Commission which are available for review atwww.sec.govunder "Search for Company Filings."We 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
UNAUDITED
(In thousands)
 
For the Three Months Ended February 28 and 29For the Six Months Ended February 28 and 29
2013 2012 

$ Change

 % Change2013 2012 

$ Change

 % Change

Revenues

Consulting and outsourcing$22,157$25,169$(3,012)(12.0)%$46,736$50,783$(4,047)(8.0)%
Procurement services 19,711   22,556   (2,845) (12.6)% 53,337   68,972   (15,635) (22.7)%

Total Revenues

41,86847,725(5,857)(12.3)%100,073119,755(19,682)(16.4)%
 

Cost of Revenues

Cost of consulting and outsourcing17,31020,025(2,715)(13.6)%35,39240,020(4,628)(11.6)%
Cost of procurement services 17,148   19,653   (2,505) (12.7)% 46,776   60,308   (13,532) (22.4)%

Total Cost of Revenues

34,45839,678(5,220)(13.2)%82,168100,328(18,160)(18.1)%
 

Gross Profit

Consulting and outsourcing4,8475,144(297)(5.8)%11,34410,7635815.4%
Consulting and outsourcing %21.9%20.4%24.3%21.2%
 
Procurement services2,5632,903(340)(11.7)%6,5618,664(2,103)(24.3)%
Procurement services %13.0%12.9%12.3%12.6%
 

Total Gross Profit

7,4108,047(637)(7.9)%17,90519,427(1,522)(7.8)%

Total Gross Profit %

17.7%16.9%17.9%16.2%
 
Operating expenses:
Selling, general, and administrative expenses7,3018,060(759)(9.4)%15,17316,805(1,631)(9.7)%
Retention bonuses to former owners of acquired entities167292(125)(42.9)%167437(271)(61.9)%
Restructuring charge---0.0%582-5820.0%
Non-cash operating expenses
Stock-based compensation18879109138.0%2832404317.9%
Warrant liability adjustment(284)1,059(1,343)(126.8)%(272)451(723)(160.3)%
Earnout liability adjustment(143)288(431)(149.7)%75945630366.4%
Depreciation and amortization 1,029  1,320  (291) (22.0)% 2,055  2,681  (626) (23.3)%
Total operating expenses 8,258  11,098  (2,840) (25.6)% 18,747  21,070  (2,323) (11.0)%
Percent of revenues19.7%23.3%18.7%17.6%
 
Operating loss (848) (3,051) 2,203  (72.2)% (842) (1,643) 801  (48.8)%
Percent of revenues-2.0%-6.4%-0.8%-1.4%
 
Other expense (income):
Interest income - other(7)(17)10(58.8)%(12)(79)67(84.8)%
Interest expense850799516.4%1,6021,634(32)(2.0)%
Other 6  (1) 7  (700.0)% 17  (3) 20  (666.7)%
 
Loss before income tax benefit(1,697)(3,832)2,135(55.7)%(2,449)(3,195)746(23.3)%
Income tax benefit (644) (1,096) 452  (41.2)% (650) (911) 261  (28.6)%
Net loss$(1,053)$(2,736)$1,683  (61.5)%$(1,799)$(2,284)$485  (21.2)%
Percent of revenues(2.5)%(5.7)%(1.8)%(1.9)%
 
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