SBA suspension, budget delays take toll on GTSI Q1 revenue
GTSI's first quarter gets a double whammy -- the lingering effects of its SBA suspension and the impact of budget delays.
GTSI Corp. reported $70.3 million in first-quarter 2011 revenue compared to $101.8 million for the first quarter of 2010, a revenue decline of 30.9 percent, the company announced.
"GTSI's first quarter is historically our slowest and reported revenue also reflects the lingering impact of the Small Business Administration suspension in October, combined with the failure of Congress to pass a 2011 budget prior to April," said Chief Executive Officer and President Sterling Phillips of the May 12 earnings report.
Phillips said the company “has stabilized and is now rebounding” from the SBA action.
But he warned that “the adverse impact continued in first quarter ... will likely have some impact on second quarter as new employees are coming up to speed.”
As part of that rebound GTSI reduced its workforce from 534 employees in October 2010 to below 400 this month, including 55 positions primarily in staff and support functions that have been eliminated in May, resulting in a $4.8 million reduction in salaries and expenses, Phillips said.
“The [continuing resolution] in place from October 1, 2010, until April 2011, delayed our customers’ spending plans and contributed to lower sales for GTSI,” Phillips said.
“With the budget now approved, things are returning to normal. But there is a concern that we could face the same later this year when the 2012 budget must be approved,” he added.
An encouraging first-quarter number, he said, was the year-over-year margin and earnings improvement from GTSI operations.
“For the first quarter, gross margin improved 18.5 percent compared to 13.3 percent in 2010. That represents an improvement of 39 percent and reflects the company’s ongoing improvements to our cost structure,” Phillips said.
That margin improvement was also reflected on the bottom line, he added, citing a $5.4 million net loss from GTSI operations.
“This is a 37.7 percent improvement from first quarter of last year when we lost $8.7 million, or 57 cents per share, on 31 percent more revenue,” he said.
Operating expenses were $18.3 million compared to $22.2 million, down 17.6 percent, driven primarily by strategic actions taken before October 2010 and high turnover since October 2010, according to the GTSI earnings statement.
Referring again to last year’s suspension, Phillips said the SBA has received four monthly reports so far from the appointed monitor “and the general tone has been positive and constructive.”
Phillips said he believes it will take “a few more months of work to fully address and resolve all of the questions and concerns raised last fall. But I am optimistic that we will reach a positive resolution of the matter later this year.”
GTSI, which owns 37 percent of Eyak Technology LLC, is in discussions with the Alaska Native Corporation regarding settlement alternatives over what GTSI believes are its rights under the Eyak operating agreement. Last year Eyak sought to effect a takeover of GTSI.
“We have temporarily suspended the [court ordered] arbitration process while we conduct these talks,” he said, adding that sometime during this quarter GTSI will determine whether a settlement might be possible.
The company ended the first quarter with $39.1 million in cash on hand, no long-term debt and no borrowings under its credit facility.
GTSI, of Herndon, Va., ranks No. 59 on Washington Technology’s 2010 Top 100 list of the largest federal government contractors. Eyak Technology, of Anchorage, ranks No. 65.
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