ADDvantage Technologies Group, Inc. (AEY) on Q1 2021 Results - Earnings Call Transcript
Operator: Thank you for standing by. This is the conference operator. Welcome to the ADDvantage Technologies Group to report Fiscal 2021 First Quarter Financial Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Brett Maas, Hayden IR. Please go ahead, sir.
Brett Maas: Thank you, Operator. We are joined today by Joe Hart, President and CEO; as well as Jarrod Watson, Chief Financial Officer. Before we begin today’s call, I’d like to remind everyone that this conference call may contain forward-looking statements, which are made 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 future events, such as the ability of ADDvantage Technologies and its subsidiaries to maintain strategic relationships and agreements with certain original equipment manufacturers and multiple system operators, as well as the future financial performance of ADDvantage Technologies. These statements involve a number of risks and uncertainties. Participants are cautioned that these forward-looking statements are only predictions and may materially differ from the actual future events results 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.
Joe Hart: Thank you, Brett, and thank you to everyone joining us on the call today. It has been just over a month since we last spoke with the investment community, which was during our full year fiscal 2020 earnings call late in December. Since that time, we have continued our efforts to streamline our expenses, improve operational efficiencies, and position our wireless business for growth and profitability, ahead of an acceleration in the transition to 5G by the wireless carriers. The first fiscal quarter was impacted, as it often is, by the typical seasonal challenges, including the winter weather, the holidays, and we further experienced some COVID-19 related crew quarantines in late November in the north. November through March is also a period when our high margin specialty work in the north takes a hiatus until the warm weather returns in the spring. However, our confidence and optimism about the 5G rollout, has only been strengthened by some of the advancements and press releases we've seen over the last 90 days.
Operator: Jarrod Watson, your line is live.
Jarrod Watson: Thank you, Joe, and thanks to everyone on the call. Sales for the first quarter of fiscal 2021 decreased to $12.7 million from $14 million in the prior year. $1.6 million of this decrease came from our wireless segment, as the group continues to experience the impact of COVID-19 on its business and 5G delays and infrastructure spending from the major US carriers. This decline was offset by nearly $340,000 increase in revenue from our telco segment. One of our telco subsidiaries, Triton, sells office telephone and IP equipment for enterprise networks, and most large offices continue to be closed, also as a result of the COVID-19 pandemic. However, we saw an overall sales increase this quarter from the telco segment, slightly impacted by a decline in telco recycle sales. Gross profit increased by $37,000 to $3.63 million, compared to $3.59 million for the same quarter last fiscal year. Despite the $1.2 million decline in sales, the increase in gross profit was primarily due to the telco segment, where gross profit improved by $300,000, which was partially offset by a decrease in the wireless segment gross profit of $264,000 because of the segment’s lower revenue. Gross profit margin improved to 28%, up from 26% for the prior first quarter, as wireless margins improved 312 basis points, and telecom margins improved 293 basis points. Operating expenses decreased $84,000 to $2.05 million for the quarter ended December 31, 2020, compared to $21.14 million for the same quarter last year, which was driven by cost reductions in our wireless segment. Selling, general and administrative expenses for the quarter, increased $0.4 million to $3.2 million, compared with $2.8 million for the same quarter last year. This increase was due to an investment in building out the sales team for our wireless group, and non-cash stock compensation. Net loss for the quarter was $1.95 million, or a loss of $0.16 per diluted share based on 12.4 million shares, compared with a loss of $1.72 million, or a loss of $0.17 per diluted share, based on 10.4 million shares for the same quarter last year. Adjusted EBITDA was a loss of $1.3 million for the first quarter of fiscal 2021, which was essentially flat to the same quarter last year. Turning to our balance sheet. Cash and cash equivalents were $5.7 million as of December 31, 2020, compared with $8.4 million as of September 30, 2020. Cash was primarily used to fund operations. As of December 31, 2020, the company had inventories of $6.2 million, up from $5.6 million at September 30, 2020. Outstanding debt went down by $1.3 million to $6.7 million at December 31, 2020, comprised of $2.8 million of our revolving line of credit, $2.9 million of notes payable, and $1 million of financing lease obligations, compared to $8 million at September 30, 2020, which was comprised of $2.8 million of our revolving line of credit, $4.1 million of notes payable, and $1.1 million of financing lease obligations. At September 30, 2020, notes payable were comprised of $1.2 million from our primary banker, which correlates to payments that we received from a $3.8 million promissory note, and $2.9 million of a PPP loan, for which we have to apply for forgiveness. Subsequent to year-end, we renewed our revolving line of credit for one more year to a maturity of December 17, 2021. And we paid off the $1.2 million note payable to our primary banker. We continue to believe we are sufficiently capitalized with appropriate backstops to support near term business conditions until more normalized business conditions return.
Operator: Thank you. We will now begin the question-and-answer session. The first question comes from William Velmer with S. A. Advisory. Please go ahead.
William Velmer: Yes. Thank you for the enlightening conference call. My only question really, your last presentation was quite interesting and thorough, and you've listed some guidance in that press release - I mean, in that presentation. Do you expect that that guidance will remain in effect for the ‘021 to ‘23, as you mentioned I think on one of the later pages of the presentation?
Joe Hart: Thanks for your questions. This is Joe Hart. Can you hear me?
William Velmer: Can you hear me?
Joe Hart: Yes.
William Velmer: Did you get my question?
Joe Hart: I did. I think where this business is going is that, while the big ramp up of construction for 5G has been, I'll say all on fiddle, right? You read - you see all the TV commercials and you read all the press and you say, oh, 5G is everywhere.
William Velmer: Right. It’s not.
Joe Hart: Well, the whole marketing - and they're trying to sell their services at the very front end of the 5G wave. It typically takes about three to five years at a minimum for the carriers to upgrade all of their sites in every State across the country to the new technology. I mean, it's a repeated pattern from 3G, 5G, 4G, et cetera. So we in fact are now seeing the very front end of that construction wave just starting to happen. And while T-Mobile has been building, the other carriers have been relatively silent and relatively low level of activity. We are now seeing that ramp start here at the moment, and it'll kick in, in a fairly big way, April, May, June, and then it'll take off and stay that way for somewhere between three to five years. It's predictable. It's something that has to happen. You can't just upgrade a few of your sites to 5G. You have to upgrade them all, because otherwise your subscribers cannot get roaming service at 5G levels across the nation as they travel in their cars, they take trips they drive around their neighborhoods. you have to do them all at some point. So, that wave is just starting here from a construction aspect. And we're really nicely positioned to take advantage. So, while we say that our business is going to pick up in the second half of our year, it doesn't mean it's going to drop off because the fiscal year ends, then there's a pause, then we have a slam, and then we pop back up, right? Once this wave starts, it's going to continue for the next three, four, five years, and it's very predictable. I'm not the only source of this. I'm not an oracle. It's just a continued pattern from 3G to 4G to 5G.
William Velmer: Okay. One more quick question. On the anticipation of this huge growth that you're entering, is there a potential of a money raise in the form of an S1 or a 425 or some other ATA and ATN? Is there - is that on the table down the road as this thing ramps up maybe in the next six to nine months where you'll be doing a financing, do you think?
Joe Hart: Well, I think we've published our strategy that we put on our website. I presented last summer at the LD Micro Conference on our growth strategy. Our growth strategy does include an M&A component to it. We do believe that, based on any candidates that we come across and we look at adding to our portfolio, that there'll a need for additional capital to fund any of those acquisitions. So we do anticipate that there will be some need to raise capital as we move forward here with our growth plan. And we also have a very publicly filed S3 that's been out there now for a little more than six months, where we occasionally sell some shares through the shelf registration. So, a combination of things. It’s probably a natural evolution and it's part of our combined organic and M&A growth plan.
William Velmer: Great. I've been a publisher of a little financial publication since ‘84, and we're expecting to write you guys up on our next newsletter, which will be out soon. So, I like what I hear. I like what I see. I like the industry. It's a great, great situation for us. So thank you very much, and I like your professional presentation as well. Thank you.
Joe Hart: Thank you. Operator Thank you. The next question comes from Sean Johnston, a private investor. Please go ahead.
Sean Johnston: Hey, good morning, folks. This is Sean. Can you hear me clearly?
Joe Hart: Yes. Good morning, Sean.
Sean Johnston: Hey, I just want to say thank you to Mr. Hart. Excellent presentation, and I really appreciate the clarity on just kind of explaining that it typically takes about three to five years minimum to kind of make that upgrade, kind of get to full fruition, because a lot of us travel around. We see all the infrastructure. And for that, I think that was great. My question is, I think the last presentation you guys put out in the summer was fantastic. Do you know if you guys plan to maybe release another investor presentation anytime soon? Because the last one you guys put out was fantastic. And that's my question. Thank you so much.
Joe Hart: Yes, I don't think we have a plan to issue another investor presentation. It's an interesting idea. I think that we are at the point where there will be some additional contracts. There will be some additional new business that at the appropriate times will be announceable events. And that'll be - assuming they're all material, something that we have to publish. But as - I’ve got to be a little bit cryptic here, Sean, but as our growth plans unfold, we must publicly disclose that information. And it may be a timely thing to publish an update to our investor presentation in a couple of months’ time. But personally, to maintain our credibility with the investors, I'd like to wait till we have some material growth in our hands before we start making any additional promises for the future.
Sean Johnston: Totally understood. It makes perfect sense. Thank you so much, Mr. Hart, for taking my question. Thank you so much.
Operator: . There are no more questioners in the queue. This concludes the question-and-answer session. I would like to turn the conference back over to management for any closing remarks.
Joe Hart: This is Joe. I would just like to thank everybody for joining the call today, and we appreciate your interest and your investment. And we feel a strong obligation to get this business back to full profitability and grow so that we can support the confidence that investors have shown in ADDvantage Technologies. So, thank you very much for being on the call today.
Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
