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Ecology & Environment, Inc. (NASDAQ:EEI) Q3 2019 Earnings Conference Call June 18, 2019 8:30 AM ET
Marshall Heinberg – Executive Chairman
Todd Musterait – President-U.S. Operations
Peter Sorci – Acting Chief Financial Officer
- 马歇尔海因伯格 - 执行主席
- Todd Musterait - 美国总统。操作
- Peter Sorci - 代理首席财务官
Randy Mehl – Stewardship Capital
Peter Rabover – Artko Capital
Charles Neuhauser – Mainwall Investments
Randy Mehl – Stewardship Capital
- Randy Mehl - 管家资本
- Peter Rabover - Artko Capital
- Charles Neuhauser - Mainwall Investments
- Randy Mehl - 管家资本
Good morning, and welcome to Ecology & Environment, Incorporated Fiscal Year 2019 Q3 Investor Conference Call. Today’s webcast is being recorded. A slide deck can be accessed on the Investor Relations page of E & E’s corporate website at ene.com.
At this time, I would like to turn the call over to Mr. Marshall Heinberg.
早上好，欢迎来到生态与环境，2019财年第三季度投资者电话会议。 今天的网络直播正在录制中。 可以在E＆E公司网站ene.com的投资者关系页面访问幻灯片。
Thank you, operator, and good morning, everyone, and thank you for joining us to discuss Ecology & Environment’s financial results for the third quarter of fiscal year 2019. I’m Marshall Heinberg, E & E’s Executive Chairman. And joining me on our call today are Todd Musterait, E & E’s President of U.S. Operations; and Peter Sorci, our acting Chief Financial Officer. After finishing our prepared remarks, we will be happy to open up the call to take your questions.
Please note that certain statements made on the course of today’s conference call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve certain risks and uncertainties. And it is important to note that the company’s actual future results could differ materially from such forward-looking statements. The company cautions investors not to place undue reliance on any forward-looking statements made during the course of this conference call. Ecology & Environment disclaims any obligation to update any forward-looking statements made today.
And with that, I am happy to report that we are back on a regular filing schedule. We have been notified by NASDAQ that our filing delinquencies have been remedied, and we are in compliance with all applicable listing standards and that the potential delisting has been favorably resolved. Our third quarter, as you note, was a difficult one due in large part to expected non-recurring costs. The results reflect employee severance and termination expenses related to the staff reduction programs largely completed in the quarter. Approximately $800,000 in Q3, and an additional $100,000, is expected by the end of the fiscal year.
In addition, increased audit and legal expenses associated with the deconsolidation and restatement of results from our Chilean subsidiary caused the company approximately $600,000 in the third quarter and totaled $900,000 during the first nine months of our fiscal year. At the same time that the actions that we’ve undertaken to stimulate growth, many of which Todd will address today, are not yet apparent in our financial results.
With that, I would like to turn the call over to Todd to discuss some of those ongoing growth initiatives, and we will be happy to take your questions at the end. Todd?
感谢运营商，大家早上好，感谢您加入我们，讨论2019财年第三季度生态与环境的财务业绩。我是E＆E执行主席Marshall Heinberg。今天与我联系的电话是E＆E美国运营总裁Todd Musterait;和代理首席财务官Peter Sorci。在完成准备好的评论后，我们很乐意打开电话来回答您的问题。
Thank you, Marshall. Please turn to Slide 3. Our leadership team continues to implement improvements that were initiated over the first two quarters of fiscal year 2019 to set us on a path for growth. Our restructured U.S. business is better aligned with our core lines of business in practice areas and set us up to expand further into emerging markets. Our new business line structure integrates sales and project delivery functions that create efficiencies, improve communication and foster a more collaborative approach to capturing work and delivering services.
We are developing strategic plans at the business line level for fiscal year 2020. Those plans are rooted in market insight and competitive analysis and will guide critical decision-making as we look ahead to the upcoming fiscal year and beyond. Part of our restructuring includes a new sales and marketing strategy that supports the growth of our business lines with a fresh perspective of our company in the marketplace. We previously announced our new enterprise program sales director who brings over 25 years of environmental market experience.
I am pleased to announce that we have brought on board a new sales director for our energy business line as well, who will join E & E this summer, bringing deep sales experience and a fresh perspective for growing our energy business line. Our new marketing director has built out a marketing team to implement our strategic marketing plan and build E & E’s visibility in the marketplace. We have implemented cost-reduction initiatives to improve our profitability and create better alignment of our staff resources for growth. As we have previously communicated, the staff reduction programs include voluntary retirement and involuntary separation programs are being implemented, along with other expense reduction initiatives that have resulted to date an annual pretax cost savings of approximately $6 million.
These activities are expected to result in pretax charges and cash expenditures of approximately $1 million during the fiscal year ending July 31, 2019, consisting primarily of employee severance and termination benefits. These initiatives were substantially completed by April 30, 2019, and are expected to be completed by July 31, 2019.
We have also redefined E & E’s U.S. operations organization and are bringing needed clarity to key roles within that structure. This allows us to set clear expectations and role-specific KPIs and provides for efficient resource management. These critical roles will have more visibility to our clients, directly contribute to improved business performance and provide professional growth opportunities for our valued workforce.
Now I’d like to turn it over to Peter Sorci to review our financial results.
Thank you, Todd, and good morning, everyone. Before I review our financial results, please note for purposes of this presentation, that gross revenue less subcontract costs is the key revenue metric for our business because it represents revenue that we generate strictly from our consulting services and it excludes pass-through revenue that we collect from clients and pay out to subcontractors.
When we refer to revenue or revenues during this call, we’re generally referring to gross revenue less subcontract costs. Also, our management team generally assesses operating performance and make strategic decisions based on the geographic regions in which we do business. Our SEC reports include operating segment information for our U.S. and South American operations, and information for these operating segments is also included in this presentation.
Slides 4 and 5 provide summaries of our operating results for the third quarter and nine months ended April 27, 2019. We reported a consolidated net loss of $1 million or $0.24 per share for the quarter ended April 27, 2019, compared with consolidated net income of $0.1 million or $0.02 per share for the third quarter of the prior fiscal year.
For the current quarter, a loss of $1.1 million from our U.S. operations was offset by income of $0.1 million from South American operations. For the nine months ended April 27, 2019, we reported a consolidated net loss of $1.5 million or $0.34 per share compared with a consolidated net income of $0.1 million or $0.03 per share for the first nine months of the prior year. For the first nine months of the current year, a loss of $1.6 million from U.S. operations was partially offset by income of $0.1 million from South American operations.
Our operating results for the three months and nine months ended April 27, 2019, were significantly impacted by $1.7 million of year-to-date incremental non-recurring expenses, including $0.8 million of employee severance costs – of severance costs associated with a corporate restructuring plan and $0.9 million of expenses associated with restatements of our prior year consolidated financial statements.
During the third quarter and first nine months of 2019, our U.S. operations experienced continued revenue growth from survey, impact assessment, planning and data management services provided to clients in the LNG, offshore resources and resilient communities markets. However, for the first nine months of 2019, this revenue growth was more than offset by decreases in revenue from pipeline, onshore renewables, armed services and site assessment remediation markets, as projects completed during fiscal year 2018 and the first and second quarters of fiscal year 2019 were not replaced with new work of comparable size.
In addition, the federal government shutdown that occurred during the second quarter of fiscal year 2019 delayed new work authorizations, affected ongoing project schedules and postponed revenue delivery on various federal government contracts into the third quarter of fiscal year 2019.
我们截至2019年4月27日的三个月和九个月的经营业绩受到170万美元的年初至今增量非经常性费用的显着影响，其中包括80万美元的员工遣散费 - 与公司重组相关的遣散费用与我们上一年度合并财务报表的重述相关的计划和90万美元的费用。
In South America, continued positive results from our consolidated subsidiary in Brazil and from our equity investment in Chile were offset by lower revenues and earnings from our consolidated subsidiary in Peru. Revenue from our Brazilian subsidiary increased 44% and 28% during the third quarter and first nine months of fiscal year 2019, respectively, compared with the same periods of the prior year. In local currency, revenue from our Brazilian operations increased 62% for the third quarter and 47% for the first nine months of fiscal year 2019, due mainly to increased project volumes with commercial clients in the transmission, energy and mining sectors.
Strengthening of the U.S. dollar compared to the Brazilian real during the first nine months of fiscal year 2019 significantly offset the positive impact of higher project volumes. Revenue from our Peruvian subsidiary decreased 20% and 34% during the third quarter and first nine months of fiscal 2019, respectively, compared with the same periods of the prior year due to the lower project volumes with commercial clients of the energy sector.
Slide 6 provides a summary of operating cash activity for our consolidated operations. Our consolidated cash balances decreased $3.9 million during the first nine months of fiscal year 2019. Historically, cash generated from our operating activities has exceeded cash required for investing and financing activities. However, recent declines in revenue and profits from our U.S. and Peruvian operations have had a detrimental impact on cash generated from operating activities.
In addition, higher revenue from our Brazilian operations during recent reporting periods represented initial out – resource outlays on new projects that have not yet been built to or collected from clients. Cash outlays resulting from the staff reduction programs and restatements of prior year financial statements also had a detrimental impact on cash flows from operations. After initial outlays of cash for employee severance and termination benefits, the staff reduction programs are expected to have a positive impact on our earnings and liquidity position during the fourth quarter of fiscal year 2019 and future reporting periods.
We paid cash dividends of $1.7 million during the first nine months of fiscal year 2019, including dividends of $0.8 million during the recent quarter ended April 27, 2019. We continue to require minimal support from lines of credit or other debt instruments to fund our consolidated operations. As of April 27, 2019, we had $32.4 million of availability under lines of credit to support our U.S. operations and $1.2 million of availability under lines of credit to support our South American operations.
And now I will turn it back over to Todd to review our contract backlog and market outlook.
Thanks, Peter. Slide 7 provides a summary of our firm backlog. Firm backlog represents an estimate of gross revenue expected to be recognized over the remaining life of projects under contracts that are awarded, funded and in progress. The amounts in Slide 7 reflect our recently redefined definition of firm backlog to exclude estimates of unfunded backlog that may someday become firm backlog. Projects included in our firm backlog include work to be performed under contracts, which contain termination provisions that may be exercised without penalty at any time by our clients upon written notice to us, in which case, the client would only be obligated to pay us for services provided through the termination date. A significant portion of our revenue is generated through projects awarded under master services agreements with our clients. In these instances, only the current unfinished projects are included in our backlog.
As noted during our last conference call, a key component to realizing our growth expectations is our focus on organic growth through improved operational efficiencies and management, including a more uniformed reporting approach to drive informed decision-making. As part of this disciplined effort, we have taken a critical look at all of our reporting metrics, including our backlog.
In doing so, we compared year-over-year backlog numbers and found that total firm backlog from U.S. operations decreased 22% or approximately $10 million over the 12-month period preceding April 2019, as new orders reported as additions to firm backlog have not kept pace with work delivered on active projects.
Essentially, we are burning backlog at a faster pace than we are replacing it with new work. Moderate fluctuations in backlog from quarter-to-quarter and year-to-year are normal occurrences in our industry. The trend in our backlog, as evidenced by this exercise, underscores the need to build out a much more robust sales and marketing platform.
As I noted in my earlier remarks, this effort is well underway. We are bringing sales and marketing professionals into the company, who have proven track records of capturing sales and elevating E&E’s profile in the marketplace. The continued build-out of our U.S. sales and marketing team is a cornerstone of our ongoing strategy.
We reported a significant increase in backlog in our South American operating segment during the 12 months preceding April 2019, which provides further indication of continued improvement in revenue growth and operating results expected within those markets.
I’ll now speak about market conditions that impacted our results in the third quarter of fiscal year 2019. We continue to deliver our services to supporting the U.S. export oil and natural gas to our commercial development clients. Similar to the previous two quarters, we experienced a decrease in services provided to pipeline, onshore renewables, armed services and site assessment and remediation practice areas compared with the third quarter of fiscal year 2018.
The extended federal government shutdown earlier this year did have an impact on our ability to deliver work under certain contracts and delayed the issuance of task orders, particularly in non-DoD agencies. Our South American operations continued to see increased opportunities and project delivery in Brazil to commercial clients in transmission, energy and mining. We continue to see headwinds in Peru due to lower project volume and commercial clients in the energy sector.
In summary, our new business structure is creating a stable platform to best utilize our resources for growing the U.S. business. Our business line strategic plans with renewed sales and marketing strategies are aligned to create growth opportunities. Actions undertaken to stimulate growth of our U.S. business are not yet reflected in our results.
Our South American operations continue to stabilize in Brazil and Chile, and we continue to evaluate the impacts of current political influences and policy changes in Peru. The business continues to be in a sound liquidity position with approximately $10 million of consolidated cash at the end of the third quarter for fiscal year 2019. We have delivered 64 consecutive semiannual dividends since 1987, with a yield of approximately 3.6% for the dividend paid recently in March 2019.
That concludes our presentation. We will now open up the call to take your questions.
[Operator Instructions] And our first question comes from the line of Randy Mehl with Stewardship Capital. Your line is now open.
[操作员说明]我们的第一个问题来自Randy Mehl与Stewardship Capital的合作。 你的生产线现已开放。
Yes, good morning guys. Just a couple of questions here. You talked about this integrated sales and delivery model. So I'm just trying to get a handle on how does it work today versus how it used to work. In other words, what's the difference?
是的，早上好。 这里只是几个问题。 您谈到了这种集成的销售和交付模式。 所以我只是想弄清楚它今天如何运作与以前的运作方式有关。 换句话说，有什么区别？
I appreciate that question. I think the – what's most significant about the approach that we're putting into place now versus previous is that previously, we had a business development function within the organization which was out in the marketplace, of course, capturing work and looking at opportunities, while we had an operations group that was focused on client service, client maintenance operational aspects to make sure our project deliveries were meeting and exceeding expectations. The business line format puts responsibility of both new orders and sales as well as project delivery of revenue as a responsibility among those leaders within the line. So in essence, the two are integrated. In order for us to be successful, we feel strongly that our management team needs to ensure responsibility in both areas.
我很欣赏这个问题。 我认为 - 现在与以前相比，我们实施的方法最重要的是，之前，我们在组织内部有一个业务开发功能，这个功能在市场上，当然，捕获工作和寻找机会， 我们的运营团队专注于客户服务，客户维护运营方面，以确保我们的项目交付满足并超出预期。 业务线格式将新订单和销售以及项目交付收入的责任作为该行中领导者的责任。 所以从本质上讲，这两者是完整的。 为了使我们取得成功，我们强烈认为我们的管理团队需要确保在这两个领域的责任。
Okay. And in terms of recruiting – and you talked about the pipeline of business which I'll get to in a second, but in terms of the pipeline's available consultants, how does that look today just in today's tight labor market? I mean you're a pretty small company now. So presumably, you're not looking to hire too many people on a quarterly basis. But is – how robust is that? And are you today able to kind of meet the demand that you see in the next couple of quarters?
好的。 在招聘方面 - 你谈到了我将在一秒钟内完成的业务流程，但就管道的可用顾问而言，今天在当今紧张的劳动力市场上看起来如何呢？ 我的意思是你现在是一家非常小的公司。 所以，大概你不打算每季度招聘太多人。 但是 - 这有多强大？ 你今天能否满足你在未来几个季度看到的需求？
Yes. Sure. So I think in general, in the environmental space and even in the engineering space, there is a competitive landscape for top talent in the marketplace. We believe E & E has a unique place for people that perhaps have spent time in larger integrated companies or even smaller companies to look for another option for them. We also provide – due to our specialization in ecological and environmental services and being a pure-play firm, we tend to have an attraction, I think, of top talent looking at us as a place where they want to further contribute and develop their career.
So we do look at the outlay of our sales force to try to get that into business as soon as we can. As I mentioned, we've made progress around key sales directors. We filled out our marketing team with specialists to go to market on each of those business lines. And we have that next – I would say the next one, two quarters to get those key hires fulfilled.
是。 当然。 所以我认为，总的来说，在环境领域，甚至在工程领域，市场上的顶尖人才都具有竞争优势。 我们相信E＆E为人们提供了一个独特的地方，他们可能花时间在大型综合公司甚至是小型公司中为他们寻找另一种选择。 我们还提供 - 由于我们专注于生态和环境服务，并且是一家纯粹的公司，我认为，我们倾向于吸引顶尖人才，将我们视为他们想要进一步贡献和发展事业的地方。
因此，我们会考虑销售人员的费用，以便尽快将其纳入业务。 正如我所提到的，我们围绕关键销售总监取得了进展。 我们的专业人员填写了我们的营销团队，以便在每个业务线上进入市场。 接下来我们就有了这个 - 我会说下一个，两个季度让这些关键员工得以实现。
Okay. When you look at the backlog, is the trend – or revenue, does that kind of line up with the trend? And I'm talking specifically about the U.S. Does it line up with that sort of negative 22% trend that we see in backlog? I'm trying to calibrate what that means. And then also, what's the difference in the way that you’re looking at backlog that caused it to drop off like it did?
好的。 当你看待积压时，趋势 - 或收入，是否与趋势一致？ 而我正在特别谈论美国它是否与我们在积压中看到的22％的负面趋势相符？ 我正在尝试校准这意味着什么。 然后，你看待积压导致它像它一样下降的方式有什么不同？
Sure. So as I mentioned before, taking a new look at various metrics across business, including backlog, we now have a new bit of a revised projection process so that we can look out across the business over a period of 12 months and even beyond to understand both from a hard backlog perspective, when we expect to see that revenue delivered and also the conversion of soft backlog to hard backlog, which ultimately would be revenue delivered to the business. Pipeline, of course, is important to us. That’s a big focus of our sales team, to increase our pipeline of opportunities and qualify those opportunities in the marketplace. So we look at those all sort of linked together in terms of telling a story as to how much we can qualify, how much we get in the pipeline and how much we can convert into both soft and hard backlog. I would say we look at the revenue delivery side from a month-to- month perspective to see what our projections are telling us. We’re very disciplined around that at this point. And regarding your second question, I believe that was around what’s different on the…
I think you had – I thought when you had reported your – when you had your catch-up on five a couple of weeks ago, a few weeks ago, I recall that number being bigger. And I was just wondering – particularly backlog for the U.S. operation, I was wondering what that difference was.
我想你曾经 - 我想当你报告了你的情况 - 几周之前，当你几周前的五次追赶时，我记得这个数字更大了。 而我只是想知道 - 特别是美国业务的积压，我想知道那是什么区别。
There’s a couple of things around that. One component of it was moving what was classified as hard backlog previously to what we’re calling soft backlog. So that’s the contract that we have been awarded, but we don’t have task orders against. So we’re making a clear differentiation between what we consider harder backlog and what we consider soft backlog or part of total backlog. And the second component of that is we have had a reduction in our backlog because we’ve been consuming it faster than we’ve been bringing in the actual backlog that we’ll be working on. So those…
这有几个方面。 它的一个组成部分是将以前归类为硬积压的东西转移到我们称之为软积压的东西上。 这是我们已经获得的合同，但我们没有任务订单。 因此，我们明确区分了我们认为较难的积压和我们认为的软积压或部分积压的部分。 第二个组成部分是我们减少了积压，因为我们消耗它的速度比我们带来的实际积压更快。 那些......
Thanks. I appreciate that. Is it your anticipation though that, that trend will continue? Or have we kind of hit bottom in terms of backlog? So based on what you’re seeing in the market. What you’ve done with the organization.
谢谢。 我很感激。 这是你的预期，这种趋势会持续下去吗？ 或者我们在积压方面有点触底？ 所以基于你在市场上看到的东西。 你对这个组织做了什么。
Well, I can say that – again, this is a snapshot in time of backlog as we come to the end of the third quarter. That does change month-to-month on us. It’s pretty dynamic. Our ability to, I think, mine soft backlog and convert that into hard backlog tends to be where we can get revenue probably a little bit quicker as we look at new opportunities in the marketplace.
好吧，我可以这么说 - 再次，这是我们到第三季度末的积压时间的快照。 这对我们来说确实每月都在变化。 这很有活力。 我认为，我们的软件积压并将其转化为硬积压的能力往往是我们在市场中寻找新机会时可能获得更快收入的地方。
Okay. Thank you. I appreciate the help.
好的。 谢谢。 我很感激帮助。
You bet. Sure.
Thank you. And our next question comes from the line of Peter Rabover with Artko Capital. Your line is now open.
谢谢。 我们的下一个问题来自Peter Rabover与Artko Capital的合作。 你的生产线现已开放。
Hey, guys. Maybe I just kind of want to concentrate on the backlog still a little bit because I guess I’m just – like the previous caller, I’m trying to get a handle on the soft versus hard backlog because you guys had a nice increase in the soft one, right? And a decrease on the hard one. So maybe I’m just trying to – I think I had the same question last call, but what is a typical conversion of the soft one within the 12 months that you had in the past?
大家好。 也许我只是想稍微专注于积压，因为我想我只是 - 就像之前的来电者一样，我正在努力解决软性和硬性积压问题，因为你们有一个很好的增长 柔软的，对吗？ 并且减少了硬盘。 所以也许我只是想 - 我想我最后一次打电话时遇到了同样的问题，但是过去12个月内软件的典型转换是什么？
Well, I’d say I don’t think there’s a typical conversion that we’re sort of looking at right now. We – again, I’ll reinforce that taking an eye to the metrics and ensuring that we have an eye to what’s actually we feel is hard backlog versus soft backlog was important to us. That’s why as you suggested or noted, we have a good shift that moved to soft backlog. But what I’d like to do at this point is introduce Kurtz Zmich, who’s on the line. He’s our Senior Vice President of Operations, who really has taken a key role in taking a deep dive into both our hard and soft backlog and our revenue projection. So at this point, I’ll hand it over to Kurt to respond to the question.
好吧，我会说我不认为我们现在正在寻找一种典型的转换。 我们 - 再一次，我会强调，要注意指标，并确保我们关注实际上我们认为硬积压与软积压对我们来说非常重要。 这就是为什么你的建议或指出，我们有一个很好的转变，转向软积压。 但是我现在要做的是介绍Kurtz Zmich，他正在线上。 他是我们的运营高级副总裁，他们在深入了解我们的硬性和软性积压以及我们的收入预测方面发挥了关键作用。 所以在这一点上，我会把它交给库尔特回答这个问题。
Great. Thank you.
Yes. Great. Can you hear me? Can everyone hear me?
是。 大。 你能听到我吗？ 每个人都可以听到我吗
Yes. I can hear you, great.
All right. Great. Yes. So, I’m Kurt Zmich, Senior Vice President of Operations. Doing projections and looking at hard and soft backlog and also looking at our – what we call our pipeline, which is the opportunities we have in play, has been a key focus of mine for the past few months. To answer the question, we’re trying to take a harder, more rigorous look at the differentiation between hard and soft backlog. So we understand what revenues we can count on over certain horizons versus the soft backlog where we have ability to farm it and get more sales on the door. And so we’re trying to quantify that better, communicate it in the business and use it for sales intelligence in effect. Does that answer your question better?
行。 大。 是。 所以，我是运营高级副总裁Kurt Zmich。 做好预测，观察硬性和软性积压，并观察我们 - 我们称之为我们的管道，这是我们发挥作用的机会，在过去的几个月里一直是我的重点。 为了回答这个问题，我们试图更加严格地审视硬性和软性积压之间的区别。 因此，我们了解在某些视野中我们可以依靠的收入与我们有能力耕种并获得更多销售额的软积压。 因此，我们试图更好地量化它，在业务中进行沟通并将其用于销售情报。 这会更好地回答你的问题吗？
I’m not really sure. I guess I’m just – maybe what are – maybe you can tell me what the differences are? What would require for the soft backlog to get turned into hard backlog versus the past?
我不太确定。 我想我只是 - 也许是什么 - 也许你可以告诉我它们的区别是什么？ 软积压需要什么才能变成与过去相比的硬积压？
So, soft backlog is, basically, approved funding we have on a contract vehicle that has not been released for spending for delivering on a project. So it’s funding available to get work and provide services to a client, but there’s no specific scope to it. And we’re trying to bring more understanding to that by contract vehicle to our sales force so they can focus on exploiting that, taking advantage of it more than I think has been done in the past.
因此，软补贴基本上是我们在合同工具上获得的批准资金，该合同工具尚未因为项目交付而被释放。 因此，可以获得工作并为客户提供服务的资金，但没有具体的范围。 我们正试图通过合同工具向我们的销售人员提供更多的理解，以便他们可以专注于利用它，利用它比我过去所做的更多。
I guess I’m still – if the only thing that matters is whether it’s funded or not, what does the sales force have to do with it if you have already gotten a contract?
我想我还是 - 如果唯一重要的是它是否有资金，如果你已经签订合同，销售人员会怎么做？
So, as part of our repeat business model, that is part of our sales approach. We try to capture new business, we also try to get repeat business and we try to grow our repeat business. This is also a way to identify opportunities for cross-selling between business lines. So maybe, provide services to a client from another business line different than what we typically provide, and it’s just another way to push some organic growth forward on our sales.
因此，作为我们重复业务模式的一部分，这是我们销售方法的一部分。 我们努力捕捉新业务，我们也尝试重复业务，并努力发展我们的重复业务。 这也是识别业务线之间交叉销售机会的一种方法。 也许，从不同于我们通常提供的业务线向客户提供服务，这只是推动我们销售的一些有机增长的另一种方式。
Yes. I mean I still don’t think you guys are understanding my question, but I’ll try to come back to it off-line, maybe. Just – I had one more question. Can you guys talk about your – about your building that you guys have? Have you tried to put a value on that building? I know you kind of carry it on the books, but it's a pretty significant building. And have you thought about an opportunity to monetize that or anything of that sort?
是。 我的意思是我仍然认为你们不理解我的问题，但我会尝试离线回到它，也许吧。 只是 - 我还有一个问题。 你们能谈谈你们 - 关于你们的建筑吗？ 你有没有想过在这座建筑物上施价？ 我知道你把它放在书上，但这是一个非常重要的建筑。 你有没有想过有机会将那种或那种东西货币化？
We have not had any market valuation done in our building, at least not in recent years. Haven't found any need to do that at this point. So I mean to answer your question, we have not put a valuation on the building.
我们的建筑没有进行任何市场估值，至少近年来没有。 此时尚未发现任何需要。 所以我的意思是回答你的问题，我们没有对建筑物进行评估。
Okay. I mean do you have any idea or any thoughts, I mean I'm not asking you for commitments. I just – it looks like it's listed as below value. And I'm just trying to figure out what the value of that is. But if you haven't thought about it, that's…
好的。 我的意思是你有任何想法或任何想法，我的意思是我不是要求你做出承诺。 我只是 - 看起来它被列为以下值。 而我只想弄清楚它的价值是什么。 但如果你没有想过，那就是......
It's not that it hasn't been thought of, but I don't think we have a number to share or have a comment about what are the options or choices at the moment. It's a wonderful headquarters, and that's what we expect it to be for some time.
Okay. And then maybe like a more bigger strategic question. You guys have a bunch of Latin American businesses, and some are pretty nice. It sounds like the Chilean and the Brazilian businesses are pretty nice. And have you – I guess my question is, just from a strategic overview, does it make sense for them to be kind of part of the business or not. Are you getting any synergy or any leverage – operating leverage on that? So that's what I'm just trying to grab so.
好的。 然后可能就像一个更大的战略问题。 你们有很多拉丁美洲企业，有些非常好。 听起来智利和巴西的业务非常好。 还有你 - 我想我的问题是，仅从战略概述来看，它们是否有意义成为业务的一部分。 您是否获得任何协同效应或任何杠杆作用 - 运营杠杆？ 所以这就是我想要抓住的东西。
Well, I mean you can see the earnings and the cash flow generation that we're getting from it. And there is strategic value and some opportunities to cross-sell. They are somewhat distinct, but we are trying to find ways to do more work together.
嗯，我的意思是你可以看到我们从中获得的收益和现金流量。 并且有交叉销售的战略价值和一些机会。 它们有些不同，但我们正试图找到共同完成更多工作的方法。
Okay. I mean is there an opportunity to monetize those businesses well?
Maybe – as you can imagine, if and when that decision is made, then we would announce it, but we consider them core to our operation.
也许 - 正如你可以想象的那样，如果做出决定，那么我们会宣布它，但我们认为它们是我们运营的核心。
Okay, thanks. I will jump back in the queue.
Thank you. And our next question comes from the line of Charles Neuhauser with Mainwall Investments. Your line is now open.
谢谢。 我们的下一个问题来自Charles Neuhauser与Mainwall Investments的合作。 你的生产线现已开放。
I think I remember from the most – the previous call not too long ago that you made comments that the $6 million in annual savings were at – to be expected to be reflected in the third quarter numbers. And that – very round numbers, it looks like, excluding the nonrecurring charges and all that sort of thing that the business was basically in a breakeven level in the third quarter. And I think I remember you saying that – well, you said another $100,000 is to come in the fourth quarter, but basically, the $6 million should begin to kick in noticeably in the fourth quarter and presumably for the entire future 12 months for the next fiscal year. So it leads one to think that if you're sort of cruising along in a breakeven level at the moment, the $6 million should pretty much drop right down to the pretax line. Is that more or less correct?
我想我记得最久 - 不久前的一次电话会议，你发表评论说每年节省600万美元的资金 - 预计将反映在第三季度的数字中。 而且 - 看起来非常圆的数字，不包括非经常性收费以及第三季度业务基本处于盈亏平衡水平的所有事情。 而且我想我记得你这么说 - 好吧，你说第四季还有10万美元，但基本上，600万美元应该会在第四季开始显着增加，并且可能是整个未来12个月的下一季 财政年度。 所以它让人觉得，如果你现在正处于盈亏平衡水平，600万美元应该会下降到税前线。 这或多或少是正确的吗？
Yes. I mean your summary of what we said last time I think is still what we expect. We expect sort of a ramp-up of the benefits during the fourth quarter. And then I believe in fiscal year 2020, we would see a larger portion of that $6 million annual benefit, benefit our bottom line.
是。 我的意思是你上次我认为我们所说的仍然是我们所期望的。 我们预计第四季度的收益会有所增加。 然后我相信在2020财年，我们会看到600万美元的年度收益中的更大一部分，这有利于我们的底线。
Well, obviously, what I’m getting at is there’s been a huge amount of time and effort and money spent to shake things up, shall we say. And I’m sure that wouldn’t have been expended or the effort wouldn’t have been made if there wasn’t some presumption or estimation of what the capability of the company is to earn a respectable return level of profitability.
And anyone, including myself and I presume yourselves, who is involved with investing in the company at this point, the key question is what is the earning power of the business. And there is no question but that the last few quarters had not reflected what is anywhere near a respectable level of earnings. I’m sure no one would disagree with that. And so we’re all trying to figure out what this thing should be worth.
And I’m curious what you would call or what you would say as a respectable level of operating profitability on net revenue base of what looks close to $75 million at this point. And if it is something like that, and you can, in fact, identify the $6 million of savings, well, then the pretax income should be at least $6 million. Any thoughts or comments along those lines?
It’s Marshall. I’ll jump in here. So I think you’re making reasonable assumptions. I think where we will have a hesitation and won’t be able to give you exact numbers is we’re not going to forecast, but we’re trying to give you a road map of how to think about this. And we’ve given you a couple of variables.
We’re talking to you about where our revenue is. We’re telling you that the management team has a plan in place to try to have organic growth in a positive direction. At the moment, we’ve been shrinking, but the expectation and attention is to stabilize and grow. And there have been many efforts made in terms of organizing the business, hiring key people, bringing on sales and cross-selling. We’ve talked about some of the initiatives.
And we’ve identified explicitly what the anticipated cost savings are. And at that point, it becomes arithmetic to some degree about – make an assumption about revenue, look at the expenses as they stand, assume that you got an annualized approximately $6 million of savings and it’s something we’ll continue to look at.
And yes, it obviously starts to generate a more reasonable, albeit not where we’re aspiring to. I can’t and we won’t forecast, but I think that your logic is sound.
我们已明确确定了预期的成本节约。在那一点上，它在某种程度上变成了算术 - 对收入做出假设，看看它们的成本，假设你有一个约600万美元的年度储蓄，这是我们将继续关注的。
Yes. Thank you. Yes, I know. No, I mean that’s how I would be looking at it. You’re – we’re at a sort of low-level run rate. You’re focused on organic growth. You’ve identified $6 million of savings. And therefore, if you’re at all successful generating some organic revenue growth, there should be operating leverage, which would actually increase the earning power of the company or at least demonstrate that the company is capable of earning more than just the $6 million savings that you have identified.
So that’s how I would look at it at this point. I would assume you would as well.
是。 谢谢。 是的我知道。 不，我的意思是我会如何看待它。 你是 - 我们处于某种低水平的运行率。 你专注于有机增长。 你已经确定了600万美元的节省。 因此，如果您在成功实现有机收入增长的同时，应该有运营杠杆，这实际上会增加公司的盈利能力，或者至少证明公司能够获得超过600万美元的收益 你已经确定了。
Yes. Management does, the Board does. And yes, that is a very fair characterization.
是。 管理层确实如此。 是的，这是一个非常公平的表征。
Thank you. And we do have a follow-up question from the line of Randy Mehl with Stewardship Capital. Your line is now open.
谢谢。 我们确实有一个跟随管理资本的Randy Mehl的后续问题。 你的生产线现已开放。
Okay. Thank you. Just on the balance sheet, cash and investment I believe was forecast around the $10 million level. Is this a bottom in terms of cash as you look forward, net cash as you look forward, given what we know about CapEx and dividend payments and the cash flow from op?
好的。 谢谢。 就资产负债表而言，我认为现金和投资预计在1000万美元左右。 考虑到我们对资本支出和股息支付以及来自运营商的现金流量的了解，这是您期待的现金，您期待的净现金，这是一个底部吗？
Yes. I would say that – so cash has been decreasing a little bit because of the incremental expenses and our revenue being down. As we do expect some improvement in our bottom line and our operations in the future, I would believe cash balance and line of liquidity ought to follow suit and start increasing. As far as the dividend goes, it's always up to the discretion of the Board, the size and the timing of our dividends. And that will continue to be the case.
是。 我会说 - 因为增加的费用和我们的收入下降所以现金一直在减少。 由于我们预计未来我们的盈利和运营将有所改善，我认为现金余额和流动性应该跟随并开始增加。 就股息而言，总是取决于董事会的自由裁量权，股息的规模和时间。 而且情况将继续如此。
Have you – but at this point, I just find that it's a little bit of a question of the last question, which was around profitability, given the savings and so forth going forward. You would – I mean is there any reason that, that number that, that would build ex an acquisition or something like that?
你有没有 - 但是在这一点上，我发现这是最后一个问题的一个问题，这个问题围绕着盈利能力，考虑到储蓄等等。 你会 - 我的意思是，是否有任何理由，这个数字，那将构建一个收购或类似的东西？
What was the last piece of it? An acquisition, Randy
Excluding – obviously you could do an acquisition. That's one thing. But assuming no acquisition, should we expect the net cash balance to build throughout into the foreseeable future?
排除 - 显然你可以进行收购。 这是一回事。 但假设没有收购，我们是否应该预计在可预见的未来可以建立净现金余额？
Yes. Again, I'll try to answer your question the same way I did the prior question, which is to say we're not giving a forecast. We – but we are telling you that what we are trying to achieve here is increase in revenues through organic growth, a reduction in overall expenses, which should, if we are successful and we're working hard at it, show a turnaround in the business, improve profitability and with that, cash flow should follow. And you can see that it's not a CapEx-intensive business.
是。 同样，我将尝试以与前一个问题相同的方式回答您的问题，也就是说我们没有给出预测。 我们 - 但我们告诉你，我们在这里要实现的是通过有机增长增加收入，减少总体费用，如果我们成功并且我们正在努力实现这一目标，那么这应该会在 业务，提高盈利能力，随之而来的是现金流。 你可以看到它不是资本支出密集型企业。
Okay. Thanks you. I appreciate it. And also congrats for getting caught up on the five of those. It was good for this one not to drag along. And I assume that we'll – you'll get on the regular path now.
好的。 谢谢。 我很感激。 并且还希望能够抓住其中的五个。 这个人不要拖延是好的。 而且我认为我们会 - 你现在就会走上正规路。
We are looking forward to a sense of normalcy.
Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back to Todd Musterait for any further remarks.
谢谢。 而且我现在没有再提出任何问题了。 我现在想把这个电话转回Todd Musterait进一步发表评论。
I appreciate everybody calling in for a discussion this morning, and we look forward to speaking with you next quarter. Thank you
Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program. You may now disconnect and, everyone, have a great day.
女士们，先生们，谢谢你们参加今天的会议。 这确实结束了今天的计划。 你现在可以断开连接，每个人都有美好的一天。
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