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Integral Systems Inc. (ISYS)

F4Q10 (Qtr End 09/24/10) Earnings Call

December 8, 2010 11:00 am ET


Kathryn Herr - VP of Marketing and Communications

Paul Casner - President and CEO

Christopher Roberts - CFO


Jim McIlree - Merriman

Dick Ryan - Dougherty

Max Batzer - Wynnefield Capital



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Good morning, ladies and gentlemen, and welcome to the Integral Systems fourth quarter and fiscal year 2010 earnings conference call. (Operator Instructions)

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I would now like to turn the presentation over to your host for today's call Ms. Kathryn Herr, Vice President of Marketing and Communications.

Kathryn Herr

Thank you, Shannon and good morning everyone. I'd like to welcome you to Integral Systems fourth quarter and fiscal year 2010 earnings conference call. Before we start, please understand that this call contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Such statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

During today's call, we will discuss Integral Systems fourth quarter and full fiscal year 2010 financial results and highlights of our operations. We will refer to non-GAAP measures which are defined and reconciled in our earnings release and on our website at under Investors.

Joining me today on the call are Paul Casner, our President and Chief Executive Officer and Christopher Roberts, our Chief Financial Officer.

All participants are advised that the audio of this conference call is being broadcast live over the internet and is being recorded for playback purposes. The audio of the call will be archived on Integral Systems' Investor Relations website for a period of one year. As always we encourage questions at the conclusion of our remarks.

With that said, I'd like to turn the call over to Chris to provide an overview of our fourth quarter results and fiscal year 2011 financial outlook followed then by Paul with his perspectives on the business operations.

Christopher Roberts

Thank you, Katy and good morning everyone. I hope that you had the opportunity to review today's earnings release with our fourth quarter and full-year results, and our expectations for fiscal year 2011.

Let me start with our fourth quarter results and then move to our full fiscal year 2010 results and close with our expectations for financial performance in fiscal year 2011. As I commented in this morning's earnings release, I am encouraged by our fourth quarter results. We saw a number of positive developments this past quarter on all fronts.

Revenue for the fourth quarter was $55.5 million, which is an increase of more than 42% over our revenue in the fourth quarter of 2009 which was $38.9 million. With the fourth quarter's result in hand, I am happy to say that we delivered a full year of quarter-over-quarter revenue growth in fiscal 2010.

Another highlight of the fourth quarter was the bookings for the quarter, were approximately $63.5 million. This includes more than $24 million in Military & Intelligence Segment bookings, $12 million in Civil & Commercial segment bookings and $27 million in Products Segment bookings.

The Products Segment bookings include roughly $10 million in bookings in both our SATCOM Solutions division and our RT Logic division. In addition, the SATCOM Solutions division achieved our fourth quarter expectations and met its revenue target. The SATCOM Solutions division in an important addition to the Integral Systems family and I'm pleased to see them back on track and executing to forecast.

Our fourth quarter book-to-bill ratio was just over 1.1, which is also our book-to-bill ratio for the full fiscal year 2010. I believe to say that heading into fiscal year 2011, our total contract backlog stands at $191 million, a substantial increase over our total backlog of $158 million at the end of fiscal year 2009.

Gross margin for the company was 38.6% for the fourth quarter of fiscal year 2010, as compared with 32.6% in the fourth quarter of 2009. Adjusted EBITDA for the quarter was $3.7 million; however, this includes the impact of a $2.8 million lease loss reserve taken in the fourth quarter. Excluding the impact of the lease loss reserve, adjusted EBITDA for the fourth quarter of fiscal year 2010 would have been $6.5 million.

Income from operations for the fourth quarter of 2010 is only $1.2 million. However, this figure was sharply reduced by the $2.8 million lease loss reserve. And even so, this compares favorably to the loss from operations of $1.9 million in the fourth quarter of 2009.

Let me take a moment to expand on my reference to the lease loss reserve. One of our key management goals is to reduce corporate expenses. During the fourth quarter, we entered into a sublease agreement for one of our former headquarters' facilities located in Lanham, Maryland. Sublease began on October 1 of 2010 and runs for the full remaining term of our lease. We expect that the sublease will generate approximately $1 million in cash flow over the five year period, including $200,000 in fiscal year 2011.

The sublease allows us to decrease our real estate related liabilities and augments our cash generation over the next five years. Because of the sublease, GAAP required that we record a $2.8 million lease loss reserve in the fourth quarter. The reserve reflects the sublease at the facility at a lower rental rate than the original lease and an increased reserve on the adjacent property which was fully vacated by the company during the fourth quarter of 2010.

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