White Electronic Designs Corporation F3Q09 (Qtr End 07/04/09) Earnings Call Transcript

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 |  About: White Electronic Designs Corp. (WEDC)
by: SA Transcripts

White Electronic Designs Corporation (WEDC) F3Q09 Earnings Call August 12, 2009 4:30 PM ET

Executives

Joe Dorame – Lytham Partners

Roger Derse – Vice President, Chief Financial Officer

Analysts

Thomas Carpenter - Hilliard Lyons

Mark Jordan - Noble Financial Capital Market

Sam Rebotsky - SER Asset Management

John Deysher - Pinnacle Value Fund

Robert Spivey - The Abernathy Group

[Sam Bergman] – Bayberry Asset Management

Nelson Obis - Winfield Capital

Operator

Greetings and welcome to the White Electronic Designs Corporation third quarter 2009 earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Joe Dorame. Thank you, sir. You may begin.

Joe Dorame

Thanks, Jen. Thank you for joining us to review the financial results of White Electronic Designs Corporation for the third quarter of fiscal 2009, ended July 4, 2009. With us on the call today is Roger Derse, Vice President, Chief Financial Officer and member of the Interim Office of the President.

At the conclusion of today’s prepared remarks we will open the call for a question-and-answer session. If anyone participating on todays call does not have a full text copy of the press release, it is available on the company’s website at www.whiteedc.com or numerous financial websites on the Internet.

Before we begin with prepared remarks, we submit for the record the following statement. Certain statements made during the course of this conference call constitute forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for such forward-looking statements. The words believe, expect, anticipate, estimate, will or other similar statements of expectation identify forward-looking statements. Specific forward-looking statements in this conference call include but are not limited to the anticipated closing out of the discontinued operations, residual receivables, payables and remaining equipment in the fourth quarter of fiscal 2009, the change in bookings relationships between components and circuit cards with components, expected shipments of our anti-tamper backlog, the likelihood of a more streamlined operation, that gross margins will center around 40%, anticipated lower interest income, that our new CEO is uniquely qualified to lead the company into the future, and that the company’s shareholder value will be most enhanced by a focus on its core business.

Additionally other factors that could materially and unexpectedly affect the company’s results are set forth in the company’s most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q. The company cautions you not to place undue reliance on its forward-looking statements. The company does not undertake any obligation to publicly update any forward-looking statements to reflect events, circumstances or new information after this conference call to reflect the occurrence of unanticipated events.

With that said, I’d like to turn the call over to Roger Derse, Vice President, Chief Financial Officer and member of the Interim Office of the President. Roger?

Roger Derse

Thanks Joe. I would like to thank everyone participating on today’s call. We appreciate your continued interest in White.

As you can see from today’s press releases, we had a good quarter and first nine months of the fiscal year. There are a number of significant highlights that I’d like to briefly run through.

Continuing operations we reported a Q3 revenue of $16.6 million, Q3 bookings up $18.2 million, anti-tamper component only bookings reaching $12.6 million for the first nine months of fiscal 2009, circuit card assemblies with anti-tamper component bookings were $6.2 million for the first nine months of fiscal 2009, circuit card assemblies with anti-tamper component shipments ramped to $1.8 million in Q3, up from $100,000 in Q1 of fiscal 2009 and backlog at the end of Q3 reached $45.7 million.

The category of discontinued operations, all production and shipments by our Interface Electronics Division in Columbus, Ohio were completed in June, 2009. The operation is now closed and the property is vacated. We anticipate closing out residual receivables and payables, as well as remaining equipment in the fourth quarter of fiscal 2009. The land and building are being actively marketed by a broker and we expect to sell these in fiscal 2010.

The third quarter results. For the quarter, net sales were $16.6 million, a 12% increase when compared with the $14.8 million in the third quarter of fiscal 2008. Income from continuing operations for the quarter was $400,000 or $0.02 per diluted share compared to income from continuing operations of $1.7 million or $0.07 per diluted share in the third quarter of fiscal 2008. Financial results for the quarter were impacted by expenses associated with the retirement of our former chairman, Edward White, expenses for our ERP system upgrade and expenses supporting process and organizational revisions as part of the structural upgrade of the business in support of higher volume manufacturing. Additionally, continued low interest rates reduced our interest income and a valuation allowance recorded against various expiring net operating losses increased our tax expense for the quarter.

Loss from discontinued operations for the quarter totaled $0.1 million or $0.01 per diluted share versus a loss of $3.7 million or $0.16 per diluted share in the third quarter of fiscal 2008. Net income for the third quarter of fiscal 2009 was $0.2 million or $0.01 per diluted share compared to a net loss of $2 million or $0.09 per diluted share in the third quarter of fiscal 2008.

The category of bookings and backlogs, bookings for continued operations for the quarter totaled $18.2 million compared to $11.6 million in the comparable period in fiscal 2008. Bookings for the first nine months of the year totaled $55.1 million and resulted in a book to bill ratio of 1.17 to 1. The booking amount represents a 42% increase over bookings in the comparable period of fiscal 2008. This is a strong indication that revenues will continue to grow in the future quarters.

Total anti-tamper bookings for the first nine months of fiscal 2009 totaled $18.8 million, a significant improvement from $4.8 million of anti-tamper bookings for all of fiscal 2008. When I reference anti-tamper, please note that the product category includes components with our anti-tamper technology as well as our growing, integrated circuit card/GPS receiver boards with anti-tamper components. Anti-tamper component only bookings totaled $12.6 million and integrated circuit card assemblies with anti-tamper components totaled $6.2 million for the first nine months of fiscal 2009.

While we are currently experiencing a two to one relationship in bookings of components to bookings of circuit cards with components, we believe this relationship will change as we deliver volumes of integrated circuit card assemblies in the future. Total backlog at the end of the third quarter was $45.7 million compared to $35.9 million at the end of the comparable quarter of fiscal 2008. Our total anti-tamper backlog at the end of Q3 at $15.3 million is expected to shift over the next 12 months.

In the area of gross margins, gross margin from continuing operations for the quarter was 37% compared to 44% in the comparable quarter last year. As previously noted, we have made and continue to make improvements that should result in a more streamlined operation. We have modified our manufacturing and process engineering staff. Specific revisions have additionally made in procurement, quality and operations. We are on a fast track, Lean Six Sigma process revision as applies to our key programs. Major investments have been made on critical equipment to support growing volumes. Finally, we are completing a full ERP system upgrade in an effort to move to a state-of-the-art factory floor. We continue to believe that we will be able to consistently operate the business with gross margins that center around 40%.

On the balance sheet, cash and interest income as of the end of the third quarter the company had $58.8 million in cash and no long term debt. Due to the continued low interest rates, the company has experienced a significant drop in interest income which has historically contributed to operating income. Interest in the third quarter of fiscal 2009 was $61,000 compared to $242,000 in the third quarter of fiscal 2008. Clearly that impacted the bottom line results of the quarter. We believe that interest rates will remain relatively low going forward and consequently interest income is expected to remain lower for the remainder of fiscal 2009. We recognize that this is not unique to WEDC and reflects the general economic state today.

Accounts receivables has increased $2.1 million since the end of fiscal 2008 due to timing of invoices and receipts, as a higher percentage of sales were in the last month of the quarter. Inventories have increased $2.2 million. Inventory of $17.6 million as of July 4 represents about 170 days of inventory on hand. This increase is primarily in preparation for our increased production in coming quarters. Accounts payable increased $1.3 million, primarily due to the timing of tax disbursement and the acquisition of inventory.

In the area of business outlook and our announcement today of the newly appointed CEO, earlier today we announced that the Board of Directors has appointed Jerry R. Dinkel as President and Chief Executive Officer of the company. Jerry has more than 35 years of experience in the defense industry and a strong background in electronics systems technology and development, general management, international business and mergers and acquisitions. We are pleased to have a professional with his experience and skill set as our CEO. We believe this extensive industry experience and the high regard in which he is held within the global defense community makes him uniquely qualified to lead White into the future.

In June we reported that our strategic alternatives process was complete and a standalone strategy was appropriate going forward. We believe shareholder value will be most enhanced by a focus on White’s core defense electronics business, coupled with strategic growth by acquisition in the broad defense market. Various broad expertise will be instrumental in White’s progression toward becoming a larger, more diversified defense technology provider.

With that I’d like to open the call for your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from Thomas Carpenter - Hilliard Lyons.

Thomas Carpenter - Hilliard Lyons

Can you give us an idea of when and maybe Jerry’s already started, but when he’s going to start and when we can expect to, I don’t know if you guys have an interim mid-quarter conference call so we can get a feel for more in depth knowledge about where you guys are going to take the company and the target areas and all that stuff?

Roger Derse

His commencement is imminent. We have a board meeting next week which he will attend. I can certainly take in to advise your recommendation of perhaps an update. I point this out to everyone. We expect to be actively engaging you know with the investment community, to provide insight to where we are going. I think that you know in the area, you know, of acquisitions, etc., you know clearly you know there is going to be an aggressive review of the kinds of acquisitions that we’ll be looking at and the fact that they’ll make good strategic sense within the defense technology marketplace. And if we have something to report on an interim basis we will.

Thomas Carpenter - Hilliard Lyons

And maybe for some help when we’re modeling, could you break out some of the impact of some of the one time items this quarter? Maybe the retirement of Ed White, the ERP upgrade, the circuit card.

Roger Derse

I think to facilitate that I would point you to the 10-Q that we just filed today. You know we’ve done a very good job in enumerating the detailed items so that you should be able to do your modeling.

Thomas Carpenter - Hilliard Lyons

When you look out at the fourth quarter and the first part of next year, do you expect as a the percentage of SG&A to, do you expect SG&A, how many more quarters of ERP or things of that nature do you expect to be in quarters?

Roger Derse

I think we’re wrapping things here in this fourth quarter. But I would use as a modeling percent our 27%, about 27% factor on the SG&A as a percentage of sales at this particular run rate. And I think there’s also some further information on the Q for that.

Operator

Your next question comes from Mark Jordan - Noble Financial Capital Market.

Mark Jordan - Noble Financial Capital Market

I’d like to get a little more sense of specificity relative to reconnecting with the Street. As you’re aware you’ve been pretty much incognito for upwards of nine months. I mean is there any commitments that you have in terms of or specific plans in terms of getting in front of people, again which you have not done for an extended period of time.

Roger Derse

I will be engaging Jerry as well as the board and we will outline a plan shortly as to how we will move out into the community and do presentations to provide a better understanding of what we’re about to do. And it’s an expanded understanding of course. We’re working from a base of a plan that was put in place back in October. We tried to articulate that. We’re building from that and clearly we will be moving out in a responsible acquisition path, looking for good sense acquisitions within this defense technology marketplace. And it would be good to kind of share those thoughts. But clearly we will be engaging each other here shortly to define that, but it will be very active and it will be very near term.

Mark Jordan - Noble Financial Capital Market

A couple of quick questions. The upgrade, when will that be completed?

Roger Derse

Well our cutover is this weekend in particular. We have a few other items that we’ll mop up in this quarter and we just feel that we will close the quarter out and are well positioned to move forward with a much more state-of-the-art factory floor. You know one thing to keep in mind, Mark, is you know oftentimes an operation has the opportunity to kind of meter out the expenditures, whether it be in an ERP system or a Lean Sigma effort, etc. And we’ve had to compress these activities and costs into a very short period of time in order to position ourselves to move forward with the expanded play we see in integrated circuit card. And it’s been a very active third quarter. We’re rounding that out here in the fourth quarter but I think we’ll be well positioned at the conclusion of this fourth quarter.

Mark Jordan - Noble Financial Capital Market

Obviously the gross margin was well below what people would have looked for. You state that you believe that wanting to return that 40% gross margin is a reasonable goal. Is this target multiple or margin structure that you’re referring to kind of over the or by early next year 40% gross margin, 27% G&A, about 6% R&D with the target 7% op margin, is that the kind of thing?

Roger Derse

Yes, I would agree with that. I think that I would probably notch up the R&D and we can just briefly touch on the R&D aspect. Keep in mind that we are actively embarking on our next revenue driver. As we’ve been discussing all along that the current revenue driver that we’ve been highly focused on in moving from a prototype to a production level has been in the integrated circuit cards with a fee. And our follow on revenue driver is the moving into solid state drives. We elected to bring staff on. We have about six staff that are focusing on the development. We have about a nine month period of development to a potential first product, and of course their expense flows to the R&D category. So from a modeling standpoint I would look at more the 7% level on the R&D.

The reason we feel very confident on the 40% at this point on centering around 40% on gross margin is we have historically in our components only business then with our components with anti-tamper, as you’ve tracked the company, been in the 43 to 44% margin range. As we bring in the integrated circuit card picture, while the circuit cards themselves have a sub-40% look to them, they’re certainly not the traditional board stuffing, 10%, 20% of some of the players that are out there doing that, because we’re doing highly focused, miniaturized designed circuit card assemblies. And the mid-30s to a little higher 30s percent blended with the component only, component anti-tamper really I think supports that 40% range.

Mark Jordan - Noble Financial Capital Market

Clearly the stock has drifted here quite a bit, publicly, by most value oriented people this is a pretty cheap stock. Has the board addressed the issue of while wanting to maintain the predominance of their cash for acquisitions for helping to grow the business, have they addressed the concept that buying back, utilizing free cash flow generation or a modest piece of this especially at current prices would be very accretive to value?

Roger Derse

I think that at this point while we do have a third buyback in place, and as you know it has been suspended, the board continues to feel that at this time our cash should be used to enhance the technological capabilities of White and the defense technology additions that are going to be orchestrated by the board and our newly appointed CEO. So we’re 100% dedicated to taking that cash and putting it to use in that context.

Mark Jordan - Noble Financial Capital Market

One more question if I may. I apologize. Under sort of the prior chairman you did have some pretty well compensated board. Could you explain how the new management team, both your new chairman and President how they’re looking at the appropriateness of the cost structure of the old White, Vis a Vis a, the size and where they want to go?

Roger Derse

I will not speak necessarily for the board, our compensation committee, etc. However certainly from our end and even your analysis of it we want to be cognizant that our corporate expenses are in line with our critical mass. Obviously we’re looking to expand that critical mass. Jerry Dinkel’s addition is instrumental for us in progression to becoming a larger, more diversified defense technology provider. At the same time that doesn’t necessarily say okay that our current board costs, our corporate costs would be deemed acceptable in a much larger critical mass size. They’re under scrutiny, they’re under review. The complexion of the board, the size of the board, etc. is under evaluation and I think as you can see we’ve had a lot of activity. We’re well engaged. The board is very engaged and these things will be addressed in the near term.

Operator

Your next question comes from Sam Rebotsky - SER Asset Management.

Sam Rebotsky - SER Asset Management

I guess I want, you’ve done a good job you know basically running the company along with the board during the period of time everybody was selecting an outside president. Hopefully you will continue to do what you’ve been doing. Hopefully you will help improve White Electronic Designs going forward.

Roger Derse

You know we are very, very excited about Jerry’s addition. And I certainly, and I can speak for Dan Tarantine, we were very, very engaged as you know in getting White positioned as a defense electronics only business. We’ve been very successful in shedding our discontinued operations, realizing the cash out of that, and we’ve had a very, very sound and structured growth period through today. That’s the platform going forward. Both of us are going to be very actively involved working with Jerry to take it to that next level, to address those acquisitions that make good strategic sense once again within the defense technology marketplace, and continue to participate very, very heavily. I’m personally very excited about going forward. I know that the people here are very enthused and we’re looking to grow.

Sam Rebotsky - SER Asset Management

Is it fair to say that the bulk of the expenses, all the strategic expenses, all the other one time expenses have been put in this current quarter or previous quarters? And as far as the fourth quarter other than closing down operations, there’s nothing of a nature to go into the fourth quarter?

Roger Derse

Well from closing down operations, let me just focus on that. The operations and discontinued operations, it’s closed, it’s done. The only thing that we’re going to be doing in the fourth quarter will be just collecting receivables, taking care of residual payables. One point that I might add is a very positive, many of you know we carried the receivables on the Portland display operation after the sale. It was about $2.3 or $2.4 million as far as receivables. We liquidated those completely, they’re done and collected. We’ll do the same thing on the Columbus operation, but there’s really no closure costs at this point. The building’s vacated and it’s up for sale.

As far as continuing as we sort of wrap our structural element, we are still involved in a very, very aggressive Lean Sigma operation. We still have some additional elements to go on the factory floor relative to our ERP system and some subsequent revisions that will occur in this quarter. Keep in mind that in the third quarter we had the cost of Ed White’s departure, we had some manpower realignments, but I don’t expect any of those to occur in the fourth quarter. So I think we’ll see ourselves take a turn, uptick in particular. We have good volume flowing out in the fourth quarter and then resume as we open 2010.

Sam Rebotsky - SER Asset Management

And as far as Ed White, is there any sign of discussion relative to his ownership of stock or did the management or the board think that was worthy of a discussion, as far as what his expectations are or whether the company wanted to buy any of it back? Or if he wanted to sell any of it?

Roger Derse

I’m not really in a position to respond to that question because honestly I don’t know what dialog came forth. I do know that he continues to hold his position. What we reported on Ed in June is in the public forum, and I really don’t know necessarily what Ed White’s plans are relative to his stock.

Sam Rebotsky - SER Asset Management

I guess everything that occurred today is kind of new to everybody, because this information’s a bit of a surprise and with the market taking stock and the stock coming down I guess there was an expectation something would happen. But without knowing who will be running the company, the market did not have this information. So I think it would be a good idea if the board decides to have a call and sort of after the board meets, and discuss what your future expectations are as long as everybody gets to meet with Gerald and comes up with some type of plan. And what kind of acquisitions you might be looking at, to the extent you’ll be using outside advisors, etc. So just some kind of a general feel and I think that would be helpful in the future. Good luck.

Operator

Your next question comes from John Deysher - Pinnacle Value Fund.

John Deysher - Pinnacle Value Fund

Just a couple of questions. One on the gross margin target of 40%, I think you said longer term. I guess I’m not quite clear in terms of what longer term means.

Roger Derse

I think that we operate and have traditionally operated in that 40% point before. We had and decided to compress into the third quarter a significant amount of operational events to step the operation up to a level where we could support the integrated circuit card operation successfully. So we’ve decided to move very aggressively, get it done, get it behind us and certainly that was in part from the costs we experienced in the third quarter and likely a portion of those in the fourth quarter. But we should be in a position the first part of our fiscal year in the first quarter of 2010 to be at the operating levels that we feel are attainable, which is in and around the 40%.

John Deysher - Pinnacle Value Fund

And that assumes current run rates?

Roger Derse

Yes. And that’s the exciting aspect of the outlook here and the quarter that we had. We had very strong bookings. The component only AT is sound, the integrated circuit cards are sound, we have one integrated circuit card in full production and we have another one in low rate. We’ve done five prototypes. So I think we’re definitely doing the positive things that are necessary. We have a strong backlog. So there’s certainly a good outlook. Once again as I said before, there’s a lot of operations that have had the luxury of sort of metering out those expenses and trying to do a little Lean Sigma here and a little system aspect there and a little structural revision in another third place, but we elected to just sweep it in, get it done and move forward.

John Deysher - Pinnacle Value Fund

Regarding Jerry’s appointment, will there be an 8-K as filed detailing the terms of his employment agreement?

Roger Derse

Absolutely. We’re doing a wrap on that as we speak.

John Deysher - Pinnacle Value Fund

That should come out shortly?

Roger Derse

Yes it will.

Operator

Your next question comes from Thomas Carpenter - Hilliard Lyons.

Thomas Carpenter - Hilliard Lyons

Roger I wanted to expand on a comment that you just made about circuit card assembly. You have one customer that’s in full production, one that’s in low rate, you had five prototypes?

Roger Derse

Yes.

Thomas Carpenter - Hilliard Lyons

How many customers do you foresee having over the next year in this program?

Roger Derse

You know it’s a very interesting, we were talking just before the call. You know the technology that we’re talking about, the circuit cards that are GPS based it is really flourishing as to what can be done and where the GPS technology can be employed. As we’ve outlined before, clearly we are looking at our growth driver [inaudible] munitions, you know and missiles area. And also in the radios that are being retrofitted in particular and new builds as well with GPS capability. So while we are working fundamentally right now with let’s say three or so primary customers, we’re really curious as to where this might take us.

We certainly have our structure and we have our sales people, etc. Another aspect that we look at as a very, very positive point is Jerry joins us with his deep defense, electronics associations, etc. to know where this can go. Right now we’re pushing fundamentally three customers. We don’t really know where that’s going to go and we’ll probably have some more intelligence over the next three to six months.

Thomas Carpenter - Hilliard Lyons

I don’t know if all customers are created equal here as far as production, but is the thought process I think maybe about a year ago you guys talked about each new business line. Now a customer may be adding $1 to $2 million per quarter. Is that still the expectations for circuit card once you get everybody up and running? Or has that changed in the last year?

Roger Derse

I really can’t speak to that metric because when you talk about some of these programs, these programs are fairly sizable yet it’s a matter of how quickly they’ll roll out, so can you bring it into a by quarter, by program factor. But as you highlight that, Tom, let me give that some consideration and maybe I can offer that up on the next call.

Thomas Carpenter - Hilliard Lyons

I guess we’re trying to get and maybe even to help you guys on a yearly basis, what’s your targeted run rate when maybe three of the customers are up and running?

Roger Derse

Well clearly if you look at our remark which was made that we expect that about $12.6 million of the backlog in anti-tampering now is going to roll out within the first nine months of the fiscal year, you begin to see what the run rate actually is.

Thomas Carpenter - Hilliard Lyons

And switching to solid state, you talked about you’d brought five or six folks on board. I think did you say it takes about nine months to get the product or program developed?

Roger Derse

Well we’re already into it, a good three months. We’ve recruited some very, very key people that we believe will position us well in this defense solid state arena. Solid state drives with encrypted technology is the future replacement of mechanical drives, and its all flash based so that’s certainly a natural expansion for White. We at one point in time in our model back in October when Dan and I first moved forward in the office of the president we had this structured where we expected to go to the outside potential tuck in acquisition and it would be technological talent that was necessary to do this. And after searching and reviewing it was concluded that we would be best served to bring it in house and hence the point I made relative to the R&D uptick.

The fact that we’re really three months into the game and I’m indicating another nine months suggests to you that we’re probably around Mother’s Day of next year.

Thomas Carpenter - Hilliard Lyons

As this is a newer business, is the plan more for selling into some of your existing customers or do you think it will be different customers than you previously have sold to?

Roger Derse

Well at least at this point in our model, if you focused on our whole theme here is to work and leverage our SG&A, work with our existing customers and look to added value. The added value content, as you know we talked about and we haven’t touched on in this call the RF element, but you know for every GPS receiver board there’s an RF component. And that’s the next targeted item that we will be focusing on and certainly engage the board, we’ll engage Jerry and we can move forward as to how we get that added content on the board. But once again the theme there is with the existing customer base. And there’s a lot of customers that in the systems that we’re talking about the storage aspect is there. So I would say that at first there could be expanded play with the existing customer base, and then we would reach out once again within the defense electronics community to other players that might find a use for these drives.

Operator

Your next question comes from Robert Spivey - The Abernathy Group.

Robert Spivey - The Abernathy Group

Gentlemen, recently or the most recent amount of cash on the balance sheet was, I guess this is for Roger, indicated there was about $59 million. We were expecting something a little bit closer towards the low $60s. Is there cash left to realize in any of the sales of properties?

Roger Derse

In the cash, residual cash that we’ll get out of our property, we have at least $500 to $800,000 that’ll be derived from the building that we are carrying up in Columbus. If we focus on the cash that’s going to be obtained from the liquidation of receivables, out of that operation, we probably have the $2.4 million. If you net that against the payables and other miscellaneous items we’re probably going to get about $2.2 million of cash that’ll come out of the Columbus operation. So I think it’s a matter of timing, and I think we should close out the year certainly just north of $60.

Operator

Your next question comes from [Sam Bergman] – Bayberry Asset Management.

[Sam Bergman] – Bayberry Asset Management

On the retrofitting of the radios, has it been an award given to White on that or any prototypes been developed for that particular area?

Roger Derse

No, we’ve been doing GPS receiver boards for the radio, various radio programs for the last couple of years already in the context of component of AT. Once again that expanded play, there are other radio programs that are being earmarked for retrofit, some of which we are engaging on. One in fact is in production, whereby we are producing the integrated circuit card with the anti-tamper component on it. So we are actively engaged in this area.

[Sam Bergman] – Bayberry Asset Management

Can you give us an idea of how much volume is involved in that particular area on the revenue side?

Roger Derse

Well as I indicated, and I think that if we look at components with anti-tamper, we talked about a bookings of $12.6 million strictly of the components with anti-tamper and the lion’s share of those are going right now into the radio based area. Let me look at a grid here that might help us out. We shipped about 5 million, booked about 12 million in this year thus far. The unfortunate thing that I can’t provide you detailed discussions on the particular radio programs, which ones are being upgraded, which ones have anti-tamper, etc., where components have a supplier to the next level up and its sort of indicating which house on the block has the alarm system and which one doesn’t.

[Sam Bergman] – Bayberry Asset Management

In terms of manufacturing is your manufacturing set up to derive the best possible margins on adding GPS to any station or do you have to upgrade your manufacturing with a lot more equipment to get to that point?

Roger Derse

The only thing that we’re doing now fundamentally with equipment is basically going through our operation, and where our equipment might have been dated or not necessarily redundant in some cases, line specific in others, or a little more state-of-the-art to handle larger volumes. We’ve made amendments. But keep in mind we’ve been in the component business for the years of White, which dates back into the early ‘90s as a component house. The board side, okay, the integrated circuit side really is an off shot of our commercial micro-electronics.

When we stepped away from the commercial micro-electronics we had a good infrastructure and bass equipment that was in place, pick in place for duo board work. The ability here in Phoenix was upgraded to accommodate that equipment and when we moved it in when the acquisition was done on the commercial side, it is now so to speak in the [mill] speck umbrella for the purposes of being able to have the circuit board operation operate under the same standards that we have under our component.

So our additions are largely in the form of a little bit more automation, whether it be an inspection, through put in certain stages, and it’s really well in place and I think we’ll be well positioned as we start the new year with the footprint.

[Sam Bergman] – Bayberry Asset Management

Last question, the new CEO has a tremendous amount of experience in the defense industry. It seems like the short list would be to try to find a technology fit for White in the defense business. But if the GPS business has got a lot of growth for White, why all of a sudden is that such an emphasis? Is the GPS business not achieving as high growth as White would expect or is there something more to gaining traction by combining another company with White?

Roger Derse

We are very, very confident that we are on a very sound road map of growth that we outlined back in October that revolves around information assurance, our focus on the net centric operations and communications. And that’s where we play very, very successful. We’re very, very successfully playing in that area and that’s very, very sound. What we see as a significant growth is the application of the GPS technology as some bombs become Smart Bombs, as missiles are upgraded, as radio systems are upgraded, etc., from not being locational based and location controlled because that’s all under the theme of net-centric operations.

Now that whole focus as we road map that structure suggests that with year-over-year growth or whatever moving on that path will get us to a certain mass. And we feel that through the engagement of Mr. Dinkel and our very focused play on forward acquisitions that are in the defense technology marketplace, that we can be a player, very fundamentally enhancing the shareholder value.

Operator

Your next question comes from Nelson Obis - Winfield Capital.

Nelson Obis - Winfield Capital

Just don’t see a lot of operating leverage on the plant floor in this quarter. I’m curious. I’m just looking at the paragraph here where you’re trying to explain what were somewhat disappointing earnings. Part of it, the retirement of the former CEO, that’s in SG&A, correct?

Roger Derse

Correct.

Nelson Obis - Winfield Capital

Expenses for the year, ERP system upgrade, is that in cost of goods?

Roger Derse

That’s in SG&A.

Nelson Obis - Winfield Capital

And expenses supporting the process and organizational revisions as part of the structural upgrade of the business in an effort to attain higher volume manufacturing capability, is that SG&A or is that cost of goods?

Roger Derse

That’s all cost of goods.

Nelson Obis - Winfield Capital

Could you quantify that?

Roger Derse

Well we’ve provided some information in the Q and I would point your attention to that, okay?

Because it’s a collection of a lot of individual items that we engaged on. When you’re doing Lean Sigma reviews you’ve got inefficiencies, you’ve got absorption issues, you’re putting while I say the ERP system largely is in the SG&A area, but if we incur for instance [inaudible] of training in order to utilize that system, that inefficiency is going to first flow into cost of sales. So its hard to segregate that out. We just feel that we’ll have these issues quickly behind us. The smart thing to do here was to get it done, get it done quick and move on.

Nelson Obis - Winfield Capital

Well I hope the new CEO can get some traction in this area. I mean it’s, from a big picture perspective I noted the productivity numbers and this company seems to be going in the opposite direction and maybe we could see some more improvements on some of the factory floor going forward. I’ll look at the Q and maybe call you off line. Okay?

Roger Derse

Very good.

Operator

It appears there are no questions at this time. Mr. Derse, do you have any closing comments?

Roger Derse

Yes I do. And thank you. Again I would like to thank you for participating on today’s call. We feel we’ve made progress in better positioning the company for a more predictable and consistent performance going forward as a defense electronics manufacturer and supplier. And now have positioned the company with a strong CEO addition to accelerate its gross projectory. We look to the future with great anticipation. I would also like all of our investors to know that going forward we are dedicated to providing a high level of communication with them. We invite all of our investors to initiate dialog with the company and to contact us by phone as well as via email regarding any and all issues. We would be pleased to try to help you in any way, to answer any questions or to provide clarifications that would provide you a better understanding of the company. Thank you for your time and we look forward to talking with you again at the conclusion of the fiscal year.

Operator

Thank you. Ladies and gentlemen, this concludes today’s conference call. You may disconnect your lines at this time. Thank you for your participation.

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