EX-99.1 2 dkm894a.htm

Inforte Corp. Announces Positive First Quarter Results

CHICAGO, April 25, 2006 /PRNewswire-FirstCall/ — Customer Intelligence consultancy Inforte Corp. (Nasdaq: INFT — News) announced today that revenue for the quarter ending March 31, 2006 was $11 million. Net revenue, which is revenue less reimbursements, was $10 million, at the top of the guidance range and an increase of 15 percent from last year’s first quarter results. Diluted earnings per share (EPS) were three cents. Excluding the impact of the expense associated with the transition of its chief executive officer, non-GAAP diluted EPS were six cents, exceeding the high end of guidance of five cents.

Actual earnings results for the quarter ending March 31, 2006, and financial highlights, are as follows:

• Revenue and net revenue increased 15 percent year over year.
• Diluted EPS were three cents, and non-GAAP diluted EPS were six cents excluding the CEO transition. This compares to negative seven cents last year and non-GAAP results of zero cents excluding the impact of the capital restructuring in the first quarter of 2005. It also compares to diluted EPS of three cents in the fourth quarter of 2005.
• Net income for the quarter was $329,000 compared to a loss of $770,000 in the first quarter of 2005. Excluding the expense of $520,000 for the CEO transition, non-GAAP net income was $649,000.
• Net income as a percentage of net revenue was 3.3 percent, and compares to -8.9 percent last year. It was 6.5 percent excluding the CEO transition.
• Operating income for the quarter increased to $362,000, compared to a loss of $1.6 million in the first quarter of 2005. Non-GAAP operating income for the quarter excluding the CEO transition was $882,000.
• Operating income as percentage of net revenue was 3.6 percent, compared to -17.9 percent in the first quarter of 2005. Excluding the CEO transition expense, non-GAAP operating income as a percentage of net revenue was 8.9 percent, which is the best result since the fourth quarter of 2000.
• Gross income as a percentage of net revenue was 46.3 percent, up from 42.5 percent last quarter and 33.5 percent in the first quarter last year.
• Cash flow from operations for the quarter was $0.9 million. We typically experience our most significant cash outlays in the first quarter of each year.
• As of March 31, 2006, cash and marketable securities were $30.1 million.
• Utilization was 71 percent compared to 66 percent last quarter and 58 percent in the first quarter of 2005.
• Annualized quarterly net revenue per consultant and net revenue per employee were $215,000 and $174,000 respectively; this compares to $211,000 and $172,000 respectively for the prior quarter and $194,000 and $161,000 respectively for the first quarter of 2005.
• As of March 31, 2006, we had 231 employees in total, 190 of which were billable. This compares to 233 employees last quarter, of which 191 were billable.

Steve Mack, Inforte’s new chief executive officer and president, commented, “We have a great foundation here at Inforte, and I am very impressed with our people and the great work they are delivering for our clients. I will continue to build on this base and I look forward to our continuing success in the coming years.”

Nick Heyes, Inforte’s chief financial officer, commented on the quarter, “We have continued our progress in 2005 with an excellent first quarter. We have grown revenue and continue to improve our profitability. Our operating earnings before interest, tax, depreciation and amortization (EBITDA) excluding the CEO transition were greater than $1 million and are now at 10.4 percent of net revenue. This is our best performance on an absolute and percentage of net revenue basis since 2000. We are continuing to go through a period of change. While this may have an impact on the next few quarters, it will make us a much stronger company in the future.”

Net revenue guidance for the next quarter is unchanged at a range of $9.5 million to $10.5 million and EPS guidance is also unchanged at a range of two to six cents.

Non-GAAP supplemental information is provided to enhance the understanding of Inforte’s financial performance and is reconciled to Inforte’s GAAP information in the accompanying tables at the end of this press release. Inforte presents the non-GAAP financial measures to complement results provided in accordance with GAAP, as management believes these measures help illustrate underlying trends in our business and facilitate comparisons between quarters and years. Management uses these measures to establish budgets and operational goals that are communicated internally and externally, to manage our business and evaluate its performance, and to assess compensation for executives.

The non-GAAP supplemental information excludes the costs of a capital restructuring during the first quarter of 2005, which included an exchange of outstanding options for cash and restricted stock and the granting of additional common stock and excludes the costs of a CEO transition during the first quarter of 2006. See footnote 1 to the Non-GAAP Supplemental Information and Inforte’s SEC filings for more detail on the capital restructuring and footnote 2 to the Non-GAAP Supplemental Information for more detail on the CEO transition.

This press release contains forward-looking statements that involve risks and uncertainties. Actual results may differ from forward-looking results for a number of reasons, including but not limited to, Inforte’s ability to: (i) effectively forecast demand and profitably match resources with demand during a period of tight client budgets and lower spending levels, and when worldwide economic and geopolitical uncertainty is high; (ii) attract and retain clients and satisfy our clients’ expectations; (iii) recruit and retain qualified professionals; (iv) accurately estimate the time and resources necessary for the delivery of our services; (v) build and maintain marketing relationships with leading software vendors while occasionally competing with their professional services organizations; (vi) compete with emerging alternative economic models for delivery, such as offshore development; (vii) integrate acquired businesses; (viii) grow new areas of its business, such as business intelligence and managed analytics; and (ix) identify and successfully offer the solutions that clients demand; as well as other factors discussed from time to time in our SEC filings.

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. All forward-looking statements included in this document are made as of the date hereof, based on information available to Inforte on the date thereof, and Inforte assumes no obligation to update any forward-looking statements.

About Inforte Corp.
Inforte Corp. increases the competitive strength of its Global 1000 clients by providing them with insight, intelligence and an infrastructure to close the fact-gap and enable more timely and profitable decision-making. Inforte consultants combine real-world industry, functional and analytical expertise with innovative go-to-market strategies and technology solutions, ensuring that our clients can drive transformational, measurable results in their customer interactions. Inforte is headquartered in Chicago and has offices in Atlanta; Dallas; Delhi, India; Hamburg, Germany; London; Los Angeles; San Francisco; and Washington, D.C. For more information, contact Inforte at 800.340.0200 or visit www.inforte.com.

CONTACT: kelly.richards@inforte.com, or ir@inforte.com.

Visit http://www.inforte.com/investor/ to access the April 25, 2006, Investor Conference Call web cast, which begins at 8:30 a.m. Eastern.

CONSOLIDATED STATEMENTS OF OPERATIONS
(000‘s, except per share data)

THREE MONTHS ENDED
MARCH 31,
2005
 2006
(Unaudited) (Unaudited)
Revenues:            

  Revenue before reimbursements (net revenue)		   $ 8,655   $ 9,953  
  Reimbursements    891    997  
Total revenues    9,546    10,950  

Cost of services:		  
  Project personnel and related expenses    5,759    5,345  
  Reimbursements    891    997  
Total cost of services    6,650    6,342  

Gross profit		    2,896    4,608  

Other operating expenses:		  
  Sales and marketing    613    672  
  Recruiting, retention and training    199    373  
  Management and administrative    3,636    3,201  
          Total operating expenses    4,448    4,246  

Operating income (loss)		    (1,552 )  362  
Loss on investment in affiliate    --    (75 )
Interest income, net and other    261    280  
Income (loss) before income tax    (1,291 )  567  
Income tax expense (benefit)    (521 )  238  
Net income (loss)   $ (770 ) $ 329  

Earnings (loss) per share:		  
-Basic   $ (0.07 ) $ 0.03  
-Diluted   $ (0.07 ) $ 0.03  

Weighted average common shares outstanding:		  
-Basic    11,132    11,283  
-Diluted    11,132    11,594  

Expenses as a percentage of net revenue		  
 Project personnel and related expenses    66.5 %  53.7 %
 Sales and marketing    7.1 %  6.8 %
 Recruiting, retention, and training    2.3 %  3.7 %
 Management and administrative    42.0 %  32.2 %
 Income tax rate    40.3 %  42.0 %

Margins as a percentage of net revenue		  
 Gross income    33.5 %  46.3 %
 Operating income    (17.9 )%  3.6 %
 Pretax income    (14.9 )%  5.7 %
 Net income    (8.9 )%  3.3 %

Year-over-year change		  
 Net revenue    --    15 %
 Gross income    --    59 %

NON-GAAP SUPPLEMENTAL INFORMATION (UNAUDITED) (1)(2)
STATEMENTS OF OPERATIONS
(000‘s, except per share data)

THREE MONTHS ENDED
MARCH 31,
2005
 2006
(Unaudited) (Unaudited)

Operating income (loss)		      (1,552 )  362  
Tender offer related charges    1,316    --  
Termination of employment charges    --    520  
Loss on investment in affiliate    --    (75 )
Interest income, net and other    261    280  
Non-GAAP income before income tax    25    1,087  
Non-GAAP income tax expense    --    438  
Non-GAAP net income   $ 25   $ 649  
Non-GAAP earnings per share:  
-Basic   $ 0.00   $ 0.06  
-Diluted   $ 0.00   $ 0.06  

Weighted average common shares outstanding:		  
-Basic    11,132    11,283  
-Diluted    11,279    11,594  

Non-GAAP margins as a percentage of net revenue:		  
 Pretax income    0.3 %  10.9 %
 Net income    0.3 %  6.5 %

Year-over-year change:		  
 Non-GAAP pretax income    --    4,248 %
 Non-GAAP net income    --    2,496 %


(1)     The Non-GAAP supplemental information shows results excluding the impact of the capital restructuring in the first quarter of 2005. The total expense of $1,316 included: (i)$848 for charges related to the exchange of stock options for cash; (ii) $378 for common stock grants to employees who had chosen not to exercise options prior to the one-time cash distribution; and (iii) $90 for professional services. Of the total expense of $1,316, $292 was charged to Project personnel and related expenses, $119 was charged to sales and marketing, $8 was charged to recruiting, retention and training and $897 was charged to the management and administrative line of the Consolidated Statement of Operations. The non-GAAP results are provided in order to enhance the user’s overall understanding of the company’s current and future financial performance by excluding certain items that management believes are not indicative of its core operating results and by providing results that provide a more consistent basis for comparison between quarters. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with accounting principles generally accepted in the United States of America.

(2)    The Non-GAAP supplemental information shows results excluding the impact of charges related Mr. David Sutton’s termination of employment as the Chief Executive Officer of Inforte in the first quarter of 2006. The total expense of approximately $520 included: (i) the equivalent of six months’ base salary of $152; (ii) $311 for all Mr. Sutton’s unvested shares of restricted stock and vested stock options; (iii) $51 for his services as a strategic advisor; and (iv) $6 for healthcare benefits. The total charge of $520 was included in the management and administrative expenses line of the Consolidated Statement of Operations. The non-GAAP results are provided in order to enhance the user’s overall understanding of the company’s current and future financial performance by excluding certain items that management believes are not indicative of its core operating results and by providing results that provide a more consistent basis for comparison between quarters. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with accounting principles generally accepted in the United States of America.

INFORTE CORP.
CONSOLIDATED BALANCE SHEETS
(000‘s)

MAR 31,
2005
 JUNE 30,
2005
 SEPT 30,
2005
 DEC 31,
2005
 MAR 31,
2006
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
                           ASSETS                        
Current assets:  
  Cash and cash equivalents   $ 22,041   $ 9,471   $ 12,107   $ 10,353   $ 12,217  
  Short-term marketable securities    24,036    20,022    18,996    22,591    17,844  
  Accounts receivable    6,760    7,875    8,707    8,460    8,078  
  Allowance for doubtful accounts    (450 )  (450 )  (450 )  (400 )  (400 )
  Accounts receivable, net    6,310    7,425    8,257    8,060    7,678  
  Note receivable from affiliate    --    --    429    684    1,122  
  Prepaid expenses and other current assets    1,163    1,212    1,066    1,023    1,211  
  Interest receivable on investment securities    399    261    204    199    164  
  Deferred income taxes    2,424    1,053    1,073    484    371  
  Income taxes recoverable    1,042    1,013    218    124    124  
          Total current assets    57,415    40,457    42,350    43,518    40,731  

Computers, purchased software and property		    2,642    2,602    2,111    1,862    1,865  
Less accumulated depreciation and amortization    1,623    1,754    1,091    881    805  
Computers, purchased software and property, net    1,019    848    1,020    981    1,060  

Long-term marketable securities		    6,086    3,543    492    --    --  
Intangible assets    --    --    64    42    27  
Goodwill    11,726    11,726    14,307    15,238    15,238  
Deferred income taxes    366    1,495    1,565    2,758    2,754  
Investment in affiliate    --    2,000    1,924    1,857    1,783  
          Total assets   $ 76,612   $ 60,069   $ 61,722   $ 64,394   $ 61,593  

            LIABILITIES AND STOCKHOLDERS' EQUITY		  
Current liabilities:  
  Accounts payable   $ 710   $ 413   $ 666   $ 357   $ 406  
  Income taxes payable    148    260    359    920    992  
  Accrued expenses    2,274    2,890    3,012    3,595    3,850  
  Accrued loss on disposal of leased property    1,826    1,492    1,106    845    635  
  Current portion of deferred acquisition payment    3,150    3,150    3,650    3,650    500  
  Dividends declared    17,375    --    --    --    --  
  Deferred revenue    1,085    1,166    1,084    1,679    1,456  
          Total current liabilities    26,568    9,371    9,877    11,046    7,839  

Non current liabilities:		  
  Non-current portion of deferred acquisition payment    --    --    500    1,500    1,500  
Stockholders' equity:  
  Common stock, $0.001 par value  
    authorized- 50,000,000 shares; issued and  
    outstanding (net of treasury stock)- 12,044,736 as  
    of Mar. 31, 2006    11    12    12    13    12  
  Additional paid-in capital    74,015    74,170    74,168    74,204    74,204  
  Cost of common stock in treasury (2,720,823 shares as  
    of Mar. 31, 2006)    (24,997 )  (24,997 )  (24,997 )  (24,997 )  (24,997 )
  Stock-based compensation    585    823    1,011    1,265    1,257  
  Retained earnings    --    454    999    1,307    1,636  
  Accumulated other comprehensive income    430    236    152    56    142  
          Total stockholders' equity    50,044    50,698    51,345    51,848    52,254  
         Total liabilities and stockholders' equity   $ 76,612   $ 60,069   $ 61,722   $ 64,394   $ 61,593  

Total cash and marketable securities		   $ 52,163   $ 33,036   $ 31,595   $ 32,944   $ 30,061  

INFORTE CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000‘s)

THREE MONTHS ENDED
MARCH 31,
2005
 2006
(Unaudited) (Unaudited)
Cash flows from operating activities            
Net income (loss)   $ (770 ) $ 329  

Adjustments to reconcile net income to net		  
cash provided by (used in) operating activities:  
  Depreciation and amortization    384    228  
  Loss on investment in affiliate    --    75  
  Non-cash compensation    404    (8 )
  Deferred income taxes    79    117  
Changes in operating assets and liabilities  
  Accounts receivable    731    382  
  Prepaid expenses and other current assets    (305 )  (172 )
  Accounts payable    (46 )  49  
  Income taxes    (1,178 )  72  
  Accrued expenses and other    (542 )  45  
  Deferred revenue    (582 )  (223 )
Net cash provided by (used in) operating activities    (1,825 )  894  

Cash flows from investing activities		  
  Note receivable from affiliate    --    (421 )
  Acquisition of Compendit, net of cash    (3,150 )  (3,150 )
  Decrease in marketable securities    6,359    4,738  
Purchases of property and equipment    (137 )  (256 )
Net cash provided by investing activities    3,072    911  

Cash flows from financing activities		  
  Proceeds from stock option and purchase plans    46    --  
Net cash provided by financing activities    46    --  
Effect of changes in exchange rates on cash    (69 )  59  
Increase in cash and cash equivalents    1,224    1,864  
Cash and cash equivalents, beg. of period    20,817    10,353  
Cash and cash equivalents, end of period   $ 22,041   $ 12,217