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| TEAM > SEC Filings for TEAM > Form 10-Q on 10-Nov-2008 | All Recent SEC Filings |
10-Nov-2008
Quarterly Report
also de-emphasizes low margin product sales, which were approximately 70% of
TechTeam A.N.E.'s business.
Revenue increased 8.5% on a year-over-year basis for the third quarter of 2008
over 2007 to $64.2 million. We continue to see strong demand for our services in
the Americas, and we are especially pleased with our new brand name customers
and two new contracts under our USA Contact contract in our U.S. Government
business with the Office of Personnel Management and the Public Building
Service. However, in light of difficult global economic and financial market
conditions, the Company anticipates that there may be a decline in revenue due
to decreased volume from customers affected by the downturn, uncertain times in
our key industry verticals such as the automotive industry, the strengthening of
the U.S. dollar against the other currencies in which the Company conducts
business, and transitions in customer contracts, including our contract with
Canon Europa Nv, which they have chosen not to renew.
Results of Operations
Quarter Ended September 30, 2008 Compared to September 30, 2007
Revenue
Quarter Ended September 30, Increase %
2008 2007 (Decrease) Change
(In thousands, except percentages)
Revenue
Commercial -
IT Outsourcing Services $ 30,452 $ 25,918 $ 4,534 17.5 %
IT Consulting and Systems Integration 6,338 6,746 (408 ) (6.0 )%
Other Services 5,406 5,369 37 0.7 %
Total Commercial 42,196 38,033 4,163 10.9 %
Government Technology Services 21,988 21,118 870 4.1 %
Total revenue $ 64,184 $ 59,151 $ 5,033 8.5 %
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Total Company revenue increased 8.5% to $64.2 million for the third quarter of
2008 through a combination of acquisitions completed in 2008 and 2007 and strong
organic growth (growth without acquisitions) from IT Outsourcing Services.
Excluding revenue from acquisitions that affect year-over-year comparability,
revenue increased 6.8% to $63.1 million for the third quarter of 2008. If
revenue generated in Europe was translated into U.S. dollars at the comparable
average exchange rates for the third quarter of 2007, reported revenue would
have decreased by approximately $1.4 million for the third quarter of 2008. We
are unable to predict the effect fluctuations in international currencies will
have on our revenue in 2008, but given the currently volatile market condition
and the effect on the U.S. dollar, there could be significant revenue
volatility.
IT Outsourcing Services
Revenue from IT Outsourcing Services increased 17.5% to $30.5 million for the
third quarter of 2008, from $25.9 million for the same period in 2007, primarily
as a result of over 31.7% revenue growth in Europe. Our solid revenue growth
reflects our success at being able to grow existing accounts in our Commercial
business by expanding the scope of our services and the geographies in which we
deliver services. The majority of revenue growth in the third quarter occurred
in existing accounts, including existing clients of the Americas to whom we have
expanded our service delivery to include parts of Europe. This growth occurred
despite a reduction in revenue from two projects comprising about 4% of IT
Outsourcing Services revenue in the third quarter of 2007 that concluded and the
related contracts were not renewed at the end of March 2008.
The Company has several IT Outsourcing contracts that expire in 2008 - most
notably the Ford Global SPOC Contract and several accounts in the Americas and
Europe that together comprised 32% of the Company's total revenue in fiscal
2007. While we feel that we are well positioned to renew many of these contracts
in 2008, it is not possible to predict the outcome of these renewals or the
terms under which the renewals will occur.
Ford is the Company's largest Commercial customer. IT Outsourcing Services
revenue generated from Ford globally decreased to $8.5 million for the third
quarter of 2008 from $8.6 million for the same quarter in 2007. Revenue from
Ford declined 18.1% in the Americas as a result of a decline in seats supported
from a reduction in Ford's workforce and the conclusion of a project that did
not renew at the end of March 2008. Revenue in Europe increased from expansion
of the SPOC Program resulting in aggregate growth in Europe of over 26.0%.
Please refer to our discussion of Ford in the "Significant Customers" section of
MD&A.
If IT Outsourcing revenue in Europe was translated into U.S. dollars at the
comparable average exchange rates for the third quarter of 2007, reported
revenue would have decreased by approximately $1.1 million for the third quarter
of 2008. Since most of our international operating expenses are also incurred in
the same foreign currencies in which the associated revenue is denominated, the
net impact of exchange rate fluctuations on gross profit is considerably less
than the estimated impact on revenue.
IT Consulting and Systems Integration
Revenue from IT Consulting and Systems Integration decreased 6.0% to
$6.3 million for the third quarter of 2008, from $6.7 million for the same
period in 2007 driven mainly by a decline in revenue in Europe due to a decrease
in project-based IT Consulting work and the Company's decision to exit certain
application development projects for small, non-strategic customers in Europe as
we continue to refine and focus our business.
Government Technology Services
Revenue from Government Technology Services increased 4.1% to $22.0 million for
the third quarter of 2008, from $21.1 million for the same period in 2007,
primarily due to the acquisition of RL Phillips in 2007. Excluding revenue from
this acquisition, revenue increased 1.2% to $21.4 million for the third quarter
of 2008 due to growth in existing customer programs and, to a lesser extent, new
customer contracts. Please refer to our discussion of the U.S. Federal
Government in the "Significant Customers" section of MD&A.
Gross Profit and Gross Margin
Quarter Ended September 30,
2008 2007
Gross Gross Increase %
Amount Margin % Amount Margin % (Decrease) Change
(In thousands, except percentages)
Gross Profit
Commercial -
IT Outsourcing
Services $ 7,618 25.0 % $ 6,807 26.3 % $ 811 11.9 %
IT Consulting and
Systems
Integration 1,350 21.3 % 1,535 22.8 % (185 ) (12.1 )%
Other Services 1,217 22.5 % 1,371 25.5 % (154 ) (11.2 )%
Total Commercial 10,185 24.1 % 9,713 25.5 % 472 4.9 %
Government Technology
Services 5,974 27.2 % 5,929 28.1 % 45 0.8 %
Total gross profit $ 16,159 25.2 % $ 15,642 26.4 % $ 517 3.3 %
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Consistent with revenue, the increase in gross profit is attributable to a
combination of acquisitions completed in 2008 and 2007 and organic growth from
IT Outsourcing Services. Excluding gross profit contributed by acquisitions that
affect year-over-year comparability, total gross profit increased less than 1%
to $15.8 million for the third quarter of 2008, but gross margin (defined as
gross profit as a percentage of revenue) decreased to 25.0% from 26.4%.
IT Outsourcing Services
Gross profit from IT Outsourcing Services increased 11.9% to $7.6 million for
the third quarter of 2008, from $6.8 million for the same period in 2007, and
gross margin decreased to 25.0% from 26.3%. In the Americas, gross margin
declined primarily from a decrease in Ford due to a decline in seats supported
from a reduction in Ford's workforce and the conclusion of the project noted
earlier that did not renew at the end of March 2008. Please refer to our
discussion of Ford in the "Significant Customers" section of MD&A.
In Europe, gross margin decreased as a result of several factors, including
expanding our service delivery capabilities in Europe and increased labor and
benefit-related costs. During the last four quarters, the Company has expanded
its service delivery capabilities with the establishment of new locations in
Dresden, Germany; Sibiu, Romania; and Stockholm, Sweden. Currently, these
facilities have excess capacity, are underutilized and negatively impacted gross
margin in 2008. Moreover, the competitive environment in Romania is making it
more difficult to recruit and retain employees.
IT Consulting and Systems Integration
Gross profit from IT Consulting and Systems Integration decreased 12.1% to
$1.4 million for the third quarter of 2008, from $1.5 million for the same
period in 2007, and gross margin decreased to 21.3% from 22.8%. Gross margin
increased in the Americas from new project-based work in the Company's
hospitality business. Gross margin declined in Europe primarily due to
challenges from the competitive environment in our application development
business in Romania and a decision to exit certain application development
projects for small, non-strategic customers in Europe as the Company continues
to refine and focus our business.
Government Technology Services
Gross profit from our Government Technology Services segment increased 0.8% to
$6.0 million for the third quarter of 2008, from $5.9 million for the same
period in 2007, while gross margin decreased to 27.2% from 28.1%. The decrease
in gross margin was due to various factors, most notably the increased
requirement for subcontracted resources on several programs. Excluding gross
profit contributed by acquisitions that affect year-over-year comparability,
gross profit was $5.9 million and gross margin was 27.4% for the third quarter
of 2008.
Please refer to our discussion of the U.S. Federal Government in the "Significant Customers" section of MD&A. Geographic Market Discussion
Quarter Ended September 30, Increase %
2008 2007 (Decrease) Change
(In thousands)
Revenue
Commercial -
Americas $ 17,266 $ 17,195 $ 71 0.4 %
Europe 24,930 20,838 4,092 19.6 %
Total Commercial 42,196 38,033 4,163 10.9 %
Government 21,988 21,118 870 4.1 %
Total revenue $ 64,184 $ 59,151 $ 5,033 8.5 %
Gross Margin
Commercial -
Americas 26.2 % 26.0 %
Europe 22.7 % 25.1 %
Total Commercial 24.1 % 25.5 %
Government 27.2 % 28.1 %
Total Gross Margin 25.2 % 26.4 %
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Americas
Revenue and gross margin generated in the Americas was flat compared to the same
period in 2007. The combination of expanded business with existing customers and
new business wins offset revenue declines from Ford, as noted previously, and
from the exit of a non-strategic, low margin contract during the second quarter.
Europe
Revenue generated in Europe increased 19.6% to $24.9 million for the third
quarter of 2008, from $20.8 million for the same period in 2007, due mainly to
solid revenue growth in IT Outsourcing Services and the weakening of the U.S.
dollar against the currencies in which the Company does business. If revenue in
Europe was translated into U.S. dollars at the comparable average exchange rates
for the third quarter of 2007, reported revenue would have decreased by
approximately $1.4 million for the third quarter of 2008. Gross margin from
Europe decreased to 22.7% for the third quarter of 2008, from 25.1% for the same
period in 2007. The decrease was primarily due to expanding IT Outsourcing
Services delivery capabilities with the establishment of new locations in
Dresden, Germany; Sibiu, Romania; and Stockholm, Sweden. Currently, these
facilities have excess capacity and are underutilized. Gross margin in the IT
Consulting and Systems Integration Services also declined due to a decision to
exit certain application development projects for small, non-strategic customers
in Europe and challenges from the competitive environment in our application
development business in Romania, which is making it more difficult to recruit
and retain employees.
Operating Expenses and Other
Quarter Ended September 30, Increase %
2008 2007 (Decrease) Change
(In thousands, except percentages)
Operating Expenses and Other
Selling, general and administrative expense $ 12,373 $ 11,916 $ 457 3.8 %
Net interest expense $ (425 ) $ (413 ) $ (12 ) 2.9 %
Foreign currency transaction loss $ (277 ) $ (20 ) $ (257 ) NM %
Income tax provision $ 1,175 $ 1,218 $ (43 ) (3.5 )%
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Selling, general, and administrative ("SG&A") expense decreased to 19.3% of
total revenue for the third quarter of 2008, from 20.1% of total revenue for the
same period in 2007. As the Company's revenue has grown, we have achieved
greater leverage in our SG&A spending. On a dollar basis, SG&A increased as a
result of expansion of service delivery locations in Europe and investment in
leadership talent. SG&A expense also increased due to the weakening of the U.S.
dollar from the third quarter of 2007.
Net interest expense of $425,000 for the third quarter of 2008 was flat with
interest expense of $413,000 for the same period in 2007. The net interest
expense in both periods was primarily due to interest expense on long-term debt
issued in connection with acquisitions.
For the three months ended September 30, 2008, the consolidated effective tax
rate of 38.1% differs from the statutory tax rate of 34.0% primarily due to
state income taxes, foreign operating losses for which a tax benefit is not
recorded and nondeductible expenses. The Company recorded State of Michigan
income tax expense of $128,000 for the third quarter of 2008. Prior to 2008, the
State of Michigan had a value-added tax called the Single Business Tax that was
not considered an income tax and was, therefore, included in SG&A expense.
Single Business Tax included in SG&A expense totaled $162,000 in the third
quarter of 2007. For the three months ended September 30, 2007, the consolidated
effective tax rate of 37.0% differs from the statutory tax rate of 34.0%
primarily due to state income taxes, foreign operating losses for which a tax
benefit is not recorded and non deductible expenses.
Results of Operations
Nine Months Ended September 30, 2008 Compared to September 30, 2007
Revenue
Nine Months Ended
September 30, Increase %
2008 2007 (Decrease) Change
(In thousands, except percentages)
Revenue
Commercial -
IT Outsourcing Services $ 91,154 $ 75,271 $ 15,883 21.1 %
IT Consulting and Systems Integration 21,283 20,580 703 3.4 %
Other Services 19,358 14,239 5,119 36.0 %
Total Commercial 131,795 110,090 21,705 19.7 %
Government Technology Services 66,230 47,798 18,432 38.6 %
Total revenue $ 198,025 $ 157,888 $ 40,137 25.4 %
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Total Company revenue increased 25.4% to $198.0 million for the nine months
ended September 30, 2008, through a combination of acquisitions completed in
2008 and 2007 and strong organic growth in all product lines. Excluding revenue
from acquisitions that affect year-over-year comparability, revenue increased
14.6% to $181.0 million for the nine months ended September 30, 2008. If revenue
generated in Europe was translated into U.S. dollars at the average exchange
rates in effect for the nine months ended September 30, 2007, reported revenue
would have decreased by approximately $6.6 million for the nine months ended
September 30, 2008. We are unable to predict the effect fluctuations in
international currencies will have on revenue in 2008, but given the uncertain
economic times and the effect on the U.S. dollar, there could be significant
revenue volatility.
IT Outsourcing Services
Revenue from IT Outsourcing Services increased 21.1% to $91.2 million for the
nine months ended September 30, 2008, from $75.3 million for the same period in
2007, primarily as a result of over 35.9% revenue growth in Europe. Our solid
revenue growth reflects our success at being able to grow existing accounts in
our Commercial business by expanding the scope of our services and the
geographies in which we deliver services. The majority of revenue growth
occurred in existing accounts, including existing clients of the Americas to
whom we have expanded our service delivery to include parts of Europe. This
growth occurred despite a reduction in revenue from two projects, comprising
about 4% of IT Outsourcing Services revenue for the nine months ended
September 30, 2007, that concluded and the related contracts were not renewed at
the end of March 2008.
IT Outsourcing Services revenue generated from Ford globally increased to
$27.0 million for the nine months ended September 30, 2008 compared to $26.7
million from the same period in 2007. Revenue from Ford declined 17.4% in the
Americas as a result of a decline in seats supported from a reduction in Ford's
workforce, while revenue in Europe increased from expansion of the SPOC Program
resulting in aggregate growth in Europe of 29.2%. Please refer to our discussion
of Ford in the "Significant Customers" section of MD&A.
If IT Outsourcing revenue in Europe was translated into U.S. dollars at the
average exchange rates in effect for the nine months ended September 30, 2007,
reported revenue would have decreased by approximately $4.7 million for the nine
months ended September 30, 2008. Since most of our international operating
expenses are also incurred in the same foreign currencies in which the
associated revenue is denominated, the net impact of exchange rate fluctuations
on gross profit is considerably less than the estimated impact on revenue.
IT Consulting and Systems Integration
Revenue from IT Consulting and Systems Integration increased 3.4% to
$21.3 million for the nine months ended September 30, 2008, from $20.6 million
for the same period in 2007, due primarily to revenue growth in the Americas.
Revenue in the Americas increased from growth in the Company's hospitality
business and a new project with an existing customer. This increase was
partially offset by a decrease in business with Ford, which resulted from a
reduction in Ford's workforce and also from the tendency of this business to
fluctuate from period to period.
Government Technology Services
Revenue from Government Technology Services increased 38.6% to $66.2 million for
the nine months ended September 30, 2008, from $47.8 million for the same period
in 2007, primarily due to our acquisitions of NewVectors and RL Phillips in
2007. Excluding revenue from these acquisitions, revenue increased 6.6% to
$51.0 million for the nine months ended September 30, 2008 due to growth in
existing customer programs and, to a lesser extent, new customer contracts.
Please refer to our discussion of the U.S. Federal Government in the
"Significant Customers" section of MD&A.
Gross Profit and Gross Margin
Nine Months Ended September 30,
2008 2007
Gross Gross Increase %
Amount Margin % Amount Margin % (Decrease) Change
(In thousands, except percentages)
Gross Profit
Commercial -
IT Outsourcing
Services $ 22,677 24.9 % $ 19,264 25.6 % $ 3,413 17.7 %
IT Consulting and
Systems
Integration 4,581 21.5 % 4,711 22.9 % (130 ) (2.8 )%
Other Services 4,447 23.0 % 3,658 25.7 % 789 21.6 %
Total Commercial 31,705 24.1 % 27,633 25.1 % 4,072 14.7 %
Government Technology
Services 17,983 27.2 % 13,194 27.6 % 4,789 36.3 %
Total gross profit $ 49,688 25.1 % $ 40,827 25.9 % $ 8,861 21.7 %
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Consistent with revenue, the increase in gross profit is attributable to a
combination of acquisitions completed in 2008 and 2007 and organic growth from
IT Outsourcing Services, Government Technology Services and Other Services.
Excluding gross profit contributed by acquisitions that affect year-over-year
comparability, total gross profit increased 9.8% to $44.8 million and gross
margin decreased to 24.8% for the nine months ended September 30, 2008 from
25.9% for the same period in 2007.
IT Outsourcing Services
Gross profit from IT Outsourcing Services increased 17.7% to $22.7 million for
the nine months ended September 30, 2008, from $19.3 million for the same period
in 2007, and gross margin decreased to 24.9% from 25.6%. In the Americas, gross
margin improved primarily due to margin improvements on certain existing
accounts. In Europe, gross margin decreased as a result of several factors,
including expanding our service delivery capabilities in Europe and increased
labor and benefit-related costs. During the last four quarters, the Company has
expanded its service delivery capability in Europe with the establishment of new
locations in Dresden, Germany; Sibiu, Romania; and Stockholm, Sweden. Currently,
these facilities have excess capacity, are underutilized and negatively impacted
gross margin in 2008. Moreover, the competitive environment in Romania is making
it more difficult to recruit and retain employees.
IT Consulting and Systems Integration . . .
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