Incentra: Fiscal 1Q08 Financial Results

Incentra Solutions, Inc., a provider of complete IT services and solutions to enterprises and managed service providers in North America and Europe, announced results for its first quarter ended March 31, 2008. Total revenues for the 2008 first quarter increased 93 percent to $48.2 million, up from $25.0 million for the 2007 first quarter.

Services revenue in this year’s first quarter was $7.1 million, up 58 percent from $4.5 million in the 2007 first quarter, and Product revenue increased 101 percent to $41.1 million from $20.5 million in the prior year’s first quarter. The 2008 first quarter included revenue from the acquisitions of Helio Solutions (Helio) and Sales Strategies, Inc (SSI), which were completed late in the third quarter of 2007.

Chairman and CEO Thomas P. Sweeney said that operating profit for the first quarter of 2008 increased for the third consecutive quarter to $301,000 compared to a loss of $423,000 in the first quarter of 2007. "The contribution of operating profits by the most recent acquisitions as well as the increasing volume of services delivered were important factors in the achievement of our third consecutive quarter of increasing operating profit," Sweeney added.

"I am also pleased to report that driven by increases in sales of our higher margin First Call and Enhanced First Call maintenance programs, and Managed Services offerings, our base of recurring services revenue in this year’s first quarter continued to grow, increasing 36 percent year-over-year," Sweeney said. "We expect to see continued solid increases in this important revenue stream throughout this year and beyond."

Sweeney said that the Company continues to make solid progress in its drive to become the preeminent complete solutions provider to the mid-tier IT market in North America and, as appropriate, it will focus on expanding its business and geographic footprint.

Chief Financial Officer Anthony DiPaolo said, "The integration of the acquired businesses has proceeded well. We are not only seeing contributions to margins, but also our efforts to integrate and streamline processes and operations have allowed us to significantly reduce SG&A costs as a percentage of revenue. SG&A costs, excluding non-cash items were 19 percent of revenue in the first quarter of 2008, down from 27 percent in the first quarter of 2007."

Net loss applicable to common shareholders for the 2008 first quarter decreased to $2.8 million, or a loss per share of $0.10, from $2.9 million, or a loss per share of $0.22, for the 2007 first quarter. Basic and diluted weighted average shares outstanding for the 2008 first quarter were 26,405,110, compared with 13,250,298 in the prior year first quarter. The year-over-year increase in shares principally reflects the issuance of shares associated with the acquisitions of Helio and SSI, and issuance of shares in payment of fees related to those acquisitions.

President and Chief Operating Officer Shawn O’Grady said, "The strength of our business proposition is evident in the growing acceptance of our service and product offerings. Service revenue is up 58 percent as a result of our continued focus on the delivery of higher margin services inclusive of professional services, first call services and managed storage and security services. Expanded marketing programs and the larger footprint afforded by our acquisitions have resulted in significant increases in new customers and booked business. Our expanding pipeline of business shows that the synergistic benefits of our service offerings and expansion of product offerings will continue to support increasing revenue during 2008. We expect that this will result in increasing margins during 2008."

Overall gross margins in this year’s first quarter, which included the effects of the Company’s acquisition of Helio and SSI, increased 55 percent to $9.0 million compared to $5.8 million in the year earlier period. Gross margin as a percentage of revenue was 19 percent in the first quarter of 2008 compared to 23 percent in the first quarter of 2007. Services gross margin in the first quarter of 2008 was 26 percent, compared to 32 percent in the prior year first quarter. Product gross margin in the quarter was 17 percent compared to 22 percent in the 2007 first quarter.

"The decreases in gross margin as a percentage of revenue were expected as the gross margins of the acquired companies were lower than Incentra’s. As we execute on our integration plan, we expect to see gross margins rise for the acquired companies and the combined company to pre-acquisition levels," O’Grady added.

Outlook for 2008
Exclusive of any acquisitions, Incentra continues to expect 2008 revenue to be between $200 million and $220 million, approximately 35 to 50 percent higher than revenue in 2007, and the Company believes it will be cash positive for the year. Excluding funds which may be required under a possible redemption associated with the Company’s Series A Preferred Stock, Incentra believes its combined operating and non-operating cash flows, cash on-hand and working capital facilities are sufficient to support its business operations and growth plans for 2008.

Incentra Solutions, Inc.