WPCS Reports FY2011 Second Quarter Financial Results

Dec 15, 2010, 16:01 ET from WPCS International Incorporated

EXTON, Pa., Dec. 15, 2010 /PRNewswire-FirstCall/ -- WPCS International Incorporated (Nasdaq: WPCS), a leader in design-build engineering services for communications infrastructure, today announced financial results for the fiscal year 2011 second quarter ended October 31, 2010. For the second quarter, the company has incurred an estimated goodwill impairment charge of $4.3 million for its Suisun City Operations. The company emphasized that this goodwill impairment charge is a non-cash charge and will have no impact on its operations or cash flows. The $22.4 million in net tangible asset value for WPCS remains unchanged and equates to $3.22 per diluted share.  

In the second quarter, WPCS reported revenue of $26.7 million compared to $24.3 million for the same period a year ago, which represents an increase of approximately 10%. In the second quarter, WPCS generated an EBITDA loss of approximately $1.1 million which is defined as earnings before interest, taxes, acquisition-related contingent earn-out costs, goodwill impairment, one-time charges related to seeking strategic alternatives including the possible sale of the company and depreciation and amortization. The company generated $1.3 million in EBITDA for the same period a year ago. For the second quarter ended October 31, 2010, WPCS reported a net loss of approximately $6.0 million or $0.86 per diluted share which includes the goodwill impairment and the one-time charges associated with seeking strategic alternatives including the possible sale of the company. This compares to net income of $337,000 or $0.05 per diluted share for the same period a year ago.

For the six months ended October 31, 2010, WPCS reported revenue of $55.6 million compared to $49.6 million for the same period a year ago, which represents an increase of approximately 12%. In the six months, WPCS generated an EBITDA loss of approximately $860,000. The company generated $2.5 million in EBITDA for the same period a year ago. For the six months ended October 31, 2010, WPCS reported a net loss of approximately $6.3 million or $0.91 per diluted share which includes the goodwill impairment and the one-time charges associated with seeking strategic alternatives including the possible sale of the company. This compares to net income of $772,000 or $0.11 per diluted share for the same period a year ago.

Andrew Hidalgo, CEO of WPCS, commented, "WPCS has ten operation centers that have evolved from the nineteen acquisitions made over the last several years. In the second quarter, we experienced performance issues with two of our ten operation centers. The unfavorable performance of the two operation centers adversely affected our consolidated results. This performance was primarily related to three projects that experienced cost overruns within these two operation centers. Excluding these two operation centers, the other eight performing operation centers generated $22.0 in revenue and $1.4 million in EBITDA. Furthermore, the eight operation centers are expected to generate $89.0 million in revenue and $7.3 million in EBITDA for the fiscal year ending April 30, 2011. Although the company has healthy and profitable operation centers, we will continue to focus on improving the performance of these two specific operations centers. WPCS is expecting positive EBITDA results for the third and fourth quarters on a consolidated basis." Mr. Hidalgo continued, "WPCS still has a backlog of $37 million and a bid list of $176 million which reflects our growth opportunities. Our balance sheet remains strong with $19.9 million in working capital and $5.8 million in cash.  Although we have elected to estimate a write down of goodwill at our Suisun City Operations, this is a non-cash charge and therefore has no impact on our operations. On another note, the company continues to seek strategic alternatives including the possible sale of the company and although we cannot comment on the status of strategic alternatives, they are progressing."

As a reminder, there will be an investor conference call at 5:00 pm ET today. To participate on the conference call, please dial 888-299-4099 for calls within the U.S. or 302-709-8337 for calls from international locations. Upon reaching the operator, verbally transmit the participant code VH73045. When the overview concludes, your questions can be asked by pressing *1 and your questions can be removed from the queue by pressing the number sign. Replays of the conference call will be available for a period of five days by dialing 402-220-2946 and entering 73045 # as the program identification number.

The attached press release includes financial measures that are not in accordance with GAAP, consisting of EBITDA and net tangible asset value. Management uses EBITDA to evaluate the Company's operating and financial performance in light of business objectives, for planning purposes, when publicly providing our business outlook and to facilitate period-to-period comparisons. Management uses net tangible asset value to evaluate the strength of the Company's balance sheet.  WPCS believes that these measures are useful to investors because they enhance investors' ability to review the Company's business from the same perspective as our management and to facilitate comparisons of this period's results with prior periods.  Non-GAAP measures are used by some investors when assessing the ongoing operating and financial performance of our Company. These financial measures are not in accordance with GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies. The presentation of the additional information should not be considered a substitute for net income or net income per diluted prepared in accordance with GAAP. The primary material limitations associated with the use of non-GAAP measures as compared to the most directly comparable GAAP financial measures are (i) they may not be comparable to similarly titled measures used by other companies in our industry, and (ii) they exclude financial information that some may consider important in evaluating our performance. Pursuant to the requirements of Regulation G, WPCS has included a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures.

About WPCS International Incorporated:

WPCS is a design-build engineering company that focuses on the implementation requirements of communications infrastructure. The company provides its engineering capabilities including wireless communication, specialty construction and electrical power to the public services, healthcare, energy and corporate enterprise markets worldwide. For more information, please visit www.wpcs.com

Statements about the company's future expectations, including future revenue and earnings and all other statements in this press release, other than historical facts, are "forward looking" statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Such forward looking statements involve risks and uncertainties and are subject to change at any time.  The company's actual results could differ materially from expected results.  In reflecting subsequent events or circumstances, the company undertakes no obligation to update forward looking statements.

CONTACT:

WPCS International Incorporated

610-903-0400 x101

ir@wpcs.com

WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited

Three Months Ended

Six Months Ended

October 31,

October 31,

2010

2009

2010

2009

REVENUE

$26,723,078

$24,301,560

$55,575,576

$49,585,343

COSTS AND EXPENSES:

Cost of revenue

22,000,010

16,752,484

44,697,985

34,910,296

Selling, general and administrative expenses

6,097,011

6,286,661

12,013,338

12,140,145

Depreciation and amortization

721,706

658,199

1,456,321

1,308,143

Goodwill impairment

4,300,000

-

4,300,000

-

Change in fair value of acquisition-related contingent consideration

73,594

-

136,646

-

Total costs and expenses

33,192,321

23,697,344

62,604,290

48,358,584

OPERATING (LOSS) INCOME

(6,469,243)

604,216

(7,028,714)

1,226,759

OTHER EXPENSE (INCOME):

Interest expense

62,102

78,277

116,737

140,637

Interest income

(14,299)

(1,612)

(24,368)

(3,531)

(LOSS) INCOME BEFORE INCOME TAX (BENEFIT) PROVISION

(6,517,046)

527,551

(7,121,083)

1,089,653

Income tax (benefit) provision

(478,069)

254,605

(716,448)

492,687

NET (LOSS) INCOME

(6,038,977)

272,946

(6,404,635)

596,966

Net income (loss) attributable to noncontrolling interest

(75,799)

(63,841)

(65,506)

(174,738)

NET (LOSS) INCOME ATTRIBUTABLE TO WPCS

($5,963,178)

$336,787

($6,339,129)

$771,704

Basic net (loss) income per common share attributable to WPCS

($0.86)

$0.05

($0.91)

$0.11

Diluted net (loss) income per common share attributable to WPCS

($0.86)

$0.05

($0.91)

$0.11

Basic weighted average number of common shares outstanding

6,954,766

6,942,266

6,954,766

6,942,266

Diluted weighted average number of common shares outstanding

6,954,766

6,976,256

6,954,766

6,968,524

WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

October 31,

April 30,

ASSETS

2010

2010

(Unaudited)

CURRENT ASSETS:

Cash and cash equivalents

$         5,785,473

$       5,584,309

Accounts receivable, net of allowance of $258,899 and $206,617 at October 31, 2010 and April 30, 2010, respectively

27,399,574

26,011,955

Costs and estimated earnings in excess of billings on uncompleted contracts

7,026,212

8,859,056

Inventory

2,933,896

2,720,052

Prepaid expenses and other current assets

1,732,565

848,626

Prepaid income taxes

1,089,478

-

Deferred tax assets

497,266

666,000

Total current assets

46,464,464

44,689,998

PROPERTY AND EQUIPMENT, net

6,312,862

6,468,787

OTHER INTANGIBLE ASSETS, net

1,798,658

2,112,058

GOODWILL

30,809,285

34,919,384

OTHER ASSETS

124,870

162,858

Total assets

$        85,510,139

$      88,353,085

WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (continued)

LIABILITIES AND EQUITY

October 31,

April 30,

2010

2010

(Unaudited)

CURRENT LIABILITIES:

Current portion of loans payable

$       42,363

$        63,683

Income taxes payable

-

107,417

Borrowings under line of credit

7,626,056

-

Current portion of capital lease obligations

69,719

81,950

Accounts payable and accrued expenses

11,351,857

10,962,016

Billings in excess of costs and estimated earnings on uncompleted contracts

2,260,347

1,853,131

Deferred revenue

619,732

503,502

Due joint venture partner

3,606,922

3,288,294

Acquisition-related contingent consideration

968,896

851,516

Total current liabilities

26,545,892

17,711,509

Acquisition-related contingent consideration, net of current portion

825,608

726,677

Borrowings under line of credit

-

5,626,056

Loans payable, net of current portion

27,114

46,364

Capital lease obligations, net of current portion

37,384

69,961

Deferred tax liabilities

1,917,385

2,018,462

Total liabilities

29,353,383

26,199,029

COMMITMENTS AND CONTINGENCIES

EQUITY:

Preferred stock - $0.0001 par value, 5,000,000 shares authorized, none issued

-

-

Common stock - $0.0001 par value, 25,000,000 shares authorized, 6,954,766 shares issued and outstanding at October 31, 2010 and April 30, 2010

695

695

Additional paid-in capital

50,399,437

50,346,655

Retained earnings

3,896,461

10,235,590

Accumulated other comprehensive income on foreign currency translation

735,051

398,116

Total WPCS shareholders' equity

55,031,644

60,981,056

Noncontrolling interest

1,125,112

1,173,000

Total equity

56,156,756

62,154,056

Total liabilities and equity

$      85,510,139

$    88,353,085

WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

Reconciliations of GAAP to Non-GAAP Financial Measures (Unaudited)

(1) Non-GAAP EBITDA Reconciliations:

Three Months Ended

Six Months Ended

October 31,

October 31,

2010

2009

2010

2009

NET (LOSS) INCOME ATTRIBUTABLE TO WPCS, GAAP

($5,963,178)

$336,787

($6,339,129)

$771,704

Plus:

Net income (loss) attributable to noncontrolling interest

(75,799)

(63,841)

(65,506)

(174,738)

Income tax (benefit) provision

(478,069)

254,605

(716,448)

492,687

Interest expense

62,102

78,277

116,737

140,637

Interest income

(14,299)

(1,612)

(24,368)

(3,531)

Change in fair value of acquisition-related contingent consideration

               73,594

                        -

             136,646

                      -  

Goodwill impairment

4,300,000

                        -

4,300,000

                        -

One time strategic costs

275,675

                        -

             275,675

                        -

Depreciation and amortization

721,706

658,199

1,456,321

1,308,143

Consolidated EBITDA, Non-GAAP

($1,098,268)

$1,262,415

($860,072)

$2,534,902

Plus:

Operating loss, Suisun City operations center

1,073,607

(893,374)

1,465,094

(1,928,739)

Operating loss, Portland operations center

470,975

36,586

519,788

122,335

Corporate operating expenses

920,647

1,143,645

1,737,511

1,950,545

Performing Operation Centers EBITDA, Non-GAAP

          $1,366,961

          $1,549,272

        $2,862,321

          $2,679,043

(2) Net Tangible Asset Value Reconciliation:

October 31,

April 30,

2010

2010

Total WPCS shareholders' equity

       $55,031,644

      $60,981,056

Less:

       Goodwill

        30,809,285

        34,919,384

       Other Intangible Assets, net

          1,798,658

          2,112,058

Net Tangible Asset Value

      $22,423,701

     $23,949,614

SOURCE WPCS International Incorporated



RELATED LINKS

http://www.wpcs.com