CIMdata PLM Industry Summary Online Archive

16 May 2005

Financial News

Avatech Solutions Reports Improved Third Quarter Sales & Earnings

Avatech Solutions, Inc. announced results for the third quarter ended March 31, 2005, highlighted by improved sales and profitability.

Avatech reported revenues of $10.4 million for the third quarter of fiscal 2005, a 33 percent increase compared to revenues of $7.8 million for the third quarter of fiscal 2004. Revenues for the quarter include $1.9 million from the sale of proprietary software to Autodesk, Inc.

The Company said the increase in revenues was due to increased contributions from service and commission sales, along with strong product sales. Not including the additional revenue from the sale of software to Autodesk, the Company reported a nine percent increase in sales for the quarter compared to the same period last year.

Avatech also posted its second consecutive quarter of profitability, reporting net income of $2.0 million, or $0.14 per diluted share, for the third quarter of 2005 versus net income of $150,899, or $0.01 per diluted share, for the same period last year. While substantially increasing revenue, Avatech held its total cost of revenues to 2004 third-quarter levels, leading to a 75.3 percent increase in gross margin, the increase being largely due to the sales of proprietary software to Autodesk, Inc.

For the first nine months of fiscal 2005, the Company reported net income of $1.2 million, or $0.09 per diluted share, on revenues of $15.0 million compared to a net loss of $364,018, or $0.04 per diluted share, on revenues of $13.8 million for the same period of fiscal 2004.

"We continued to accelerate our pace of growth in the third quarter, thanks to new product and service offerings, improved productivity from sales and service professionals and a focused effort to reduce costs," said Scotty Walsh, CEO of Avatech Solutions. "We are pleased with the results, and expect to generate positive operating income for the remainder of fiscal year 2005.

"Moving forward, we remain focused on growing our core business as an Autodesk reseller while diversifying our product offerings, expanding professional services as a percentage of total revenue, mergers and acquisitions, and opening new offices to grow our reach."

Avatech reported selling, general and administrative (SG&A) expenses for the quarter increased 27.7 percent due to investments in adding more field sales and technical staff and the cost of their training and development. Higher commission compensation and additional marketing, travel, and facilities expenses also contributed to the increase.

Product Revenue

Avatech reported product revenues increased 6.1 percent in the third quarter. During the period, Avatech became an authorized reseller of Autodesk's new ProductStream data management application, and will hire more employees and launch marketing initiatives to capitalize on this new product offering.

During the quarter the Company also entered into a new Channel Partner Agreement with Autodesk. The new agreement provides significantly enhanced opportunities to increase margins on product sales.

Professional Services Revenue

Service revenues increased 15.0 percent for the three months ended March 31, 2005 as compared to the same period last year, largely due to increased hiring of employees and a realignment of existing personnel into the professional services group.

The Company remains focused on recruiting and retaining highly qualified professional service personnel and as evidence, 11 employees were certified as Inventor Certified Experts by Autodesk during the quarter. Avatech also expects to initiate marketing programs in the remaining three months of fiscal 2005 to help stimulate demand for its service offerings, especially in the areas for training classes and implementation services.

The Company also reported the software sold to Autodesk for $1.9 million in the quarter was originally developed by Avatech's research and development team within the professional services group. Avatech said it is developing other products for sale to its customers and to third-party software vendors. In April 2005, the Company announced the release of Vault Access, which allows users of Autodesk's Inventor software to access, view, and print data in Autodesk Vault, a data management software application.

Commissions Revenue

Commission revenue increased 12.9 percent in the third quarter 2005. The Company said it was able to capitalize on industry-wide increases in demand for Autodesk products due to an improving economy and the retirement of Autodesk software version 2000i. Additionally, subscription revenue, which is reported net of cost as commission revenue, increased 36 percent due to both greater market demand for Autodesk products and improved management of the Company's sales force.

Additional Developments

In April 2005, Avatech announced it had completed the announced acquisition of all of the assets of Charlotte, N.C.-based Comtrex Corp. The acquisition expands Avatech's presence into the North Carolina area and effectively extends Avatech's location network to cover most of the East Coast.

Avatech expects this acquisition to increase revenue by approximately $3 million on an annual basis, and to be accretive to earnings in the fourth quarter of fiscal 2005 and in succeeding periods. The Company also hired 14 employees formerly employed by Comtrex.

Walsh concluded: "Over the quarter we made substantial progress on our overall growth plan. We expect to continue to show profitable operating results with positive operating income on revenues of approximately $33 million for fiscal 2005. Our goals for fiscal 2006, if met, will generate positive operating income on revenues of approximately $40 million, and we hope to reach revenue levels of approximately $100 million by fiscal 2008 through organic growth of our existing lines of business and targeted acquisitions."

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