XETA Technologies Reports Third Quarter Fiscal 2009 Financial Results

* 3Q09 Revenue: $17.2 million vs. 3Q08 Revenue: $23.2 million
* 3Q09 GAAP loss per share: ($0.84) vs. 3Q08 GAAP EPS $0.06
* Non-cash goodwill and other asset impairment charges of $14.0 million
* Non-GAAP 3Q09 loss per share: ($0.01), excluding impairment charges

BROKEN ARROW, Okla.--(Business Wire)--
XETA Technologies (Nasdaq:XETA) today reported a GAAP loss of ($8.6 million), or
($0.84) per diluted share, on revenue of $17.2 million for the third fiscal
quarter ended July 31, 2009. This compares to earnings of $591,000, or $0.06 per
diluted share, on revenue of $23.2 million for the third fiscal quarter ended
July 31, 2008.

Due to a continued decline in systems sales to commercial customers during the
quarter, uncertainty related to a pending change of ownership of a significant
vendor-Nortel, and the sustained level of market capitalization below book
value, the Company conducted impairment tests for goodwill and other long-lived
assets, specifically its ERP system, in connection with the preparation of its
third quarter financial report. As a result, the Company recorded non-cash
impairment charges of $11 million and $3 million to goodwill and fixed assets,
respectively. The impairment charge to goodwill represents the Company`s best
estimate at the time of reporting third quarter results, and may be adjusted
after completing the impairment test during the fourth fiscal quarter. The
impairment charges do not result in any cash expenditures or affect the
Company`s cash position, cash flow from operations, or availability under its
credit facility. Excluding these charges, non-GAAP net loss for the third fiscal
quarter was ($87,000), or ($0.01) per diluted share.

For the nine months ended July 31, 2009, the Company reported a GAAP loss of
($8.4 million), or ($0.82) per diluted share, on revenue of $53.5 million
compared to net income of $1,351,000, or $0.13 per diluted share on revenue of
$62.0 million for the same period ended July 31, 2008. Excluding non-cash
charges, non-GAAP net income for the nine months ended July 31, 2009 was
$314,000, or $0.03 per diluted share.

Revenue Table (in thousands)

3Q09 3Q08
Line of Businesses Revenue Revenue % Change

Recurring (Contract & Time and Materials) $ 7,357 $ 7,202 2
Implementation $ 2,469 $ 3,864 -36
Cabling $ 698 $ 962 -27
Total Services $ 10,524 $ 12,028 -13

Commercial $ 4,032 $ 8,366 -52
Hospitality $ 2,491 $ 2,296 8
Total Systems $ 6,523 $ 10,662 -39

Third quarter services revenue was $10.5 million, a 13 percent decline from the
same period last year, and a 7 percent sequential increase from the second
quarter of 2009. The year-over-year decline in services revenue was primarily
related to lower implementation and cabling revenue associated with lower
systems sales. "The sequential improvement in service revenue is indicative of
success in on-boarding several sizable, multi-year service contracts during the
first nine months of the year," said Greg Forrest, President and CEO of XETA
Technologies. "The sequential improvement was also the result of growth in our
wholesale business, which we provide services on behalf of our partners.
Wholesale services are not tied directly to the sale of equipment. Therefore, as
the wholesale business grows, our revenue becomes less dependent on equipment
sales, which can fluctuate significantly from quarter to quarter, as was the
case during this last period. We remain strategically focused on growing our
wholesale and direct service business, which provides stable recurring revenue,
requires less working capital investment, produces higher margin and typically
performs better during the bottom of economic cycles."

During the third quarter of fiscal 2009, systems revenue decreased by 39 percent
to $6.5 million versus $10.7 million recorded in the third quarter of 2008. Mr.
Forrest commented, "Our systems revenue faced tough comparisons with large
orders that were delivered during third quarter last year. Excluding these
orders, the significant drop in systems revenue was consistent, or slightly
better than, the numbers reported by the major communications equipment
vendors."

Another key to understanding the Company`s third quarter results was the decline
in Other Revenues compared to last year. These revenues primarily represent
commissions earned from Avaya on the sale of their maintenance agreements.
"Customers chose to defer decisions on renewals of existing contracts during the
third quarter, which negatively impacted our profitability," said Mr. Forrest.

Gross Margin Table

3Q09 3Q08
Line of Business Gross Margin Gross Margin Change
Systems 28.9 % 26.4 % + 250 basis points
Services 28.7 % 30.4 % - 170 basis points
Overall Gross Margin 26.8 % 26.7 % + 10 basis points

During the third quarter of 2009, gross margin was 26.8 percent of revenue
versus 26.7 percent during the third quarter of 2008, as an increase in systems
margin was offset by a decline in services margin. "Lower systems sales and the
resulting decrease in implementation revenue directly affected the fixed cost
absorption of our implementation services. All other service categories showed
improvements in margin," said Mr. Forrest. "Gross margin on systems revenue
remained above targeted levels, reflecting our discipline to focus on business
where we compete based on our differentiated offering, instead of price."

"While gross margin remained relatively unchanged from the prior year, as a
result of lower sales volumes, gross margin dollars declined $1.6 million. We
were able to offset a portion of this decline by taking appropriate actions to
right size the organization and reduce spending, which aided in producing an 8%
decline in third quarter operating expenses, excluding impairment charges,"
stated Robert Wagner, XETA`s Chief Financial Officer. "As a result of the
actions we`ve taken during the third quarter, we expect to reduce operating
expense by more than $1 million annually."

"We made significant improvements to our balance sheet this quarter, generating
$4 million in operating cash flow, building a cash balance of nearly $3 million
and zero drawn on our line of credit," said Mr. Forrest. "The combination of
improvement in some macro economic indicators and our own observations of
increased activity by some customers during the last 30 days lead us to be
cautiously optimistic regarding our fourth quarter and fiscal 2010 financial
results. We have maintained our investment in sales infrastructure to capitalize
on growth opportunities should these early indicators mature."

The Company will host a conference call and webcast to discuss these results at
4:00 p.m. Central Time on Thursday, August 27, 2009. Interested parties may
access the conference call via telephone by dialing 877-407-8033. The call is
being webcast and can be accessed at XETA's website www.xeta.com under the
investor relations section of the website. A replay of the webcast will be
archived on the Company's website for 60 days.

Condensed Consolidated Statements of Income Three Months Ended Nine Months Ended
July 31, July 31,
2009 2008 2009 2008
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Sales Services $ 10,524 $ 12,028 $ 30,359 $ 31,888
Systems 6,523 10,662 22,897 28,648
Other 136 513 263 1,429
Total 17,183 23,203 53,519 61,965

Cost of Sales Services 7,506 8,373 21,258 23,104
Systems 4,640 7,846 16,792 21,175
Other 425 782 1,308 1,707
Total 12,571 17,001 39,358 45,986

Gross Profit 4,612 6,202 14,161 15,979

Gross Profit Margin 27 % 27 % 26 % 26 %

Operating Expense
Selling, General and Administrative 4,388 4,870 12,926 12,796
Amortization 345 265 1,002 722
Impairment of Goodwill and Other Assets 14,000 - 14,000 -
Total Operating Expenses 18,733 5,135 27,928 13,518

Income from Operations (14,121 ) 1,067 (13,767 ) 2,461

Interest Expense (21 ) (96 ) (79 ) (268 )
Interest and Other Income (Expense) (1 ) - 14 27
Total Interest and Other Expense (22 ) (96 ) (65 ) (241 )

Income (Loss) Before Provision for Income Taxes (14,143 ) 971 (13,832 ) 2,220
Provision for Income Taxes (5,544 ) 380 (5,418 ) 869
Net Income after Tax $ (8,599 ) $ 591 $ (8,414 ) $ 1,351

Basic Earnings Per Share $ (0.84 ) $ 0.06 $ (0.82 ) $ 0.13
Diluted Earnings Per Share $ (0.84 ) $ 0.06 $ (0.82 ) $ 0.13
Wt. Avg. Common Shares Outstanding 10,224 10,254 10,224 10,242
Wt. Avg. Common Equivalent Shares 10,226 10,254 10,224 10,247

(The information is unaudited and is presented in thousands except percentages and per-share data.)

Consolidated Balance Sheet Highlights
(Unaudited)
July 31, 2009 October 31, 2008
Assets Current Cash $ 2,981 $ 64
Receivables (net) 11,383 19,995
Inventories (net) 5,109 5,237
Other 2,438 2,615
Subtotal 21,911 27,911

Non-Current PPE (net) 6,998 10,725
Goodwill & Intangibles (net) 16,576 27,654
Noncurrent Deferred Tax Asset 213 -
Other 359 103
Subtotal 24,146 38,482

Total Assets $ 46,057 $ 66,393

Liabilities Current Revolving Line of Credit $ - $ 2,524
Notes Payable 1,226 1,355
Accounts Payable 4,002 6,692
Accrued Liabilities 3,679 4,742
Unearned Revenue 3,211 3,237
Subtotal 12,118 18,550

Non-Current Noncurrent Deferred Tax Liability - 5,546
Other 345 460
Subtotal 345 6,006

Total Liabilities 12,463 24,556

Equity $ 33,594 $ 41,837

(The information is unaudited and is presented in thousands.)

Reconciliation of Adjusted EBITDA(1) to Net Income Quarter Ending Nine Months Ending
July 31, July 31,
2009 2008 2009 2008

Net Income (Loss) $ (8,599 ) $ 591 $ (8,414 ) $ 1,351
Interest 21 96 79 268
Provision for Income Taxes (5,544 ) 380 (5,418 ) 869
Impairment of Goodwill and Other Assets 14,000 - 14,000 -
Depreciation 269 190 723 529
Amortization 345 265 1,002 722
EBITDA(1) $ 492 $ 1,522 $ 1,972 $ 3,739

(The information is presented in thousands.)

1The Company uses Adjusted-EBITDA (earnings before net interest, income taxes,
depreciation and amortization), which excludes non-cash charges for impairment
of goodwill and other assets, as part of its overall assessment and comparison
of financial performance between accounting periods. XETA believes that EBITDA
is often used by the financial community as a method of measuring the Company's
performance and of evaluating the market value of companies considered to be in
similar businesses. EBITDA is a non-GAAP financial measure and should not be
considered an alternative to net income or cash provided by operating
activities, as defined by accounting principles generally accepted in the United
States ("GAAP"). A reconciliation of EBITDA to net income is provided above.

The following table reconciles reported GAAP net income per the income statement
to non-GAAP net income:

Quarter Ending Nine Months Ending
July 31, July 31,
2009 2008 2009 2008

Net Income as Reported $ (8,599 ) $ 591 $ (8,414 ) $ 1,351
Impairment of Goodwill and Other Assets (Net of Tax) 8,512 - 8,512 -
Reserve for Bad Debt (Net of Tax) - - 216 -
Non-GAAP net income $ (87 ) $ 591 $ 314 $ 1,351

(The information is presented in thousands.)

The following table reconciles reported GAAP diluted earnings (loss) per share
("EPS") to non-GAAP diluted EPS:

Quarter Ending Nine Months Ending
July 31, July 30,
2009 2008 2009 2008

EPS, Diluted - as Reported $ (0.84 ) $ 0.06 $ (0.82 ) $ 0.13
EPS Impact of Impairment of Goodwill and Other Assets (Net of Tax) 0.83 0.00 0.83 0.00
EPS Impact of Reserve for Bad Debt, Net of Tax 0.00 0.00 0.02 0.00
EPS, Diluted - Non-GAAP $ (0.01 ) $ 0.06 $ 0.03 $ 0.13

About XETA Technologies

XETA Technologies sells, installs and services advanced communication
technologies for small, medium, and Fortune 1000 enterprise customers. The
Company maintains the highest level of technical competencies with multiple
vendors including Avaya, Mitel, Nortel, Hitachi and Samsung. With a 27-year
operating history and over 16,000 customers from coast to coast, XETA has
maintained a commitment to extraordinary customer service. The Company's
in-house 24/7/365 call center, combined with a nationwide service footprint
offers customers comprehensive equipment service programs that ensure network
reliability and maximized network up-time. More information about XETA
Technologies (Nasdaq: XETA) is available at www.xeta.com. Click on the following
link to join our e-mail alert list:
http://www.b2i.us/irpass.asp?BzID=1585&to=ea&s=0.

This news release contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These include statements
concerning expected reductions in operating expenses and 2009 financial results.
These and other forward-looking statements (generally identified by such words
as "expects," "plans," "believes," "likely," "anticipates" and similar words or
expressions) reflect management's current expectations, assumptions, and beliefs
based upon information currently available to management. Investors are
cautioned that all forward-looking statements are subject to certain risks and
uncertainties which are difficult to predict and that could cause actual results
to differ materially from those projected. These risks and uncertainties
include, but are not limited to: the condition of the U.S.economy and its impact
on capital spending in the Company's markets; reduced availability of
credit;theNortel Networks bankruptcy filingand the impact that such action will
continue to have on the Company's Nortel products and services offering;
unpredictable quarter to quarter revenues;continuing success of our Mitel
productand service offerings; the Company's ability to maintain and improve upon
current gross profit margins; intense competition and industry consolidation;
dependence upon a few large wholesale customers for the recent growth in the
Company's Managed Services offering; and the availability and retention of
revenue professionals and certified technicians.

Three Point Advisors, LLC
Dave Mossberg, 817-310-0051

Copyright Business Wire 2009

http://www.businesswire.com/news/home/20090827005873/en