Telestone Technologies Corp. (TSTC)

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Telestone Technologies Corp. (TSTC)

Q3 2012 Earnings Call

November 19, 2012 8:00 am ET

Executives

John Harmon – Investor Relations, Senior Account Manager, CCG Asia

Jun Man – Manager, Office of the Board of Directors

Presentation

Operator

Good day, and welcome to the Telestone Technologies Corporation Announces Third Quarter 2012 Results Conference Call. All participants will be in a listen-only mode. (Operator Instructions) After today’s presentation there will be an opportunity to ask questions. (Operations Instructions) Please note that this event is being recorded.

And I would now like to turn the conference over to John Harmon, CCG Investor Relations. Please go ahead.

John Harmon

Thank you. Good morning, and good evening to everyone in China. Welcome to Telestone Technologies’ third quarter 2012 conference call. With us today Telestone Technologies Chairman and CEO, Mr. Han Daqing; Chief Financial Officer, Mr. Xiaoli Yu, and Ms. Jun Man, Manager of the Office of the Board of Directors.

Before I turn the call over to Ms. Man, I would like to remind our listeners that management’s remarks in this call contain certain 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 the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today, due to such risks such as, but not limited to, changes in the Company’s products and sales and marketing strategy, targets of revenues, net income, sales of WFDS products, international sales, accounts receivable and DSOs, and other information detailed from time to time in the Company’s filings and future 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 as to the Company’s future performance represent management’s estimates as of today, Monday, November 19, 2012. Telestone Technologies assumes no obligation to update these projections in the future as market conditions change.

In this conference call, we will discuss adjusted non-GAAP financial measures. These adjusted financial measures, which are used as measures of the Company’s performance, should be considered in addition to, not as a substitute for, measures of the Company’s financial performance prepared in accordance with the United States Generally Accepted Accounting Principles or GAAP. The Company’s adjusted financial measures may be defined differently than similar terms used by other companies. Accordingly, care should be exercised in understanding how the Company defines its adjusted financial measures.

Reconciliations of the Company’s adjusted measures to the nearest GAAP measures are set forth in the section titled "Reconciliation of GAAP to Non-GAAP Results" in the earnings press release issued this morning.

For those of you unable to listen to the entire call at this time, today’s call will also be webcast and archive will be available for one day. Information on how to access the webcast is available in the press release issued this morning.

And now it’s my pleasure to turn the call over to Ms. Jun Man, Secretary of Telestone’s Board of Directors, who’ll read the remarks for Telestone’s Chairman and CEO Mr. Han.

After that, I will read Telestone’s financial commentary. Ms. Man?

Jun Man

Thank you, John. Welcome everyone and thank you for joining us. While we are disappointed in reporting a decline in sales and a loss in the third quarter, the loss was largely due to an allowance for doubtful accounts. 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 a renewed focus on U-DAS and TIPS technologies next year.

Telestone is currently successfully navigating about a technology cycle, as investment in certain wireless technologies wanes and new technologies such as TIPS start to draw, our customer interest. With China 4G deployment and unstoppable force, we believe Telestone is well positioned to benefit from this trend. The following are the key points in Telestone business performance in the third quarter of 2012.

Revenues were $17.4 million, a decrease of 41.2%, as compared to $29.6 million in the year-ago quarter. Gross profit was $6.8 million, as compared to $12.9 million in the year-ago quarter Net loss was $13.1 million, or $0.92 per diluted share. Non-GAAP net income, which excluded stock-based compensation and allowance for the doubtful accounts, which was $1.3 million, or $0.09 per diluted share.

With that, I will now turn the call to John Harmon at CCG for a review of financials in more detail.

John Harmon

Thank you. Revenues in the third quarter of 2012 were $17.4 million, a 41.2% decrease from $29.6 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 48.5% to $5.9 million from $11.4 million in the year-ago quarter. Sales of professional services declined 36.7% to $11.5 million, as compared to $18.2 million in the year-ago quarter. Equipment sales declined by greater percentage in sales of professional services due to market share changes in a more competitive equipment market.

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