U.S. Markets open in 6 hrs 39 mins

Edited Transcript of ADA.AX earnings conference call or presentation 14-Aug-19 10:30pm GMT

Full Year 2019 Adacel Technologies Ltd Earnings Call

Nov 21, 2019 (Thomson StreetEvents) -- Edited Transcript of Adacel Technologies Ltd earnings conference call or presentation Wednesday, August 14, 2019 at 10:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Daniel Verret

Adacel Technologies Limited - Acting CEO & CFO

* Michael J. McConnell

Adacel Technologies Limited - Non-Executive Chairman

================================================================================

Conference Call Participants

================================================================================

* Chris Savage

Bell Potter Securities Limited, Research Division - Senior Industries Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning. Welcome to the Adacel Technologies Limited call. I will now hand you over to Michael McConnell, Chairman of the Board. Thank you, Michael.

--------------------------------------------------------------------------------

Michael J. McConnell, Adacel Technologies Limited - Non-Executive Chairman [2]

--------------------------------------------------------------------------------

Thank you, and good morning. As disclosed in July, the company undertook a comprehensive review of its business beginning on April 1. That review revealed issues within our Systems segment that significantly impacted fiscal year '19 financial results that we reported last night. Importantly, we took quick and decisive actions to address those issues as well as a range of others. These activities and actions form the basis for our fiscal year '20 plan. I want to again emphasize that the Board and management are acutely aware of our responsibility to restore investor confidence, profitability and shareholder value. 45 days into fiscal year '20, we are on track.

I will now turn the call over to Daniel Verret, acting CEO and CFO; and Kevin Pickett, Vice President of Operations. Thank you.

--------------------------------------------------------------------------------

Daniel Verret, Adacel Technologies Limited - Acting CEO & CFO [3]

--------------------------------------------------------------------------------

Thank you, Michael, and good morning, ladies and gentlemen. So for the year ended June 30, 2019, the company posted revenues of $41.4 million compared to $50.8 million for the previous corresponding year. As we reported on our update call on July 1, we had lower volume of orders during the year when compared to the previous year. Systems revenues decreased by $6.6 million while Services revenues decreased by $3.2 million. In our Systems segment, the new simulator systems sales in Sri Lanka and Austria delivered less revenues than the projects we delivered in fiscal 2018 in Mexico, Saudi Arabia and Algeria.

In our Services segment, the reduction of $3.2 million is mainly due to lower revenues from our FAA support contract, partially offset by increased revenues from our ATOP program. When we look at the composition of the revenue base, Services revenues account for 68% of total revenues compared to 59% last year, while Systems revenues made up 32% compared to 41% last year.

Consolidated gross margin decreased from 38.5% last year to 26.7%. In absolute dollars, that represents a decrease of $8.5 million to $11 million for this year. Gross margin in our Systems segment decreased by $7.8 million. In addition to lower revenues, our new systems in Guadeloupe, Fiji and Portugal experienced cost overruns relating to the software development customization required for these projects. As we stated on July 1, these projects represent the first implementations of Approach and Tower control systems. On a more encouraging note, gross margin for our Services segment decreased by only $0.7 million despite the loss of the FAA support service contract, which was partially offset by a number of other contracts, including the ATOP program.

Profit before tax for the year was a loss of almost $2 million compared to a profit of $9.5 million for the preceding year. As we stated on our call on 1 July 2019, the combination of lower revenues and cost overruns contributed to these results.

From a balance sheet perspective, we ended the year with $2.5 million in net cash. During the year, we made dividend payments totaling almost $6.6 million. Our share buyback program resulted in an additional $1.9 million cash outflow, and we repaid R&D grants of almost $1 million.

As Mike has stated, while we are disappointed with the results of fiscal 2019, our focus has shifted to executing our plan for 2020. Based on current forecast, we expect to deliver $4.1 million to $4.6 million of PBT for 2020. As of today, almost 80% of forecasted revenues for fiscal '20 are either in backlog or in the renewal process. And we have also rightsized our cost structure and reorganized some departments to focus on our core products and services.

I will now open it up to questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question is from Chris Savage.

--------------------------------------------------------------------------------

Chris Savage, Bell Potter Securities Limited, Research Division - Senior Industries Analyst [2]

--------------------------------------------------------------------------------

I guess around the FY '20 guidance, like I see you reiterated it, but I guess what I was looking for was if there was any change in that percentage of [about 80%] local renewal. You left it at 77% in the announcement. And you just said on the call then, it was almost 80%. So has there been a change or it's roughly the same?

--------------------------------------------------------------------------------

Daniel Verret, Adacel Technologies Limited - Acting CEO & CFO [3]

--------------------------------------------------------------------------------

There has been no change in the overall number. The good news since 1 July is that a large order that would have been sitting in the highly probable to renew has now officially gone into the backlog. So that's the positive news. But 6 weeks removed from that date, we're still around the 80%.

--------------------------------------------------------------------------------

Chris Savage, Bell Potter Securities Limited, Research Division - Senior Industries Analyst [4]

--------------------------------------------------------------------------------

So if I'm understanding that correctly, the 80% is more or less unchanged, but the mix has changed. There's more in backlog versus renewal.

--------------------------------------------------------------------------------

Daniel Verret, Adacel Technologies Limited - Acting CEO & CFO [5]

--------------------------------------------------------------------------------

That is correct.

--------------------------------------------------------------------------------

Chris Savage, Bell Potter Securities Limited, Research Division - Senior Industries Analyst [6]

--------------------------------------------------------------------------------

Okay. And can we get an idea -- you said -- obviously, services is down due to the loss of the support services contract but partially offset by ATOP. Can you give us an idea what the revenue now is for the ATOP or what it was in '19 and what it's budgeted to be in '20?

--------------------------------------------------------------------------------

Daniel Verret, Adacel Technologies Limited - Acting CEO & CFO [7]

--------------------------------------------------------------------------------

Yes. We reported approximately $18 million of revenues from ATOP, and we expect a similar level for 2020.

--------------------------------------------------------------------------------

Chris Savage, Bell Potter Securities Limited, Research Division - Senior Industries Analyst [8]

--------------------------------------------------------------------------------

Okay. And I guess just lastly, like the result did come out a little bit below what you were guiding towards, including cash being slightly lower. Was there any reason for the differential?

--------------------------------------------------------------------------------

Daniel Verret, Adacel Technologies Limited - Acting CEO & CFO [9]

--------------------------------------------------------------------------------

No. I mean we processed a few year-end entries, and in terms of cash, it's strictly timing of cash in the bank versus cash in the book.

--------------------------------------------------------------------------------

Chris Savage, Bell Potter Securities Limited, Research Division - Senior Industries Analyst [10]

--------------------------------------------------------------------------------

Okay. And last question, I'll give someone else a go. At the last call in early July, you said there was like 25 potential customers for this new Tower and Approach system. Has there been any progress in talking or converting with those customers?

--------------------------------------------------------------------------------

Daniel Verret, Adacel Technologies Limited - Acting CEO & CFO [11]

--------------------------------------------------------------------------------

So the dialogue continues. We are in advanced discussions with a number of them. But given we are dealing with government agencies spending upwards of $2 million on a system, these typically take longer than we would all like before we close. But we are making progress in terms of the dialogue, and we will maintain that dialogue throughout the year.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

(Operator Instructions) We don't have any further questions. Thanks, Daniel or Michael. There are no further questions.

--------------------------------------------------------------------------------

Michael J. McConnell, Adacel Technologies Limited - Non-Executive Chairman [13]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Daniel Verret, Adacel Technologies Limited - Acting CEO & CFO [14]

--------------------------------------------------------------------------------

Thank you very much. I guess we'll close the call. Thank you all for joining this morning.