NEXJ Systems' (NEXJF) CEO Bill Tatham on Q2 2016 Results - Earnings Call Transcript

| About: NEXJ Systems, (NEXJF)

NEXJ Systems, Inc. (OTC:NEXJF) Q2 2016 Earnings Conference Call July 28, 2016 5:00 PM ET

Executives

Matt Bogart - Vice President, Marketing

Bill Tatham - Chief Executive Officer

Rick Broley - Chief Operating Officer

Analysts

Jonathan Lo - Raymond James

Operator

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, Second 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]

Thank you. I will now turn the call over to Matt Bogart, VP of Marketing. You may begin your conference.

Matt Bogart

Thank you, operator. I am Matt Bogart, 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 that 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 second 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.

Bill Tatham

Thank you, Matt. We are pleased to report the second quarter and year-to-date results for NexJ Systems Inc. Q2 revenue of $7 million is in line with our results from the same period a year ago. EBITDA of $114,000 for the quarter is an improvement over the EBITDA loss of $123,000 in the second quarter of last year. Year-to-date revenue of $15.1 million represents a 13% increase over the same period last year. EBITDA of $396,000 for the six month period is more than $1.3 million improvement over the same period last year. We finished the quarter with $16.2 million in liquid working capital which consists of $11 million in cash and $5.2 million of receivables net of payables. We are pleased with these results. We are on track to deliver strong revenue growth again this year and at a significantly greater level of profitability. We expect to deliver 15% revenue growth and to reach an 8% to 10% profitability target this year. I will now turn it over to Rick to shed some color and announce how we are going to do this.

Rick Broley

Thank you, Bill. First, let me talk about revenue growth. I am very pleased to announce we have been selected by the wealth management division of one of the top global financial services companies that will see our CRM solution rolled out to over 10,000 new users and we are currently in the process of finalizing terms. We continue to see new opportunities for extended product set that now includes customer process management and customer data management in addition to our CRM solutions. We anticipate two new sales of our CDM product by the end of the year and see continued interest in our CPM offering for client onboarding. We continue to develop our partnering for growth strategy by pursuing several joint opportunities with CGI and Capgemini.

Opportunities with CGI include NexJ’s customer relationship management integrated with CGI’s portfolio management and a customer portal with real [ph] advisor capabilities. We also have a new contract for training Capgemini resources for one of our leading UK-based customers. Building an ecosystem of trained partner resources to support our customers, and help us sell is a key part of our partnering for growth strategy. We expect these relationships to grow global pipeline and contribute to our revenue growth in due course. Our profitability improvement plan and ongoing expense controls continue to bear fruit. Our success in deliver new products to new customers in new markets means we now have a proven, repeatable solution that can be deployed more quickly and profitably. With increases in revenue, continued expense control, and ongoing improvements in resource utilization, we will continue to improve our rate of profitability. I will now turn it back over to Bill.

Bill Tatham

Thanks Rick. In summary, we are pleased with the results of the year so far. At $15.1 million, we delivered 13% revenue growth and improved profitability with a $1.3 million increase in EBITDA. We plan on 15% revenue growth for the year, EBITDA as expected to be in the range of 8% to 10%. We enjoy a strong balance sheet. As part of our support for the stock and our belief if it is attractively valued, we would continue to execute our normal course issuer bid and buyback stock. We intend to renew that in August when it expires and plan to buy up to another 1 million shares additionally.

We are pleased with this progress. We will continue to target the largest players and financial services and are excited about future prospects. Thank you. And with that, I will turn the call back to the operator.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question is from Jonathan Lo from Raymond James.

Jonathan Lo

Hi, thanks for taking my question. The licenses seemed a little bit lumpy this quarter. Do you expect that to normalize with your distinct customer – that you have.

Bill Tatham

Well we expect the ratio of licenses to go up with the new contract certainly and in fact that contract as mentioned with our greater efficiency deployment, it has won a good license price and a lower percentage of services as total revenue than we had seen before and that aids profitability. So we are keen and are pleased about that. The license revenue in the quarter, Rick and Errol can provide more color as they wish. But as you know, we do a percentage of completion revenue recognition. So, that, that level will continue as a baseline and new contracts will add further license recognition as we move ahead.

Jonathan Lo

And this good proportion of licenses service customer you talk about is the new one that you are finalizing terms with right now?

Bill Tatham

Yes that’s correct. We anticipate that that project will start on August 15, so there is and we've been through the selection process and we've agreed on terms and we have received the memo of understanding accepting the terms and are taking it forward from there.

Jonathan Lo

Okay and sorry, did you say that you are going to, did you reiterate your expectation of free cash flow positive for full year 2016?

Bill Tatham

Yes.

Jonathan Lo

Okay.

Bill Tatham

Yes.

Jonathan Lo

Okay.

Bill Tatham

Yes, we are thinking 8% to 10% in EBITDA so we are really expecting to see about a $3 million clear EBITDA number.

Jonathan Lo

Okay, so your 8% to 10% profitability target that’s for EBITDA?

Bill Tatham

Correct.

Jonathan Lo

Okay and have you seen any impact from Brexit with your UK customer or and positive or negative because maybe it might actually be helping with some of your data management solution?

Bill Tatham

Well let me give you my answer and then Matt Bogart might want to give you some further color since he deals with all the analysts, I mean, I am partly joking but we spent a fair bit of time looking at it. And in short probably the biggest risk is that any of our global banking customers that happened to be significantly situated and are headquartered in the UK decide to relocate as it solved. Then that would be disruptive and we could see potentially a slowing in capital spending on strategic IT projects. To-date, we have had no indication of that whatsoever relative to our business specifically Canada, UK, we have no passport, visa travel issues with respect to that. These are strategic systems, they are global bankers, they needed as we stated before some of the solutions put us in 60 plus countries for one customer. So, the Brexit thing although it did as I said represent some potential for slowing does not seem to have any impact and we have received, obviously, it was a bit of a distraction as it was occurring but we have not seen any fallout from that or had any indication of any impact whatsoever so far.

Matt Bogart

Yes, Jonathan, I am happy to have a conversation with you around that off line later on but there could be some data residency concerns that come up around Britain and you know the EU that could be a big opportunity for us, so we can talk about that later.

Bill Tatham

Yes we, the data residency is already a significant issue in Pacific Asia and that serves us very well. It hasn’t particularly been an issue with respect to the UK but our CDM product as you know, that does play a big role in collaborative service management specifically by knitting together the data from multiple jurisdictions and multiple channels into one comprehensive beautiful customer and that will continue to be important and we will continue to do that. So yes, and I think Matt has a good point if anything, you know, Brexit as a trend that could be significant relative to our data management capabilities.

Jonathan Lo

Great. And just the last one from me will be the sales for the EC CEM [ph] that you are expecting by the end of the year can you elaborate little bit more like geographically customer size and anything that you can provide?

Bill Tatham

Our CDM sales, there is two of them and these are new products that do this data management that we’re talking about and specifically there are two of our existing customers that our discussions are well underway. And we anticipate both of them closing before the end of the year and clearly and are excited about that. So these are customers that have already procured significantly from us where this solution solves the real problem that fits in nicely and it’s a natural extension of our product segment and such a strategic. So we are pleased about that of these customers. One would be in the southern hemisphere and one would be domestic.

Jonathan Lo

Okay great, thanks for taking my questions guys.

Bill Tatham

Thank you, Jonathan. Have a good day.

Operator

There are no further questions. I will turn the call back over to the presenters.

Bill Tatham

Thank you very much. I would like to take this opportunity to thank our customers and shareholders who continue to support the company and I would also like to thank everyone in NexJ who continue to do an outstanding job getting us to this point and the state that we are excited about working together, moving ahead and the opportunities that are before us. We have done significant work in our strategic pivot over the last several years. Pleased to see its bearing fruit and are able to deliver on our past commitments to profitability and are excited about what the future holds. With that, I would say thank you and have a good evening.

Operator

This concludes today’s conference call. You may now disconnect.

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