Thomas Group, Inc. (NasdaqCM: TGIS), an operations and
process improvement firm, today announced a net loss of $2.9
million, or negative $0.28 per diluted share, for the first quarter
of 2010 on revenues of $1.7 million, compared to net loss of $1.2
million, or negative $0.11 per diluted share, on revenues of $3.3
million for the first quarter of 2009. Loss from operations before
income taxes decreased to $1.3 million on $1.7 million in total
revenue for the current quarter compared to a loss from operations
before income taxes of $1.9 for the first quarter of 2009 on $3.3
million in total revenue.
Michael McGrath, Executive Chairman, President and CEO, stated,
“In the first quarter, we realigned our sales efforts into two
business units – the Government Business Unit and the Commercial
Business Unit. Within the Government Business Unit, we focus on
sales to U.S. Government agencies, to all branches of the military,
and to state and local governmental entities. Within the Commercial
Business Unit, we focus on sales to aerospace firms, to airports,
to transportation firms, to healthcare entities including
hospitals, medical practices, and pharmaceutical firms and to
industrial clients.
“We continue to pursue the strategy of building our business,
even as we have continued to reduce costs. We recently recruited a
new experienced sales executive to join our government practice. We
are actively seeking additional experienced consulting sales
leadership for our commercial practice as well. We are now placing
primary emphasis on growing revenue in our effort to return to
profitability.
“We remain committed to making Thomas Group successful and
profitable once again. However, it is clearly more challenging,
time consuming and costly than we had anticipated. In the meantime,
we must work to conserve cash, minimize costs, increase revenue,
and seek to return to breakeven as soon as possible.”
First Quarter 2010 Financial Performance
Revenue
Revenue for the first quarter of 2010 was $1.7 million, compared
to $3.3 million in the first quarter of 2009. Consulting revenue
from U.S. government clients, represented by our Government
practice, was $0.3 million, or 16% of revenue, in the first quarter
of 2010, compared to $0.8 million, or 26% of revenue, in the first
quarter of 2009. Consulting revenue from commercial clients,
represented by our Aerospace and Defense, Healthcare,
Transportation and Logistics, and European practices, was $1.3
million, or 76% of revenue, in the first quarter of 2010, compared
to $2.1 million, or 63% of revenue, in the first quarter of 2009.
Reimbursement of expenses was $0.1 million, or 8% of revenue in the
first quarter of 2010, compared to $0.4 million, or 11% of revenue
in the first quarter of 2009.
Gross Margins
Gross profit margins for the first quarter of 2010 were 31%,
compared to 44% for the first quarter of 2009. The drop in first
quarter gross margins is related to the slowdown of our government
and commercial programs during the first quarter of 2010 and to
lower utilization rates of our consultants in the first quarter of
2010.
Selling, General & Administrative (SG&A)
SG&A costs for the first quarter of 2010 were $2.0 million,
compared to $3.4 million in the first quarter of 2009. The
$1.4 million decrease is related primarily to a
$0.7 million decrease in payroll costs due to the decline in
the number of consultants employed, a $0.2 million decrease in
sales commissions and executive bonus, a $0.2 million decrease in
travel related expenses, a $0.2 million decrease in legal expenses,
a $0.1 million decrease in our use of outside consultants, and a
$0.1 million decrease in other costs due to a decline in activity
as compared to the same period in 2009, offset by a $0.1 million
increase in stock-based compensation during the first quarter of
2010.
Other Income
Other income for the first quarter of 2010 included the
collection of $0.2 million from the liquidation of a former
subsidiary in Europe.
Income Tax Expense (Benefit)
For the first quarter of 2010 we incurred income tax expense of
$1.6 million compared to an income tax benefit of $0.7 million in
the same quarter of last year. Our 2009 tax losses are available
for carry back for Federal tax purposes, and we expect to receive
refunds of taxes paid in prior years of approximately $2.7 million
by mid-year 2010. In the first quarter of 2010, our cumulative
losses began to exceed our cumulative earnings. Additionally, we
are not currently profitable, and we determined that as of the end
of March 2010 it was no longer probable that we will recover our
deferred tax asset. The combined tax effect was to cause an income
tax expense for the quarter of $1.6 million. Until we can
demonstrate a return to profitability, we will not be able to book
a deferred income tax asset resulting from losses incurred in each
period. This will have the effect of increasing the net loss as
well as the loss per share compared to prior quarters.
Working Capital and Cash Flow
Working capital decreased from $8.1 million at December 31, 2009
to $6.8 million at March 31, 2010, due primarily to our operating
loss for the first quarter ended March 31, 2010.
For the first quarter of 2010, net cash decreased $1.6 million,
compared to a net decrease of $1.2 million for the first quarter of
2009. For the first quarter of 2010, net cash used in operating
activities was $1.6 million, compared to $1.1 million for the first
quarter of 2009. This increase is due primarily to our operating
loss for the first quarter of 2010, a decrease in our accrued
liabilities, a decrease in deferred tax assets and decreased
collection of our accounts receivable. There were no investing
activities in the first quarter of 2010 or 2009. Cash used for
financing activities for the first quarter of 2010 was $0.02
million related to the purchase of stock under our stock repurchase
plan, compared to $0.1 million in the first quarter of 2009,
related to the $0.05 million purchase of stock under our stock
repurchase plan, and the $0.05 million net tax effect of stock
issuances.
Despite the loss during the year, we continue to have a
relatively strong balance sheet and no long-term debt. At the
present time, we estimate that our working capital will be
sufficient to fund our operations until we are able to return to
profitability. We continue to assess this situation on an on-going
basis. Despite the challenges we face, we are enthusiastic about
the future of Thomas Group. As discussed above, we expect to
receive additional income tax refunds of approximately $2.7 million
by mid-year 2010.
During the first quarter of 2008, we established a written plan
pursuant to Rule 10b5-1 under the Securities Exchange Act of
1934, which provides for the purchase of our common stock in
support of our announced share repurchase program. After a waiting
period, repurchases commenced on April 7, 2008. During the
first quarter of 2010, we repurchased 26,744 shares for a total of
$17,736.75, or an average of $0.66 per share including commissions
and fees.
As of January 31, 2010, we completed the authorized repurchase
of 805,450 shares under the plan at a total cost of $1,259,640 or
$1.56 per share. At this time we have no plans for additional stock
repurchases.
Operations and Business Development
In addition to previously announced efforts, we continue to seek
additional ways to reduce costs. As of March 31, 2010, we had 14
consultants on furlough. These furloughed consultants will be
offered the opportunity to return to the payroll if and when we
develop client engagements that require their individual skill
sets. We now employ a “variable cost model” for staffing consulting
projects which enables us to minimize our “bench costs”. In
addition to these reductions in payroll costs, we have aggressively
worked to reduce other costs wherever possible.
Despite our best efforts to reduce costs and control expenses,
we expect to continue to operate at a loss until we are able to
develop client engagements sufficient to generate revenue to allow
us to break even.
NASDAQ Listing Status Update
As previously disclosed, on December 11, 2009, we transferred
our stock listing to the NASDAQ Capital Market from the NASDAQ
Global Market. We made this transfer because we no longer satisfied
the requirement of the NASDAQ Global Market to maintain a market
value of publicly held shares of at least $5 million. At that time
and continuing until the present, we meet the requirements for
listing on the NASDAQ Capital Market with the exception of
maintaining a minimum closing bid price of $1 per share. Nasdaq
granted a grace period until March 15, 2010 to regain compliance
with this requirement. On March 16, 2010, we were notified by
Nasdaq that we had not regained compliance with this requirement
and that our stock would be delisted from Nasdaq unless we filed an
appeal.
We filed a request for an appeal hearing which we were granted.
The hearing was held on April 29, 2010 during which we requested an
extension of time to meet this requirement. Under its rules, Nasdaq
may, but is not required to, grant an extension until September 13,
2010 for us to regain compliance with this requirement. As of this
date, we have not yet received Nasdaq’s response to our appeal.
In order to provide an additional opportunity to regain
compliance, at our 2010 annual meeting of stockholders we intend to
seek stockholder approval for a potential reverse stock split that
would reduce the number of shares of our common stock outstanding
in an attempt to increase the price of our common stock. If this
approval is obtained, our Board of Directors would have the
authority, in its discretion, to effect a reverse stock split at a
ratio within a range from one-for-two to one-for-five at any time
on or before December 31, 2010. Additional information, including
risk factors related to a potential reverse stock split, is
contained in the definitive proxy statement that we filed with the
Securities and Exchange Commission on April 30, 2010.
If Nasdaq does not rule favorably on our appeal, or if we are
unable to satisfy the minimum closing bid price requirement through
a reverse stock split or otherwise, trading in our common stock may
be transferred to the over-the-counter market on the OTC Bulletin
Board or in the “pink sheets”. This could adversely impact both the
liquidity and price of our stock.
About Thomas Group
Thomas Group, Inc. (NasdaqCM: TGIS) is an international,
publicly-traded professional services firm specializing in
operational improvements. Thomas Group's unique brand of process
improvement and performance management services enable businesses
to enhance operations, improve productivity and quality, reduce
costs, generate cash and drive higher profitability. Known for
Breakthrough Process Performance, Thomas Group creates and
implements customized improvement strategies for sustained
performance improvements in all facets of the business enterprise.
Thomas Group has offices in Dallas, Detroit and Washington, D.C.
For more information, please visit www.thomasgroup.com.
Important Notices:
Safe Harbor Statement under the Private Securities Litigation
Reform Act:
Any statements in this release that are not strictly historical
statements, including statements about our beliefs and
expectations, are “forward-looking statements” within the meaning
of the United States Private Securities Litigation Reform Act of
1995. These forward-looking statements involve certain risks and
uncertainties that could cause actual results to differ materially
from those expressed or implied by these statements, including
general economic and business conditions that may impact clients
and our revenues, timing and awarding of customer contracts,
revenue recognition, competition and cost factors as well as other
factors detailed from time to time in our filings with the
Securities and Exchange Commission, including our Form 10-K for the
year ended December 31, 2009. These forward-looking statements may
be identified by words such as “anticipate,” “expect,” “suggests,”
“plan,” “believe,” “intend,” “estimates,” “targets,” “projects,”
“could,” “should,” “may,” “would,” “continue,” “forecast,” and
other similar expressions. These forward-looking statements speak
only as of the date of this release. Except as required by law, we
expressly disclaim any obligation or undertaking to disseminate any
updates or revisions to any forward-looking statement contained
herein to reflect any change in our expectations with regard
thereto or any change in events, conditions or circumstances on
which any such statement is based.
Proxy Statement:
In connection with the 2010 annual meeting of stockholders to be
held June 21, 2010, Thomas Group, Inc. filed a definitive proxy
statement with the Securities and Exchange Commission on April 30,
2010. On or about May 12, 2010, we are mailing to our stockholders
a Notice of Internet Availability of Proxy Materials. That notice
will contain instructions on how our stockholders can access our
2010 proxy statement and annual report on Form 10-K and how they
can vote their shares. Stockholders are advised to read the
definitive proxy statement carefully and in its entirety because it
contains important information about the proposals to be presented
and voted upon. Stockholders may obtain a copy of the definitive
proxy statement and any other relevant documents filed by Thomas
Group, Inc. free of charge at the Securities and Exchange
Commission web site at www.sec.gov. Our definitive proxy statement
and annual report on Form 10-K are available free of charge at
www.edocumentview.com/TGIS.
Thomas Group, Inc. and its directors, executive officers and
other members of management and employees may be deemed
participants in the solicitation of proxies and voting instructions
for the 2010 annual meeting of stockholders. Information concerning
the interests of these persons, if any, in the matters to be voted
upon is set forth in the proxy statement.
THOMAS GROUP, INC. CONSOLIDATED STATEMENTS OF
OPERATIONS (In thousands, except per share data) (Unaudited)
Three Months Ended March 31,
2010 2009 Consulting revenue before reimbursements
$1,519 $2,920 Reimbursements 132 368 Total revenue
1,651 3,288 Cost of sales before reimbursable
expenses 1,015 1,478 Reimbursable expenses $132 $368
Total cost of sales 1,147 1,846 Gross profit 504
1,442 Selling, general and administrative 1,976 3,362
Operating income (loss) (1,472 ) (1,920 ) Interest income, net of
expense (1 ) 4 Other income 162 6 Income (loss) from
operations before income taxes (1,311 ) (1,910 ) Income tax expense
(benefit) 1,594 (685 ) Net income (loss) ($2,905 ) ($1,225 )
Earnings (loss) per share: Basic: ($0.28 ) ($0.11 ) Diluted:
($0.28 ) ($0.11 ) Weighted average shares: Basic 10,463
10,678 Diluted 10,463 10,678
THOMAS GROUP, INC.
Selected Consolidated Financial
Data
(Amounts stated in thousands)
Selected Geographical Revenue
Data
(Unaudited)
Three Months Ended March 31,
2010 2009 Revenue: North America $1,319
$1,920 South America - 17 Europe 332 1,351 Total revenue $1,651
$3,288
Selected Balance Sheet Data
(Unaudited)
March 31, 2010 December 31, 2009
Cash $3,373 $5,004 Trade accounts receivables 1,112 849
Income tax receivable, net 2,821 2,835 Total current assets 7,858
9,457 Total assets 8,441 11,578 Total current liabilities 1,037
1,366 Total liabilities 1,138 1,492 Total stockholders’ equity
$7,303 $10,086
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