Blonder Tongue Laboratories, Inc.
Q3 2018 Earnings Call Transcript

Published: 14 Nov 2018

[Operator:]

Greetings, and welcome to the Blonder Tongue Third Quarter 2018 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Bob Palle, CEO of Blonder Tongue. Thank you. You may begin.

[Robert Palle:]

Thank you. Good morning, everyone. Welcome to Blonder Tongue's 2018 third quarter financial reporting teleconference. We thank you for your participation. Before we begin this morning with any details of performance, I'd like to preface my remarks and those made by other Blonder Tongue representatives who may be speaking today by reminding you that we will be discussing certain subjects which will contain forward-looking statements, including management's view of our prospects and evolving trends in the marketplace. As you know, the future is impossible to predict, so I caution you that actual results may differ from those that may be projected in our comments this morning. For additional information concerning factors that could cause actual results to differ from the information that will be discussed this morning, I would ask you that you refer to our prior SEC filings or Form 10-Qs for the first, second and third quarters 2018 and prior quarters, 10-Ks for years 2017 and 2016, the 10-K/A filed on April 30, 2018, and the 8-Ks filed periodically for the specially the 8-K/A filed on October 9, 2018 which explains in detail the current status and conditions regarding the sale of the Old Bridge property referred in today's press release, and the 8-K filed on October 30, 2018 which affirmed the appointment of Ted Grauch as the Executive Vice President and Chief Operating Officer with the company. With me today are Steve Shea, Chairman of the Board; Ted Grauch, Chief Operating Officer; and Eric Skolnik, Chief Financial Officer. All of us will be available to answer any questions you may have during the question-and-answer period that will follow our presentations. First, I'm extremely pleased to introduce to you and welcome to the Blonder Tongue family, Ted Grauch, BT's Executive Vice President and Chief Operating Officer, and allow him to provide his comments. Following Ted, I will provide my remarks. And following my remarks, Eric will provide his financial report. Following Eric, we will open the call up to a question-and-answer session. Ted, welcome to Blonder Tongue.

[Ted Grauch:]

Thanks a lot, Bob. I'm really excited to be joining the team, and I've known of and worked with Blonder Tongue products since I've been practicing electronic engineering back in the 1980s. The company has a great reputation for creating extremely reliable products for high quality and deep industry involvement and a long history in this industry. We've got a great technology team, engineering team and world-class U.S. based manufacturing. We've also got a really loyal customer base for a wide range of our products around the country. I'm looking forward to helping the team grow the business in 2019 and beyond. Back to you, Bob.

[Robert Palle:]

Thank you, Ted. Before I continue with any new information, the essence of my third quarter press release comments bear repeating. We're reasonably pleased with the slight increase in third quarter revenues, however, we are concerned regarding revenues for the remainder of 2018. As an update to the sale of the Old Bridge property, although the completion of the sale has been delayed, we received deposits totaling $500,000 in anticipation that the transaction will close as planned in January 2019. Also as was planned, we experienced higher operating expenses than prior periods due to the new product introduction phase of our NeXgen Gateway, and upgraded DOCSIS 3.1 Fiber Optic product lines. Both of these introductions were well received at the SCTE Cable-Tec Expo in October, and are anticipated to provide revenue growth as 2019 unfolds. During the second quarter financial reporting teleconference, we indicated that an 8-K had been filed on August 6, 2018 disclosing that we entered into a contract and leased back the Old Bridge property from the new owner, and that we anticipated that the transaction would have closed in early November. Although the closing has been delayed, the referred deposits have been received into the company's operating account. The deposits are subject to certain obligations and conditions, the particularity of which are described in the after-mentioned 8-K/A. However, the fact that we have received them coupled with the acknowledgement that the due diligence period has expired greatly raises our confidence that the transaction will close as anticipated. Basically, we're expressing what was stated earlier in the last teleconference. At the sale the property closes in early 2019 as we anticipate that it will, our company will be debt-free with significant cash reserves positioned to invest more aggressively in the development and promotion of new products. Now I'd like to turn the call over to Eric Skolnik. Eric?

[Eric Skolnik:]

Thank you, Bob. Net sales increased $50,000 or 0.9% to $5,626,000 for the third quarter of 2018 from $5,576,000 for the comparable period in 2017. Net loss for the three months ended September 30, 2018, was a loss of $199,000 or a loss of $0.02 per share compared to a loss of $153,000 or $0.02 loss per share for the comparable period in 2017. The increases in sales is primarily attributed to an increase in sales of digital video headend products, offset in part by a decrease in sales of data products. Sales of digital video headend products were $2,814,000 and $2,100,000 and data products were $1,112,000 and $1,782,000 in the third three months of 2018 and 2017, respectively. For the 9 month period ended September 30, net sales decreased $1,447,000, or 8.2% to $16,266,000 in 2018 from $17,713,000 in 2017. Net loss for the 9 months ended September 30, 2018, was a net loss of $597,000 or $0.07 loss per share compared to a loss of $640,000 or $0.08 loss per share for the comparable period in 2017. The decrease in sales is primarily attributed to a decrease in sales of data products, analog video headend products, and HFC distribution products, offset in part by an increase to digital video headend products. Sales of data products were $3,566,000 and $5,168,000; analog video headend products were $1,234,000 and $1,360,000; HFC distribution products were $2,345,000 and $2,545,000; and digital video headend products were $7,899,000 and $7,330,000 in the first 9 months of 2018 and 2017, respectively. Now I'd like to turn the call over to our Q&A session.

[Operator:]

[Operator Instructions] Our first question comes from the line of Greg Urban [ph], who is a private investor.

[Unidentified Analyst:]

Could you elaborate at all on what the future holds as far as the -- for the rollout of both, the NeXgen and DOCSIS 3.1?

[Robert Palle:]

We're really excited the buzz we created at the SCTE Cable-Tec Expo just last month. And our initial discussions, testing process with all of the MSO prospects and others has been extremely positive. Do you need more?

[Unidentified Analyst:]

What's the order flow looking like in the near-term?

[Robert Palle:]

Right now we're in a period where the MSOs are preparing their budgets for next year. And so we're into that budget process with a number of them with our products for the first time. So these will be primarily 2019 purchases, so we see the uplift coming during 2019 and that's why I expressed concern about revenues in the fourth quarter, and that's why we said what we said. So I'm not sure if that's helpful or…

[Unidentified Analyst:]

Do you anticipate some of the orders coming in sort of -- at the same size overtime or might there be some lumpiness with large orders spliced when they do begin the flow?

[Robert Palle:]

You've been in our quarter here for a while…

[Unidentified Analyst:]

For a year, right.

[Robert Palle:]

I know, and then, you know that for me to say, well, it's not going to be lumpy order flow anymore, that's kind of unrealistic expectation, right. So the order flow is going to be lumpy but we think that the order flow is going to increase overtime because of the reception that we've gotten from interacting with the prospects and the customers. We're just really, really pleased; I couldn't be more pleased with the rollout.

[Unidentified Analyst:]

I assume then that it's a demand, not a supply and that you haven't designed and developed and manufactured the models for the NeXgen but it's more on the demand side, correct?

[Robert Palle:]

I apologize because your question completely confuses me. Yes, there is definitely a demand for our product and especially because our product is so much more modern than the currently being shipped product and the pricing is so much more favorable for our product line. And the future proof of our product compared to the others is so much more favorable. And so this is the -- and it's just easier to drive, it's easier to use and so we're the last guys to go, so it should be better and the initial feedback is, that we're better.

[Unidentified Analyst:]

Looking at comparing quarters, sequentially, despite your concern about the -- what the third quarter was going to look like and the fourth, you've managed to at least tread water and the head-in products are up -- only the analog looks like it's going down which leads me to the question about that was raised in prior calls, are the -- I assume most of the analog equipment comes from China. Have the tariffs factor -- is it still there in front of us?

[Robert Palle:]

The tariffs issue is still in front of us but being worked. So we're in a period right now where the tariffs are 10% on certain products that we import and most noteworthy of those would be the analog at end products that you refer. But we're working the other products to mitigate those tariffs, and as you said, the analog is going down; right now 10% is the fairly modest tariff but after January 1 now, we go to 25%, so this could become a little bit more serious but we do not foresee it -- that the advice we have is correct, that it being a huge impact, the modest impact. And the analog; that's currently -- our research tells us that that's where it is but the customs -- CBT can change our mind at any moment and force you into categories you don't agree with and then there is legal expenses to defend that and there is -- it can get ugly quickly and totally not under our control, we've gotten -- we've invested in legal advice and we've recently received legal advice that's reasonably favorable to all of the big ticket items that we're involved with. And we have mitigating strategy should CBT take upon themselves to change the categories that we're inpouring under but we have a very strong defense for why we're inpouring under the numbers that we're inpouring but there is a lot of grey area. As you know, there is the convergence and a confluence of telephony and data transmission, and entertainment for motion video; and so this tends -- or can blur the interpretations we're back -- you know, 15 years ago the categories were extremely bright lined, the differentiation was extremely bright lined but we'll just have to -- we're doing our homework, and we'll just have to be mindful of what they do and the one thing that we have is, we have a factory that where we can move stuff back reasonably quickly and mitigate any adverse tariff action taken by the CBT that we don't foresee at the present time. We just emphasize again, we don't foresee that but it can happen because it's not in our control.

[Unidentified Analyst:]

Thanks for that explanation, and I hope that in the components that might be required for the rollout of the new products wouldn't be adversely affected or the ability to produce those products wouldn't be handicapped too much by traffic, international traffic. I know that three or four other companies that I follow and they are all invested in manufacturing across borders, they are all affected by what's happening in the tariff world.

[Robert Palle:]

Well, I'm not sure whether they have the ability like we do to start building things that we…

[Unidentified Analyst:]

No, that's one other thing that's attractive to me about Blonder, it's the relative self-sufficiency -- what I take to be the relative self-sufficiency.

[Robert Palle:]

Well, it's -- that we think that's one of our strong point. But you did mention something that I want to address because you talked about components. Now where the components -- the country of origin for the components are what they are, and so silicon devices and what-not, the fab is in -- where they are doing the fab now, the guys like Broadcom can move things from country to country to mitigate that but that's not necessarily mean that we are in control of telling them what to do. So -- but we're talking about the component cost level, not at the finished goods cost level, right. So -- but we are -- we think that we've analyzed that and we think that the impact is modest with respect to the components that we have identified as China country-of-origin.

[Unidentified Analyst:]

And finally, with respect to -- could you -- is the real thing and the title search and all that; is all that going according to plan for the sale of the facility?

[Robert Palle:]

Talking about the sale of the facility, what's our take on…

[Eric Skolnik:]

Everything is going according to plan [ph].

[Unidentified Analyst:]

I asked specifically about the roofing because as the weather turns colder, not knowing what kind of roofing you're doing, it could become more problematic. I hope that's solved?

[Robert Palle:]

We have 20-year lifetime roofs that we're like 8 years into. And it doesn't leak anywhere, and it has 20-year warranty where they are responsible for fixing anything should go wrong with it; so we think we're -- we made the major investment in that, so like via 8 years ago and so we think we're covered right now. Is that helpful?

[Unidentified Analyst:]

Yes. Anyways, good luck. I look forward to next year.

[Robert Palle:]

As do we.

[Operator:]

Thank you. There are no further questions at this time. I would like to turn the call back over to Mr. Palle for any closing remarks.

[Robert Palle:]

Thank you very much for your participation, and I will speak with you again at the year-end teleconference in April. Eric, thereabouts. Thanks, again.

[Eric Skolnik:]

Thanks everybody.

[Operator:]

Thank you. This conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.