exv99w1
<DOCUMENT>
<TYPE>8-K
<SEQUENCE>1
<FILENAME>h17586e8vk.txt
<DESCRIPTION>I-SECTOR CORPORATION - AUGUST 10, 2004
<TEXT>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
Date of Report: (Date of earliest event reported):
August 10, 2004 (August 10, 2004)
I-SECTOR CORPORATION
(Exact name of registrant as specified in its charter)
<Table>
<S> <C> <C>
DELAWARE 0-21479 76-0515249
(State of Incorporation) (Commission File Number) (IRS Employer Identification No.)
</Table>
6401 SOUTHWEST FREEWAY
HOUSTON, TEXAS 77074
(Address of Registrant's principal executive offices)
(713) 795-2000
(Registrant's telephone number, including area code)
(NOT APPLICABLE)
(Former name or former address, if changed since last report)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
EXHIBIT 99.1 - "I-Sector Corporation - Second Quarter Ended June 30,
2004 Results and Outlook."
ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following announcement of earnings for the quarter ended June 30, 2004 and
the attached Exhibit 99.1 "I Sector Corporation - Second Quarter Ended June 30,
2004 - Results and Outlook" Powerpoint presentation was released on August 10,
2004. The presentation in Exhibit 99.1 is incorporated herein by reference.
HOUSTON--(BUSINESS WIRE)--August 11, 2004--I-Sector Corporation (AMEX:ISR -
News; the "Company") announced today its financial results for its second
quarter ended June 30, 2004.
For the Company's second quarter ended June 30, 2004, compared to the
corresponding prior year period:
o Revenue increased 37.9% to $21.9 million.
o Gross margin percentage improved from 17.2% to 19.6%.
o Gross profit dollars increased 57.5%.
o Selling, general and administrative expenses increased 18.9%.
o Net profitability improved from a net loss of $640,000 to a
profit of $51,000.
o Diluted EPS improved from a loss of $0.18 per share to a
profit of $0.01 per share.
Highlights of second quarter performance as compared to the corresponding prior
year period:
o Revenue sources:
o Product revenue increased 31% and gross margin
remained the same at 11.8%.
o Services revenues increased 88% and gross margin
improved from 18.1% to 34.0%.
o Custom project/Stratasoft software revenue increased
44% and gross margin declined from 62% to 59.2%.
o Reportable segments:
o Internetwork Experts revenue increased 38%, with
product revenue increasing 33% and services revenues
increasing 108%. Gross margin improved from 11.0% to
13.3%. Net operating income improved from a loss of
$16,000 to a profit of $76,000.
o Stratasoft revenue increased 44%, with gross margin
declining from 62.0% to 59.2%. Net operating income
improved to a profit of $152,000 compared to a loss
of $407,000.
o Valerent revenue increased 44%, with product revenue
declining 1% and services revenues increasing 70%.
Gross margin improved from 26.0% to 31.3%. Net
operating income improved to a profit of $136,000
from a loss of $176,000.
o "Corporate," expenses, which consist of
corporate-level expenses that are not allocated to
subsidiaries, increased 29% to $301,000.
Commenting on the second quarter results, James H. Long, CEO of the Company,
stated, "Almost all aspects of our business showed marked improvement in the
second quarter, with improvement in all three revenue sources and all three
reportable subsidiary segments. 88% services revenues growth with substantially
improved services gross margins validates our efforts to achieve improved
results in this higher margin area of our business. All three of our
subsidiaries showed significant improvement in both revenue and operating
income. We accomplished this substantial revenue growth while holding the growth
of selling, general and administrative expenses to only 19%. Moreover, these
year-over-year results were accomplished without the
<PAGE>
benefit of acquisitions during the past year, with our last acquisition having
been in early April, 2003 and therefore contributing to both this quarter and
the prior year quarter. We accomplished these outstanding results while also
achieving other critical business objectives during the quarter, such as
completing a follow-on equity offering, making substantial progress in the
search for acquisition candidates necessary to rapidly create an organization
with a national presence, and moving our Dallas-based organization to new
facilities. We also won several significant contracts during the quarter,
including the largest contract in our history, which will help drive continued
revenue growth going forward. We saw a pickup in customer demand during the
second quarter that is continuing into the third quarter, and this strength in
demand is validating our belief that we are in the beginning stages of the move
towards adoption of converged IP communications by enterprise organizations."
Outlook:
The following statements are made by the Company and are based upon current
expectations. These statements are forward-looking, and actual results may
differ materially. We caution readers to consider this fact and to pay
particular attention to the statements made in the Safe Harbor Statement below.
We do not have contracts in hand that will generate the revenue that we expect
for the current and future quarters for which we provide our outlook. We base
our outlook for the future on input received from our customers, sales staff and
vendor partners, our current view of market conditions, our anticipated sales
and marketing efforts, our anticipated vendor pricing for products that we
resell to our customers, anticipated vendor incentive programs and our
anticipated expense structure.
o We expect revenue for our third quarter ending September 30,
2004 of approximately $24 million to $28 million, which
represents growth of approximately 14% to 32% as compared to
the corresponding prior year period revenue of $21.0 million.
o We expect a net profit of approximately $600,000 to $900,000
for our third quarter ending September 30, 2004, which
represents growth of approximately 209% to 364% as compared to
the corresponding prior year period profit of $194,000. The
variance between the high and low end of such range primarily
dependent upon the level of revenue, the mix of low-margin and
high-margin components of revenue, anticipated variances in
the amount of vendor incentive rebates expected for the
quarter and variances in variable expense items. The
significant improvement compared to the prior year period is
based on expected higher levels of revenue, expected improved
gross margins on product and services revenues and
comparatively lower growth in selling, general and
administrative expenses as compared to the expected higher
levels of revenue.
o Based on the total number of shares outstanding after our
recent equity offering completed in the second quarter, we
expect the fully diluted share count for our third quarter
ending September 30, 2004 to be approximately 5,500,000
shares, which compares to 3,974,298 for the corresponding
prior year period, resulting in per share earnings of $0.11 to
$0.17 based on the range of expected net profit, which
compares to a diluted per share net profit of $0.04 per share
for the corresponding prior year period.
o Providing an outlook for any period further out than the
current quarter is more challenging and is subject to a lesser
degree of accuracy than our current outlook. Attempts to
predict results for periods further in the future than the
current quarter are subject to increased risk and uncertainty
as compared to our attempt to predict the current quarter
results and are based upon the limited information available
to us at this time. That said, our current expectations for
our fourth quarter ending December 31, 2004, are for revenue
of approximately $23 million to $28 million, with net profit
ranging from approximately $200,000 to $400,000. The
sequential decrease in profitability as compared to our
expectations for our third quarter is expected to result
primarily from decreased realizable vendor incentives, which
based on current primary incentive program rules are
recognizable only when received by us (which for current
primary incentive programs is every other quarter, in our
first and third quarters), offset somewhat by expected
sequential growth in services revenues and Stratasoft software
sales.
o The forecasts set forth above are for the current organization
and do not include the effect of any future acquisitions. In
addition to internally generated growth, we anticipate making
selective acquisitions during the next twelve months, and
beyond that we expect will add additional revenue.
<PAGE>
There is no guarantee that any suitable acquisitions will be
identified or that any acquisition transactions will be
consummated.
Regarding the Company's outlook for the future, Mr. Long stated, "We feel more
confident about our outlook than we have in the past. This is based upon growing
optimism of our sales staff and sales management that customers are moving
forward with spending on significant converged IP communications
implementations, recently announced record-sized customer contract wins, the
fact that current "in hand contracts" represent a greater portion of our
forecasted revenue than in the past, and strength early in the current quarter.
We are seeing larger customer transactions, as compared to the past several
years, as customers begin to move forward with fully adopting IP Telephony
technology and perform network infrastructure upgrades necessary to implement IP
Telephony. As we continue to implement larger projects for customers, we expect
to continue to see improving relative services revenue growth, and we expect
that improving services revenues, together with somewhat improved services gross
margins, will continue to enhance operating results. Having consummated our
recent equity offering, we are working towards further increasing our credit
facilities to be able to finance the continued growth of revenue, and moving
forward with discussions with acquisition candidates, which we believe can help
us to continue to drive market share gains and gain entrance to new geographic
markets going forward."
Conference Call:
An investor conference call and webcast will be held by the Company between 8:00
a.m. and 9:00 a.m. Eastern time to present the results and updated outlook as
well as provide an opportunity to answer investor's questions in a public
format. James H. Long, Chairman and Chief Executive Officer, and Mark T. Hilz,
President and Chief Operating Officer will be on the call to present and answer
investor's questions
Investors will have three choices for participating in the call:
o Webcast only: A webcast slide presentation and streaming audio
will enable investors to view a slide presentation, listen to
the conference call and submit written questions to the
Company during the presentation.
o Dial in: Investors that wish to listen to the conference call
via traditional telephone without viewing the slide
presentation may do so by dialing into the call, and will be
able to submit questions during the question and answer period
via telephone.
o Webcast slides and telephone participation during Q&A:
Investors may use the Webcast to view slides and dial into the
conference call in order to submit questions via telephone
during the question and answer session
The conference call and webcast will begin promptly at 8:00 a.m. Eastern time,
and investors should visit the webcast site and/or call into the conference call
telephone number at least 10 minutes prior to that time. In order participate
via the webcast, either Real Player or Windows Media Player will be required.
Investor's can go through a system test by visiting the above Internet URL the
day prior to the conference call, and links to download either Real Player or
Windows Media Player will be available on the web page.
Access to the live webcast and/or conference call will be via:
o Web access: www.I-Sector.com/Q2call
o U.S. toll free dial-in conference call number: (888) 375-0308
o International/toll dial-in conference call number: (703)
708-0713
The content of the conference call will be available approximately one hour
after the end of the call, for seven days. The webcast, including synchronized
audio and slide presentation, will be available by visiting the above Internet
URL, or investors may call (888) 266-2081 or (703) 925-2533 and use access code
532165 to listen to the audio only portion of the call.
<PAGE>
Safe Harbor Statement:
The statements contained in this document and during the related conference call
that are not statements of historical fact (including in particular the
statements made in the Outlook section) including but not limited to, statements
identified by the use of terms such as "anticipate," "appear," "believe,"
"could," "estimate," "expect," "hope," "indicate," "intend," "likely," "may,"
"might," "plan," "potential," "project," "seek," "should," "will," "would," and
other variations or negative expressions of these terms, are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 and involve a number of risks and uncertainties. The actual results of
the future events described in the forward-looking statements in this document
could differ materially from those stated in the forward-looking statements due
to numerous factors, including:
o Market and economic conditions, including capital expenditures
by enterprises for communications products and services
o Whether anticipated contracts from which we expect revenues,
if any, in fact produce revenues, and whether that revenue, if
any, is recognized in the quarters in which we expect it
o The estimated needs of customers as conveyed to the Company
and the nature and volume of products and services anticipated
to be delivered
o The Company's ability to obtain sufficient volumes of products
for resale and maintain its relationship with its key
supplier, Cisco Systems, Inc.
o The continuance of, and the Company's ability to qualify for,
sales incentive programs from its key supplier
o The Company's ability to attract and retain key management,
sales and technical staff
o Risks associated with entry into new markets
o The Company's ability to identify suitable acquisition
candidates and successfully integrate acquired companies
o Broad market acceptance of Cisco-centric IP telephony products
and technology
o The Company's ability to finance continued growth
o Unexpected losses related to customer credit risk
o Catastrophic events
o Uncertainties related to rapid changes in the information and
communications technology industries
o Other risks and uncertainties set forth from time to time in
the Company's public statements and its most recent Annual
Report on Form 10-K for the year 2003
Recipients of this document are cautioned to consider these risks and
uncertainties and to not place undue reliance on these forward-looking
statements. The financial information contained in this release should be read
in conjunction with the consolidated financial statements and notes thereto
included in the Company's most recent reports on Form 10-K and Form 10-Q, each
as it may be amended from time to time. The Company's past results of operations
are not necessarily indicative of its operating results for any future periods.
The Company expressly disclaims any obligation or undertaking to update or
revise 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 upon which any statement is based.
About I-Sector Corporation:
I-Sector Corporation, headquartered in Houston, Texas (AMEX:ISR - News), owns
and operates companies that are engaged in the area of information and
communications technology, with a particular focus on Cisco- centric network
infrastructure and IP telephony solutions. Additional I-Sector information is
available on the Internet at www.I-Sector.com.
<PAGE>
I-SECTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
(Unaudited)
<Table>
<Caption>
Three months ended
June 30,
-----------------------------
2003 2004
------------ ------------
<S> <C> <C>
Revenue:
Products $ 12,703 $ 16,609
Services 1,656 3,109
Custom projects 1,511 2,169
------------ ------------
Total revenue 15,870 21,887
------------ ------------
Cost of goods and services:
Products 11,210 14,650
Services 1,357 2,052
Custom projects 574 886
------------ ------------
Total cost of goods and services 13,141 17,588
------------ ------------
Gross profit 2,729 4,299
Selling, general and administrative expenses 3,562 4,236
------------ ------------
Operating income (loss) (833) 63
Interest and other income, net 96 (26)
------------ ------------
Income (loss) from continuing operations
before benefit from income taxes (737) 37
Income tax benefit (81) (7)
------------ ------------
Net income (loss) from continuing operations (656) 44
Minority interest -- (6)
Discontinued operations:
Gain on disposal of discontinued operations,
net of taxes 16 13
------------ ------------
Net income (loss) $ (640) $ 51
------------ ------------
Net income (loss) per share Basic:
Net income (loss) from continuing operations $ (0.19) $ 0.01
Minority interest -- --
Gain on disposal of discontinued operations,
net of taxes 0.01 --
------------ ------------
Net income (loss) per share $ (0.18) $ 0.01
------------ ------------
Diluted:
Net income (loss) from continuing operations $ (0.19) $ 0.01
Minority interest -- --
Gain on disposal of discontinued operations,
net of taxes 0.01 --
------------ ------------
Net income (loss) per share $ (0.18) $ 0.01
------------ ------------
Shares used in computing net income (loss) per share:
Basic 3,636,441 4,582,790
------------ ------------
Diluted 3,636,441 4,939,206
------------ ------------
</Table>
See notes to consolidated financial statements
<PAGE>
I-SECTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
(Unaudited)
<Table>
<Caption>
Six months ended
June 30,
-----------------------------
2003 2004
------------ ------------
<S> <C> <C>
Revenue:
Products $ 19,427 $ 26,803
Services 2,944 5,053
Custom projects 3,580 4,306
------------ ------------
Total revenue 25,951 36,162
------------ ------------
Cost of goods and services:
Products 17,114 23,142
Services 2,457 3,338
Custom projects 1,375 1,848
------------ ------------
Total cost of goods and services 20,946 28,328
------------ ------------
Gross profit 5,005 7,834
Selling, general and administrative expenses 6,939 7,734
------------ ------------
Operating income (loss) (1,934) 100
Interest and other income, net 106 (6)
------------ ------------
Income (loss) from continuing operations
before benefit from income taxes (1,828) 94
Income tax benefit (81) (1)
------------ ------------
Net income (loss) from continuing operations (1,747) 95
Minority interest -- (6)
Discontinued operations:
Gain on disposal of discontinued operations,
net of taxes 16 2
------------ ------------
Net income (loss) $ (1,731) $ 91
------------ ------------
Net income (loss) per share Basic:
Net income (loss) from continuing operations $ (0.48) $ 0.02
Minority interest -- --
Gain on disposal of discontinued operations,
net of taxes -- --
------------ ------------
Net income (loss) per share $ (0.48) $ 0.02
------------ ------------
Diluted:
Net income (loss) from continuing operations $ (0.48) $ 0.02
Minority interest -- --
Gain on disposal of discontinued operations,
net of taxes -- --
------------ ------------
Net income (loss) per share $ (0.48) $ 0.02
------------ ------------
Shares used in computing net income (loss) per share:
Basic 3,632,978 4,280,599
------------ ------------
Diluted 3,632,978 4,658,296
------------ ------------
</Table>
See notes to consolidated financial statements
<PAGE>
I-SECTOR CORPORATION AND SUBSIDIARIES
SEGMENT STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
(Unaudited)
<Table>
<Caption>
Three months ended June 30,
-------------------------------------------------------
2003 2004
------------------------- -------------------------
Amount % Amount %
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
INX product $ 12,253 77.2 $ 16,354 74.7
INX service 782 4.9 1,625 7.4
---------- ---------- ---------- ----------
Total INX revenue 13,035 82.1 17,979 82.1
---------- ---------- ---------- ----------
Stratasoft - Custom projects 1,511 9.5 2,169 9.9
Valerent product 509 3.2 505 2.3
Valerent service 874 5.5 1,484 6.8
---------- ---------- ---------- ----------
Total Valerent revenue 1,383 8.7 1,989 9.1
Eliminations revenue (59) (0.3) (250) (1.1)
---------- ---------- ---------- ----------
Total revenue 15,870 100.0 21,887 100.0
Cost of sales and service:
INX product 10,846 88.5 14,440 88.3
INX service 757 96.8 1,145 70.5
---------- ---------- ---------- ----------
Total INX cost of sales and
service 11,603 89.0 15,585 86.7
Stratasoft - Custom projects 574 49.9 886 40.8
Valerent product 424 83.3 460 91.1
Valerent service 599 68.5 907 61.1
---------- ---------- ---------- ----------
Total Valerent cost of sales and
service 1,023 74.0 1,367 68.7
Eliminations of cost of sales and
service (59) 100.0 (250) 100.0
---------- ---------- ---------- ----------
Total cost of sales and
service 13,141 82.8 17,588 80.4
Gross profit:
INX product 1,407 11.5 1,914 11.7
INX service 25 3.2 480 29.5
---------- ---------- ---------- ----------
Total INX gross profit 1,432 11.0 2,394 13.3
Stratasoft - Custom projects 937 62.0 1,283 59.2
Valerent product 85 16.7 45 8.9
Valerent service 275 31.5 577 38.9
---------- ---------- ---------- ----------
Total Valerent gross profit 360 26.0 622 31.3
---------- ---------- ---------- ----------
Total gross profit 2,729 17.2 4,299 19.6
Selling, general and administrative
expenses:
INX 1,448 11.1 2,318 12.9
Stratasoft 1,344 88.9 1,131 52.1
Valerent 536 38.8 486 24.4
Corporate 234 (NA) 301 (NA)
---------- ---------- ---------- ----------
Total selling, general and
administrative expenses 3,562 22.4 4,236 24.1
Operating income (loss):
INX (16) (0.1) 76 0.4
Stratasoft (407) (26.9) 152 7.0
Valerent (176) (12.7) 136 6.8
Corporate (234) (NA) (301) (NA)
---------- ---------- ---------- ----------
Total operating income (loss) (833) (5.2) 63 0.3
Interest and other income (expense),
net 96 0.6 (26) (0.1)
---------- ---------- ---------- ----------
Income (loss) from continuing
operations before benefit for income
tax benefit (737) (4.6) 37 0.2
Benefit for income taxes (81) (0.5) (7) 0.0
---------- ---------- ---------- ----------
Net income (loss) from continuing
operations (656) (4.1) 44 0.3
Minority interest -- 0.0 (6) 0.0
Discontinued operations:
Gain on disposal, net of taxes 16 0.1 13 0.0
---------- ---------- ---------- ----------
Net income (loss) $ (640) (4.0) $ 51 0.3
---------- ---------- ---------- ----------
</Table>
<PAGE>
I-SECTOR CORPORATION AND SUBSIDIARIES
SEGMENT STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
(Unaudited)
<Table>
<Caption>
Six months ended June 30,
-------------------------------------------------------
2003 2004
------------------------- -------------------------
Amount % Amount %
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
INX product $ 18,840 72.6 $ 26,415 73.0
INX service 1,334 5.1 2,538 7.0
---------- ---------- ---------- ----------
Total INX revenue 20,174 77.7 28,953 80.0
---------- ---------- ---------- ----------
Stratasoft - Custom projects 3,580 13.8 4,306 11.9
Valerent product 703 2.7 839 2.3
Valerent service 1,685 6.5 2,515 7.0
---------- ---------- ---------- ----------
Total Valerent revenue 2,388 9.2 3,354 9.3
Eliminations revenue (191) (0.7) (451) (1.2)
---------- ---------- ---------- ----------
Total revenue 25,951 100.0 36,162 100.0
Cost of sales and service:
INX product 16,690 88.6 22,822 86.4
INX service 1,274 95.5 1,735 68.4
---------- ---------- ---------- ----------
Total INX cost of sales and
service 17,964 89.0 24,557 84.8
Stratasoft - Custom projects 1,374 38.4 1,848 42.9
Valerent product 615 87.5 771 91.9
Valerent service 1,184 70.2 1,603 63.7
---------- ---------- ---------- ----------
Total Valerent cost of sales and
service 1,799 75.3 2,374 70.8
Eliminations of cost of sales and
service (191) 100.0 (451) 100.0
---------- ---------- ---------- ----------
Total cost of sales and
service 20,946 80.7 28,328 78.3
Gross profit:
INX product 2,150 11.4 3,593 13.6
INX service 60 4.5 803 31.6
---------- ---------- ---------- ----------
Total INX gross profit 2,210 11.0 4,396 15.2
Stratasoft - Custom projects 2,206 61.6 2,458 57.1
Valerent product 88 12.5 68 8.1
Valerent service 501 29.7 912 36.3
---------- ---------- ---------- ----------
Total Valerent gross profit 589 24.7 980 29.2
---------- ---------- ---------- ----------
Total gross profit 5,005 19.3 7,834 21.7
Selling, general and administrative
expenses:
INX 2,393 11.9 4,202 14.5
Stratasoft 2,941 82.2 2,150 49.9
Valerent 1,096 45.9 876 26.1
Corporate 509 (NA) 506 (NA)
---------- ---------- ---------- ----------
Total selling, general and
administrative expenses 6,939 26.7 7,734 21.4
Operating income (loss):
INX (183) (0.9) 194 0.7
Stratasoft (735) (20.5) 308 7.2
Valerent (507) (21.2) 104 3.1
Corporate (509) (NA) (506) (NA)
---------- ---------- ---------- ----------
Total operating income (loss) (1.934) (7.4) 100 0.3
Interest and other income (expense),
net 106 0.4 (6) 0.0
---------- ---------- ---------- ----------
Income (loss) from continuing
operations before benefit for income
tax benefit (1,828) (7.0) 94 0.3
Benefit for income taxes (81) (0.3) (1) 0.0
---------- ---------- ---------- ----------
Net income (loss) from continuing
operations (1,747) (6.7) 95 0.3
Minority interest -- 0.0 (6) 0.0
Discontinued operations:
Gain on disposal, net of taxes 16 0.0 2 0.0
---------- ---------- ---------- ----------
Net income (loss) $ (1,731) (6.7) $ 91 0.3
---------- ---------- ---------- ----------
</Table>
----------
Contact:
I-Sector Corporation
James H. Long, 713-795-2000
or
PR Financial Marketing LLC
Jim Blackman, 713-256-0369
jimblackman@prfinancialmarketing.com
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: August 10, 2004
I-SECTOR CORPORATION
By: /s/ JAMES H. LONG
--------------------------------
James H. Long
Chief Executive Officer, Chief
Financial Officer, President and
Chairman of the Board
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
99.1 -- "I-Sector Corporation - Second Quarter Ended June 30, 2004
Results and Outlook."
</TEXT>
</DOCUMENT>
EX-99.1 2 h17586exv99w1.htm
SECOND QUARTER ENDED RESULTS AND OUTLOOK
| I-Sector Corporation AMEX: ISR Second Quarter Ended June 30, 2004
Results and Outlook |
| Safe
Harbor Statement This presentation contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of
1995. Statements associated with words such as "anticipate," "believe,"
"expect," "hope," "should," "will" or other similar words are
forward-looking statements. Actual events, performance or results may
differ materially from those indicated due to numerous factors, many of
which we have little or no control over, and some of which we may not be
successful in addressing. Numerous of these factors are set forth in our
financial results press release issued today as well as in our 2003 annual
report on Form 10-K, which we urge you to read. This presentation is made
as of August 11, 2004. We will not revise or update the forward looking
statements contained herein as events and circumstances change. AMEX: ISR
|
| 2nd
Quarter Consolidated Results Of Operations AMEX: ISR Quarter Ended June
30, 2003 2004 Change Revenue $15,870 $21,887 38% Gross profit 2,729 4,299
58% Gross margin 17.2% 19.6% SG&A expenses 3,562 4,236 19% Net income
(loss) (640) 51 Diluted shares 3,636 4,939 EPS (0.18) 0.01 Unaudited; In
thousands, except EPS |
| 2nd
Quarter Results Compared To Our Guidance AMEX: ISR Revenue was $21.9
million vs. guidance of $20-$23 million. Net profit was $51,000 vs.
guidance of $150,000-$350,000. Net profit was below the mid-point of
guidance even though revenue was with guidance primarily because of four
issues totaling about 0.9% of revenue: Higher margin Stratasoft revenue
was below our expectation $100,000 (+/-) Internetwork Experts personnel
costs higher than planned $ 85,000 Equity offering expenses not allocated
to offering cost $ 32,000 Settlement of EEOC/former employee matter $
24,000 Legal fees higher than expected $ 20,000 Unaudited
|
| YTD
/ 6 Months Consolidated Results Of Operations AMEX: ISR 6 Months Ended
June 30, 2003 2004 Change Revenue $25,951 $36,162 39% Gross profit 5,005
7,834 57% Gross margin 19.3% 21.7% SG&A expenses 6,939 7,734 11% Net
Income (loss) (1,731) 91 Diluted shares 3,633 4,658 EPS (0.48) 0.02
Unaudited; In thousands, except EPS |
| 2nd
Quarter Consolidated Revenue Sources AMEX: ISR Quarter Ended June 30, 2003
2004 Change Product sales $12,703 $16,609 31% Gross margin 11.8% 11.8%
Services 1,656 3,109 88% Gross margin 18.1% 34.0% Custom
projects/Stratasoft software 1,511 2,169 44% Gross margin 62.0% 59.2%
Unaudited; In thousands |
| Internetwork Experts, Inc. AMEX: ISR Quarter Ended June 30, 2003
2004 Change Unaudited, In thousands 2nd Qtr Subsidiary / Segment Results
Operating Results Revenue Sources Product sales $12,253 $16,354 33% Gross
profit 1,407 1,914 36% Gross margin 11.5% 11.7% Services $ 782 $ 1,625
108% Gross profit 25 480 1,820% Gross margin 3.2% 29.5% Revenue $13,035
$17,979 38% Gross profit 1,432 2,394 67% Gross margin 11.0% 13.3% SG&A
expenses 1,448 2,318 60% Operating income (16) 76
|
| Stratasoft, Inc. AMEX: ISR Quarter Ended June 30, 2003 2004 Change
Operating Results Revenue $1,511 $2,169 44% Gross profit 937 1,283 37%
Gross margin 62.0% 59.2% SG&A expenses 1,344 1,131 (16%) Operating
income (407) 152 2nd Qtr Subsidiary / Segment Results Unaudited; In
thousands |
| Valerent, Inc. AMEX: ISR Quarter Ended June 30, 2003 2004 Change
Unaudited, In thousands Operating Results Revenue Sources Product sales $
509 $ 505 (1%) Gross profit 85 45 (49%) Gross margin 17.1% 8.7% Services $
874 $ 1,484 70% Gross profit 275 577 111% Gross margin 31.4% 38.9% Revenue
$ 1,383 $ 1,989 44% Gross profit 360 622 72% Gross margin 26.0% 31.3%
SG&A expenses 536 486 (9%) Operating income (176) 136 2nd Qtr
Subsidiary / Segment Results |
| Selected Balance Sheet Information AMEX: ISR Dec 31, Jun 30, 2003
2004 (unaudited) Assets: Cash $ 2,172 $ 7,220 Accounts receivables, net
9,802 13,253 Inventory 1,038 1,949 Non-current assets 3,124 3,032
Liabilities: Debt $ 2,013 $ 272 Accounts payable 6,524 9,801 Accrued
expenses 2,676 2,828 Stockholders' equity $ 6,619 $14,335 In thousands
|
| AMEX: ISR Dec 31, Jun 30, 2003 2004 Change On-hand inventory $ 418
$ 555 33% In-transit inventory 209 1,060 407% Other inventory categories
411 334 (18.3%) Total balance sheet inventory $ 1,038 $ 1,949 88% Most of
inventory increase was "in-transit inventory" This is an indicator of
activity at quarter-end in which Cisco ships product in the last days of
the quarter - such inventory is sold to customer the next month.
Unaudited, In thousands Balance Sheet - Inventory
|
| 2nd
Quarter Achievements Road show and completed equity offering. Moved Dallas
office to new facilities. New contracts: Contract expected to generate $25
to $35 million over four quarters. Contract to implement 3,500 IP
Telephony phones with expected revenue of $1.7 million over two quarters.
Began process of increasing credit facility used to purchase Cisco
products; temporary credit line increase is in place; working to increase
credit facility from $15 million to $25 million. Stratasoft introduced new
work flow management application for Cisco IP communications. Started
acquisition expansion effort. AMEX: ISR |
| Status Of Our Search For Accretive Acquisitions Identified over 50
organizations in U.S. that might be targets. Target organizations range in
size from approximately $5 million to $50 million in annual revenues.
Visited with and engaged in discussions with six firms ranging in size
from approximately $10 million to $20 million in annual revenue. AMEX: ISR
|
| Outlook / Forecast for Q3 and Q4 Revenue growth of 14%-29% to
$24-$28 million compared to $21.0 million Net profit of $600,000 to
$900,000 compared to a profit of $194,000. Diluted EPS of $0.11 to $0.17
on 5,500,000 shares compared to $0.04 on 3,974,298 shares. AMEX: ISR Third
Quarter Ending 9/30/04 Revenue growth of 58%-77% to $24-$27 million. Net
profit of $200,000 to $400,000 compared to a loss of $299,000. Diluted EPS
of $0.04 to $0.07 on 5,600,000 shares compared to a loss of $0.08 on
3,874,730 shares. Fourth Quarter Ending 12/31/04 Forward-looking statement
subject to risks. Please see Safe Harbor Statement
|
| Annual Trend Based On Mid-Point Of Outlook For Q3 and Q4 2000 2001
2002 2003 2004 Revenue 17.087 23.62 42.021 62.152 87.66 AMEX: ISR 2004
data is a based on mid-range of outlook for Q3 and Q4 and is subject to
risks. Please see Safe Harbor Statement 2000 2001 2002 2003 2004 -5.36
-4.278 -2.356 -2.334 1.141 Revenue Net Profit (Loss)
|
| Our
Optimism Is Growing AMEX: ISR Forward-looking statement subject to risks.
Please see Safe Harbor Statement It appears that customer demand is
growing and that the move to "full adoption" of IP Telephony and converged
IP Communications technology is moving forward. Our expectation for
revenues is for record levels of revenue over the next two reportable
quarters. The current quarter started off very strong. The percentage of
our current and next quarter revenue forecast that is supported by
"contracts in hand" is the highest ever. Demand by our customers for our
higher gross margin services appears to be stronger than ever before. We
are optimistic that there are at least several acquisition targets that
are a good fit and which could be closed relatively quickly.
|