Avatech + Rand off to a solid start

Avatech Solutions reported results yesterday, the first time for the merged companies since Rand Worldwide acquired Avatech in a reverse merger back in August. Since the combined company files with the US GAAP rules, these results represent a full quarter for Rand and the results for Avatech from the date the acquisition closed (August 17) through September 30, 2010. This makes it hard to compare this quarter to prior periods — but we can try!

The new Avatech reported total revenue of $16.8 million for the first quarter of fiscal 2011, up 23% from the Rand-only $13.7 million reported a year ago. Product sales rose 19% to $9.3 million, commissions were up 48% to $3 million and services revenue was up 10% to $4.5 million. Avatech’s results for the quarter show contributions of $1.8 million to product revenue, over $1.15 million in services revenue, and $965,000 of commission revenue, for a total of $3.9 million. Without Avatech, then, it seems that Rand’s revenue would have declined 6%.

On a regional basis, sales from North America increased 29% from $12 million to $15.3 million; Singapore/Malaysia fell 20% to $698,000 and sales in Australia were up 1% to $781,000. For comparative purposes, Avatech operated in the US and had sales of $7.8 million for the full three months ended September 30, 2009. Prorating this, it would appear that Avatech could have seen about $4 million in revenue during six weeks of the September quarter — matching pretty closely what did happen.

Avatech reports that it incurred $1.7 million in merger-related expenses during the quarter, which helped lead to a net loss from continuing operations of $2.2 million, or $(0.06) per fully diluted share, as compared with a net loss from continuing operations of $530,000, or $(0.04) per fully diluted share in the same period in the prior year.
 
Even so, said Larry Rychlak, CFO, "we remain very positive about the impact that this merger will have on our business and operations and we continue to make significant progress on executing our integration and restructuring plans. We expect that the integration of the companies will continue through March of 2011 at which time we expect to begin realizing the operating results that we projected for the combined operations. Beginning in the fourth quarter of this fiscal year, we should see the full benefits of the merged operations including an expanded scope of products and services to our customers and a leaner, more efficient organization."
 
CEO Marc Dulude added, "I am very pleased with the pace at which our integration is progressing.  We have fully integrated our Sales and Services organizations as well as most of our administrative groups and have made major advances in combining our internal business systems for managing and reporting on financial, sales and marketing data. Immediately following the merger, we began to see significant, tangible benefits of the merger and as the integration process continues, we see continuing validation of the reasons for putting these two great companies together."  

The 10-Q filed with the SEC offers the commentary that Rand’s business remained relatively flat on the product front but decreased sharply in services as Rand discontinues its PLM consulting operations and saw declines in its email archiving and data storage services. Rand characterizes these results as signaling a stabilizing in the economic conditions in the markets it serves.