SBA suspension still stings GTSI

GTSI Corp. continues to feel the fallout from its suspension last year by the Small Business Administration, which company officials said was partial to blame for its dramatic drop in revenue during the third quarter of 2011.

Revenue for the quarter fell to $95.8 million, from $237.4 million a year earlier. That’s a decline of 59.6 percent, according to the company’s Nov. 15 earnings statement.

“I’m disappointed in the results and am committed to a number of actions,” CEO Sterling Phillips said during a conference call Tuesday.

Among the reasons Phillips cited for the poor numbers were reduced government spending and the continued uncertainty of the federal budget process.

He also blamed the lingering effects of the SBA suspension last year and resultant lower sales productivity, which led to an 86 percent turnover in GTSI’s government sales staff. The company was suspended for about 19 days in October 2010 over allegations it was using front companies to funnel small business contract to GTSI. Phillips was brought in after the suspension was lifted and GTSI agreed to additional oversight and not to work with small businesses as prime contractors.

“In retrospect, the assimilation of new sales personnel has been slower than expected and has impacted our productivity,” Phillips said, and he added that the company is in the process of hiring additional sales representatives.

“Our goal is to fill the additional positions by year-end so that we go into 2012 at full strength,” he said.

Gross margin for the third quarter decreased to $17.3 million from $29.8 million from the same period in 2010, for a reduction of 41.9 percent.

Gross margin percent for the third quarter was 18.1 percent compared to 12.5 percent for the same quarter last year.

Operating expenses declined $2.9 million, or 14.1 percent, to $17.7 million compared to $20.6 million for the third quarter of 2010. The resulting $400,000 loss from operations is a $9.6 million decline from the $9.2 million in income from operations reported for the third quarter of 2010.

Equity earnings from GTSI’s investment in Eyak Technology LLC declined $1.5 million, primarily as a result of recognizing a partial period due to the sale of EyakTek equity interest to EyakTek on August 19^, the company reported.

As a result of the sale, GTSI recognized a gain on the EyakTek investment of $7.3 million in the third quarter.

Net income for the third quarter was $4.3 million, compared to $5.9 million for the same period in 2010. Also, earnings per share declined $0.18 or 29 percent compared to the same quarter last year.

For the nine months ended September 30, 2011, GTSI reported revenue of $247.4 million compared to $474.2 million for the same period in 2010, a decline of 47.8 percent.

Gross margin for the nine months ended September 30, 2011 decreased $16.3 million to $44.5 million, or 26.8 percent compared to the first nine months of 2010.

Operating expenses declined $10.8 million, or 16.8 percent, to $53.7 million compared to $64.5 million for the first three quarters of 2010.

After recording the $7.3 million gain from the sale of the EyakTek equity interest, GTSI’s total net income for the nine months ended September 30 was $139,000 compared to net income of $110,000 for the same period a year ago.

GTSI ended the quarter with $56.4 million in cash on hand. The company had no long-term debt and no borrowings under its credit facility.

Phillips announced that the company is changing its “revenue mix between product sales and higher margin professional and financial services.”

“As we move into 2012, we will further refine our cost structure so that the revenue projections for the year enable us to return to profitability for GTSI operations excluding EyakTech,” he said.

GTSI Inc., of Herndon, Va., ranks No. 68 on Washington Technology’s 2011 Top 100 list of the largest federal government contractors.