Technology Solutions Company Q3 2008 Earnings Call Transcript

Nov.13.08 | About: Technology Solutions (TSCC)

Technology Solutions Company (OTCPK:TSCC) Q3 2008 Earnings Call Transcript November 13, 2008 9:00 AM ET

Executives

Gene Marbach – IR, Makovsky & Co.

Milton Silva-Craig – President and CEO

Tim Rogers – CFO

Analysts

Richard Greulich – REG Capital

Operator

Good day everyone and welcome to the Technology Solutions Company third quarter 2008 conference call. Today’s call is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to Mr. Gene Marbach. Please go ahead, sir.

Gene Marbach

Thank you, Sasha, and good morning everyone. Leading our call today will be Milton Silva-Craig, CEO of Technology Solutions Company. Also joining us on the call will be TSC's CFO, Tim Rogers.

During this call, we plan to make remarks regarding our expectations, plans and prospects. These remarks may constitute forward-looking statements under Federal Security Law. Actual results may differ materially from the statements as a result of various factors. These factors are discussed in our SEC filings, which we strongly encourage you to read. The forward-looking statements included in this call represent the company’s views on November 13, 2008. The company disclaims any obligation to update the statements to reflect future events or circumstances.

Thank you for joining us on today’s call. And now, I would like to turn the call over to Milton Silva-Craig. Please go ahead, sir.

Milton Silva-Craig

Thank you, Gene, and good morning everyone. Thank you for joining our call this morning. We appreciate your participation. We’re going to start out today’s call with Tim providing summary comments on third quarter results. I will then provide general comments on our performance for the quarter and reflect on the market overall; after which, we’ll open it up for Q&A.

Let’s start then by having Tim provide an update on our third quarter results. Tim?

Tim Rogers

Thank you, Milton, and good morning everyone. Thank you for taking the time to be on the call this morning. I will recap the financial results as noted in our earnings release that was made available last night after the close of the market.

With respect to third quarter 2008 results, our revenue before reimbursements from continued operations were $1.4 million for the quarter as compared with $2 million for the second quarter 2008, which is a decrease of $600,000 or 30%. Revenues before reimbursements for the third quarter 2008 of $1.4 million declined by $1.1 million or 44% from the $2.5 million achieved in the third quarter 2007.

Our net loss for the third quarter was $900,000, which is a decline of $2.4 million from the second quarter of 2008 net income of $1.5 million when we recorded our gains from the sale of the SAP Practice. Net loss per share of $0.35 for the third quarter 2008 declined by $0.93 per share from the second quarter of 2008’s net income per share of $0.58. As compared with the third quarter of 2007, net loss for the third quarter of 2008 of $900,000 improved by $1.4 million or 61% from a $2.3 million loss recognized.

In terms of third quarter revenue concentration, our top three clients accounted for 51% of revenues and our top five accounted for 71%. This compared to 63% and 78% respectfully in the second quarter of 2008.

Utilization for the third quarter was 69%. That’s compared to 73% in the second quarter of 2008, a decline of four percentage points. Our days sales outstanding were 50 days at September 30, 2008, as compared to 45 days at June 30. In addition, we collected additional $300,000 for the cash in the first week of October that hadn’t been received prior to the third quarter end would’ve reduced our DSO to 43 days, which then would’ve represented a decline of two days from the second quarter of 2008 DSO level. All in all, our DSO performance remains positive. As compared to September 30, 2007 DSO level of 71 days, our DSO for the third quarter of 50 declined by 21 days.

Cash, cash equivalents and short-term investments inclusive of the promissory notes due from the sale of SAP at September 30, 2008 was $9.8 million or a decline of $2.4 million from the $12.2 million reported as of June 30, 2008. The cash decline is attributed to several factors: First, the operating loss realized in the quarter. Second, our continued investments and software development costs for the company’s software products, Blue Ocean, Data Migration, and our new software application called Render [ph], which was briefly discussed in the previous earnings call. Third, payments under Legacy severance agreements, which are nearly complete. Fourth, the negative impact of the credit market and short-term investments. And lastly, higher than expected costs associated with the annual shareholders’ meeting, proxy process, and associated ancillary legal costs.

On a final note, we received during the month of October our first installment under the promissory note related to the sale of SAP Practice of $400,000 and we closed out our previously frozen investment account that we had at the Bank of America.

With respect to year-to-date performance ended September 30, 2008, revenue before reimbursements from continued operations of $5.7 million declined by $2.5 million or 31% from the $8.2 million realized for the nine months ended September 30, 2007. Net income for the nine months ended September 30, 2008 of $700,000 improved by $8.7 million from net loss of $8 million for the nine months ended September 30, 2007. Diluted EPS for the nine months of 2008 of a positive $0.28 increased by $3.43 from the loss per diluted share for the nine months of 2007 of a negative $3.15.

I will now hand the call back to Milton. Milton?

Milton Silva-Craig

Thanks, Tim. Look, in short, we’re not pleased with the performance of the company in Q3 2008. We faced significant market challenges, which directly impacted our performance. This team has been working diligently to improve the performance of the company, as evidenced by the past three quarters of progressive improvement. But from a financial performance perspective, we took a step back this quarter and it’s simply not acceptable.

Nothing fundamentally has changed in our core business model. What has changed, however, is the mood of existing and potential clients. I can best characterize the general sentiment as clients trying to balance their needs versus their wants. In two particular instances with contracts on the verge of being signed last quarter, we experienced customers freezing their capital and operating expenditures until they re-factored their budgets based on today’s economic realities. Clients are applying greater scrutiny to their investments in order to determine what is absolutely needed versus wanted, or nice to have if you will.

So really, the operative issue is what are we doing to manage through these times? First, with respect to our core services of helping customers maximize the value from their information technology investments, we believe we can fine-tune our messaging and our offerings to be more in line with the market conditions in order to demonstrate that our services will actually help clients directly improve their performance, thereby not requiring further large-scale investments in actual technology systems. In essence, optimizing what you have in your internal operations to gain greater productivity.

Another example includes the positioning of our software application, Blue Ocean. In the specific case of the hospital market based on our service experience, we believe a large majority of hospitals have a tremendous amount of trapped value, whereby if they could gain visibility into such trapped value, they could make more informed and effective decisions to free that value and improve operational performance and overall market competitiveness. For example, at Aurora Health Care, our executive champion [ph] estimates by having gained more insight into the coordination of his technologists and imaging devices like CT and MRI. He can perform one additional exam per day, resulting in an excess of $1 million in additional revenue. Our software application Blue Ocean is the right application to help hospitals, like Aurora, gain insight into where their trapped value exists.

Second, we’re reviewing all costs and investments to ensure cost structures are aligned with those investments yielding the highest return potential and further, that we are appropriately positioned to address current day market dynamics.

Third and related, we continue our commitment to software development in the healthcare market, not withstanding the current market conditions, as we believe this market space and our application set has the greatest potential to improve the long-term value of this company. As such, we are focusing additional sales and marketing efforts at existing clients in an effort to extend our relationships and leverage the measurable value we have delivered to them. Additionally, customer feedback on our applications continues to be extremely positive. We will have an opportunity at the end of this month to showcase our healthcare services and software at the Radiology Society of North America (RSNA), an international show held in Chicago with 60,000 attendees representing 100 countries. We expect to generate several hundred leads and ultimately count client prospects from this investment.

Related to our software solutions, we recently signed several new clients for our Data Migration software and services in Q3, as many hospitals are beginning a replacement cycle for their legacy imaging systems. We expect continued progress and growth with that particular solution.

Lastly, as we discussed in our previous earnings call, we are aggressively reviewing opportunities for acquisitive growth which complement our current direction, broaden our intellectual property profile and is ultimately accretive to the company.

Moving into Q4, we are focused on managing through the market challenges in order to best position our software and services. The team continues to operate with a sense of urgency, steadfastly focused on improving the value of the company.

So in summary, during these challenging economic conditions, we will focus on those things that are within our control. We will fine-tune the positioning messaging of our software and services to more closely align to today’s market. We are reviewing all cost and investment to ensure highest return probability and we will continue to seek and review high-value acquisitive opportunities.

With that, it’s time to take your questions. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator instructions) And our first question comes from Richard Greulich of REG Capital.

Richard Greulich – REG Capital

Hi, Milton, Tim.

Milton Silva-Craig

Hi, Rich.

Richard Greulich – REG Capital

Let’s see. First, the Bank of America account. Now, has all the money been gotten out of that account then or is there any lingering payments that they need to make?

Milton Silva-Craig

No. We received the full amount on October 30. They closed us out of that.

Richard Greulich – REG Capital

Okay. What’s the opportunity to flex the cost or expense line while you go through a slowdown here in terms of people cost?

Milton Silva-Craig

There is an opportunity, Rich, and I referenced it in just my introductory comments. What we have to do is take a look at this business relative to its current size, relative to what we’re seeing in the coming quarters and reflect on where appropriately we’re going to make some investments or where we’re going to pull back on some investments. So there is always room there, Rich, and it’s something that Tim and I have actively been looking at and we watch basically on a daily basis. So, if we don’t see positive progression on what we’re trying to accomplish, we’ll take action appropriately.

Richard Greulich – REG Capital

What do you think the costs are at this point of remaining a public company?

Milton Silva-Craig

It’s a challenge; there’s no doubt about it. It’s a question of scale; when you’re our size organization, being a public entity, there are just inherent costs that you must – or investments, if you will, that you must make to manage a company of this size. It’s certainly the question that we talk as a Board of Directors and reflect on. We haven’t taken any decision on any action regarding our public status, but it is a question that we do contemplate.

Richard Greulich – REG Capital

When you look for acquisitions, I guess one thing that always seems to make sense to me when you have a cash-rich company is actually to merge with another cash-rich company. I know it doesn’t maybe make sense like that, but I think you retain the benefit of both. Are those opportunities available or you’re talking about much smaller opportunities?

Milton Silva-Craig

I will tell you the target list of companies that we are looking at are smaller; in our size, Rich, or potentially smaller. They’re facing some similar challenges. They have great innovation. We think that by combining some of the innovative portfolio that we can actually take share in market relative to some of the competition out there. I wouldn’t characterize it as the target companies we are looking at are cash-rich by any stretch. So it certainly is an opportunity, but I will tell you just transparently, the companies that we are looking at look more like smaller IP-driven companies that we can bring on to our platform and get some growth from.

Richard Greulich – REG Capital

The stock doesn’t seem to be the way to go in terms of using for acquisitions, so I guess that would either mean cash or drawing down some debt. Which one of those two? Cash or – ?

Milton Silva-Craig

I think it would be a bit of cash, some elements of equity. We do have treasury in some capacity there; and then some elements of performance earn-outs. So all three are levers that you can use, but by no means would we use cash at the sole expense of putting the company in jeopardy. So we balance acquisitive opportunities on those three elements of consideration and we’ll make a wise decision on how to balance those within the constructs we have.

Richard Greulich – REG Capital

Okay. Appreciate it. Good luck, thanks.

Milton Silva-Craig

Thanks, Rich.

Tim Rogers

Thank you, Rich.

Operator

Thank you. (Operator instructions) Mr. Rogers, at this time, we have no further questions.

Tim Rogers

Okay, operator, thank you and thank you for all who participated in our call today. As always, we continue to work diligently and with the sense of urgency to return the company to sustainable profitability while enhancing shareholder value. We appreciate your continued interest in our company. Thank you.

Operator

Thank you everyone for joining today’s Technology Solutions Company third quarter 2008 conference call. This call has concluded and you may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!