National TechTeam, Inc. Announces Q4 and 1998 Results
24 February 1999
National TechTeam, Inc. Announces Revenues and Results of Operations for the Fourth Quarter and Calendar Year 1998
$3.2 Million After Tax Loss Principally Due
to Legal Settlement and Accounting Adjustments
DEARBORN, Mich., Feb. 24 -- National TechTeam Inc.
, today reported revenues and results of operations for the
fourth quarter and calendar year ending December 31, 1998. For the fourth
quarter 1998, TechTeam reported record revenues of $33,572,564, a 44% increase
over the $23,297,707 reported for the fourth quarter 1997, and 1998 revenues
of $117,472,918, an increase of 44% over the $81,326,935 reported in calendar
year 1997. The Company reported a net loss for the fourth quarter 1998 of
$(3,591,136), or $(0.26) per share, and a net loss for calendar year 1998 of
$(3,185,978), or $(0.20) per share, including $4.9 million in accounting
adjustments and class action lawsuit related expenses. Also in the fourth
quarter, the Company adjusted previously reported earnings by $2.4 million.
Corporate Services revenues increased 8% to $75,973,270 for calendar year
1998 from $70,276,143 for calendar year 1997 as a result of new business with
new and existing customers. Corporate Services revenues decreased 2% to
$19,633,289 in the fourth quarter 1998 from $20,070,548 in the fourth quarter
1997. The OEM Call Center Services line contributed significantly to overall
revenue growth for the year and quarter. OEM Call Center Services revenues
increased 146% to $27,164,559 for calendar year 1998 from $11,050,792 for
calendar year 1997. Revenues increased 203% to $9,782,301 in the fourth
quarter of 1998 from $3,227,159 in the fourth quarter 1997. Both increases
are attributable to increased services for the Company's joint venture.
Additionally, as a result of the acquisition of TechTeam Capital Group in
January 1998, TechTeam reported revenues from TechTeam Capital Group of
$14,335,089 for calendar year 1998 and $4,156,974 in the fourth quarter of
1998.
Harry A. Lewis, President and Chief Executive Officer, said, "While we are
proud of our record revenue increases and the growth potential of our
businesses, our number one priority is to achieve sustained and predictable
future operating profits. It's become clear to us that our rapid growth --
both internal and through acquisitions -- exceeded the ability of our previous
reporting systems to keep pace. We have changed our reporting systems and
intensified the scrutiny of our internal functions, in conjunction with our
outside auditors. In addition, we have recently hired a General Counsel and a
Director of Financial Review to augment our due diligence procedures and a
C.P.A. for tax, treasury and accounting review. We believe these and other
necessary steps, including management changes, will help clear away roadblocks
to improve our operating profit and realize enhanced shareholder value."
Pre-tax accounting adjustments in the fourth quarter were related to
several items:
* Elimination of $.5 million in 1997 income from the company's OEM call
center services joint venture from TechTeam's 1998 financial results
stemming from a year end 1998 audit of the joint venture's books.
Beginning January 1999, TechTeam will receive a minimum of $600,000 per
year as income from the joint venture's CSP business. This income will
be recognized at a rate of $50,000 per month over the year.
* Adjustments totaling $1.1 million related to accounting errors for
amounts recorded for services provided to and earnings of the joint
venture.
* Adjustments of assets acquired at the time of TechTeam's merger with
Compuflex Inc. The adjustments, recommended by TechTeam's auditors,
resulted in $.5 million in charges to TechTeam's 1998 results.
* Adjustments of $.8 million for TechTeam's self-funded health insurance.
The adjustments were related to "Incurred But Not Reported" claims and
incorrect recording of insurance payments. The adjustments were related
to the second and third quarters of 1998.
* Adjustments to the goodwill recorded in the 1997 purchase of WebCentric
Communications, Inc. and Drake Technologies, Inc. The adjustments
resulted in a $.7 million charge to TechTeam's 1998 results.
* Other estimate revisions aggregating approximately $.5 million.
In addition, as announced on December 24, 1998, TechTeam reached an
agreement in principle to settle all of the consolidated class action lawsuits
that were brought against the Company and certain of its current and former
officers and directors. In connection with this settlement, the Company
recorded a pre-tax charge in the fourth quarter 1998 of $3.2 million for legal
and settlement expenses. The settlement is subject to certain contingencies,
including, but not necessarily limited to, final court approval.
National TechTeam has a strong balance sheet with total assets of over
$118 million, a book value of $6.27 per share, over $61 million of working
capital, and total shareholders equity of approximately $85 million. The
Company has a blue chip customer base, little debt and approximately
13.5 million shares outstanding.
This press release contains statements that are forward-looking. These
statements are based on current assumptions and expectations that are subject
to numerous risks and uncertainties. Actual results may vary significantly
because of factors such as customer demand for the Company's services;
interest rates; events having broad economic impact, such as: overall market
conditions; technological shifts; competition from other service providers and
its effect on pricing; life cycles; costs and timing of new projects; the
effectiveness of cost cutting and measures to improve operating efficiency;
contractual terms and conditions; litigation, including the SEC investigation
involving the Company; and other issues discussed in the Company's most recent
Form 10-Q; and other events and circumstances that cannot be predicted in
terms of outcome or magnitude. Given the uncertainties, risks and the
possibility that the underlying expectations or assumptions may prove
incorrect, actual future results may vary materially from the forward-looking
statements. The Company undertakes no obligation to release publicly any
revision to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
National TechTeam, Inc. is a leading provider of information technology
outsourcing support services to large national and multi-national
corporations, government agencies and service organizations. The Company
offers its services through three global units: (i) Corporate Services, which
provides corporations with help desk support, technical staffing, systems
integration, and instructor-led and computer-based training; (ii) OEM Call
Center Services, which provides end user customers of its clients with inbound
telephone support for their computer products; and (iii) TechTeam Capital
Group, which consists primarily of leasing computer-related hardware and
integrated services to corporate customers. National TechTeam is traded under
the symbol "TEAM".
NATIONAL TECHTEAM, INC.
Fourth Quarter Results of Operations
Quarter Ended December 31 1998 1997
Revenues $33,572,564 $23,297,707
Income/(Loss)
Before Tax Provisions (5,015,577) (293,033)
Tax Provisions (1,424,441) (127,168)
Net Income/(Loss) (3,591,136) (165,865)
Earnings/(Loss) Per Share
Basic (0.26) (0.01)
Diluted (0.26) (0.01)
Weighted Average Number of Common
Shares and Common Share
Equivalents Outstanding
Basic 13,949,544 15,762,867
Diluted 13,991,935 16,364,514
Excludes the effect of adjustments which should have been recorded in
previous quarters in 1998. Such adjustments would have reduced second and
third quarter income before tax provisions by $472,000 ($0.02 per share
after tax) and $1,769,000 ($0.08 per share after tax), respectively.
Calendar Year 1998 1997
Revenues $117,472,918 $81,326,935
Income/(Loss)
Before Tax Provisions (3,497,993) (2,831,085)
Tax Provisions (312,015) (873,242)
Net Income/(Loss) (3,185,978) (1,957,843)
Earnings/(Loss) Per Share
Basic (0.20) (0.12)
Diluted (0.20) (0.12)
Weighted Average Number of Common
Shares and Common Share
Equivalents Outstanding
Basic 15,913,226 15,663,716
Diluted 16,020,441 15,663,716
NATIONAL TECHTEAM, INC.
Supplementary Data for Quarterly Press Release
Fourth Quarter 1998
Fourth Quarter
1998 1997 1998
Over/(Under)
1997
Corporate Services
Corporate
help desk/
call center services $8,850,741 $7,479,181 $1,371,560
Technical staffing 5,987,640 6,832,817 (845,177)
Systems integration 3,398,653 3,858,197 (459,544)
Training programs 1,396,255 1,900,353 (504,098)
19,633,289 20,070,548 (437,259)
OEM Call
Center Services 9,782,301 3,227,159 6,555,142
TechTeam
Capital Group 4,156,974 -- 4,156,974
Total revenues $33,572,564 $23,297,707 $10,274,857
Gross profit
Amount $3,173,714 $2,185,534 $988,180
Percentage 9.5% 9.4% 0.1%
Earnings before interest, taxes, depreciation
and amortization
Amount $(4,804,061) $404,279 $(5,208,340)
Percentage (14.3)% 1.7% (16.0)%
Sales, General and Administrative
Amount $5,006,933 $4,277,288 $729,645
Percentage 14.9% 18.4% (3.4)%
Interest expense
Amount $316,272 $69,492 $246,780
Percentage 0.9% 0% 0.6%
Interest income
Amount $339,203 $897,530 $(558,327)
Percentage 1.0% 3.9% (2.8)%
Income before tax provisions
Amount $(5,015,577) $(293,033) $(4,722,544)
Percentage (14.9)% (1.3)% (13.7)%
Tax provisions
Amount $(1,424,441) $(127,168) $(1,297,273)
Effective tax rate
Federal 30.7% 28.2% 2.5%
Other (3.3)% (22.5)% 19.2%
Total 28.4% 5.7% 22.7%
Year to Date
1998 1997 1998
Over/(Under)
1997
Corporate Services
Corporate
help desk/
call center services $30,057,485 $25,723,610 $4,333,875
Technical staffing 25,524,315 25,010,844 513,471
Systems integration 13,697,839 12,536,713 1,161,126
Training programs 6,693,631 7,004,976 (311,345)
75,973,270 70,276,143 5,697,127
OEM Call
Center Services 27,164,559 11,050,792 16,113,767
TechTeam
Capital Group 14,335,089 -- 14,335,089
Total revenues $117,472,918 $81,326,935 $36,145,983
Gross profit
Amount $15,344,075 $8,520,317 $6,823,758
Percentage 13.3% 17.6% (4.3)%
Earnings before interest, taxes, depreciation
and amortization
Amount $3,867,686 $747,760 $3,119,926
Percentage 3.3% 0.9% 2.4%
Sales, General and Administrative
Amount $15,576,420 $14,320,465 $1,255,955
Percentage 13.3% 17.6% (4.3)%
Interest expense
Amount $1,484,443 $69,492 $1,414,951
Percentage 1.3% 0.1% 1.2%
Interest income
Amount $1,845,014 $3,038,555 $(1,193,541)
Percentage 1.6% 3.7% (2.2)%
Income before tax provisions
Amount $(3,497,993) $(2,831,085) $(666,908)
Percentage (3.0)% (3.5)% 0.5%
Tax provisions
Amount $(312,015) $(873,242) $561,227
Effective tax rate
Federal 24.0% 37.5% (13.5)%
Other (19.8)% (18.7)% (1.1)%
Total 8.9% 18.8% (9.9)%
Fourth Quarter Year to Date
1998 1998
Percentage of Business by Sector
Automotive 31.1% 39.4%
OEM support 29.1% 23.1%
Transportation services 4.9% 5.7%
Financial services 3.9% 4.0%
Government 7.3% 5.4%
Insurance 5.8% 2.7%
All Other 17.8% 19.6%
100.0% 100.0%