IRVINE, Calif., Nov. 20 /PRNewswire-FirstCall/ -- DynTek, Inc. (BULLETIN BOARD: DYNK) , today announced results for its first fiscal quarter ended September 30, 2006.
"This quarter marks the second consecutive quarter of positive adjusted EBITDA, which demonstrates that our business plan is driving sustainable results," said Casper Zublin, Jr., DynTek's chief executive officer. "Overall, we are pleased with the direction of the business. Our recent acquisitions of TekConnect and Sensible Security Solutions have helped us achieve additional critical mass in several core geographies and expand our technical and sales capabilities. We will continue to evaluate acquisition opportunities that can bring immediate economic value to the business and positively impact the bottom line. In addition, our organic growth, healthy balance sheet and decreasing G&A costs are all leading indicators that we have the financial foundation to support our future growth plans."
First Quarter Results
Excluding one-time and non-cash expenses, the company reported positive adjusted EBITDA of approximately $208,000 for the three months ended September 30, 2006, as compared to negative adjusted EBITDA of approximately $291,000 for the same period in the prior fiscal year.
For the three months ended September 30, 2006, our revenues decreased to approximately $21,777,000 from approximately $23,435,000 for the three months ended September 30, 2005. The decrease of $1,658,000, or 7%, is principally attributable to the winding down of activities in our former Business Process Outsourcing segment of $985,000 and a decline of $673,000 in our IT solutions business.
Gross profit decreased from $4,114,000 in the quarter ended September 30, 2005 to $3,616,000 in the quarter ended September 30, 2006, a decrease of 12%. Gross margin declined slightly from approximately 18% in the quarter ended September 30, 2005 to approximately 17% for the same period in 2006 as a result of a change in our product/services revenue mix. Our services margin remained approximately the same at 29% for the two comparative periods while our product margins improved slightly from 12% to 13% as a result of qualifying for certain vendor rebate programs. Product margins are subject to competitive pricing pressures and fluctuate from period to period depending on the mix of products the company provides. We intend to meet the challenges of aggressive price reductions and discount pricing by certain product suppliers by focusing our offerings around relatively higher margin practice areas, including security solutions, Voice-over-IP, and access infrastructure. There can be no assurance that we will be able to improve profit margins, especially for our sale of products, and compete profitably in all areas, given the intense competition that exists in the IT industry.
General and administrative expenses decreased to approximately $1,343,000 for the three months ended September 30, 2006, from approximately $1,434,000 for the three months ended September 30, 2005. As a percent of revenues, general and administrative expenses remained unchanged between the two periods at approximately 6%. The decrease is due to restructuring and cost reduction programs implemented in 2005 offset by a $328,000 non-cash expense for stock option grants, the value for which was calculated using a black scholes pricing model on the fair value of the options on the date granted.
The company realized a net loss for the three months ended September 30, 2006 of $2,584,000 compared a net loss of $1,682,000 for the three months ended September 30, 2005. Loss from operations during the three months ended September 30, 2006 includes depreciation and amortization expense of $693,000, non-cash stock based compensation expense of $528,000, and interest expense of $1,554,000 (including non-cash interest of $1,150,000). Loss from operations during the three months ended September 30, 2005 includes depreciation and amortization expense of $730,000, non-cash stock based compensation expense of $205,000, and interest expense of $734,000 (including a non-cash portion of $185,000).
The Company defines EBITDA as net income (loss) before interest, taxes, depreciation and amortization, goodwill impairment charges, and non-cash expense for securities. Other companies may calculate EBITDA differently. Although EBITDA is a widely used financial indicator of a company's ability to service debt, it is not a recognized measure for financial statement presentation under GAAP. EBITDA should not be considered in isolation or as superior or as an alternative to net income (loss) or to cash flows from operating activities as determined in accordance with generally accepted accounting procedures. Nonetheless, the Company believes that EBITDA can be a useful supplemental tool for investors and others to measure operating performance, especially in situations where a company has significant non-cash operating expenses. EBITDA is widely used in the IT services industry to analyze comparable company performance, and management of the Company also uses EBITDA, in addition to GAAP information, as a measure of operating performance for assessing its business units as well as completed and potential acquisitions.
DYNTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited Adjusted EBITDA Presentation
(in thousands)
Three Months Ended
September
2006 2005
Total revenues 21,777 23,435
Total cost of revenues 18,161 19,321
GROSS PROFIT 3,616 4,114
Total operating expenses 3,408 4,405
Adjusted EBITDA 208 (291)
Depreciation and amortization 693 730
Stock-based compensation 528 205
LOSS FROM OPERATIONS (1,013) (1,226)
OTHER INCOME (EXPENSE):
Interest expense (1,554) (734)
Interest income 19 9
Gain on marketable securities -- 54
Other income (expense) 2 (1)
Total other income (expense) (1,533) (672)
LOSS FROM CONTINUING OPERATIONS $(2,546) $(1,898)
INCOME TAX 38 --
Gain on disposal of discontinued operations -- 216
NET LOSS $(2,584) $(1,682)
OTHER COMPREHENSIVE, NET OF TAX
Foreign currency translation gain 12 --
COMPREHENSIVE LOSS (2,572) (1,682)
About DynTek
DynTek is a leading provider of professional technology services to mid-market companies, such as state and local governments, educational institutions and commercial entities in the largest IT markets nationwide. The company offers technology practices in IT security, advanced network infrastructure, voice over internet protocol ("VOIP"), and access infrastructure. DynTek's multidisciplinary approach allows our clients to turn to a single source for their most critical technology requirements. For more information, visit http://www.dyntek.com/.
This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Investors are cautioned that certain statements in this release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and involve known and unknown risks, uncertainties and other factors. Such uncertainties and risks include, among others, success in reaching target markets for services and products in a highly competitive market and the ability to maintain existing and attract future customers; the ability to finance and sustain operations, including the ability to comply with the terms of working capital facilities and/or other term indebtedness of the Company, and to extend such obligations when they become due, or to replace them with alternative financing; the ability to raise equity capital in the future; the ability to achieve profitability despite historical losses from operations; the ability to maintain business relationships with IT product vendors and the ability to procure products as necessary; the size and timing of additional significant orders and their fulfillment; the continuing desire of and available budgets for state and local governments to outsource to private contractors; the ability to successfully identify and integrate acquisitions; the retention of skilled professional staff and certain key executives; the performance of the Company's government and commercial technology services; the continuation of general economic and business conditions that are conducive to outsourcing of IT services; the ability to maintain trading on the NASD OTC Bulletin Board or other markets in the future; and such other risks and uncertainties included in our Annual Report on Form 10-K filed on October 13, 2006, our Quarterly Report on Form 10-Q filed on November 20, 2006 and other SEC filings. The Company has no obligation to publicly release the results of any revisions, which may be made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements.
