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Performance Technologies Inc. Reports Operating Results (10-Q)

August 07, 2009 | About:

Performance Technologies Inc. (PTIX) filed Quarterly Report for the period ended 2009-06-30.

Performance Technologies is a global supplier of integrated IP-based platforms and solutions for advanced communications networks and innovative computer system architectures. Company\'s Embedded Systems Group offers robust application-ready platforms that incorporate open-standards based software and hardware providing significantly accelerated end product deployment benefits for equipment manufacturers. Its Signaling Systems Group offers the SEGway product suite which includes IP STPs SS7 over IP transport solutions and signaling gateways that enable lower operating costs through utilization of IP networks thereby creating competitive advantages for carriers in existing and emerging markets. Performance Technologies Inc. has a market cap of $33.1 million; its shares were traded at around $2.98 with and P/S ratio of 0.8.

Highlight of Business Operations:

The Company incurred a net loss in the second quarter 2009 in the amount of ($4.7 million), or ($.43) per basic share, based on 11.1 million shares outstanding. This loss includes a non-cash income tax charge amounting to $.30 per share for an income tax valuation allowance recorded against the Companys United States deferred tax assets. This non-cash income tax charge, required by generally accepted accounting principles, has no impact on the Companys business operations or liquidity. The second quarter loss also includes a discrete income tax benefit of $.01 per share and stock compensation expense of $.01 per share. Net income in the second quarter 2008 amounted to $.6 million, or $.05 per diluted share including stock-based compensation expense of $.01 per share, based on 11.7 million shares outstanding.

The Company incurred a net loss for the six months ended June 30, 2009 amounting to ($6.2 million), or ($.55) per basic share, based on 11.1 million shares outstanding. This loss includes a non-cash income tax charge amounting to $.30 per share for an income tax valuation allowance recorded against the Companys United States deferred tax assets. This non-cash income tax charge, required by generally accepted accounting principles, has no impact on the Companys business operations or liquidity. The loss also includes a restructuring charge of $.04 per share, a discrete income tax benefit of $.01 per share and stock-based compensation expense of $.03 per share. Net income for the six months ended June 30, 2008 amounted to $1.2 million, or $.10 per diluted share including stock-based compensation expense of $.02 per share, based on 11.7 million shares outstanding.

Cash generated from operating activities amounted to $.1 million and $3.9 million in the six months ended June 30, 2009 and 2008, respectively. The period-over-period decrease in cash generated from operating activities amounted to $3.8 million and is primarily attributable to the net loss of ($6.2 million) in 2009, compared to net income of $1.2 million for the corresponding period in 2008, less the non-cash deferred income tax provision of $3.0 million in 2009. Also contributing to the decrease in cash generated from operating activities was a $.9 million decrease in accounts payable and accrued expenses in 2009, compared to a $.3 million increase in 2008. These were partially offset by a $2.4 million reduction in accounts receivable in 2009, as compared to 2008, when there was no change, and a year-over-year increase in depreciation and amortization of $.2 million in 2009.

Switch revenue totaled $.8 million and $1.4 million in the second quarter 2009 and 2008, respectively. This decrease of $.6 million, or 43%, reflects a $.2 million decrease of shipments to Alcatel-Lucent, as well as very low demand from the Companys other switch customers. Switch revenue amounted to $1.3 million and $2.8 million in the six months ended June 30, 2009 and 2008, respectively. This decrease of $1.5 million, or 54%, was principally due to lower switch shipments to Alcatel-Lucent.

Research and development expenses were $2.0 million and $2.3 million in the second quarter 2009 and 2008, respectively. The Company capitalizes certain software development costs, which reduces the amount of software development charged to operating expenses. Amounts capitalized were $.6 million and $.5 million during the second quarter of 2009 and 2008, respectively. Research and development expenses were $4.1 million and $4.7 million for the six months ended June 30, 2009 and 2008, respectively. Six month amounts capitalized to software development costs amounted to $1.1 million and $1.0 million in 2009 and 2008, respectively. The year-over-year decreases in gross expenditures for the second quarter 2009 and six months ended June 30, 2009 were $.2 million and $.5 million, respectively, and primarily result from a net decrease in the number of engineers in research and development due to the January 2009 restructuring.

For the six months ended June 30, 2009, cash provided by operating activities amounted to $.1 million. This amount included net loss of ($6.2 million), a non-cash deferred income tax provision of $3.0 million, depreciation and amortization charges of $1.3 million and stock-based compensation expense of $.3 million. Cash provided by operations due to changes in operating assets and liabilities included an increase in cash associated with decreases of accounts receivable and prepaid expenses of $2.4 million and $.2 million, respectively, offset partially by a net decrease in accounts payable and accrued expenses and an increase of inventory of $.9 million and $.1 million, respectively. The decrease in accounts receivable was primarily due to the lower level of sales in the six months ended June 30, 2009, compared to the first half 2008, as well as improved cash collections. The decrease in accounts payable and accrued expenses was primarily due to the lower level of purchases during the period and the recognition of deferred support and maintenance revenue.

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