Emtec, Inc. Announces Fiscal 2012 Results

  Emtec, Inc. Announces Fiscal 2012 Results

Business Wire

SPRINGFIELD, N.J. -- December 14, 2012

Emtec, Inc. (OTCBB: ETEC) (“Emtec” or the “Company”) announced today that for
the year ended August 31, 2012, the Company reported positive Adjusted EBITDA
(as defined below) of $5.8 million, which reflects growth of over 51% versus
Adjusted EBITDA of $3.8 million for the year ended August 31, 2011. Consulting
and outsourcing revenue increased by 39% when compared to the year ended
August 31, 2011.

Revenue increased to $224.6 million for fiscal year 2012 from $212.1 million
in the fiscal year 2011, an increase of 5.9%. Gross Profit increased by $4.9
million to $38.0 million for the year ended August 31, 2012 from $33.1 million
for the year ended August 31, 2011 Adjusted EBITDA, which is defined by
management as net income before interest, taxes, depreciation, amortization,
impairment charges, retention bonuses, non-essential overhead, stock-based
compensation, executive recruiting fees, severance, ERP capitalized costs,
earn out liability adjustment and stock warrant expense (“Adjusted EBITDA”),
was $5.8 million for the year ended August 31, 2012 versus $3.8 million for
the year ended August 31, 2011. A reconciliation of net loss to EBITDA and
Adjusted EBITDA is attached to this press release.

EBITDA and Adjusted EBITDA are key financial metrics used by the Company’s
Board of Directors and management to evaluate and measure the Company’s
operating performance. These metrics are not in conformity with generally
accepted accounting principles in the United States of America (“GAAP”).
Management’s calculation of EBITDA eliminates the effect of charges primarily
associated with financing decisions, tax regulations and capital investments.
Adjusted EBITDA also eliminates certain unusual costs and reflects certain
changes in the business made by management and includes adjustments which in
the opinion of management are necessary to reflect the underlying ongoing
operations of the business. Net loss is the most comparable GAAP measure of
the Company’s operating results presented in the Company’s consolidated
financial statements. The Company has made a reconciliation of net income
(loss), the most closely comparable GAAP measure, to these non-GAAP measures
for the years ended August 31, 2012 and 2011 and discussed these adjustments
in this release. EBITDA and Adjusted EBITDA should not be considered as an
alternative to net loss or any other GAAP measure of performance or liquidity,
and may not be comparable to other similarly titled measures of other
companies. Management believes that the presentation of EBITDA and Adjusted
EBITDA is important to investors because Adjusted EBITDA is used by management
to evaluate financial performance and continuing operations and to determine
resource allocation for each of our business segments.

“We have had several successes this year that led to top line growth. We
started a multi-year outsourcing deal with a new commercial client, our
Federal business posted solid growth on the top and bottom lines, and our
Education business returned to growth and profitability after three quarters
of difficult project delays. We integrated our new acquisitions and spread
their talent and expertise across our Company. Several new hires in our
practices have taken our Company to a new level including a new head of our
offshore operations and a new application services lead. We hired new key
sales talent from other large systems integrators who bring with them years of
sales experience. Our shared services leadership was upgraded especially in
our human resources, recruiting, and MIS functions. In addition we welcomed
two new Financial partners to the table with PNC Business Credit and Peachtree
Equity Partners joining the Emtec team in our second quarter. I would like to
thank all our partners and our associates who helped bring us back to growth
in our bottom line,” said Dinesh Desai, Chairman, CEO, and President of Emtec.

Mr. Gregory Chandler, CFO added, “In analyzing our financial results, we focus
on Adjusted EBITDA as we frequently have significant non-cash charges running
through our income statement that have little impact on the Company’s cash
flows or our operations. The impending fiscal cliff led us to lower future
projections across all our business. Even these slight changes resulted in
large goodwill and intangible impairments. However we do believe the
fundamentals of the business we are focused on growing are extremely strong
and we are generating more than enough cash flows to meet all of our
obligations. We have many exciting opportunities in the pipeline and our
backlog is growing. Our base business, combined with profitable acquisitions,
drove our gross profit to increase by $5 million from the prior year in spite
of a nearly $3 million slowdown in projects in our Education Business. Since
this business now has a strong backlog, we are in a sound position going into
2013. In addition, therestructuring from last year and a continued focus on
cost controls has enabled us to lower our SG&A costs by nearly $7.6 million
from the prior year. This was partially offset however by the SG&A from
acquired businesses by about $6.7 million. We are continuing to focus on cost
control including a recently commenced $2 million reduction of costs in our
Springfield facility which we intend to shut down by February of 2013.”

About Emtec:

Emtec, established in 1964, provides technology-empowered business solutions
for world-class organizations in the enterprise, federal, state and local
government, and education markets. With offices in 14 cities in the U.S.,
Canada and India, Emtec is big enough to address our client needs but small
enough to care. Our local offices, highly-skilled associates, and global
delivery capabilities ensure the accessibility and scale to align client’s
technology solutions with their business needs. Emtec’s singular mission is to
create “Clients for Life” - long-term relationships that deliver rapid,
meaningful, and lasting business value. Our offerings span the entire IT
lifecycle: from Consulting through Packaged, Custom, and Cloud Applications as
well as a variety of Infrastructure Services.

About PNC:

The PNC Financial Services Group, Inc. (www.pnc.com) is one of the nation’s
largest diversified financial services organizations providing retail and
business banking; residential mortgage banking; specialized services for
corporations and government entities, including corporate banking, real estate
finance and asset-based lending; wealth management and asset management.
Follow @PNCNews on Twitter for breaking news, updates and announcements from

About Peachtree Equity Partners:

Based in Atlanta, Peachtree Equity Partners provides subordinated debt and
equity securities to middle market companies. Peachtree’s capital is utilized
for organic growth and expansion, acquisitions, recapitalizations, and
shareholder buyouts. Peachtree targets investments of $2-7 million in
companies with $2-10 million of EBITDA. The principals of Peachtree founded
and managed the private equity investment business of legacy Wachovia. For
more information on Peachtree, please visit www.peachtreeequity.com or contact
us at 404.870.8900.

Certain statements in this document constitute “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors, which may cause the actual results, performance or
achievements of the Company or industry results, to be materially different
from any future results, performance, or achievements expressed or implied by
such forward-looking statements. The Company’s future operating results are
dependent upon many factors, including but not limited to: (i) the Company’s
ability to obtain sufficient capital or a strategic business arrangement to
fund its plan of operations when needed; (ii) the Company’s ability to build
the management and human resources and infrastructure necessary to support the
growth of its business; (iii) competitive factors and developments beyond the
Company’s control; and (iv) other risk factors discussed in the Company’s
periodic filings with the Securities and Exchange Commission which are
available for review at www.sec.gov under “Search for Company Filings.” We
undertake no obligation to publicly update or revise any forward-looking
statements to reflect changed assumptions, the occurrence of anticipated or
unanticipated events, or changes to future results over time.

(In thousands)
                         Years Ended August 31,
                         2012          2011          Change       %
Consulting and             103,438        74,538         28,900      38.8   %
Procurement services      121,135     137,609     (16,474 )  (12.0  )%
Total Revenues             224,573        212,147        12,426      5.9    %
Cost of Revenues
Cost of consulting and     80,132         55,695         24,437      43.9   %
Cost of procurement       106,420     123,385     (16,965 )  (13.7  )%
Total Cost of Revenues     186,552        179,080        7,472       4.2    %
Gross Profit
Consulting and             23,306         18,843         4,463       23.7   %
Consulting and             22.5    %      25.3    %
outsourcing %
Procurement services       14,715         14,224         491         3.5    %
Procurement services %     12.1    %      10.3    %
Total Gross Profit         38,021         33,067         4,954       15.0   %
Total Gross Profit %       16.9    %      15.6    %
Operating expenses:
Selling, general, and
administrative             32,467         33,346         (879    )   (2.6   )%
Retention bonuses to
former owners of           884            1,040          (156    )   (15.0  )%
acquired entities
Non cash operating
Stock-based                420            514            (94     )   (18.3  )%
Warrant liability          890            57             833         1461.4 %
Earnout liability          557            -              557         NA
Impairment of
identifiable               4,132          -              4,132       NA
intangible assets
Impairment of goodwill     5,295          200            5,095       2547.5 %
Depreciation and          5,304       3,387        1,917      56.6   %
Total operating           49,949      38,544       11,405     29.6   %
Percent of revenues        22      %      18      %
Operating loss             (11,928 )      (5,477  )      (6,451  )   117.8  %
Percent of revenues        (5.3    )%     (2.6    )%
Other expense
Interest income –          (102    )      (23     )      (79     )   343.5  %
Interest expense           3,298          1,110          2,188       197.1  %
Other                     (117    )     57           (174    )   (305.3 )%
Loss before income tax     (15,007 )      (6,621  )      (8,386  )   126.7  %
Income tax benefit        (2,584  )     (2,371  )     (213    )   9.0    %
Net loss                 $ (12,423 )    $ (4,250  )    $ (8,173  )   192.3  %
Percent of revenues        (5.5    )%     (2.0    )%

(In thousands)
Year Ended August 31,
                                        2012         2011        Change
Net income (loss)                        $ (12,423 )  $ (4,250 )  $ (8,173 )
Interest expense                           3,298         1,110        2,188
Income taxes                               (2,584  )     (2,371 )     (213   )
Depreciation and amortization             5,304       3,387      1,917  
EBITDA                                     (6,405  )     (2,124 )     (4,281 )
Retention bonuses (1)                      884           1,040
Elimination of non-essential overhead      -             3,796
Stock based compensation (2)               420           612
Executive recruiting (3)                   -             156
Severance                                  13            831
ERP capitalized costs (4)                  -             (735   )
Earnout liability adjustment (5)           557           -
Warrant expense (6)                        890           57
Impairment of identifiable intangible      4,132         -
assets (7)
Impairment of goodwill (7)                5,295       200       
Total Adjustments (8)                     12,190      5,957     
Adjusted EBITDA                          $ 5,785      $ 3,833     $ 1,953  

1) Expenses associated with retention bonuses which were agreed to in
connection with the closing of the Company’s acquisition of Emerging Solutions
(Gnuco), Dinero, Luceo, EBAS/Aveeva, SDI and EMS, a company of which certain
assets were acquired through Koan-IT US.

2) Stock based compensation for the years ended August 31, 2012 and 2011, was
$420,000 and $612,000, of which $98,000 is reflected in selling, general and
administrative expenses for the year ended August 31, 2011.

3) Reflects executive recruiting fees incurred in connection with a management
launched search for a senior executive in 2009. Management made a one-time
decision to invest in the business by hiring new senior executives to grow the
business in 2010 and thereafter.

4) Capitalization of internal resource costs associated with the
implementation of a new ERP system in FY 2011.

5) Non Cash adjustment of future contingent earnout liabilities in connection
with the acquisitions of SDI, Dinero, Covelix, and Emerging. The earnout
liabilities were recorded at fair value based on valuation models which
utilize relevant factors such as expected life and estimated probabilities of
the acquisitions achieving the performance targets throughout the earnout
periods. These earnout liabilities are reassessed each reporting period and
can result in recording additional income or expense.

6) Expense or income related to the stock warrants issued to our majority
stockholder in August 2010, as well as the stock warrant issued in connection
with the subordinated debt financing in August 2011 and December 2011. These
warrants are “marked-to-market” each reporting period, which can result in
fluctuations in non cash income or expense in future periods.

7) Impairment of goodwill and identifiable intangibles is a non-cash charge
that was recorded in connection with our annual goodwill impairment testing in
the 4^th quarter in fiscal 2012. In 4^th quarter of fiscal 2011 we recorded an
impairment charge associated with the acquisition that ceased operation.

8) In addition to the adjustments described above, the Company has not made
adjustments for merger and acquisition related costs. The Company may incur
similar costs in future periods. The company recorded merger and acquisition
related costs of $257,000 and $542,000 for the years ended August 31, 2012 and
2011, respectively. Effective September 1, 2009, the Company adopted the new
standard for accounting for business combinations in accordance with ASC 805
"Business Combinations."


Emtec, Inc.
John P. Howlett, Vice Chairman Emeritus, 908-338-0043
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