Encompass Group Announces Results for the Fiscal Year Ended June 30, 2009
Encompass Group Affiliates, Inc. (OTC Bulletin Board: ECGA), a leader in the consumer electronics segment of the reverse logistics industry, today announced financial results for the fiscal year ended June 30, 2009.
“Notwithstanding these difficult and uncertain economic times, we are extremely pleased with our record results of operations for our fiscal year that ended June 30, 2009, which include substantial year-over-year increases in revenue and net income generated by existing operating subsidiaries, as well as from the impact of acquisitions. With the addition of Tritronics, Inc. effective August 1, 2008, Encompass became the largest distributor of consumer electronic product replacement parts and solutions in the nation.” said Wayne I. Danson, President and Chief Executive Officer of Encompass. “Other highlights of the current fiscal year are the success of our ongoing rebranding of the Company’s operating entities, with Vance Baldwin and Tritronics now integrated into and operating as Encompass Parts Distribution, Inc., the award of the Philips Consumer Electronics North American flat-panel display products parts distribution management agreement, the opening of our Las Vegas distribution and service facility, the launching of our Green Choice Parts™ program, the expansion of our board-level repair and service business, and the formation of subsidiaries in Canada and Mexico as part of our expansion into international markets” added Danson.
“We continue to add new customers and innovative customer programs to generate our growth in revenue and profitability. While the present economic conditions present a challenge - as evidenced in part by the bankruptcy and liquidation of Circuit City, formerly a customer - our professional and experienced management team is fully capable of responding instead of just reacting, and thereby continuing our growth trend.” said Steve Miller, Chief Operating Officer of Encompass.
“While our overall fiscal 2009 sales results of 20% plus growth was a significant accomplishment given the poor economic climate, and in particular, the significant slowdown in general retail electronics sales, sales softened during our third and fourth fiscal quarters. For fiscal 2010, we continue to see a slowdown in the consumer electronics industry resulting in slower than expected sales through the first two quarters of fiscal 2010” said Danson. “We anticipate a rebound in the first and second quarters of calendar 2010, or our third and fourth fiscal year quarters, fueled in part, by our international operations” Danson added.
Financial Highlights ($’s in thousands)
For the fiscal year ended June 30, 2009, the Company reported record revenue of $110,084 compared to $64,327 for the fiscal year ended June 30, 2008, an increase of 71.1%. The increase in revenue is attributable to two factors: internal growth of two existing business units, Vance Baldwin, Inc. and Cyber-Test, Inc., and the acquisition of Tritronics, Inc., completed on August 1, 2008. On a pro forma basis, assuming Vance Baldwin and Tritronics had been included in consolidated results in full for both fiscal years, revenue for the fiscal year ended June 30, 2009 would have amounted to $111,974 compared to $92,417 for the prior fiscal year, representing, on a pro forma basis, an increase of $19,557. Although the Company’s revenue growth in fiscal 2009 was adversely impacted by a poor economic climate and the aforementioned bankruptcy and liquidation of Circuit City, year-over-year revenue nonetheless increased by 21.2% on a pro forma basis.
For the fiscal years ended June 30, 2009 and 2008, operating income on a GAAP (generally accepted accounting principles) basis amounted to $7,835 and $2,240, respectively, with net income on a GAAP basis amounting to $2,858 and $4,047, respectively. Fiscal 2009 and 2008 net income includes the effect of an income tax benefit of $1,330 and $4,500, respectively, reflecting the recognition of a portion of the Company’s deferred tax asset attributable to its net operating loss carry forwards.
For the year-to-date periods ended June 30, 2009 and 2008, non-GAAP adjusted net income and non-GAAP adjusted EBITDA amounted to $5,538 and $6,009, respectively, and $11,121 and $4,458, respectively.
Non-GAAP Measures
To supplement our consolidated financial statements presented in accordance with GAAP, we use certain non-GAAP measures of certain components of financial performance. These non-GAAP measures include adjusted net income and adjusted EBITDA. Non-GAAP adjusted net income represents our net income before non-cash stock-based and other compensation expense, amortization of acquisition-related intangible assets, and purchase accounting for inventory and its effect on cost of sales in the period. Non-GAAP adjusted EBITDA represents earnings before interest, taxes, depreciation, amortization of acquisition-related intangible assets, non-cash stock-based and other compensation expense and purchase accounting for inventory and its effect on cost of sales in the period. These non-GAAP measures are provided to enhance investors’ overall understanding of our current financial performance and prospects for the future.
We believe these non-GAAP measures provide useful information to both management and investors by excluding certain expenses that may not be indicative of our core operating measures. We use non-GAAP adjusted net income and non-GAAP adjusted EBITDA as measures of operating performance because they assist us in comparing our operating performance on a consistent basis as such measures exclude the impact of certain items which do not directly result from our core operations. These non-GAAP financial measures should not be considered a substitute for, or superior to, GAAP results.
About Encompass Group Affiliates, Inc.
Encompass Group Affiliates, Inc. (OTC Bulletin Board: ECGA), a New York-based company is a market leader in the end-of- life cycle management of the consumer electronics segment of the reverse logistic industry. Encompass Group, through its wholly-owned subsidiaries, Encompass Parts Distribution, Inc. and Encompass Service Solutions, Inc., provide comprehensive consumer electronics parts distribution, asset recovery, returns management, reverse logistics services, and depot repair and refurbishment services. Encompass Group addresses the full scope of this multi-billion market – including the end-user driven product support and provides single-source lifecycle management services for technology products, currently in the North American market, with accelerating growth towards a global presence. The Company’s market position is based on its distinctive ability to provide single-point, comprehensive value-added lifecycle service on a competitive basis. For more information about Encompass Group Affiliates, visit our website at http://www.encompass.com
Encompass Parts Distribution, Inc. is comprised of the former number two (Vance Baldwin) and number three (Tritronics) parts distributors in the U.S., to create what is now the country’s largest distributor of consumer electronic parts and accessories. Most importantly, Encompass maintains the heritage of focused expertise and personalized service exemplified by both legacy brands. With domestic warehouses in Florida, Georgia, Maryland and Las Vegas, and through Encompass Group International, in Mexico and Canada, Encompass distributes both new and certified reclaimed parts for more than 150 brands of consumer electronics, computers, printers and office equipment. The company also provides service aids and industrial products such as cable, tools, test equipment, cleaners and other installation equipment. For more information about Encompass Parts Distribution, visit our website at www.encompassparts.com
Encompass Service Solutions is comprised of a primary electronic equipment repair center in Orlando Florida, as well as a network of sophisticated repair facilities in Georgia and South Florida. With over 22 years of industry leadership, the company specializes in the repair and advanced exchange of consumer and office electronic equipment, providing parts reclamation services, sophisticated board-level and whole-unit repair to third-party warranty companies, OEMs, national retailers and national office equipment dealers. Encompass Service Solutions offers Level II and Level III call center technical support, service contract administration and support, and asset recovery programs. For more information about Encompass Service Solutions, visit our website at www.equipfix.com
This release and oral statements made from time to time by Encompass Group Affiliates, Inc.’s representatives concerning the same subject matter may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by introductory words such as “expects,” “anticipate,” “plans,” “should,” “believes,” “will,” or words of similar meaning, and by the fact that they do not relate strictly to historical or current facts. Many factors may cause actual results to differ from forward-looking statements, as well as inaccurate assumptions and a broad variety of risks and uncertainties, some of which are known and others of which are not. Known risks and uncertainties include those identified from time to time in the reports filed by Encompass Group Affiliates, Inc. with the Securities and Exchange Commission, which should be considered together with any forward-looking statement. No forward-looking statement is a guarantee of future results or events, and one should avoid placing undue reliance on such statements.
Encompass Group Affiliates, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
June 30, 2009 June 30, 2008 ASSETS Current Assets Cash and cash equivalents $ 5,536 $ 4,008 Restricted cash 1,509 394 Accounts receivable, net 9,677 5,908 Inventory 12,267 3,806 Replacement parts and equipment 297 655 Due from vendors 2,487 1,103 Deferred tax asset 1,400 1,100 Prepaid expenses and other current assets 2,089 870 Total Current Assets 35,262 17,844 Property and equipment, net 1,227 550 Other Assets Intangible assets, net 13,248 9,610 Goodwill 20,627 14,075 Deferred tax asset 4,170 3,400 Other assets 1,836 1,133 Total Other Assets 39,881 28,218
TOTAL ASSETS $ 76,370 $ 46,612
LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Current Liabilities Accounts payable and accrued expenses $ 11,766 $ 8,450 Escrow liability 1,509 394 Senior and other notes payable, current portion 1,596 541 Total Current Liabilities 14871 9,385 Long-Term Liabilities Notes payable, less current portion 37,362 24,759 Deferred tax liability 1,836 -- Series E preferred stock 5360 -- Total Long-Term Liabilities 44,558 24,759 TOTAL LIABILITIES 59,429 34,144 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Series C convertible preferred stock -- -- Series D convertible preferred stock -- -- Common stock 36,152 35,350 Additional paid-in capital 9160 8,347 Accumulated deficit (28,371 ) (31,229 ) Total Stockholders' Equity 16,941 12,468 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 76,370 $ 46,612 Encompass Group Affiliates, Inc.
Consolidated Statement of Operations
(Dollars in thousands, except per share data)
For The Years Ended June 30, 2009 2008
NET SALES $ 110,084 $ 64,327 COST OF SALES 81,562 50,543 GROSS PROFIT 28,522 13,784 OPERATING EXPENSES Depreciation and amortization 2,124 1,245 Selling, general and administrative expenses 18,563 10,299
TOTAL OPERATING EXPENSES 20,687 4,218 Income From Operations 7,835 2,240 OTHER INCOME (EXPENSE) Other income 163 59 Interest expense, net (6,390 ) (2,752 ) TOTAL OTHER (EXPENSE), NET (6,227 ) (2,693 ) INCOME (LOSS) BEFORE INCOME TAX BENEFIT 1,608 (453 ) Income tax benefit, deferred 1,250 4,500 NET INCOME 2,858 4,047 Deemed dividend on preferred stock -- (820 ) Cumulative preferred stock dividend (832 ) (723 )
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 2,026 $ 2,504 Basic net income per share $ - $ - Basic weighted average number of shares outstanding 15,234,964,325 6,300,625,470 Diluted net income per share $ - $ - Diluted weighted average number of shares outstanding 125,746,338,315 116,811,998,990
The reconciliation between the Company’s net income on a GAAP basis to non-GAAP adjusted net income is as follows (dollars in thousands):
Year Ended June 30,
2009 2008 GAAP net income $ 2,858 $ 4,047 Special items: Amortization of acquisition-related intangible assets 1,681 1,048
Stock-based and other non-cash compensation expense 813 676
Effect on cost of sales of inventory purchase accounting 186 238
Non-GAAP adjusted net income $ 5,538 $ 6,009
The reconciliation between the Company’s net income on a GAAP basis to non-GAAP adjusted EBITDA is as follows (in thousands):
Year Ended June 30,
2009 2008 GAAP net income $ 2,858 $ 4,047 Special items: Income taxes (1,250 ) (4,500 ) Interest expense 6,390 2,752 Amortization of acquisition-related intangible assets 1,681 1,048
Depreciation expense 443 197 Stock-based and other non-cash compensation expense 813 676
Effect on cost of sales of inventory purchase accounting 186 238
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