Integral Systems Announces Third Quarter Fiscal 2010 Financial Results and Revised Fiscal 2010 Guidance

Aug 2, 2010

Integral Systems, Inc reported financial results for its fiscal quarter ended June 25, 2010 and revised its guidance for full-year fiscal 2010. The results for the quarter include a $2.7 million increase in reserve against potentially unrecoverable costs on government contracts, the continuing impact of additional expenses associated with ongoing legal and compliance activities, and costs associated with recent acquisitions.

The Company recognized a $2.7 million reserve for work performed on U.S. government contracts during fiscal years 2008 and 2009. During fiscal year 2010, the Company changed the method of allocating certain expenses based on negotiations with the Defense Contract Audit Agency (DCAA). Based on this change in methodology, the Company received provisional billing rates for fiscal year 2010. Subsequently, the DCAA indicated that the methodology adopted for the 2010 rates should be applied to the cost incurred rates for fiscal years 2008 and 2009 as applied to government contracts.

The Company continues its discussions with the DCAA regarding fiscal years 2008 and 2009 incurred costs. At this time, management believes it has established an appropriate position with the $2.7 million reserve.

The $2.7 million reserve is in addition to the $3.9 million revenue rate reserve recognized in fiscal year 2009.

"We are distressed by the impact of the additional reserve and continuing legal and compliance expenses," commented Paul Casner, President and CEO of Integral Systems. "I understand our shareholders' frustration with the level and frequency of these types of additional expenses. I share that frustration.

"We have taken a prudent position with this reserve and do not anticipate that we will experience any significant adjustments upon audit by the DCAA. We continue our efforts to reduce indirect expenses, recognizing that some of them, such as ongoing legal expenses from the Securities and Exchange Commission action, are beyond our control."

Revenue for the third quarter of fiscal 2010 was $44.4 million, an increase of 11.5% versus the third quarter of 2009. Gross margin was 29.8%, compared to 24.3% for the third quarter of fiscal 2009. Third quarter 2010 loss from operations was $5.0 million, compared to a loss from operations of $3.8 million reported in the third quarter of fiscal 2009. Net loss for the third quarter of fiscal 2010 was $3.8 million or a loss of $0.22 per diluted share, compared to net loss of $1.5 million or $0.09 per diluted share reported for the third quarter of fiscal 2009