Name: Recon Technology, Ltd Q4 2014 Earnings Call
Start: 2014-09-11T00:00:00.000Z

Executive Summary

Q4 2014 revenue was approximately $2.85M, down ~3.8% sequentially vs Q3 ($2.96M), with gross margin ~30.8% (Q3: 28.8%), reflecting stronger hardware mix and negligible services in Q4 .
Full-year FY 2014 revenue rose 22% YoY to $15.18M and diluted EPS was $0.03, marking a swing to operating profit versus the prior year, while Q4 net income was negative (~$0.51M) as hardware-heavy mix and operating costs weighed on the quarter .
Management reiterated medium-term growth goals to double revenues in 2–3 years and targeted at least 20% YoY growth in FY 2015; those targets were maintained into Q4 communications and subsequent updates .
No Q4 2014 earnings call transcript was available; investor outreach included New York meetings, with formal conference calls resuming for Q1 FY 2015, positioning guidance and hardware/automation traction as stock reaction catalysts .

What Went Well and What Went Wrong

Hardware and automation sales continued to scale; FY 2014 hardware to non-related parties more than doubled, supporting Q4 revenue resiliency despite service decline .
FY gross margin improved YoY to 34.7% (from 32.7%), consistent with a mix shift away from lower-margin fracturing services and toward higher-value automation/hardware .
Management strengthened partnerships, including appointment as an authorized ABB third-party integrator, enhancing credibility and pipeline breadth for “Digital Oil Field” projects .

Fracturing services remained muted, with Q4 service revenue near zero (~$0.0001M), constraining margin leverage and utilization; management had flagged fracturing softness earlier in FY 2014 .
Q4 operating income was a loss (~~$0.81M), and net income attributable to Recon was a loss (~~$0.51M), reflecting hardware cost of revenues and operating expense load in the quarter .
Non-operating items (warrants liability fair value changes, investment loss) increased other expense through FY; while primarily recorded earlier, their presence highlights earnings volatility risk around financing structures .

Metric	Q3 2014 (USD)	Q4 2014 (USD)
Revenue	$2,958,903	$2,846,090 (FY $15,181,815 − 9M $12,335,725)
Gross Profit	$851,191	$875,003 (FY $5,266,581 − 9M $4,391,578)
Gross Margin (%)	28.8%	~30.8% (875,003 ÷ 2,846,090)
Operating Income	$(92,000)	$(811,325) (FY $459,812 − 9M $1,271,137)
Net Income attributable to Recon	$(313,313)	$(506,734) (FY $131,140 − 9M $637,874)
Diluted EPS (GAAP)	$(0.07)	N/A (quarter-specific EPS not disclosed)

Segment revenue breakdown (Q4 2014):

Segment	Q4 2014 (USD)
Hardware & Software (non-related parties)	$2,107,395 (FY $14,009,176 − 9M $11,901,781)
Hardware & Software (related parties)	$738,609 (FY $1,095,017 − 9M $356,408)
Service	$86 (FY $77,622 − 9M $77,536)

Selected KPIs (end of period FY 2014, June 30):

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue Growth (YoY)	FY 2014 (prelim) → FY 2015	“More than 20% YoY” for FY 2014 results preview	“At least 20% YoY” for FY 2015; growth goals maintained	Maintained
Medium-term Revenues	2–3 years	Target to double revenues over 2–3 years	Reiterated	Maintained

No explicit ranges provided for margins, OpEx, OI&E, tax rate, dividends in Q4 communications.

Topic	Q2 2014 (Dec 2013)	Q3 2014 (Mar 2014)	Q4 2014 (Jun 2014)	Trend
Automation/“Digital Oil Field”	Hardware/automation rising; service softness vs Sep-2012 fracturing peak	Continued hardware/automation growth; ABB integrator status highlighted	FY results underscore hardware-led growth; automation partnerships emphasized	Positive, sustained
Fracturing Services	Major decline vs prior year; few projects completed	Minimal service revenue; management expects longer-term opportunities	FY noted fracturing revenue reduction; focus shifting to other growth vectors	Negative near-term
China SOE reform/macro	Private participation opening high-end services	Same; adds overseas project ambitions (Turkmenistan)	Outlook supports hardware/automation demand despite macro; investor outreach	Neutral→supportive
Partnerships (ABB, Baker Hughes, Emerson)	Leveraging global partners	ABB integrator role increasing confidence	Partnerships reiterated to expand customization and reach	Positive
Financing structure (warrants)	N/A	Warrant liability introduced; fair value changes affecting other income/expense	Warrant liability persists into FY; earnings volatility awareness	Volatility risk

“FY 2014 delivered…strong hardware sales…as well as the swing into the black of results from operations.”
“We believe that an achievable goal for Recon is annual average revenue growth of a minimum of 20%…and…aim to double our revenues over the next two to three fiscal years.”
“We see particularly good continuing demand for ‘Digital Oil Field’ automation products…our recent appointment as an authorized third party system integrator for…ABB.”
“Sales of furnace and automation products were particularly strong…[and] helped offset the full year reduction in revenues from fracturing services.”

No Q4 2014 earnings call transcript was available; management scheduled investor meetings in New York around FY 2014 results (Sept 29–Oct 2) and resumed conference calls the following quarter (Q1 FY 2015) .
Guidance clarifications centered on maintaining the ≥20% YoY revenue growth goal and medium-term revenue doubling via organic growth plus acquisitions .

Wall Street consensus estimates via S&P Global for Q4 2014 were unavailable at time of query; therefore, no comparison to consensus EPS/revenue can be provided.
Implication: Absent published consensus, sell-side estimate revisions are unlikely to drive near-term stock moves; investor focus remains on execution vs management’s ≥20% FY 2015 growth target .

Q4 softness was driven by negligible services and operating cost load; however, hardware/automation mix supported margins and underpins FY 2014’s 22% revenue growth and operating profit inflection .
The narrative is firmly hardware/automation-led with ABB/Baker Hughes/Emerson partnerships enhancing credibility and pipeline depth, a positive for medium-term growth .
Fracturing remains a drag; management’s R&D focus may lower fracking costs in China, but near-term contribution looks limited, keeping execution risk on services .
Financing-related warrant liability introduces non-operating volatility; monitor fair value impacts on reported earnings/other income .
Liquidity and working capital at FY-end (~$2.94M cash; ~$13.5M working capital) provide runway to deliver projects and pursue growth initiatives .
With no Q4 call transcript and absent consensus estimates, trading will likely react to evidence of order completions and automation deployments rather than headline beats/misses; Q1 FY 2015 call cadence resumes investor communications .

Citations: