StableX Technologies Inc (SBLX) 2012 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 2012 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 Provisions 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. Good afternoon, ladies and gentlemen. Welcome to our fiscal year 2012 first-quarter investor conference call. The agenda for today's call will include a discussion of our first-quarter financial results, a review of market conditions and an update regarding our strategic development efforts. Let me begun by stating that we're pleased to announce that we achieved profitable EBITDA results for the quarter. This marks what we believe is the beginning of our turnaround from a very difficult prior year.

The first quarter was very encouraging. We experienced solid revenue production while maintaining a healthy backlog and bid list. Also, we strengthened our balance sheet from the previous quarter. In the past several months, our management team has been diligent and effective in obtaining new contracts, managing cash, and creating cost efficiencies. The first quarter results are a direct reflection of this effort. Although we're coming off a difficult fiscal year 2011, we're very excited about the opportunities in our current fiscal year 2012 and we look forward to achieving respectable levels of profitability in the quarters ahead.

Although the overall economy is not quite fully recovered, we're beginning to see more and more bid opportunities for our services. This is a key element to building our backlog and recognizing increased revenue and profit. Our markets, namely public services, healthcare, and energy, remain active. Our current projects are being managed well and we continue to look for opportunities to increase our gross margin.

At the end of the first quarter, WPCS is pleased to announce that we have a backlog of $42 million and a bid list of $136 million, which is an indication that the opportunity to continue generating positive results exists. In regards to revenue, for the first quarter of fiscal year 2012 which ended July 31, 2011, WPCS generated $25 million in revenue compared to $18 million for the preceding quarter ended April 30, 2011, which represents an increase of 43%. The Company generated $29 million in revenue for the same period a year ago.

In regards to EBITDA, for the first quarter of fiscal year 2012 ended July 31, 2011, WPCS generated $753,000 in EBITDA compared to an EBITDA loss of $5.1 million for the preceding quarter ended April 30, 2011. The Company generated $238,000 in EBITDA for the same period a year ago. Of course, we define EBITDA as earnings before interest, taxes, acquisition-related earnout cost, 1-time charges related to seeking strategic alternatives, and depreciation and amortization.

In regards to net income for the first quarter of fiscal year 2012, WPCS generated a net loss of $35,000 or zero cents per diluted share compared to a net loss of $376,000 or $0.05 per diluted share for the same period a year ago. I'd like to emphasize that the small net loss results for the first quarter include 1-time charges of $64,000 related to the strategic alternatives effort. Obviously, without these additional charges, the Company would have generated positive net income for the first quarter. The revenue segmentation for the first quarter was approximately 24% Wireless Communication, 8% Specialty Construction and 68% Electrical Power. We experienced favorable gross margin gain in the first quarter.

For the first quarter, consolidated gross margin was 23% compared to 11% for the previous quarter and compared to 21% during the same period last year. As of July 31, 2011, WPCS continues to maintain a healthy balance sheet with approximately $4.1 million in cash and $15.2 million in working capital. Our net tangible asset value is $22.6 million or $3.25 per diluted share. Due to the relative strength of our balance sheet, the Company expects to be able to finance our growth internally and meet our short-term liquidity needs. The Company continues to work with Bank of America in satisfying our outstanding debt obligations and we are looking to establish a new credit facility in the near future.

On September 1, 2011, Multiband Corporation, traded under the NASDAQ symbol MBND, acquired 2 of our operation centers for $2 million in cash. The acquisition of the 2 operation centers is part of a Multiband strategy to acquire WPCS in 2 phases, whereby they can efficiently assimilate parts of the organization while also allowing for some time to better comprehend the new markets they endeavor to pursue with these acquisitions. Multiband has indicated that they are still interested in acquiring the remainder of WPCS at the proposed $3.20 per share offer.

WPCS has extended an exclusivity period for Multiband so that they are given time to present a definitive proposal in acquiring the balance. The exclusivity expires on February 1, 2012. The $3.20 per share offer is still subject to the negotiation of a definitive merger document as well as WPCS shareholder approval. When Multiband puts forth a definitive agreement to acquire WPCS, along with a financing commitment, our Directors will confer and announce their recommendation to our shareholders. The proposal for Multiband is part of the strategic alternatives effort that's been underway since September 2010.

In conclusion, the management team will continue to focus on improving our financial performance and making sure that each operation center is positioned for earnings growth in the near future. We continue to believe WPCS is a valuable Company. We have a leadership position in communications infrastructure, an exceptional customer base in high growth markets, an international presence, a healthy balance sheet, and earnings growth potential. Our Company remains committed to building shareholder value in the short term and the long term. I'd like to now turn over the call to Dianne, the Operator, to begin the question and answer session. Dianne?

(Operator Instructions) Eric Weinstein.

Hi, Andy. Eric Weinstein from Chancellor. A couple questions, mostly relating to Multiband. I understand their desire to want to proceed slowly and digest a little bit at a time, maybe before coming back for more. They may have done that in the past but that's certainly no guarantee that they would do that in the future. So when you're -- you've got $1 million in escrow, why would the Board or the Company agree to sell just 2 operations. And I believe that escrow was non-refundable, use the bulk of that to help pay for the operations which they bought? And what was in it for you? Was it -- what was the driving factor? Was it [dealing with] some issues with the banks or were there other considerations?

Well, I think the principal consideration, Eric, was that the $2 million certainly came in handy in terms of dealing with our debt obligations to Bank of America. The other alternative to obtaining the $2 million was either to do an equity raise or do a high interest bearing subordinated debt. So we felt that this was best for shareholders; it gave us $2 million, satisfied $2 million of our debt obligation to Bank of America and made sense for Multiband because they're located in Florida and certainly want to get involved in some of the wireless and energy market opportunities that we have. So it made sense for both and I think it's worked out well, and the transaction was concluded.

So they paid $2 million for $13 million of revenue or about 0.15 times sales, which infers a lower valuation for the year, the Company than the proposed deal for the whole Company. Can you talk a little bit about the profitability or contributions of St. Louis and Sarasota?

In the first quarter, they generated combined, $1.8 million of revenue and $328,000 of EBITDA loss. They had a book value of $2 million. Their backlog was about $2.5 million off of our $42 million in backlog and their bids were $8.9 million off of our bid list of $136 million, so they weren't profitable for the first quarter. Had we not had those 2 organizations in our operations, we would have made over $1 million in EBITDA, so-- but however, they have a very, very bright future. They're -- I think they will continue to prosper under Multiband's leadership and they are expected to have a profitable year while we are expecting them to have a profitable year in our fiscal year 2012 which will be superimposed on Multiband's fiscal year. So we feel they will be successful and they will make money for Multiband.

Okay. That's helpful to understand that. In the greater context of the expectance to be profitable for the whole year, you didn't give guidance here for 2012 but when Multiband made the announcement they said that they were expecting $5 million to $8 million, post-synergy. And that doesn't necessarily mean 2012 and I imagine that includes some type of corporate overhead. So they said it, not you, but can you talk to, to some extent of your knowledge of whether that number would have included some type of revenue synergies although I wouldn't know where that would come from? And can you just state what your corporate overhead is?

Well, first, yes. When Multiband considered their future EBITDA projection or accretive EBITDA addition, they considered what we were going to produce for our fiscal year 2012 as well as synergies that we have together in the MDU business that Multiband has, which is the multiple dwelling unit, in terms of wireless and energy opportunities. So it was a combination of both synergies, obviously cost efficiencies that would be obtained when 2 public companies merge. You only need, certainly, 1 staff for SEC reporting so there were cost efficiencies there. So in terms of your second question was relating to our corporate expenses, you mean, now, Eric, or in terms of --?

Now, presumably those would disappear if you were acquired, your public Company costs, that's incremental, plus I'm not sure what corporate overhead that they would necessarily be assuming but I would assume that it would be very little. So literally your -- the contribution from your operations less some corporate support number gets you to an EBITDA number. I'm looking for that corporate support number.

You mean post-merger?

No, I'm sorry, WPCS's standalone corporate support costs.

Right now?

Yes.

Yes, well, we have that on the balance sheet. I think, what is our -- I'm going to ask Joe Heater, our CFO, our corporate SG&A?

Yes, our annual SG&A at corporate is $3 million. That includes about $1 million just to be a public Company. We haven't discussed with Multiband what all the corporate synergies could be and will be but, just from an incremental public Company standpoint, it's about $1 million a year.

Now, in that number this year, we have costs associated with the strategic alternatives effort so those are one-time charges that will disappear once the conclusion of this transaction occurs, so --.

Okay. I've got their numbers and I've got your numbers and I can do the math between them. All right. I think I get it. Thanks a lot.

The next question is from Tom Jones.

I just had a question. I'm a private investor. Obviously, the stock is trading at about a 50% or 33% discount to the $3.20 letter of intent. Is it -- would it be illegal for Multiband to be buying shares in the open market right now or anybody else with -- as far as insiders at WPCS go because of the letter of intent and the negotiations that are proceeding?

Yes, that's correct, Tom. First of all, it's against SEC regulations to trade for our executives which are insiders and Multiband's executives, but in addition, Multiband also locked up their shares until February 1, 2012. They have roughly 709,000 shares so, unfortunately, as attractive as we deem the stock price and also Multiband deems the stock price, we're not able to buy it.

And that would be true SEC violation for Multiband the company to be buying more shares than the open market?

Correct. There -- Multiband has information on our projections, our future expectations, information that's not public.

That's what I figured. I just wanted to see if we were on the same page. Thank you.

No problem. You're welcome, Tom.

(Operator Instructions) We have another question from Tom Jones.

Yes, Andy. I apologize. I joined the call late. With the $2 million that you received from Multiband or -- did that, is the issue cleared with Bank of America or is there still a concern with that line of credit? I apologize if you've already said something.

Well, no, we -- that's all right, Tom. We didn't answer that question. We had owed Bank of America about $5.5 million at the end of July 31, 2011, the end of our first quarter. We applied the $2 million towards the debt obligation, so our debt obligation in general is down to $3.5 million. So we have some milestones established with Bank of America to completely pay off the debt obligation in the months ahead and we have sufficient cash flow, good working capital. And we are looking for another facility in the near term as well to add to our line or actually give us a new line. So financially, things are positive because of the relative strength of our balance sheet.

We have another question from Eric Weinstein.

Thanks. One question from me to keep things going. I just don't recall the language from the extension agreement, but to what extent are you -- is WPCS permitted or prohibited from continuing to explore strategic alternatives beyond Multiband?

Well, Eric, we have -- Multiband has exclusivity on this $3.20 offer until February 1, 2012. They have to present a definitive merger agreement with a financing commitment to our Directors and then our Directors will comment and give their suggestions to our shareholders. Now, if someone were to come in and let's say, offer more, well, Multiband is protected by the exclusivity but, of course, if there's a tangible offer that's greater, more than likely, the offer of $3.20 would be rejected, so we would work with Multiband. Our goal clearly is to make our valuation greater by February 1. That's -- We'll be honest about that. Our goal is to make our valuation even better, so nothing is defined.

Nothing's guaranteed, but Multiband does have exclusivity, relative exclusivity but obviously, it won't prevent someone from offering more. We're not actively pursuing other potential suiters during this exclusivity period but we've been -- it's been known, our strategic alternatives effort has been known since November of 2010. So it's not a secret and there are Companies that may or may not come forward but Multiband does have exclusivity on that $3.20 offer until February 1. But again, I want to emphasize, they have to provide a definitive merger agreement with a financing commitment and it still needs WPCS shareholder approval.

Great. Thanks for clarifying that.

We have another question from Tom Jones.

One more question. With the sale of the 2 offices, has WPCS exited any of your businesses that do you still have expertise, was there any expertise that was solely located in those 2 offices? So there may be issues going forward if the deal doesn't get consummated with Multiband that you've lost a particular skill set as a Company?

That's a good question, Tom. The answer is, no skill set is lost. The Sarasota and St. Louis operation centers specialized in wireless and energy but our other operation centers, namely, Hartford, Lakewood, Trenton, Suisun City and Seattle, including our international divisions in Australia and China, all perform wireless, energy, specialty construction, electrical power. They all perform that, so the answer is, no, but geographically, we're not in St. Louis anymore or Sarasota but we haven't lost any engineering capability.

Okay, good to hear.

If there are no further questions, I would like to thank all of the participants on today's WPCS International Incorporated fiscal year 2012 first quarter investor conference call. Please keep in mind that a replay of this investor conference call will be available for a period of 5 days by dialing 402-220-2946. That's 402-220-2946 and entering 165-03 followed by the pound key as the program identification number. This will conclude the call.