Pinnacle Data Systems' Quarterly Sales Grow by 6% to $7.5 Million

4/29/2005 - Pinnacle Data Systems, Inc. (PDSi) (AMEX: PNS) announced results for the first quarter ended March 31, 2005.

John D. Bair, Chairman and CEO, commented, "The results for the first quarter of 2005 were particularly encouraging, benefiting from new product and service programs, overall increasing service volume and operational improvements. We exceeded our plan and have a strong start on the year. Consistent with our strategic plan, we continue to invest in our business, especially through targeted sales and marketing initiatives. These efforts are expected to result in increased sales in key markets and improved long-term performance."

Sales for the first quarter of 2005 totaled $7.5 million, a 6% increase from $7.0 million for the first quarter of 2004. Gross profit for the first quarter of 2005 was $2.0 million, an 11% decrease compared to $2.3 million for the comparable period of 2004 due to a change in product mix.

Operating expenses, including selling, general and administrative (SG&A) expenses were essentially unchanged at $1.6 million for the first quarters of both 2005 and 2004, or 21% and 23% of sales for the respective quarters.

For the first quarter of 2005, net income was $247,000, or $0.04 per diluted share, a 32% decrease from the record net income of $362,000, or $0.06 per diluted share, for the first quarter of 2004.

Additional Operating Results
For the first quarter of 2005, product sales totaled $5.3 million, a decrease of 2% from $5.4 million in the first quarter of 2004. Lower shipments to industrial process control customers during the first quarter of 2005 were mostly offset by higher sales to imaging customers. Gross profit on products declined to $822,000, or 15% of sales, in the first quarter of 2005 from $1.6 million, or 29% of sales, in the same quarter last year due to mix.

For the first quarter of 2005, service sales totaled $2.2 million, an increase of 35% from approximately $1.6 million in the first quarter of 2004, due to the new repair and hardware management programs. Gross profit on service sales for the 2005 first quarter totaled $1.2 million, compared to $694,000 for the same period in 2004. The gross profit margin on service sales improved to 55% in the first quarter of 2005 from 43% in the 2004 first quarter due to higher volume and increased operating leverage.

Highlights of the Quarter
During the first quarter of 2005, PDSi

Outlook
Michael R. Sayre, Executive Vice President and CFO, stated "We will continue to implement our targeted growth strategy in 2005 by investing in sales, marketing and a more scalable organization. Positive contributions from these efforts are anticipated throughout the rest of the year. Sales and earnings for the second quarter of 2005 are expected to be below the all-time quarterly records set in the second quarter of 2004. However, we expect quarterly sales to increase sequentially throughout the rest of 2005 and to continue our string of profitable quarters. During this period of significant investment, as we transition to that higher growth, more scalable, operating platform, we remain focused on improvement in annual results."

Conference Call
PDSi hosted a conference. John D. Bair, Chairman and CEO, Christopher L. Winslow, President and COO, and Michael R. Sayre, Executive Vice President and CFO, discussed the Company's first quarter results and its growth strategy.

An audio replay of the call will be available through the Investor Relations section of the Company's website.

About PDSi
PDSi provides product lifecycle service solutions to Original Equipment Manufacturers (OEMs) in the medical, telecommunications, defense, imaging and computer equipment industries, among others. PDSi offers a full range of computer and computer-related product development and manufacturing services to increase product speed to market and engineered product life, and service and support solutions for 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 www.pinnacle.com.

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