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Operator
Welcome to the Fortress International Third Quarter 2009 Financial Results Conference Call on the 14th of May 2009. Throughout today's presentation all participants will be in a listen-only mode. After the presentation there will be an opportunity to ask questions.
(Operator Instructions)
I will now hand the conference over to Mr. Sanjay Hurry. Please go ahead, sir.
Sanjay Hurry - IR
Thank you, Carol, and good morning, everyone. Thank you for joining us on the Fortress International Group's conference call to discuss its financial results for the first quarter of fiscal 2009. Joining us this morning from management of Fortress are Tom Rosato, Chief Executive Officer, and Tim Dec, Chief Financial Officer.
Before we begin the call, I would like to remind everyone to take note of the cautionary language regarding forward-looking statements contained in the press release we issued this morning. That same language applies to comments and statements made on today's conference call. This call will contain time sensitive information, as well as forward-looking statements, which are only accurate as of today, May 14, 2009.
Fortress International expressly disclaims any obligation to update, amend, supplement, or otherwise review any information or forward-looking statements made on this conference call or replay 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's performance, and then open up the line for questions. Before turning the call over to Tom, I would like to advise you that management will be in New York City on May 26 and 27 for meetings with the investment community. If you would like to schedule a meeting, please contact me via my contact details listed on this morning's press release. With that said, I'd like to turn the call over to Tom Rosato, CEO. Good morning, Tom.
Tom Rosato - CEO
Thank you, Sanjay, and good morning to everyone, and thank you for joining us on our call today. I'll begin with an overview of our results for the quarter, which will then be followed by a financial review conducted by Tim Dec, our CFO. We'll open the call to questions following Tim's remarks.
Our performance this quarter is reflective of our ability to manage and drive the business to a third consecutive quarter of EBITDA profitability, in spite of the recessionary environment. As you have likely seen from our press release, in addition to our EBITDA profit, we achieved a 55% increase in the top line, year over year, and a 19% decline in operating expenses for the same comparable period.
We clearly continue to benefit from operational initiatives that we took in the second half of last year to right size our cost structure to our revenue base. Our revenue performance, while impressive, comes at a cost of backlog, which declined sequentially as the recessionary environment continues to restrain spending on capital infrastructure projects.
Gross margin declined quarter over quarter, due to a -- due to, in part, to the implementation of a multiyear facility management contract that required some startup costs in this quarter, but that particular contract is expected to be a net contributor to gross margin going forward. Tim will discuss this in greater detail in a moment.
The adjustments made to maintain profitability in the current economic environment is just part of our Fortress story. A several quarter weakness has given us the opportunity to rationalize our product offering and expertise to aggressively pursue both near and long-term growth catalysts. I'd like to spend a few minutes discussing this updated go to market strategy with you.
Subsequent to the close of the quarter, earlier this week, in fact, we announced a rebranding from Fortress International and subsidiaries, Rubicon Professional Services and Total Site Solutions, into a single, vertically integrated organization with comprehensive and turnkey capital infrastructure solutions spanning the lifecycle of mission-critical facilities. In effect, we have positioned Fortress as the premier provider in the growing mission-critical facilities market, by virtue of the fact that we are the only one stop shop in the marketplace across a facility's entire lifespan, from design to construction management to long-term facility management.
This vertical integration is integral to Fortress's long-term success, and its linchpin is our technology consulting business. As with most consulting businesses, it generates very high margin revenue. The key, however, is that technology consulting dollars translate to construction management dollars at an industry average of 20 times. In other words, a $1 million technology consulting contract translates roughly into a $20 million construction management opportunity.
If we are the technology consulting lead, we have the inside track via our construction management business to the dollars being spent on the construction of the facility. Taken to its logical conclusion, our facility management business is then best positioned to win the maintenance contract for this facility, thereby creating more meaningful levels of recurring revenue for Fortress. This level of integration is unique to Fortress in the industry and stems from our past acquisitions of both Rubicon and Total Site.
We currently have a proposal pipeline of approximately $211 million, and $163 million of that consists of construction management and facility management opportunities that have to be -- that have the ability to be converted from existing technology consulting orders that are in-house. We believe the mission-critical facilities market holds substantial opportunity for Fortress.
It's a secular growth story, one that is being driven by the continued exponential growth in the Internet and the data it generates. More data has historically meant more data centers. The recession, however, has significantly curtailed data center build outs, given the lack of available financing and companies' need to preserve capital. The growth in the Internet, however, has felt no such recession.
In the near term, as demand increases, we have introduced new services designed to increase data center efficiency, which is our response to the current economic environment. These new services will enable customers to increase capacity at a much lower capital investment than building or buying a new data center. They enable customers to increase computer capacity out of their existing square footage, thereby lengthening the useful life of the facility, while also reducing cost.
For example, with energy cost typically accounting for up to 40% of a data center's annual operating budget, we feel that our new energy solution set can yield significant return on investment to the customer, as well as developing initiatives to allow the customer to decrease its carbon footprint. In short, our new solutions will generate new revenue streams for us.
Long-term, the growth in the internet will continue to fuel demand for data centers. The current economic climate has created a shortage of data center space available, relative to demand. Today companies can no longer put off build outs, and over the last six weeks, our technology consulting group has seen a substantial pickup in proposal activity. This pickup is being driven largely by data center (inaudible) and managed hosting service providers, who are benefiting from companies turning to leasing models to meet their capacity needs, due to the lack of available financing.
Those of you who are familiar with our customers, such Digital Realty Internet and Switch and Data, know that they have all reported strong first quarters as a result of substantial leasing activity and loan lease cancellations. As an example, we recently completed a build out of Telex's facility in northern New Jersey, where we served as both a design consultant and construction manager. We completed this build out in 90 days to help them meet the demand of their New York, New Jersey customer base. We believe this leasing momentum signals pent-up demand, which, in turn, will fuel the need for more data centers, and this bodes very well for us in the near future.
Another catalyst for long-term growth is the passage of the recent economic stimulus package, which allocates substantial sums to digitizing entire industries, in particular, service industries such as health care. Furthermore, the Federal government announced the appointment of its first chief technology officer, in charge of the $81 billion Federal IT budget for this fiscal year. The CTO's authority will span all agencies, and the creation of this position is an indicator that IT has taken on a greater importance with the Federal government, which we believe will translate into greater focus on data centers. This, too, bodes well for Fortress in the long-term.
Additionally, and as part of our rebranding, we expect that our emphasis on the higher margin technology consulting business, which, coupled with greater sales focus on facility management contracts, will result in margin expansion and greater levels of recurring revenue. In summary, we've positioned Fortress as the clear leader in the market via our vertical integration and coming to market with solutions and expertise that further differentiates us from the competition. With this as our foundation, we're also pursuing catalysts for growth, both near and long-term, while remaining committed to profitability through continued fiscal discipline. This concludes my prepared remarks. I would like to turn the call over to Tim Dec for review of the first quarter financials. Tim?
Tim Dec - CFO
Thanks, Tom. We reported $30.1 million in revenue for the first quarter of 2009, as compared to $37.2 million in the fourth quarter of 2008, and $19.4 million in the first quarter of 2008. Our revenue breakdown for the first quarter of 2009 was technology consulting, $1.6 million, as compared to $2.4 million in the fourth quarter. Construction management revenue was $25.1 million, as compared to $30.6 million in the fourth quarter, and facilities management of $3.4 million, as compared to $4.2 million in the fourth quarter.
Gross profit was $3.7 million for the first quarter of 2009, as compared to $5.2 million in the fourth quarter of 2008, and $3.4 million in the first quarter of 2008. The decline in gross profit reflects a greater concentration in construction management revenue this quarter, which carries lower gross profit than our other divisions. As a result, our gross margin declined 12% in the first quarter of 2009, as compared to 14% in the fourth quarter of 2008.
Our SG&A for the first quarter, excluding non-cash compensation of approximately $400,000, was $3.5 million, essentially flat with the fourth quarter of 2008, and down $1.1 million from $4.6 million in the first quarter of 2008. The significant reduction, year over year, is the result of steps taken in the second half of 2008 to right size our cost structure and return to adjusted EBITDA profitability.
It should also be noted that the SG&A for the first quarter of 2009 includes certain upfront professional cost, such as our year-end audit and tax provision work of approximately $300,000. If those were excluded, our SG&A would have declined approximately 9% from the fourth quarter of 2008.
Net loss for the first quarter of 2009 was $1 million, or $0.08 per share. Our adjusted EBITDA for the quarter, which excludes interest, taxes, depreciation, amortization, and non-cash compensation, was a positive $300,000. This represents, as Tom mentioned, our third consecutive quarter of EBITDA profitability.
Our backlog at the end of the year was $45.5 million. The breakdown by division was technology consulting, $3 million, construction management, $32.2 million, and facilities management of $10.3 million.
Turning to the balance sheet, we ended the first quarter of 2009 with a cash balance of $8.3 million, as compared to $12.4 million at the end of last year, reflecting a net decrease during the quarter of $4.1 million. On our last conference call, I noted that cash balances were favorably impacted by cash management of approximately $4 million and that you should expect to see a reversal of a portion of that favorable cash management in the first half of 2009. $2.5 million of the $4.1 million was what I just touched on as the paying off some of the accounts payable that we had at the end of the year, with the remainder due to the Rubicon sellers' notes that we paid in January of $1.6 million.
Due to the uncertainty of the current economic environment, we will not be providing guidance for 2009 at this point. As we move through the year, should conditions dictate, we will consider providing guidance at that time.
I would like to conclude with our focus on achieving our third straight quarter of positive adjusted EBITDA, which is a very positive achievement under very difficult economic conditions, and it's a significant reversal from our financial performance in 2007 and 2008. We are keenly aware of the downtick in our backlog and will continue to monitor that very closely as we move into the summer months.
We have a number of promising opportunities with some of our existing customers, as well as perspective new customers. Our success is closely matched with their ability to continue their expansion needs and find financial alternatives to meet those requirements. If we experience project delays, we will not hesitate to take the additional steps to ensure profitability, as we wait for the economic environment to improve. And now I'll turn the call back to the operator for questions.
Operator
Thank you, sir. (Operator Instructions) The first question comes from Mr. Paul Sonkin. Please state your company, followed by your question.
Paul Sonkin - Analyst
Paul Sonkin with the Hummingbird Value Fund. Good job in a very tough quarter, guys. I guess the question that I have, or maybe it's more of a comment, is that with the stock price at $1.30, you have 12.7 million shares, which gives you a market value of about $16.5 million. If you subtract off the cash of $8.3 million and add back the debt of $4 million, you're getting an enterprise value of about $12 million. So that is the current valuation that the market is putting on our business. Now in the last three quarters, you've generated EBITDA of about $3 million, which means that it's trading about four times EBITDA, and I assume from comments that you've made that the last quarter probably isn't representative of what the business is capable of doing in the future.
I guess I'd like to hear from other shareholders who might be on the call, but I think that, given the amount of cash that you have on the balance sheet, I mean, you could buy in a million shares and reduce the shares outstanding by a pretty significant amount, not impair any ability to do anything, and buy back our own shares very, very cheaply at these levels, and it appears as though there has been selling pressure out there. So I guess the question that I would have that I would pose to you, Tom, and more pointedly, to the Board, is why aren't we repurchasing shares at these depressed levels?
Tim Dec - CFO
Paul, this is Tim Dec. I'll start, and then I'll have Tom jump in a little bit.
Paul Sonkin - Analyst
And I want a good answer. I don't want a non-answer.
Tim Dec - CFO
Well, the reality of the situation is in what Tom touched on a little bit during the script is we're in an environment where we're seeing, for the first time, probably, in three quarters, kind of a delay in some of our customers pulling the trigger on some of their expansion.
That's one of the factors -- certainly, one of the reasons why we're looking at preserving our cash. There's other issues we're seeing, and probably every business across the country is seeing issues with some collectability -- collections being pushed out. We don't feel that there's any bad debt issues, but we're seeing what used to be paid in 30 and 60 days, paid in 90 and 120 days.
We also have -- we're also looking at finalizing two earn out payments that we have with two customers that we bought. So there's three or four business conditions that we're looking at, and we think the preservation of capital, at this point in time, is the prudent decision. We have discussed this on a number of occasions within the Board and looked at opportunities, but the prevailing thought process within the Board is that cash is king, and the preservation of that right now is of the utmost important to us at this point in time. So, Tom, I don't know --
Tom Rosato - CEO
Yes, the only other thing I'd like to add to it also is that we're looking at some pretty good size opportunities that could come to fruition real soon, and again, it's kind of like going back to ramping up our business all over again. With that, it's going to require capital. It's going to require cash, and we just don't want to get ourselves into a position where -- we still haven't been able to negotiate a line of credit for the business. Had to do with our unfavorable earlier EBITDA quarters in 2007 and 2008. The banking community is still cautious about coming in, and until we can prove to them that we have four to six consecutive positive EBITDA quarters before they're ready to lend us money.
So it's really preservation purposes, Paul, right now. That's really what it is. I think it's more important for us to preserve the cash and keep it for operations right now, as opposed to buying back stock.
Paul Sonkin - Analyst
Okay. The other thing that I know that we've discussed that I feel very, very strongly about is that the Board for a Company your size, the right number is five. So I just wanted to get a sense of how many directors we have now and what's the plan to get it down to five?
Tom Rosato - CEO
We still have nine directors, five outside directors, four inside.
Paul Sonkin - Analyst
Right.
Tom Rosato - CEO
Five independent directors. They're the only ones that receive any compensation. That compensation was cut in half back in July of 2008. We've had the discussions at the Board level to get the Board down to five over a period of time. The issue -- and there's been discussions with existing, both independent and inside Board members, that they would be willing to step down off the Board. So we are addressing that. The issue is retaining a balance of both inside and outside directors. If we have some outside directors leave, then we have the issue of inside directors, and we're working through that issue right now.
Paul Sonkin - Analyst
Okay. I guess, just in terms of a timeline, I guess that we've been delaying this, so I guess, by the end of the next quarter, I'd like to see it get down to seven, and I guess an inside member and an outside member could step down. I guess, for the inside member, they can still participate in the Board meetings, and they -- from what I understand, they just can't participate in executive sessions. So I guess what we would like to see is by June 30, an inside member and an outside member step down, and then, by the third quarter, we'd like to see you get it down to five.
Tom Rosato - CEO
Yes, actually, we set our goal in the second half of 2009, going into the first quarter of 2010, to be back to five.
Paul Sonkin - Analyst
Okay, I think that I don't see any reason why that timeline can't be moved up significantly.
Tom Rosato - CEO
We hear you.
Paul Sonkin - Analyst
Okay?
Tom Rosato - CEO
Yes.
Paul Sonkin - Analyst
Thanks.
Tom Rosato - CEO
Thank you, Paul.
Operator
(Operator Instructions) Your next question comes from Mr. David Horn. Please state your company, followed by your question.
David Horn - Analyst
David Horn at Chiron Advisors. Hey, guys. So we have the same gross margin dollars as we had a year ago with $1 million less of SG&A. So that's definitely commendable, and I like the fact that you got the cost structure more aligned with revenues. Are we able to another EBITDA -- positive EBITDA quarter, and you've stressed how important it is to the banks for us to get a line of credit, that we maintain that. I mean, what's your degree of confidence that we can keep this streak going, and we can stay positive, and I guess, how adjustable is the business, such that we can continue this pace?
Tom Rosato - CEO
Well, we're kind of at a point of inflection right now. We've got -- we didn't have real strong bookings in the first four and a half or five months of this fiscal -- this calendar year so far. We feel we're very close to signing some significant work, but if we don't get that in the next 30 days, then we have already identified additional reductions that we would have to do to ensure that we maintain positive EBITDA for the calendar year. So we're -- the glass is half full, it's not half empty here. We're fairly positive that we know we can maintain that positive EBITDA position, and we know that that's key for us with regard to a banking relationship as well as bonding relationship. So --
Tim Dec - CFO
So, just to kind of add to Tom's thought process, in terms of the flexibility of our SG&A, most of our SG&A is more variable than fixed. It's mostly personnel costs, and there's really no real fixed costs, other than rent. So we do have the flexibility, and as I mentioned in -- as part of my script, and Tom touch on it, is that our objective is to maintain this Company at positive EBITDA. The trend that we've set in the past and our objective is to be positive EBITDA going forward. So we'll take the necessary steps to right size the business in order to achieve that.
David Horn - Analyst
Okay, that's good hear. And then, the facilities management -- I mean, I know backlog is down, but it's nice to see that over $10 million. I don't have the number for what it was last quarter. I know two quarters ago, in the past, it's never been higher than, really, $5 million. What is it that makes up that jump in facility management backlog?
Tom Rosato - CEO
We are continuing to bring online a lot of our REIT customers that -- where we were designing and building these facilities, and as these facilities now are beginning to get leased out, that's what starts to generate additional revenues for us on the maintenance of those sites. We had one such site that we turned up in the first quarter, down in Florida for one of our customers, where we staffed that with five full-time guys onsite. We've got two other significantly sized sites that are turning on this second quarter with putting personnel, because they are beginning to close leases on their space.
And when you look at the -- when we look at the potential of these current data center customers that we have that we've got the facility management contract commitment from, you -- we should see continued growth in that facility management -- that revenue stream. Because as they continue to lease up facilities, there's -- it's like tenant build out work that has to be done, and then you've got to add additional onsite people to maintain that additional infrastructure.
David Horn - Analyst
All right. Thanks, guys.
Tom Rosato - CEO
Thank you.
Operator
Your next question comes from Mr. Philip Anderson. Please state your company, followed by your question.
Philip Anderson - Analyst
Hi, Tom. How are you?
Tom Rosato - CEO
Hi, Phil. How you doing?
Philip Anderson - Analyst
Tom, the piece of business -- or pieces of businesses you're chasing and that you hope to win over the next 30 days, can you give us a sense as to how large they are? In aggregate?
Tom Rosato - CEO
Yes, I mean, we've got our -- we got a focus on somewhere around $55 million worth of work that we anticipate we should be getting.
Philip Anderson - Analyst
And what's the revenue breakdown in that?
Tom Rosato - CEO
Most of that is design -- engineering and construction management. Probably about -- probably $3 million of that is engineering and design work, and the balance is construction and management. Looking at right now one of the areas that we are doing with lease fairly consistently strong bookings is in our facility management business. That business is starting to generate the kind of margins that we expected it to generate. Our bookings in that business are -- continue to -- they're not large. We're getting a good solid $2 million (inaudible - microphone inaccessible)
Philip Anderson - Analyst
Did -- was facility maintenance down, sequentially, some?
Tom Rosato - CEO
Well, there's a piece in that facility management revenue that typically -- or as -- what we call adds, moves, and changes, and you start to see -- that has slumped somewhat. That was lost on -- in other words, our base billing or facility recurring management contracts that cover, basically, maintenance and onsite personnel. That number continues to grow, but out of that come projects that they do moves, adds, and changes, and that -- companies have put some of that on delay also, because that actually comes out of their capital budget if they're going to add an additional -- they may be adding additional utility capacity or additional mechanical -- cooling capacity.
We are seeing a lot of those $300,000, $200,000, $100,000 projects being put off or delayed, so we've seen a little bit of a slump in that, but most of that (inaudible) our opinion that as soon as capital begins to free up, and they're not as concerned about their ability to raise additional capital, that we'll see a significant pickup in moves, adds, and changes revenue.
Philip Anderson - Analyst
That makes sense. Yes, getting back to Tim's earlier point about buying back stock. If this large piece of business, or these pieces of businesses, that aggregate to the $50 million plus aren't won in the next 50 days, and you have to take down your cost structure in order to maintain profitability in the balance of the year, it would seem to me that some of the cash on the balance sheet that you are reserving to invest in these contracts up front would be freed up to buy back stock. Tim, would that be -- would that -- is that assumption accurate?
Tim Dec - CFO
That will certainly be something that we can discuss with the Board, once we've signed these -- once we move into signing some of these larger contracts.
Philip Anderson - Analyst
Whether you're husbanding $0.5 million or $2 million for these contracts, but they don't come through, and it's a $12 million enterprise value, if you were to put a buyback in place, which you don't have to use, you can have it ready to go, that if the -- hopefully, the contracts come through and are making more money.
But if they don't come through, it's a better use of our cash to shrink the capitalization of the Company now, when it's a $12 million enterprise value, than it is to sit on the cash, hoping for another contract to come around. I mean, the Board is on the phone. This is not the first time I've made the suggestion, nor is it the first time a shareholder has made the suggestion. So, hopefully, you guys will revisit your cash analysis again, only if these contracts don't come through.
Tom Rosato - CEO
Okay, thanks.
Philip Anderson - Analyst
Yes.
Tom Rosato - CEO
Thanks, Phil.
Operator
(Operator Instructions)
Tom Rosato - CEO
Okay.
Operator
There appear to be no further questions at this time, sir. Please continue.
Tom Rosato - CEO
Well, with that, I thank everybody for listening in, and that will conclude our call for the day. Thank you.
Tim Dec - CFO
Thank you.
Operator
That concludes the Fortress International's first quarter 2009 financial results conference call. Thank you for participating. You may now disconnect.