ADDvantage Technologies Group, Inc.
Q3 2015 Earnings Call Transcript

Published: 11 Aug 2015

[Operator:]

Good day, and welcome to the ADDvantage Technologies Third Quarter 2015 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Garth Russell of KCSA Strategic Communications. Please go ahead, sir.

[Garth Russell:]

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 availability or 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 hereto included in the ADDvantage Technologies’ most recent reports 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 you are 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 will also present certain non-GAAP financial measures. In our press release with 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 financial measures 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 David Humphrey, President and Chief Executive Officer of ADDvantage Technologies. David, the floor is yours.

[David Humphrey:]

Thank you, Garth. Welcome to ADDvantage Technologies’ fiscal 2015 third quarter conference call. With me today is Dave Chymiak, our Chief Technology Officer and Scott Francis, our Chief Financial Officer. Before I turn the call over to Scott, who will provide the detailed financial results for the quarter, I want to offer a brief update on the company’s operations and strategy. This was a positive quarter for ADDvantage Technologies as we saw our investments of the business reflected in our quarterly financial results. Specifically, we saw top line sales growth of 28% this quarter compared to the same period last year, mainly driven by strong market demand for telco equipment this quarter. And as you may remember, Nave Communications, which was acquired in the second quarter of 2014, therefore, we are excited about this organic growth in this business as this quarter represents the first full quarterly comparison we have to the prior year period. We also saw our EBITDA grow 87% this quarter compared to the same period last year, fueled primarily by strong margins in our Cable segment. We believe that our Cable TV and Telco segments will continue to provide a strong foundation for cash generation and profitability as we look to expand our position in the market, the organic growth and strategic acquisitions. In terms of how this was – this growth was achieved, after acquiring Nave we initially focused on integrating the company and increasing sales, which declined shortly after acquiring Nave due mostly to wider industry events. Since the end of our last fiscal year, we are pleased that Nave has grown its top line revenue by adding new customers and by strengthening and expanding our sales relationships with existing customers, which we believe will support long-term sustainable sales growth. This increased business did result in lower overall margins as much of this growth came from sales of products that we had to source from outside of our current inventory. However, these sales still generated positive EBITDA for our company. In addition, Nave Communications took steps to improve the processes at its facility with the addition of Responsible Recycling, basically an R2 certification. This certification means that Nave Communications’ customers could be assured that we will responsibly manage their materials all the way to final disposition and an example of our strategic efforts to diversify our services that sets us apart from the competition. We are very pleased with the meaningful progress that we have made in the telco segment and expect to continue to maintain and grow their sales, which will generate positive cash flow for our company. Moving to our Cable TV segment, we saw slight increase in sales this quarter and have solid increase in margin to achieve from those sales. We believe that the decline in sales we have experienced over the last several years may have – maybe starting to turn around as we continue to make strategic changes in this segment. As we have discussed previously, we do believe there are opportunities to gain market share on this segment. And last month, we announced the opening of new subsidiary, Tulsat-Arizona, as part of our strategy to maximize sales opportunities in the segment. This location will primarily provide cable equipment repair services, which will allow us to better serve our national repair customers and expand our customer base in this region for both cable equipment repair services and equipment sales. We believe that our Cable TV and Telco segments will continue to provide a strong foundation for sustainable cash generation and profitability as we look to expand our position in the market and increase market share. We experienced meaningful growth in both segments of our business this quarter and we are in a strong financial position to take advantage of available opportunities in our market. Looking ahead, we are still in the process of working with our investment banker to identify a possible strategic acquisition in the broader telecommunication industry that has the potential to add value and growth to our existing businesses. With that, I would like now to turn it over to Scott who will provide the financial results.

[Scott Francis:]

Thank you, David. For the fiscal third quarter of 2015, total sales increased $2.6 million, or 28% to $11.9 million from $9.3 million for the same period of last year. Sales for the Cable TV segment increased $200,000 to $6.7 million for the three months ended June 30, 2015 from $6.5 million for the same period of last year. The increase in sales is due primarily to an increase in refurbished equipment sales of $300,000. Our sales for the Telco segment increased $2.4 million to $5.2 million for the three months ended June 30, 2015 from $2.8 million for the same period of last year. The increase in sales resulted from an increase in used equipment sales of $2.6 million and was partially offset by lower recycling revenue of $200,000. Our consolidated gross profit increased $900,000, or 29% to $4.1 million for the three months ended June 30, 2015 from $3.2 million for the same period of last year. The increase in gross profit was due primarily to a $500,000 increase of gross profit from the Cable TV segment as a result of increased refurbished equipment sales that have higher gross profit margins. While gross profit from the Telco segment increased $400,000 as a result of increased equipment sales compared to the same period of last year. Gross margin for the Cable TV segment increased to 35% for the three months ended June 30, 2015 from 29% for the same period of last year primarily as a result of an increase in our refurbished equipment sales. Our gross margin for the Telco segment decreased to 33% for the three months ended June 30, 2015 from 47% for the same period of last year. This decrease primarily resulted from lower margins on equipment sales from increased sales and products that segment had to source outside of its current inventory as well as lower gross margins from its recycling revenue due primarily to lower commodity precious metal prices. Operating, selling, general and administrative expenses increased $300,000 to $3.2 million for the three months ended June 30, 2015 from $2.9 million for the same period of last year. Our income from continuing operations for the three months period ended June 30, 2015 was $600,000 or $0.06 per diluted share compared with $200,000 or $0.02 per diluted share for the same period of last year. Our consolidated EBITDA increased $500,000 to $1.2 million for the three months period ended June 30, 2015 from $700,000 in the same period of last year. The Cable TV segment EBITDA increased $400,000 to $900,000 for the three months ended June 30, 2015 from $500,000 for the same period of last year. While the Telco segment EBITDA increased $100,000 to $300,000 for the three months ended June 30, 2015 from $200,000 for the same period of last year. Now, turning to the results for the nine months ended June 30, 2015. Our consolidated sales increased $10.3 million or 44% to $34.1 million for the – for the nine months ended June 30, 2015 from $23.8 million for the same period of last year. Sales for the Cable TV segment decreased $500,000 to $19.4 million for the nine months ended June 30, 2015 from $19.9 million for the same period of last year. The decrease in sales is due primarily to a decrease in new equipment sales and service revenue of $200,000 and $300,000 respectively. Sales for the Telco segment increased $11.2 million to $15.1 million for the nine months ended June 30, 2015 from $3.9 million for the same period of last year. The increase in sales resulted from an increase in used equipment sales of $10.9 million and recycling revenue of $300,000 primarily a result of the Nave Communications acquisition of February of ‘14. The increase in used equipment sales has benefited by $1.5 million equipment sales to an end user customer in the second quarter of ‘15. Our consolidated gross profit increased $4.9 million, or 67% to $12.2 million for the nine months ended June 30, 2015 from $7.3 million for the same period of last year. The increase in gross profit was due to an increase in the Telco segment of $4.3 million and an increase in the cable television segment of $600,000. Gross margin for the Cable TV segment increased to 32% for the nine months ended June 30, 2015 from 28% for the same period last year again resulting primarily from an increase in gross profit margins from refurbished equipment sales, while the gross margin from the Telco segment decreased to 40% for the nine months ended June 30, 2015 from 44% for the same period of last year. Our consolidated operating, selling, general and administrative expenses increased $2.9 million or 40% to $10.1 million for the nine months ended June 30, 2015 from $7.2 million for the same period of last year. This increase is primarily due to increased expenses of the Telco segment at $3.3 million as a result of the Nave Communications acquisition partially offset by decreased expenses at the Cable TV segment of $400,000. Our income from continuing operations for the nine months ended June 30, 2015 was $1.3 million, or $0.13 per diluted share compared with $40,000 or $0.00 per diluted share for the same period of last year. Our consolidated EBITDA increased $2.4 million to $3.1 million for the nine months ended June 30, ‘15 from $700,000 for the same period in 2014. The Cable TV segment EBITDA increased $900,000 to $2 million for the nine months ended June 30, ‘15 from $1.1 million for the same period of last year, while the Telco segment EBITDA increased $1.4 million to $1 million for the nine months ended June 30, ‘15 from a loss of $400,000 for the same period of last year. Our cash and cash equivalents on hand was $4.6 million as of June 30, ‘15 compared to $5.3 million as of September 30, ‘14. As of June 30, ‘15, the company had inventory of $24.5 million compared with $22.8 million as of September 30, 2014. The increase in our inventory position was due primarily the use – used inventory purchases by our telco segment. This now concludes the financial overview for the three months ended June 30, ‘15. I will now turn the call back over to David.

[David Humphrey:]

Thank you, Scott. We are pleased to see certain positive trends emerge in both segments of our business as we continue to execute on our strategic plan of growing our businesses, both organically and via strategic acquisitions. We are pleased with both our top line revenue growth and EBITDA this quarter for our company. As we discussed last quarter, we have engaged investment banker to assist us in finding strategic acquisition opportunities in the broader telecommunications market to further diversify and expand our business as part of our overall growth strategy. In addition, we have also added a new member to our Board of Directors. Mr. Joseph Hart has over 30 years of telecommunications experience in various segments of the industry. We believe that he will be a very valuable asset to our Board and company as we further define our strategic vision. We appreciate your continued support. This concludes our prepared remarks. I would now like to turn it back over to the operator and open the call for any questions. Operator?

[Operator:]

Thank you. [Operator Instructions] We will go first to Doug Ruth with – from Lenox Financial Services.

[Doug Ruth:]

Congratulations to the ADDvantage team. It’s a beautiful report.

[David Humphrey:]

Thank you very much Doug.

[Doug Ruth:]

I have some questions for you, can you offer some commentary as far as what kind of refurbished equipment did cable TV customers have been buying?

[David Humphrey:]

Dave – Dave Chymiak?

[Dave Chymiak:]

They have been buying more of the equipment to upgrade their systems out in the field and fiber optics is up somewhat and the transmitters and receivers. Our hardware department for passive devices, we call it, to go out in the boxes outback were up somewhat to connectors that type of equipment.

[Doug Ruth:]

And is that where the additional orders are coming from for the fourth quarter?

[Dave Chymiak:]

Fourth quarter, we usually don’t make any comment on current business, but it is type equipment we handle always.

[Doug Ruth:]

You had said that the business was progressing at a rate in the fourth quarter that was my take I am reading the report that the business was continuing to...?

[Dave Chymiak:]

I don’t believe so. I think we are just talking about the – our third quarter.

[Doug Ruth:]

Okay.

[Dave Chymiak:]

I am hopeful that the market was that we have seen the declines maybe starting to turnaround. That was the only look forward statement we made.

[Doug Ruth:]

Okay. With the telco what are you learning when you have to force your sourcing inventory outside of what you already have in stock, is there something – is the telco inventory do you feel like that’s relevant at this point?

[David Humphrey:]

Yes. Very much Doug, what I would say is that the telco inventory that we positioned for Nave in excess of what they have historically done will help add to our margins, both on the sales of equipment as well as on recycle. We did position a good portion of that equipment near recycled price with the intention of selling a portion of it at very high margins and potentially in excess of 90% on some of that equipment. But then ultimately, a greater portion of it by volume, but not be dollars will be scrapped and we will make money on both of those. And by positioning the inventory, we did will increase those margins. But when they source equipment – so they are much more of a broker mentality where they go and find the – they find out what the customer wants and they are going to sell it to them. In inventory they will make a bigger margin, but if they have got to go out and source it, they will do that as well. And sourced inventory always has a lower margin. They are going straight into the wholesale market, positioning the product and then flipping it back over to the customer.

[Doug Ruth:]

Okay, that’s helpful. Could you offer a little commentary, a little color how the opportunity became available in Phoenix and I thought that was a good decision by the company?

[David Humphrey:]

Yes. I mean, I will give you a little bit of color, Doug. I mean, it’s – it was something that the company has probably been considering for maybe a year or 2 years. But we hired a new guy that come in and to help us focus on the recycle business – I am sorry, the repair business that we call service on the cable side. And so this new service manager or repair manager helped us kind of pull it together and went out and hired the people, contacted the customers to advance to see if there was a market opportunity for us and help make it happen. And that’s one of the things that was kind of lacking here. We need somebody in-charge. And we have got that person in-charge. And he is looking for other opportunities to grow our repair business as well.

[Doug Ruth:]

And how many people are working in office like this?

[David Humphrey:]

It will be anywhere from, we will say 5 to 10, depending on how much volume you get. There is going to be manager there, an administrative person, usually a driver, because we use in these facilities run a route service to pick the equipment up and drop it back off to the customer, which increases the stickiness, if you will of the customer. And ultimately, between two and as many as seven texts, depending on the volume, initially there was kind of a couple of texts, but as the volume grows, we hope to expand the business and increase the number of techs that do to repair work for us.

[Doug Ruth:]

That sounds excellent. And you feel like there is – you are identifying additional places to open other offices?

[David Humphrey:]

We have identified the potential. Again, it still takes the market evaluation to go in and contact the customers and figure out if there is really truly an opportunity. I mean, certainly anytime we contact customer he says, I would love to have them the more the merrier. The question is, are you really going to use our services at our pricing. And so that’s what we need to do more thorough investigation first. But yes, we have a couple of locations that we are considering the same kind of thing that we did in Phoenix. But it will be a number of months before we are prepared to launch another facility.

[Doug Ruth:]

Okay. The addition to Mr. Hart on Board of Directors sounds like an excellent choice, could you – does he offer you opportunities to open some doors for the company?

[David Humphrey:]

Absolutely, this is something that the company has been looking to do for about maybe the last 6 months to 8 months. We interviewed a number of potential candidates and ultimately settled on Joe Hart. He has got a strong background in the telecommunication industry in a number of different segments. And so we think he will be a fine addition – I am going to take him with us to go see our Nave operation, so he can see where he can add value to our existing operations, not necessarily help us so much from a strategic standpoint of acquisitions, but certainly from a strategic standpoint of where the next opportunities may lie long-term as well.

[Doug Ruth:]

Okay, that sounds good. And then the final question, could you – are you close to any acquisitions at this point, is there any further commentary on that?

[David Humphrey:]

Doug, you are always very good at that question and the answer is I can’t really comment. And I will tell you we are early in the process. We just brought investment banker last quarter and so it is a process that we pursue. The first step is to find candidates, next one is interview them, next one is if we can agree on approximately what the terms would look like, then we will go into detailed due diligence and that’s a couple of months process. We are very thorough on anything we are going to acquire.

[Doug Ruth:]

Okay. Well, congratulations on the good report and thank you for answering my questions.

[David Humphrey:]

Thank you, Doug. I appreciate your continued support.

[Operator:]

Thank you. And we will go next to Steve Rudd with Blackwell [ph].

[Unidentified Analyst:]

Hi, a few questions. First, in terms of the term note with $4.2 million outstanding, we pay for a little over 4% interest on that, are we able to pay that off, I mean I assume it’s just an institutional lender not anybody else, I didn’t quite look into who the lender is, but can we pay that off, it seems we have got the cash and we can just with economically efficient and generate some more earnings for us, so is that doable?

[Scott Francis:]

Yes. Steve, this is Scott. You are correct. I mean it is a fixed rate note and we can pay off. There is not any penalties for us to do that. What we are trying to do though as well is preserve our cash position as well because of our growth opportunities. So, it’s a balancing act a little bit. We entered into a fixed rate note thinking that what the interest rate environment was going to be like and only met 4% in any other given stage of economic times would be a very good rate, realizing right now, it still seems “high.” We never would have thought 4% seems high, but right now, we could do it. We are still just evaluating our cash needs and making sure that we are good, depending on what the next acquisition front may look like. And if we had the excess cash, we sure could do that.

[Unidentified Analyst:]

Okay. I mean, I think it’s worth a very good hard look as we do have the cash on the balance sheet. We have got lines of credit available to us that are significantly lower cost and that we could draw upon. And of course, it gets us to one of my favorite topics, we have got $20 plus million in inventory that we could always finance or even just substitute the notes. So, it’s a real savings if you could pay it off. And I think we – you can be pretty confident you are going to find funds when you need them. Let’s look at cable – good, so let’s look at cable. On a number side, it’s looked – it looks better, of course, but we are still not optimizing the use of cash there. And one thing you guys don’t have to comment on this, but I would suspect that if we back out the reserves plus some unrecognized reserves for obsolete inventory, Cable is probably not as profitable as the numbers show. But I am thinking with your investment banker in place, a constructive analysis that, that investment banker could do would be to see what the EPS would be for our company for every taking every dollar that we could from the Cable inventory and purchasing our own stock. And the reason why I do this analysis is we know that the Nave acquisition is doing extremely well and quite profitable. From what I can see we are now taking obsolete reserves nor do we sitting with this tremendous amount of inventory. So, we are looking for outside candidates to buy. But in fact, the candidate that we know best of all is right under our noses and we can buy it immediately by purchasing shares, reducing the share count and taking this basically part of inventory that keeps – seemingly keeps growing and deploying it in a good way. Now, this is not an esoteric exercise. You have got an investment banker there. They could make money in assisting in such a buyback. And I just hope you guys will charge that investment bank. I am sure they will do it as part of their current services with doing that analysis, taking dollars out of Cable and effectively buying more into Telco. And I just would wonder if you guys would be willing to have them at least present that analysis to use that we could view the disposition of our assets. Would you guys be willing to ask the investment bankers to do that?

[David Humphrey:]

That’s certainly a question I am willing to pose to them. I will give you my own opinion, not on the – I will not answer the question as to what the right answer to do here is, but I will give you my opinion on the investment banker themselves. We hired an industry expert that knows the telecom industry. We didn’t hire somebody that really knows public equities that much. We are looking for private transactions. So, I am not sure that’s who I would ask to go do an analysis of a stock buyback, that’s not his area of expertise per se, at least the investment banker we are working with. So, but that’s – certainly, I am not – I am certainly willing to go ask them if he do analysis like that and we would roll it into our strategy that we have got from an acquisition standpoint.

[Operator:]

Thank you. And we will go next to George Gasper, a Private Investor.

[George Gasper:]

Yes, thank you and good morning. Nice quarter. Just general character of each one of your businesses, I know I asked this question quarter-to-quarter, but did you see any changes in the quarter that would elaborate the opportunity within the main core businesses that you have, some moving parts out there that are changing that per se?

[David Humphrey:]

I will ask Dave to kind of address – he has got a look, he is just asking a broad general are you seeing trends in the industry right now beyond what you reported so far in your financials.

[Dave Chymiak:]

George, we are seeing people getting their systems in line. They are trying to get their bandwidth increased in some of them. They’re expanding a little bit to try to clean them up the value of the cable company more valuable say that it was a year ago, those things in general.

[David Humphrey:]

George, I will try to answer your – I am sorry, go ahead, George.

[George Gasper:]

No that’s alright. Go ahead.

[David Humphrey:]

I guess I will try to answer you maybe in a broader term. Both the Telco and the Cable groups are hearing comments from some of our competitors that the concerned that the industry is declining overall from their standpoint, yet we are not experiencing within our businesses. So, wondering, one is that real or not, because you are never sure what your competitors really telling and what this business really looks like. And we can’t see it because they are not publicly traded like we are, but assuming it is correct and that means we are maybe capturing a little bit more market share in both of our companies. Now, we do know on the Telco side, there has been significant cutbacks by AT&T and Verizon over the last 1.5 years as they positioned both companies for one AT&T to buy DirecTV and Verizon buying back their own stock from – what was it again, Vodafone or England. So, both those companies have cutback on their purchases we have heard that from multiple sources. That being said, we still were able to grow our Telco business over the last 1.5 years. And as you heard the cable industry, our Cable group did very well from a margin standpoint. The revenues aren’t really going up a whole lot, but we are making more money on what we are selling. So, we are pleased with both our businesses. We can’t confirm whether there is an overarching trend of cutbacks, but we do know that they had cutback for the last eight years ever since the economy cut us back and then ultimately digitization was a big impact in the cable group as well over time. So, did that answer your question? I appreciate it. I am sorry we can’t get any more detail than that.

[George Gasper:]

Well, maybe I could just ask Dave to elaborate a little bit. I know there is a lot of discussion in the last couple of quarters on the call on bandwidth and Dave mentioned that, too that opportunity there for clarification of bandwidth in the Cable side. We are 8 months through the year and there was seemingly process that by the end of 2015 there would be some very visible opportunity to start a broader expansion of the amplification on the bandwidth on the return. And is there anything out there that gives you more confidence that’s going to happen? Are there some orders that are starting to move that way or is it still kind of in the cloud out there and you can’t see the actual sale coming at you or the decision on the part of the cable operators to move in that direction?

[David Humphrey:]

I am going to answer the question first from an overarching standpoint of our customers, the MSOs. Most of our MSO customers, large and small, but in particular, large ones, continue to advertise [indiscernible] mentioned the fact that of gigabyte service to their customer base. And so to do that requires a number of things in the infrastructure should meet – requires changes in the head end, requires changes to drive fiber deeper into their infrastructure closer to people’s homes, but in particular businesses. And businesses are being connected up with fiber directly because of the kind of price that they are willing to pay versus a homeowner and to the kind of capacity that they need, but that being said, I think it’s still a bit of an evolution for the industry, I know it has been as to when they finally make these changes. Now, unfortunately once it happens lots of times it happens all at once, but I will let Dave kind of address what he is seeing from a standpoint of inside the market, so from our standpoint of sales to those MSOs.

[George Gasper:]

Okay.

[Dave Chymiak:]

George, what we are finding with all the people trading back and forth in trying to acquire different companies it’s getting put on the back burner. A lot of people are looking at it for budget of 2016. People that are building new systems or adding on or looking at increasing bandwidth in a different proportion between forward and reverse or talking back and forth. So, it’s out there. It’s not picking up as much as we would like for it to, but we are just seeing all the signs of it starting to come up. Questions are out there. Every training group that comes along, we have always got that in the mix.

[George Gasper:]

Okay. That question, if I could go one step further on this, the inventory of your used equipment that would be channeled in that direction in the adjacent facility that you have. They are in broken arrow. Has the composition of that inventory changed very much over, let’s say, the last couple of quarters? Is there additional equipment that you are finding to buy to potentially utilize in the future or do you see that equipment that’s in your warehouse starting to move out? Is there opportunity to reduce that size inventory and reduce the overall inventory or do you see – and this is a broader question for both sides of the business that ADDvantage Technologies is associated in? Do you see your inventory level that you ended the quarter with about where you expect to be going forward or is there conceptually a change that you would see taking place on that?

[Dave Chymiak:]

We always look for opportunities. We have reduced the inventory over the last two, three years from $34 million, $35 million, all the way down to 5 years down to $22 million figure and it’s up a little bit, because the Telco side brought some more. I don’t see it increasing very much. We probably got a change of our newer equipment probably has changed about 10% more to the newer equipment in the last year. The refurb equipment is selling well and the margins are much better on the refurbished equipment.

[David Humphrey:]

Well, George, to answer your question on behalf of the Telco side and also answer Steve Rudd’s question about inventory as well. Basically the Telco group is going to reduce their inventory over time. We got, I’ll say, little long and it’s only because we had some unique opportunities because of this market dislocation exist with AT&T. Some of our competitors/customers/consumers of our product and also suppliers, they got into a position where they needed to convert over to cash and we had cash. So, we took unique positions at very low rates in comparison. So, therefore, we would expect the reason we did that to increase our margins on sales and we anticipate our margins should continue to improve. Of course, we noted our margins are down this quarter, but that was a blending situation. We still think we will make higher margins on the inventory we have. And a good portion of that, as I mentioned will be converted to scrap or recycle business over time. So I expect that both cable and the telco inventories will continue to decline over time. Notwithstanding the fact that we may position for unique opportunities this bandwidth issue that you are talking about is really what we would like to refer to as reverse path concern that the capacity deliver content for a direction to a customer is ample, but the reverse path is not the upload speed that we demand as consumers and businesses do as well. And that’s where some of these changes are unique opportunity for us is to when they are going to occur. Again, Dave is the one who always will tell you that it’s going to happen later than sooner, but we need to be prepared. That’s what we are trying to prepare ourselves for.

[George Gasper:]

And everything that you have been saying here on this call emulates what is making ADDvantage Technologies positioned into a better opportunity scale going forward, you are tuning your businesses, you are looking for the expansion opportunity and the market is competitive, but I think that it appears as though you are positioning the company for – to take advantage of the opportunity that’s out there, whereas potentially some of your competition is leaning south over the general view. And I would hope that maybe everything that you are doing puts you in a position to expand into some markets, for example, let’s say Cuba and that you wouldn’t do that direct, but I am sure that the cable operators in the United States are going to be very interested in trying to get further into that market along the way and I would think that a lot of what you do could be acclimated to that market just outside of the continental United States?

[David Humphrey:]

Yes. And we want address Cuba directly. We do sell into the Caribbean market today, either directly, more likely through other distributors. So yes, that might be an opportunity. We want to see a Cuba develops over time and where the demand is. So but yes, we do already sell into both the Latin American market and the South American market.

[George Gasper:]

Alright. Thank you.

[David Humphrey:]

Thank you, George. I appreciate your continued support.

[George Gasper:]

I am sure.

[David Humphrey:]

But I don’t think I have said it to you, but we do – we appreciate your continued support as well.

[Operator:]

Thank you. And we will go back to Steve Rudd from Blackwell [ph].

[Unidentified Analyst:]

Okay, alright. Just two follow-up questions, Q2 was a bit disappointing off of Q1’s good results, Q3 obviously is a favorable turn, it sounds like you have got improving margins going forward and the business is pretty solid despite the buzzings of competitors who are saying it’s weakening, are we going to see some more consistency going forward or what is it – what does it really look like?

[David Humphrey:]

I guess first I will tell you we don’t make forward-looking comments even though we have talked about the potential for this reverse path and we position ourselves forward. We still don’t want it’s going to occur. And I am not going to try to predict what my next quarter is going to look like, Steve as much as I would love to do that and wish I could, I can’t do because I just don’t know. I mean again, our business is not based on contracts, it’s based on relationships from what our customers needs are. And many of our customers don’t tell us what they want in advance until they make the order. So we don’t get projections from our customers either.

[Unidentified Analyst:]

I understand. And the – I mean we are a bit into Q4 as it is, so we – what I am trying to get to you is one of the things that investors like, of course is consistency, when you have the spurt of earnings and then a disappointment and then another spurt and then if there is an another disappointment, I am wondering at what point do we begin to see this level out or is it just we ought to be in for quite a roller coaster but something like that?

[David Humphrey:]

I guess again, I don’t know how to answer the question other than to say we don’t make forward-looking statements. And I don’t know what my next quarter is going to look like. I hope it will be well. But even – I mean as you mentioned, from quarter-to-quarter we certainly like that consistency. And we didn’t get it yet. We were good first quarter and that was good in second and very good in the third. Don’t know what the fourth is going to look like. I could tell you week-to-week, we are very up and down as an operating company. That’s simply how the operation runs. David and I were talking about that just this morning that we will have a slow period and all of a sudden will be buried for the next two weeks. So we are very up-and-down business by nature. We will certainly hope that over the long run, it will continue to even out.

[Unidentified Analyst:]

Going to Phoenix – by the way the repeated Cuba’s suggestion if you ever open an office there, which I certainly hope you don’t, but if you do, I’ll be happy to come and visit it. But is the new Phoenix office is it cash positive right now or is there a long ramp-up or what’s the – what does it look like?

[David Humphrey:]

Yes. I mean, it was opened up with the intent of taking about six months to be able to reach cash breakeven. It looks like we are going to be on an accelerated plan that we should be able to achieve cash breakeven in shorter time than that. But we have only had it open for a little over a month. So it’s not cash breakeven yet.

[Unidentified Analyst:]

Okay. Well, that’s terrific, though. I mean, if you had a six-month plan and you are running ahead, that’s fantastic. So you can do...

[David Humphrey:]

Well, we are not running ahead yet. We are hopeful that based on – again, it’s all driven by the customer and based on the customers are getting to us, it looks like we may be able to get into that plan a little bit earlier than we hoped. But we have to wrap it up higher than the additional techs to be able to service that equipment if we are successful of landing a number of customers in that market.

[Unidentified Analyst:]

Okay. Listen, I do appreciate – I know all you guys are working very hard and I particularly appreciate that when I ask challenging questions. I know sincerely you are going to follow-up and look at it because it’s the kind of vigor that outside investors do bring to what is largely almost a family-run business. So thank you, both for your hard work and it’s quite a team you have put together. You should be pretty pleased with yourselves. But only really pleased if the next quarter’s a good one and you don’t think it’s down, but it I do appreciate the good hard work sincerely. So thank you.

[David Humphrey:]

We are only as good as our last quarter, aren’t we?

[Unidentified Analyst:]

Well, it’s really only as good as the next one, so I appreciate it.

[David Humphrey:]

But we should really do appreciate you Steve and I got to say it to you twice. So thanks.

[Unidentified Analyst:]

Okay. Thank you.

[Operator:]

Thank you. And we will go back to George Gasper, Private Investor.

[George Gasper:]

Great. Just to wrap up on an observation in the stock marketplace and microcap, which obviously would include ADDvantage Technologies, this is a very competitive market environment and absolutely blown away and I do a lot of following of this particular sector and the lack of continuity or understanding that managements have as to how they should approach their Investor Relations activity. And obviously, one of the main injections of opportunity comes from the success that a company can produce to build itself and so that it kind of stands out as a single entity that’s ahead of the game or ahead of the pack in its industry. And I think that, that really could be the real impetus for ADDvantage Technologies. You are on an excellent track and just to be – to go and become the leader in your field is going to get you the recognition that you need and leave the rest of the pack behind. And I think that there is going to be more of this in the small-cap market, so for whatever that means? Thank you.

[David Humphrey:]

Well, very good. I thank you, George. It’s certainly our intent to continue to focus on the businesses we have. That means focusing on the cable, things like we did in Arizona, looking for other opportunities and continuing to expand our sales organization to reach more customers and get a greater market share. Same thing on Nave and our telco business is trying to support Nave, both with our cash to increase our inventory, to increase our margins, but also providing with some support and capacity to sell to more customers when they are expanding their sales organization as we speak as well. So and then ultimately complete another acquisition that add even more capacity to our existing businesses. So that’s the current spread and we continue to focus on it every day. And then continue to try to see if we can make more money for our investors.

[George Gasper:]

Okay. Well, thank you.

[David Humphrey:]

Thank you, George. Sorry did you want to get on again, so I could thank you second time, if not operator, any other questions for us today?

[Operator:]

There are no further questions in the queue.

[David Humphrey:]

Well, very good. I want to thank everybody again for being on the call today. We do appreciate you as investors. We truly do appreciate the questions you ask as well. And we are continuing to be focused on the growth of our business as we move forward as a company and an organization. And we very much appreciate the continued support of our investors. So thank you again. And maybe you guys all have a great day.

[Operator:]

Thank you. And that does conclude today’s conference. Thank you for your participation.