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Hurricane Katrina Still Effecting Home Solutions of America Fourth Quarter and Year-end Results


DALLAS - Home Solutions of America, Inc. reported 2006 fourth quarter revenue of $34.7 million compared to revenue of $25.5 million in the fourth quarter of 2005. Home Solutions had EBITDA of $7.8 million for the 2006 fourth quarter compared to $5.7 million in the same period a year earlier (operating income of $7.4 million and $5.4 million, plus $406,000 and $329,000 of depreciation and amortization for the fourth quarter of 2006 and 2005, respectively). Home Solutions had 2006 fourth quarter net income of $2.2 million, or $0.05 per diluted share compared to $2.7 million, or $0.07 per diluted share in the same period a year earlier. The results are in line with the guidance that the Company provided in its earnings pre-announcement on March 5, 2007.

Fourth quarter results were impacted by further delays in funding in New Orleans, which affected the Company’s ability to commence previously anticipated projects as well as weakness in the housing sector, which affected the Company’s Rebuilding and Remodeling Division. The results were also affected by a one-time expense of $1.6 million relating to the increase of reserves for the Company’s receivables, $500,000 for Sarbanes-Oxley expenses incurred to comply with Section 404 for the first time, which are not expected to recur at the same rate, the decision to open new sales offices in South Carolina, California, Florida and Louisiana to support new business opportunities in 2007, an increase in the Company’s tax rate from 36% through the first three quarters of 2006 to an annual rate of 41% for the entire 2006 year and SFAS 123(R) expense of $400,000. The Company also incurred non-capital start-up costs of $250,000 on a new granite fabrication facility in Tampa and $200,000 towards a new fabricating facility in New Orleans.

Revenue from the Recovery and Restoration Services Division was $25.4 million for the fourth quarter of 2006, compared to $16.6 million in the year-earlier period. Revenue from the Rebuilding/Remodeling Division was $9.4 million, versus $8.9 million in the year-earlier period. Overall gross margin increased to 52.3% compared to 40.0% in the fourth quarter of fiscal 2005. Gross margin increased in both segments during the fiscal 2006 fourth quarter as a result of changes in scope of several projects, which favorably impacted results.

For the full year, the Company had 2006 revenue of $127.2 million compared to $68.1 million in the year-earlier period. Home Solutions had 2006 net income of $17.9 million, or $0.43 per diluted share, compared to net income of $7.2 million, or $0.25 per diluted share in fiscal 2005. EBITDA increased to $32.3 million in fiscal 2006 compared to $14.5 million (operating income of $30.6 million and $13.3 million, plus $1.7 million and $1.2 million of depreciation and amortization in 2006 and 2005, respectively) in the year-earlier period. Full-year 2006 revenue was $88.8 million for the Recovery/Restoration Services Division versus $37.1 million in fiscal 2005. Rebuilding/Remodeling Division 2006 full-year revenue was $38.4 million compared to $31.0 million in the year earlier period. Gross margin was 47.6% in fiscal 2006 compared to 43.7% in fiscal 2005.

“We are disappointed that delays in funding in the Gulf Coast area had such a significant impact on our fourth quarter results,” said Frank J. Fradella, Chairman and CEO of Home Solutions. “Despite rebuilding activity being significantly slower than previously anticipated during the fourth quarter, the Company made substantial progress in 2006 by acquiring Fireline, which diversifies our revenue base geographically and by acquiring Associated Contractors, which has improved our ability to participate in the rebuilding of New Orleans. Already, Fireline has won several significant contracts. Also in 2006, we secured a $60 million line of credit and increased our bonding capacity in order to participate in many of the larger projects we expect this year. We believe these, and other initiatives we have taken have transitioned the Company to generate a more stable and predictable revenue base.”

2007 Business Outlook:

The Company provided the following outlook for its first quarter for the period ended March 31, 2007. Home Solutions expects revenue of $35 to $40 million and net income of $0.09 to $0.11 per diluted share. The first quarter is seasonally a slower period for the Company. In 2006, Home Solutions had revenue of $19.3 million and net income from continuing operations of $0.06 per diluted share. The Company also announced today that it currently has a backlog of Restoration and Construction Services projects that it expects to complete in 2007 which are anticipated to generate revenue of $108 million, which excludes several New Orleans projects that were scheduled to be completed during the 2006 fourth quarter and have not commenced yet. This backlog also excludes any revenue to be generated from its Interior Products Manufacturing and Services Division, which generated revenue of nearly $39 million in 2006. The Company expects to provide guidance on a quarterly basis during 2007 as well as an update on its backlog.

“While we experienced a significant slowdown in work in December and January, activity has picked up substantially in recent weeks as reflected by several of the new contracts we have announced,” added Mr. Fradella. “The projects that we are working on, including the ones recently announced, represent a diverse mix of business, most of which is not dependent on funding of the New Orleans rebuilding efforts. Although we expect continued weakness in the housing sector, the anticipated expansion into additional Home Depot locations during the second half of the year should more than offset housing-related declines in other parts of our Interior Services division. We look forward to returning to previous levels of growth commencing in the first quarter.”


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