Avatech sees sequential growth and returns to profit

Avatech reported today that there are signs that the US is in the early stages of a recovery that “could take some time,” according to President and CFO Lawrence Rychlak. The company still sees a tough sales environment in many areas, especially in Florida and Michigan on a geo basis and in building design on an industry basis.

For the 3 months ended September 30, the company’s fiscal first quarter, Avatech reported total revenue of $7.8 million, a decrease of 28% from a year ago but a sequential increase of 16%. The sequential improvement was led by a 17% increase in software and commissions while services revenue was up 14% from the June quarter.

Cost reductions implemented earlier this calendar year led Avatech to its first profitable quarter in a year, as the company reported net income of $127,000.

During the analyst conference call, Mr. Rychlak commented that the company is actively investigating acquiring weaker competitors who did not make the cost adjustments necessary to withstand the drop-off in orders, noting that Avatech’s balance sheet is strong, with $2.8 million in cash bolstered by a $5 million line of credit.

"We are beginning to see some improved market conditions as customers’ budgetary constraints loosen and they express greater interest in our software and services… We remain cautiously optimistic about the future and know that we are well positioned from an organizational standpoint to execute our strategy and provide outstanding value to our customers," said Mr. Rychlak in a prepared statement.

Autodesk reports results tomorrow. Clearly, the 28% decline in revenue seen by Avatech isn’t good news, especially since reports from other resellers are even more negative on a year over year basis (depending upon the VAR’s exposure to the building and automotive verticals and their geographic locations). But the sequential flattening suggests improvement; we’ll know in slightly more than 24 hours.