GTSI's new business plan pays off
- By David Hubler
- Nov 19, 2007
GTSI Corp.'s transformation from an information technology reseller to an IT services and solutions provider is showing signs of success.
In its third-quarter financial results released last week, GTSI reported net income of $5.5 million compared to a loss of $3.4 million in the third quarter of 2006. Its gross margin increased from 10.7 percent a year ago to 14.8 percent in 2007.
"Our services business is 100 percent of where they were a year ago," said Jim Leto, company president and chief executive officer. "That business has been doubling for the last two to three years, and we expect that trend to continue."
Leto believes that 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 $16 million in 2005 on total revenue of $886.3 million. Company officials attributed much of that loss 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 due to weak sales and high workforce-related costs.
Having virtually eliminated the company's small commodity, one-off sales, Leto said gross margin for the third quarter went 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."
GTSI will also look into a number of acquisitions in 2008. "We've now evaluated almost 60 companies and we're in the process of refining it to a short list of companies that we think are very strategic," Leto said.
"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.
Kinstlinger said he would like to see GTSI's fourth-quarter numbers show "a profit before the other incomes, such as lease receivables and sale of lease receivables as well. If I see that, then I get even more confident about where the company is headed."
GTSI, of Chantilly, Va., ranks No. 37
on Washington Technology's 2007 Top 100 list
of the largest federal government prime contractors.
David Hubler is the former print managing editor for GCN and senior editor for Washington Technology. He is freelance writer living in Annandale, Va.