Edgewater is a leading strategic consulting firm that focuses onhelping companies drive transformational change
Wakefield, MA – March 31, 2011 – Edgewater Technology, Inc. (NASDAQ: EDGW, www.edgewater.com, “Edgewater” or the “Company”), a strategic consulting firm that brings a synergistic blend of specialty services to its clients in the areas of business advisory, analytics, data management and technology, today announced final financial results for its fourth quarter and fiscal year ended December 31, 2010, which reflect a $950 thousand charge in connection with a sales and use tax liability arising from the previously disclosed Fullscope embezzlement.
As previously reported, during the second quarter of 2010 the Company identified fraudulent activities within its recently acquired Fullscope Division. As of the date of this press release, we have completed our investigation into the identified activities. The consolidated financial statements reported in our March 2, 2011 preliminary results of operations for the year ended December 31, 2010 included an estimated liability accrual of $950 thousand for underpayment of sales and use tax liabilities in the Fullscope Division during the years 2003 through 2009. The estimated liability was offset by a corresponding receivable in the same amount, as we expect to be able to recover amounts related to this estimated liability through a fully funded escrow account as provided for under the indemnification provisions of the Agreement and Plan of Merger and Reorganization entered into in connection with the Fullscope acquisition. Subsequent to the release of our preliminary earnings, we concluded that we are unable to obtain sufficient evidence to support that recovery from escrow is probable at December 31, 2010. Accordingly, we will pursue this recovery and will recognize the recovery when there is sufficient evidence that recovery is probable.
Financial results and utilization for the quarter ended December 31, 2010:
Total revenue increased 106.6% to $23.5 million compared to $11.4 million in the fourth quarter of 2009;
Service revenue increased 65.2% to $17.7 million compared to service revenue of $10.7 million in the fourth quarter of 2009;
Gross profit was $9.0 million, or 38.0% of total revenue, compared to $4.1 million, or 36.2% of total revenue, in the fourth quarter of 2009;
Gross profit margin related to service revenue was 39.5% compared to 38.4% in the fourth quarter of 2009;
Utilization was 75.6% compared to 66.5% for the fourth quarter of 2009;
Net loss was $(157) thousand, or $(0.01) per diluted share, compared to $(1.9) million, or $(0.15) per diluted share, in the fourth quarter of 2009. Fourth quarter net loss is directly associated with our decision to treat $950 thousand of potential sales and use tax liability discovered in connection with our investigation into the Fullscope embezzlement issue as a period expense;
Adjusted EBITDA amounted to $1.5 million, or $0.12 per diluted share, compared to $(165) thousand, or $(0.01) per diluted share, in the fourth quarter of 2009; and
Cash flow provided by operating activities was $1.6 million compared to cash flow provided by operating activities of $57 thousand during the fourth quarter of 2009.
Financial results and utilization for the fiscal year ended December 31, 2010:
Total revenue increased 76.8% to $88.5 million compared to $50.1 million in fiscal 2009;
Service revenue increased 49.3% to $68.8 million compared to $46.1 million in fiscal 2009;
Gross profit was $32.1 million, or 36.2% of total revenue, compared to $16.1 million, or 32.1% of total revenue in fiscal 2009;
Gross profit margin related to service revenue was 38.1% compared to 34.5% in fiscal 2009;
Utilization was 73.5% compared to 65.5% in fiscal 2009;
Net loss amounted to $(23.6) million, or $(1.93) per diluted share, compared to net loss of $(3.8) million, or $(0.32) per diluted share, in fiscal 2009. Our 2010 full year net loss was primarily the result of a third quarter non-cash charge of $21.9 million in connection with an increase to our previously established deferred tax valuation allowance and, to a lesser extent, our fourth quarter decision to treat $950 thousand of potential sales and use tax liability discovered in connection with our investigation into the Fullscope embezzlement issue as a period expense;
Adjusted EBITDA amounted to $3.4 million, or $0.28 per diluted share, compared to Adjusted EBITDA of $(1.7) million, or $(0.14) per diluted share, in fiscal 2009; and
Cash flow provided by operating activities was $698 thousand compared to cash flow used in operating activities of $(243) thousand in fiscal 2009.
The Company acquired Fullscope, Inc. and Meridian Consulting International (the “Acquired Companies”) on December 31, 2009 and May 17, 2010, respectively. The operating results associated with the Acquired Companies have been included in Edgewater’s consolidated operating results since the dates of the respective acquisitions.
Adjusted EBITDA and Adjusted EBITDA per Diluted Share are Non-GAAP financial measures. A reconciliation of these measures to their most directly comparable GAAP measures is included in the financial data accompanying this press release.
Final Versus Preliminary Reported Data. The final financial data reported above under Fourth Quarter Results and Full Year Results are identical to the preliminary results reported in our press release dated March 2, 2011 except for the following:
(1) Financial data were reported on a preliminary basis subject to a final review as it related to software product revenue recognition procedures, which was not fully completed as of March 2, 2011.(2) Financial data are being reported on March 31, 2011 on a final basis after the completion of the review of our software product revenue recognition procedures and our conclusion to expense $950 thousand in embezzlement-related costs resulting from the identification of potential pre-acquisition sales and use tax liabilities arising from our investigation of Fullscope’s embezzlement activity.
For further information concerning the embezzlement charge, please refer to our Annual Report on Form 10-K for the year ended December 31, 2010 to be filed with the SEC on March 31, 2011, including in particular: “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview – Increase in Professional Services-and Embezzlement-Related Expenses” and “– Results for the Year Ended December 31, 2010 Compared to Results for the Year Ended December 31, 2009.”
“During 2010, Edgewater met several strategic goals that we set, namely: returning to double-digit organic growth, improving operational performance, providing positive cash flow and developing our own intellectual property assets,” stated Shirley Singleton, Edgewater’s Chairman, President and Chief Executive Officer.
“We are pleased to report improved and/or sustained quarterly operating metrics on both a sequential and year-over-year basis. The fourth quarter and overall improvements in our business are directly attributable to the strategic initiatives we planned in 2009 and executed in 2010. We introduced a new EPM service offering, added a large Microsoft ERP-centric business and augmented our custom service offerings with product-based consulting.”
Ms. Singleton continued, “The cumulative effect of these changes is reflected in our year-over-year growth in total revenue and service revenue, improvement in our billable consultant utilization rate and improvement in our gross margin. We look forward to 2011 as a year of continuing growth,” stated Ms. Singleton.
“Traditionally, we have entered the first quarter with anticipated seasonal softness in our first quarter sequential service revenues. This has historically been attributable to our EPM-related service offerings. Entering the first quarter of 2011, we are not seeing seasonal softness in our EPM-related service offerings. Based upon this and in consideration of our fourth quarter bid and proposal activity, we are anticipating first quarter 2011 service revenue to be up on a sequential basis from the fourth quarter of 2010,” concluded Ms. Singleton.
Edgewater is a strategic consulting firm that brings a synergistic blend of specialty services to its clients in the areas of business advisory, analytics, data management and technology. We develop business strategies and technology solutions that address our clients’ specific needs while providing them with an increased competitive advantage. Headquartered in Wakefield, MA, we typically go to market both vertically by industry and horizontally by product and technology specialty and provide our clients with a wide range of business and technology offerings. To learn more, visit edgewater.com or call 800-410-4014.
This Press Release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements concerning our expected growth in 2011, the recoverability of funds from Fullscope escrow, and the expected increase in first quarter 2011 service revenue on a sequential basis from the fourth quarter of 2010. These forward-looking statements inherently involve certain risks and uncertainties, although they are based on our current plans or assessments which are believed to be reasonable as of the date of this Press Release. Factors that may cause actual results, goals, targets or objectives to differ materially from those contemplated, projected, forecasted, estimated, anticipated, planned or budgeted in such forward-looking statements include, among others, the following possibilities: (1) failure to obtain new customers or retain significant existing customers; (2) the loss of one or more key executives and/or employees; (3) changes in industry trends, such as a decline in the demand for Business Intelligence (“BI”) and Enterprise Performance Management (“EPM”) solutions, custom development and system integration services and/or declines in industry-wide information technology (“IT”) spending, whether on a temporary or permanent basis and/or delays by customers in initiating new projects or existing project milestones; (4) inability to execute upon growth objectives, including new services and growth in entities acquired by our Company; (5) adverse developments and volatility involving economic, geopolitical or technology market conditions; (6) unanticipated events or the occurrence of fluctuations or variability in the matters identified under “Critical Accounting Policies”; (7) delays in, or the failure of, our sales pipeline being converted to billable work and recorded as revenue; (8) inability to recruit and retain professionals with the high level of information technology skills and experience needed to provide our services; (9) failure to expand outsourcing services to generate additional revenue; (10) any changes in ownership of the Company or otherwise that would result in a limitation of the net operating loss carry forward under applicable tax laws; (11) the failure of the marketplace to embrace specialty consulting services; and/or (12) failure to make a successful claim against the Fullscope escrow account. In evaluating these statements, you should specifically consider various factors described above as well as the risks outlined under Item I “Business – Factors Affecting Finances, Business Prospects and Stock Volatility” in our 2009 Annual Report on Form 10-K filed with the SEC on March 15, 2010. These factors may cause our actual results to differ materially from those contemplated, projected, anticipated, planned or budgeted in any such forward-looking statements.
Although we believe that the expectations in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, growth, earnings per share or achievements. However, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. Except as required by law, we undertake no obligation to update any of the forward-looking statements after the date of this Press Release to conform such statements to actual results.