TSS Inc (TSSI) 2008 Q3 法說會逐字稿

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  • Operator

  • Good day, everyone, and welcome to the Fortress International Group third quarter 2008 earnings call. Today's call is being recorded. For opening remarks and introductions, I would now like to turn the call over to Mr. John McNamara. Please go ahead, sir.

  • John McNamara - IR

  • Thank you, and good morning, everyone. Welcome again to the Fortress International Group Conference Call to Discuss 2008 Third Quarter Financial Results. Joining us this morning from the management of Fortress are Tom Rosato, Chief Executive Officer, and Tim Dec, Chief Financial Officer.

  • Before we begin, we will remind you all to take note of the cautionary language regarding forward-looking statements contained in the press release. That same language applies to statements made in today's conference call. This call will contain time sensitive information, as well as forward-looking statements, which are only accurate as of today, November 12, 2008.

  • Fortress International Group expressly disclaims any obligation to update, amend, supplement, or otherwise review any information or forward-looking statements contained in this conference call or reply to reflect events or circumstances that may arise after the date indicated, except as otherwise required by applicable law.

  • For a full list of the risks and uncertainties which may affect future performance, please refer to the Company's periodic filings with the SEC. We'll begin the call with a brief overview of the quarter, and then we will open up the line for questions. With that, I'll turn the call over to Tom Rosato. Go ahead, Tom.

  • Tom Rosato - CEO

  • Thanks a lot, John. Good morning, and thank you for joining us to review the third quarter results for Fortress International Group. Ladies and gentlemen, I am pleased to report that Fortress has earned positive adjusted EBITDA of $855,000 for the third quarter. Included in that number is a one-time write-off of acquisition related costs of approximately $480,000 that were occurred -- that were incurred in prior quarters. Excluding those charges, our adjusted EBITDA would have been approximately $1.3 million for the quarter.

  • In addition to the positive EBITDA, we increased revenue for the seventh straight quarter to $25.8 million, a 103% increase in sales over the same quarter last year. Revenue for the nine months ended September 30 was $65.4 million, also a 103% increase in revenue for the same nine month period over last year.

  • We continue to gain new customer momentum and continue to displace traditional competition at the engineers and contractors in this competitive market environment, because of our concentration of expertise servicing mission critical environments. Our revenue growth continues to come from the realization of revenue from projects in our backlog, some which had been previously put on hold and have been subsequently released in phases for engineering and construction.

  • The other major factor contributing to projects moving from backlog to revenue has been the continued evidence of strong leasing activity from our developer, collocation, and managed hosting customers, who are continuing to experience positive activity, despite the difficult economic times.

  • Four major customers of ours, who trade publicly and are either REIT or collocation providers, all reported improved earnings for the third quarter and increased their guidance for the balance of the year. They also reported continued planned spending of capital expenditures for 2009, as well as growth in their sector, based on current demand for their product. This gives us encouragement that the 2009 outlook for our services is not as bleak as other areas of our economy.

  • Although we remain cautious about the impact of the economy on our customers' business, we still see strong demands for our capabilities. Our customers include datacenter real estate developers, collocation providers, managed hosting companies, as well as customers that have traditionally owned their own datacenter space.

  • The shortage of capital in the corporate environment is causing traditional datacenter owners and operators, such as banks, insurance companies, state and local governments, as well as nonprofit organizations, to move their expansion needs to leasing datacenters with REITs, collocation, and managed hosting providers, who remain well capitalized.

  • This trend continues to impact us positively, because we service -- we provide services to both the tenant and the landlord in this scenario. We assist the prospective tenant in the planning, layout, and budgeting of the space and typically perform the design and construction of the space through the datacenter owner.

  • Our various research consultants indicate that the shortage of capital will improve margins for our customers in the REIT and collocation business, because of continued shortage of space. This shortage should cause a pent-up demand once the capital markets open up again and hopefully provide us with more growth opportunities in the near future.

  • Our presence in the marketplace is also beginning to get us recognition internationally. We were sought out by a development group in Eastern Europe and hired to assist in the planning and budgeting for a major datacenter expansion in this area of the world.

  • Our research consultants have confirmed that Eastern Europe is a growing market for datacenters, and getting a foothold there could be a very -- could be very strategic for Fortress. As we follow our customers in these regions, we feel we can leapfrog our presence there without the invested cost of opening sales offices to expand in these outlying regions. We are also exploring the utilization of joint ventures to grow internationally, as opposed to green fielding sales offices.

  • Based upon our recent proposal activity and closures in October and November, we continue to see strong demand and spending. Our hot pipeline of opportunities was $182 million of potential work in all three divisions on October 30, 2008. Our ability to work with clients on engagements involving total cost of ownership models, particularly energy saving initiatives, facility consolidations, and capital preservation concepts, continues to enable us to attract new customers, differentiate us from our competitors, and get awarded multiple projects from existing customers.

  • To emphasize the recurring nature of our work with customers, we evaluated 12 major customers' activities we had year-to-date. Of those evaluated, we had closed approximately $73 million worth of new work since January of 2008, but what is unique is that we had 389 separate engagements related to these customers. This indicates getting these awards, not only in the form of large projects, but a multitude of small and medium sized projects, in all three divisions.

  • Customers are taking us into multiple sites they own over a large geographic footprint. This is supportive of our goal to create service based recurring revenue relationships with our customer base, as well as indicating customer satisfaction with our services, that is leading us into deeper consultative roles with our customers over their entire portfolio of mission critical assets.

  • With respect to our facility management recurring revenue contract revenue, we continue to improve our position, although we are behind in our original goals. Year-to-date, we reported $14.3 million in facility management revenue, which represented 22% of our total revenue. We have 24 recurring service contracts in place that are earning revenue, with a guaranteed annual billable base and add-on billings that generated $5.2 million in service based revenue.

  • In addition, we have four large national customers that we provide adds, moves, and change services in multiple office and mission critical facilities that generated another $5.7 million of service based revenue year-to-date.

  • On top of that, we have signed service contracts for $10.4 million in backlog that have yet to become activated, due to delays in completion of construction portions of the projects. Progress is being made on these projects, and we expect to begin earning revenue on these particular contracts, hopefully by the end of 2009.

  • We announced yesterday the addition of Todd Finnegan our new Vice President of Facility Management to lead our efforts to increase both the size and capabilities of this division. We all realize the importance to continue to add reoccurring revenue base. Todd brings with him an extensive background in the service related industry, and we welcome him to our group.

  • With regard to cost control and spending, we implemented cuts beyond that which was reported in our second earnings -- second quarter earnings call. We continue to identify areas to minimize our overhead cost, and the results of our efforts are beginning to show in our SG&A expenditures quarter over quarter. Tim Dec will talk further in detail about the SG&A changes during his discussion.

  • Today we also announced the appointment of a new Chairman of the Board for Fortress. Harvey Weiss, our existing Chairman, had requested at our November meeting to step down as Chairman to become Vice Chairman and Board member. Harvey's wishes were to concentrate his efforts with me on corporate strategy initiatives, acquisitions, and joint ventures that will accelerate income and growth and free up his time from Board processes and compliance issues. He requested that the effective date of this transition would be December 3, 2008.

  • The Board accepted his request, and John Morton was nominated and approved as the new Board Chairman. John previously held the position as Audit Committee Chairman with our Board. In light of the volatile economic times, we welcome John as the Chairman-Elect and are proud to have someone with his extensive banking and financial background as our new Chairman to guide us through this anticipated difficult period.

  • We also want to sincerely thank Harvey for his hard work and efforts as Chairman to guide this Company from an entrepreneurial environment to a public company environment. In his tenure as Chairman, the Company has doubled its annual revenue, doubled its funded backlog, and helped with the integration of three acquisitions. He was also responsible for getting our Company listed on NASDAQ and got us to a positive EBITDA position this quarter before turning the reins over to John Morton.

  • I look forward to continue working with both gentlemen in their new roles to improve the value and stature of the organization. With that, I'm going to turn the call over to Tim Dec for his financial discussion.

  • Tim Dec - CFO

  • Thanks, Tom. We reported $25.8 million in revenue for the quarter. That is compared to $20.1 million in the second quarter of this year, a 28% increase quarter over quarter, and $12.7 million for the third quarter of 2007. As Tom mentioned, that represents an increase of approximately 103% this quarter over the same quarter of last year. Again, revenue was up for the seventh straight quarter.

  • Our revenue breakdown for the quarter was $1.6 million in Technology Consulting, as compared to $1.8 million in the second quarter, essentially flat quarter over quarter. However, even though our Technology Consulting revenue was slightly down for the quarter, our TC backlog of $6.8 million is $2 million higher than any previous quarter.

  • Our Construction Management revenue is $18.5 million as compared to $13.5 million in the second quarter, a 37% increase quarter over quarter, and our Facilities Management revenue was $5.7 million as compared to $4.8 million in the second quarter, a 16% increase quarter over quarter.

  • Our reported gross margin for the third quarter was 20%, which is slightly in excess with our expected profit levels. Our SG&A for the quarter, excluding noncash compensation of approximately $360,000 and the write-off of the acquisition cost of $480,000, was $4 million. That is compared to $4.4 million in the second quarter of 2008.

  • During the quarter we had a good will impairment charge of $3 million, which I will discuss in further detail shortly. Our reported net loss for the third quarter was $3.2 million. Our reported earnings per share loss for the three months was $0.26 per share. Our adjusted EBITDA for the third quarter, which excludes amortization, noncash comp, depreciation, and impairment was a positive $855,000.

  • We spoke last time on the call -- last quarter on the call that the accounting rules require us to write off any deferred acquisition costs by year-end. Due to the capital markets and the current price of our stock, it is unlikely that we will consummate any transaction by then. We are still in dialog with a few potential targets and hope to reengage our efforts as we progress on our business plan, and the capital markets start to open back up.

  • Excluding the write-off of acquisition costs of $480,000 in the third quarter, our adjusted EBITDA would have been approximately $1.3 million. At the end of September, we had no additional deferred acquisition costs on our balance sheet.

  • Revenue for the first nine months of the year was $65.4 million as compared to $32.2 million for the same period in 2007, also a 103% increase year over year. Our year-to-date revenue breakdown was $4.5 million in Technology Consulting, as compared to $3.9 million in the same nine month period last year, or a 15% increase year over year.

  • Our Construction Management revenue was $46.4 million as compared to $18.8 million in the same nine month period last year, or a 146% increase year over year, and our Facilities Management revenue was $14.5 million as compared to $9.5 million in the same nine month period, a 51% increase year over year.

  • Our gross margin for the first nine months was $16.3 million, again more in line with historical and expected margin performance. SG&A for the first nine months, excluding noncash compensation of $1.1 million and the write-off of the acquisition cost of $1.2 million, was $13 million, or roughly $4.3 million per quarter on average when you exclude those two items.

  • As discussed on our last conference call, one item that affected our reported results for the quarter and year-to-date was the write-down of good will. Last quarter we recorded a $1.2 million charge. That, coupled with the current quarter charge of $3 million, brings the total to $4.2 million for the nine months ended September 30.

  • As mentioned before, it is our responsibility to review the carrying value of our intangibles at least annually. If there is an indication that there may be an impairment, and it is more likely than not, it is required to be tested on an interim basis. Based on the recent market conditions, it was determined that an impairment had occurred. We hired an independent valuation company to assist us in determining the proper loss during the quarter.

  • Our reported loss for the year was $11.5 million. Our reported earnings per share loss for the first nine months was $0.95 per share. However, our adjusted EBITDA, which, again, excludes amortization, noncash comp, depreciation, and amortization charges, was a loss of $2.8 million. Excluding the write-off of the acquisition cost of $1.2 million, our year-to-date adjusted EBITDA would have been a loss of $1.6 million.

  • Our backlog at the end of the quarter was $218 million. The breakdown by division was Technology Consulting, $6.8 million, Construction Management, $195.9 million, and Facilities Management of $15 million.

  • Our proposal activity continues to remain strong. In the quarter we generated over $57 million in new proposals, which brings the total in 2008 to approximately $202 million in proposal activity for the first nine months of the year.

  • Our new bookings continue to remain strong as well. Year-to-date we have booked $111.4 million in new bookings, $7.4 million in Technology Consulting, $92.7 million in Construction Management, and $11.5 million in Facilities Management.

  • At the end of the quarter, our cash balance was $6.9 million. Net cash used during the first nine months of the year was $6.3 million, which was primarily due to the purchase of SMLB in January for $2.1 million, the payment on the Rubicon sellers' notes of $2 million, and the adjusted EBITDA loss that I mentioned of $2.8 million. The remainder was offset by favorable working capital management of approximately $600,000.

  • On our last call we provided guidance for the full year of $100 million to $110 million in revenue and mentioned that we would recover our adjusted EBITDA losses from the first two quarters of 2008. We expected our adjusted EBITDA, excluding acquisition costs, to be break even for the full year. We also mentioned that due to the complexity of the large construction projects and the delay in converting those into revenue, we would not be providing quarterly guidance at that time.

  • Having said that, our guidance will not change from our previous committed levels. We closed the quarter with positive adjusted EBITDA and expect that trend to continue for the fourth quarter. We will not be providing guidance at this point for 2009, but we may consider doing so on our next call in early 2009.

  • I have said on the last two calls that our primary focus for 2008 is moving this Company to positive adjusted EBITDA. We have now accomplished that. We also committed at that time to take $4 million in cash costs out of the business. That was not an easy thing to do, but a necessary one to start to achieve the desires -- desired results that we committed to.

  • As you can see, our SG&A, excluding the acquisition charge, is down approximately $500,000 from Q1 and Q2, and we didn't implement the announced changes until the middle of the third quarter. We expect Q4 to be down another $400,000 to $500,000 from the current level, which will reflect an annual savings of the $4 million that we promised on the last call.

  • At the time of those changes, we firmly believed it would not affect our ability to service our customers, respond to new proposals, continue to investigate new, promising acquisition opportunities, and maintain the financial discipline of a publicly traded Company. Based on our performance during the most recent quarter, I think that those issues have been put to rest. If we do see a downward trend in our business, which we have not and do not expect, we will not hesitate to make the necessary adjustments to continue the momentum we have now achieved.

  • In conclusion, I have said in the past we all realize the critical element of success is converting our backlog into reportable revenue and controlling our cost. We have started to see our backlog finally convert into reportable revenue in the third quarter, after six to nine months of a delay. And again, as I said earlier, this is our seventh consecutive quarter of increased revenue.

  • In terms of SG&A, we now have a firm handle on our cost structure, and you should expect to see our quarterly spend around $3.5 million per quarter, starting in the fourth quarter of this year. The fact that we have now achieved positive EBITDA does not forego our responsibility to adhere to strict financial discipline and cost control across all business units.

  • And finally, we have not lost sight of expanding the Company via acquisition or joint venture opportunities. We have and will continue to focus on prudent and accretive M&A transactions that help drive shareholder value as we move into the new year. I'll turn the call over to John for Q&A.

  • John McNamara - IR

  • Rachel, we're ready for questions.

  • Operator

  • Thank you. (Operator Instructions) We'll go to Philip Anderson of Pinnacle Fund.

  • Philip Anderson - Analyst

  • Hey, good morning, everybody. A very -- it's a nice pleasure to wake up and see we've made some cash flow this quarter. Thank you very much for all your hard work.

  • Tom Rosato - CEO

  • Thank you, Phil.

  • Philip Anderson - Analyst

  • Tim, I wanted to go over some figures. So if I heard you correctly -- so the cost -- all of the cost saving measures were put in place mid quarter, and we would expect to see SG&A drop another $400,000 or $500,000 quarter over quarter. Is that the correct math?

  • Tim Dec - CFO

  • We expect it to drop $400,000 or $500,000 over what the third quarter was. That's correct.

  • Philip Anderson - Analyst

  • Okay. And, Tim, did we generate operating cash flow on the quarter?

  • Tim Dec - CFO

  • We did generate cash flow during the quarter. That's correct.

  • Philip Anderson - Analyst

  • Super. I know you haven't filed your 10-Q yet, but could you tell us what the operating cash flow was in the quarter?

  • Tim Dec - CFO

  • I think I have that handy. I think it was about $0.5 million.

  • Philip Anderson - Analyst

  • Okay. Well, that's terrific. With the stock at $1.00 and 12.5 million shares that we have about a $12.5 million market value. When I subtract your current liabilities from your current assets, there's about $6.5 million remaining, which is essentially cash, and if we're going to continue to generate operating cash flow, which it sounds like, based on Tom's remarks and the status of the business and our four large customers having reported robust quarters, et cetera, et cetera, that a lot of that cash could be excess cash. Would you agree with that, Tim? That there's excess cash not required to fund the day to day working capital changes of the business?

  • Tim Dec - CFO

  • I -- we've -- I would agree with you what you're saying, yes.

  • Philip Anderson - Analyst

  • Yes. Well, --

  • Tim Dec - CFO

  • We look at this as -- I look at it as whatever positive adjusted EBITDA we generate will be added to the till, as long as we maintain our, kind of, governance over our working capital, which we've had the ability to do.

  • Philip Anderson - Analyst

  • Well, you've been doing a terrific job ever since you showed up on generating cash and creating cash flow. I think the Company should not focus any more on acquisitions, but should buy back stock. If you were to buy -- if you were to spend $5 million, at $1.00, to buy back stock, we could shrink our capitalization by about 40%, making the Company worth 40% more for the remaining shareholders, and based -- I don't know what EBITDA multiples -- the properties you're looking at are trading for, but they're trading for five or six or seven times, we would get a much better bang for our dollar by shrinking our cap by 40% than we would by buying a property at five or six times EBITDA, and we certainly would get a better return than if the cash was sitting in treasury earning a -- what is a fairly de minimis interest rate in this environment.

  • Tim Dec - CFO

  • Well, Phil, we've had this dialog a number of months with both our Board and internally from a senior management position. We're very pleased with the fact that we have taken out the cost of the business. We're very pleased with the fact that we've generated positive EBITDA. We expect to continue to do that, but we have, roughly, $7 million in the bank. Our goal is to have a minimum of $8 million to $10 million in the bank.

  • We're well aware of the fact of looking at the capital structure, but again, I think the one concern that we've had and the Board has had is if there is a delay in any of our customer spending that could impact our short term earnings, we think it's prudent to have a cash reserve put away in case anybody that we're looking -- relying on has a hiccup here.

  • So I -- we fully understand your thought there. We're in concert with that, and we're looking at 2009 with a sharp eye right now. I mentioned earlier that we'd probably come out and maybe provide guidance at that point, and you can have a little more clarity going out. But I think that's something that we still need to kick around and not move on right at this point in time.

  • Philip Anderson - Analyst

  • Hear what you're saying, Tim. I just want to point out, so if you're able -- if the Company achieves in the second half of 2008 the EBITDA loss it incurred in the first half, which would be $3 million to $3.5 million of EBITDA, and if that EBITDA run rate were annualized through the middle of next year, the Company would generate $6 million or $7 million of EBITDA.

  • So we would be trading for a one-time enterprise value to EBITDA basis. I don't count the related party debt to the insiders in minor price value calculation, because that's never going to be paid out in terms of cash, and that will convert out to stock.

  • And given that we're in the worst market that virtually anybody has seen, because no one's -- not that many people are old enough to have been alive in the crash of the '20s, as you continue to perform, even though the stock has been beaten down, people will see that there is value in the business, and the stock is going to do better. So you have, I think, a relatively finite period of time within which you can effectively buy your own business back at one times cash flow.

  • So while you may prefer, and I think it's very prudent, to have an $8 million to $10 million till, maybe $5 million -- spending all of our cash would be -- would not be wise, but spending $1 million or $2 million now, when it can have a substantial impact on the -- on shrinking our capitalization at one times forward enterprise value, based on my own calculation, it seems like it's too good a deal to pass up.

  • So I would just encourage you all to go back and maybe sharpen your pencil about how much you're -- you think you really need in treasury to support the business. But that's what I wanted to say, and again, thanks, everybody, for working hard to give us a profitable quarter.

  • Tom Rosato - CEO

  • Thank you, Phil, and, yes, the only comment that I will add to that is that we are continuing to see pretty significant growth again, and that becomes unpredictable as far as what the real cash needs are to fund that growth, too. So --

  • Philip Anderson - Analyst

  • Sure.

  • Tom Rosato - CEO

  • -- there's a fine balance there that we've got to maintain. Your point is well taken, and we will sit down and discuss it.

  • Philip Anderson - Analyst

  • I'll make two other suggestions, and then I'll get out of the question line here.

  • Tom Rosato - CEO

  • Sure.

  • Philip Anderson - Analyst

  • First would be, Tom, in the past you were an aggressive acquirer of your own stock, and I don't know what your own situation is now, but if the -- now that the window in a couple of days will be open for insiders, I just want to point that out, and perhaps insiders, including yourself --

  • Tom Rosato - CEO

  • Yes.

  • Philip Anderson - Analyst

  • -- can purchase stock here. And secondly, do we have any bank lines of credit right now, which would be available to fund working capital, should the growth come in at a level that would enable us to tap those lines of credit?

  • Tim Dec - CFO

  • Well, Phil, that's another very, kind of, spot on point. We do not currently, but that's something that we're looking into, now that we've kind of turned the corner.

  • Philip Anderson - Analyst

  • Got it. Okay, thanks very much, everybody.

  • Tom Rosato - CEO

  • Thank you.

  • Tim Dec - CFO

  • Thank you.

  • Operator

  • We'll go next to Pat Brosnahan of Westpark.

  • Pat Brosnahan - Analyst

  • Hello, Tom.

  • Tom Rosato - CEO

  • Hi, Pat.

  • Pat Brosnahan - Analyst

  • Again, congratulations on the positive EBITDA. After listening to Phil's thoughts, I just wanted to kind of reaffirm. I think some portion of the cash could be used just to show some good will here in the marketplace might be good. But the question I had was, maybe you could explain to me a little bit about backlog? I think I'd heard that you had, Tim, what, $218 million worth of backlog at this point in time?

  • Tom Rosato - CEO

  • Yes.

  • Tim Dec - CFO

  • That is correct.

  • Pat Brosnahan - Analyst

  • Could you tell me -- because obviously, you generated $25 million in revenues for the quarter, correct?

  • Tom Rosato - CEO

  • Yes, that's correct.

  • Pat Brosnahan - Analyst

  • Okay. So explain to me how that backlog -- how you -- what you consider backlog, because that would seem to be you have 10 quarters worth of business out there. So maybe -- and maybe that is the case. So could you kind of explain what gets in the backlog, how it gets in the backlog, and how it kind of burns off?

  • Tom Rosato - CEO

  • Yes, and we kind of -- we try to explain it pretty much in depth in our -- on our 10-Q.

  • Pat Brosnahan - Analyst

  • Okay.

  • Tom Rosato - CEO

  • We've got what we call both funded and unfunded backlog, basically. Some customers will sign contracts with us that have a specified value for a specified project, which we price up and determine what the value of that project is. And then they come back, and they begin releasing POs against that contract value, where they'll authorize us to do it in phases, phases one, two, three, and four.

  • So some of our backlog ends up getting somewhat aged, because a lot of the authorizations that come are based on the availability of capital that that customer has. And with a lot of the changes that occurred today or just recently, we've noticed that customers are being a lot more particular about the spending of that capital.

  • So as we get authorizations, we then begin performing work, and we bill as a percentage of completion against that. We do have a couple of commitments that have been put into backlog that we're evaluating and that are -- that have aged somewhat, but the -- as far as our -- talking to our customers and where they're at, we still feel that all of that will turn into revenue.

  • Pat Brosnahan - Analyst

  • Okay, so anything that goes in the backlog is a signed contract, it's just a matter of when it might be completed?

  • Tom Rosato - CEO

  • Absolutely.

  • Pat Brosnahan - Analyst

  • Okay. Well, again, thank you. Congratulations on getting the positive EBITDA, and best of luck here in the future.

  • Tom Rosato - CEO

  • Thanks, Pat.

  • Operator

  • We'll go next to Barry Kitt of Pinnacle Fund.

  • Barry Kitt - Analyst

  • Well, I guess it's the Texas day on the questions here today. So just a quickie. I wanted to echo what both of the other guys just said. In this environment, getting into tax selling season, I think you should definitely put $1 million, $1.5 million, whatever it is, into buyback tomorrow.

  • If you have somebody who is a suffering shareholder that wants to take a loss before the end of the year -- that wouldn't be us, by the way -- I think you should be prepared to buy that stock, because if somebody is either desperate for cash or desperate for a loss, they may push your stock down to levels that you would wish you would have had a buyback in place.

  • Putting a buyback in place does not obligate you, but should that happen, you'd be in a better position to take advantage of it. So I think that the responsible thing for you to do is to put a buyback in place today, tomorrow, and ultimately, you can decide whether you use it or not. That's my first thought. Do you want to comment on that?

  • Tim Dec - CFO

  • That's certainly -- we certainly appreciate your thoughts there, as well as Phil's, and we'll take that under advisement, and I think that's all we can probably say now.

  • Barry Kitt - Analyst

  • Okay. Second thing is in a company with a sub-$10 million enterprise value, I've never seen one with a Chairman and a Vice Chairman. Can you give me your thoughts? Is this a step out the door for somebody, and what kind of remuneration will your Vice Chairman be getting at this point?

  • Tom Rosato - CEO

  • The change -- Harvey is an insider, so he does not receive any Board fees. So basically, it doesn't change anything from the standpoint of Board remuneration. He has been working very closely with me with regard to our strategic initiatives. That's been taking up a lot of his time, and we felt that because of those capabilities that we would continue to keep him working with me in his role, under his employment agreement that he's got with the Company.

  • Barry Kitt - Analyst

  • Just looking at a Company trying to cut overhead, and it just seems unusual for a Company this size, but I'm sure --

  • Tom Rosato - CEO

  • Well, just in response to that is they -- he's got an employment agreement with us, and he's well worth the fees. We did cut his employment agreement. He took a 50% cut in the annual compensation from the last quarter, and by us doing any other changes to it would cost us still the amount of money, because we'd have severance costs to have to pay under that agreement. So Harvey is very active and works very hard with me in a lot of these outside initiatives that have to do with joint ventures and strategic planning.

  • Barry Kitt - Analyst

  • Okay. Well, that incremental information is very helpful and helps make it make more sense from a shareholder perspective. Thank you very much for all your hard work, guys.

  • Tom Rosato - CEO

  • Okay, Barry.

  • Operator

  • We'll go next to Wilson Jaeggli with Southwell Partners.

  • Wilson Jaeggli - Analyst

  • Well, I'll continue the questions here from Texas. With an EBITDA positive in this quarter, yet you had cash burn. With projected more positive EBITDA at -- in the next quarter, what do you think your cash will be at yearend?

  • Tim Dec - CFO

  • We -- that is -- the guidance that we've -- we haven't provided guidance in any particular area. I think that the best way to answer that is what I responded to earlier is that the -- by recovering our losses that we had touched on for the first six months to get to break even -- I think Phil touched on the -- roughly, $3 million that we generate in the back half of the year. So we would expect whatever we generate in the fourth quarter, in terms of positive EBITDA, would be roughly the same amount of cash that would be added back into the $6.8 million that we have.

  • Wilson Jaeggli - Analyst

  • And so, unlike this quarter, EBITDA will transfer into actual cash on the balance sheet?

  • Tim Dec - CFO

  • It should be extremely close.

  • Wilson Jaeggli - Analyst

  • Okay. Thank you.

  • Operator

  • At this time I'll turn the conference back to management for additional remarks.

  • Tom Rosato - CEO

  • If that's all the questions, gentlemen, we thank you. Thank you for your encouragement, positive comments, and we look forward to talking to you in February or March, I guess.

  • Tim Dec - CFO

  • Thank you very much.

  • Operator

  • And that concludes today's conference call. We thank you for your participation. You may disconnect at this time.