Thomas Group, Inc. (NasdaqCM: TGIS), a global change
management and operations improvement consulting firm, today
announced a net loss of $0.7 million, or negative $0.31 per diluted
share, for the first quarter of 2011 on revenues of $0.8 million,
compared to a net loss of $2.9 million, or negative $1.39 per
diluted share, on revenues of $1.7 million for the first quarter of
2010.
Loss from operations before income taxes decreased to $0.7
million for the first quarter of 2011 compared to a loss from
operations before income taxes of $1.3 million for the first
quarter of 2010.
First Quarter 2011 Financial Performance
Revenue
Revenue for the first quarter of 2011 was $0.8 million, compared
to $1.7 million in the first quarter of 2010. Consulting revenue
from US government clients, represented by our Government practice,
was $0.5 million, or 69% of revenue, in the first quarter of 2011,
compared to $0.3 million, or 16% of revenue, in the first quarter
of 2010. Consulting revenue from commercial clients was $0.2
million, or 27% of revenue compared to $1.3 million, or 76% of
revenue, in the first quarter of 2010. Reimbursement of expenses
was $0.03 million, or 4% of revenue in the first quarter of 2011,
compared to $0.1 million, or 8% of revenue in the first quarter of
2010.
Gross Margins
Gross profit margin for the first quarter of 2011 was 41%,
compared to gross profit margin of 31% for the first quarter of
2010. The increase in the quarterly gross margins is related to the
variable cost model for staffing consulting projects, minimized
bench costs, and the decreased use of outside consultants during
the first quarter of 2011.
Selling, General & Administrative (SG&A)
SG&A costs for the first quarter of 2011 were $1.1 million,
compared to $2.0 million in the first quarter of 2010. The $0.9
million decrease is related primarily to a $0.5 million decrease in
payroll costs due to employee furloughs and the decline in the
number of employees, a $0.1 million decrease in stock-based
compensation expense, a $0.1 million decrease in sales commissions
and employee bonus, and a $0.2 million decrease in other costs due
to a decline in activity as compared to the same period in
2010.
Other Income
Other income of $140,000 for the first quarter of 2011 included
insurance reimbursements and reversal of the prior accrual related
to the lawsuit with Earle Steinberg, our former President and CEO.
The lawsuit was settled in March 2011 for a total cost to us of
approximately $110,000.
Income Tax Expense
For the first quarter of 2011 we incurred income tax expense of
$0.02 million compared to $1.6 million during the first quarter of
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 the first
quarter of 2010 it was no longer probable that we will recover our
deferred tax asset. The combined tax effect resulted in an income
tax expense of $1.6 million for the first quarter of 2010. If we
are able to return to sustained profitability, and when we can
comply with all of the requirements of ASC 740-10-25, we should be
able to recover all or part of our deferred tax asset.
Working Capital and Cash Flow
Working capital decreased from $3.0 million at December 31, 2010
to $2.3 million at March 31, 2011, due primarily to our operating
loss for the first quarter ended March 31, 2011. During 2010 we
received a $2.5 million tax refund due to tax losses for 2009
carried back to prior years.
We do not forecast significant tax refunds for 2011. Our 2010
and 2011 tax losses cannot be carried back to prior years, but may
be available to offset taxable income, if any, in future years.
For the first quarter of 2011, net cash decreased $1.1 million,
compared to a net decrease of $1.6 million for the first quarter of
2010. For the first quarter of 2011, net cash used in operating
activities was $1.1 million compared to $1.6 million for the first
quarter of 2010. This decrease in net cash used by operating
activities is due primarily to the decrease in net loss for the
first quarter of 2011. There were no investing activities for the
first quarter of 2011 or 2010. There was no cash used for financing
activities for the first quarter of 2011 compared to $0.02 million
related to the purchase of stock under our stock repurchase plan
which was completed during the first quarter of 2010.
Despite our continuing 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 and then return to profitability.
Although we believe we have the potential to return to
profitability, there can be no assurance that we will be able to do
so soon enough, given our current, limited available resources. We
have developed a business plan for 2011 including an internal
forecast of cash needs. We believe that existing cash resources and
cash generated from current operations will be sufficient to
satisfy our operating cash needs at least through March, 2012.
However, there can be no assurance that we will achieve the revenue
or expense levels projected in the business plan. Also, we may not
be able to obtain additional working capital beyond our current
resources, if needed.
Operations and Business Development
In addition to previously announced efforts, we continue to seek
additional ways to reduce costs. As of March 31, 2011, we had seven
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 employ a “variable cost model” for staffing consulting
projects which enables us to minimize our “bench costs”.
In addition to these reductions in consulting payroll costs
which are included in Cost of Sales, we have aggressively worked to
reduce other costs wherever possible. Reflecting our efforts to
reduce these other costs, SG&A costs for the quarter ending
March 31, 2011 were $1.1 million compared to $2.0 million for the
same quarter in the prior year. As part of our on-going efforts,
effective November 1, 2010, members of the management team were
partially furloughed to reduce SG&A costs until we can generate
higher levels of revenue. As with the consultants on furlough, the
work schedules of members of the management team will be
reevaluated periodically to ensure that necessary functions are
performed during this period and that client service and sales
efforts continue uninterrupted.
Our attempts to develop new client relationships in both the
commercial and government sectors have proven much more difficult
than we anticipated. As we found in the latter half of 2010, many
commercial client prospects are still uncertain about the
direction, scope and breadth of the recovery from the current
recession and thus reluctant to commit to consulting
engagements.
Beginning in the fourth quarter of 2010, the US government again
found itself operating on a series of “continuing resolutions”
rather than a budget for fiscal 2011. This has continued into 2011
with the recent approval of another continuing resolution for the
balance of fiscal 2011 as Congress and the Executive Branch of the
US government attempt to come to a course of action to deal with
the impact of the current recession on revenues and costs of
government. Under the rules related to “continuing resolutions,” it
is very difficult to begin new projects or to expand existing
projects. In addition, many decision makers in the government are
reluctant to begin projects for which funding may not be available
to ensure completion.
We continue to market our services to improve operations, reduce
costs and improve efficiency to both commercial enterprises and to
the US government and US military. We believe we have compelling
products to assist them in making the critical improvements
required in response to these times, but it is not clear that we
will be successful in generating significant new business in the
short term in either sector.
Nasdaq Listing Update
On April 18, 2011, we received a Nasdaq Staff Determination
Letter stating that we no longer meet the minimum Market Value of
Publicly Held Shares (“MVPHS”) requirement set forth in Listing
Rule 5550(a)(5) of the Nasdaq Stock Market (the “Rule”). The Rule
requires that we maintain a MVPHS of at least $1 million. We have
until October 17, 2011 to regain compliance with the Rule by
maintaining a minimum MVPHS of $1 million for at least ten
consecutive business days. If we do not regain compliance with the
Rule by such date, we will receive written notification that our
securities are subject to delisting from The Nasdaq Capital Market.
At that time, we may appeal the delisting determination to a
Hearings Panel.
Notice of Tax Audit for 2009
Subsequent to quarter end, we received notice from the Internal
Revenue Service (“IRS”) that it will audit our corporate tax
returns for year ending December 31, 2009. In response to a request
from the IRS, in conjunction with this audit of our 2009 tax
returns, we agreed to extend the deadline for assessments related
to our tax returns for the year ending December 31, 2007. We do not
anticipate any material impact on our financial statements as a
result of this audit process.
About Thomas Group
Thomas Group, Inc. (NasdaqCM: TGIS) is an international,
publicly-traded professional services firm specializing in
organization change management and operations improvement. 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 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, lack of
profitability and potential delisting 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, 2010. 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.
THOMAS GROUP, INC. CONSOLIDATED STATEMENTS
OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three Months Ended March 31,
2011 2010 Consulting revenue before reimbursements $
731 $ 1,519 Reimbursements 30 132 Total
revenue 761 1,651 Cost of sales before
reimbursable expenses 419 1,015 Reimbursable expenses 30
132 Total cost of sales 449
1,147 Gross profit 312 504 Selling, general and
administrative 1,141 1,976 Operating
loss (829 ) (1,472 ) Interest income, net of expense - (1 ) Other
income 159 162 Loss from operations
before income taxes (670 ) (1,311 ) Income tax expense 18
1,594 Net loss ($688 ) ($2,905 )
Loss per share: Basic ($0.31 ) ($1.39 ) Diluted ($0.31 )
($1.39 ) Weighted average shares: Basic 2,212 2,093 Diluted
2,212 2,093
Thomas Group, Inc. Selected Consolidated Financial
Data
(Amounts stated in thousands)
Selected Geographical Revenue
Data
(Unaudited)
Three Months Ended March 31, 2011
2010 Revenue: North America $ 761 $ 1,319 Europe
- 332 Total revenue $ 761 $ 1,651
Selected Balance Sheet Data
(Unaudited)
March 31, December 31, 2011 2010
Cash and cash equivalents $ 1,933 $ 3,032 Trade accounts
receivables 543 237 Income tax receivable 100 108 Total current
assets 2,886 3,721 Total assets 3,218 4,111 Total current
liabilities 559 769 Total liabilities 559 794 Total stockholders’
equity $ 2,659 $ 3,317
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