IT asset management firm QSGI Inc. (OTCBB: QSGI) reported its financial results for the first quarter of 2007 today, revealing an amazing 24 percent increase in gross profit over the previous year.
“We are pleased with the 24 percent increase in our gross profit, over 500 basis point increase in our gross margin, improved operating income … which reflects our continued shift from a pure hardware re-marketer, towards a higher-margin IT services provider,” Marc Sherman, chairman and CEO of QSGI, stated in a recent press release. “During the quarter, revenues within our Data Center Maintenance division increased 35 percent, while, at the same time, we saw a meaningful increase in our end-user, data erasure and auditing work within the Data Security and Compliance division.”
QSGI, which provides technology services such as data security, compliance and maintenance, offers a full suite of end-of-life and other life-cycle services for both corporate and government IT platforms, offsetting client expense through a value-added remarketing program.
In addition to the 24 percent increase in its gross profit – representing an increase to $2.7 million – QSGI had other reasons to celebrate. While the company’s total revenue for the first quarter of 2007 only rose 1 percent from $9.3 million to $9.4 million, its gross margin increased 516 basis points to 28 percent.
“The improvement in our higher margin services business was offset by a slowdown in remarketing services as many Fortune 1000 companies extended their IT lease return schedules,” Sherman said. “Nevertheless, despite the difficult revenue comparison this quarter, growth in our data security services allowed our gross margins to increase from 17 to 19 percent and our gross profit within the Data Security & Compliance division to remain relatively flat. At the same time, we are strengthening our relationships with the major OEMs, and as they are increasingly called upon to provide on-site data security and compliance services as the back-end piece of the overall leasing package, we will look to be their partner of choice for client on-site work.”
Sherman anticipated continued growth and increase customer interest for QSGI for the remainder of the year.
“Looking ahead, we expect to see strong growth resume within our wholesale remarketing business, in sync with steadily increasing data security services as the remainder of 2007 unfolds,” Sherman said. “More importantly, we are very focused on increasing revenues within our Data Center Maintenance division, which has continued to outperform our expectations. We recently announced new mainframe and mid-range server maintenance contracts, which are estimated to generate an additional $1.2 million in recurring annual revenue beginning this month. As a result of these and other contracts, we anticipate pacing approximately $6.6 million in annualized revenues within the division by the end of Q2, which we expect will help us to achieve sustained company-wide profitability for the second quarter of 2007 and beyond.”
“We remain focused on keeping [Selling General and Administrative] at its historical levels, and as our revenues improve, we would expect strong incremental margins,” Sherman added.
QSGI spokesmen could not be reached for comment.
QSGI shares were trading at 78 cents as of Monday afternoon.