First Quarter Revenues Grow by 69% for Pinnacle Data Systems

4/22/2004 - Pinnacle Data Systems, Inc. (PDSi) (AMEX: PNS) announced results for its first fiscal quarter of 2004, the period ended March 27, 2004.

Sales in the first quarter of 2004 totaled $7.0 million, up 69% from $4.2 million reported for the comparable period of 2003. Net income in the first quarter of 2004 was $362,000, or $0.06 per diluted share, up 383% and a new quarterly record for the Company, compared to net income of $75,000, or $0.01 per share, in the comparable period of 2003.

John D. Bair, Chairman, President and CEO, said the Company is very pleased with the results of the quarter and focused on winning more business in an improving economy. “Product sales, generated from the services we provide and where we see the best opportunity for long-term revenue growth, have been steadily improving,” Bair said. “Increased orders for process control and testing products for the semi-conductor manufacturing sector last year have since been followed by record-size product orders in multiple industries that utilize computer technologies in their products.”

“The real key for PDSi is leveraging our growing reputation as a highly regarded service provider to original equipment manufacturers (OEMs). OEMs are picking up the pace of outsourcing the parts of their businesses that they do not consider their core competencies, such as the engineering of specialized computer controllers, systems or components, small-run and mature products manufacturing, complex multi-vendor integration, hardware management and after-the-sale repair and logistics services. Our range of services gives us multiple avenues into new accounts and a large number of offerings to expand the scope of products and services we provide once we are in an account,” Bair continued. “We are continuing to build our sales and marketing organization and increasing our visibility in the marketplace, which has already been paying off in terms of opportunities to quote and ordering activity. We’ve also been improving our internal infrastructure and productivity and are hiring strategically to keep our costs in line as we continue to grow.”

Highlights of the Quarter
Highlights of the first quarter of 2004 include:

Additional Operating Results
Product sales in the first quarter of 2004 totaled $5.4 million, up 146% compared with $2.2 million for the comparable period in 2003, as medical diagnostic, digital imaging, remote management diagnostic, aerospace and telecommunications product shipments improved significantly over last year. The gross profit margin percentage on products increased to 29% in the 2004 quarter from 20% in the 2003 quarter on the increase in volume and the more profitable mix of products shipped in 2004. Gross profit on product sales for the 2004 quarter totaled $1.6 million, compared with $443,000 for the same period in 2003.

Service sales in the first quarter of 2004 totaled $1.6 million, resuming a sequential quarter upward trend from $1.4 million in the fourth quarter of 2003, however, representing a 17% decrease from approximately $2.0 million for the first quarter of 2003. In the first half of 2003, the overlapping of significant in-coming and out-going Hewlett-Packard Company repair programs were producing quarterly record service sales. The gross profit margin percentage on service sales was 43% for the 2004 quarter compared to the 41% gross profit margin in the 2003 quarter. Gross profit on service sales for the 2004 quarter totaled $694,000, compared to $797,000 for the same period in 2003.

For the quarter ended March 27, 2004, operating expenses, including selling, general and administrative (SG&A) expenses, totaled $1.6 million compared to $1.1 million in the comparable quarter of 2003 due to costs directly tied to the Company’s increasing sales and profitability and investment in the company’s growth. In the first quarter of 2004, operating expenses were 23% of sales compared to 26% in the first quarter of 2003.

On March 27, 2004, accounts receivable increased to $5.4 million from $5.1 million on December 31, 2003, and inventory increased to $3.1 million from $2.0 million over the same time period. Both increases are related to the current strength of the business and the timing of shipments to meet customers’ requirements. A significant portion of the shipments for the first quarter of 2004 were made in March, as were inventory purchases for shipments scheduled in early April.

On March 27, 2004, borrowing on the line of credit was reduced to $1.9 million from $2.5 million on December 31, 2003. Availability on the line at March 27, 2004, exceeded $3.1 million.

“Sales and ordering activity continue to be at their highest levels in the Company’s history,” said Michael Sayre, Executive Vice President and CFO. “Current bookings are expected to result in record sales and continued strong earnings for the second quarter.”

“We are focused on year-over-year growth in both sales and earnings,” Sayre continued. “At this point in the year, we believe we can achieve both. Because of the size of the programs we provide, year-over-year quarterly revenue comparisons could vary either up or down, as could earnings. Going forward, we may see lower margin percentages as we increase our marketing and selling expenses and take on lower margin business in order to capture larger portions of the growing market.”

Conference Call
PDSi will host a conference call today at 11:00 a.m. EDT to discuss 2004 first-quarter results and the company’s strategic direction. The conference call may be accessed by calling (888) 880-1525. The passcode for the conference call is “Pinnacle Data” and the conference identification number is 6572059. Please be prepared to provide both the passcode and the conference identification number to access the call.

About PDSi
PDSi provides products and technical services, 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 aerospace, computer, computer peripheral, data storage, digital-imaging, medical diagnostic, 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 Website at

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