TSS Inc (TSSI) 2015 Q4 法說會逐字稿

Welcome to the TSS fourth-quarter and fiscal 2015 earnings call.

My name is Bianca and I will be your operator for today.

(Operator Instructions) Please note that this conference is being recorded.

I will now turn the call over to Mr. John Penver, Chief Financial Officer.

Mr. Penver, you may begin.

Thank you, Bianca, and good afternoon, everyone.

Thank you for joining us on TSS's conference call to discuss our fourth-quarter and fiscal 2015 financial results.

I'm John Penver, the Chief Financial Officer of TSS; and joining me today on the call is Anthony Angelini, the President and Chief Executive Officer of TSS.

As 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 today.

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, March 30, 2016.

TSS expressly disclaims any obligation to update, amend, supplement, or otherwise review any information for 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 list of the risk and uncertainties which may affect future performance, please refer to the Company's periodic filings with the SEC.

In addition we will be referring to non-GAAP financial measures.

A reconciliation to differences between these measures with the most directly comparable financial measure calculated in accordance with GAAP is included in today's press release.

I will begin with a review of the results, then turn the call over to Anthony for his comments on the business.

Earlier today we released a press release announcing our financial results for the fourth-quarter and full fiscal-year 2015, and a copy of that release will be available on our website at www.totalsitesolutions.com.

Now for the results.

Our revenue for the fourth quarter was $10.1 million.

This compares to $8.4 million in the fourth quarter of 2014 and $6.3 million in the third quarter of 2015.

The increase compared to the previous quarter was mainly from increased equipment sales in our facilities services segment in connection with the large datacenter upgrade project we are managing for one of our clients.

We continue to have lower activity levels in our systems integration business compared to the prior year, but the revenues in this segment were similar to Q3 levels.

This is being caused by a decrease in demand from our largest channel partners.

We anticipate that demand in our systems integration business will start to improve in the second quarter of 2016, and our facilities services revenues will decrease as we wrap up the large upgrade project.

Our revenue was 20% higher than the fourth quarter of 2014.

However, our revenue mix has moved significantly.

Compared to the fourth quarter of the prior year, our facilities services revenues increased by $2.9 million or 46%, almost entirely all due to one large datacenter project.

This increase was offset by a $1.2 million or a 54% decrease in our systems integration business; and this decline was driven by continued delay in customer shipments due in part to product availability.

On a fiscal year-to-date basis, our 2015 revenue of $29.5 million was 5% higher than the $28 million we recorded in 2014.

The increase was driven by a $3.4 million or 17% increase in our facilities services revenue, offset by a $2 million or 26% decrease in systems integration revenues.

The change in revenue mix I just referred to resulted in a decrease in our gross profit compared to 2014 for both the fourth-quarter and the full-year results.

For the fourth quarter of 2015 our gross profit declined by $47,000, or 2% compared to the prior year.

Our gross profit margin of 25% for the fourth quarter compared to 31% in the fourth quarter of 2014, reflecting the change in mix towards lower-margin services.

On a fiscal-year basis our gross profit of $8.4 million was $193,000 or 2% lower than our 2014 gross profit of $8.6 million, despite the overall increase in revenues, resulting in gross margins of 28% in 2015 compared to 31% in 2014.

Our selling, general and administrative expenses this quarter of $2.2 million were $260,000 or 10% lower than the $2.5 million we had in the fourth quarter of 2014.

This decrease was mainly in lower professional and headcount costs, offset partially by higher temporary labor costs.

For the full year our selling, general, and administrative expenses were $9.6 million, which was $0.9 million or 8% lower than the 2014 level of $10.5 million.

This decrease was mainly due to lower headcount and professional service fees compared to 2014.

We continue to manage these SG&A costs carefully.

The net result of a slightly lower gross profit and lower operating expenses was that we recorded an operating profit of $139,000 in the fourth quarter of 2015, compared to an operating loss of $48,000 in the fourth quarter of 2014, and an operating loss of $527,000 in the third quarter of 2015.

This highlights that expense management as well as sales mix are the two key operating metrics that are driving our operating results.

After interest and tax cost we had a net income of $16,000 for the fourth quarter, compared to a net loss of $170,000 in the fourth quarter of 2014, and a net loss of $601,000 in the third quarter of 2015.

On a fiscal-year basis, our net loss was $2.2 million or $0.14, a share compared to a net loss of $2.8 million or $0.19 per share in 2014.

This was a 21% reduction in net loss compared to the prior year, driven by the lower level of operating expenses.

Our adjusted EBITDA, which excludes interest, taxes, depreciation, amortization, and stock-based compensation, was a profit of $393,000 in the fourth quarter of 2015, compared to an adjusted EBITDA profit of $201,000 in the fourth quarter of 2014, and an adjusted EBITDA loss of $252,000 in the third quarter of 2015.

For the full year, our adjusted EBITDA loss was $795,000, which was $696,000 or 47% lower than the adjusted EBITDA loss of $1.48 million that we had in 2014.

Turning to our balance sheet, we closed the quarter with $1.1 million of cash on hand, which was up slightly from the $1 million we had at the end of September.

Because of the large datacenter upgrade project in process at year-end, we purchased and sold nearly $3 million of equipment to a customer, causing both our receivables and payables to increase significantly compared to the prior quarter and to the previous-year balances.

We also drew down $700,000 in additional borrowings against our bank credit facility in the quarter to help manage our working capital, which we have since repaid.

As we mentioned in recent calls, our liquidity position remains tight and has required a lot of effort by management to manage.

Our liquidity position can fluctuate quickly as our sales and customer mix changes, as our large customers have wide-ranging payment terms and many of our projects can span multiple quarters.

Managing our liquidity continues to be an important priority for management.

Our existing bank credit facility matures in May, and we are currently working to replace this facility with a new lending agreement.

We anticipate announcing something regarding a new facility in the next month.

Once that has been completed, we will continue to look at new sources of capital in both debt or equity form, so that we can provide the Company with as efficient sources of capital as we can.

We are planning for additional capital to assist our growth and expect to accomplish this in the coming months.

The availability of additional capital, coupled with our ability to adjust operating costs and responses to changes in our business, will enable us to ensure that we've got sufficient liquidity.

With that I will now hand the call over Anthony for his perspective of the business going forward and the market opportunities we have in front of us.

Thanks, Anthony.

Thank you, John, and thank you to those attending the call.

I'm going to focus my comments on our results for the fourth-quarter and fiscal-year 2015 and how we see the first half of 2016 shaping up.

We were pleased to hit our guidance for the fourth quarter in all respects: revenue, margin, and positive adjusted EBITDA.

We are continually working on translating our customer demand into expected results.

We were able to achieve this in the fourth quarter and showed continued improvement in our results as we head toward consistent growth and profitability.

We continue to manage our costs and liquidity at a very granular level, and we continue to believe and see that our offerings resonate with our key target customers.

As we're basically midway through the first half of the year, we will discuss what we see as first-half results.

We expect quarterly revenues to be $7 million to $8 million a quarter and margins between 20% and 30%.

Therefore we expect the first six months of the year to produce revenues near $50 million with mid-20% margins, and roughly breakeven or hopefully slightly better on the bottom line.

The first quarter is expected to be at the low end of the range, resulting in an adjusted EBITDA loss; and we expect the second quarter will show marked improvement, near the top of the range.

This is driven by a few key factors.

First, a slower ramp-up coming at the first of the year; also incremental costs we incur in the first quarter related to professional services tied to our annual audit; and some incremental labor costs that typically occur at this time of year.

We have several large modular deployments that we won at the end of 2015 that will take place beginning in April and throughout the second quarter.

These deployments will have a positive impact on multiple facets of our business including integration, deployment, and ongoing maintenance.

We haven't seen this level of deployments in almost a year.

Due to our reliance on a few key channel partners, we can see large swings in the predictability of revenue from quarter to quarter.

We diligently try to manage this through cost control and a flexible and leveraged cost structure.

This gives us some ability to mitigate the downside while being available for the upside.

In particular, our business does fluctuate due to the cycles associated with the modular business, and we know the second quarter is loaded with a large number of deployments.

We also see pipeline activity from multiple partners beyond the first half of the year that we expect will maintain a steady level of deployments throughout 2016.

As we wind down the large datacenter renovation project that we began in the fourth quarter of 2015 and increase our integration and deployment business in the second half of 2016, we would expect to see a return to 30%-plus gross margins.

We believe we have made significant progress in reducing our operating costs and are continuing to manage the timing and pipeline with our large customers.

We continue to believe (technical difficulty) that with the consistent mix of business throughout our segments that we should achieve adjusted EBITDA breakeven just above $6 million in revenue.

This is not the mix we expect in Q1, but we expect Q2 to reflect this more favorable mix and the resulting bottom-line improvement.

As we look into the second half of 2016, we see further traction on the groundwork we have been putting in place in our more profitable businesses.

We remain convinced at the value proposition we provide our customers and partners, as we focus on a sell-with with our partners.

The partner managers we interface with love our capabilities that we bring to complement their offering.

We allow our partners to fully solution end-to-end with their customers.

In November we discussed some of our key partner wins, and we continue to work with them to realize the revenue opportunities.

But the close cycles of these deals have proven to take longer than we initially expected.

However, the key wins in the modular area provide us strong optimism for closed and scheduled work this spring.

As I discussed in our last call, we have worked diligently to develop a winning model.

Evidence of what that can result in began to show in the fourth quarter of last year.

We see that continuing to ramp up in 2016, although more in the last three quarters of the year than the first quarter.

We have new solutions with large end-users that we have been developing with our partners this past year that we see moving from the evaluation phase to full datacenter rollout in 2016.

I want to thank all of our stakeholders, especially our employees, for their continuing efforts in moving the Company forward.

With that I will open the call for questions.

(Operator Instructions) No questions at this time.

Mr. Penver or Angelini, any closing remarks?

Sure.

Well, I want to thank you all for attending.

As usual at this time of year, we will be back in six weeks -- six short weeks, really -- to give you a further update on the business.

Thank you all.