Tom Johnson, chairman and CEO of Global Imaging Systems, said, "Today's upgrade by S&P on the heels of Moody's upgrade on August 25, 2005, suggests that the rating agencies and hopefully the investment community in general are recognizing the company's solid financial position, consistent profitability and strong cash flow."
The following press release was issued earlier today by Standard & Poor's Ratings Service:
Research Update: Global Imaging Systems Corporate Credit Rating Raised to 'BB' On Consistent Revenue Growth
Rationale:
On Sept.8, 2005 Standard & Poor's Ratings Service raised its rating on Tampa, Fla.-based Global Imaging Systems Inc. to BB/Stable/-- from BB-/Positive/--. The upgrade reflects consistently profitable revenue growth and a moderately leveraged financial profile. Total debt outstanding (including capitalized operating leases) as of June 30, 2005 was about $304 million.
The ratings on Global Imaging reflect a second-tier industry position in the mature and highly competitive office equipment distribution market, and acquisitive growth strategy. These factors partly are offset by Global's consistent financial performance and a growing base of recurring service revenues.
Global is a distributor of automated office equipment solutions, network integration solutions and electronic presentation systems. Automated office equipment and network integration solutions account for most of Global's revenues. Global focuses on the U.S. middle market, which consists of small to mid-size businesses. This focus has enabled the company to build scale and efficiency-- largely through acquisitions--without participating in the highly competitive office equipment market for large corporate customers. Service and supply contracts provide the company with a recurring revenue stream, which helps provide revenue stability.
Consistent operating performance and revenue growth have produced modest but steady growth in EBITDA. The company is expected to maintain EBITDA margins of 13-14%. Debt protection measures are solid for the rating level--EBITDA interest coverage is in excess of 7x. The company's growth strategy incorporates using moderate-size, regional acquisitions to expand its geographic and customer base. Global made acquisitions totaling $183.2 million in fiscal 2005, as compared to $28.9 million in fiscal 2004. Acquisitions are expected to continue to be funded primarily with a combination of cash and debt. While the current rating and outlook incorporate the potential for a short-term spike in leverage, total debt to EBITDA is expected to remain below 3x.
Liquidity:
Global Imaging typically maintains modest cash balances. The company's primary sources of liquidity are its positive but moderate level of annual free operating cash flow, and availability under its revolving credit facility. The $70 million secured revolving credit facility matures May 10, 2009. As of June 30, 2005, the company was in compliance with its financial covenants. Global has no significant debt maturities through fiscal 2008.
The cash-generation characteristics of Global's base of service and supplies revenues typically offset the funding requirements of working capital growth. In addition, capital expenditures continue to decline as a percent of revenues and are not expected to be a material drain on cash flow.
Outlook:
The outlook is stable, reflecting consistent, moderate growth in earnings and cash flow, and a leverage profile that is good for the rating level. The potential for rating improvement is limited by Global's weak business profile, and relatively modest absolute level of earnings and free operating cash flow. A deterioration in profitability or Global's financial profile, although not expected, could lead to a negative outlook.
/CONTACT: Tom Johnson, Chairman and CEO, or Ray Schilling, Executive Vice President and CFO, Global Imaging Systems, Inc., 813/960-5508 or Investor Relations Consultants, Inc., 727/781-5577 or E-mail: gisx@mindspring.com/
