Incentra Solutions Reports First Quarter Results

Total Revenues Increase 115% Year Over Year; Front Porch Digital Sales Grew 61%; Services Revenue Up 21 %

May 16, 2006

Boulder, CO, May 15, 2006 – Incentra Solutions, Inc. (OTCBB: ICNS), a provider of complete IT and storage management solutions to enterprises, managed service providers and broadcasters worldwide, today announced results for the first quarter ended March 31, 2006.  Year-over-year total revenues for the 2006 first quarter rose 115 percent driven by growth in the Company’s Enterprise Group from acquisitions completed in the first quarter of last year and a 61 percent increase in sales in the Company’s Front Porch Digital Broadcast and Media division. 

Product sales in this year’s first quarter were up 272 percent year over year as the Company continued to execute on its plan to grow through acquisition and organic investment.  Sales of services in the 2006 first quarter grew 21 percent year over year as the acquired companies benefited from a high-end complete solutions offering driving increased sales of professional services, and increased sales of recurring services including First Call, Enhanced First Call, GridManage and GridComplete.  

“We continue to grow organically and through strategic acquisitions and are confident we are closer to reaching our goal of becoming the most comprehensive provider of data protection storage solutions for the world’s enterprise and broadcast markets,” said Chairman and CEO Thomas P. Sweeney.  “Today we are a much larger and more capable company than we were a year ago, and I am pleased to report that as we have grown, our revenues have increased at a much faster rate than the expenses related to those revenues.   The results of the last several quarters and the outlook for the second quarter and beyond have convinced us that the synergies we are realizing through our acquisition plan will sustain or enhance our current rate of growth and ultimately allow us to reach our goal of profitability.”
 
Sweeney also noted that the multi-year contract signed in early April with COLT, one of Europe’s largest providers of business communications and services, will begin generating revenue in the second quarter of this year.  The Company has already installed storage services in four of COLT’s 13 data centers located across Europe, including those in Milan, Paris, Berlin and Frankfurt. 
 
Also in April, Incentra acquired privately-held NST, Inc. of Lombard, IL, a leading solutions provider in the greater Chicago area and in the central region of the U.S. with sales of approximately $25 million in 2005.  Through its acquisition strategy, the Company has opened seven new markets in the past five quarters in the U.S. alone, including Seattle, Portland, Boise, San Diego, Orange County and Chicago, Sweeney added.
 
Total revenue for the first quarter of 2006 increased to $12.9 million from $6.0 million in the 2005 first quarter.  The Company’s loss from operations improved by approximately $300,000 from the prior year first quarter as a result of the increased contribution from the broadcast division.  The Company reported EBITDA1, as adjusted, for the first quarter ended March 31, 2006, of approximately $7,000.  
 
“We expect adjusted EBITDA to be positive in this year’s second quarter,” Sweeney said, “and as a result of the NST acquisition, revenues in the second quarter are expected to be in the range of $19 to $21 million.”

The net loss applicable to common shareholders for this year’s first quarter was $4.3 million, or a loss per basic and diluted share of $0.32, compared to a net loss applicable to common shareholders of $3.0 million, or a loss of $0.27 per basic and diluted share in the prior year period.  Excluding a $1.2 million charge related to the early extinguishment of debt in the 2006 first quarter, the net loss was flat quarter over quarter, and on a per-share basis improved by $0.04 per basic and diluted share.  Total operating expenses for this year’s first quarter were $6.7 million compared to total operating expenses in the comparable 2005 period of $4.9 million.  This year’s first quarter results included $426,857 of non-cash stock-based compensation expense, compared to $155,515 in last year’s first quarter, and $230,000 of expenses related to the Company’s acquisition of Star Solutions. 
 
Gross margin as a percentage of revenue for the first quarter of 2006 was 39.6 percent, up from 32.9 percent in the 2005 fourth quarter, reflecting higher gross margins on third-party product sales, increased volumes of higher margin services and sales of software that exceeded historical levels.

President and Chief Operating Officer Shawn O’Grady noted that the Enterprise Group continues to gain momentum and significant marketing advantages from the Company’s acquisitions strategy.  “We are definitely benefiting from the synergies gained from the acquisitions we have completed,” O’Grady said.  “Because of Incentra’s experience, resources and focus on data protection and storage, we have been able to shift the sales mix of our acquired companies to include more complete, upper-end storage solutions and increase sales of higher margin services to both new and existing customers.  As we acquire new companies such as NST in the Midwest and extend our reach into other key geographic markets, I am convinced this trend will accelerate. 
 
“In addition to new business wins in Europe and the U.S., the Enterprise Group has increased its sales of services and continued to successfully extend a number of agreements with key existing customers, including One Sync and Via West, which involves complete turnkey solutions for hardware, software and services,” O’Grady added. 

The first quarter saw the Front Porch Digital division strengthen its position as the leading provider of digital archiving products and services to the global broadcast and media industry.  Front Porch closed 52 transactions in the quarter across 26 countries, and many new markets were opened, including Argentina, Venezuela, Poland, Hungary, Belarus, Thailand and India.
 
“By any measure, the first quarter of 2006 provides evidence of the growing, worldwide momentum of our business,” said Front Porch Digital President Mike Knaisch.  “Europe and Asia remain as strongholds, and the Americas region demonstrated more signs of accelerating growth.  During the first quarter of this year, we deployed DIVArchive solutions for two major U.S. networks, solidified our leadership position in Canada, and opened South America with two key wins.  These new reference accounts will serve us well as we look forward to the opportunities that lie ahead.”

Conference Call Information
As previously announced, management will host a conference call to be broadcast live on the Internet at 11:30 a.m. (Eastern time) on Tuesday, May 16, 2006.  The dial-in number for the call is 1-800-370-0898, or you may access the live webcast on the Investors section of the Company’s website, 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. (www.incentrasolutions.com, OTCBB:ICNS) is a provider of complete IT & storage management solutions to enterprises, managed service providers and broadcasters worldwide.  Incentra’s complete solution includes professional services, hardware & software products with first call support, IT outsourcing solutions and financing options.  To the broadcast market, Incentra delivers complete digital archive management and transcoding solutions built on its IT and storage expertise and offerings. 

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.


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Contacts:
Allen & Caron, Inc.
Jill Bertotti (investors)
jill@allencaron.com

Len Hall (financial media)
len@allencaron.com
949-474-4300 

Incentra Solutions, Inc.
Paul McKnight, Chief Financial Officer
pmcknight@incentrasolutions.com
303-449-8279