Blonder Tongue Laboratories, Inc. (BDR) on Q1 2022 Results - Earnings Call Transcript
Operator: Good morning, ladies and gentlemen, and welcome to the Blonder Tongue Laboratories First Quarter 2022 Earnings Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Ted Grauch. Sir, the floor is yours.
Ted Grauch: Thank you. Hi. Good morning, everyone, and thank you for joining us this morning and participating in Blonder Tongue Laboratories 2022 first quarter earnings call. I’m Ted Grauch, President and Chief Executive Officer of the company. As we give our remarks this morning, we will be discussing certain subjects that will contain forward-looking statements, including the management’s view of our prospects and evolving trends in the market. As you know, the future is all but impossible to predict, and so I caution you that actual results may differ materially from those that may be projected in our comments. We would ask you to refer to our prior SEC filings, including our Form 10-K for the years 2019, 2020 and 2021 and our filed Form 10-Qs for the four quarters of 2020, for the four quarters of 2021, and for the first quarter of 2022. Each of those filings include additional detailed information concerning factors that could cause actual results to differ from the information discussed this morning. With me today is Eric Skolnik, our Chief Financial Officer and Senior Vice President. Eric’s remarks will follow mine and will cover our detailed financial results. All of us will be available to answer questions you may have during a Q&A session immediately following our prepared remarks. In the first quarter of 2022, Blonder Tongue Laboratories had a net loss of $1,154,000 compared with a net loss of $414,000 for the first quarter of 2021. Beginning in late January, the company experienced delays and disruptions in the supply of several specific semiconductors that are required to produce a portion of our product lines. We responded during the quarter to these disruptions in several ways. First with engineering work to adapt the most affected product lines to use alternative parts that remain available. Changes we made to those products in February and March to work around scarce parts completed during April and all of the company’s product lines are or will be back in production during April and May. We are seeing a general improvement in the semiconductor supply chain situation overall, but continue to have new disruptions and delays in areas that had not been previously affected. The company also implemented additional operational expense reductions in the form of staff and compensation reductions, services and in a range of other areas. Comparing Q1 of 2022 to the fourth quarter of 2021, the company reduced its operating expenses by $187,000 from these actions, while maintaining its production capacity, research and development and new product development capabilities. Through the first quarter, the company saw continued steady demand for a broad range of our products with strongest demand in our latest, highest technology video encoding, video transcoding, NXG, IP video signal processing platform and DOCSIS high-speed data delivery product lines. In our DOCSIS product lines, we are seeing particular growing interest in our DOCSIS 3.1, our latest-generation, multi-gigabit, data delivery product from our customers in the recovery and hospitality market segment. During the first quarter, the company implemented additional targeted product price increases in order to compensate for specific – several specific chipset cost increases through the same period. Again, we are seeing a general improvement in the overall supply chain situation, and this has included better stability in the pricing situation compared with the environment that we saw in Q3 and Q4 of 2021. We are and will continue to deal with exceptional increases as needed. Overall, the company’s backlog for our products remains strong at over $10 million at the end of Q1. On the product side of the business, the TiVo partnership and Tivo-specific NXG platform configuration that we announced during the first quarter of 2022 began shipping to operators during the quarter and we began shipping higher quantities of our Drake PEG PLUS video encoders to large cable and telco operators this year. As many of them continue the process of converting their nationwide network infrastructures to an all IP television technology set. We have been growing our backlog of that product as well – we’ve been growing our backlog of that product at several operators as they have standardized on using the Drake PEG PLUS for their video backhaul requirements. We also recently announced a new two-channel version of the Drake PEG PLUS with updated technology and new features targeting the video back haul and IP television network conversion trends and demand remaining strong for our Clearview product lines within the DIRECTV dealer and distributor markets. The company's biggest challenges have remained consistent over the last eight months, managing unexpected and in some cases last minute raw material availability problems, while at the same time working to take advantage of growing demand in the marketplace. Now I would like to pass the call over to Eric Skolnik, our Chief Financial Officer to cover our detailed financial results. Eric?
Eric Skolnik: Thanks, Ted. Our net sales increased $90,000 or 2.8% to $3,341,000 for the first quarter of 2022 from $3,251,000 for the comparable period in 2021. Net loss for the three months ended March 31, 2022 was a loss of $1,154,000 or a $0.09 loss per share compared to a loss of $414,000 or a loss of $0.04 per share for the comparable period in 2021. The increase in sales is primarily attributable to an increase in sales of DOCSIS data products, encoder/transcoder products, digital modulation products and NXG IP video signal processing products, offset by a decrease in sales of CPE products, coax distribution products and analog modulation products. Sales of DOCSIS data products were $454,000 and $24,000, encoder/transcoder products sales were $1,518,000 and $1,167,000. Sales of digital modulation products were $377,000 and $121,000, NXG product sales were $501,000 and $421,000, CPE product sales were $27,000 and $695,000, coax distribution product sales were $129,000 and $353,000 and analog modulation product sales were $99,000 and $244,000 in the first three months of 2022 and 2021, respectively. The company experienced a reduction in CPE products due to the continued deemphasis of this product line, which the company expects to continue during the remainder of 2022. The company experienced an increase in DOCSIS data products due to the pent-up demand caused by the pandemic as these products are used primarily in the hospitality and assisted-living environments. The company expects sales of these products to may return to more historical levels during 2022. The company experienced a reduction in analog modulation products due to the continued market shifting away from analog modulation solutions. The company experienced a reduction in coax distribution products due to the reduced demand for legacy products. The company expects the sales of the analog modulation and coax distribution products to continue to decline during 2022. The company experienced an increase in encoder/transcoder products and NXG IP video signal processing products as these product lines represent newer products and newer technologies with higher demand from customers. The company expects sales of these product lines to remain at these levels or increase during the remainder of 2022. Although the company does not expect overall sales to return to pre pandemic levels during 2022, the company does expect overall sales to be higher during 2022, due to approximate $10,194,000 of sales backlog as of March 31, 2022. The company's primary sources of liquidity have been its existing cash balances, cash generated from operations, amounts available under our MidCap Facility and amounts available under the Subordinated Loan Facility. As of March 31, 2022, the company had approximately $2,180,000 outstanding under the MidCap Facility and $243,000 of additional availability for borrowing under the same facility. As disclosed in our most recent Annual Report on Form 10-K, the company experienced a decline in sales, a reduction in working capital, a loss from operations and cash used in our operating activities, in conjunction with liquidity constraints. These factors raised substantial doubt about our ability to continue as a going concern. As of March 31, 2022, those factors still exist. Accordingly, there still exists substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of the liabilities that might be necessary should the company be unable to continue as a going concern. Now I’d like to open up the call to the question-and-answer session.
Operator: Certainly. Your first question is coming from Gregory Irvin. Your line is live.
Unidentified Analyst: Good morning, Eric and…
Ted Grauch: Good morning, Greg.
Eric Skolnik: Good morning, Greg.
Unidentified Analyst: On the supply chain, has it changed since our last call five or six weeks ago?
Ted Grauch: Yes. We have seen a broad range of improvements in certain availability and a lot of the larger semiconductors from people like Intel and a lot of other sort of high complexity semiconductors have greatly improved. What we’ve been surprised with and what caused the majority if not all of the problems in Q1 were from unexpected sort of smaller Ethernet controllers, power management chips, things that were sort of – that came out of the blue, very small parts, parts that cost $1, $3, $5, $8 kind of range that we didn’t have any warning from our distributors or from those suppliers.
Unidentified Analyst: And as you commented, you found replacement solutions for those that were very hard to come by, correct?
Ted Grauch: Yes. And so I think in line with the comment I just made in Q4, we were having disruptions that were coming from the bigger, larger complex higher technology, for example, Intel style technologies. Those are much more difficult to work around. They tend to be either single source or if there is a second source, it’s very difficult, very expensive in time consuming to redevelop a product under a different supplier’s technology. In contrast to that, the kinds of issues that we’ve had that really started at the very end of January and accelerated in the middle of February, they are generally replaceable parts were refining alternatives readily, easily, but it still requires a redesign of a board of spin, normal QA cycle, et cetera, in order to get back in production. We’ve been doing that as rapidly as we can. And I think you could see from the comments we've been able to get products back into production over approximately an eight or 10-week period when we’ve seen a specific disruption, sometimes a little faster than that.
Unidentified Analyst: Well, given the work around in the improvement, you mentioned in the supply chain, is it reasonable to expect that you could meet the backlog now where things to stay stable from this point through the end of the year?
Ted Grauch: Yes. So my answer has to have a little bit of a caution to it. If nothing else changed, and we're not surprised by anything else, which has not been what’s been happening over the last few months, if that – but if that were to be the case, then we are confident that the backlog we have will be delivered this year with the majority of it over the next say four or five months. But that makes a fairly big assumption that we keep being surprised about. So, yes, I just want to caution that’s not a statement, that's a scenario.
Unidentified Analyst: Well, let’s hope that proves true.
Ted Grauch:
Unidentified Analyst: The margins, well, you mentioned, I think, you've been able to pass along some price increases. Is that supposed that the margins will improve for the remainder of the year, the gross margin?
Ted Grauch: So the product margins are definitely improving, but that’s counterbalance the last few months by us just not being able to produce as much in our factory as we should be producing. And so we have sort of an overhead absorption effects. We’re not able to absorb all the overhead costs at a decreased production level. And so some of those end up being expensed on a monthly basis, and that affects our actual margins that you’re seeing. So that’s the challenge we’re seeing. On a product basis when we sell a product, it is achieving a little more margin than it was a few months ago across the board, we had across the board price increases in December and January, and then targeted price increases in November, December, January, February, March, and even April. So it is certainly helping the situation, but we won’t be out of the woods until we can actually produce at a monthly level that's fully absorbing our overhead rate.
Unidentified Analyst: Right. And I'd like to see – don't have much else other than the 515 or so thousand of the ERTC does that show anywhere on the balance sheet?
Eric Skolnik: Yes. It’s currently sitting in prepaid and other assets.
Unidentified Analyst: And you expect that to occur this quarter?
Eric Skolnik: Yes, we're hopeful. But again, the expectation sometimes is dampened because of the fact that we're relying on our government to give us the money. And if you read anything in the news lately, the IRS is way behind on processing a lot of the stuff. So we’re hopeful, but obviously there’s no assurances.
Unidentified Analyst: Well, hopefully. Hopefully that will come through. I'm waiting myself, but not optimistic.
Eric Skolnik: Yes.
Unidentified Analyst: Hopefully, small firms as yourself would have some priority. Well, that’s all I have today. I look forward to hearing the second quarter results.
Eric Skolnik: Thank you so much.
Ted Grauch: Thank you so much, Greg.
Unidentified Analyst: Okay, good day guys.
Eric Skolnik: Take care.
Ted Grauch: Thanks, Greg.
Operator: Thank you. Your next question is coming from Dave Cole. Your line is live.
Unidentified Analyst: Good morning.
Ted Grauch: Good morning.
Unidentified Analyst: I was wondering what the purpose of requesting the increase in shares outstanding was and if that's in preparation of some sort of dilution? And how do you came up with that number?
Eric Skolnik: I can answer that. The intent of that proposal to increase the shares is because we realized that if we were to do any types of transactions in the future, we may be limited in how many shares we have available to issue. So that’s the whole purpose of it. And as far as predicting a dilution event in the future, obviously we can’t comment on that and we don’t have anything that we can report at this time.
Unidentified Analyst: All right. Thank you.
Ted Grauch: Thanks so much.
Operator: Thank you. Your next question is coming from George Gasper. Your line is live.
Unidentified Analyst: Thank you. Good morning.
Ted Grauch: Hi, George.
Eric Skolnik: Good morning, George,
Unidentified Analyst: Just like, can you relate in terms of your product development that you've come up with, that you've put in the market in the last recent, say, three months or so or four months, compared to previous product offerings, how would you judge the market size for these particular products versus what you have been doing previously? And I’m trying to drive it the idea just where you are on the possibility of building your sales volume?
Ted Grauch: So I think the best way to describe it is to break it down, and I'll try to be brief. So we have some new derivative configurations of our NXG product line, one of which is associated with the TiVo relationship that we press released a few months – a couple of months ago. And the market size for that are a large number of small cable in telephone operators around the country that are that are current TiVo platform customers that I believe the latest data that's public is well in excess of 100, 125 small operators around the country, each of which have some number of B2B business-to-business and video delivery locations. And so that's we're going after that market with that product derivative. Similar product derivatives are going after similar of the NXG are going after similar needs of some larger operators both in the U.S. and Canada. And that market size could be substantial. But I don't want to provide any optimism or in various stages of discussions with a number of operators on those kinds of products and those derivative products. And neither for handling ingest and conversion of more IP television signal sources and turning them into some of the legacy formats that are needed at places like hospitals, hotels, campuses, et cetera. Then we have derivatives of our encoder product line. We believe that what we're doing with those is going after a wider range of customers, including the broadcast market, which we have a few older products that cover the market. But I would not say our market share leaders, as well as just an expanding set of features that will drive some of our current customers that are buying some of our current encoders will drive them to our newer technology with a combination of advanced feature sets and functionality. So it's a combination of expanding the TAM that we're going after and also serving the existing customer base.
Unidentified Analyst: Okay. And just you may have spoken to this point, but I'd like to clarify it again. In terms of the newer technology that you've introduced recently versus what has been in the market by the company for years and is – is there – do you – are you finding less problem in getting parts for the newer developments versus the previous? Or is that too difficult to try to measure?
Ted Grauch: Well, I think the problems are really not focused on one particular class of product versus another. They've really – the problem since August and September last year have really moved from more different types of technology in the different semiconductors. They started at a very high complex technology places, and that could – that's associated with a wide range of different products, both current products and new products and some of the older products. So I don't think anybody – I don't know any product category has been spared in general.
Unidentified Analyst: I see. Okay. All right. And then I have a question on the added financing availability. Now I know that this going concern situation is obviously an issue. But is there added financing availability to you at this point in time? And would you not really try to reach out and generate a minor, a couple $3 million, $4 million to try to give you some flexibility?
Ted Grauch: Eric, do you want to cover that one?
Eric Skolnik: Sure. Well, obviously, we're always looking for additional financing. Currently, we have nothing on the horizon. The additional funding that you were referring to has to do with the $1 million over advance facility that was provided to us by one of our largest shareholders. And so we've been able to utilize some of that cash to help bridge us over the current cash flow issues. But we don't have anything else to report currently on the horizon for additional financing at this point.
Unidentified Analyst: I see. Okay. Well, it appears as though that you have a lot of potential in terms of adding your new products to the marketplace. They're already seemingly impressive for the short time that you've been in the market with them. And it would seem like this – your company has a lot to offer, and hopefully, you can gain sufficiently some ongoing momentum that will give you more availability to finance, and get the company back to where it should be in the market. And it's – with the historical perspective of this company and what you're doing in the market, I think you've got a lot to offer. And I hope that you all continue to push where we're on it. Thank you.
Eric Skolnik: Thank you.
Ted Grauch: Thanks, George. Yes, that's exactly what we're all working for and working to achieve.
Operator: Thank you. Thank you. That concludes our Q&A session. I will now hand the conference back to Ted Grauch for closing remarks. Please go ahead.
Ted Grauch: Thank you. I would like to thank everyone for attending the Blonder Tongue Laboratories first quarter 2022 earnings call, and also thank you for your questions today. That concludes our call for the day. I hope everybody have a good day. Thank you and goodbye.
Operator: Thank you, ladies and gentlemen. This concludes today’s event. You may disconnect at this time and have a wonderful day. Thank you for your participation.
