NexJ Systems, Inc. (OTC:NEXJF) Q1 2016 Earnings Conference Call April 28, 2016 5:00 PM ET
Matthew Bogart - Vice President-Marketing
William Tatham - Chief Executive Officer
Jonathan Lo - Raymond James
Good afternoon. My name is Mike and I will be your conference operator today. At this time, I would like to welcome everyone to the NexJ Systems, Inc., First Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]
I will now turn the call over to Matt Bogart, VP of Marketing. You may begin your conference.
Thank you, operator. I am Matt Bogart, to responsible for Investor Relations. With us today is Bill Tatham, Chief Executive Officer; Errol Singer, Chief Financial Officer; and Rick Broley, Chief Operating Officer. Welcome everyone to today's call.
Before we begin, let me caution you that certain statements in today’s conference call are forward-looking statements and the actual results might differ materially from those projected. Forward-looking statements include but are not limited to estimates, expectations, objectives and plans, financial and otherwise. Please review the Safe Harbor statement included in the press release reporting our first quarter results for a discussion of a variety of factors that could cause actual results to differ from those projected.
I will now turn the call over to Bill.
Thank you, Matt. We are pleased to report the first quarter results for NexJ Systems Inc. This is our first quarter as a pure play in enterprise software for financial services.
As we reported on the last year, the spinoff of our Healthcare division into an independent entity was completed on January 25th. NexJ Health will be filing its results on May 20th. I’ll now talk about the results of NexJ Systems Inc. in enterprise software for financial services.
First quarter, 2015 was a strong year for us with 20% growth and positive EBITDA for the Financial Services segment. I am very pleased to say we have continued that trend with the great first quarter in 2016. 8.1 million in revenue for the quarter represents 30% growth over the same period in the prior year.
In the quarter, we recognized new license revenue from two corporate banking customers including the capital markets division of a leading global bank, who is one of the largest wholesale banks in the world.
Adjusted EBITDA was $282,000, an improvement of over $1 million from the adjusted EBITDA loss of $788,000 in the first quarter last year. Ongoing expense control is successful as evidenced by our positive EIBITDA; obviously this is easier with revenue growth.
We finished the quarter with 17.7 million in liquid working capital which consists of 13.2 million in cash and 4.5 million of receivables net of payables.
We are pleased with these results. We continue to believe there should be significant upside to our current share price. In the past 12 months, we have generated more than 30 million in revenue and are currently trading at around 1.5 time sales. This is a significant discount in valuation compared to the company’s we be for some of the largest enterprise customer management projects in financial services in the world. Continued execution of our business plan should lead to further improvements in our valuations.
Our profitability improvement plan is working. Three years ago, we started a transition to broaden our product footprint and enter new markets. Our enterprise customer management suit as discussed in the last call now includes not just customer relationship management tailored to our target markets, but also customer process management for client on-boarding including KYC of know your customer in anti-money laundering regulatory requirements. We also offer customer data management for regulatory compliance in digital transformation initiatives.
Our new target market global corporate banking now represents over 50% of our business. We are seeing a trend in global banking where the banks need to cut the traditional ongoing IT expenses by some 30% even up to 60% so that they can afford within the same cost envelop to invest in new digital transformation initiatives.
Our solutions help improve productivity and bring down costs on the traditional side by allowing the decommissioning of expense of legacy systems and leveraging the sub cause of other systems through rapid integration.
Our solutions, our instrumental also in enabling the digital transformation the bank see strategic in the future of FinTech. It’s an omni-channel world in this age of the customer. We deliver on both sides of its equation lowering ongoing IT cost and enabling digital transformation.
Partnering for growth; on the last call, I discussed our partnering for growth strategy and announced our new partnership with CGI. We continue to develop this strategic relationship. We are now also working with another major systems integrator at our newest global capital markets client and are in discussions to future the relationship as a strategic partnership.
We also have discussions with a contact center and multichannel customer experience platform vendor is part of our omni-channel digital transformation solution strategy. We will continue to focus on strategy partnerships that extend our product in our global sales and delivery capability.
When it comes to partnering, we will focus on the relationships account in those as relationships that pay.
I’d now like to share some customer feedback with you. And I’ve just returned from a trip to the U.K. last week where I met with two or our major global customers. The feedback I received is significant and consistent with what I hear from all our enterprise customers. Our product is extremely capable and strongly differentiated, we knew this. They went above and beyond however to call out to me the strength of our team, the quality of our project management and our commitment to the at most of service levels and specifically the exceptional caliber of individuals we employ.
Based on the quality of our product, the strength of our team and our excellent execution, we see the potential for significant growth at these customers. Thank you, team.
In summary, we are pleased with the results for the quarter at 8.1 million in revenue. We delivered 30% revenue growth and improved profitability with a $1 million increase in EBITDA. This is tremendous following a strong 2015 that showed 20% year-over-year growth. We are planning continued growth. Although we may still see some quarterly volatility, we believe that overall growth this year will be consistent with the year-over-year growth established last year. We remain committed to profitability. We enjoy a strong balance sheet. We will continue to target the largest players in global financial services.
Thank you. And with that I’ll turn the call back to the operator.
[Operator Instructions] Your first question is from Jonathan Lo from Raymond James.
Hi. Thanks for taking my question. Just on the - you mentioned that there might be some lumpiness in the revenues. You expecting that to be more license based or maybe like services, you brought some color there?
Sure. You know we’re pretty - we’ll be pretty solid and consistent in our base line in terms of both services revenue ongoing and maintenance. The new licenses deals are the timing is same are what could cause some lumpiness. We have some exceptionally large deals in the pipeline and the timing of closing and booking is to be determined. So we are very excited about the opportunities but as you know we have a percentage of completion revenue recognition, so the timing for bookings is relevant to for the recognition of the revenue. So that would be the only caveat I would give but I would say that in terms of forward-looking guidance for the year where we’re very comfortable with the growth rates that we’ve been talking about, although might be a little bit back end loaded.
Okay. And on software upgrade cycles, are you expecting additional R&D spending or CapEx spending throughout the year like on top of where it is now?
No. We would expect a very steady state at the current expense structure. We’ve - in fact our profitability improvement plan which is about eliminating the technical product that based on prior commitments has come down dramatically over the last five quarters to a very manageable and extend and as such each new corporate banking client at this time will require less incremental R&D effort from us to book it. So we should have increasing efficiency with that. And I might even go further and add that the next release of our software which is well underway is really fabulous upgrade and it implements - and implement material design Google standards in user experience that really, really looks good.
So the current R&D spend is sufficient to handle our current needs. We’ve been in fact making progress against the debt that should improve our profitability and the new product that we coming out in the future is exceptional in its quality. So I am very pleased with the state and rate of software development.
Okay, great. And last question just on the strategic partnerships, is there any additional color you can provide around maybe how the relationships going with CGI and around that one?
Okay, so we currently have subcontracting relationships in new CGI people on a number of our jobs and have invested in training. And we’re - in some joint, some emotions and are moving towards a stronger potential products integration reseller situation with them. We are excited about that. The other strategic partners I mean basically in our very large clients they - we’re small company there you make a large strategic and as they look to grow our footprint in their firms, their concern would be out ability to support their scale and spread. And so they insist on us in partnering with their strategic systems integrators have choice which of course we willing we do. And our intent overtime would be to encourage the partners; one, help our self globally, take all the services you can, we’d like to see an improvement in our license to services ratio overtime and pretty consistently we can see that a dollar of license revenue results pretty quickly you know $5 of service revenue. And the continued growth with the company partnering with systems integrations is key to driving that and it gives comfort to our clients and also lowers average daily rates through the use of offshore resources where appropriate.
So it’s here to stay the concept as they start to understand the volume of services and the stickiness of our relationship with clients due to the heavy integration and the strategic nature of our product then they help our self to get those services revenues and its strategic relationship. So we’re looking to develop that more and more and you know I think see that as a key strategy for growth.
Great, thanks. That’s all my questions today.
Thank you very much.
[Operator Instruction] And we have no further questions at this time. I will turn the call back over to the presenters.
Thank you very much. I’d like to thank our customers and our shareholders who continued support the company. Shareholders and interested parties on the call today are welcome to join us at our Annual General Meeting next Thursday, May 5th. I’d also like to thank my management team and employees who continue to do an outstanding job. Thank you. Have a good evening.
This concludes today’s conference call. You may now disconnect.
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