Original Source: FD (FAIR DISCLOSURE) WIRE
. Rochelle Bold, Wireless Facilities, Inc., SVP, Corporate Development & IR . Eric DeMarco, Wireless Facilities, Inc., President & CEO . Deanna Lund, Wireless Facilities, Inc., SVP & CFO
The Co. reported 2Q05 revenues of $110.8m, slightly lower than expected, primarily as a result of lower than expected progress on two deployment contracts. 2Q05 operating profit was $6.8m and EPS was $0.06. Q&A Focus: Operating profit, guidance, and Cingular.
A. Key Data From Call 1. 2Q05 revenues = $110.8m. 2. 2Q05 operating profit = $6.8m. 3. 2Q05 EPS = $0.06. 4. 2Q05 DSO = 108 days. 5. 2Q05 total cash and cash equivalents and short-term investments
= $24m. 6. 3Q05 EPS guidance = $0.08.
S1. Opening Remarks (R.B.) 1. 2Q05 Results: 1. The Co. reported revenues of $111m vs. $103m in 2Q04. 2. Operating profit for 2Q05, including $1m previously announced charge related to unanticipated professional fees, was $6.8m vs. $9.3m in 2Q04. 3. Diluted EPS, including (Phonetic) the $1m charge or $0.06, in line with the Co.'s guidance for 2Q05. 1. This compares diluted EPS from continuing operations for prior year of $0.06, which included a $3m asset impairment charge.
S2. Business Review (E.D.) 1. Highlights: 1. In 2Q05, the Co. succeeded in meeting its profit target and continued to build its backlog. 2. WFII also continued to generate positive cash flow and to bring its DSOs on its AR down to 108 days. 1. The lowest level in over one year for WFII. 3. Revenue was slightly lower than expected in 2Q05, primarily as a result of lower-than-expected progress on two deployment contracts in its domestic carrier division. 4. However, slightly lower-than-expected revenue was offset by strong project execution and a favorable revenue mix,
resulting in slightly higher than forecasted GM for the Co.
5. Domestically, WFII's carrier division, the Co.'s largest
division, generated approx. $46m in revenue, which was up
slightly sequentially from 1Q05 and down slightly from 2Q04. 6. The Co.'s largest domestic carrier customers in 2Q05 were: 1. Cingular. 2. Western Wireless. 3. Verizon Wireless.
4. Nextel. 5. Triton PCS. 7. While the Co.'s work with majority of its customers was up sequentially and YoverY as expected. 8. The Co.'s Triton business was significantly YoverY, primarily as a result of the recent sale of part of their network to Cingular. 9. In addition, the Co.'s work with some of its equipment vendors and other prime contractors was also down YoverY as WFII continues to succeed in becoming more of a direct competitor to them. 10. In fact, in the past year, the Co. has successfully back filled nearly $8m in quarterly revenue in its domestic carrier business that previously came from equipment vendors and other large prime contractors. 1. While this decline in vendor and other prime contractor revenue makes YoverY comparisons difficult, the Co. believes taking on a prime role was the right strategic move for WFII, and one that places the Co. in a stronger position for sustained growth in the future. 11. Prime revenues tend to be more recurring in nature than subcontractor revenue and maintaining direct customer relationships allows the Co. to avoid being vertically integrated by the prime.
12. Offsetting the revenue declines just mentioned were YoverY
increases from: 1. Cingular, as a result of a variety of engineering activities, including a significant amount of work performed
in 2Q05 related to UMTS design. 2. Verizon Wireless, largely as a result of its 3G upgrades. 3. Nextel, as a result of the beginning of a ramp up on the deployment contracts it has won over the past six months. 13. As indicated in 1Q05, the Co.'s biggest operational challenge in the Co.'s domestic carrier division continues to be finding qualified engineering talent. 14. At any given time, the Co. has openings for between 75-100 engineering positions in this division alone within WFII and has continued to bring on additional recruiting resources to help this effort.
15. The Co.'s international carrier operations generated approx.
$27m in revenue in 2Q05, up sequentially from 1Q05 and
essentially flat YoverY. 16. However, as a result of the Co.'s new multi-hundred site deployment contract in Argentina and the signing of the extension on its largest contract in Mexico, WFII is now back on a growth trajectory in Latin America and expects YoverY revenue growth in 2H05. 2. Customers: 1. WFII's largest customers internationally continue to be Telefonica and America Movil, including both TelCel and CTI in Latin America, in addition to O2 and Nortel in Europe. 2. The Co. continues to believe that there is a significant opportunity for further expansion into Latin America. 1. Especially, as Telefonica continues to invest in its recently acquired assets from BellSouth beyond what is already in backlog as of 08/04/05. 3. However, the Co. also continues to be focused on balancing its growth rate and its free cash flow goals. 1. One of the Co.'s key strategic issues to continually striving to find the right balance in the growth vs. cash flow area. 4. The nature of the work in Latin America and the contract …