Telestone's CEO Discusses Q2 2012 Results - Earnings Call Transcript.

Telestone Technologies Corp (TSTC)

Q2 2012 Results Conference Call

August 15, 2012 08:30 AM ET


John Harmon – CCG Investor Relations

Han Daqing – Chairman and CEO

Xiaoli Yu – Chief Financial Officer

Jun Man – Manager, Office of the Board of Directors



Good day, ladies and gentlemen, and welcome to the Telestone Technologies Corp second quarter 2012 financial results conference call. All participants will be listen-only mode. (Operator Instructions).

After today's presentation there will be an opportunity to ask questions. (Operations Instructions). Please note this event is being recorded I would now like to turn the conference over to Mr. John Harmon, of CCG Investor Relations.

John Hormon

Thank you, Janine. Good morning, and good evening to everyone in China, welcome to Telestone Technology's second quarter 2012 conference call. Present today at Telestone Technology's Chairman CEO, Mr. Han Daqing; Chief Financial Officer, Mr. Xiaoli Yu, and Mr. Jun Man, Manager of the Office of the Board of Directors.

Before I turn the call over to Man Jun, I would like to remind our listeners that management's remarks in this call contain forward looking statements, which are subject to risks and uncertainties and management may make additional forward-looking statements in response to your questions.

Therefore the company claims protection for the Safe Harbor for forward-looking statements, that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ to those discussed today, with such risks as but not limited to changes in the company's products and sales and marketing strategy, targets of revenues, net income sales WFDS products, international sales accounts receivable and DSOs, and general information detailed from time to time in the company's filing and futre filings with the united states securities and exchange commission.

Although the company believes that the expectation on such quarterly income statements are reasonable, there is no assurance, of such expectations will prove to be correct. In addition, any projections of the company's future performance, represents Management's estimates as of today, Wednesday August 15, 2012. Telestone Technologies assumes no obligation to update these projections in the future, but markets conditions change.

In the conference call, we will discuss adjusted non-GAAP financial measures. These adjusted financial measures which are used to measure sort of Company's performance, should be considered in addition to – not as a substitute for a – measure of the Company's financial performance prepared in accordance with the United States Generally Accepted Accounting Principles or GAAP.

The company, suggests financial measures maybe defined differently, than similar trends (Inaudible) [0:02:33] by other companies, accordingly, care should be exercised in understanding of the company defines it's adjusted financial measures.

Reconciliations of the company's adjusted (Inaudible) [0:02:42] revenues, GAAP measures were set forth in the section titled reconciliation of GAAP to non-GAAP results, in the earnings press release, sent to the wireless services this morning, there will be out shortly.

For those of you unable to listen to the entire call this time today's call is also being webcast and an archive will be available for 1 year. Information on how to access the webcast is available in the press release. And now it's my pleasure to turn the call over to Mr. Jun Man, Secretary of Telestone's Board of Director, who'll read the remarks for Telestone's Chairman and CEO Mr. Han.

After that I will read Telestone's financial commentary and outlook. Mr. Man.

Jun Man

Thank you, John. Welcome everyone and thank you for joining us. Despite continued industry headwinds we posted sequentially higher revenues in the second quarter and although the year-over-year comparison was still a challenge, revenues were largely in line with our expectations. Although we reported a loss in the second quarter, this was largely due to current weak capital spending environment, and allowance for doubtful accounts which is in line with our expectations.

This year, we have deliberately moderated our top line growth in order to improve collections so that we can position Telestone for a return to growth and focus on developing our U-DAS, or WFDS and TIPS technologies.

The following are the key points in Telestone's business performance in the second quarter of 2012, revenues were $17.9 million, a decrease of 26.6% as compared to $24.3 million in the year-ago quarter. Gross profit was $6.6 million, as compared to $10.6 million in the year-ago quarter.

Net loss was $1.3 million, or $0.09 per diluted share; non-GAAP net loss was $1.2 million, or $0.08 per diluted share. In addition, during the second quarter a related company received an initial RMB2.5 million or US$0.4 million investment from Zhongguancun Development Group for the research, development and commercialization of Telestone Intelligent Premise System Technology.

This investment is part of a RMB15 million or US$2.4 million total commitment awarded in May, which the Group is expected to fulfill over the next three to five years.

John Harmon

Now, I will read Telestone's second quarter 2012 financial commentary. Revenues in the second quarter of 2012 were $17.9 million, a 26.6% decrease from $24.3 million in the year-ago quarter. The year-over-year decrease in revenue was primarily attributable to a slow start to 4G network construction, the maturity of 3G deployment, intensified competition, and the Company's strategic moderation of growth in certain cities with longer accounts receivable collection periods.

Equipment sales decreased 32.6% to $6.0 million from $8.8 million in the year-ago quarter. Sales of Professional Services declined 23.2% to $11.9 million, as compared to $15.5 million in the year-ago quarter. Equipment sales declined more than sales of professional services due to market share changes in a more competitive equipment market.

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