News Column

Edgewater Reports Record First Quarter 2014 Results

April 30, 2014

WAKEFIELD, Mass., April 30, 2014 (GLOBE NEWSWIRE) -- Edgewater Technology, Inc. (Nasdaq:EDGW), a leading consulting firm that brings a blend of classic and product-based consulting services to its clients, reported financial results for the first quarter ended March 31, 2014.

First Quarter 2014 Highlights

• Total revenue increased 18% to $27.6 million• Service revenue increased 19% to $23.5 million• Gross profit margin related to service revenue increased by 650 basis points to 38.9%• Secured first time engagements with 24 new customers• Adjusted EBITDA increased by $1.8 million to $2.0 million

First Quarter 2014 Financial Results vs. Year-Ago Quarter

• Total revenue was $27.6 million compared to $23.5 million in the first quarter of 2013• Service revenue was $23.5 million compared to $19.7 million in the first quarter of 2013• Gross profit was $10.1 million, or 36.6 % of total revenue, compared to $7.1 million, or 30.4% of total revenue, in the first quarter of 2013• Gross profit margin related to service revenue was 38.9% compared to 32.4% in the first quarter of 2013• Utilization was 78.0% compared to 69.0% in the first quarter of 2013• Net income was $711,000, or $0.06 per diluted share, compared to a net (loss) of $(889,000), or $(0.08) per diluted share, in the first quarter of 2013• Adjusted EBITDA (a non-GAAP measure) was $2.0 million, or 7.1% of total revenue and $0.16 per diluted share (see "Non-GAAP Financial Measures" below for further discussion of this non-GAAP term), compared to adjusted EBITDA of $198,000, or 0.8% of total revenue and $0.02 per diluted share, in the first quarter of 2013• Cash flow used in operating activities was $2.7 million compared to cash flow used in operating activities of $2.2 million during the first quarter of 2013

Management Commentary

"A rise in customer demand coupled with disciplined staff management enabled us to achieve these record first quarter results," commented Shirley Singleton, Edgewater's chairman, president and CEO. "Quarterly service revenue, which grew on both a year-over-year and sequential basis, drove our significant improvement in billable consultant utilization as well as our service revenue gross margins, adjusted EBITDA and bottom line.

"As we begin the second quarter of 2014, we are already seeing a healthy number of signed engagements that will provide a solid base to drive continued service revenue growth. Based upon the strength of our current pipeline, we anticipate that second quarter service revenue will be up sequentially and that we will once again experience double-digit growth compared to the second quarter of 2013."

Conference Call and Webcast Information

Edgewater has scheduled a conference call today (Wednesday, April 30, 2014) at 10:00 a.m. Eastern time to discuss its first quarter 2014 results.

Date: Wednesday, April 30, 2014

Time: 10:00 a.m. Eastern Time

Dial-in number: 1-877-713-9347

Webcast: http://ir.edgewater.com/

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Liolios Group at 1-949-574-3860.

A replay of the conference call can be accessed via Edgewater's investor relations web site at http://ir.edgewater.com/ or by dialing 1-855-859-2056 (Conference ID#: 22604760) after 1:00 p.m. Eastern time through May 14, 2014.

About Edgewater

Edgewater Technology, Inc. (Nasdaq:EDGW) is a strategic consulting firm delivering a blend of classic and product-based consulting services. Edgewater addresses the market both vertically by industry and horizontally by product and technology specialty, providing its client base with a wide range of business and technology solutions. As one of the largest IT consulting firms based in New England, the company works with clients to reduce costs, improve processes and increase revenue through the judicious use of technology. Edgewater's brand names include Edgewater Technology, Edgewater Ranzal and Edgewater Fullscope. To learn more, please visit www.edgewater.com.

Forward-Looking Statements

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 second quarter 2014 service revenue, improvements in billable consultant utilization, improvements in sales pipeline activity and the conversion of our sales pipeline to signed contracts. 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 Enterprise Resource Planning and Enterprise Performance Management solutions, custom development and system integration services and/or declines in industry-wide information technology 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 geopolitical or technology market conditions; (6) unanticipated events or the occurrence of fluctuations or variability in the matters identified under "Critical Accounting Policies" in our 2013 Annual Report on Form 10-K; (7) delays in, or the failure of, our sales pipeline being converted to billable work and recorded as revenue; (8) termination by clients of their contracts with us or inability or unwillingness of clients to pay for our services, which may impact our accounting assumptions; (9) inability to recruit and retain professionals with the high level of information technology skills and experience needed to provide our services; (10) failure to expand outsourcing services to generate additional revenue; (11) 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; (12) the failure of the marketplace to embrace advisory and product-based consulting services; (13) changes in our utilization levels; and/or (14) 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 "Part I - Item IA. Risk Factors" in our 2013 Annual Report on Form 10-K filed with the SEC on March 10, 2014. 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 the Company believes that the expectations in the forward-looking statements are reasonable, they cannot guarantee future results, levels of activity, performance, growth, earnings per share or achievements. However, neither the Company nor any other person assumes responsibility for the accuracy and completeness of such statements. Except as required by law, the Company undertakes no obligation to update any of the forward-looking statements after the date of this Press Release to conform such statements to actual results.

EDGEWATER TECHNOLOGY, INC.
Condensed Consolidated Balance Sheets
(In Thousands)
(Unaudited)
     
 March 31,December 31,
 20142013
Assets    
Cash and cash equivalents  $ 17,777  $ 20,321
Accounts receivable, net 22,820 19,842
Deferred tax assets, net 1,174 1,175
Prepaid expenses and other current assets 1,372 936
Total current assets 43,143 42,274
Property and equipment, net 1,328 1,437
Goodwill and intangible assets, net 12,876 13,005
Deferred tax assets, net 28,738 29,097
Other assets 251 254
Total Assets  $ 86,336  $ 86,067
     
Liabilities and Stockholders' Equity  
Accounts payable  $ 347  $ 680
Accrued liabilities 13,760 14,326
Deferred revenue 1,762 1,715
Total current liabilities 15,869 16,721
Other long-term liabilities 608 760
Total liabilities 16,477 17,481
Stockholders' Equity 69,859 68,586
Total Liabilities and Stockholders' Equity  $ 86,336  $ 86,067
     
Shares Outstanding 11,170 11,049
 
EDGEWATER TECHNOLOGY, INC.
Condensed Consolidated Statement of Operations
(In thousands, except per share amounts)
(Unaudited)
     
 Three Months Ended
 March 31,
 20142013
Revenue:    
Service Revenue  $ 23,483  $ 19,696
Software 2,053 1,977
Reimbursable expenses 2,078 1,803
Total revenue 27,614 23,476
     
Cost of revenue:    
Project and personnel costs 14,357 13,310
Software costs 1,072 1,223
Reimbursable expenses 2,078 1,803
Total cost of revenue 17,507 16,336
Gross profit 10,107 7,140
     
Selling, general and administrative 8,576 7,497
Embezzlement costs 5 34
Depreciation and amortization 247 315
Operating income (loss) 1,279 (706)
     
Other expense (income), net 46 104
Income (loss) before income taxes 1,233 (810)
Income tax provision 522 79
Net income (loss)  $ 711  $ (889)
     
BASIC EARNINGS (LOSS) PER SHARE:    
Basic earnings (loss) per share  $ 0.06  $ (0.08)
Weighted average shares outstanding - Basic 10,968 10,878
     
DILUTED EARNINGS (LOSS) PER SHARE:    
Diluted earnings (loss) per share  $ 0.06  $ (0.08)
Weighted average shares outstanding - Diluted 12,610 10,878
 
EDGEWATER TECHNOLOGY, INC.
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
     
 Three Months Ended
 March 31,
 20142013
Cash flow provided by (used in):    
Operating activities  $ (2,680)  $ (2,200)
Investing activities (62) (397)
Financing activities 200 (518)
Effect of exchange rates on cash (2) (9)
Net decrease in cash and cash equivalents  $ (2,544)  $ (3,124)


Non-GAAP Financial Measures

Edgewater reports its financial results in accordance with generally accepted accounting principles ("GAAP"). Management believes, however, that certain non-GAAP financial measures used in managing the Company's business may provide users of this financial information with additional meaningful comparisons between current results and prior reported results. Certain of the information set forth herein and certain of the information presented by the Company from time to time may constitute non-GAAP financial measures within the meaning of Regulation G adopted by the Securities and Exchange Commission. We have presented herein a reconciliation of these measures to the most directly comparable GAAP financial measure. The non-GAAP measures presented herein may not be comparable to similarly titled measures presented by other companies. As noted below, the foregoing measures have limitations and do not serve as a substitute and should not be construed as a substitute for GAAP performance, but provide supplemental information concerning our performance that our investors and we find useful.

Edgewater views Adjusted EBITDA, Adjusted EBITDA per Diluted Share and Adjusted EBITDA as a Percentage of Total Revenue as important indicators of performance, consistent with the manner in which management measures and forecasts the Company's performance. We believe Adjusted EBITDA measures are important performance metrics because they facilitate the analysis of our results, exclusive of certain non-cash items, including items which do not directly correlate to our business operations. 

The non-GAAP adjustments, and the basis for excluding them, are outlined below:

Income tax provision. The exit of our former significant unrelated operations in 2000 and 2001 created significant net operating loss carry-forwards and deferred tax assets, and the tax provisions that we take under GAAP, for which there is no corresponding federal tax payment obligation for us, and the adjustments that we make to our deferred tax asset, based on the prospects and anticipated future profitability of our ongoing operations, can be significant and can obscure, either significantly, or in part, period-to-period changes in our core operating results.

Depreciation and amortization. We incur expense associated with the amortization of intangible assets that is primarily related to the various acquisitions we have completed. We believe that eliminating this expense from our non-GAAP financial measures is useful to investors because the amortization of intangible assets can be inconsistent in amount and frequency, and is significantly impacted by the timing and magnitude of the individual acquisition transactions, which also vary substantially in frequency from period-to-period.

Stock-based compensation expense. We incur stock-based compensation expense under Financial Accounting Standards Board Accounting Standards Codification Topic 718, "Compensation – Stock Compensation." We exclude this non-cash expense as we do not believe it is reflective of business performance. The nature of stock-based compensation expense also makes it very difficult to estimate prospectively, since the expense will vary with changes in the stock price and market conditions at the time of new grants, varying valuation methodologies, subjective assumptions and different award types, making the comparison of current results with forward-looking guidance potentially difficult for investors to interpret. Edgewater believes that non-GAAP financial measures of profitability, which exclude stock-based compensation, are widely used by analysts and investors.

Adjustments to contingent consideration earned, at fair value. We are required to remeasure the fair value of our contingent consideration liability related to acquisitions each reporting period until the contingency is settled. Any changes in fair value are recognized as a current period operating expense. The Company believes that excluding these adjustments from its non-GAAP financial measures is useful to investors because they are related to acquisition events and make it difficult to evaluate core operating results.

Direct acquisition costs. We incur direct transaction costs related to acquisitions which are expensed in our GAAP financial statements. Our non-GAAP financial measures exclude the effects of direct acquisition-related costs as we believe these transaction-specific expenses are inconsistent in amount and frequency and make it difficult to make period-to-period comparisons of our core operating results.

Fullscope embezzlement costs. During the second quarter of 2010, we discovered embezzlement activities within Fullscope, Inc. The Company, since the discovery, has incurred non-routine professional services-related expenses addressing the embezzlement issue. Our non-GAAP financial measures exclude the effects of the embezzlement-related expenses as we believe excluding these costs from our non-GAAP financial measures is useful to investors because these expenses are not directly associated with the Company's operations and are inconsistent in amount and frequency, causing difficulties in comparisons of our core operating results.

Lease abandonment charge. During 2011, we recorded a non-cash charge of $2.2 million in connection with the abandonment of certain excess office space at our corporate headquarters. Our non-GAAP financial measures exclude expense associated with the lease abandonment charge as we believe such expense is associated with a non-routine charge, causing difficulties in comparisons of our core operating results.

Interest and other (income) expense, net. We record periodic interest and other (income) and expense amounts in connection with our cash and cash equivalents, capital lease obligations and (gains) and losses on foreign currency transactions. Our non-GAAP financial measures exclude (income) expense associated with these items as we believe such (income) expense is inconsistent in amount and frequency and makes it difficult to make period-to-period comparisons of our core operating results.

We believe that Adjusted EBITDA metrics provide qualitative insight into our current performance; we use these measures to evaluate our results, the performance of our management team and our management's entitlement to incentive compensation; and we believe that making this information available to investors enables them to view our performance the way that we view our performance and thereby gain a meaningful understanding of our core operating results, in general, and from period to period.

EDGEWATER TECHNOLOGY, INC.
Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA
(In Thousands, except per share amounts)
(Unaudited)
     
 Three Months Ended
 March 31,
 20142013
     
Reported GAAP net income (loss)  $ 711  $ (889)
Add: Income tax provision 522 79
Add: Depreciation and amortization 300 378
Add: Stock-based compensation expense 387 492
Add: Fullscope embezzlement costs 5 34
Less: Other expense, net 46 104
Adjusted EBITDA1  $ 1,971  $ 198
Adjusted EBITDA per diluted share1  $ 0.16  $ 0.02
Diluted shares outstanding 12,610 11,469
     
Adjusted EBITDA as a % of total revenue1 7.1% 0.8%
Total revenue  $ 27,614  $ 23,476
     
1-  Adjusted EBITDA, Adjusted EBITDA Per Diluted Share and Adjusted EBITDA as a Percentage of Total Revenue are Non-GAAP performance measures and are not intended to be performance measures that should be regarded as an alternative to, or more meaningful than, GAAP Net Income and Diluted Earnings Per Share. Adjusted EBITDA and Adjusted EBITDA per Diluted Share measures presented may not be comparable to similarly titled measures presented by other companies. Adjusted EBITDA is defined as net income less interest and other (income) expense, net, plus taxes, depreciation and amortization, stock-based compensation expense, adjustments to contingent consideration earned, goodwill and intangible asset impairment charges, direct acquisition costs, costs associated with the Fullscope embezzlement issue and the lease abandonment charge. Adjusted EBITDA per Diluted Share is defined as Adjusted EBITDA divided by the diluted common shares outstanding used in Diluted Earnings per Share calculations, while Adjusted EBITDA as a % of Total Revenue is defined as Adjusted EBITDA divided by Total Revenue.

CONTACT: Company Contact: Timothy R. Oakes Chief Financial Officer 1-781-246-3343 Investor Relations: Liolios Group, Inc.Cody Slach or Greg Falesnik 1-949-574-3860 EDGW@liolios.com



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Source: Edgewater Technology, Inc.


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