Incentra Solutions Reports 2008 Second Quarter, Six-Month Results

Total Quarterly Revenue Up 92% Year-over-Year; Services Revenue Grew 42%;
Product Revenue Rose 103%; Fourth Consecutive Quarter of Operating Profit

BOULDER, Colo., July 31 /PRNewswire-FirstCall/ -- Incentra Solutions, Inc.
(OTC Bulletin Board: ICNS), a provider of complete IT services and solutions
to enterprises and managed service providers in North America and Europe,
today announced strong year-over-year growth in revenues and operating profit
for its second quarter and first six months ended June 30, 2008.
Driven by a 42 percent increase in Services revenue and a 103 percent
increase in Product revenue, total revenue in the 2008 second quarter
increased 92 percent to $59.2 million, up from $30.8 million in the 2007
second quarter. Services revenue in this year's second quarter was $7.6
million and Product revenue was $51.6 million, up from $5.4 million and $25.4
million, respectively, in the prior year quarter. Total revenue for this
year's second quarter was up 23 percent sequentially from $48.2 million in the
2008 first quarter.
For the first six months of 2008, total revenue increased 93 percent to
$107.5 million from $55.8 million in the year-earlier period. Services
revenue for the first six months of 2008 increased 49 percent to $14.7 million
and Product revenue grew 102 percent to $92.8 million, up from $9.9 million
and $45.9 million, respectively, in the first six months of 2007. The 2008
second quarter and first six months included revenue from the acquisitions of
Helio Solutions (Helio) and Sales Strategies, Inc (SSI), which were both
completed late in the third quarter of 2007.
Chairman and CEO Thomas P. Sweeney said that Incentra reported its fourth
consecutive quarter of operating profit in this year's second quarter with
strong year-over-year increases in both the second quarter and first six
months of 2008.
Operating profit in the 2008 second quarter was $1.4 million, up from an
operating loss of $0.8 million in last year's second quarter. For the first
six months of 2008, operating profit grew to $1.7 million compared to an
operating loss of $1.2 million in the year-earlier period.
"We experienced solid financial and operational gains in virtually every
phase of our business during the first half of this year," Sweeney added.
"While product revenue growth is in large part due to acquisitions completed
in the second half of 2007, our strong growth in services revenues and the
increase in operating profit is a direct result of the operational synergies
associated with our ability to deliver a broader technology portfolio and
higher margin professional services and managed services."
Chief Financial Officer Anthony DiPaolo said, "SG&A costs as a percentage
of revenue declined as we continued our efforts to fine tune our operations to
match our business model. This has had a positive impact on bottom-line
results. SG&A costs, excluding non-cash items, were 17.5 percent and 18.2
percent of revenue, respectively, for the second quarter and first six months
of 2008, down from 23 percent and 24.8 percent, respectively, in the year-
earlier periods."
Net loss applicable to common shareholders for the 2008 second quarter
decreased to $2.3 million, or a loss per share of $0.09, from $3.3 million, or
a loss per share of $0.26, for the 2007 second quarter. For the first six
months of 2008, net loss applicable to common shareholders decreased to $5.0
million, or a loss per share of $0.19, from $6.3 million, or a loss per share
of $0.48, for the prior year period.
Basic and diluted weighted average shares outstanding for the 2008 second
quarter and first six months were 26,401,973 and 26,403,550, respectively,
compared with 13,075,203 and 13,162,751 in the year-earlier periods. The
year-over-year increase in shares principally reflects the issuance of shares
associated with the acquisitions of Helio and SSI, and issuance of shares in
payment of fees related to the financing of those acquisitions.
President and Chief Operating Officer Shawn O'Grady said, "We continue to
demonstrate that our business strategy and revenue model is working. We are
closing new and larger deals, delivering a broader range of higher margin
products and services through our expanded organization and increasing our
base of recurring revenue. In the first six months of the year, we have added
more than 130 new customers, taking market share from our competitors and
affirming our views that a complete solutions approach is resonating with the
mid-tier market."
Overall gross margin in this year's second quarter and first six months
increased 92 percent and 74 percent, respectively, to $11.3 million and $20.4
million, compared to $5.9 million and $11.7 million, respectively, in the
year-earlier periods. Gross margin as a percentage of revenue remained
constant at 19.1 percent in the second quarter of 2008 compared to the second
quarter of 2007. For the first six months of this year, gross margin as a
percentage of revenue was 18.9 percent compared to 21.0 percent for the first
six months of last year.
Services gross margin as a percentage of revenue in the second quarter and
first six months of 2008 was 30.4 percent and 28.3 percent, respectively,
compared to 36.9 percent and 34.5 percent in the prior year periods. Product
gross margin percentage in this year's second quarter and first six months
were 17.5 percent and 17.4 percent, respectively, compared to 15.4 percent and
18.1 percent in the respective 2007 periods. The year-over-year decline in
Services gross margin percentage is reflective of a higher volume of first
call support contracts, which carry a lower margin than other managed
services, and an increase in the volume of outside contractors used to deliver
professional services engagements.
"While Services gross margin as a percentage of revenue in this year's
second quarter declined when compared to the prior year quarter, the Services
gross margin percentage increased substantially from 26.1 percent in the first
quarter of 2008 due in large measure to the sale of a broader range of higher
margin services across all of our operations," O'Grady added.
Outlook for 2008:
Exclusive of any acquisitions, Incentra continues to expect 2008 revenue
to be between $200 million and $220 million, approximately 35 to 50 percent
higher than revenue in 2007, and the Company believes it will be cash flow
positive for the year. Excluding funds which may be required under a possible
redemption associated with the Company's Series A Preferred Stock, Incentra
believes its combined operating and non-operating cash flows, cash on-hand and
working capital facilities are sufficient to support its business operations
and growth plans for 2008.
Conference Call Information
As previously announced, management will host a conference call today to
be broadcast live on the Internet at 11:30 a.m. (Eastern time). The dial-in
number for the call from locations in North America is 1-800-762-8779, and for
callers outside North America, the dial-in number for the call is 1-480-629-
1990. The conference ID is 3903546. You may also access the live webcast on
the Company/Investors section of the Company's website,
http://www.incentrasolutions.com, under "Conference Call and Webcasts."
Additionally, an archive of the conference call will be available on this
site.
About Incentra Solutions, Inc.
Incentra Solutions, Inc. (http://www.incentrasolutions.com) (OTCBB:ICNS)
is a provider of complete IT services and solutions to enterprises and managed
service providers in North America and Europe. Incentra's complete solution
includes managed services, professional services, hardware and software
products with the Company's First Call and Enhanced First Call support
services, IT outsourcing solutions and financing options.
Incentra Solutions Forward Looking Statements
Certain information discussed in this press release may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and the federal securities laws. Although the
Company believes that the expectations reflected in such forward-looking
statements are based upon reasonable assumptions at the time made, it can give
no assurance that its expectations will be achieved. Readers are cautioned not
to place undue reliance on these forward-looking statements. Forward-looking
statements are inherently subject to unpredictable and unanticipated risks,
trends and uncertainties such as the Company's inability to accurately
forecast its operating results; the Company's potential inability to achieve
profitability or generate positive cash flow; the availability of financing;
and other risks associated with the Company's business. For further
information on factors which could impact the Company and the statements
contained herein, reference should be made to the Company's filings with the
Securities and Exchange Commission, including Annual Reports on Form 10-KSB,
Quarterly Reports on Form 10-QSB and Current Reports on Form 8-K. The Company
assumes no obligation to update or supplement forward-looking statements that
become untrue because of subsequent events.
TABLES FOLLOW

Operating Profit Reconciliation

All amounts in (000's)
Three Months Ended June 30, Six Months Ended June 30,

2008 2007 2008 2007

Loss from continuing
operations before
accretion of preferred
stock $(1,598) $(2,677) $(3,713) $(4,968)
Depreciation and
amortization 1,330 687 2,184 1,507
Interest expense, net
(cash portion) 942 319 1,838 619
Interest expense (non-cash
portion) 594 503 1,124 826
Non-cash stock-based
compensation 172 384 308 823

Operating profit (loss)(1) $1,440 $(784) $1,741 $(1,193)

Operating Profit(1): Earnings before interest, taxes, depreciation,
amortization, and before stock-based compensation
charges

INCENTRA SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

Three Months Ended June 30, Six Months Ended June 30,
2008 2007 2008 2007
REVENUES:
Products $51,608 $25,435 $92,752 $45,917
Services 7,639 5,375 14,720 9,865
TOTAL REVENUE 59,247 30,810 107,472 55,782

COST OF REVENUES:
Products 42,602 21,525 76,567 37,591
Services 5,315 3,393 10,547 6,464
TOTAL COST OF REVENUES 47,917 24,918 87,114 44,055

GROSS MARGIN 11,330 5,892 20,358 11,727

Product - $ 9,006 3,910 16,185 8,326
Services - $ 2,324 1,982 4,173 3,401

Product - % 17.5% 15.4% 17.4% 18.1%
Services - % 30.4% 36.9% 28.3% 34.5%

SG&A 11,392 7,747 21,109 15,250

LOSS FROM OPERATIONS (62) (1,855) (751) (3,523)

Interest expense (1,536) (822) (2,962) (1,445)

NET LOSS (1,598) (2,677) (3,713) (4,968)

Accretion of convertible
redeemable preferred
stock to redemption
amount (654) (654) (1,308) (1,308)

NET LOSS APPLICABLE TO
COMMON SHAREHOLDERS $(2,252) $(3,331) $(5,021) $(6,276)

Weighted average number
of common shares
outstanding - basic
and diluted 26,401,973 13,075,203 26,403,550 13,162,751

Basic and diluted
net loss per share
applicable to common
shareholders:
Net loss per
share- basic
and diluted $(0.09) $(0.26) $(0.19) $(0.48)

Contacts for Incentra Solutions:
Allen & Caron Inc.
Jill Bertotti (investors)
jill@allencaron.com
Len Hall (financial media)
len@allencaron.com
(949) 474-4300

Incentra Solutions, Inc.
Anthony DiPaolo
Chief Financial Officer
adipaolo@incentrasolutions.com
(720) 566-5000

SOURCE Incentra Solutions, Inc.

investors, Jill Bertotti, jill@allencaron.com, or financial media, Len Hall,
len@allencaron.com, both of Allen & Caron Inc., +1-949-474-4300, for Incentra
Solutions, Inc.; or Anthony DiPaolo, Chief Financial Officer of Incentra
Solutions, Inc., +1-720-566-5000, adipaolo@incentrasolutions.com