Delaware
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0-32789
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87-0273300
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(State or other Jurisdiction of Incorporation)
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(Commission File Number)
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(IRS Employer Identification No.)
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11 Diamond Road
Springfield, NJ
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07081
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(Address of Principal Executive Offices)
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(Zip Code)
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Not Applicable
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(Former name or former address if changed since last report.)
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Item 7.01
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Regulation FD Disclosure
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Item 9.01
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Financial Statements and Exhibits.
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99.1
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Investor’s Call Transcript and Q&A dated September 8, 2011
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EMTEC, INC.
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Dated: September 26, 2011
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By:
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/s/ Gregory P. Chandler | |
Name: Gregory P. Chandler | |||
Title: Chief Financial Officer | |||
Moderator:
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Welcome to the Emtec investors call. My name is John, and I’ll be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Gregory Chandler. Mr. Chandler, you may begin.
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Gregory Chandler:
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Thank you John. Good morning everyone and welcome to the Emtec’s investors conference call. This is Greg Chandler. I’m the chief financial officer, and joining me today is Mr. Dinesh Desai, chairman and chief executive officer.
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Another note I’d like point out is that we just completed our 2011 fiscal year and we will not be commenting on the results of our fourth quarter. This is not an earnings call. It is an update of Emtec’s management discussion on the Emtec business. Over the years, we have had requests from management to hold regularly scheduled earnings calls. We are holding this call in response to those requests. However, we can make no assurances that we’ll continue these calls in the future.
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I am going to turn this meeting over to Mr. Desai, who will be the discussing status of our business. We will then hold a question and answer session; however, we will not be giving a 2012 financial outlook, nor will we be answering any questions regarding a 2012 forecast or the results of our 2011 fourth quarter. I will now turn the call over to Mr. Dinesh Desai. Dinesh
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Dinesh Desai
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Thank you very much Greg. And thanks to all of you who have taken time today to attend this conference call. We welcome you. So I would like to briefly touch on four areas before turning the floor over to all of you for questions. I want to briefly touch the history of Emtec. As you know, the Emtec, about five years ago Emtec and Westwood merged to become Emtec. And Westwood was mainly in the financial sector, which is our Emtec Federal today.
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And the old Emtec was, had three pieces of business - education sector, State of New Jersey – we were doing about $30 million of State of New Jersey, and a Sun practice with two major client concentrations – GE, one and – Comcast. I’m sorry, Cox Communications, south, in the Atlanta Region.
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Now, what has happened to that business? The State of New Jersey changed its acquisition vehicle, and we were no longer able to sell the $30 million business, which has disappeared practically. So we had to backfill for that. We had to undo all the cost structure, which went with the, that business. The Sun practice also where the two major clients we had that went direct. The major service contract we had with Cox, Sun service contract was taken away, also direct soon after we acquired the company.
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So that created another major hole. And that occupied the management for a while in terms of integration efforts and to put the company on a stable platform. And then – so I want to talk about our transformation strategy, then the business as it exists today and our positioning in the market, and lastly, I’ll touch on our near term plans to grow the company.
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Now, about two years ago we set out to transform the company from the more hardware centric wide model into the services led organization. At the end of 2007, we had approximately $211 million dollars in revenue. Nearly all of which was product related and to be resold every year. We had a gross margin percentage of 10 percent, and a total gross margin of $23 million. Okay. So now, have far have we come?
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For the pro forma basis trailing basis – since May of this year last reporting period, we have nearly $255 million in revenue and nearly $100 million in recurring services revenue. Our services gross profit has increased to over $20 million, and our services gross profit margin is nearly 30 percent, bringing the overall gross margin level to about 18 percent and a gross profit of about $47 million.
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We have put an excellent management in place during this time, and until back office infrastructure in place that can grow the services revenue base without corresponding increases in selling, general, and admin expenses. We went out, we hired some of the top recruiting agencies in the nation and we brought top management in place with an excellent track record from big multi-billion dollar services companies Accenture, Unisys, Getronics, IBM Global Services and so forth.
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And we are just beginning. We are in the very first inning of our journey. How are we positioned today? Secondly, I want to address that. We are basically two businesses. The one is an infrastructure business, which can provide clients with one point of contact to manage their IT infrastructure, including assisting, procuring and managing their products, and the whole infrastructure. In the public sector this is business is still is a large portion of our revenue. With over a $170 million in sales, the public sector consists in mainly of infrastructure products. In the commercial business this business is less than $10 million of our roughly $90 million in sales.
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The second nature of the business that is where we are taking the company is the application services business, which provides consulting and outsourcing to implement deploy maintain and support client critical business applications. In our public sector, this business represents a small but growing base of approximately $10 million. So about $10 million in services, very high margin business in application services in the Federal sector.
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In commercial sector, we have a $65 million business in application services. As I spoke to it earlier, we have transitioned the business over time to grow more aggressively in the application services business. Three years ago, we had no revenue in this sector. Today, we are a growing force within the sector. That has been supported by the cash growth from our infrastructure business.
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We are not happy with the results and have taken the following steps during the year to increase the company profitability and future prospects. We have focused management’s attention on the most recurring revenue and high-margin businesses. We had been structuring the whole company towards recurring revenue and high margin and with no – in trying to avoid the client concentration – which, historically, Emtec had in the commercial and public sector.
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We have identified efficiencies and synergies across the businesses, which have resulted in identifying about $4 million in cost savings and restructuring. We also took steps in 2011, to position the company to grow in the high margin recurring revenue focus areas. In defense of our focus, we had added great financial partner in NewSpring Capital, as we made the announcement recently. And we added two – three new team members to the Emtec family this year who have a proven track records in the industry.
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Now, as we look to the future, we intend to do the following. Organic growth is first and foremost our main focus. We believe the commercial market will grow at a significantly higher rate than the public sector. So our focus is very much on the commercial, and in the public sector in the application space. If you look at our business, our business you know has two classes of services we perform. One is consulting and the other is outsourcing. The outsourcing revenue tends to be stable, predictable, we book multi-year deals, and they’re reliable.
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And the consulting business tends to be high margin but project-oriented. So, you always have to fill the project pipeline up and the product business is very, very transaction oriented. In the future, we want to slow down our pace of acquisitions, and we want to consolidate the companies that we acquired and the practices that we acquired, we want to be one Emtec inside and to our clients. We believe we have positioned the company for growth now.
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We will continuously examine our portfolio to strategically position the company with stable revenue, less client concentration, and growth areas with recurring revenue. With those comments, I would like to – I’ll turn it over to John, and we can open up for any questions that you may have. Thank you, John.
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Moderator:
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Thank you. We will now conduct the Q&A session. To ask a question, please press star and then one, on your touch tone phone. If you wish to be removed from the queue, please press the pound sign and the hash key. There will be a delay before the first question is announced. If you’re using a speaker phone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touch tone phone. Standing by for questions.
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{pause}
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And once again, if you have questions, please press star then one on your touch tone phone.
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Gregory Chandler:
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Great. Well, thank you very much John, and thank you, Dinesh for your comments today. Again, I’d like to reiterate that we made some forward looking statements, and as I talked about the disclosure. Also, some of the numbers that we disclosed were on a pro forma basis for the trailing 12 months that Dinesh discussed. And those items are unaudited, so I would like to just make that disclaimer that the pro forma results that we have given, are unaudited numbers. And so with that, I’d like to thank everyone.
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Dinesh Desai:
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If there are any more questions
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Gregory Chandler:
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And if there’s any more – and if there aren’t any more questions, John, then I think we will turn it back to you to conclude.
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John:
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Thank you ladies and gentleman. This concludes today’s conference. Thank you for participating. You may now disconnect.
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Gregory Chandler:
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Thank you everybody. Thank you.
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Dinesh Desai:
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Bye.
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