Incentra: Fiscal 2Q08 Financial Results

Incentra Solutions, Inc. announced strong year-over-year growth in revenues and operating profit for its second quarter and first six months ended June 30, 2008.

Driven by a 42 percent increase in Services revenue and a 103 percent increase in Product revenue, total revenue in the 2008 second quarter increased 92 percent to $59.2 million, up from $30.8 million in the 2007 second quarter. Services revenue in this year’s second quarter was $7.6 million and Product revenue was $51.6 million, up from $5.4 million and $25.4 million, respectively, in the prior year quarter. Total revenue for this year’s second quarter was up 23 percent sequentially from $48.2 million in the 2008 first quarter.

For the first six months of 2008, total revenue increased 93 percent to $107.5 million from $55.8 million in the year-earlier period. Services revenue for the first six months of 2008 increased 49 percent to $14.7 million and Product revenue grew 102 percent to $92.8 million, up from $9.9 million and $45.9 million, respectively, in the first six months of 2007. The 2008 second quarter and first six months included revenue from the acquisitions of Helio Solutions (Helio) and Sales Strategies, Inc (SSI), which were both completed late in the third quarter of 2007.

Chairman and CEO Thomas P. Sweeney said that Incentra reported its fourth consecutive quarter of operating profit in this year’s second quarter with strong year-over-year increases in both the second quarter and first six months of 2008.

Operating profit in the 2008 second quarter was $1.4 million, up from an operating loss of $0.8 million in last year’s second quarter. For the first six months of 2008, operating profit grew to $1.7 million compared to an operating loss of $1.2 million in the year-earlier period.

"We experienced solid financial and operational gains in virtually every phase of our business during the first half of this year," Sweeney added. "While product revenue growth is in large part due to acquisitions completed in the second half of 2007, our strong growth in services revenues and the increase in operating profit is a direct result of the operational synergies associated with our ability to deliver a broader technology portfolio and higher margin professional services and managed services."

Chief Financial Officer Anthony DiPaolo said: "SG&A costs as a percentage of revenue declined as we continued our efforts to fine tune our operations to match our business model. This has had a positive impact on bottom-line results. SG&A costs, excluding non-cash items, were 17.5 percent and 18.2 percent of revenue, respectively, for the second quarter and first six months of 2008, down from 23 percent and 24.8 percent, respectively, in the year- earlier periods."

Net loss applicable to common shareholders for the 2008 second quarter decreased to $2.3 million, or a loss per share of $0.09, from $3.3 million, or a loss per share of $0.26, for the 2007 second quarter. For the first six months of 2008, net loss applicable to common shareholders decreased to $5.0 million, or a loss per share of $0.19, from $6.3 million, or a loss per share of $0.48, for the prior year period.

Basic and diluted weighted average shares outstanding for the 2008 second quarter and first six months were 26,401,973 and 26,403,550, respectively, compared with 13,075,203 and 13,162,751 in the year-earlier periods. 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 the financing of those acquisitions.

President and Chief Operating Officer Shawn O’Grady said: "We continue to demonstrate that our business strategy and revenue model is working. We are closing new and larger deals, delivering a broader range of higher margin products and services through our expanded organization and increasing our base of recurring revenue. In the first six months of the year, we have added more than 130 new customers, taking market share from our competitors and affirming our views that a complete solutions approach is resonating with the mid-tier market."

Overall gross margin in this year’s second quarter and first six months increased 92 percent and 74 percent, respectively, to $11.3 million and $20.4 million, compared to $5.9 million and $11.7 million, respectively, in the year-earlier periods. Gross margin as a percentage of revenue remained constant at 19.1 percent in the second quarter of 2008 compared to the second quarter of 2007. For the first six months of this year, gross margin as a percentage of revenue was 18.9 percent compared to 21.0 percent for the first six months of last year.

Services gross margin as a percentage of revenue in the second quarter and first six months of 2008 was 30.4 percent and 28.3 percent, respectively, compared to 36.9 percent and 34.5 percent in the prior year periods. Product gross margin percentage in this year’s second quarter and first six months were 17.5 percent and 17.4 percent, respectively, compared to 15.4 percent and 18.1 percent in the respective 2007 periods. The year-over-year decline in Services gross margin percentage is reflective of a higher volume of first call support contracts, which carry a lower margin than other managed services, and an increase in the volume of outside contractors used to deliver professional services engagements.

"While Services gross margin as a percentage of revenue in this year’s second quarter declined when compared to the prior year quarter, the Services gross margin percentage increased substantially from 26.1 percent in the first quarter of 2008 due in large measure to the sale of a broader range of higher margin services across all of our operations," 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 flow 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.