SOURCE: Computer Software Innovations, Inc.

August 13, 2008 08:30 ET

Computer Software Innovations, Inc. Announces Second Quarter 2008 Financial Results

EASLEY, SC--(Marketwire - August 13, 2008) - Computer Software Innovations, Inc. (OTCBB: CSWI)

--  Software Segment Revenues Increase 36.2% for the Second Quarter 2008
--  Revenues of $29.6 Million for Six Months, up 3.0% versus $28.8 Million in
    2007
--  Second Quarter Revenues Increase 2.6% to $17.6 Million in Q2 2008 versus
    $17.1 Million in Q2 2007
--  Second Quarter Net Income Increased 12% to $1.0 Million in Q2 2008,
    versus $0.9 Million for Q2 2007
    

Computer Software Innovations, Inc. (OTCBB: CSWI), CSI Technology Outfitters™ ("CSI"), today announced its financial results for the second quarter and six months ended June 30, 2008.

Financial Results:

Second Quarter 2008 Results

CSI posted revenue of approximately $17.6 million for the second quarter ended June 30, 2008, an increase of approximately $0.4 million or 2.6% compared to the second quarter of 2007. CSI experienced significant growth in its software sector in the second quarter with an increase of $1.0 million or 36.2% to $3.8 million versus $2.8 million for the same period in 2007, due to increased sales in all major areas for the software segment: software product sales, services and support. Of the increase, the acquisition of the CSI-Greensboro operations added $0.2 million, with the remaining $0.8 million generated from organic growth. Technology revenues decreased from second quarter 2007 by $0.6 million or 3.9% to $13.7 million for the second quarter of 2008. The decrease in new hardware sales was attributed to an increase in the number of smaller-dollar sales of interactive whiteboard systems being insufficient to surpass the impact of a large-dollar district-wide implementation in the prior year's same quarter.

Gross profit for the second quarter of 2008 was approximately $4.6 million, an increase of $0.6 million or 15.0% in comparison with the second quarter of 2007. The increase in gross margin was driven by increased sales in the software segment, partially offset by a decline in hardware gross profits primarily from decreased sales of interactive whiteboard solutions. Increased margin in the software segment added to the improvement from sales volume while increased margin in the technology segment partially offset the reduction from the impact of reduced technology sales volume. Operating income for the quarter was approximately $1.81 million, a slight decrease compared to operating income of $1.83 million for the same period in the prior year.

CSI posted net income for the quarter ended June 30, 2008 of approximately $1.0 million or $0.21 earnings per basic share and $0.08 earnings per diluted share, compared to net income of approximately $0.9 million and $0.25 earnings per basic share and $0.07 earnings per diluted share for the same period last year.

Six Months Results

CSI posted revenue of approximately $29.6 million, an increase of $0.9 million or 3.0% in comparison with the first six months of 2007. This net increase included a $1.3 million increase in software sales and services, partially offset by a $0.4 million decline in technology solutions segment sales. Technology solutions sales decreased primarily from reduced sales of interactive whiteboard solutions, partially offset by increased sales of other products including infrastructure solutions and increased engineering services. The increase in the software solutions segment was primarily due to increases in all areas including software product sales, services and support. The acquisition of the CSI-Greensboro operations in the second quarter of 2008 added $0.2 million of software revenues, with the remaining $1.1 million increase from organic growth.

Gross profit for the first six months was approximately $7.7 million, an increase of $1.1 million or 16.7% compared to 2007. The gross margin increased from 22.8% in 2007, to 25.8% in 2008 due to the higher volume of software product sales and shift in product mix in technology to higher margin infrastructure products and engineering services. Operating income for the first six months was approximately $2.6 million compared to $2.4 million for the same period in 2007. Net income was $1.4 million or earnings of $0.30 per basic share and $0.12 per diluted share as compared to a net income of $1.2 million or $0.34 per basic share and $0.09 per diluted share for the same period in 2007.

Earnings before interest, taxes, depreciation and amortization ("EBITDA") increased $0.1 million to $2.3 million for the quarter ended June 30, 2008, and increased $0.4 million to $3.6 million for the six months ended June 30, 2008. The increase in EBITDA was primarily due to the increase in net income over the prior year after adding back the related tax effects of those increases in net income. (EBITDA is a non-GAAP financial measure. See reconciliation to GAAP measure net income (loss) which follows below.)

Nancy Hedrick, CEO of CSI, stated, "We continue to be pleased with current year results. Once again we faced the challenge of a prior year quarter benefited by a district-wide solutions implementation, and without a similar deal in the current year's quarter we grew our top and bottom lines. We exceeded the prior year's results by achieving greater account penetration and customer diversification in both segments, while increasing our gross margin from 22.8% to 25.8%. This is a tribute to the continued hard work of all our teams, and we believe the expanded customer relationships will aid future growth."

Conference Call Reminder for Today

The Company will host a conference call today, Wednesday, August 13, 2008 at 11:00 a.m. Eastern Time to discuss the Company's financial and operational results for second quarter 2008.

Conference Call Details
Date: Wednesday, August 13, 2008
Time: 11:00 a.m. (EDT)
Dial-in Number: 1-800-762-8795
International Dial-in Number: 1-480-629-9041

It is recommended that participants phone-in approximately 5 to 10 minutes prior to the start of the 11:00 a.m. call. A replay of the conference call will be available approximately 3 hours after the completion of the call for 7 days, until August 20, 2008. To listen to the replay, dial 1-800-406-7325 if calling within the U.S., 1-303-590-3030 if calling internationally and enter the pass code 3909185.

The call is also being webcast and may be accessed at CSI's website at www.csioutfitters.com. The webcast will be archived and accessible until September 13, 2008 on the Company website.

About Computer Software Innovations, Inc.

CSI provides software and technology solutions primarily to public sector markets. CSI has more than doubled its revenue in the past two years to over $55 million by using organic growth and acquisitions. Over 600 school, government, and non-profit organizations have CSI solutions that encompass financial management software specialized for the public sector, IT infrastructure, IP telephony, IP video surveillance, printing/imaging, and interactive classroom technologies. More information about CSI (OTCBB: CSWI) is available at www.csioutfitters.com.

Forward-Looking and Cautionary Statements

This release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Among other things, these statements relate to our financial condition, results of operations and future business plans, operations, opportunities and prospects. In addition, we and our representatives may from time to time make written or oral forward-looking statements, including statements contained in other filings with the Securities and Exchange Commission and in our reports to stockholders. These forward-looking statements are generally identified by the words or phrases "may," "could," "should," "expect," "anticipate," "plan," "believe," "seek," "estimate," "predict," "project" or words of similar import. These forward-looking statements are based upon our current knowledge and assumptions about future events and involve risks and uncertainties that could cause our actual results, performance or achievements to be materially different from any anticipated results, prospects, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements are not guarantees of future performance. Many factors are beyond our ability to control or predict. You are accordingly cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date that we make them. We do not undertake to update any forward-looking statement that may be made from time to time by or on our behalf.

In our most recent Form 10-K, we have included risk factors and uncertainties that might cause differences between anticipated and actual future results. We have attempted to identify, in context, some of the factors that we currently believe may cause actual future experience and results to differ from our current expectations regarding the relevant matter or subject area. The operations and results of our software and systems integration businesses also may be subject to the effects of other risks and uncertainties, including, but not limited to:

--  a reduction in anticipated sales;
    an inability to perform customer contracts at anticipated cost levels;
--  our ability to otherwise meet the operating goals established by our
    business plan;
--  market acceptance of our new software, technology and services offerings;
--  an economic downturn; and
--  changes in the competitive marketplace and/or customer requirements.
    

                    COMPUTER SOFTWARE INNOVATIONS, INC.
                   CONSOLIDATED STATEMENTS OF OPERATIONS
                               (UNAUDITED)


                           Three Months Ended         Six Months Ended
                        ------------------------  ------------------------
                          June 30,     June 30,     June 30,     June 30,
                            2008         2007         2008         2007
                        -----------  -----------  -----------  -----------
REVENUES
    Software
     applications
     segment            $ 3,806,286  $ 2,794,725  $ 6,863,900  $ 5,534,161
    Technology
     solutions segment   13,744,230   14,306,570   22,749,610   23,218,866
                        -----------  -----------  -----------  -----------
    Net sales and
     service revenue     17,550,516   17,101,295   29,613,510   28,753,027

COST OF SALES
    Software
     applications
     segment
    Cost of sales,
     excluding
     depreciation,
     amortization and
     capitalization       1,984,887    1,661,868    3,651,105    3,080,595
    Depreciation             27,385       16,608       51,672       30,918
    Amortization of
     capitalized
     software costs         314,190      259,125      598,002      498,322
    Capitalization of
     software costs        (203,892)    (208,880)    (499,522)    (435,853)
                        -----------  -----------  -----------  -----------
    Total software
     applications
     segment cost of
     sales                2,122,570    1,728,721    3,801,257    3,173,982
                        -----------  -----------  -----------  -----------
    Technology
     solutions segment
    Cost of sales,
     excluding
     depreciation        10,770,911   11,327,634   18,102,643   18,979,240
    Depreciation             30,292       22,270       58,940       43,734
                        -----------  -----------  -----------  -----------
    Total technology
     solutions segment
     cost of sales       10,801,203   11,349,904   18,161,583   19,022,974
                        -----------  -----------  -----------  -----------
    Total cost of sales  12,923,773   13,078,625   21,962,840   22,196,956
                        -----------  -----------  -----------  -----------
    Gross profit          4,626,743    4,022,670    7,650,670    6,556,071

OPERATING EXPENSES
    Salaries, wages and
     benefits             1,804,972    1,390,359    3,123,316    2,457,563
    Stock based
     compensation             4,691        5,027        9,383       90,813
    Acquisition
     expenses                 9,345        4,076       32,844        8,546
    Compliance related
     costs                  137,654      201,178      234,153      380,756
    Sales consulting
     fees                    55,625       48,000      118,502       96,000
    Marketing costs         106,075       75,537      115,039       73,312
    Travel and mobile
     costs                  180,073      137,128      350,924      290,609
    Depreciation and
     amortization           122,159       90,502      228,420      180,749
   Other selling,
    general and
    administrative
    expenses                390,362      240,209      797,671      567,261
                        -----------  -----------  -----------  -----------
   Total operating
    expenses              2,810,956    2,192,016    5,010,252    4,145,609
                        -----------  -----------  -----------  -----------
    Operating income      1,815,787    1,830,654    2,640,418    2,410,462

OTHER INCOME (EXPENSE)
    Interest income              35           58          100        2,763
    Interest expense       (130,697)    (152,036)    (263,022)    (286,055)
    Loss on disposal of
     property and
     equipment                    -            -            -       (1,218)
                        -----------  -----------  -----------  -----------
  Net other income
   (expense)               (130,662)    (151,978)    (262,922)    (284,510)
                        -----------  -----------  -----------  -----------
    Income before
     income taxes         1,685,125    1,678,676    2,377,496    2,125,952
INCOME TAX EXPENSE          673,507      775,499      938,115      937,989
                        -----------  -----------  -----------  -----------
NET INCOME              $ 1,011,618  $   903,177  $ 1,439,381  $ 1,187,963
                        ===========  ===========  ===========  ===========
BASIC EARNINGS PER
 SHARE                  $      0.21  $      0.25  $      0.30  $      0.34
                        ===========  ===========  ===========  ===========
DILUTED EARNINGS PER
 SHARE                  $      0.08  $      0.07  $      0.12  $      0.09
                        ===========  ===========  ===========  ===========
  WEIGHTED AVERAGE SHARES
   OUTSTANDING:
     Basic                4,908,061    3,544,385    4,803,516    3,516,853
                        ===========  ===========  ===========  ===========
     Diluted             12,366,568   13,255,883   12,262,023   13,248,383
                        ===========  ===========  ===========  ===========




                         COMPUTER SOFTWARE INNOVATIONS, INC.
                             CONSOLIDATED BALANCE SHEETS



                                                  June 30,
                                                    2008      December 31,
                                                (Unaudited)       2007
                                                ------------  ------------
ASSETS

CURRENT ASSETS
    Cash                                        $         --  $         --
    Accounts receivable, net                      13,420,118     8,697,036
    Inventories                                    2,549,374       470,485
    Prepaid expenses                                 152,008        42,832
    Taxes receivable                                      --       177,147
                                                ------------  ------------
      Total current assets                        16,121,500     9,387,500
PROPERTY AND EQUIPMENT, net                        1,424,187     1,316,713
COMPUTER SOFTWARE COSTS, net                       2,303,453     2,162,717
DEFERRED TAX ASSET                                   291,535       263,324
GOODWILL                                           2,430,437     1,480,587
OTHER ASSETS                                       1,970,132     1,574,809
                                                ------------  ------------
                                                $ 24,541,244  $ 16,185,650
                                                ============  ============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
    Accounts payable                            $  6,553,141  $  4,023,936
    Taxes payable                                    340,418            --
    Deferred revenue                               6,565,440     5,323,889
    Deferred tax liability                           478,232       469,046
    Current portion of notes payable                 294,485       283,187
    Subordinated notes payable to shareholders     1,950,400     2,250,400
                                                ------------  ------------
      Total current liabilities                   16,182,116    12,350,458
                                                ------------  ------------
NOTES PAYABLE, less current portion                  614,025       763,717
BANK LINE OF CREDIT, less current portion          3,533,000       575,000
                                                ------------  ------------
      Total liabilities                           20,329,141    13,689,175
                                                ------------  ------------

SHAREHOLDERS' EQUITY (DEFICIT)
    Preferred stock - $0.001 par value;
     15,000,000 shares authorized; 6,859,736
     shares issued and outstanding                     6,860         6,860
    Common stock - $0.001 par value; 40,000,000
     shares authorized; 4,908,061 and 4,698,970
     shares issued and outstanding,
     respectively                                      4,908         4,699
    Additional paid-in capital                     7,649,583     7,400,939
    Accumulated deficit                           (3,345,338)   (4,784,719)
    Unearned stock compensation                     (103,910)     (131,304)
                                                ------------  ------------
      Total shareholders' equity                   4,212,103     2,496,475
                                                ------------  ------------
                                                $ 24,541,244  $ 16,185,650
                                                ============  ============

Non-GAAP Financial Measure: Explanation and Reconciliation of EBITDA and Adjusted EBITDA

EBITDA is a non-GAAP financial measure used by management, lenders and certain investors as a supplemental measure in the evaluation of some aspects of a corporation's financial position and core operating performance. Investors sometimes use EBITDA as it allows for some level of comparability of profitability trends between those businesses differing as to capital structure and capital intensity by removing the impacts of depreciation and amortization. EBITDA also does not include changes in major working capital items such as receivables, inventory and payables, which can also indicate a significant need for, or source of, cash. Since decisions regarding capital investment and financing and changes in working capital components can have a significant impact on cash flow, EBITDA is not a good indicator of a business's cash flows. We use EBITDA for evaluating the relative underlying performance of the Company's core operations and for planning purposes, including a review of this indicator and discussion of potential targets in the preparation of annual operating budgets. We calculate EBITDA by adjusting net income or loss to exclude net interest expense, income tax expense or benefit, depreciation and amortization, thus the term "Earnings Before Interest, Taxes, Depreciation and Amortization" and the acronym "EBITDA."

EBITDA is presented as additional information because management believes it to be a useful supplemental analytic measure of financial performance of our core business, and as it is frequently requested by sophisticated investors. However, management recognizes it is no substitute for GAAP measures and should not be relied upon as an indicator of financial performance separate from GAAP measures (as discussed further below).

"Adjusted EBITDA or "Financing EBITDA" is a non-GAAP financial measure used in our calculation and determination of compliance with debt covenants related to our bank credit facilities. Adjusted EBITDA is also used as a representation as to how EBITDA might be adjusted by potential lenders for financing decisions and our ability to service debt. However, such decisions would not exclude those other items impacting cash flow which are excluded from EBITDA, as noted above. Adjusted EBITDA is defined as net income or loss adjusted for net interest expense, income tax expense or benefit, depreciation, amortization, and also certain additional items allowed to be excluded from our debt covenant calculation including other non-cash items such as operating non-cash compensation expense (such as stock-based compensation), and the Company's initial reorganization or restructuring related costs, unrealized gain or loss on financial instrument (non-cash related) and gain or loss on the disposal of fixed assets. While we evaluate the Company's performance against debt covenants on this basis, investors should not presume the excluded items to be one- time costs. If the Company were to enter into additional capital transactions, for example, in connection with a significant acquisition or merger, similar costs could reoccur. In addition, the ongoing impact of those costs would be considered in, and potential financings based on, projections of future operating performance which would include the impact of financing such costs.

We believe the presentation of Adjusted EBITDA is important as an indicator of our ability to obtain additional financing for the business, not only for working capital purposes, but particularly as acquisitions are anticipated as a part of our growth strategy. Accordingly, a significant part of our success may rely on our ability to finance acquisitions.

When evaluating EBITDA and Adjusted EBITDA, investors should consider, among other things, increasing and decreasing trends in both measures and how they compare to levels of debt and interest expense, ongoing investing activities, other financing activities and changes in working capital needs. Moreover, these measures should not be construed as alternatives to net income (as an indicator of operating performance) or cash flows (as a measure of liquidity) as determined in accordance with GAAP.

While some investors use EBITDA to compare between companies with different investment and capital structures, all companies do not calculate EBITDA or Adjusted EBITDA in the same manner. Accordingly, the EBITDA and Adjusted EBITDA measures presented below may not be comparable to similarly titled measures of other companies.

A reconciliation of Net Income reported under GAAP to EBITDA and Adjusted (Financing) EBITDA is provided below:

                                             Three Months     Six Months
                                                Ended           Ended
                                               June 30,        June 30,
                                            --------------- ---------------
Amounts in thousands                         2008    2007    2008    2007
                                            ------- ------- ------- -------
Reconciliation of Net income (loss) per
 GAAP to EBITDA and Adjusted (Financing)
 EBITDA:
Net income (loss) per GAAP                  $ 1,012 $   903 $ 1,439 $ 1,188
  Adjustments:
    Income tax expense (benefit)                674     775     938     938
    Interest expense, net                       131     152     263     283
    Depreciation and amortization of fixed
     assets and trademarks                      180     129     339     255
    Amortization of software development
     costs                                      314     259     598     498
                                            ------- ------- ------- -------
EBITDA                                      $ 2,311 $ 2,218 $ 3,577 $ 3,162
                                            ------- ------- ------- -------
  Adjustments to EBITDA to exclude those
   items in loan covenant calculations:
    Stock based compensation (non-cash
     portion)                                     5       5       9      91
                                            ------- ------- ------- -------
Adjusted (Financing) EBITDA                 $ 2,316 $ 2,223 $ 3,586 $ 3,253
                                            ======= ======= ======= =======

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