Exhibit 99.1

 

NEWS RELEASE

Date:		March 7, 2011
Contact:		Dave Mossberg Three Part Advisors, LLC 817-310-0051

XETA Technologies, Inc. Reports First Quarter Financial Results

•		1Q11 Revenue increased 19% to $27.4 million vs. 1Q10 revenue of $23.0 million
•		1Q11 GAAP EPS: $0.05 vs. 1Q10 GAAP EPS: $0.06
•		1Q11 Non-GAAP EPS: $0.07

XETA Technologies, Inc. (Nasdaq: XETA) today reported earnings of $571,000, or $0.05 per diluted share, on revenue of $27.4 million for the first fiscal quarter ended January 31, 2011. This compares to earnings of $633,000, or $0.06 per diluted share, on revenue of $23.0 million for the first fiscal quarter ended January 31, 2010.

During the first quarter of fiscal 2011, the Company recorded $324,000 of non-recurring expenses for professional fees and other costs related to corporate development activities. Excluding non-recurring expenses recorded during the first quarter ended January 31, 2011, non-GAAP net income was $768,000, or $0.07 per diluted share.

Line of Business		1Q11				1Q10				% Change
Maintenance & Repair			11,254				8,218				37	%
Design & Integration			3,137				3,042				3	%
Cabling			905				857				6	%
Total Services			15,296				12,117				26	%
Commercial			9,711				10,039				-3	%
Hospitality			2,276				828				175	%
Total Systems			11,987				10,867				10	%
Other Revenue			122				60			Nmf
Total Revenue			27,406				23,044				19	%

Total revenue increased 19% during the first quarter of fiscal 2011 primarily due to the contribution from business acquired during the past nine months. The effect of supply chain issues from a major supplier and unusually strong comparisons with the prior year negatively impacted Commercial systems revenue and resulted in a 3% decrease in that category year over year. Hospitality systems revenue increased $1.4 million to $2.3 million as a result of improved capital spending in that market sector and a large data and voice network order received from a new customer associated with the Company’s new high speed internet product offering.

The company said that it completed the move to its new St. Louis-based network operating center (“NOC”) during the first quarter. The 23,000 square foot facility houses staff and technology to provide proactive network and application monitoring, help desk services, and 24/7 technical support for a wide variety of industries. The NOC also houses the Company’s primary logistics and staging facility to support our standard nationwide implementation protocol. Greg Forrest, CEO, said, “This world class facility greatly expands our service offering and gives XETA the capability to proactively monitor and resolve issues often before they can escalate.”

During the first quarter of FY11, gross margin was 25.5 percent of revenue versus 27.5 percent during the first quarter of FY10. Systems margin remained relatively unchanged year over year and within targeted ranges. Services margin decreased to 28.0 percent of sales versus 32.1 percent during the same period a year ago. Operating expenses during the first quarter of FY11 were $6.1 million, up from $5.3 million reported during the first quarter of FY10. Excluding non-recurring expenses during the first quarter, operating expenses were 21 percent of revenues in the first quarter of fiscal FY11 compared to 23 percent of revenues in the first quarter of fiscal 2010. Excluding non-recurring expenses during the first quarter of 2011, net income increased to $768,000, or 2.8 percent of sales, versus $633,000, or 2.7 percent of sales during the first quarter of 2010.

Forrest continued, “During the first quarter, which is typically our seasonally weakest, we reported the highest quarterly revenue in more than 10 years and the third largest quarterly revenue in the Company’s history. Momentum built during the quarter and revenue was back-end loaded. This trend, combined with supply chain issues at one of our major vendors, affected utilization and profitability of our implementation services during the first quarter. In addition, duplicate costs associated with the move into our new NOC affected our services margin. Operating expenses, excluding non-recurring items, were lower as a percentage of revenues in comparison with the prior year, which reflects the cost efficiency programs we implemented last year, as well as acquisition related synergies.”

		Three Months Ended
		January 31,
Condensed Consolidated Statements of Income		2011				2010
		(Unaudited)
Sales
Services		$	15,296			$	12,117
Systems			11,988				10,867
Other			122				60
Total			27,406				23,044
Cost of Sales
Services			11,017				8,231
Systems			8,945				8,077
Other			448				397
Total			20,410				16,705
Gross Profit			6,996				6,339
Gross Profit Margin			26	%			28	%
Operating Expense
Selling, General and Administrative			5,838				5,125
Amortization			312				187
Total Operating Expenses			6,150				5,312
Income from Operations			846				1,027
Interest Expense			(19	)			(6	)
Interest and Other Income			113				21
Total Interest and Other Income			94				15
Income Before Provision for Income Taxes			940				1,042
Provision for Income Taxes			369				409
Net Income after Tax		$	571			$	633
Basic Earnings Per Share		$	0.05			$	0.06
Diluted Earnings Per Share		$	0.05			$	0.06
Wt. Avg. Common Shares Outstanding			10,742				10,237
Wt. Avg. Common Equivalent Shares			10,810				10,277

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

		(Unaudited)
Consolidated Balance Sheet Highlights		January 31, 2011				October 31, 2010
Assets
Current
Cash		$	722			$	1,003
Receivables (net)			18,328				17,806
Inventories (net)			6,430				6,715
Other			4,708				4,637
Subtotal			30,188				30,161
Non-Current
PPE (net)			7,571				6,932
Goodwill & Intangibles (net)			21,203				20,946
Other			233				326
Subtotal			29,007				28,204
Total Assets		$	59,195			$	58,365
Liabilities
Current
Revolving Line of Credit		$	3,392			$	1,756
Notes Payable			338				338
Accounts Payable			7,803				10,032
Accrued Liabilities			5,087				4,006
Unearned Revenue			5,977				6,529
Subtotal			22,597				22,661
Non-Current
Long Term Debt			173				255
Noncurrent Deferred Tax Liability			396				12
Other			137				193
Subtotal			706				460
Total Liabilities			23,303				23,121
Equity		$	35,892			$	35,244

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

		Quarter Ending
Reconciliation of Adjusted EBITDA(1) to		January 31,
Net Income		2011				2010
Net Income		$	571			$	633
Interest			19				6
Provision for Income Taxes			369				409
Impact of Non-recurring Corporate Development Related Costs			324				—
Depreciation			429				286
Amortization			312				187
EBITDA(1)		$	2,024			$	1,521

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

		Quarter Ending
		January 31,
		2011				2010
Net Income as Reported		$	571			$	633
Non-recurring Corporate Development Related Costs (Net of Tax)			197				—
Non-GAAP net income		$	768			$	633

(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
		January 31,
		2011				2010
EPS, Diluted — as Reported		$	0.05			$	0.06
Non-recurring Corporate Development Related Costs (Net of Tax)			0.02				—
EPS, Diluted — Non-GAAP		$	0.07			$	0.06

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About XETA Technologies, Inc.

XETA Technologies, Inc. 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 28-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 contact 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 the outlook for growth and the pace of such growth. 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 our markets; the successful integration of recently acquired businesses into ours and realization of anticipated synergies and growth opportunities from these transactions; changes in Avaya’s marketing and dealer channel strategy; unpredictable quarter to quarter revenues; our 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 our Managed Services offering; the availability and retention of revenue professionals and certified technicians; failure to obtain shareholder approval or failure to satisfy other conditions required for the consummation of the pending merger with PAETEC Holding Corp.; failure or delay in consummation of the pending merger for other reasons. Additional factors that could affect actual results are described in the “Risk Factors” section of the Company’s Form 10-K and Form 10-Q filings with the SEC.