July 31, 2013

Edgewater Reports Second Quarter 2013 Results

WAKEFIELD, Mass., July 31, 2013 (GLOBE NEWSWIRE) -- Edgewater Technology, Inc. (Nasdaq:EDGW), a leading consulting firm that brings a blend of classic and product-based consulting services to its clients, reported financial results for the second quarter ended June 30, 2013.

Second Quarter 2013 Highlights

  • 10% growth in second quarter 2013 sequential quarterly service revenue;
  • 25 new customers during the second quarter of 2013; and
  • Repurchased 201,345 shares of common stock at an aggregate purchase price of $852,000, or $4.23 per share.

Second Quarter 2013 Financial Results vs. Same Year-Ago Quarter

  • Total revenue was $27.9 million compared to $27.2 million;
  • Service revenue was $21.6 million compared to $21.6 million;
  • Gross profit was $10.0 million, or 36.0% of total revenue, compared to $9.5 million, or 34.8% of total revenue;
  • Gross profit margin related to service revenue was 37.7% compared to 39.5%;
  • Utilization was 75.0% compared to 73.2%;
  • Net income was $1.4 million, or $0.12 per diluted share, compared to net income of $134,000, or $0.01 per diluted share;
  • Adjusted EBITDA (a non-GAAP measure) was $2.4 million, or 8.7% of total revenue and $0.21 per diluted share (see "Non-GAAP Financial Measures" below for further discussion of this non-GAAP term), compared to adjusted EBITDA of $1.9 million, or 6.9% of total revenue and $0.16 per diluted share; and
  • Cash flow used in operating activities was $(1.4) million compared to cash flow provided by operating activities of $637,000.

First Half of 2013 Financial Results vs. Same Year-Ago Period

  • Total revenue was $51.4 million compared to $52.5 million;
  • Service revenue was $41.3 million compared to $43.4 million;
  • Gross profit was $17.2 million, or 33.4% of total revenue, compared to $18.0 million, or 34.4% of total revenue;
  • Gross profit margin related to service revenue was 35.2% compared to 38.4%;
  • Utilization was 72.5% compared to 74.3%;
  • Net income was $525,000, or $0.05 per diluted share, compared to net income of $309,000, or $0.03 per diluted share;
  • Adjusted EBITDA (a non-GAAP measure) was $2.6 million, or 5.1% of total revenue and $0.23 per diluted share (see "Non-GAAP Financial Measures" below for further discussion of this non-GAAP term), compared to adjusted EBITDA of $2.9 million, or 5.4% of total revenue and $0.24 per diluted share; and
  • Cash flow used in operating activities was $(3.6) million compared to cash flow used in operating activities of $(508,000).

Management Commentary

"We realized a healthy conversion of our sales pipeline to signed engagements in the second quarter after a challenging back half of 2012 that continued into the beginning of the year. This helped drive the improvement in our top and bottom lines for the quarter," said Shirley Singleton, Edgewater's chairman, president and CEO.

"During the second quarter, we secured first-time engagements with 25 new customers, compared to 21 in the previous quarter, which helped to drive 10% sequential growth in our quarterly service revenue. Both our EPM and Classic Consulting service offerings posted strong sequential quarterly growth while ERP, our third major offering, had a strong sales quarter.

"Our strategy to design and build intellectual property to augment our mix of strategic offerings is having a positive impact on our lead generation and overall sales activity. During the second quarter, Edgewater unveiled two cloud-based applications, which has ignited numerous sales calls and other marketing activities. We expect to identify, build and introduce critical IP, specifically in the healthcare, insurance and manufacturing space.

"Given the positive momentum we are experiencing in our sales pipeline across all of our major offerings, we anticipate a sequential increase in service revenue in the third quarter."

Conference Call and Webcast Information

Edgewater has scheduled a conference call today (Wednesday, July 31, 2013) at 10:00 a.m. Eastern time to discuss its second quarter 2013 results.

Date: Wednesday, July 31, 2013
Time: 10:00 a.m. Eastern Time
Dial-in number: 1-877-713-9347
Webcast: http://ir.edgewater.com/

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Liolios Group at 1-949-574-3860.

A replay of the conference call can be accessed via Edgewater's investor relations web site at http://ir.edgewater.com/ or by dialing 1-855-859-2056 (Conference ID#: 16567621) after 1:00 p.m. Eastern time through August 14, 2013.

About Edgewater

Edgewater Technology, Inc. (Nasdaq:EDGW) is a strategic consulting firm delivering a blend of classic and product-based consulting services. Edgewater addresses the market both vertically by industry and horizontally by product and technology specialty, providing its client base with a wide range of business and technology solutions. As one of the largest IT consulting firms based in New England, the company works with clients to reduce costs, improve processes and increase revenue through the judicious use of technology. Edgewater's brand names include Edgewater Technology, Edgewater Ranzal and Edgewater Fullscope. To learn more, please visit www.edgewater.com.

Forward-Looking Statements

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, including statements concerning our expected third quarter 2013 service revenue, improvements in sales pipeline activity, conversion of our sales pipeline to signed contracts, and future benefits of intellectual property investments in 2013. These forward-looking statements inherently involve certain risks and uncertainties, although they are based on our current plans or assessments which are believed to be reasonable as of the date of this Press Release. Factors that may cause actual results, goals, targets or objectives to differ materially from those contemplated, projected, forecasted, estimated, anticipated, planned or budgeted in such forward-looking statements include, among others, the following possibilities: (1) failure to obtain new customers or retain significant existing customers; (2) the loss of one or more key executives and/or employees; (3) changes in industry trends, such as a decline in the demand for Enterprise Resource Planning and Enterprise Performance Management solutions, custom development and system integration services and/or declines in industry-wide information technology spending, whether on a temporary or permanent basis and/or delays by customers in initiating new projects or existing project milestones; (4) inability to execute upon growth objectives, including new services and growth in entities acquired by our Company; (5) adverse developments and volatility involving geopolitical or technology market conditions; (6) unanticipated events or the occurrence of fluctuations or variability in the matters identified under "Critical Accounting Policies" in our 2012 Annual Report on Form 10-K; (7) delays in, or the failure of, our sales pipeline being converted to billable work and recorded as revenue; (8) termination by clients of their contracts with us or inability or unwillingness of clients to pay for our services, which may impact our accounting assumptions; (9) inability to recruit and retain professionals with the high level of information technology skills and experience needed to provide our services; (10) failure to expand outsourcing services to generate additional revenue; (11) any changes in ownership of the Company or otherwise that would result in a limitation of the net operating loss carry forward under applicable tax laws; (12) the failure of the marketplace to embrace advisory and product-based consulting services; (13) changes in our utilization levels; and/or (14) failure to make a successful claim against the Fullscope escrow account. In evaluating these statements, you should specifically consider various factors described above as well as the risks outlined under "Part I - Item IA Risk Factors" in our 2012 Annual Report on Form 10-K filed with the SEC on March 8, 2013. These factors may cause our actual results to differ materially from those contemplated, projected, anticipated, planned or budgeted in any such forward-looking statements.

Although we believe that the expectations in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, growth, earnings per share or achievements. However, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. Except as required by law, we undertake no obligation to update any of the forward-looking statements after the date of this Press Release to conform such statements to actual results.

 
 
EDGEWATER TECHNOLOGY, INC.
Condensed Consolidated Balance Sheets
(In Thousands)
(Unaudited)
 
 June 30,
2013
December 31,
2012
 Assets    
Cash and cash equivalents $ 11,467 $ 16,651
Accounts receivable, net 23,846 18,281
Prepaid expenses and other current assets 1,605 1,418
Total current assets 36,918 36,350
Property and equipment, net 1,714 1,949
Goodwill and intangible assets, net 13,204 13,243
Other assets 244 247
Total Assets $ 52,080 $ 51,789
     
Liabilities and Stockholders' Equity    
Accounts payable $ 2,338 $ 593
Accrued liabilities 12,817 14,280
Deferred revenue 3,028 2,969
Total current liabilities 18,183 17,842
Other long-term liabilities 978 1,272
Total liabilities 19,161 19,114
Stockholders' Equity 32,919 32,675
Total Liabilities and Stockholders' Equity $ 52,080 $ 51,789
     
Shares Outstanding 10,795 10,897
 
 
EDGEWATER TECHNOLOGY, INC.
Condensed Consolidated Statement of Operations
(In thousands, except per share amounts)
(Unaudited)
 
 Three Months EndedSix Months Ended
 June 30,June 30,
 2013201220132012
Revenue:        
Service revenue $ 21,599 $ 21,587 $ 41,295 $ 43,383
Software 4,331 3,622 6,308 5,006
Reimbursable expenses 1,970 1,978 3,773 4,079
Total revenue 27,900 27,187 51,376 52,468
         
Cost of revenue:        
Project and personnel costs 13,456 13,052 26,766 26,706
Software costs 2,433 2,697 3,656 3,658
Reimbursable expenses 1,970 1,978 3,773 4,079
Total cost of revenue 17,859 17,727 34,195 34,443
Gross profit 10,041 9,460 17,181 18,025
         
Selling, general and administrative 8,072 7,976 15,569 15,917
Embezzlement costs  38 567  72 570
Changes in fair value of contingent consideration  --  8  -- 15
Depreciation and amortization 308 448 623 890
Operating income 1,623 461 917 633
         
Other expense, net  69  196 173  105
Income before income taxes 1,554  265 744 528
         
Tax provision 140 131 219 219
Net income $ 1,414 $ 134 $ 525 $ 309
         
BASIC EARNINGS PER SHARE:        
Basic earnings per share $ 0.13 $ 0.01 $ 0.05 $ 0.03
Weighted average shares outstanding — Basic 10,791 11,288 10,834 11,319
         
DILUTED EARNINGS PER SHARE:        
Diluted earnings per share $ 0.12 $ 0.01 $ 0.05 $ 0.03
Weighted average shares outstanding — Diluted  11,428  11,836  11,447  11,682
         
 
 
EDGEWATER TECHNOLOGY, INC.
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
         
 Three Months EndedSix Months Ended
 June 30,June 30,
 2013201220132012
Cash flow (used in) provided by:        
Operating activities $ (1,351) $ 637 $ (3,551) $ (508)
Investing activities (134) (171) (531) (404)
Financing activities (579) (348) (1,097) (522)
Effect of exchange rates on cash 4 (16) (5) (6)
Net (decrease) increase in cash and cash equivalents $ (2,060) $ 102 $ (5,184) $ (1,440)

Non-GAAP Financial Measures

Edgewater reports its financial results in accordance with generally accepted accounting principles ("GAAP"). Management believes, however, that certain non-GAAP financial measures used in managing the Company's business may provide users of this financial information with additional meaningful comparisons between current results and prior reported results. Certain of the information set forth herein and certain of the information presented by the Company from time to time may constitute non-GAAP financial measures within the meaning of Regulation G adopted by the Securities and Exchange Commission. We have presented herein a reconciliation of these measures to the most directly comparable GAAP financial measure. The non-GAAP measures presented herein may not be comparable to similarly titled measures presented by other companies. As noted below, the foregoing measures have limitations and do not serve as a substitute and should not be construed as a substitute for GAAP performance, but provide supplemental information concerning our performance that our investors and we find useful.

Edgewater views Adjusted EBITDA, Adjusted EBITDA per Diluted Share and Adjusted EBITDA as a Percentage of Total Revenue as important indicators of performance, consistent with the manner in which management measures and forecasts the Company's performance. We believe Adjusted EBITDA measures are important performance metrics because they facilitate the analysis of our results, exclusive of certain non-cash items, including items which do not directly correlate to our business operations. 

The non-GAAP adjustments, and the basis for excluding them, are outlined below:

Income tax provision. The exit of our former significant unrelated operations in 2000 and 2001 created significant net operating loss carry-forwards and deferred tax assets, and the tax provisions that we take under GAAP, for which there is no corresponding federal tax payment obligation for us, and the adjustments that we make to our deferred tax asset, based on the prospects and anticipated future profitability of our ongoing operations, can be significant and can obscure, either significantly, or in part, period-to-period changes in our core operating results.

Depreciation and amortization. We incur expense associated with the amortization of intangible assets that is primarily related to the various acquisitions we have completed. We believe that eliminating this expense from our non-GAAP financial measures is useful to investors because the amortization of intangible assets can be inconsistent in amount and frequency, and is significantly impacted by the timing and magnitude of the individual acquisition transactions, which also vary substantially in frequency from period-to-period.

Stock-based compensation expense. We incur stock-based compensation expense under Financial Accounting Standards Board Accounting Standards Codification Topic 718, "Compensation — Stock Compensation." We exclude this non-cash expense as we do not believe it is reflective of business performance.  The nature of stock-based compensation expense also makes it very difficult to estimate prospectively, since the expense will vary with changes in the stock price and market conditions at the time of new grants, varying valuation methodologies, subjective assumptions and different award types, making the comparison of current results with forward-looking guidance potentially difficult for investors to interpret. Edgewater believes that non-GAAP financial measures of profitability, which exclude stock-based compensation, are widely used by analysts and investors.

Adjustments to contingent consideration earned, at fair value. We are required to remeasure the fair value of our contingent consideration liability related to acquisitions each reporting period until the contingency is settled. Any changes in fair value are recognized as a current period operating expense. The Company believes that excluding these adjustments from its non-GAAP financial measures is useful to investors because they are related to acquisition events and make it difficult to evaluate core operating results.

Direct acquisition costs. We incur direct transaction costs related to acquisitions which are expensed in our GAAP financial statements. Our non-GAAP financial measures exclude the effects of direct acquisition-related costs as we believe these transaction-specific expenses are inconsistent in amount and frequency and make it difficult to make period-to-period comparisons of our core operating results.

Fullscope embezzlement costs. During the second quarter of 2010, we discovered embezzlement activities within Fullscope, Inc. The Company, since the discovery, has incurred non-routine professional services-related expenses addressing the embezzlement issue. Our non-GAAP financial measures exclude the effects of the embezzlement-related expenses as we believe excluding these costs from our non-GAAP financial measures is useful to investors because these expenses are not directly associated with the Company's operations and are inconsistent in amount and frequency, causing difficulties in comparisons of our core operating results.

Lease abandonment charge. During 2011, we recorded a non-cash charge of $2.2 million in connection with the abandonment of certain excess office space at our corporate headquarters. Our non-GAAP financial measures exclude expense associated with the lease abandonment charge as we believe such expense is associated with a non-routine charge, causing difficulties in comparisons of our core operating results.

Interest and other (income) expense, net. We record periodic interest and other (income) and expense amounts in connection with our cash and cash equivalents, capital lease obligations and (gains) and losses on foreign currency transactions. Our non-GAAP financial measures exclude (income) expense associated with these items as we believe such (income) expense is inconsistent in amount and frequency and makes it difficult to make period-to-period comparisons of our core operating results.

We believe that Adjusted EBITDA metrics provide qualitative insight into our current performance; we use these measures to evaluate our results, the performance of our management team and our management's entitlement to incentive compensation; and we believe that making this information available to investors enables them to view our performance the way that we view our performance and thereby gain a meaningful understanding of our core operating results, in general, and from period to period.

 
 
EDGEWATER TECHNOLOGY, INC.
Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA
(In Thousands, except per share amounts)
(Unaudited)
         
 For The Three Months EndedFor The Six Months Ended
 June 30,June 30,
 2013201220132012
         
         
Reported GAAP net income $ 1,414 $ 134 $ 525 $ 309
Add: Income tax provision 140 131 219 219
Add: Depreciation and amortization 426 472 804 932
Add: Stock-based compensation expense 346 358 838 706
Add: Adjustments to contingent   -- 8  -- 15
 consideration earned, at fair value         
Add: Fullscope embezzlement costs 38 567 72 570
Less: Other expense, net 69 196 173 105
Adjusted EBITDA1 $ 2,433 $ 1,866 $ 2,631 $ 2,856
Adjusted EBITDA per diluted share1 $ 0.21 $ 0.16 $ 0.23 $ 0.24
Diluted shares outstanding 11,428 11,836 11,447 11,682
         
Adjusted EBITDA as a % of total revenue1 8.7% 6.9% 5.1% 5.4%
Total revenue $ 27,900 $ 27,187 $ 51,376 $ 52,468
         
         
Adjusted EBITDA, Adjusted EBITDA Per Diluted Share and Adjusted EBITDA as a Percentage of Total Revenue are Non-GAAP performance measures and are not intended to be performance measures that should be regarded as an alternative to, or more meaningful than, GAAP Net Income and Diluted Earnings Per Share. Adjusted EBITDA and Adjusted EBITDA per Diluted Share measures presented may not be comparable to similarly titled measures presented by other companies. Adjusted EBITDA is defined as net income less interest and other (income) expense, net, plus taxes, depreciation and amortization, stock-based compensation expense, adjustments to contingent consideration earned, goodwill and intangible asset impairment charges, direct acquisition costs, costs associated with the Fullscope embezzlement issue and the lease abandonment charge. Adjusted EBITDA per Diluted Share is defined as Adjusted EBITDA divided by the diluted common shares outstanding used in Diluted Earnings per Share calculations, while Adjusted EBITDA as a % of Total Revenue is defined as Adjusted EBITDA divided by Total Revenue.
CONTACT: Company Contact:

         Timothy R. Oakes

         Chief Financial Officer

         1-781-246-3343

         

         Investor Relations:

         Liolios Group, Inc.

         Cody Slach

         1-949-574-3860

         EDGW@liolios.com


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