U.S. Home Systems Reports First Quarter 2007 Financial Results

Business Wire, May 14, 2007

Revenue Growth of 25% with Net Income of $0.03 Per Share

DALLAS -- U.S. Home Systems, Inc. (NasdaqGM: USHS) today reported financial results for the first quarter ended March 31, 2007.

For the first quarter 2007, USHS reported consolidated revenues of $28.5 million, an increase of 25 percent as compared to $22.8 million in the three months ended March 31, 2006. Consolidated net income was $232,000, or $0.03 per share, for the three months ended March 31, 2007 as compared to a net loss of $(736,000), or $(0.09) per share, for the three months ended March 31, 2006.

"As expected, our first quarter operating results significantly improved on a year-over-year basis due to operational changes as well as new market expansions throughout 2006," stated Murray Gross, chairman and chief executive officer. "I am especially delighted with the operating results of our home improvement business since the first quarter is seasonally our slowest period which has historically resulted in an operating loss in the quarter. I believe that our continued growth and profitability in this segment in the first quarter clearly establishes the validity of our business strategy and the strength of our management team. "

USHS is engaged in two lines of business: the home improvement business and the consumer finance business. The Company's home improvement principal product lines include kitchen cabinet refacing products, bathroom tub liners and wall surround products, wood and composite decks and related accessories. The Company's home improvement products are marketed exclusively through The Home Depot.

Home Improvement Segment: In the first quarter 2007 revenues in the home improvement segment increased 32.6 percent to $28.1 million as compared with $21.2 million in the first quarter 2006. Gross profit margin improved to 52.4 percent of revenues in the current quarter as compared to 48.7 percent of revenues in the first quarter of last year. Net income was $419,000 as compared with a net loss of $(674,000) in the first quarter last year. Backlog of uncompleted orders was $21.3 million at March 31, 2007.

"Last year we executed an expansion program under our Home Depot agreement, opening new sales and installation centers in eight new markets," stated Peter Bulger, president and chief operating officer, "Approximately 77 percent of the revenue increase in the first quarter 2007 was realized in markets that were opened in 2006 and 23 percent of the increase was realized in markets that were opened prior to 2006."

Mr. Bulger continued, "Our gross profit margin improvement is the result of a combination of factors, including a higher mix of kitchen refacing product revenues which have a higher gross margin than our other products, increased leverage over fixed manufacturing and production expenses resulting from higher revenues, and reduced deck product installation costs resulting from our deck business restructuring program which we completed in 2006."

"We are working with The Home Depot on a number of new growth initiatives for 2007," stated Mr. Bulger. "We are currently planning the opening of new sales and installation centers in the second and third quarters of 2007 to serve The Home Depot customers in the Nashville, TN, Birmingham, AL, and Buffalo and Rochester, NY markets. In March 2007 we launched a pilot program for the introduction of counter top products in the Boston market. This product offering consists of laminate and solid-surface tops, including Corian, Silestone and granite. In addition, we reached an agreement with The Home Depot to roll out countertop products in the Chicago, New York and Connecticut markets, and to extend our laminate countertop product offering in all markets where we offer our kitchen refacing products. We plan to begin this roll out in the second quarter 2007. We had previously offered countertop products under other brand names and we believe we are well positioned to offer these products to The Home Depot's "do-it-for-me" customer. "

Mr. Bulger concluded, "Lastly, we are working with The Home Depot to introduce Designer Deck Ceiling Systems. This new product offering is designed to cosmetically improve and present a finished-look to the underside of an elevated deck as well as to capture and direct water away from the outdoor living area directly below. We anticipate our pilot program will be launched late in the second quarter of 2007 in our Atlanta and metro-Washington, D.C. markets."

Consumer Finance Operations: Revenues in the consumer finance segment were $456,000 in the first quarter 2007 as compared with $1,644,000 in the first quarter 2006. Net loss for the finance segment was $(187,000) in the first quarter 2007 as compared with $(62,000) for the first quarter 2006.

"As we announced last quarter, in November 2006 we changed our consumer finance business model from purchasing retail installment obligations, or RIOs, and holding them for investment to sourcing and servicing RIO portfolios for a third party financial institution", said Mr. Gross. "As we anticipated, sourcing and servicing revenues in the first quarter 2007 were seasonally slow and insufficient to cover the operating costs of the finance business. We believe that extreme winter weather conditions in several areas of the country contributed to the weakness in first quarter 2007 revenues."