StableX Technologies Inc (SBLX) 2009 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the WPCS first quarter 2009 conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (OPERATOR INSTRUCTIONS) This conference call is recorded today, Monday, September 15 of 2008. I will now like to turn the conference over to Gus Okwu of DRG&E. Please go ahead, sir.

Thank you. Good afternoon. Thank you for joining us for the WPCS International fiscal year 2009 first quarter conference call. Joining me today on the call today will be the Chairman and CEO of WPCS International, Andy Hildago and the company's CFO, Joe Heater. Andy will first provide an overview of operating trends and highlights of the Company's first quarter results. Joe will then follow with a detailed look at the company's financial and operating results. A question and answer session will be held at the conclusion of Joe Heater's comments. WPCS issued a press release earlier today, providing details of the company's operating results of the fiscal first quarter of 2009.

There will be a replay of today's call available one hour after the completion of this call. The replay will be available through Monday, September 23. The replay can be accessed by dialing 303-590-3000. And the access code for the replay is 11119167#. Please note the information reported on this call speaks only as of today, September 15, 2008. And therefore you are advised that time-extensive information may no longer be accurate at the time of any replay.

I should also mention that our comments today contain forward-looking statements within the meanings of the private securities litigation reform act of 1995. Our use of words such as anticipate, expects, intends, plans, believes, may, will and other similar expressions are intended to identify forward-looking statements. Forward-looking statements include by way of example, revenue and margins expectations or projections and various references to trends in the industry and to the company's business.

Thus statements reflect our current reviews with respect to future events and are subject to risks, uncertainties and other factors, some of which are beyond our control that can cause the Company's actual results to differ materially from those anticipated in these forward-looking statements. There are many risks, uncertainties and other factors that can prevent the Company from achieving it's goals or cause the Company's actual results to differ materially from those expressed or implied by the forward-looking statements contained in our comments today. The factors and others are more fully discussed in the risk factors which are located in the WPCS form 10K and 10Q, as filed with the SEC.

Now I would like to turn the call over to Andy Hidalgo.

Thanks Gus. Good afternoon, ladies and gentlemen, and thank you for joining us for our fiscal year 2009 first quarter conference call. I would like to provide you with some highlights of our first quarter performance and also an operational overview of the business. For first quarter of fiscal year 2009 ended July 31 2008, the WPCS generated approximately $28 million in total revenue, representing year-over-year growth of 30% from the $22 million reported in the corresponding period in 2008. From an earnings perspective, the Company achieved $838,000 in net income or $0.12 per diluted share. The consolidate first quarter gross margin was 29% and our SG&A represented 21% of revenue.

We're pleased with the results we reported for our fiscal year 2009 first quarter for the following reasons. First, they were in line with our internal expectations and reflected year-over-year and our organic growth rate. Second, we improved our gross margin, which was 29% and our organic revenue growth rate, which was 3% on a sequential basis, quarter-over-quarter. Lastly we were pleased that we were able to generate these results despite a challenging economic environment for most companies. Historically, our first quarter contains higher costs for annual accounting accounts fees and year-end bonuses which results in a lower probability expectation. With that said, our first quarter results are encouraging we feel confident that we're on track to achieve our fiscal year 2009 revenue goal of $125 million and our EPS target of $0.74 per diluted share.

With respect to our back log and bid list, we continue to operate at a very healthy level. Our back log of revenue to be recognized stands at approximately $54 million at the end of the first quarter. Additionally, our bid list of proposals under consideration for new and existing customers is at a historical high of approximately $156 million at the end of the first quarter. Now let me provide a little bit more detail on our backlog.

Of the $54 million in backlog, approximately 47% or $25 million is represented by public safety projects for state and local municipalities. This market segment continues to offer opportunities with a low level of saturation. We continue to see opportunities to replace older analog communication systems with advanced digital communication systems for voice, data and video applications. These applications include, wireless data moble data communications for police, fire and emergency services. Asset tracking, surveillance video and transportation infrastructure.

In addition, 16% or approximately $9 million of the $54 million backlog is represented by health care projects that focus on communication systems for mobile data and security. 10% or approximately $6 million of the backlog is represented by energy projects, which are applications for mobile data and asset tracking. These three sectors have been the most active for WPCS. The least active have been wireless infrastructure, which represents 4% or approximately $2.5 million. And gaming, which is less than $1 million, due to the softness in consumer discretionary spending.

With respect to our $156 million -- $156 million bid list, 61% or approximately $95 million of bids in the public safety sector, 18% or approximately $28 million are bids in the health care sector and 9% or approximately $15 million are bids in the energy sector. For WPCS the public safety sector remains most active, however there has been a surge of opportunities in health care and in the health care and energy sectors. We feel that these three sectors have been growing, despite some overall softness in the economy.

In summary, our goal is to focus on the markets that are generating opportunities. We believe that we are in a strong position to take advantage of the expected growth in the public safety, health care and energy markets over the next several years, which will allow WPCS to build shareholder value, while maintaining our reputation as one of the leading design build engineering firms for speciality communications systems and wireless infrastructure.

Let me now turn the call over to Joe Heater, our CFO for a more detailed discussion on our financial results.

Thanks, Andy and good afternoon, everyone. Earlier today, we released our results for the first quarter of fiscal 2009, ended July 31, 2008. We belive that our results reflect the continued demand that we are seeing in our specialty communications systems business and also met our internal expectations.

We were able to increase revenue, despite challenging economic conditions and we believe that we are on track to meet our previously stated financial targets. Despite these solid achievements, we will continue to seek ways to further improve our operating results Revenue increased by approximately $6 million to $28 million for the quarter, representing a 30% increase from the first quarter of 2008. The increase in revenue was driven by a 36% increase in our speciality communications systems business, which was attributable to several acquisitions completed in earlier periods.

Our sequential quarter over quarter organic revenue growth rate was 3% and it is expected to grow over the next three quarters. Our gross margin for the first quarter of fiscal 2009, was 29%. SG&A expense represented 31% of revenue during the first quarter of 2009, compared to 19% for the first quarter of 2008. Although this was budgeted accordingly and as Andy mentioned previously, the increase in SG&A for the first quarter of 2009, was largely due to higher administrative costs associated with accounting fees, Sarbanes-Oxley compliance costs and general wage and benefit increases.

Our net income for the first quarter of fiscal 2009 was $838,000 or $0.12 per diluted share, compared to net income of $1.3 million or $0.16 per diluted share for the same period in 2008. Revenue from our speciality communications systems segment represented approximately 88% of total revenue during the first quarter of 2009, compared to 84% during the same period in 2008. Revenue from our wireless infrastructure segment represents approximately 12% of total revenue in the first quarter of fiscal year 2009, compared to 16% in the same period in 2008.

Our financial position remains healthy, with approximately $4 million in cash, $28 million in working capital and $7.6 million of borrowings under our line of credit. While we are in good financial footing, we are focused on improving our accounts receivable collections to improve our overall cash position. We belive WPCS continues to have sufficient capital resources to fund our internal growth initiatives. WIth that said, I will turn it back to Andy Hidalgo.

Thanks, Joe. This concludes our formal presentation, so we'll now open the calls for any questions.

Thank you, sir. (OPERATOR INSTRUCTIONS). Our first question comes from the line of Seth Potter with [Atcero Partners].

Hi good afternoon, Andy and Joe. Just a couple of quick questions. Frist, can you provide more color on the backlog breakdown? More specifically the trends in [wi] Sorry, seth, you just cut out for a second. Can you repeat that?

In terms of the backlog breakdown, can you give more information on the trend of wireless infrastructure and gaming, going forward, is the trend still going down? And also what gives you comfort about public safety and energy back log given some of -- a lot of it is dependent on the municipal and state spending budget patterns? First in terms of trends, we see the three trends, the three markets that continue to be strong for us, public safety, health care and energy being the markets that producing the most opportunities for us from a bidding perspective. In regards to health care and energy, both of those market sectors have picked up dramatically in the last couple of quarters. The gaming industry has seen significant slowdowns. So we have seen very little request for bids, for infrastructure work.

And we think that is directly attributable to consumer discretionary spending, which is down. The wireless infrastructure sector, we predicted would be down, as we know we had some experience with our principal customer Sprint-Nextel. That business is not projected to be a significant revenue-producing business for us in fiscal year '09. However, we are on target to achieve the goals that we did set forth for wireless infrastructure.

If we look back to the second question that you asked regarding public safety, we see that public safety has survived a very difficult period between August of 2007 and March of 2008, where municipal bonds were not -- where there was not an active market to sell municipal bonds for funding. However, during that period, our bid process still remained very strong for communications infrastructure. And it was proven to us that conversion from these older analog communication systems to advance digital communication systems was something that these municipalities were committed to.

And we until see that even actively as strong in the next few quarters, this past quarter and the next few quarters going forward. In the bidding process from the state and local municipalities, it is a public bidding process, so they have to select a committee, make funding tentatively available, have funding approved, prepare a request for proposal, review that request for proposal on a public forum, and then make a decision on the selection process.

We found that consistently they just don't simply go through that process unless they're serious about spending and upgrading their system. It looks like even through this political area there will be more funding available for the state and local municipality infrastructure, particularly transportation infrastructure and the continuing advancement of communication systems for police, fire and emergency services.

So although it is a large part of our business, it continues to be opportunity abundant with health care and energy both climbing into -- both climbing into a bid demand type mode. So --

Okay, and one follow-up for Joe. Can you talk about the balance sheet and the current capital structure. You mentioned the accounts receivables, have they declined since the end of the quarter? And I guess what is the optimal amount of cash you need to have in the balance sheet?

I guess with regard to your first question, Seth, with AR, I mean AR has actually increased over the fiscal year to 32 million. I mean I want the be clear that it is not a bad debt issue. Our customers are sound commercial, governmental and educational institution customers.

Granted our sales outstanding has increased from 84 days at year end to 93 days. And there are a number of reasons why that happened. But we have to do a better job of monitoring and following up on those outstanding items. From a DSO standpoint, I think we can get to a point by the end of the year we're in the range of 72-75 days. And I think that is doable, because some of our subsidiaries are already there.

Joe, I think from -- just in for first 45 days of this second quarter, we've seen significant collections of receivables. But as far as an optimal cash position, I think we want to be in the range of $5 to 7 million at any one time, but it remains to be seen. But certainly we have put some new processes in place to follow up on the outstanding receivables items. We allocated personnel to address receivables, and we have our internal customer points of contact, sales and management working together. So I expect to see some improvement over the next couple of quarters.

Okay, great, thanks a lot.

Thank you, Seth. .

Thank you. The next question comes from the line of Andrew Rosenberg with Footprint Asset Management. Please go ahead.

Hi, Andy, I just wanted to touch on -- you mentioned and broke out the back -- the bid list pretty extensively. What is the margin profile kind of look on that if you can dig into that a little bit?

Yes, Andrew, we're still into the 28 to 32% gross margin range on our project bids. So some are higher, some are a little bit lower, but the core is represented between 28 and 32. It tends to be a less for wireless infrastructure. But a little more for some of the energy and health care projects that we're working on as well. But we're seeing the gross margin remain healthy, which means that we're still not dealing in an ultra-competitive mode. We're not having to cut back our prices. And we think that will remain constant for the next three quarters.

Okay, that's good. And you hit on the SG&A, Joe, you hit on 21% for this quarter, without some of the one time accounting and the bonus type stuff, is that more like an 18% of revenue type figure, for SG&A?

Well, what we have budgeted for the year, 20%. And so that is kind of what we expect for the year. And it is just what we're comfortable with giving some of the increases and administrative cost, et cetera. So that is what we're targeting for the year. We may see a drop in SG&A just to get back to our average of 20% for the year.

That will drop in the coming quarters, I'm assuming.

Right, exactly.

And so no big deal. I just thought I would see what the normal level might be on that. Kind of hitting, Seth had mentioned health care, within health care -- are there particular drivers within that that are really pushing that particular vertical higher? Or is it just kind of a broad based more spending within that, within that particular sector?

Well, we're seeing a driver when it comes to mobile data, and the automation of electronic patient medical records. For for accuracy, the driver being reduced insurance premiums. For the health care -- for the health care market, health carrier. So we see a driver there and an upgrade in general communication systems, has been under considerable. They have made funding available.

I think they are spending -- we don't know what levels -- we don't have a lot of visibility on the continued level of spending after this political administration. But health care seems to be an area that is a focus for the country. So we -- we do know in the mobile data area, it is clearly being driven by the insurance industry.

Okay, and then just one final question regarding acquisitions. I know you haven't really focused on that going into the fiscal year. But is there anything out there that you see within energy that you might look at for the year? Or should we kind of think that acquisitions maybe are not going to happen this year?

Yes, we're certainly still considering acquisition candidates. But right now we're looking more towards the tuck-in type candidates that cost less than $1 million, that all can be done off our balance sheet. We're certainly not in capital raising mode. And we're certainly not going to use stock to make an acquisition.

So there are no really large-type acquisitions that can fit within our capital structure requirements right now. But there are many smaller businesses that are good tuck-in acquisitions that can really contribute to the organic growth. And these acquisitions are either international or they're in the energy-specific related field. That is the candidates that we're looking at right now.

Energy being a very high margin project-oriented very opportunity abundant market at the time being. And also our international sector in China and Australia doing very well from a gross domestic product perspective.

Okay. All right, well, thanks for taking my questions, good luck the rest of the way, guys.

Thank you, Andrew.

Thank you. Ladies and gentlemen (OPERATOR INSTRUCTIONS) Our next question comes [Boyd Hinnes] with -- private investor.

Hi, Andy, I came on the call very late. And I'm sorry if the call might have already addressed. But did anybody ask about the guidance for fiscal 2009 that you guys put our in July? Was there any question about that?

We did state that we are on target for our guidance which is $125 million in revenue and $0.74 on the earnings per share side. So we did state that after our planned results for the first quarter, we feel we're on target to achieve our objective for fiscal 2009?

Okay and how much of that $125 million in revenue are you projecting to be organic growth?

I think in our budget process we planned for a 10% organic growth rate for fiscal year 2009. So that was our plan and that is when we added our budgets together. That is how we got to $125 million in revenue.

Okay. As I looked through the 10Q for the first quarter and I look at the pro forma organic growth. It actually looks to be flat to slightly down on the year. Was that also part of the plan? How are you expecting to meet a 10% organic growth rate if the first quarter was pretty flat in terms of organic growth?

Well, our organic growth rate, our plan for the year is 10%. And we had actually planned the first quarter to be flat for an organic growth point of view. That is the budget process. And we took our backlog and where our backlog fits, in terms of what revenue we are going to recognize over the next four quarters when we set this budget and we realize that the revenue would be -- there would be more revenue recognized in the second, third and subsequent to fourth quarters. So to achieve the 10%, is not -- that is not an unrealistic expectation from an organic growth point of view, it is just lumpy in terms of how it is going to be achieved.

Thank you, our next question comes from the line of [John Savory] with private investor. Please go ahead.

Hi guys, thank you so much for taking the call. When you describe the energy field, does that include the [Widden Telemetry] Company that you bought this past year?

Yes, that is correct. It includes alternative energy as well. And our alternative energy efforts are in solar and in wind.

And how optimistic do you feel about that, particularly wind?

We're very optimistic about the wind energy business. We have been involved in -- I don't know if you're aware -- specifically in the portion we are in wind energy. But we do meteorological towers, which are towers that are deployed. These are wireless towers that are deployed prior to the construction of a wind farm, that measures the capacity of wind. We deploy them, we maintain them, we decommission them and do them for large organizations like British Petroleum. That market has been growing very, very fast. And it is in high demand.

And we like to think right now that we have an abundant opportunity ahead of us, in maximizing the relationship with not only British Petroleum, but the other wind energy companies that we've been involved with. So we believe that a is a very big thrust for our growth in energy. And we also do solar, but solar is not growing as fast as wind and we also do traditional oil and gas for utility companies.

And when we talk about that, we talk about -- like in the specific oil, gas and electrical, we talk about telemetry applications like SCADA. We talk about telematic applications meaning we have a gas -- or like a water treatment plant that keeps track of water remediation. Or preparation drinking water, it keeps track of that process. And then that is in the telemetry sense, and also in a telematic sense, where a water purification process can alert the flow of water or turn off or on the flow of water in a telematic sense, all done wirelessly.

Those markets are very strong markets for us. And the energy markets, we find are really investing in infrastructure right now. We are trying to take advantage of that opportunity.

Thanks very much.

You're welcome.

Thank you. (OPERATOR INSTRUCTIONS) Mr. Hildago, at this time, I'll turn the call back over to you for closing comments.

I guess we would like to -- would like to turn to turn it over to Gus Okwu for closing comments. I want to thank everybody for participating in the call. And I'll turn it over to Gus. Gus, are you there?

Thanks ladies and gentleman. Yes. As a reminder, this call will be available for replay an hour after the call has ended and can be accessed until Monday, September 22, by dialing 303-590-3000. The access code for the replay will be 11119167-pound. On behalf of WPCS's management team, we would like to thank all of you for participating on this call.

Thank you. Ladies and gentlemen, that will conclude today's teleconference. We do thank you again for your participation and at this time, you may disconnect.