Pinnacle Data Systems Increases Q2 Revenues by 30% to $5.8 Million

7/24/2003 - Pinnacle Data Systems, Inc. (PDSi) (AMEX: PNS) announced results for the second quarter (thirteen weeks) ended June 29, 2003.

Sales for the second quarter of 2003 totaled $5.8 million, an increase of 30% over sales of $4.5 million reported in the comparable period of 2002. Net income for the second quarter of 2003 was $179,000, or $0.03 per diluted share, compared to a net loss of $11,000, or $0.00 per share, for the second quarter of 2002. Sales for the six months ended June 29, 2003, totaled $9.9 million, resulting in net income of $254,000, or $0.04 per diluted share, compared to sales of $7.9 million and a net loss of $310,000, or $0.06 per diluted share, for the comparable 2002 period.

John D. Bair, Chairman, President and CEO, said the company achieved its fourth consecutive profitable quarter and is on track for a profitable fiscal year. “Shipments of new products resulting from 2002 customer trials picked up in the second quarter, and we hope to see that trend continue,” Bair said. “We are making progress on our strategic growth plans, which include harvesting additional opportunities from our current large original equipment manufacturer (OEM) customers, increasing the number of new customer-specific products we have in production, increasing the number of customers and types of service programs we have, and evaluating non-organic growth options as well.”

As a result of work with Sun Microsystems and Intel over the past year, PDSi doubled its product customer base and was recently awarded membership in the Intel® 2003 Premier Provider program for demonstrating a distinct level of expertise in Intel technologies and solutions. Over the past year, PDSi was awarded new business in the production and servicing of tape library equipment for Hewlett-Packard. In the quarter, PDSi obtained NSF-International Strategic Registration Ltd. certification to ISO 14001, a desired supplier certification of a number of current and potential OEM customers to prove its commitment to preserving the environment.

“We are constantly evaluating and implementing new ways to increase our value to our strong customer base,” Bair said.

Additional Operating Results
For the second quarter of 2003, product sales totaled $3.5 million, an increase of 15% over product sales of $3.0 million for the second quarter of 2002, due to the new products that started shipping in the first quarter of 2003. The gross profit margin percentage on products increased to 24% in the 2003 quarter from 21% in the 2002 quarter on a slightly more profitable mix of business. Gross profit on product sales for the 2003 quarter totaled $819,000, compared with $632,000 for the same period in 2002.

For the second quarter of 2003, service sales totaled $2.3 million, an increase of 60% over service sales of $1.4 million for the second quarter in 2002, due to the continued ramp-up of new repair and logistics programs, as well as non-recurring component sales related to discontinued programs and non-recurring engineering services provided during the quarter. Excluding the non-recurring sales in the service sales total, service sales increased 34% in the second quarter of 2003 compared to the second quarter of 2002. The gross profit margin percentage on service sales was 34% for both the 2003 and 2002 quarters. Gross profit on the increased service sales for the 2003 quarter totaled $786,000, compared to $490,000 for the same period in 2002.

For the quarter ended June 29, 2003, sales, general and administrative (SG&A) expenses, including research and development (R&D), totaled $1.3 million, compared to $1.1 million in the comparable quarter of 2002. The increase is attributable to incentive and commission programs related to increases in both new, as opposed to existing, customer business and bottom-line profitability. The shift from R&D expenses to SG&A expenses is a result of product development resources working on new service opportunities rather than new product opportunities in the 2003 quarter compared to the 2002 quarter.

“We’ve made significant progress since the first half of 2002. The results of the first half of 2003 and the second half of 2002 combine for a trailing twelve months total net income of $545,000, earnings per diluted share of almost $0.10 and a return on net assets of over 15%,” said Michael Sayre, Executive Vice President and CFO. “While profitability and consistent quarterly growth are not guaranteed in this environment, we believe the third quarter of 2003 will also be profitable on the strength of our new programs, even though the loss of the Hewlett-Packard UNIX Workstation Repair program in the second quarter will negatively impact third quarter service sales. Visibility into the fourth quarter is limited at this point. However, some of the new product and service programs we have been working on over the past several months are showing increasing signs of their ability to generate revenue going forward into 2004.”

About PDSi
PDSi provides technical services and solutions, encompassing the development and production of embedded (built-in) computer systems and components, and the testing and repair of computer systems, components and peripherals, to Original Equipment Manufacturers (OEMs) in, among others, the computer, computer peripheral, data storage, digital-imaging, process-control, and telecommunications equipment industries. PDSi offers a full range of services to increase product speed to market and engineered product life, and to provide service and support to units in the field through comprehensive product lifecycle management programs encompassing depot repair, advanced exchange, contact center support and end-of-life control. For more information, visit the PDSi Web-site at

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