Radian Group Inc (RDN) 2002 Q1 法說會逐字稿

CALLER INSTRUCTIONS)

I would now like to turn the conference over to our host, President and CEO, Mr. Brian Pemberton. Please go ahead.

Thank you. Good morning and thank you for participating in Rohn Industries First Quarter 2002 Conference Call. With me today is our Chairman, Michael E. Levine [phonetic], Horace Ward, our Chief Operating Officer, and Bruce Paul, our interim CFO.

I will provide you with some observations and Bruce will offer some financial details. Before I begin with my overview I'd like to remind everyone of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The statements made during this conference call which are not historical facts are forward looking statements that are subject to risks and uncertainties that could cause actual results to differ materially with those set forth in or implied for the forward looking statements. These risks are described in the company's Securities & Exchanges filings, including Exhibit 99.1 to the company's Form 10K.

First, we'll address two issues that we disclosed in our Form 10K for fiscal year 2001. Yesterday we finalized a new bonding arrangement with an insurance company that carries [am vest] A plus rating and a [f & p] double A rating. Many contracts entered into by our construction and enclosure businesses require a bid bond in order to be considered for a contract and then will require a performance bond prior to awarding a contract. We expect to be able to satisfy our bonding needs through the end of 2002 with this arrangement.

We also disclosed, in the Form 10K, that we would likely not be in compliance with certain financial covenants under our credit agreement, commencing after April of this year. Through March, we were in compliance with all of the financial covenants and made all required debt and interest payments, including principal payments beyond the minimum required by the credit agreement. In the first quarter we reduced our bank debt from 50.3 million at year-end to 44.9 million as of the end of March. We have initiated discussions with our bank lenders related to the financial covenants. We expect these discussions to result in revised financial covenants and that the issues under our credit agreement will not have a material impact on the company.

We continue to experience lower revenues during this continued, severe downturn in the telecommunications and fiber optics markets. We have taken significant actions to reduce our cost structure.

Now let me turn the call over to Bruce to provide some detail on our financial performance for this quarter.

Thanks Brian. Net sales for the first quarter were 29.3 million compared with 70.3 million in the first quarter 2001. In the quarter Rohn had a net loss of $700,000, or 2 cents per basic and diluted share versus a profit of 3.1 million or 6 cents per basic and diluted share a year ago. Net income in 2001 included an extraordinary charge of 1.3 million net of tax impact for the early extinguishments of debt. Excluding this extraordinary charge, earnings per share were 8 cents per basic and diluted share last year.

As Brian said, we have taken action to reduce our cost structure in response to the continued and severe downturn in the market. In the fourth quarter of last year we lost 10.8 million on revenue of 40.9 million. Excluding one time charges that we took in the quarter the net loss was 3.5 million or 9 cents per share. This is compared to a loss of 2 cents per share for the first quarter of this year on lower revenue. Now let me break down our revenue by business segment for the first quarter. teles] revenue was 14.7 million compared with 23 million in the first quarter of 2001, a 36% decrease, and compared with 19.6 million in the fourth quarter of 2001, a 25% decrease, quarter to quarter. Enclosure revenue was 6.6 million compared to 39.1 million in the first quarter of 2001, an 83% decrease and 10.3 million in the fourth quarter of 2001, a 36% decrease, quarter to quarter. Construction revenue was 8 million compared to 8.2 million in the first quarter of 2001, a 2% decrease and 11 million in the fourth quarter of 2001, a 27% decrease, quarter to quarter. Gross margin for the first quarter of 2002 was 12.9% compared to 19.5% in the first quarter of 2001. In the fourth quarter of 2001, excluding one-time charges for severance and inventory reserves, gross margin was 6.4%. Our quarter-to-quarter gross margin improved 6.5 points despite a 28% reduction in revenue.

As we said in our fourth quarter conference call the benefits of our cost reduction actions began to be seen immediately in the first quarter. At the lower revenue volumes, we will not fully achieve the historical margin levels with the company. International revenue for the first quarter was 3.9 million or 13.4% of total revenue compared to 5 million and 7.1% in the first quarter of 2001.

Backlog at the end of the quarter is 43.6 million, a decrease of 17% from the end of the fourth quarter. This includes 5.2 million for Towers, 4.9 for Enclosures and 33.5 million for Construction. The Construction backlog includes 20.8 million for the Commonwealth of Pennsylvania.

The backlog for both Towers and Enclosures has decreased during the quarter due to the slow rate of new [incurring] orders. The Construction backlog is unchanged from the end of the year. The Commonwealth of Pennsylvania backlog had decreased as we fulfilled the contract. This decrease has been offset by orders for turnkey projects in Mexico. Total bank debt at the end of the quarter was 44.9 million. This is a reduction of 5.4 million during the quarter. Now I'll turn the discussion back to Brian.

Thank you Bruce. I'll make a few additional observations before we move into the Q and A session. As you know, Bruce Paul, who is with Tatum CFO Partners has been serving as our Interim CFO since November of last year. We are in the process of identifying a permanent replacement for the CFO position.

The markets that we serve continue to be very tight and very competitive. The benefits of the restructuring and cost reduction actions that we took in the fourth quarter are having a positive impact. As Bruce pointed out, our gross margin and earnings were improved over the performance of the fourth quarter on lower revenue. Since then we have taken and will continue to take appropriate cost reduction initiatives. We continue to focus on the cost of our business and improvement in efficiencies.

We are also in the process of reviewing strategic alternatives for our Enclosure business. In addition, we're focused on the management of our working capital. Horace Ward is heading up this effort and the results to date have been ahead of our plan. These operations continue to produce positive cash flow. Under current business conditions we expect to be able to fund our working capital requirements from operating cash flow.

Given the continued uncertainty in the market place, we do not feel comfortable providing guidance, so now, [Lois], we will open up the call for any questions that you might have.

Hi Brian. My question -- it seems to me the more I travel the better the quality of getting cell phone reception and having signals. I'm curious if the landscape for building cellular sites is really diminished because the penetration of towers is already accomplished.

I think we are definitely seeing some improvements in coverage but there is a long ways to go between cellular service is the equivalent to land line service. That is the goal of the wireless industry is that we'll be able to use our cellular phones with the same reliability that you and I have when we pick up our landline phone. And while it's certainly improved from where it was in the past, it has a long ways to go to achieve that and it will be - I believe the projections still call for significant capital dollars to be spent by the wireless carriers in building out their coverage.

So the future build up has a function then getting better cash flow and being financially healthier then they'll be in the position to re-start the build up.

I think there's two issues here. The first issue is that there will be continued build-outs to provide capacity and coverage for the primary voice services. And the second, of course, is that we're beginning to finally see first evidences of the three [g] introductions and we're seeing that with the 2-1/2 [g] implementations with a data being offered over the wireless. Both of those will be driving continued build-outs.

Thank you.

Thanks, Art. We appreciate your continuing participation.

Recently you guys announced a primary level supplier status for tapered steel polls by Crown Castle. What exactly does that mean for you as far as revenues and time frame? And, secondly, if you can update us regarding last year's hundred million dollar deal with AMT, you know, where we're at with that?

First off, with regard to the Crown Castle, what it means is, is that we are the primary supplier, we are their - anticipate to receive a preponderance of any orders that they will place for tapered steel polls. We have not disclosed - neither Crown Castle or us, the agreement does not call for a disclosure of the amount projected at contract. In terms of an [amt] update, we will not achieve the anticipated hundred million dollars over three year period of time with American Tower.

Steven Palou [phonetic] with Newell Casro Partners [phonetic].

Is it possible to just give us some examples of how the bonding will help you; maybe an example something you've missed in the last couple of months because you didn't have the bonds and how this may help you in the future just so we can get sort of a magnitude of the benefit of it.

Well, Steven I would not like to be able to, if you would, forecast or give guidance for the future. What I would like to do is maybe characterize the type of accounts that traditionally have required bonding. Primarily the state and local federal government has a required bonding, as an example, the Commonwealth of Pennsylvania, has been our largest project requiring bonding at approximately $60 million. So, the types of customers, federal, state, local government, in addition to the construction business, not all of the time, but some of the time when we do construction work, will require a bid bond be posted at the time we submit the bid and then a performance bond in place. Typically, some of the contracts in the past that have required those would have been some of our shelter business, where we did the turnkey arrangements for our customers.

Brian, does the bonding cover some of your international potential projects as well?

I'm sorry, could you repeat the question.

Is the bonding, the new bonding arrangement you have, does that cover some of your international projects as well?

No, it doesn't. It is restricted to domestic Steven.

Any thoughts for how to, or what are the issues with respect to obtaining bonding for some international projects? My sense is there's some interesting projects out there on the international side.

One is, I think your sense is correct. We are seeing, while the international marketplace has not been immune from the downturn, there certainly is some interesting projects out there on the international side. We have not experienced requirements for bonding on the international side.

One last question. On your bank covenants, can you tell us whether it's the EBITDA covenant that you project to fall short of in April?

Historically, it has been the EBITDA covenant that has given us a challenge and in the future that is the covenant that will be focused on.

And can you tell us what the EBITDA was for the first quarter?

1.1 million.

Hey Brian how are you? Can we get the gross profit percentages by segment?

Absolutely Selman. Bruce would you provide those?

Okay. Now, on the $1.3 million charge did you book that into the gross profit line?

For debt extinguishments in the first quarter of last year, is that what you're talking about?

I thought you took a 1.3 million charge this quarter. That was last year?

That was last year.

Your DSO's, what were they?

Approximately, somewhere, we're still ringing that out for the quarter, but approximately 68 to 70.

Can you make some comments on the competitive environment out there?

Yes, sure. It is very tight. There is significant pressure on pricing. We have seen very aggressive pricing across the board, especially in our Shelter business; in the wireless industry that we've seen a lot of pressure on pricing. It appears to be a significant amount of under-utilized capacity in both the Tower business and the Shelter business.

When you said you reviewing strategic decisions for Shelters, can you give a range of what that might include in compass?

We're reviewing all strategic options that would be available to us for the Shelter group.

Okay. And then, just back to the bonding question; is it safe to say that in this quarter it didn't cost you, sort of, any future business, however or any new contracts because bonding wasn't there but it would have cost you your backlog numbers with Pennsylvania going forward. Is that a correct interpretation?

Selman, I think it is incorrect to say that it had any impact on the Commonwealth of Pennsylvania. It did not have any impact on the Commonwealth of Pennsylvania. That particular bond was in place and remained in place.

I think it is correct to say that not having it available had an impact on the company. It is very difficult to quantify what that would be. Some of it we'll probably never know. It did have an impact on the company. I think it, probably, may add some continuing impact just the fact that it wasn't available. It is available now. The bonding is with an absolutely top, first-rated, as we indicated, bonding company and we, today, have sufficient capacity to meet what we believe our needs for the balance of this year.

And last question, isn't it possible at all for you to name who were your top three customers during the quarter - not percentages or anything, but just who they were?

I will tell you that the nature of our customer has changed. And in the past, of course, the fiber optics customers were continuing to be very strong customers, but that is not the case anymore. And what we are seeing in the Tower industry is a return to what -of the carriers as being customers. We haven't disclosed, in the past, who our particular customers are. We certainly wouldn't feel comfortable in doing that, Selman, without the permission of our customers.

In terms of these strategic things you're thinking about; are there real opportunities now greater than the past for consolidation within each of your businesses?

I don't know that the opportunities are greater today than they have been in the past. There are potential opportunities out there and we're currently reviewing all options available to us.

We have no further questions. Please continue.

Thank you for joining us. We appreciate your joining our call today. That concludes today's conference call.

thank you ladies and gentlemen. The conference will be available for replay after 1:30 today through April 24th. You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701 and entering the access code, 632858. Any international participants can dial 320-365-3844. The numbers, again, are 1-800-475-6701 and 320-365-3844. The access code is 632858.