VERBATIM TRANSCRIPT OF THE TPRO CONFERENCE CALL 11/14/97 - Part 1
This transcript does not include introductions, non-substantive words of praise, extraneous words, ums, ahs, etc. Use of quotation marks in the transcript are mostly to denote where the speaker used a conversational description and most likely do not represent and actual quote. While the writer has tried to relay the contents accurately, there is no guarantee to that effect and readers should verify any and all information before making any investment decisions based on the information contained herein.
Doug Kelsall:
Hopefully most of you have had an opportunity to see the press release. I don't want to get into a lot of detailed review of the numbers. I do want to make some comments that are in addition to the comments that we made in the press release in terms of the specifics that were going on in the company and some of the factors that impacted our results for the quarter.
In terms of revenue, we were pleased that we were able to record a record revenue for the quarter of $11,319,000. This was a 42% increase over our Q1, 1997. As we stated in our release, we were pleased that this increase occurred primarily in our base business. Also, we had approximately 15-20 of our billable engineers working on product development during this quarter, and had those engineers been working on project activities that we could have billed to the customers, our revenue would have been, we estimated, $0.7MM - 1.0MM higher than the revenue number that we did record. This decision to deploy these engineers to product development was a conscious decision. We felt that it was the best use of our people at the current time to put them in this activity, and we would certainly expect to see the revenues generated from this R&D activity in the future.
Previously, I've discussed with many of you the importance of understanding the product mix that can impact both our revenue as well as our gross margins. Because we do resell material, we can have fluctuations on a quarter to quarter basis in both our top line as well as our gross profit percentage. What I do internally in order to track that, is I look at our cost of goods sold, determine the percentage that's caused from material vs. labor, and come up with an analysis of what our product mix looks like on the revenue line. In doing that for Q1, I came up with an analysis that would suggest a revenue of around 60% from engineering services and 40% from material resales. These numbers are somewhat higher than what we've experienced historically on the material resale side. We have a large project going on in our Albany Oregon facility that had a lot of materials involved in it, and that's one of the reasons that the revenue was up for the quarter.
On the positive side of that, our overall gross margins of 34% were actually higher than we would have expected to see with this level of material resale. Again, I go through the analysis and look at a gross profit margin percentage on both materials as well as our labor side, and I have calculated that our gross profit margin on our engineering services for the quarter were 52%. This is certainly in line with the expectations that we have on engineering services of over 50% gross margins.
On the expense side, we did have considerably higher expenses for the quarter. We were investing heavily in preparing the infrastructure, developing distribution channels, and sales and marketing expense associated with our PlantY2KOne products. We had a very, very active quarter. I think the reception (and John will get into this a bit more) to our product offering was greater than I anticipated, and therefore expenses were somewhat higher than what we'd originally planned. On the sales and marketing side specifically, we were up from a quarter to quarter basis of about $230,000. That's about a $300,000 increase from the sales and marketing expense that we incurred in Q4. So we are investing a lot of money in the sales and marketing activity right now. On the G&A side, we had higher expenses associated with travel. We had people traveling all over the country as we were getting calls and interest in the product to explain to people. We also spent a considerable amount of money on internal training. We needed to role this product out to our internal people, get them familiar with the product and trained on it, and that was an expensive process. We also turned on the recruiting program during the quarter, and we had fairly high recruiting expenses as we've begun to add new engineering people to the organization. So those are the primary reasons for expenses being up at the level they were.
Let me comment on earnings before interest taxes, depreciation and amortization. Again, when you look at our financial statements, keep in mind that we do have significant non-cash charges in the area of amortization expense as well as depreciation. When you add those into our operating income number, we ended up actually positive for the quarter of a positive $42,000, and we are very pleased with that.
During the quarter, we also had one our investors [???] some subordinated debentures. They converted some $2,685,000 of the debentures into common stock. We expect that that conversion will save to company approximately $240,000 per year in interest. The conversion did occur throughout the quarter, so only part of that saving was recognized in the quarter and we would expect interest expense to be down further in Q2.
Where we ended up then on the bottom line was a net loss of $575,000. After including the preferred stock dividend that we have, the loss was $605,000 attributable to common shareholders. That was a loss of $0.04 per share. [???] positive news on the revenue side, also our gross profit margins, expenses were higher because we were investing heavily due to the very strong activity we had on our PlantY2K activities.
On the balance sheet, just a couple of brief comments there. We did end the quarter Sept 30 with positive working capital slightly in excess of $4MM, and since the year ending June 30, the total liabilities of the company decreased by over $5MM. So we continue to attempt to position the balance sheet of the structure to handle our anticipated growth, and are increasing both our working capital as well as reducing the overall leverage of the company. |
