Financial: Inacom Reports Increase in Net Earnings for Third Quarter of 1998. Services Revenues Increase 44 Percent in Third Quarter to $95 Million - Company Financial Information

Edge: Work-Group Computing Report, Oct 26, 1998

Inacom Corp.(NYSE:ICO), a Fortune 500 technology management services company, reported third quarter 1998 net earnings of $11.0 million, a 53 percent increase compared to net earnings of $7.2 million in the third quarter of 1997. Excluding a previously announced after-tax charge of $0.7 million related to an accounts receivable securitization completed in July 1998, third quarter 1998 net earnings increased 63 percent to $11.7 million.

Diluted earnings per share increased nine percent from 55 cents reported in the third quarter of 1997 to 60 cents per share, excluding the aforementioned one-time charge of three cents per share. Diluted earnings per share for the third quarter of 1998 were 57 cents including the aforementioned charge. Revenues were $1.1 billion for the third quarter of 1998, a five percent increase from one year ago.

For the first nine months of 1998, Inacom has generated net earnings of $31.9 million or $1.71 a share, a 66 percent and 15 percent increase in net earnings and earnings per share, respectively over prior-year net earnings of $19.2 million or $1.49 per share. Excluding the third-quarter 1998 one-time charge, net earnings for the first nine months were $32.7 million or $1.75 per share, an increase of 70 percent and 17 percent, respectively. Revenues were $3.2 billion, a 13 percent increase over prior-year revenues of $2.8 billion.

According to Bill L. Fairfield, Inacom's president and chief executive officer, the company's services business continued its growth trend. "Our strategic initiative to grow our services business continues to be reflected in our performance. We have achieved a 47 percent increase in services revenues in the first nine months of 1998, which now account for eight percent of consolidated revenues," said Fairfield. "More importantly, our proposed merger with Vanstar announced earlier this month will create a leading technology services company with more than 7,300 services personnel, including 600 Microsoft Certified Systems Engineers. The merger will also give us the ability to leverage our fixed costs over a larger revenue base in both our hardware and services businesses."

"As we move forward, we will continue to pursue and refine the basic elements of our strategic plan," said Fairfield. "That includes remaining committed to solid operational execution; pursuing all avenues to grow and strengthen our services business; expanding our relationships with the end-user; and enhancing our capabilities as a channel assembly leader. These strategic initiatives will help us identify and effectively use all the resources available to us to grow the company."

Hardware revenues increased one percent in the third quarter of 1998 compared to the prior year. While end-user demand remained strong, product availability issues, which improved as the quarter grew to a close, constrained growth. In addition, third-quarter average selling prices declined two percent from the second quarter. The services business showed strong revenue growth of 44 percent over the third quarter of 1997. Third-quarter 1998 revenues in the communications business rose 35 percent compared to the prior year.

Gross margins in the third quarter of 1998 rose to 9.2 percent compared to 8.2 percent in the second quarter of 1998. The increase resulted from an improvement in revenue mix in the hardware segment to a higher proportion of direct business, coupled with strong revenue growth in the higher-margin services and communications businesses. Direct hardware revenues accounted for 54 percent of hardware revenues compared to 47 percent in the previous quarter.

Commenting on the company's performance, David C. Guenthner, Inacom's executive vice president and chief financial officer said, "Our financial performance through the first three quarters of 1998 reflects our focus on execution. While end-user demand for computer products remained strong in the third quarter, profitability pressures resulted from product availability issues and changing terms and conditions as the channel transition moves forward. These challenges were offset by continued contributions from our services and communications businesses, which collectively accounted for 12 percent of consolidated revenues and 57 percent of net earnings in the third quarter of 1998."

Inacom's Chairman of the Board, Rick Inatome said, "Companies need assistance in determining the right products and services to maximize their technology investments. Inacom's ability to deliver the full array of computer and communications systems, as well as consulting and support services, demonstrates the value we bring our clients and why our company has achieved a leadership position in our industry."

Inacom Corp. is a technology management services company providing integrated life cycle services to clients. Inacom keeps clients' businesses running with technology planning, procurement, integration, support, and management services. Visit Inacom on the World Wide Web at http://www.inacom.com.