PDSi Reports 2009 Third Quarter Results
COLUMBUS, Ohio–(BUSINESS WIRE)– Pinnacle Data Systems, Inc. (“PDSi”) (NYSE Amex: PNS) today reported its financial results for the three months ended September 30, 2009.
Sales declined 56% to $7.1 million for the 2009 third quarter from $16.1 million for the same quarter in 2008, primarily due to the impact of the weak global economy on demand for the Company’s imaging and telecommunications customers’ products that incorporate PDSi systems.
The 2009 third quarter results include a loss from operations of $0.7 million, or $0.06 per diluted share, and a nonrecurring non-cash charge of $1.6 million, or $0.21 per diluted share, to establish a deferred tax asset valuation allowance. We recorded this valuation allowance in accordance with the applicable accounting standards, which included the consideration of the continuing uncertain economic environment and the Company’s 2009 year-to-date pre-tax loss. This valuation allowance will be adjusted in future profitable periods to recognize the application of deferred tax benefits to future earnings.
John D. Bair, Chairman of the Board and newly reappointed President and Chief Executive Officer, stated, “Since early 2008 we have responded to the impact on our customers’ businesses caused by the weak global economy. We have dramatically reduced our cost structure, shed unprofitable business, and introduced and gained traction in the marketplace with several higher-margin embedded products. In addition, we have scaled PDSi’s service capabilities and increased our operating efficiency. As a result, we have added new customers in new markets while offering a broader line of products with higher PDSi content, and we have established a world-class services operation poised for profitable growth.”
Mr. Bair added, “However, the reduced funding from our imaging and telecommunications business that was critical for new product development led to the changes announced on November 5, 2009. As a result, we will continue to invest in PDSi’s Services business, which has grown 19% since the first quarter of 2009, support current product offerings including specialized integration programs where our engineering and operational expertise are highly valued, and reduce our investment in new embedded product development and sales. In addition, we have made senior and mid-level management changes and staff reductions to flatten the organization structure, reduce overhead costs, and better align our operations with our growth strategy.”
Financial Results
Net Income/Loss
PDSi’s net loss for the 2009 third quarter was $2.1 million, or $0.27 per diluted share, versus net income of $11,000, or $0.00 per diluted share, for the same quarter last year. The 2009 third quarter net loss included a $0.7 million loss from operations and a nonrecurring non-cash charge of $1.6 million, or $0.21 per diluted share, to establish a deferred tax asset valuation allowance.
PDSi’s net loss for the first nine months of 2009 was $3.1 million, or $0.39 per diluted share, compared to a net loss of $0.7 million, or $0.09 per diluted share, for the same period last year. The 2009 year-to-date loss includes the $1.6 million nonrecurring non-cash deferred tax asset valuation allowance recorded in the 2009 third quarter.
Sales
Total sales declined 56% to $7.1 million for the 2009 third quarter from $16.1 million for the same quarter a year ago. Product sales declined 69% to $4.1 million for the 2009 third quarter from $13.3 million for the 2008 third quarter. This decline was attributable to significantly lower sales to larger imaging and telecommunications OEM customers. Service sales increased $0.1 million, or 5%, to $2.9 million for the 2009 third quarter compared to the same quarter in 2008, with higher U.S. sales attributable to the ramp of new programs partially offset by reduced levels of business in the APAC region.
Total sales for the nine months ended September 30, 2009 were $27.0 million compared to $47.6 million in 2008. This decrease primarily was due to the impact of the weak global economy on demand for our OEM customers’ products, especially in the imaging and telecommunications sectors.
Gross Profit
Gross profit declined 51% to $1.6 million for the 2009 third quarter from $3.2 million for the same quarter last year. This decline was principally due to lower sales, especially for PDSi’s larger customers. Gross profit margin increased to 22% for the 2009 third quarter from 20% a year ago despite the significant decline in total sales versus last year. This margin improvement reflects PDSi’s emphasis on higher-margin products and services, as well as operational efficiencies and management of overhead costs.
Gross profit for the nine months ended September 30, 2009 declined to $5.6 million from $8.6 million a year ago primarily due to lower product sales for the year-to-date period. The decline in PDSi’s gross profit was partially offset by a 25% increase in gross profit from the Service segment due to improved operating efficiencies and business mix. PDSi’s gross profit margin for the 2009 year-to-date period increased to 21% from 18% for the same period in 2008. The year-over-year comparison benefitted from an inventory valuation adjustment in the 2008 second quarter and favorable sales mix for the 2008 first quarter attributable to a high-margin end-of-life program for a large OEM customer.
Operating Expenses
Operating expenses declined 27% to $2.3 million for the 2009 third quarter from $3.1 million a year ago, reflecting cost reduction actions taken over the past year to align expenses with anticipated sales revenue. Additional savings from previously implemented cost reduction measures are anticipated to benefit PDSi’s results in future periods.
Operating expenses for the 2009 year-to-date period declined 20% to $7.5 million from $9.5 million for the same period in 2008, which reflects the cumulative impact of cost reduction actions taken over the past year.
Interest Expense
Interest expense for the 2009 third quarter declined 38% to $40,000 from $64,000 for the same quarter last year. For the 2009 year-to-date period, interest expense was $142,000 versus $255,000 in 2008, a decline of 44%.
Debt outstanding was $1.7 million at September 30, 2009 versus $5.4 million at year-end 2008.
Recent PDSi Highlights
Effective October 30, 2009, the Board appointed John D. Bair to the additional positions of President and Chief Executive Officer, management responsibilities he previously held from 1996 to 2006. Mr. Bair was one of the original founders of PDSI in 1989 and has served as Chairman of the Board since 1996. He will continue to serve as Chief Technology and Innovation Officer.
Conference Call
PDSi will not be conducting a conference call for investors and investment professionals to discuss the 2009 third quarter results. Inquiries should be directed to Nick Tomashot, Chief Financial Officer, at our Investor Relations line (614-748-1150).
About PDSi
PDSi is a global provider of services and products for the telecom, imaging, defense/aerospace, medical, semiconductor, industrial automation and IT markets. PDSi provides a variety of engineering and manufacturing services for global OEMs requiring custom product design, system integration, repair programs, warranty management, and specialized production capabilities. With service centers in the U.S., Europe and Asia, we ensure seamless support for solutions all around the world.
In addition to our service offerings, our product capabilities range from board-level designs to globally-certified, fully integrated systems. Our specialties include long-life computer products and unique, customer-centric solutions.
PDSi’s turnkey technical programs help our customers bring their solutions to market faster and provide comprehensive service for the lifecycle of their products.
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 fiscal year ending December 31, 2009. 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:
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.
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Adjustments to reconcile net income (loss) to net cash provided by operating activities:
