ADDvantage Technologies Group, Inc.
Q3 2018 Earnings Call Transcript

Published: 14 Aug 2018

[Operator:]

Good day everyone, and welcome to the ADDvantage Technologies’ Third Quarter 2018 Earnings 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 filed earlier today. 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 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, Jo Hart, Interim President and Chief Executive Officer of ADDvantage Technologies. Jo, please go ahead.

[Joseph Hart:]

Thank you, Elizabeth. Welcome everyone to the ADDvantage Technologies’ Fiscal Third Quarter 2018 Conference Call. With me today is Dave Chymiak, our Chief Technology Officer; Scott Francis, our Chief Financial Officer; and Don Kinison, our Vice President of Sales is on by phone. There is a pleasure to be here today in a role of interim President and CEO of ADDvantage Technologies. Before going into our results from the quarter. I would like to briefly introduce myself and discuss my experience and background within the telecommunications industry, which ultimately led to my joining at ADDvantage Technologies. I first entered the telecom industry with Ameritech and AT&T where I worked for over 25 years in a variety of positions, including sales, operations and project management both in the West and overseas in the Middle East, Latin America and Asia. In my last position at AT&T and services, Vice President, I created a strategic business unit that designed and constructed fiber-optic cable networks for telecommunication companies in both the U.S. and in 37 countries. Growing this business to over $1 billion a year in annual revenue and 5000 employees. I also served as executive VP of operations at Goodman Networks from 2006 to 2014 where I turned around a troubled wireless business unit into a rapidly growing wireless infrastructure service and project management leader. More recently, I was CEO at Era Communication which performed residential insulation, fiber-optic cable construction services and wireless network upgrades throughout the U.S. and had annual revenue of $110 million and almost a thousand employees. I believe this range of experience which includes both turning around and building up businesses in the wireless broadband and cable television space leaves me well positioned to implement strategies to build shareholder value at ADDvantage Technologies. And I’m excited to use this experience to help ADDvantage achieve similar success. As you know, over the past several years ADDvantage Technologies has expand the scope of its business within the broader telecom industry, most noticeably with the acquisition of Nave Communications in 2014 and Triton Datacom's assets in late 2016. These acquisitions diversified our Company into the broader telecom industry from the cable TV market by offering both new and used telecom networking equipment, including both central office and customer premise equipment to a broad customer base of carriers, enterprise customers and resellers. I joined the Board of Directors at ADDvantage Technologies in 2015 witnessed this change first hand. While I’m pleased with the steps taken over the past several years to diversify our business, I believe there is room to leverage our current operational and financial platform to further grow and diversify our position in this market, both organically and by acquisition. To kick start this strategic plan. We are undertaking a comprehensive review of our business units to identify opportunities to grow and diversify our revenue, as well as streamline our cost. In my new role, I’m leading this assessment, and will make recommendations to the Board for improvements to our existing operations, growth opportunities into complementary verticals and possible divestitures of asset to help finance and drive our growth strategies. Although it has only been a few weeks since I was appointed interim CEO, I'm encouraged by the opportunities before us and I look forward to advancing our strategy to build an efficient and sustainable business. Before turning the call over to Scott. I will now provide a brief update on the results from the third fiscal quarter of 2018. The Telco segment increased sales $700,000 to $7.7 million for the quarter ended June 30. This was driven by the second consecutive quarter of sales growth that Nave Communications and its new sales strategy contribute to our improved Telco segment results. Triton Datacom's performance was in line with our internal expectations once again, and we believe there is room to grow its customer base and further diversify its product line to help drive additional solid revenue generation going forward. The cable TV segment reported an overall decline in sales as compared to last year, due primarily to the loss of a large repair customer earlier this year. We performed a goodwill impairment assessment on the cable TV segment due to the lower operating results reported this quarter, lower projected results and management discussions surrounding various strategic alternatives for this segment given the lower operating performance. As a result of this assessment, we recognized a non-cash impairment charge of $1.2 million for the three months ended June 30 2018. With that, I will now turn the call over to Scott Francis, our Chief Financial Officer who will take you through the financial results in more detail. Scott.

[Scott Francis:]

Thank you, Joe for the fiscal third quarter of 2018. Our total sales decreased 3% to $12.6 million from $13 million for the same period of last year. Our sales for the cable TV segment decreased $1.1 million to $4.9 million for the three months ended June 30, 2018 from $6 million for the same period of last year. The decrease in sales was due to a decrease in repair service revenue and in refurbished equipment sales of $800,000 and $400,000, respectively, partially offset by an increase in new equipment revenue of $100,000. The decrease in repair service revenue was due primarily to the loss of a large repair business customer in the first quarter of fiscal year 2018 as Joe referenced earlier. As result of this loss, the Company has closed three of its repair facilities and reduced personnel at its remaining repair facilities as well. The decrease in refurbished equipment sales was due primarily to an overall decrease in demand for the three months ended June 30 2018 as compared to last year. Sales to the Telco segment increased $700,000 to $7.7 million for the three months ended June 30, 2018 from $7 million for the same period of last year. The increase in sales for the Telco segment was due to an increase in equipment sales as in recycling revenue of $500,000 and $200,000 respectively. The increase in Telco equipment sales was due primarily to increased sales at Nave Communications and $900,000, partially offset by lower equipment sales of Triton Datacom of $400,000. The increase in recycling revenue was due primarily to timing of our recycling shipments in the quarter, the increase in equipment sales at Nave can be attributed in part to the Company addressing the lower equipment sales that have been experiencing over the past couple quarters by restructuring its sales force and implemented a new sale strategy there. Our consolidated gross profit decreased $700,000 or 18% to $3.1 million for the three months ended June 30, 2018 from $3.8 million for the same period of last year. The decrease in gross profit was in the cable TV segment of $800,000, partially offset by an increase in the Telco segment of the $100,000. Consolidated operating and general and administrative expenses decreased 3% to $3.6 million compared to $3.8 million for the same period of last year. This is due to a decrease in expenses in the cable TV segment $0.3 million, partially offset by an increase in the Telco segment of the $100,000. As Joe mentioned earlier, the Company recorded a goodwill impairment charge of $1.2 million for the three months ended June 30, 2018, which represented the carrying value of goodwill for the cable TV segment. The charge was recorded as a result of the Company's decision to perform the goodwill impairment analysis on the cable TV segment, the analysis was performed due to certain indicators being present in the third quarter. These indicators included lower operating results from the cable TV segment compared to the same quarters in prior year, lower projected results and management discussions surrounding various strategic alternatives given the lower operating performance. During the quarter, we also reported approximately $900,000 of nonrecurring or non-cash benefits, which increased our operating loss. These items include inventory reserve expenses of $500,000 in the cable TV segment, market valuation adjustment for inventory of $200,000 Telco segment, and a severance package related to our former CEO. Net loss for the three months ended June 30, 2018 was $1.5 million or loss of $0.15 per share, compared with a net loss of $100,000 or a penny per share for the same period last year. Our adjusted EBITDA for the three months ended June 30, 2018 was a loss of $200,000 compared with income of $400,000 for the same period ended last year. Now moving on to the nine-months results. For the nine-months ended June 30, 2018, our total sales were $36.5 million up from $36.4 million for the nine-months ended last year. Sales of the cable TV segment decreased $2.2 million to $15.4 million for the nine-months ended June 30, 2018 from $17.6 million for the same period of last year. The decrease in sales was due to a decrease in repair service revenue and refurbished equipment sales as $2.1 million and $1.1 million, respectively, partially offset by an increase in equipment revenue of $1 million. The decrease in repair service revenue is due primarily a loss of the large repair business customer in the first quarter this year and the decrease in refurbished equipment sales due primarily to an overall decrease in demand for the nine-months ended June 30, 2018 as compared to last year. As result in a loss of the repair customer, the Company as I mentioned early did close three of its repair facilities and did reduce personnel at the remaining repair facilities. Sales for the Telco segment increased $2.3 million to $21.1 million for the nine-months ended June 30, 2018 from $18.8 million for the same period of last year. Increase in sales for the Telco segment was due to an increase in equipment sales of $2.3 million. The increase in Telco equipment sales was due to increased sales at Nave Communications and Triton Datacom of $2.2 million and $100,000, respectively. The increase in equipment sales at Nave can be attributed in part to the Company addressing the lower equipment sales that have been experiencing, as I mentioned earlier by restructuring its sales force and employing in new sales strategy. Consolidated gross profit decreased $1.7 million or 15% to $9.8 million for the nine-months ended June 30, 2018 from $11.5 million for the same period of last year. The decrease in gross profit was in the cable TV segment of $2.2 million, partially offset by an increase in the Telco segment of $500,000. Consolidated selling general and administrative expenses decreased $300,000, or 3% to $10.7 million for the nine-months ended June 30, 2018 from $11 million for the same period of last year. This decrease in expenses was due to the - I'm very sorry I have something miss spoken there, this decrease in expenses was a due to - I got to miss close to there, I have to pass on that. So, it was just a $300,000 decrease. This Company recognized a goodwill impairment charge of $1.2 million in the cable TV segment for the nine-months ended June 30, 2018, as I did discuss earlier. Other income and expense primarily consists of actively activity related to our investment in YKTG Solutions, including equity losses. Equity losses for the nine-months ended June 30, 2018 was $300,000 and zero for the nine-months ended June 30, 2017. The equity losses for the nine-months ended June 30, 2018 consisted primarily of a legal settlement with a subcontractor on the YKTG Solutions wireless cell tower decommissioning project and associated legal expenses. Our net loss for the nine-month period ended June 30, 2019 was $2.5 million or loss of $0.20 per diluted share, compared with net income of $200,000 or $0.02 per diluted share. Adjusted EBITDA for the nine-months ended June 30, 2018 was $300,000 compared with $1.8 million for the same period ended June 30, 2017. This does conclude the financial overview section of our remarks. I will now turn the call over to the operator for questions. Thank you. [Operator Instructions] And with no questions at this time. I will turn things back to Mr. Hart for any closing comments.

[Joseph Hart:]

Thank you to everyone who joined us on the call today, it’s been a pleasure speaking with you. As we look for the remainder of fiscal 2018 through 2019, I hope to leverage the knowledge and skills I have gained from my years in the telecom industry to improve the operations of the existing businesses and implement new growth strategies for the Company. While we are in the very early stages of our strategy to drive long-term growth and shareholder value, I truly believe that we have an opportunity here to build out ADDvantage Technologies telecommunications business. I look forward to updating you again next quarter. Thank you again.

[Operator:]

And that does concludes today’s conference. Again, thank you all for joining us.