GTSI CEO Fires Back At Auditor's Report

Leto said he is confident the company's auditing firm, Ernst and Young LLP, will amend its opinion on the company's future prospects once GTSI receives its new revolving credit facility. GTSI announced Thursday that it has received a commitment letter from a lending syndicate for a $125 million senior secured revolving credit facility that it expects to close on before the end of May. As part of the plans to obtain that facility, GTSI has hired a restructuring adviser that will work with the lending syndicate.

Leto, who took the helm in March after serving 10 years on the GTSI board of directors, said he has met with most of the company's vendor partners to assure them of GTSI's ability to continue going forward. He said GTSI encountered a "perfect storm" in 2005 including a "Katrina" like ERP implementation that strained customer relations and led to 100 percent turnover in GTSI's purchasing group and a 55 percent attrition rate for the entire company. That ERP system is now stable, he said, and the worst of times are behind GTSI.

"When the storm blows over, the sun comes out and you can see what the extent of the damage is and the extent of the damage from 2005 is not as severe as anybody expected," said Leto. "I suspect that this company despite anything that I might do to change it is going to grow incrementally and improve incrementally between now and September when we hit our busy season."

Leto's comments came in a conference call after the solution provider announced a net loss of $5.6 million for its fourth fiscal quarter ended Dec. 31 on a 15 percent decline in sales to $279.2 million. For the full fiscal year, GTSI reported a net loss of $16 million on an 18 percent decline in sales to $886.3 million. GTSI shares closed Thursday down 51 cents or 8 percent to $5.98, a 52-week low.

Leto said he hopes to return the company to profitability and sales growth by the end of the year. He said GTSI just closed the best March bookings month ever, driven by several large high end solutions and financial services deals. "We have a very strong balance sheet, " asserted Leto. "We had a great March. Customer demand is significant. The solutions evolution is happening [at GTSI] and it is happening at a very quick pace. I am very bullish about the company."

Leto said he driving hard on a strategy to transform GTSI into a full fledged solution provider. He said he envisions GTSI as the "preeminent provider of unique solutions that solve government problems" for federal, state and local governments. "That is a radical shift for this company," he said. "We have been making that shift for several years. And the shift to becoming a solution provider which integrates both standard COTS [commercial off-the-shelf] products with standard COTS software to provide unique crafted engineered solutions is not what our traditional systems integration community does. That makes us a hybrid. I want to excel as the hybrid within that space. I think we can do that."