ADDvantage Technologies Group, Inc.
Q1 2019 Earnings Call Transcript

Published: 12 Feb 2019

[Operator:]

Good day, and welcome to the ADDvantage Technologies’ First Quarter 2019 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Elizabeth Barker of KCSA Strategic Communications. Please go ahead.

[Elizabeth Barker:]

Thank you, operator. Before we begin today’s call, I would like to remind you that this conference call may contain certain forward-looking statements, which are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding the future events, such as the ability of ADDvantage Technologies and its subsidiaries to maintain strategic relationships and agreements with certain original equipment manufacturers and multiple system operators, as well as the future financial performance of ADDvantage Technologies. These statements involve a number of risks and uncertainties. Participants are cautioned that these forward-looking statements are only predictions and may materially differ from actual future events or results due to a variety of factors, such as those contained in ADDvantage Technologies’ most recent report on Form 10-K on file with the Securities and Exchange Commission. Financial information presented on this conference call should be considered in conjunction with the consolidated financial statements and notes included in the company’s press release issued earlier today and included in ADDvantage Technologies’ most recent report on Form 10-Q. The guidance regarding anticipated future results on this call is based on limited information currently available on ADDvantage Technologies, which is subject to change. Although any such guidance and factors influencing it may change, ADDvantage Technologies will not necessarily update the information, as the company will only provide guidance at certain points during the year. Such information speaks only as of the date of this call. During this call, we may also present certain non-GAAP financial measures such as non -GAAP net income and certain ratios that are used with these measures. In our press release and in the financial tables issued earlier today, which is located on our website at addvantagetechnologies.com, you will find a reconciliation of these non-GAAP financial measures with the closest GAAP financials and a discussion about why we think these non-GAAP financial measures are relevant. These financial measures are included for the benefit of investors and should be considered in addition to and not instead of GAAP measures. With nothing further, I would now like to turn the call over to, Joe Hart, President and Chief Executive Officer of ADDvantage Technologies. Joe, please go ahead.

[Joseph Hart:]

Thank you, Elizabeth. Welcome everyone to the ADDvantage Technologies’ fiscal first quarter 2019 conference call. With me today is Dave Chymiak, our Chief Technology Officer; Scott Francis, our Chief Financial Officer; and Don Kinison is on by phone. Don was recently promoted from VP of Sales to President of the the Telecommunications Division, reflecting our increased focus on growing the Telco equipment segment. While it has only been a few weeks since our last earnings call, we are pleased to report meaningful operational progress, as we execute against our strategy to build a stronger, more efficient foundation to support revenue growth and financial stability. Revenues for the first fiscal quarter of 2019 declined 8% year-over-year, driven primarily by a 23% decline in the Cable TV segment. We expect the planned sale of the Cable TV segment, which we discussed in detail on our last earnings call, will allow us to remain focused on further expanding and strengthening the Telco segment and support the financial stability of our company. The Cable TV segment sale is anticipated to close in the third fiscal quarter of 2019. In the meantime, we continue to execute against our expansion strategy in the Telco segment, and are pleased to report a 6% increase in Telco segment sales, as both Triton Datacom and Nave Communications entered the year with continued momentum, demonstrating strong business models and effective sales strategies. During the quarter, we started to see the impact of our strategic initiatives in this segment, which are expected to improve efficiencies, generate new revenue streams and achieve sustainable long-term growth at the company. We expect that these initiatives will be fully implemented by our fiscal fourth quarter. I’ll first provide an update on Nave, where we are growing sales and margins from the used equipment business by repositioning the company as a high-quality option for used telecom equipment. We are already benefiting from our new warehousing and operations location at Palco Telecom, a world-class third-party logistics company. We can now serve a wider geographic customer base by our move to Huntsville, Alabama. We have streamlined our inventory and fulfillment operations and improved our shipping times across the U.S. In addition, we are improving our testing and certification capabilities to ensure only the highest quality products are delivered to our customers. The equipment sales at Nave in Q1 increased 25% year-over-year, reflecting the positive momentum gained from these initiatives. The move to Palco has also led to significant reductions in operating costs, with more to come when we complete the move out of our former facility in Jessup, Maryland. At Triton Datacom, we have a three-pronged growth strategy that focuses on

[Scott Francis:]

Thank you, Joe. For the first fiscal quarter of 2019, our total sales decreased 8% to $11.3 million from $12.3 million for the same period of last year. Our sales for the Cable TV segment decreased $1.4 million to $4.4 million for the three months ended December 31, 2018 from $5.8 million for the same period of last year. The decrease in sales is due to a decrease in equipment sales and repair service revenue of $1.1 million and $300,000, respectively. The decrease in equipment sales is due primarily to an overall decrease in demand for the three months ended December 31, 2018, as compared to last year. The decrease in repair service revenue was due primarily to the closing of a repair facility in April of 2018. Sales to the Telco statement increased $400,000 to $6.9 million for the three months ended December 31, 2018 from $6.5 million for the same period of last year. The increase in sales for the Telco segment was due to an increase in equipment sales of $900,000, partially offset by a decrease in recycling revenue of $0.5 million. The increase in Telco equipment sales is due to Nave Communications of $700,000 and Triton Datacom of $200,000. The decrease in recycling revenue was due primarily to higher revenue in the prior year due to the timing of recycling shipment. Our consolidated gross profit decreased $600,000, or 16% to $2.8 million for the three months ended December 31, 2018 from $3.4 million for the same period of last year. Our gross profit decrease is due primarily to lower recycling revenue in the Telco segment. Consolidated operating and general administrative expenses were $3.8 million in the first fiscal quarter of 2019, compared to $3.6 million for the same period of last year. The increase primarily consisted of additional audit and legal expenses associated with the Fulton Technologies and Mill City net asset acquisition and the pending sale of our Cable TV segment. Our provision for income taxes was $100,000 for the three months ended December 31, 2018 compared with $300,000 for the same period of last year, and our net loss for the three months ended December 31, 2018 was $1 million, or $0.10 per diluted share, compared with a net loss of $700,000, or $0.07 per diluted share for the same period of last year. Adjusted EBITDA for the three months ended December 31, 2018 was a loss of $600,000, compared with income of $100,000 for the same period of last year. Our cash and cash equivalents were $2.8 million as of December 31, 2018, compared with $3.1 million as of September 30, 2018. And as of December 31, 2018, the company had inventory of $18.6 million, compared with $18.9 million as of September 30, 2018. In November of 2018, we sold our Broken Arrow, Oklahoma facility to a company controlled by Dave Chymiak to $5 million in cash. And in October and November of 2018, we used internal funds and cash provided by the sale of our Broken Arrow facility to payoff our outstanding term loans and line of credit with the Bank of Oklahoma, which totaled $2.6 million. Therefore, we are now no longer under our forbearance agreement with the Bank of Oklahoma. In December 2018, we entered into another credit agreement with a different financial lender. This credit agreement contains a $2.5 million revolving line of credit and matures on December 17th of 2019. Also on December 18, we paid a deposit of $500,000 in connection with signing the asset purchase agreement for Fulton and Mill City. This acquisition did close on January 4, 2019 for a purchase price of $1.7 million, which is subject to working capital adjustment. This concludes the financial overview section of our remarks. I will now turn the call over to the operator for questions.

[Operator:]

Thank you. [Operator Instructions] We will now take our first question from Michael Hess with Hess Investments. Please go ahead. Your line is now open.

[Michael Hess:]

Hi, guys. I was hoping you guys might be able to give me sort of a look at what the numbers might have looked like if we had already sold the businesses that we planned to sell later this year?

[Scott Francis:]

So – hey, Michael, this is Scott Francis. Hey, so what I would tell you is, that will be coming in our proxy when we file that with the SEC. We will be restating our Cable segment operations into the discontinued operations, which is really what you’re looking for, I believe. So with that said, if you could kind of hold on for about a month or so, you will see that information in the proxy. What you could do in the meantime is, you could basically take our segment asset, footnote, segment disclosures and pull those out, that would give you an approximation. But as far as on the line right now, we really can’t provide that at this point, but it would be in our proxy when it will be filed with the SEC.

[Michael Hess:]

Okay. Thank you very much.

[Scott Francis:]

Sure. No problem, Michael.

[Operator:]

[Operator Instructions] It appears we have no further questions at this time.

[Joseph Hart:]

All right. Thank you, operator, and thank you to, everyone, who has joined us on the call today. This was a strong start to fiscal 2019, as we started to see the impact of the process improvements that we’ve implemented at Nave and Triton, and we’ve taken a major step to further diversify the company into new verticals through the acquisition of Fulton. These initiatives are expected to drive significant revenue growth throughout the year and to transform ADDvantage into a much larger player in the Telco equipment and now in the services industry. We’ll continue to provide regular updates to our shareholders as our strategy unfolds. Thank you for your time today. And with that, I’ll turn the call back to the operator to close the line.

[Operator:]

Thank you. This concludes today’s conference call. You may now disconnect.