Services play lead in GTSI turnaround

GTSI Corp.'s transformation from an information
technology reseller to an IT services
and solutions provider continues to show
signs of success as the company reported a
profit in the last quarter.

GTSI said it had a net income of $5.5 million
in the quarter that ended Sept. 30, compared
to a loss of $3.4 million for the same
quarter in 2006. Gross margins increased
from 10.7 percent a year ago to 14.8 percent
in 2007.

The services business is leading the charge
for the Chantilly, Va., company. "That business
has been doubling for the last two to
three years, and we expect that trend to continue,"
said Jim Leto, company president and
chief executive officer.

The services revenue in 2008 will represent
almost a third of GTSI's total revenue.
"When you consider that it was less than 10
percent of our revenue a year ago, that is
profound," he said. "And that's the direction I
want to take the company."

GTSI had a net loss of $3 million in 2006
and $16 million in 2005. The company attributed
its tough times to changes in how the government
bought goods and services, a poorly
operating new enterprise resource planning
system, a bloated sales department, and revenue
and expense imbalances caused by weak
sales and high workforce-related costs.

The company has eliminated most of its
small-commodity, one-off sales, Leto said,
which improved the gross margin for the
third quarter from 10.7 percent to 15.2 percent.
He called that very significant because
the numbers do not include the company's
lease interest, "a mainstay of our business."

Leto expects fourth-quarter numbers to be
even better. "We expect the year-end number to
be profitable," and added that on a trailing 12-
month basis, GTSI is already profitable. "That's
the first time that's happened in three years."

"Their shift has been great," said Brian
Kinstlinger, an analyst at small-cap equity
research firm Sidoti and Co., of New York.
"It's not easy to drop tons of revenue and
manage the bottom line at the same time."

He believes the company is now on the
right path to profitability, having rid itself of
some low-margin hardware business. "The
only thing I would like to see is a little more
cost-cutting to maintain operating profit,"
Kinstlinger said.

About the Author

David Hubler is the former print managing editor for GCN and senior editor for Washington Technology. He is freelance writer living in Annandale, Va.

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