StableX Technologies Inc (SBLX) 2011 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the WPCS International Incorporated fiscal year 2011 first quarter investor conference call. Your host for today's call is Andy Hidalgo, Chairman and CEO of WPCS International Incorporated. Before I turn the call over to Mr. Hidalgo, please be advised that the participants on today's call will be in a listen only mode until Mr. Hidalgo has concluded his opening remarks. Upon conclusion of the opening remarks there will be a question-and-answer session.

In addition, we would like to note that statements about the Company's future expectations, including future revenue and earnings, and all other statements made during this investor conference call, other than historical facts, are forward-looking statements and are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve risks and uncertainties and are subject to change at any time. The Company's actual results could differ materially from expected results. In reflecting subsequent events or circumstances, the Company undertakes no obligation to update forward-looking statements.

I will now turn the call over to Mr. Hidalgo.

Thank you, Diane. Good afternoon, ladies and gentlemen. And welcome to our fiscal year 2011 first quarter investor conference call. The agenda for today's call will include a discussion of our first quarter financial results. In addition, I'll discuss market conditions and conclude with a review of our development plans.

In regards to our first quarter financial performance, some of our operations centers performed well and others not so well. Some operational results were very encouraging, but from a consolidated perspective, the results were less than favorable. It's important to understand that the shortfall is specific to a few operation centers and not the Company as a whole. The primary issue has been delays and competition in public service projects in the Florida and California markets, which has been two of our principal revenue producing markets. The gross margins for these projects are bid in the lower 20 percentile today due to increased competition. WPCS is capable of making a respectable profit with these margins, but we depend on a higher volume of revenue to offset operating costs. In Florida and California, this past quarter, project delays and competition caused us to fall short of revenue and profit projections.

However, we're moving forward and getting these operations centers back to profitability in the near term. The fix has been determined and implemented. We've cut expenses where necessary to increase operational efficiency. Additionally, in Florida and California, we're focusing on higher margin sectors in healthcare, energy, and corporate enterprise. With these strategic adjustments, we believe these two operations centers will be profitable for the current fiscal year. Overall, we intend to produce profitability, or profitable quarters, for the balance of the fiscal year and conclude the year profitably.

On a positive side, our operations centers in St. Louis, Trenton, Lakewood, Hartford, Seattle, China and Australia performed very well, achieving solid earnings. In fact, the majority of our operations centers are performing well. Although projecting results in this economic environment is difficult due to uncertain funding, WPCS has the bid opportunities and the backlog to achieve positive results. Our current backlog of $41 million remains at a solid level. Our existing bid list of $161 million also shows strong activity. There's more positive news. In regards to revenue for the first quarter ended July 31st, 2010, WPCS generated $28.9 million in revenue compared to $25.3 million in revenue for the same period one year ago. Which is a year over year increase of 14%.

In regards to EBITDA, for the first quarter ended July 31st, 2010, WPCS generated $238,000 in EBITDA. Of course, for the first quarter ended July 31st, 2010, WPCS generated a net loss of $376,000, or $0.05 per diluted share. The revenue segmentation for the first quarter was 22% wireless communication, 20% specialty construction, and 58% electrical power. Consolidated gross margin during the first quarter was 21% compared to 28% during the same period last year, and compared to 23% in the previous quarter. These lower margins continue to reflect the competitive nature of project awards that happened earlier in the year and are being completed this past quarter. Again, it's important to keep in mind that most operations centers are doing very well from a gross margin perspective. We also have the opportunity to improve consolidated margins based on bids in higher margin markets. During the quarter, the Company had additional corporate expenses that historically show up in the first quarter of each year that include annual audit accounting fees of $240,000. In addition, the Company recorded noncash charges of $63,000 related to the contingent earn-out obligation for The Pride Group acquisition concluded in November 2009.

Overall, SG&A expense as a percent of revenue for the first quarter was approximately 21%, compared to 23% for the same period a year ago. Even despite higher first quarter corporate expenses, SG&A expense as a percentage of revenue was lower due to overall cost containment measures. WPCS continues to maintain a healthy balance sheet with just under $4 million in cash, $26.6 million in working capital, and $5.6 million of credit line borrowing. Our credit line borrowing to working capital ratio remains favorably low at 21%. The Company continues to be able to finance our growth internally. The Company has $9.4 million available under our credit facility. Accounts receivable collections remain stable with DSOs averaging 64 days, which is within our expectations.

In regards to our strategic development, WPCS continues to consider acquisitions that can potentially add shareholder value. However, the Company does not have any developments in this area to report. For the time being, we'll continue to focus on organic growth and cost cutting so that our financial performance can improve over the short term.

Lastly, on August 27, 2010, a group of investors issued a 13D filing expressing that they are interested in acquiring 100% of the fully diluted outstanding shares of WPCS at $3.50 per share in a cash and stock transaction, or in a cash-only transaction to be determined. The parameters in the filing were general and no formal offer has yet been made to WPCS. Let me first say that the WPCS management team and its directors would absolutely consider any bidder that puts forth a fair value for all of our shareholders. Since the August 27, 2010 filing, WPCS has established a committee of independent directors and appointed separate legal counsel for this committee. This committee is now tasked with working with any potential acquirer who submits an offer to clarify the terms and conditions of such offer as well as establishing the proof of funding for any offer. During this process, WPCS and is directors will continue to exercise their fiduciary duties to all shareholders. Our Company is committed to building shareholder value in the short term and the long term. And we will disclose to our shareholders what is required pursuant to applicable securities law.

In conclusion, the management team will continue to focus on improving our financial performance and navigate through this difficult economy. Our goal is to deliver better earnings for all our shareholders.

I would like to now turn the call back over to Diane to begin the question-and-answer session. Diane?

(Operator Instructions). Our first question is [Mark Howherpt].

Hello, and good afternoon. Can you elaborate a little bit on the fix that you mentioned?

On the fix? You mean on the fix -- say that one more time, Mark, I'm sorry.

In the press release, you mentioned that a fix has been decided upon, and implemented to help mitigate under-performance of these particular centers, and I was wondering what exactly has been done. And if you can give more detail on that, that would be helpful.

Sure, absolutely. The fix we're speaking about is the fix specifically to the Florida and California operations. And it's twofold. One is that we've cut costs, cut expenses, mostly labor. And secondly, we have focused specifically on higher margin projects that are available in those two operational states, meaning focused on healthcare, energy, and corporate enterprise.

I see, okay. And can you elaborate a little bit more on the evaluation of the potential buyout? At first it seemed to be like there was a breakdown in communication, there was some unfriendliness going on. Are you back at the negotiating table? Is this still being discussed in a friendly way? Or how would we need to think about this?

Well, certainly the group is a reputable group of investors, and they are investors in WPCS. We think it's certainly a professional manner that we're pursuing the parameters, or trying to clarify the parameters of this offer. We're in the process of, the offer parameters filed in the 13D on August 27 was general, and not specific enough, so the independent directors will contact this group to clarify exactly what the offer will be, and we'll evaluate the offer accordingly, and make their recommendations to the Board of Directors.

In our opinion, there's nothing hostile about the relationship. They are reputable, they're investors, and they certainly have a right to put forth an offer, and we just want to make sure that the offer is fair to all our shareholders.

Okay, thank you for clarifying.

Thank you.

Our next question is from [Brian McCauley].

Hello. Can you speak about the timetable? Is there any specific timetable that shareholders may be expecting to hear something on the fairness opinion? And in that regard, are there any other parties that have contacted WPCS since the ongoing buyout offer?

Brian, in regards to a fairness opinion, we certainly need a more tangible offer that talks about the terms and conditions, and proof of funding. The independent directors will choose, obviously, to look at any offer, any bid, and get the opinion of an independent organization to evaluate that offer for shareholders. So we just need a more tangible offer, first of all. Secondly, in regards to other bidders, WPCS is not commenting on other potential bidders at this point in time.

Okay. Thank you.

Thank you, Brian.

We have another question from Mark Howherpt.

Just to follow up on the previous caller, his question regarding if you have a timetable for that, was very interesting. Do we have that?

The timetable certainly -- the only thing I can say regarding timetable is that the independent directors, in a timely fashion, will address any specific bid from an acquirer for WPCS. It's hard to say how long it will take. It all depends on the specific offer, and the valuation process.

But there's not going to be any delays by the independent directors in assessing or evaluating any potential bid. They will do it in a timely manner, without a doubt. So, once the bids are put forth, if there's a bid, then they'll focus on being prompt in meeting their fiduciary responsibilities in responding to these bids. So, I'm not sure what timetable we can place on that until we have more parameters regarding a potential bid.

Okay, fair enough. Could you also comment a little bit more on your pipeline, and in which areas you see momentum, which areas seem slower, and so on?

In regards to our backlog, we still have a fair value of public service bids because of the fiscal stimulus funding that's available. The problem, we're more successful in some states on public service bids, like New Jersey and New England, than other states like California and Florida. It's more competitive in those two marketplaces for fiscal stimulus projects, and more competition lowers the margin expectations. But we do have a number of projects. In Florida and California, we needed to be able to generate more revenue, even though it's a little bit lower margins. We needed to generate more revenue, and that's where it got very competitive.

However, going forward, our backlog of $41 million represents approximately 50% of public services, 10% of healthcare, 20% energy, and 20% in corporate enterprise. The margins range anywhere from 21% to 24%, so we do see the trends increasing as far as gross margin is concerned. And our bid activity is very encouraging, because it's up an additional $20 million from the reported year-end on April 30. So, we do see the opportunities coming to fruition.

And again, I want to emphasize that our other operation centers are doing very well. It's just we got stuck with a very competitive environment in California and Florida.

Okay, thank you.

Thank you, Mark. Diane, are there any more questions?

No, there are no further questions. If there are no further questions, I would like to thank all the participants on today's WPCS International Incorporated fiscal year 2011 first quarter investor conference call. Please keep in mind that a replay of this investor conference call will be available for a period of five days by dialing 402-220-2946. That's 402-220-2946, and entering 15631 pound. That's 15631 pound as the program identification number. This will conclude the call.