Transcript of
Document Capture Technologies, Inc.
(DCMT.OB)
Second Quarter 2011 Financial
Results
August 15, 2011
David P. Clark, Chief
Executive Officer
Craig H. Weber,
President and Chief Operating Officer
M. Carolyn Ellis,
Chief Financial Officer
Operator
Greetings and welcome
to the Document Capture Technologies’ Second Quarter Earnings Call. At this
time, all participants are on a listen-only mode. A brief question and answer
session will follow the formal presentation. If anyone should require operator
assistance during the conference, please press *0 on your telephone keypad.
It is now my pleasure
to introduce your host, David Clark, CEO of Document Capture Technologies. Thank
you, Mr. Clark, you may begin.
David P. Clark –
Document Capture Technologies, Inc. – Chief Executive Officer
Thank you, Amelia, and
thank you to everyone who has joined us today for Document Capture Technologies’
Second Quarter 2011 Earnings Call. Our President and Chief Operating Officer, Craig
Weber, and Carolyn Ellis, our Chief Financial Officer, join me here today. At
the conclusion of the call, we will be pleased to answer any questions related
to the quarter or the company in general.
I also want to bring
to your attention the webcast and replay following this conference call, which
will be available by following the link contained in the press release
announcing this call as well as on the front page of www.docucap.com.
Now, I’ll turn it
over to Carolyn to read the Safe Harbor statement. Carolyn?
M. Carolyn Ellis –
Document Capture Technologies, Inc. – Chief Financial Officer
Thank you, Dave.
This conference call
contains forward-looking statements concerning Document Capture Technologies.
The actual results may differ materially depending on a number of risk factors
including, but not limited to, general economic and business conditions,
integration of acquisitions, existing competition, changes in technology, and
the company’s ability to make future sales agreements, as well as changes in
government regulations and various other factors that are beyond the company’s
control. All forward-looking statements are especially qualified in their
entirety by these cautionary statements and the risk factors detailed in the
company’s filings with the Securities and Exchange Commission. Document
Capture undertakes no duty to revise or update any forward-looking statements
to reflect the events or circumstances after the date of this conference call.
With that business
taken care of, I’ll turn it back over to Dave.
David P. Clark –
Document Capture Technologies, Inc. – Chief Executive Officer
Thanks, Carolyn.
First, I’ll offer a
brief overview with respect to some of the activities during and subsequent to
the second quarter of 2011 ending June 30th. I will then turn the
discussion back to our CFO, Carolyn Ellis, who will take you through the
financial details. Following the numbers, Craig Weber, DCT’s President and
COO, will deliver his remarks to our shareholders and investors.
While the global
economy and political climate continue to present significant challenges to
businesses in general, DCT is weathering the tumult exceptionally well and has
once again delivered continued revenue growth. As a matter of fact, Q2 2011 is
the seventh consecutive quarter that DCT has delivered consistent positive
revenue growth. For Q2, revenues were $3.8 million, 17% higher than the same
quarter in 2010. For the half year of 2011, revenues were $7.4 million, up 10%
over the same period of 2010. Management is anticipating record revenues in Q3
and for full year of 2011.
Operating expenses at
$1.7 million were flat against Q1 2011 and consisted primarily of our continued
commitment to making strategic investments to manage our growth and rapid
product and partner expansion. I will speak more to this in a moment as will our
President, Craig Webber.
EBITDA, earnings
before interests, taxes, depreciation, and amortization was a loss of $35,000
for the quarter versus a loss of $175,000 for Q1 2011. Characteristic of our
focused cost and cash management, DCT’s balance sheet at June 30, 2011 remains
in excellent shape with no debt, cash on hand of $1.3 million, and working
capital of $4.6 million versus $3 million at June 30, 2010.
In addition, the company
also had an available volume capacity of just under $1.5 million at the end of
June 30, 2010 bringing our combined cash and borrowing capacity to
approximately $2.8 million.
The second quarter we
characterized by many extremely positive developments for the company that are
paying off both now and will continue to do so well into the future. We
recently announced an exclusive North American distribution pact with China-based
Microtek, who is the market leader for scanning image capture technologies in China.
Established in 1980, the company designs, develops, and manufactures next
generation image capture technologies for both the retail market as well as
commercial application in the medical, biotech, and industrial sectors.
Microtek has 161 patents worldwide with over 500 employees and is responsible
for many industry milestones including developing the world’s first 300 dpi
black and white sheet-fed scanner more than 25 years ago. Microtek’s products
are sold in more than 1500 locations throughout China and are supported by 90
service centers. The company is also recognized as one of the top four global
scanner brands.
Second is the type and
size of orders that have characterized the quarter. As I said in my Q1
remarks, management is committed to moving DCT to the next level with new
product offerings both through organic R&D as well as with our partners
such as Microtek. We are closing not only significant orders with legacy
clients but with new clients as well. Case in point is the initial purchase of
multiple thousands of units by one new OEM customer for one of its regional
bank clients that we announced in May 2011. Following that initial order, we
have since received significant follow on orders destined for the same
customer. The import of these orders is that it deepens DCT’s influence in a
sector that has massive potential and further extends our sector presence. We
believe once deployed, other financial institutions will recognize the value
proposition by following suit and DCT’s positioning makes it the potential
technology of choice as that market opens up. The units for this client begin
shipping in Q3 2011.
With regard to the legacy
client, DCT recently secured its largest orders to date from a global
technology leader and it includes three separate and distinct DCT products.
These multiple thousands of units will begin shipping in Q4 2011 and are
destined for the customers in North American retail channels which include
major office supply chains and electronic specialty retailers. These two
clients, one new and one established, have already, and we expect will continue
to, produce follow on orders that will contribute significantly to revenues
through 2011 and well beyond.
One of the most
compelling benefits of relationships such as Microtek, and we believe many more
to come, is that DCT has become a partner within a network of the best R&D
available in the image capture space. These mutually beneficial and
cooperative relationships will see the most innovative products being presented
to a worldwide market at competitive price points. DCT’s aggressive pricing
strategy has had the effect of producing larger orders resulting in expanded
revenues.
In conclusion, due to
orders booked and anticipated, I expect that we will deliver record Q3 and
whole year 2011 revenues for the company and our shareholders.
Now, our CFO, Carolyn
Ellis, will detail the Q2 numbers. Carolyn?
M. Carolyn Ellis –
Document Capture Technologies, Inc. – Chief Financial Officer
Thanks, Dave, and
good afternoon to all.
Let’s dive into the
financials.
Net sales for Q2 2011
were $3.8 million compared to $3.3 million in Q2 2010. The 17% growth in
revenues was attributable to an 11% increase in the number of scanners sold.
The majority of the 11% increase was due to organic growth experienced by our
existing recurring customers. The mix of products and product configuration
sold during the quarter increased our average selling price or ASP while
certain volume related discounts decreased our ASP.
Cost of sales for Q2
2011 were $2.5 million compared to $2 million for Q2 2010. This resulted in
gross profits of $1.4 million or 35% gross margins during Q2 2011 compared to
gross profits of $1.3 million or 39% gross margins during Q2 2010. Management
expected the decrease in gross margin percentage because it was attributable to
certain volume related discounts as part of our intended growth in revenue.
Additionally, the gross margin percentage decreased due to the mix of products
sold. During Q2 2011, we sold proportionately more duplex or two-sided
scanners than simplex or one-sided scanners in comparison to Q2 2010. Duplex
scanners typically have a higher gross margin than our simplex scanners.
Total operating
expenses for Q2 2011were $1.7 million compared to $1.3 million in Q2 2010.
Selling, general, and administrative or SG&A expenses increased to $1.4
million in Q2 2011 compared to $986,000 in Q2 2010. The largest components of
the increase in SG&A were, one, increased headcount and higher salaries to
attract and retain key personnel required for business expansions; second,
increase stock-based compensation costs, a non-cash charge as a result of
issuing new stock options during the latter part of fiscal 2010 with shorter
than customary investing terms; third, increase consulting costs due to IT
upgrade, market development, and personnel recruitment; and, last, increased
travel associated with our efforts to expand our product offerings, our
customer base, and our presence in the international market.
Research and
development expenses increased to $314,000 in Q2 of 2011 compared to $279,000
in Q2 of 2010. The increase is related to headcount expenses for internal
engineers and external consultants. The increase is an investment in DCT’s
product development process and is necessary to expand our product offerings.
During Q2 of 2011, we
reported a non-operating income of approximately $81,000, the majority of which
was a non-cash gain resulting from the decreased fair value of our stock option
liability. Generally, DCT will report a non-cash gain during any accounting
period where there is a reported decrease in the price of the company’s common
stock as quoted on the OTC Bulletin Board.
Our GAAP net loss was
$312,000 during the second quarter of 2011 compared to a GAAP net income of $67,000
during the second quarter of 2010. DCT’s EBITDA or earnings before interest,
taxes, depreciations, and amortizations during the second quarter of 2011 was
negative $35,000 compared to a positive $306,000 during the second quarter of
2010.
Our financial
position remains strong. We ended Q2 2011 with working capital of $4.6 million
and a current ratio of 6.4 to 1 compared to $4.8 million and a current ratio of
3.4 to 1 at December 31, 2010. Our current ratio at June 30, 2011 compared to December
31, 2010 was temporarily impacted as a result of our subcontract manufacturer
moving its factory from Shenzhen, China to Wuhan, China which impacted
shipments of goods and timing of payments. The new factory was successfully
completed and the building was fully operational on June 1, 2011.
Historically, DCT has
actively controlled operating expenses to align with current and projected net
sales. However, we recognize the need to invest in DCT’s future by expanding
our current product offerings, expanding our customer base, and increasing our
presence in international markets. 2011 will be a year of concentrating on
this expansion and identification of significant growth opportunities.
Now, I will turn the
call over to Craig for more in depth discussion of where our document capture
business is going. Craig?
Craig H. Weber –
Document Capture Technologies, Inc. – President and Chief Operating Officer
Thank you, Carolyn. I
appreciate you taking the time to join us today. I think you will agree at the
conclusion of the call that DCT has the right products, relationships, and
personnel to see continued and exceptional revenue growth for the balance of
2011 and beyond.
As President, my
focus continues to be upon building the most cost effective, customer
responsive company in the unit capture space. To this end, we have put several
initiatives in place to ensure that DCT retains and grows its market share and industry
leadership position. As discussed in our Q1 investor call, our current focus
is upon delivering innovative products developed both organically and through
collaborative, mutually beneficial technology partnerships.
Dave mentioned the
Microtek relationship, which opens a significant new revenue stream for DCT as
we have instant and exclusive access to a number of exciting new products. We
expanded product line offering that we gained through the Microtek relationship
has been very positively received by our existing customer base and will also
help DCT to establish strong relationships with new customers.
We are working on
several other partnerships that will further expand our product line and
increase our international presence. The partners that we are working with share
in our vision of effective leadership through innovative product development
and providing solutions that are optimized for key industry verticals. We
expect to have more announcements regarding those initiatives soon.
At the same time, we
are making significant inroads in establishing partnerships that will see our
products included for use with leading scan technologies such as the recently
announced certification of our DocketPORT family of products with ScanDrop, a
proprietary scan-to-cloud solution or software solution. Augmenting these
partnership initiatives is our ongoing investments in the infrastructure
required to drive and support DCT’s future growth.
During 2011, we have
made significant improvements in DCT’s information technology systems. Those
upgrades will continue throughout 2011 and into 2012. Among the upgrades
planned for the remainder of 2011 is a CRM solution that will enable us to
provide the best product support available. By making these investments, we
will ensure that DCT continues to provide excellent customer service as the
size and scope of our business increases.
DCT is also in the
process of adding personnel with impressive industry contact, experience, and
expertise to manage and continue to expand our growth. Competition dictates
that the company has the best people, processes, and systems to maintain market
leadership and those priorities are always on top of mind with our management
team.
If I have to
characterize Q2, it would be that our plans to broaden both DCT’s product
offering and international presence are rapidly coming to fruition. We are in
talk with not only domestic companies but through our presence in the EU, gaining
a significant amount of interest from top companies in the field for potential
product partnerships. The sectors of interest to our OEM and for our customers
include the financial, retail, and healthcare sectors with particular interest
in small footprint scanners, which we have also noted in North America. The
international transportation field also has significant potential for our
company.
Our mandate remains
to address costs, build an industry leading infrastructure, and, above all,
remain keenly focused on and responsive to our customers’ needs.
Finally, along with
the other initiatives to effectively manage growth and uncover global
opportunities, DCT is in the process of structuring an industry leading
strategic advisory panel. These individuals will have the experience,
contacts, and expertise to be of great importance to DCT’s corporate and
product development. I hope to have more detail for you by the end of this
quarter. This kind of expertise is critical to establishing infrastructure and
product priorities so as to maintain cost effectiveness and grow market share
through the most potent revenue opportunities wherever they may be.
In concluding my
remarks, I would like to acknowledge and recognize both our partners and our
dedicated employees who share a collective vision for the growth and success of
Document Capture Technologies. Thank you for your ongoing support.
And with that, I will
turn the call over to Dave Clark for his closing remarks. Dave?
David P. Clark –
Document Capture Technologies, Inc. – Chief Executive Officer
Thanks, Craig.
As CEO and a DCT shareholder,
what is most gratifying to me, and I hope other shareholders and investors, is
the true period that has and continues to be the most economically challenging
environment in a generation. The company continues to build from strength to
strength, seven consecutive positive growth quarters, world class partnerships,
new and innovative products and technologies been made available to new and
established clients as our presence grows both domestically and around the
world. I believe we will continue this positive trend with DCT on track to
deliver record revenues in Q3 and full year 2011.
On behalf of the
employees, management, and board, I thank you for your continued support and
your attention today. We look forward to your questions.
Operator
Thank you. We will now
be conducting a question and answer session. If you would like to ask a question,
please press *1 on your telephone keypad. A confirmation tone will indicate
your line is in the question queue. You may press *2 if you would like to remove
your question from the queue. For participants using speaker equipment, it may
be necessary to pick up your handset before pressing the * keys. One moment
please while we pool for questions.
Once again, if you do
have a question, please press *1 at this time.
Our first question
comes from the line of James Osher from Osher Enterprises.
James Osher – Osher
Enterprises
Hello, gentlemen. I
would like to ask a question, you’re commenting about growth and revenue and
showing a good record of growth and revenue and underlying question comes to
when do you anticipate earnings?
David P. Clark –
Document Capture Technologies, Inc. – Chief Executive Officer
All right. How are
you, James? Thank you for the question and thank you for calling in. This is
Dave Clark speaking. We are aggressively working towards producing earnings.
We are not putting out any sort of guidance that speaks directly to that but I
can assure you that it is the highest priority for the management team here and
we have been investment spending for a period now to put ourselves in a
position where higher revenues will inherently produce earnings. The
investments were needed to ensure that we would have the sound and solid
support and platform from which to grow and move to profitability. So we
anticipate that earnings are certainly in the future. I can say that within
the next several quarters expected.
James Osher – Osher
Enterprises
Am I still on the
line?
David P. Clark –
Document Capture Technologies, Inc. – Chief Executive Officer
Yes, you are.
James Osher – Osher
Enterprises
Okay. Has there been
any share purchases by the company in this last quarter? I know after your MCR
influx of capital, there was a respectful amount of share repurchases and I’m
sure you’re painfully aware of your stock prices then and I would like to know
if you’ve exploited that at all as a company?
David P. Clark –
Document Capture Technologies, Inc. – Chief Executive Officer
There were no
additional share purchases in Q2. The share repurchased remains open with
dollars available as agreed to by the Board of Directors. At this point in
time, our sole focus is more internal and creating a profitable environment and
providing earnings, which, in our opinion, is what ultimately is needed to
drive the share price.
James Osher – Osher
Enterprises
Okay. Thank you.
David P. Clark –
Document Capture Technologies, Inc. – Chief Executive Officer
Thank you.
Operator
Thank you. As a
final reminder, if you do have a question, please press *1 at this time.
We appear to have no
further questions. I’d like to turn the call back over to our speakers for any
closing comments.
David P. Clark –
Document Capture Technologies, Inc. – Chief Executive Officer
Thank you, Shay (ph),
and we would just like, again, to thank everybody for showing interest and
taking the time to be with us today and continuing to watch DCT’s advancement
and evolution. And we look forward to more good news to come and ultimately,
as Mr. Osher inquired, profitability that will speak on behalf of the company.
Thank you very much, everyone.
Operator
Thank you. This does
conclude today’s teleconference. You may disconnect your lines at this time. Thank
you for your participation.
