ADDvantage Technologies Group Inc (AEY) 2008 Q4 法說會逐字稿

Welcome to the ADDvantage fourth quarter 2008 earnings conference call. Today's call is being recorded. All participants will be in a listen-only mode during the management's prepared remarks and there will be an opportunity to ask questions at the end of the presentation. For opening remarks and introductions I would like to turn the call over to David Burke, KCSA Strategic Communications. Please go ahead, Mr. Burke.

Thank you. Good afternoon, and welcome to ADDvantage Technologies' 2008 fourth quarter and year end conference call. With me on the line are Dave Chymiak, ADDvantage's Chairman of the Board, Ken Chymiak, ADDvantage's President and Chief Executive Officer, Dan O'Keefe, the Company's Chief Operating Officer and Scott Francis, the company's Chief Financial Officer.

Before we begin, today, I would like to remind you, this conference call may contain 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 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 differ materially from actual future events or results due to a variety of factors such as those listed in ADDvantage Technologies' most recent report on Form 10-K and 10-Q 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 thereto included in ADDvantage Technologies most recent report on Form 10-K filed December 31st, 2007. The guidance regarding anticipated future results on this call is based on limited information currently available on ADDvantage Technologies' web site, which is subject to change. Although any such guidance and the factors influencing it will likely change, ADDvantage Technologies will not necessarily update the information as ADDvantage Technologies will only provide guidance at certain points during the year. Such information speaks only as of the date of this presentation. With nothing further, I would like now to turn the call over to Mr. Ken Chymiak, President and Chief Executive Officer.

Thank you, Dave. Welcome to ADDvantage Technologies's fiscal 2008 fourth quarter and full year conference call. With me today is David Chymiak, Chairman of the Board, Dan O'Keefe, our Chief Operating Officer, and we would like to welcome Scott Francis, our new Chief Financial Officer. First, I'd like to make some comments on the quarter before turning the call over to Scott, who will provide listeners with a review of the financials and then Dave will address the overall market conditions we are currently facing that we expect to continue to face for the foreseeable future. Be all counts, we believe we performed well over the past year, given the current economic environment. While our results were down on a year-over-year basis, we continue to maintain a healthy top and bottom line we are taking steps as we are better able to weather the current economic storm. Our business model and relationships, our assets continue to position us well for positive results as we have for the past 23 years, the recent months have been very grim for the global economy and the cable industry has certainly felt the effects.

A lack of available credit, downturn in the housing market, and the need to preserve cash has prompted multisystem operators to reduce their CapEx spending. This has led to the postponement of upgrades and installs as called the glut for demand. As we have stated in the previous quarters, when we see demand for new equipment upgrades brought to this level, we not only face the challenges of reduced customer demands but also increased competition from our OEM vendors, which are able to better manage the production and delivery schedule. Sales of our new products have closed, due to the reduced upgrades and increased competition, revenue from our refurbished equipment sales and service business has decreased. This is a trend we expect to continue as the smaller MSOs look for ways to service customers in the most efficient manner. Although the current demand for our new products have slowed, we still see the need for customers to increase the current transmission to signal bandwidth, as MSOs, telephone companies and satellite television companies all compete for market share in the triple play space. Efficient transmission bandwidth is a critical component for these companies to stay competitive in the current industry, as more and more of the customers find the value in receiving their phone, internet and cable service from a single provider. In addition, the the FCC mandate to transmit all digital signals remains in place for the end of February 2009.

There's still upgrades that need to made in order for all cable system operators to meet this requirement. And we are able to offer these operators, big and small, the means to do so in a timely cost effective manner. In addition to maintaining the healthy and profitable company, ADDvantage continues to work to improve shareholder value. The company has recently bought back approximately 111,000 shares in the open market , based on the policy that we announced several years ago. We have chosen to invest through our company shares, as we feel the current prices do not fully reflect the value of the current business and future prospects. Therefore, we believe that repurchasing shares in the open market is an efficient means of providing value to our shareholders, is in the company's best interest. Not only has the company taken part in the buy-back plan but members of our management team have disclosed the SEC filings have been acquiring shares in the open market. This demonstrates management's confidence in the company and the underlying value, which we believe is missed for ADDvantage.

With that, I would like to turn the call over to Scott Francis, our CFO, for a look at the financials. Scott?

Thank you, Ken. Net sales for the fourth fiscal quarter of 2008 were $14.6 million, a decline of 15%, when compared to $17.3 million in the same period of 2007. For the quarter, new equipment sales decreased $1.7 million or 15% to $8.9 million from $10.6 million for the fiscal fourth quarter of '07. This decrease is primarily attributable to a decline in new equipment sales of $3 million by some of our largest customers, who reduced their levels of equipment upgrades during the period.

For the quarter, sales of refurbished equipment were $4.1 million, a decrease of 22% from $5.3 million from the fiscal fourth quarter of '07. This decrease is due primarily to a decrease of $1.4 million in sales of our digital legacy converter boxes in the current quarter. Repair service revenues increased $0.2 million or 13% to $1.6 million for the quarter from $1.4 million in 2007. Cost of sales for the three months ended September 30, 2008 decreased 10% or $1.2 million, to $10.7 million for $12 million in the same quarter a year ago, due primarily to a decrease in sales of new equipment and the converter boxes during the quarter. This decrease is partially offset by an inventory obsolescence in the fourth quarter of fiscal year 2008 of $0.3 million for certain inventory located at Jones Broadband.

Gross profit for the recent quarter decreased to $3.9 million from $5.3 million in '07. Our gross margin percentage decreased to 27% from 31% in the fourth quarter of fiscal 2007 due primarily to product line mix changes, and increased price pressures from other competitors in our market. Operating, selling, general and administrative expenses for the quarter decreased 14% from $2.3 million in the fourth quarter of fiscal '07 to $2 million in the most recent quarter. This decline was primarily associated with reduced payroll and associated costs during the quarter. Income from operations for the quarter ended September 30, '08, was $2 million compared to $3.0 million for the same period a year ago, a decline of $1.0 million.

Now onto our fiscal year results for fiscal 2008, net sales were $56.4 million, a decline of 14% from $65.6 million for fiscal 2007. New equipment sales for the year were $34.7 million compared to $45.0 million in the previous year, which is a decrease of 23%. New product sales declined as large MSOs reduced capital spending on upgrades and we faced increased competition from OEMs who also supply MSO products directly. Sales of our refurbished equipment increased 5% from $15.3 million in fiscal '07 to $16.1 million in fiscal 2008. This increase is attributable to an increase in our sales of our digital legacy converter boxes. Revenues from our repair service business during fiscal '08 increased to $5.7 million from 5.4 in the year earlier, an increase of 5%, as customers delayed new equipment upgrades, and incurred more out of warranty repair issues. Cost of sales for fiscal 2008 were lower by 10%, at $39.8 million when compared to $44.3 million a year ago.

As a percent of revenue, cost of sales increased to 71% from 68% in fiscal 2007. Cost of sales increase is a result of both product line mix and increased charges to inventory obsolescence during the year. Gross profit decreased 22% to $16.6 million from $21.3 million in the year ended September 30, '07, with gross margin percentage decreasing to 29.4% during fiscal '08, compared to 32.5% for the year ago period. The gross profit decline was directly related to our decline in new product sales during the year. Fiscal 2008 operating, selling, general, and administrative expenses were $8.2 million, compared with $8.8 million in the previous fiscal year, the decline in these operating costs were primarily associated with reduced staff and bonus levels during the year.

Income from operations for the year ended September 30, '08 was $8.5 million, compared with $12.6 million for fiscal 2007, a decline of 33%. Net income attributable to common shareholders from fiscal year 2008 decreased to $4.5 million or $0.44 per diluted share, from $6.6 million, or $0.64 per diluted share in the same period a year ago, which is a decline of 31%. This now concludes the financial overview of the quarter, and I will now turn the call over to Dave Chymiak, our Chairman of the Board.

Thank you, Scott. This has no doubt been an extraordinary time for the global economy and we have seen the effects of the weakness in the credit markets ripple through virtually all industries. This has caused a noticeable reduction in capital expenses at some of the largest MSOs which are our largest customers. While this is the situation today, we have tremendous -- limited space in our declined value of our company and the potential in the growth of the future. We have done a great job of remaining profitable in these wary times and are a fundamentally sound company. With the trends we are seeing in our industry and include the move from analog to digital, high definition television, and the need for increased bandwidth, the long-term prospects for our company remain strong. As Ken mentioned earlier, the company has recently been buying back shares in the open market as we work to provide value to our shareholders. If share prices remain at these depressed levels, we will continue to look at repurchasing outstanding shares, as the opportunity to build shareholder value. In addition, our management team has continued to invest in the company as well. I believe this speaks for the confidence that we have in our company, and that we continue to lead in the right direction as we continue to move forward. We appreciate the continued support of our shareholders, and look forward to the opportunities that lay ahead for ADDvantage. At this point, I'd like to open the call for any questions that you might have.

Thank you, sir. (Operator Instructions). We will take our first question from George Gaspar.

Yes, good morning, everyone.

Morning.

The first question is on your through more than two months now your first quarter, can you give us an idea how you're sensing things on a comparative basis with the previous quarter?

This is Ken. We have a little sense in we started off robust. I think the market has trended downward as the economy is. The CapEx spending, in other words, a lot of the MSOs have already spent their budgets for the year, so unless that upticks when we don't know it, there's still money out there to spend but the digital analog is our business, I don't think we are going to be any different than the economy, that is trending downward, as far as the sales line.

Okay. All right. And your inventory levels. How does your inventory level current compare with previous levels and is there additional aging that is taking place or how updated do you consider your total inventory level, or can you break it down percentage-wise?

The inventory may be up slightly over last year, if we can get the exact numbers that's in the financials. This is Dave. I'm very comfortable with our inventory. It is -- we have so many different items in such a wide variety. We don't have any shortages, but we don't have any gluts is the best way I could describe. I don't see any immediate write offs coming, we don't know what the market is going to be, we continue to sell products that are in a mix, some of them are the current products, and a lot of them are still the older products. And saying that, I think our inventory was around $35 million, Dan?

Before reserve, yes $33.5 million. So we're about $2 million above where we were in 2007 at the end of 2007, comparing that to the end of 2008. As far as a total inventory, but Dave's done a good job explaining. A lot of our inventory is mainly new products, it's current products, it's the stuff that will be in use for years and years and years to come.

All right. Can you go over facilities, where do you stand on completion of any facilities that you've been working on and how do you see your facility situation presently, looking at any consolidation, and what is your employee level now versus let's say three months and six months ago?

Really other than attrition we really haven't had any increase to speak of, or decrease. It stays pretty level. We may have had a couple here or there, that we had to increase a few, because of some opportunities last year, but it's still between 150 and 165. Somewhere in that range is where it generally stays. As far as facilities, all of those facilities are complete, and at this point we have no need for any CapEx expenditures for facilities in the next -- in this particular fiscal year, so that's one good thing about where we are at today going into this downturn, we have already made our commitments and we build our buildings, and as far as the employees go, it was pretty steady.

This is Dan, George, I would like to just expand on what Ken explained there. On the facilities, we built a new facility on the back of our Tulsa location, last year we completed it in the end of the first quarter and the beginning of the second quarter which added 65,000 square feet to our overall operations. We also completed approximately a 15,000 square foot facility in Sedalia, Missouri. Those two additions allowed us the opportunity to close our Stockton, California warehouse that was really not cost effective out there. So we consolidated that operation into our existing facility, and as Ken said we have ample space right now to exist without incurring any more CapEx for new buildings in the next year. Given the current economic environment.

The other issue that you asked about George, on employee base is, if you go back to where we were a year ago, we started right at the 170 employee level, now, we are right around 155. So we've dropped about 15% on our employee count. Some of that was related to, we had some layoffs in our Jones Broadband division out on the West Coast, we lost a recording business out there that basically eliminated a group of people that totalled about 8 people associated with that recording business segment that we were doing out there and we've had some overall, as Ken said, attrition over the last year that we haven't replaced. We haven't necessarily, we like to think we run our business very lean. I think our SG&A is at a percentage that reflects a very lean operation, and at this point, we think we are well staffed for our current business, and look forward to 2009 just to be a year that we continue with the existing staff.

Okay, on this comment that you made about the facility completion right there in Tulsa, there was a -- you vacated other buildings, and are those off-the-road rentals?

This is Ken again. We sold everything but the one facility. we still have a little bit of equipment there, and we've got it on the market, and we're also looking at other opportunities that may come our way that we could use the facility because that's a low cost facility if we had the right opportunities. So, first, it's for sale and second, we're looking at down one facility,that's leased in Tulsa, up from the 8 that we had leased at one time.

All right. Thank you.

Thank you for your question, George.

(Operator Instructions). We will take our next question from Aram Fuchs.

Quick followup on the inventory. You say you have roughly $2.5 million more than you did at the end of '07, and revenue was down, so wouldn't that imply that you can work that inventory down over fiscal '09?

Aram, this is Dave again, yes, we do not, when I said it was around inventory, if the economy continues, of course we are not going to come back to the same level, our inventories at very attractive prices that we have got, that we have the money into it. So as sales go out the door, we will not be replacing some of the inventory until it gets to a lower percentage. One thing we are doing on that is, this is Ken, there are some current items that are in short supply and reoccurring sales that we're continuing to buy on a daily basis, but they're coming in and going out. So it's more of a - that is basically all, we are not trying to buy inventory to stock for future opportunities, we think we have enough inventory for that. A big portion of this increase is a risk that we decided to take on a lot of refurbished gear that came out of the marketplace that is current instead of being one gigahertz, but most a lot of it was 870, and there's a big shortage in the country and as it comes along, if the price is right, we've been buying it, and we've got -- we sold a lot this year, so there's a good percentage of that $2 billion that's invested there.

Okay, great. And, you didn't include the balance sheet, so I don't know how much you're able to pay down this quarter. Do you have that number?

We were going to have, just so you know, we'll give you a number here, but we're really working, and we should have, if everything goes right, the K filed by Friday or the first of the following, next Friday or following the first of next week, we really move well with that. Who's got the numbers here?

I do. Aram, our debt payments are regularly scheduled. The only thing that fluctuates typically is our line of credit. Our line of credit right now is, is below $1 million, and we have had it paid off and borrowed a little bit all throughout the quarter. So kind of, on our line of credit, basically down to a zero basis for all intents and purposes. On our term debt, our scheduled payments that we make are about $450,000 a quarter. So, we pay just right around $1.6 million a year down in debt servicing. And so that is our, that is our so to speak as to what we have to cover just to cover debt.

Plus we do about, and we have a small real estate loan, and we've got a small real estate loan, that we can pay off in Pennsylvania, but the interest rate is so attractive -- what's your interest rate on the real estate loan -- LIBOR plus what?

LIBOR plus 1.4.

So our rate's about 4%, is that right?

It's been -- it's around 4 right now.

So our interest rate on those loans is around 4%, if you remember we have an interest rate swap on the big note, which we redeemed for preferred and convertible and effectively just under 6% over seven years.

Right. And in the previous call you mentioned that in downturns, sometimes the large OEMs turn manufacturing off too quickly and that's an opportunity for you, specifically now that they have also moved a bunch of it to Mexico. This quarter in the script you didn't mention that opportunity. In fact you said that, OEMs are competing a little more aggressively. Can you just talk about that difference?

Yes, Aram, what we mentioned in past quarters and that is a good question, is that when the demand picks back up, the factories are slow to catch up to that increased demand. The reason we necessarily didn't bring that comment forward in this particular quarter is that we haven't seen marketing increase demand picking upright now. When we look back to the last three quarters, we have seen kind of a gradual slowdown of our large customers and our large MSOs and their CapEx spending. So there is going be that upside that the factory we know has slowed down. We've met with them here in the last couple of weeks and actually traveled to Atlanta to meet with one of them, and they've told us they're reducing their overall production to scale back with the demand. So, if demand picks up and when demand picks up, there will be some opportunities for us to if it does take the factory a while to ramp up to what that demand shift or when that demand shift occurs.

Okay.

We did, I did mention that in my comments because when we see demand-fueled equipment costs at a level now, again as Dan said, we are not only facing challenged reduced customer demand, but also the increased competition OEMs, which are now better than the manager production delivery schedule, as Dan said. So we don't know when this cycle is going to change, or when it's going to turn, everybody has their own opinion, but when the cycle does turn, and the equipment is going to be needed and the decisions are made, we feel very comfortable we are in the right position with our inventory, it is going to take the factory that's going to be a little apprehensive to rev up. You can't rev up and have any false starts so Dave would agree that's one of the opportunities we do. Would you agree with that, Dave? This is our model, and -- every one in the industry and I think even the financial community is now saying it is going to be six months to a year before things pick up. The longer it goes on, the steeper that curve when it comes out there is going to be. It is going come right back up to the demand. It will be like a type of a V situation. It takes time too, for it to translate, the people are going to get ready to be buying refurbished gear, replacement of whatever they need right now, when they need it, they are not going to be planning on a lot of purchases. So, it takes a little while for that to change, we are seeing it, we have seen it for the year, we are getting more requests for refurb here than we were, we're getting more requests for repairs, and we continue seeing. The only thing is, what we weren't prepared is what everybody else wasn't prepared for, was basically a sort of a stop in the economy for the last month, and that's what we have to factor into our equation.

Right. Okay. Regarding the share repurchase, I just I think it is great you are getting aggressive there. If you annualize this quarter's earnings, you're roughly getting a 25 to 30 return on investment and this is obviously the trial, most likely the trial of the earnings cycle, so I appreciate you doing that, and would encourage you to more.

That's pretty close to our margin. So yes I agree with you.

Right. And then, also I was wondering one of the areas that is causing cable companies to upgrade is the fact that Verizon has been very aggressive with FiOS. Are you seeing that, is it, are you able to determine if the cable companies that are buying for the systems, are the systems that are competing with FiOS? Or maybe you can just talk about that.

I think some are in the past, because right now there's a pretty good battle going on in the Philadelphia market where Comcast is located, and there's a lot of commitments being made but if in the last week if you watched the news, I think AT&T and Verizon are both laying off 12,000 people each, and Sprint is laying off people in that sector, so I think all of them are watching expenditures at this level. And I don't think, what I have been reading is they're trying to maybe finish some of the projects they're doing now but not being aggressive and going into new markets until the economy gives us more visibility.

Great. Thanks for your time.

And we will take a follow up question from George Gaspar.

It is a follow up on that question regarding the stock buy back and I am not sure you highlighted. What moneys are allocated by the board at this time for stock buyback and is it formula based on profitability, or can you just highlight --

George, what we did several years ago, board passed a resolution and it has been in place for some time. At that time we said we would buy up to $1 million worth of shares, it would be $1 million worth of shares, but what we have spent up to this point,w e've spent a little over $200,000 in that arena. So based upon the original resolution and what we originally said, there's approximately $800,000 that we could run out there and buy, but we are limited basically, right now, we are limited at 4500 shares a day but it doesn't preclude the company if somebody comes to us and wants to do a private transaction that we could negotiate a private transaction out of the marketplace. But in the market we can only do by 25% of float a day, and that's limited to 4500 shares, because we have to buy on the uptake each time, isn't that right, Dave? Yes. And so Dave's a pretty good trader on that but that's our limitations in that marketplace, okay, George?

Okay. And then on the business south of the border, in terms of moving some older equipment out, I know at one point you were getting some orders from outside. Can you talk about what the prospects are for moving reworked equipment to the upside in the United States?

I think there's, there's a misconception on part of that not so much from the, what the marketplace in South America. Where we were able to be very successful last year was on the converter boxes, but what's happened now, the peso and some of the revaluation of the currencies down there are making it very difficult for those to come up with the cash in US dollars. What we have been successful in is selling current products. The people, the companies that dominate those marketplaces, either direct or through integrators are buying the latest, current products that our vendors offer. The bottom feeders are not who we do business with. We do have an opportunity to sell maybe one or two generation products, but they're always compared to new products so there has to be a cost savings, but based on that, we had a very successful year in South America, and we've got some opportunities going now, but it is, it is all current or new product. It is no, what you would say, dump a product in the market because most of those areas, they have been hurt so bad that doing it legally, the federal Governments in those areas would not allow it in.

Okay. And then, lastly on service side, I know you have been trying to grow your service revenues, are there any prospects, considering the shake out in the industry and possible cut backs by the cable companies, communications companies, is there a possibility of them out sourcing more and your opportunity to build that service business up?

There's always a chance we can do that. We're always aggressive in that area, we're looking at a couple of opportunities now, but what we find until there's a bigger shake up in mom and pops. Mom and pop do it to make just a quick bread and butter on the table. We want to make a little money, So has been some shake up, but generally, if there's a small operator in that marketplace that could do a more cost effective as far as the cable can do, not looking at the big picture like, do they carry insurance, what if they have a loss, what the expertise on the full product line up, but we've had some gains in certain areas, but in other areas, the conversation is pretty strong. George, just -- and I will further Ken's explanation, on the service side, we compete against the obviously, the MSOs that have their own service department that we compete against as Ken said, the mom and pops that operate just to have a job. And so it can be a very competitive marketplace. The MSOs, and I want to just clarify this, we have not heard yet from any MSOs that they're letting or stopping the repair division. Some of those repair divisions, those MSOs like Cox and Time Warner and Charter and Comcast have their own repair divisions, and we have not heard in the marketplace recently that they have, in these lay offs, and slowdown times decided to discontinue their in-house service department. If that would happen, that would be an increase in demand for that service business, and they would want to go with a more experienced insured technical partner like ourselves. So there could be some potential for that, it is not something we have seen yet. One thing we are going for, what we really like is the products are in the live product, that fiscal is, authorize us to repair, and in some instances we have got the, there's nobody else in the country that can do those and when you have that type of expertise, it allows us to uptick the repair ticket because the factory was charging a significant amount of money based upon the value of the product. The higher the value of the replacement cost, the higher the repair ticket is. That's really what we like to get.

All right. Thank you.

(Operator Instructions). We will take our next question from Michael Potter.

Hey, guys.

Hi, Mike.

Good job in a tough environment. That's for sure. Again, the share buy back is great, and I think we are running efficiency. Is there any thought about doing a tender offer for, for size, and really taking advantage of the opportunity to reduce the capital structure of the company?

Yes, Michael. This is Ken. We have explored everything, we have gone through this two or three times, and we are looking at all opportunities out there, what is the best for the shareholders and as I said right now we are limited in what you are referring to is maybe a perhaps a dutch offering or some type.

Correct.

Buy back like that. Other than going through that process, you know, as I said earlier we are, we would entertain and, if somebody had a large block that they needed to sale, wanted to sale, to rebalance their portfolio, we could do it on, we would look at that as on a individual basis, if they contact us but in the present marketplace, we are limited that unless we, until we get some visibility, I would say in the first quarter we are probably not going to look at that. It is always on the plate, always an option and another thing, as Dave said, and I have said, Dave and I made a big commitment in, at the conclusion of last quarter's report. I mean we went out and bought shares and our shares are down. So we feel the pain of everybody else and we are bullish on the company and we are going to see what the market plays out and this is a great investment for us and we think it is the best place to put some money we can put our hands on. It is an opportunity for us, too. But just to put the big picture, nothing is off the table but we really have not put that in motion at this time.

Thanks, guys. Keep pounding away.

Thank you.

We will take our final question from Chris Sansone.

Hi, guys.

How are you doing, Chris.

All right. I joined a little late. I'm sure you were already asked this, you know, here we are December 12th, how is Q1 looking? How bad is it?

I'll let Dan answer that. We did answer that.

George asked that question to begin the call, Chris. And I think that to, the question probably needs to be clarified, how is Q1 in comparison to Q4 and Q3 which is kind of the areas we have been living in the last few quarters, how is Q1 in comparison to a year ago.

That's a lifetime ago.

That's a lifetime ago and a different marketplace. So, when we look at Q1 our business is still going forward. We came through a quarter four and and a quarter three where if you compare them to the previous year, they were definitely reduced volumes and that reduced volume was in new products and the sales of those new products are to the large MSOs doing upgrades. And so we have not seen those large MSOs come back to the table with upgrade claims yet.

That's fine. I don't think anyone expects the MSOs are going to accelerate their level of activity as far as new equipment goes. I think, what will be helpful is if we look at this quarter and maybe the last quarter, it is what we are seeing possibly a base level of replacement activity that you would expect to somewhat maintain or it has the business continued to weaken, kind of sequential basis.

This is Dave. The first part of the quarter we can say that, but we are all sitting here, we don't know what is going to happen. If things get worse, I mean our business has good tendencies to fall off. We are very comfortable people are going want to watch TV, our repair or replace business is good. We look at the worst levels and we still see things looking that we are going to be profitable.

Right.

We don't know how profitable.

Right.

It has dropped off. I they with have done a good job for comparing to everybody out in the industry. We are still making money, we're looking at all deals. We are very conscious of what we might have to do, if things get worse and we are preparing for every opportunity as well as everything that can come at us. So we are out protecting our money and your money. Chris, another thing, I mean we really happy with October and November, I mean we just don't know, with all of the bad news coming out in December, we just don't know what is, how it is going to trend. I mean, part of that, I mean we were happy with our business model. But again, as the economy goes, and the consumers quit spending and some of these companies have taxes due and a lot of other things, we just don't know how good or how bad it could be this quarter. We just don't know. I mean if we had a real uptick here we would say based upon what is going on the economy could do real well but it hasn't trended that well in December as it did in October and November.

Okay. And anything new with respect to the Scientific Atlanta, Motorola relationships?

That is a great question, Chris. You know, we have our, our, we have a master stocking distributer relationship with Cisco, formerly Scientific Atlanta. That distributor agreement is set to expire in January. We have had some preliminary discussions with the Cisco team, Cisco is now -- Cisco bought Scientific Atlanta a couple of years ago and now they're truly on an aggressive plan to merge the two management teams. And really bring that Cisco model in line with what, what the historical SA company, Scientific Atlanta company has been. So we were down there just last week, and met with the Cisco team and talked about the, the future. We see ourselves as a valued partner with them, going forward.

Great.

We are talking about contract renewal right now, but I think they're less interested in our renewal and more interested in how do we continue to grow business together over the next 12 months. We think, we think it is a, you know, we think it is a good opportunity for us, that we may have to make a few deviations in our model to comply with some of the things they're looking at. Motorola relationship is strong as ever. We are one of the if not the largest broad band distributer they have. So we are a value add for sure because that's the part with the Cisco model they realize through our counterparts at the factory there, we assist them and help their customers and we are gratified that Cisco values their customers and their distributors in such a way that we think it should be a great opportunity in the market turns for us to grow with Cisco.

Right. And that opportunity is potentially distributing more products?

Yes, it could be, and the other thing what they really want to do it looks to us like they would like the existing channel partners to sell some of the products that we offer in the video side of the business. We think there's a functionality and there's some integration there that would fit in the mix, and on the RF side is a little different, but that would be a model that I think they are really looking to expand. And you have got a converter box now and it's new and it says Cisco on it. You can see we have they want to be in the home, when they bought Linksys, which is generally a home product. They want to have their name in the home so they can sell their product to consumers because most consumers really don't know who Cisco is.

Right.

So that is, that was their stated goal when they first bought Scientific Atlanta. So I think they're marching in that direction. It takes time to have the integration of the ordering participants and the way they do business, and we felt complimented that they brought us in to talk about that and what would be the proper fit and roll offsetting that mix.

Sounds like an exciting opportunity.

We think it is for this year, we look forward to be there to face the challenges with Cisco, and continue our strong warm relationship with Scientific, with Motorola on the other side.

Great. Thanks a lot.

Have a good holiday.

You too.

And I'd like to now turn the call back over to management for additional or closing remarks.

We would like to thank everybody for participating today. You know we all know it is a little gloomy out there in the environment, and today's gloomy in the weather but we look for the sunshine to come out in a few months and we resume where the economy stops. So, if we do we thank you for your support and wish you a very Merry Christmas and a Happy New Year.

And that does conclude today's teleconference, ladies and gentlemen. We would like to thank you all for your participation and have a great day.