ADDvantage Technologies Group, Inc.
Q4 2015 Earnings Call Transcript

Published: 15 Dec 2015

[Operator:]

Good day, and welcome to the ADDvantage Technologies Fourth Quarter 2015 Earnings Conference 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-K filed earlier today. The guidance regarding anticipated future results on this call is based on limited information currently available on ADDvantage Technologies, which 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 and 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 everyone to ADDvantage Technologies’ fiscal 2015 fourth quarter and year end 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, I wanted to briefly reflect on the operational and strategic advances we made through the year. First and foremost, we reported 22% growth of fiscal year 2015, which reflects the success for our strategy to scale and diversify our operations. As a result, we also generated a very healthy 97% year-over-year increase consolidated EBITDA of $3.8 million. These results were driven by the acquisition of Nave Communications in February of 2014. As a reminder, the strategic acquisition marked our entry into the telecommunications equipment sector. I am disappointed to report that we experienced weakness in the Telco sector during the fourth quarter. We attribute this decline in sales to a slowdown in the broader Telco industry, which we believe is being driven by the anticipation of market consolidation. This uncertainty has led to delayed decisions-making by our customers to invest in their networks. We have continued to receive updated market intelligence from our sales teams and industry associates as the broader industry continues to be slow and this effect is also being felt by our competitors. This industry weakness is carried over into our fiscal first quarter 2016, as we will most likely experience a continuing decline in revenue. However, the general consensus is that this is a temporary reaction to short-term market conditions and as such we remain actively engaged with our Telco customers, so we are poised to immediately take advantage of any positive swings in demand. In the Cable TV segment, we continue to experience a broad and long-term trend of declining sales in the industry. While we are not pleased with this performance, monthly revenue on a quarter-by-quarter basis is apparent in the Cable TV business. In order to execute on our growth strategy, during the fourth quarter, we opened a new subsidiary in Arizona, which we discussed on our last quarterly call. Despite lower overall revenue in fiscal 2015, the Cable TV segment still remains profitable and contributes positive to the company's cash flow. Moreover, due to improved margins and the streamlining of its business activities, EBITDA for the Cable TV segment increased 39% during the fiscal year 2015. In the current quarter, we are also dealing with a further decline in market demand for the Cable TV equipment. We believe this is due in part to recent pending merger transactions with major customers in our industry. While it is too early to say exactly how long this will last and what impact the market shift will have on the current quarter and future quarter results, we are adjusting is appropriate. As we have described previously, our lean business structure offers us the ability to expand and retract in line with sales opportunities. Most importantly at the core of our business, we have a strong sales team in place with a proven track record and solid industry knowledge. These two factors combined with the company's expansion into the telecommunications' equipment distribution market are expected to allow us to remain profitable in 2016. 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 Francis:]

Thank you, David. For the fiscal fourth quarter 2015, our total sales decreased $2.5 million or 20% to $9.6 million from $12.1 million for the same period of last year. Sales for the Cable TV segment decreased $1.3 million to $6 million for the three months ended September 30, 2015 from $7.3 million for the same period of last year. Sales for Telco segment decreased $1.1 million to $3.7 million for the three months ended September 30, 2015 from $4.8 million for the same period of last year. Our consolidated gross profit decreased $1.2 million or 28% to $3.1 million for the three months ended September 30, 2015 from $4.3 million for the same period of last year. The decrease in gross profit was due to $0.3 million and $0.9 million decrease of gross profit from the Cable TV and Telco segments, respectively. The decreased gross profit in the Cable TV segment was primarily due to decreased sales while the decrease in gross profit from the Telco segment was primarily a result of lower overall sales as well as the impact of lower margin from our recycling operations, due primarily to lower commodity prices. Gross margin for the cable TV segment increased to 31% for the quarter ended September 30, 2015 from 29% for the same period last year, due primarily to increased margins on refurbished equipment sales. Our gross margin for the Telco segment decreased to 33% for the three months ended September 30, 2015 from 44% for the same period last year. This decrease is primarily resulted from lower commodity prices in our recycling operation. Our operating, selling and general administrative expenses decreased $700,000 to $2.6 million for the three months ended September 30, 2015 from $3.3 million for the same period of last year. This decrease was primarily due to expenses related to the Nave acquisition earn-out and lower payroll related expenses. Our income from continuing operations for the three months period ended September 30, 2015 was $0.2 million or $0.02 per diluted share compared with $600,000 or [ph] per diluted share for the same period of last year. Our consolidated EBITDA decreased $0.4 million to $0.8 million for the three - period ended September 30, 2015 from $1.2 million for the same period last year. The Cable TV segment EBITDA decreased $2.5 million for the three months period ended September 30, 2015 from $0.7 million for the same period of last year. While the Telco segment EBITDA decreased $200,000, $0.3 million for the three months ended September 30, 2015 from $0.5 million for the same period of last year. Now, turning to the results for the fiscal year ended September 30, 2015, our consolidated sales increased $7.8 million or 22% to $43.7 million for the fiscal year ended September 30, 2015 from $35.9 million for the same period of last year. The increase in sales was due to an increase in the Telco segment of $10.1 million, primarily resulting from the Nave communications acquisition of February '14, which was partially offset by a decrease in Cable TV segment sales of $1.8 million. Our consolidated gross profit increased $3.7 million to $15.3 million for the 12 months ended September 30, 2015 from $11.6 million for the same period of last year. Consolidated gross margin increased from 32% in fiscal year '14 to 35% in fiscal year '15. The increase in gross profit was due to an increase in the Telco segment of $3.4 million as a result of the Nave Communications acquisition and an increase in the Cable TV segment of $0.3 million in spite of the lower sales from the segment. The increase in Cable TV segment gross profit was primarily due to higher gross margin on refurbished equipment sales. Our consolidated operating, selling and general administrative expenses increased $2.2 million or 21% to $12.7 million for the 12 months ended September 30, 2015 from $10.5 million for the same period of last year. This increase was primarily due to increased expenses of the Telco segment of $2.7 million, which is a result of the Nave Communications acquisition, partially offset by a decrease in Cable TV segment expenses of $500,000. Our income from continuing operations for the 12 months ended September 30, 2015, increased 132% to $1.5 million or $0.15 per diluted share compared with $700,000 or $0.07 per diluted share for the same period of last year. Our consolidated EBITDA increased 97% to $3.8 million for the fiscal year ended September 30, 2015 from $1.9 million for the same period in 2014. The Cable TV segment EBITDA increased $700,000 to $2.5 million for the year ended September 30, 2015 from $1.8 million for the same period of last year. While the Telco segment EBITDA increased $1.2 million to $1.3 million for the year ended September 30, 2015 from $0.1 million for the same period of last year. Our cash and cash equivalents on hand were $6.1 million as of September 30, 2015, compared with $5.3 million as of September 30, 2014. As of September 30, 2015, the company had inventory of $23.6 million compared with $22.8 million as of September 30, 2014. The increase in inventory position was due primarily to increased inventory in our Telco segment of $2.4 million, partially offset by decreased inventory in our Cable TV segment of $1.6 million. This concludes the financial overview for the year ended September 30, 2015. I will now turn the call over to the operator for any questions. Operator?

[Operator:]

[Operator Instructions] We will take our first question from Doug Ruth with Lenox Financial Services.

[Doug Ruth:]

Thank you for hosting the call today. Do you think the company is losing market share to any competitors?

[David Humphrey:]

Doug, thank you for your question, I will take the first shot and I will ask Dave to kind of address. On the Cable side and the Telco side, I do not believe so. At least we are hearing from a lot of our customers/competitors/suppliers other brokers in the same field we are in, experiencing declines actually a little bit greater than we have, so I think we maintain our market share in the business. I think the whole industry is seeing some softness in the Telco side. On the cable side, I think again we are maintaining our market share, at least with certainly our smaller customers and I will ask Dave to kind of answer a little bit more clarification on the on the cable industry.

[Dave Chymiak:]

This is Dave. I am not finding anything particular that I could see that we lose anything. One place we are losing, we are losing a few orders to the factory, which we always do if the customer could wait a month to two months longer than we could - and getting it from us and can go there and of course get a lower-priced and we are finding that to be true. I am noticing that our international business is off a little bit and I am finding our competitors are saying that it off, because of the dollar value but I cannot confirm that.

[Doug Ruth:]

What about, was it with the cash that you have on the balance sheet, what if you invested in inventory, do you think that that would make a difference, having different inventory than what you have currently?

[David Humphrey:]

This is David.

[Doug Ruth:]

Yes. Go ahead please Dave.

[David Humphrey:]

We have not found that to ever be effective unless it is a bargain. I mean, less it makes sense putting new inventory in. It is a the real competitive market on new products then your percentage is 6 points to 12 points and then you have got problems, so if you don't sell it, so we are not really into that. We are seeing a lot of buys.

[Dave Chymiak:]

Doug, I will take a shot at it as well. I mean, there are two aspects to our inventory position. One is the hot moving items is the current production on the cable side, because we do distributor OEMs, with an adequate inventory positions. It allows us to take advantage of opportunities when the OEM manufacturers can't deliver from a timing standpoint and I think we have ample supply of that. Then as our long-term inventory positions on secondary purchases that Dave talks about that we buy significant discount, maintain very high margins on that type of product and I think we have got a very good position still. I think our inventory is strong, continues to drive a lot of our sales. On the Telco side, we purchased Nave about a year-and-a-half ago and we strengthened their balance sheet by adding inventory their positions. I think it has increased their margin slightly over time. What we are seeing when Scott talks about reductions in margin, what is happening there is that we are shifting sales over to - we are seeing more and more of our sales coming from end-users, which if it is coming out of - [ph] we see a slightly higher margin, but we also source product part of the Telco group and those are at lower margins. As we increase more sales not utilizing our inventory, we will see reductions in margin, but we have a very strong inventory position as still drive lot of our sales in the Telco side as well, so I am very pleased with our inventory. We continue to whittle it down and convert it into cash over time as well.

[Doug Ruth:]

You know as a group, you folks are very nice people, you are very astute in what you are doing, but starting from the beginning of the year, we had the stock price at $2.44. We are $1.68. All the core shareholders, including the Symax have seen the value of their investment decline this year. What do you think should be done? What should the company do if anything different going forward than you are doing currently?

[David Humphrey:]

Again, we will take those by segments. On the Cable segment, we continue to look for opportunities to expand our product line and we are in discussions with an OEM to maybe look at some additional lines of product we can sell, but we have utilized our strong inventory position and we also will continue to look at expanding our sales group. The group 15 years ago was predominantly focused on resellers, so we would sell the other brokers and that was the model that Dave built up. I think in the last three or four years, our focus has been more on end-users. Now, we have got a strong end-user market just by happenstance, because customers know that we are the ones with the inventory now if it comes to us, but we would be more proactive in the marketplace on the cable side. On the Telco side, Nave has always been a very proactive market in sales organization, so I think they are utilizing the markets that they have got and they are well in touch with their customers, they maintain a strong base with them and I think these are market conditions and I do not believe that this is sustainable business that - I am sorry, I should say the decline is not sustainable. I think the market will come back with Nave, and they believe that as well. We think it is short-term. I think, we are doing exactly what we need to from an acquisition standpoint. I think, Nave adds significant value to the business and I think we are going to continue on the path of finding that next acquisition to add to the operating base for our company.

[Doug Ruth:]

With the large discount of the stock price to the book value, how do you feel about reinitiating some sort of stock buyback at this point?

[David Humphrey:]

You know, that is actually something we might start discussions on internally. With that much weakness on it, we think our stock is real value right now. I won't make any promise to you, Doug, as you know I can't do that on this until we make a decision, but I can assure you that we will have some internal discussions, Scott, myself and Dave, around on very subject.

[Doug Ruth:]

Okay. Well, thank you. I appreciate you holding the calls and telling us what's going on and I believe in the company and the people there, so thank you for doing what you are doing.

[David Humphrey:]

Thank you very much, Doug. We appreciate your continued support.

[Operator:]

We will go next to George Gasper, a private investor.

[George Gasper:]

Good morning.

[David Humphrey:]

Good morning, George.

[George Gasper:]

Just an ongoing comment from your comments to the questioner prior to me, at the bottom of the market this morning at $1.30, you are selling at one-third of your book value, it looks like to me, and I think that is the question about stock buyback was a pretty good one for anyone to ask management at this point in time. Question on the cable side, a year ago approximately about now there were thoughts from you all on what could be a lift of a year from then being now. On the field amplifier market coming around because of bandwidth, the marginal bandwidth that was perceptibly coming more obvious than the market, do you have any comments about that and before you answer that, I might just say to you, you may have experienced it in your areas geographically, but I know in Milwaukee, broader Milwaukee Metropolitan area, there were serious slowdowns online with the marketing through the Internet. Also, even constantly Time Warner here is experiencing inability to solve problems in suburbs North of Milwaukee on getting a sufficient amount of speed on the data that is being transmitted cable. Now, with that situation, I can't believe we are the only place this is going on, so what is it about the market? I know you mentioned mergers that are stalling this out, but even mergers need to upgrade equipment and keep the field operations going out. What is your overview on all this?

[David Humphrey:]

Dave, I will let you take the first half of this question.

[Dave Chymiak:]

We are first is by giving our quotes for what you would call the upgrade equipment in that. We are selling some. It is not picking up there as fast as I thought it would. Most of the people are putting their money into budget for 2016 and 2017 to upgrade some of their amplifiers. Time Warner is out trying to upgrade a lot of their equipment. They have got a lot of older equipment out there in certain areas, but a lot of that they do not know what to do. They say, well, we will wait and we will do our minimum amount to get through the merger [ph]. Other times, they are out there trying to be aggressive at it and then there is backlog, but there still is move, but and they are doing a reasonable amount of things in the state, but it is mainly to bring up to a minimum level. As far as the upgrade goes, still looks like six months to a year down the road, George.

[David Humphrey:]

George, a couple other comments about the cable industry, of course, the cable industry has a long reputation of having very poor customer relationships that has not had anything to do with our business. We are equipment supplier to them that is with you as a customer of the cable business, the cable industry recently for the first time is making more money on broadband than they are making money on cable TV. Now, that may seem unusual. You and I and everybody else paying a $100 or more for cable television and $30 to $50 for broadband, but they pay a lot of that money to the producers, to NBCs and ABCs and ESPNs of the world, where 10 years ago ESPN would beg you carry them on cable to get the advertising. Now they charge you $5 per subscriber per month to be able to carry ESPN, so that is why they are now actually making more money on broadband for the first time than on cable TV. You know they collect more money on cable TV, so that's one of the shifts and that is their growth engine while they are taking on more and more broadband customers and that is going to be the one point that is going to ultimately drive that demand for having new increasingly reverse path as it is all about broadband, because the cable TV only goes one direction, it is unidirectional delivery and they do have to stay competitive with the Telcos. They are in the very same market. Now, first goal is the Telco and the cable companies are coming together from a customer market standpoint and offering the triple play, get telephony from either one, broadband from either one or cable TV from either one, but they utilize completely different infrastructures which is why we are invested in a Telco company that is selling Telco equipment to one customer base and a cable company distributing equipment to the cable markets and those continue to be - there is a strong need for that as the demand for broadband continue, so we feel very confident about our industry and where the market is going. Unfortunately, I do not feel terribly confident about how they respond to customers and how they are ultimately going to fix some of the problems they have got, but yes. They do need to upgrade their infrastructure as they continue to deliver more and more broadband to a broader customer base and we think we will take advantage of that market play over time.

[George Gasper:]

Okay. Good answer. Thank you. A question here on the acquisition side, are you getting any closer to zeroing in on another leg on the stool so to speak, can you comment on past, the last quarter when you updated on your acquisition look view. Anything you can tell us about that?

[David Humphrey:]

All I can tell you George is, we are continuing to look at opportunities. We are in discussions with the company that actually was supposed to have this afternoon that got cancelled and that is pretty common is we are generally in discussions and continuing to look, so we are continuing to solicit additional companies and trying to broaden the scope of opportunities we can look at. I do not have anything to report that I - nothing imminent at this point in time that I can report on.

[George Gasper:]

Okay. All right. Then on the inventory side, you mentioned an inventory gain for Telco reduced on the cable side. How does the cable inventory look relative to where you think that cable business from your perspective is going?

[David Humphrey:]

I will turn that over to Dave. I might kick in. Go ahead Dave.

[Dave Chymiak:]

George, I am comfortable with our inventory. We are not losing any orders to answer part to Doug earlier. I cannot see, where we are losing any orders because we do not have it in product. We do not handle a lot of the commodity items. A lot of the small connectors cable as such, where there is a large small margin, but I am not losing any orders that I could tell on our regular equipment because of inventory. We are not looking at increasing inventory unless there is a special going on. You know we are still acquiring a few things, but it's very significant as a whole picture right now.

[George Gasper:]

Okay. Then just back on the Telco side, the marketing approach that you are using. Do you see at this point with now having Nave in the full - for better part of the year mark that you can start to expand what they are marketing?

[David Humphrey:]

Okay. Yes. Let me answer that question a little differently. From a product standpoint, they have a very broad product offering. Even if they do not carry it inventory, they can source it. They will sell it to a customer. From an equipment standpoint, I think it is fairly broad. Looking at potentially service opportunities within Nave, but I [indiscernible] right now, but those are certainly both opportunities on the Nave side and the Telco side and we would certainly look at those [ph]. We are already in the repair business which we call service, so you know that is more of a service business on the cable side, but in that space the Telco yet, so those were potential acquisition opportunities for us.

[George Gasper:]

Okay. All right, and just closing observation from my perspective as the last gentlemen was asking questions mentioned we obviously are hoping that advanced technologies income around and take advantage of its market opportunities going forward you have from a standpoint of quality of company certainly relative to the price of the stock, we would hope that you can leverage your talent inside there and really start to move it forward past the bumps in the road that apparently are still in front of you. Thank you.

[David Humphrey:]

Thank you very much, George. Again, we appreciate your continued support.

[Operator:]

[Operator Instructions] We will go next to Steve Rudd with Blackwell Investments.

[Steve Rudd:]

Hi. Let me start with this. I think, of course, on the day-to-day operations of the company I really cannot have much input, but I think we really are losing a battle on what I would call the financial management of the business, so I want to just try to focus on that in the next few questions and [indiscernible]

[David Humphrey:]

I am sorry, Steve. You are breaking up. We actually can't hear you now.

[Steve Rudd:]

Can you hear me a little better now?

[David Humphrey:]

You are still kind of coming in and out, Steve.

[Steve Rudd:]

Let me get…

[David Humphrey:]

It's a bit silent now. Go ahead.

[Steve Rudd:]

…another location and maybe it will be a better. Okay. Is that a little better?

[David Humphrey:]

Yes. We are checking. Yes. Better now. Thank you, Steve.

[Steve Rudd:]

Okay. Good. Sorry about that. I apologize. What I was talking about is I think we need, at least from an input or constructive input basis the financial management is what I would like to focus on. Day-to-day operations, you guys will know more than I will ever possibly learn about it. The first question I have is, we just reported a poor fourth quarter. Typically, there ought to be a time that company like yours in a difficult situation with this inventory that is sitting on there for a long time would write down the inventory and there are tremendous advantages to doing that. There is a tax advantage. There is a financial reporting advantage for when you have later sales and you can do a recovery with better margins on it and on it goes. I have the feeling that maybe you hesitated to do that I don't know for some nostalgic reason or whatever it is, but it seems to me if you missed it in the fourth quarter, given that you have just basically preannounced the bad first quarter, you can take that write-down in the first quarter? In other words, at this point, it is not going to negatively affect your share price, and practically who cares if it doesn't this point, but at least we can set ourselves up to the point where we are more properly reporting the inventory valuation and then able to take advantage of that write-down today in the future with better margins when we sell off the inventory in the future. I do not know if you have looked into that and it seems to me your accountant should have pressed you on it, but I do not know. Do you have any questions on that or what your thoughts are at present? I would be interested in hearing.

[David Humphrey:]

I will turn it over to Scott to begin with.

[Dave Chymiak:]

This is Dave.

[Steve Rudd:]

Good morning, Dave.

[Dave Chymiak:]

…the inventory probably more times and how we operate and doing it. For IRIS purpose, this we have to justify that the thing is not worth anything or we have to get rid of it, all different types of things. For SEC, we have to make an adjudicated guess of its value. I would probably spend more time as far as accounting going on that and we look at it daily, but it if something is still worth it, we are still selling it, we are still getting the quote. We technically can't write it off, but we spend a great deal of time on it, on accounting over the years. For 30 years, we have really looked at it different ways and we are very conservative. We do have quite a bit of write-down on the books. X, Ys we can't take it off until we dispose of it or justify with the IRS basically that we can do it. Scott…

[Scott Francis:]

Yes. Steve, I will take just a step further. We do all sorts of as our year-end audit in each quarter we go through and look at price testing to make sure our lower cost of market rules are still in place that for what we are selling on our turns. We definitely have a different distribution model than what you are used to. On the surface it looks like we are not turning our inventory, therefore it is right for a potential cost of market write-down, which I think is what you are driving to. Our model is not that. Our model is, we hold our inventory anywhere from - there could be a very short period, but up to three and four years, so that is by design in our model, so just because it is not selling today it does not mean it is a write-down to your question, so it is a different look than maybe what a traditional company would do, but that is why you see what you see and all I can tell you is as of year-end, we have gone through those price testing models on our lower cost of market comfortable with that. We are also comfortable with the reserves that we had in place on the cable segment. The potential E&O i.e. excess and obsolete inventory that we have in place at year end and Dave is looking at that. We are careful before we just write stuff up and scrape it, because that means you are just taking a loss on it. I granted it is good for tax, but ultimately if we can sell it, it is going to be a whole lot better in the long run and that is what we are trying to figure out. I appreciate the question, but that is where we are at.

[Steve Rudd:]

I am sorry. I was not talking about taking it and selling it for scrap. I was talking about reducing the valuation.

[David Humphrey:]

That is what I was telling you Steve. I can't reduce the valuation if the price testing can't support it.

[Steve Rudd:]

Sorry. Now I got that, but here is the issue. I think that from a financial management point of view, you folks would want to be writing down the inventory. Now the question is, how do you get to that number and that has nothing to do with putting the inventory out the door or selling it at bargain basement prices. The next part is how do you all get to that? You get to it, because the very fact that, yes, you have a different model, gives you plenty of room to show that the deviation is probably a standard model business. Standard model would tell you, you are sitting on inventory three, four years. That inventory must be overvalued. That is the axiomatic result from looking at inventory for that long, so if you yourselves are driven to a better financial results for the company, then you yourselves would want to drive the write-down in inventory and now would be the time to take it and it is justifiable not that if you are for some nostalgic reason, saying, I do not want to write-down the inventory, then we are all in this morass, but if you are managing this as solid financial managers, you would say, we want to write it down and your case for writing it down is very powerful. Indeed, I think your case for not writing it down is extremely weak. With a powerful case for writing it down, given that your practices are deviating from the normal company, you then have the most solid case for writing down your inventory. Take it. In other words, you are being handed, I would not say a gift, but you are being handed something that is completely supportable by normal industry practices and take it and use it. Try to analyze that a little further, if you would with your accountants, because I think you are coming out the wrong way on this and unduly tying yourselves up and portending a worse future for yourselves. Instead of taking all the bad news in one shot, let us do it all in one shot and have a better future rather than tying ourselves up and saying, hey, listen, we know you would normally write-down our inventory, let me tell you why we do not want to do that and why do not you just like go with it, because I think it would be better for the company and that you would report better results. Just if you would ruminate on that a little further. I am sorry. Go ahead.

[Dave Chymiak:]

Hey, Steve, this is David Chymiak. Maybe one thing I could tell you that may help understand. 80% of our inventory is fast-moving turnover items as far as within current product models. We may get specials on them, in fact. Our longer items that we have had traditionally is less than 20% of our total inventory in dollars. Even if I reduce some of that, that is the ones we hit our homeruns with. Again, we will take into consideration, but we do this all the time. In fact, it is the big consideration through the audit process we go through all the time. Thank you.

[Steve Rudd:]

Okay. Just a follow-up, too and something else to say, I do not know if it was the prior question, but one of the items we spoke about on the last call was analyzing the buyback. Just as you do that the buyback has to be meaningful, so if it is going to be just shares from time-to-time in the marketplace, you do not really have that much opportunity to take in many shares. I have not sold a share, by the way. I mean, I just see the company so preposterous and cheap that I just cannot even bring myself to sell it, although I do think we need to do better things on financial management. With that, I want to focus you guys in on a Dutch auction, so that you are doing a meaningful buyback as opposed to just announcing a buyback and then because of buyout periods and restrictions able to pick up only 3,000 shares every quarter or so, so I do not know if that Dutch auction concept has come up yet, but who knows maybe the 10 Chymiak and the other Chymiaks would want to tender some of their shares, but at least you can pick up a meaningful number of shares on a buyback.

[Dave Chymiak:]

I am sorry to interrupt you, Steve. I can assure that Dutch auction is part of the conversation.

[Steve Rudd:]

Okay. Excellent, good. I am glad to hear that. Finally, we have hired Dave Humphrey, who is the CEO, and as I talked about financial management. I have just a feeling as a shareholder and having seen companies with senior owner managers then handing off to some new blood, but I have the feeling he is underutilized and this is just coming from having been an investor for 30 years now. I would bet if asked and if you believe he could tell you honestly what his thoughts were, he could probably point to really three, five, eight folks who have been with the company for 20, 30 years, who the company would proceed very fine without and I just hope that you would invite Humphrey to do his job to the fullest in saying, look, here is my list of people I think we are overpaying or we really do not need and I think this time it is tough for a new CEO. I have spoken to him. We have not spoken in months now, but I think prior to the last conference call we spoke one-on-one. He is an enormously polite guy, very respectful and admiring of what the Chymiak have done with this business, so I think to pull him out. Look, I am not going to say he sits in a shell. He does not sound that shy on the conference call, but to pull him out and say, hey, listen, we hired you for a reason. Tell us, as the outsider, because, frankly, Dave Chymiak, you are the insider, and you have been there forever. Tell us, as the outsider, who needs to go and we will look at it really seriously and even if it is my best buddy, who is over the house every weekend, we will do this in a proper and nice way, but we are going to run this company like a real company and not like an old clubhouse that we are really profitable, so I am just hoping you will - I am saying it publicly here, so that I am not talking out of school, but I just really hope you will invite the full utilization of what, I believe, you brought him in to do, but I suspect he is probably hogtied from doing, so just to give that further thought. Also, thank you again for letting me speak freely, because sometimes folks, they do not want to hear this. I hope it is constructive.

[Dave Chymiak:]

I appreciate your comments, Steve. I appreciate you have not sold any of your shares yet and we appreciate your continued support, so thank you for your questions Steve.

[Operator:]

That does conclude today's question and answer session. At this time, I would like to turn the conference back to David Humphrey for any closing or additional remarks.

[David Humphrey:]

Thank you, Operator. We are pleased with both, our top-line revenue growth and EBITDA this year. Although current shifts in market demand is disappointing, it does not dampen our enthusiasm and only strength is our determination to focus on profitability and identify new revenue sources for existing businesses through the execution of our business strategy. This activity will include investing in our business by identifying potential strategic acquisitions in a broader telecommunications industry. I would like to thank our shareholders for their loyalty, support and patients as we continue to build value. Thank you all.

[Operator:]

This does conclude today's conference. Thank you for your participation.