ADDvantage Technologies Group Inc (AEY) 2009 Q4 法說會逐字稿

Good day, everyone, and welcome to the ADDvantage fourth quarter fiscal 2009 earnings conference call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Mr. Garth Russell, KCSA Strategic Communications. Please go ahead, Mr. Russell.

Thank you. Before we begin today's call, I would like to remind you that this conference call may contain forward-looking statements which is subject to the Safe Harbor provision 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 the actual future results or results due to a variety of factors, such as those listed 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 thereto included in ADDvantage Technologies' most recent report on Form 10-K, filed December 19, 2008. The guidance regarding anticipated future results on this call is based on limited information currently available on ADDvantage Technologies, 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 now like to turn the call over to Ken Chymiak, President and Chief Executive Officer. Ken, the floor is yours.

Thank you, Garth. Welcome to ADDvantage Technologies' fiscal 2009 fourth quarter and year end conference call.

With me today is David Chymiak, our Chairman of the Board, and Scott Francis, our Chief Financial Officer. First I would like to make some general comments regarding our performance over the past year before turning the call over to Scott, who will provide the financial results for the quarter that ended September 30, 2009, and then Dave will address the overall market conditions we are currently facing and expect to face in the foreseeable future.

We all know that fiscal 2009 had more than its fair share of microeconomic issues. What you might not fully understand is how this translated into the cable television industry and our business, and how we overcame these challenges to report positive financial results, despite significantly lower sales. One of the major trends that negatively affected the cable industry was the decline and building of new homes in the US, which started in the mid-2007 and has continued throughout 2009. Prior to the recession, one of the major drivers for the major cable operators was to expand and invest in their networks was the need to service the millions of new homes being built each year. As this piece of the market declined, so did the sales of cable equipment that supported it.

Secondly, increasing unemployment in the US has impacted many of the MSOs forecasts and budgets in 2008 and 2009. As the MSOs grew, concerned cost-conscious customers reduced or ceased their cable television, internet and phone services; they decided to delay planned expansions and bandwidth upgrades as part of an effort to conserve cash and limit capital expenditures.

As a result of these two trends, combined with other lesser trends, we have been forced to compete more with equipment manufacturers for the remaining business. What I mean by this is that the downturn in the demand is also changing the competitive landscape on the supply side, as our OEM suppliers who become better at managing production cycles, the order backlog and lead times. This in turn has reduced the need of our on-hand, on-demand service. In addition, our sales refurbished digital converter box has declined, due primarily to the overall decline in the Latin American economy and their currency.

In total, we have seen our net equipment sales decline $14 million from 2008 and $23.4 million from the record high in 2007. Though this decline has been disappointing, our sales force has been diligent in its efforts to stem decline and take advantage of every opportunity to work with our customers and close deals.

We believe that the long-time customer relationships, unsurpassed equipment knowledge, and on-hand, quick to ship supply of equipment has been the reason equipment sales weren't hit even harder as we have seen among some of our peers. What has been in our control, and we have accomplished at ADDvantage Technologies, is maximizing cash flow and maintaining an acceptable level of profitability. By operating within the means of this new market, we have found the path to success both short- and long-term.

As examples of this trend, we reported a net profit attributable to shareholders of $3 million, or $0.30 per share for fiscal 2009. We have paid down our line of credit and debt by approximately $4.7 million during fiscal 2009. We bought back more than 200,000 shares of common stock through our stock buyback program during the year, and we accomplished all this while remaining competitive to maintaining a comprehensive mix of inventory, which shall allow us to emerge from the recession in a position of strength.

We expect that as the economy improves and the credit crisis eases, our customers begin to increase their capital expenditures for the necessary bandwidth upgrades and planned expansions. We have made and continue to make changes to our business models that enables us to be successful. From a competitive standpoint, we still remain the leading provider of on-hand, on-demand equipment in the market, we believe.

It is my personal goal and the goal of each ADDvantage employee to emerge from this recession a stronger, more efficient company by proactively reacting to the circumstances presented to us, not passively standing still, waiting for the quick economic recovery. I believe we are on the right path to achieve that goal, which will enable us to meet our customers' needs in the future as demand for equipment increases.

We are starting to see some positive signs of this increase for demand. As Scott will address, we did see a slight increase in our fourth quarter sales compared to the third quarter. As I mentioned earlier, our employees worked very hard to ensure that we are ready as the demand for equipment increases, and we look forward to this increase in activity as the economy improves.

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

Thanks, Ken. Net sales for the fiscal fourth quarter of 2009 were $10.2 million, which was a decrease of 31% when compared to $14.6 million for the same period of fiscal 2008. For the fiscal fourth quarter, revenue from new equipment was down 30% to $6.2 million for the three months ended September '09 from $8.9 million for the same period last year, while refurbished equipment was down 40% at $2.5 million compared to $4.1 million for the fiscal fourth quarter of 2008. Revenue from repair services declined slightly to $1.5 million for the three months ended September 30, 2009, compared to $1.6 million for the same period last year.

As Ken previously stated, we did experience a decline in new and refurbished equipment sales due primarily to the downturn in the economy, which caused our large and small MSO customers to continue to delay plant expansions and bandwidth upgrades as part of their efforts to conserve their cash and limit their capital expenditures. Cost of sales for the three months ended September 30, '09 decreased 34% to $7.1 million from $10.7 million in the same quarter a year ago, primarily attributable to the decreased sales of new and refurbished equipment.

Gross profit for this recent quarter decreased $3 million from $3.9 million in fiscal 2008, due primarily to the overall decrease in net sales. Our gross margin percentage increased to 30% from 27% in the fiscal fourth quarter of '08, due primarily to sales of higher margin products and higher margin head end repairs. Our operating, selling, and general administrative expenses decreased to $1.7 million in the fourth quarter of 2009, compared to $2 million in the same quarter of '08. This decrease is due primarily to some of the head count reductions of approximately 10% we did earlier this fiscal year.

Income from operations in the fourth quarter of '09 was $1.4 million compared to $2.0 million for the three months ended 2008. And net income attributable to common stockholders for the fourth quarter of '09 was $0.7 million, or $0.07 per basic and diluted share compared to $1.1 million, or $0.10 per basic and diluted share.

Now on to results for the year ended September 30, 2009. For the year ended September 30, 2009, net sales were $42.2 million, which was a decline of 25% from $56.4 million for the same period last year. New equipment sales for fiscal '09 were $27.1 million compared with $34.7 million in the previous year, which was a decrease of 22%, while sales of our refurbished equipment decreased 40% from $16.1 million in fiscal '08 to $9.7 million in fiscal '09. Revenues from our repair services business during fiscal '09 were $5.5 million, which was relatively flat from $5.7 million a year earlier.

Cost of sales for fiscal '09 decreased by 26% to $29.3 million when compared to $39.8 million a year ago. This is primarily attributable to the overall decline in net sales. However, also, our cost of sales is lower in fiscal '09 as compared to last year due to decreased charges of $0.7 million related to our reserve for obsolete and excess inventory.

Gross profit for fiscal '09 decreased to $12.9 million compared to $16.6 million for the year ended September 30, '08 with the gross margin percentage increasing to 31% for the year ended September 30, '09 compared with 29% for the same period of last year. Our operating, selling and general and administrative expenses were $7.2 million for '09 compared with $8.2 million for the previous fiscal year. This decrease is due primarily to lower payroll expenses resulting from the head count reductions I mentioned before, as well as rent and professional services.

Our income from operations for the year ended September 30, 2009 was $5.8 million compared with $8.5 million for the same period of fiscal '08, which is a decline of 32%. Net income attributable to common shareholders for the year ended September 30, '09 decreased to $3.0 million, or $0.30 per diluted share from $4.5 million or $0.44 per diluted share in the same period last year. During the year ended September 30, 2009, we also acquired 202,864 shares of our Company's common stock in the open market at an average price of $1.74 per share.

This 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. As discussed earlier, we are starting to see some increased activity in our business. However, we are not anticipating a full blown recovery to occur overnight. We do expect that as the economy improves and credit crisis eases that our MSO customers will begin to make some improvements to their networks and upgrades of their infrastructure. However, most MSOs will probably wait for additional stability in the economy before moving forward with any sizable upgrade. It is just too early in the recovery to determine what companies will be doing and what timeframe they will do it in. What we do know is that quoting for jobs and equipment continues to increase, which is usually a good indicator for our future quarter's activity.

We continue to carry one of the most comprehensive mixes of inventory of any reseller in the industry and we are able to deploy this equipment as needed. We still believe that our mix of new, surplus new, and refurbished inventory gives us the competitive advantage in the marketplace. So as activity increases in the marketplace, we believe we are ready to meet our customers' equipment needs.

In closing, we appreciate the continued support of our employees, customers, manufacturing partners, and shareholders. And we look forward to the opportunities that are ahead for ADDvantage. This concludes our prepared remarks. Operator, we would like to open the call up for any questions.

Thank you, sir. (Operator instructions). We'll take our first question with Michael Potter from Monarch Capital.

Hi, guys. Congratulations on very good performance, and I know, a very challenging year. Very impressive. Just a couple quick questions. Can you break out the gross margins on the two lines of business for us for the quarter and for the year?

Yes, Scott, can you do that?

You're asking for the gross margins between -- oh, on the quarter and the year?

Quarter and the year, please.

Okay. Our gross margin for the year was $3.0 million for this year. For fiscal year '08, it was $3.9 million.

No, the gross margin, not the -- you're giving me the dollar-wise? Okay, fine.

Yes. Oh, the percentages were 30% and 27%.

30% for '09 and 27% for 2008?

Yes. And then for the quarter, it was 31% and 29%, respectively.

Okay, and what was the cash generation for the quarter and for the year? Free cash flow?

I can tell you what the -- I have right here what the year was. I'd need to get back with you on the -- for the quarter. The year was $5.7 million.

$5.7 million in free cash flow?

Yes, that's what we're calling there, would be our net cash provided from operating activities on our cash flow.

Okay.

I think something -- this is Ken. I think something important to look at that you generally would never see on our P&L statement, at the end of the fiscal year, we had money in the bank. Generally we always apply that towards our line of credit. So that reflects that we owe nothing in our line of credit that we normally, over the years, have always had something borrowed against.

Okay.

[On the] statement, I think we have 700,000 at the end of the year.

Okay. You kept inventory levels stable versus last year. What's your expectation going into 2010? Are we going to see an increase in inventory levels? Perhaps even bringing inventory levels down? What's your objective there? What's your target?

I think I'll address it first and we'll let Dave do it. One of our objectives is we probably -- well, we know we could have had some more cash in the bank. Today our position's much stronger, today, than it was even at the end of the quarter with our cash, but we have been opportunists and there has been some opportunities that we feel that we couldn't pass up as far as the buying of inventory that should be advantageous to ADDvantage as we move forward into this next year, but unfortunately what happens is our inventory didn't decrease with the sales because we were already at a certain level. Dave, do you want to address that a little bit?

Yes, number one, if we wanted to buy gear and looking for opportunities, as we always do, there's none on the market that amounts to anything. All the warehouses have been cleaned out for the MSO's to sell the gear. That does not mean that the opportunity won't come up tomorrow, but the bids' opportunity are very, very minimal. We are getting some good buys, but there's almost nothing to buy.

For example, this week, we're bidding on some gear. I mean they are $10,000, $20,000 deals. We're not seeing any big deals. We're not seeing anything out there. We did buy a lot last year in refurbished gear and we have a lot of really good, clean gear. So when the economy comes back, we feel very comfortable that we have some of the cleanest, best, up-to-date gear that's out there that we could be very competitive. You just can't sell something in this marketplace unless you've got an order for it, somebody wants it.

I wanted to say, Michael, that it's important to understand is most of our competitors didn't have that cash, or had the availability of a line of credit in order to do that. And we're seeing that more and more as we go to -- through the end of this calendar year because most of our competitors that's been bidding on some of this gear is needing cash because their customers aren't paying them. And I think another good point that we would like to make is, anything can be happening in the credit markets, we've seen nationally, but we've been, up to now, been very aggressive in collecting our receivables, which I think our report indicates.

Okay, and on the OEM side, I know we had an advantage about 18 months, two years ago where we were able to get new product where a lot of competitors couldn't get their hands on a new product. How is the -- what are the inventory levels on OEM equipment currently in the industry? Have they come down? Is it tighter? Or there's, if a customer's out there, they could buy whatever they want?

We have just seen in the last week the first sales back to the OEMs -- from the manufacturers buying some stuff back from us. We shipped some yesterday, first time in probably six months.

So what that is, is there's a -- they are not stocked. The OEMs are not stocked, but to answer your question, we don't think that the factory's not been stocking their shelves knowingly because that's not the fiscal model or the most roller model; they're not offering excess inventory to us at any high level of degree or the normal. And so we have seen some shortage in a certain product line. So I think they are just as cautious as we are and in the marketplace, I think it's just -- demand I think, it's always the supply and demand.

If the business picks up, or if there's an emergency based upon a weather-related issue or something else, it looks to us from our visibility the market's pretty tight on inventory that's on hand. It's not to say the factory can't rev up. For example, our two largest OEM partners are in the down mode now because most of their products are made in Mexico and they generally go on a holiday for 30 days right now. So that makes it a little difficult if somebody needs something that's not already on the shelves.

One comment, this is Dave, again. Our inventory mix has got -- and I know we keep telling you this every time it comes up, but each time it is getting better. I would say in digital product, our mix is up 15% to 25% more digital than we would have had on the mix one year ago. We keep training. We keep doing things. We look for opportunities. The digital market is becoming stronger, which it will. But the analog market still goes on.

All right, great, guys. Thanks. Keep up the good work.

Thank you.

Thank you. We'll take our next call from Madhu Kodali with Fertilemind Capital.

Hi, thank you. Either Ken or Dave, I was wondering as you run into this recessionary cycle, then your competitors or manufacturers stock up inventory and they can meet on demand like you, what has been your experience during past cycles like this as the economy recovers, the customer behavior changes? Maybe you can talk to that a little bit? That would be helpful. Thank you.

Yes, I think what we find out is if it's a large enough opportunity, the OEM partners will go after that. But, you know, lot of our opportunities are not that large, but they all add up. So, from our experience is that unless they have it on hand, they are not going to build it unless it's a large, large opportunity and they will pass it on to distribution.

Now, some things they would have on hand and you got to realize, it's much more difficult for the larger companies to get a product out the door in a very timely manner because of the cumbersome processes that they have. They just can't pick up the phone and say ship it. They got to dot the i's and cross the t's, where we have a little bit more flexibility because we can go out in the warehouse and get it out within a very, very short period of time. And that's been our expertise in the market and that's where we really fit it in, is those orders that right now where the factory is in holiday mode from here through probably the next three weeks. If they need something, you call the factory up or they -- who are you going to talk to, to get it out? Number one. Then who are you going to call at the factories to get it shipped? It's just not -- that's just our model.

This is Dave. One thing, if I understood you correctly, the manufacturers do not stock up. They are, in fact, they are getting thinner. That's the whole point of this. When it comes back, our inventory becomes more valuable. This has happened over the last 30 years, probably five times and when it starts to pick up, it picks up quickly. Budgets come out. It's hard to determine when it's going to happen, but the phone starts ringing a lot more, got a lot more quotes, which we're doing a lot more quoting. People are looking. But the manufacturers do not have inventory that amounts to anything. They have cleaned it out. They have made it less. The only way they have inventory is cancellation of orders.

And one of the other things that happens is that they are going to have to have a trend before they get out there and take a big risk. Unless there's a trend upwards, that there's a large demand, they will not -- based upon our experience in the past, they haven't taken that risk. They will let it go to distribution.

That's very helpful. I have one other question. Early on in your remarks, you talked about the issues today in terms of new housing is not happening and cable, in general, MSOs are scaling back. Just trying to understand, where does your business mostly come from? Is it new housing or is it cable conversions and for digital exiter?

I think over our high year in 2007, a lot of that was when there was robust, new construction going on and the MSOs were -- there was competition for those subdivisions, so there was a little bit of pressure on them to get those jobs done and lot of them were unforeseen. They were not a budget item.

Most of our business, there's a lot of maintenance going on. For example, I mean the products still deteriorates as weather-related issues and there's accidents that knocks the pole down or whatever. So there's always maintenance issues, that's a big part of our business. The MSOs will have X number of dollars in your warehouse to take care of those, but they have been continuing on a household basis, been reducing that amount of inventory they keep at the local level, so they were trying to reduce their inventory there. So that's one of them.

The other one is unforeseen things that happen. There's new business opportunities because somebody is able to budget or able to get some new financing, because there's a lot of upgrades that need to take place yet, and in particular some of the smaller markets, in addition to some of the larger markets, the large MSOs. So as they find -- and there's always entrepreneurs out there who feel that they can do a better job in some markets. They are buying the smaller systems from some of the larger systems. So that's ongoing, but, in that situation, it's about capital and availability and this particular time of year, it's all about weather.

So would it be fair to say that if I go back and look at the differences between maintenance and refurb revenues with this new revenue, your maintenance revenue held steady and the decline filtered mainly from newer equipment sales, so as a percentage of revenue, maintenance and service probably increased this year versus last year?

Yes, that's a fair assessment. Again, the other thing that does happen when they are not buying new equipment, they are out repairing it. So you see that our service, external service rate has been flat, but it hasn't gone down like the rest of the business. So that's -- they are spending more money in the budgets to keep the existing equipment operating as much as possible so they don't have to pay out the new dollars.

Okay, good. Thank you. That's it for me.

Thank you.

Thank you. We'll take our next question from George Gaspar with Gaspar Report.

Yes, good morning. On this inventory situation, your sales are down $14 million to the $42 million level for the 12 months, September. Yet, your gross inventory is unchanged practically, down $500,000, but $33.2 million versus $33.7 million. So it looks like your inventory level now is about 78% of your recent 12-month sales, versus 60% of the previous 12-month sales.

How do you view your inventory in general, the status of it, the quality of it? Any write-offs that you're looking at within that inventory? And do you gauge the chance to bring this inventory down with business hopefully trying to turn a little bit in here, or what's your thought on that?

Let me address one of them and then we'll let Dave talk about it. I was an automobile dealer for about 15 years. And as we saw what happened in the automobile industry, the inventories increased because sales went down and that's exactly what happened to us. I mean we were carrying an inventory based upon 2007 sales. So as the market shrunk, we had more inventory. Now, as we said earlier, we took advantage of some of our cash positions and our ability to buy some -- make some purchases that we feel that will benefit the Company in the years to come, particularly as the market increases. But, unless we get a cash for cable equipment, we may have that inventory for awhile. But we feel very comfortable.

Dave, do you want to address the inventory?

Hi, George.

Yes.

Overall on the inventory, I made a comment a few minutes ago. Our inventory on current digital equipment has increased probably 20% of that inventory. It's turned over. We're holding good gear, current gear. We're also holding older gear. I mean, we have -- if the economy stays exactly the way it, we've got too much inventory if it stays this amount and didn't pick up for another year.

We watch our reserve. We watch our obsolescence; our inventory truly is cleaner, better inventory than I've had. And as I said before, you've heard that from us every year, but we watch our inventory very carefully on what we buy. We did have an opportunity 90 days ago to buy a large amount, it was right around $4 million worth at a real good price from the factory. We took advantage of it. We picked up 15 points. And it's current things that are turning.

Yes, it's -- one of the things is our present model will probably change a little bit and we don't anticipate making large purchases unless they are just an extremely good opportunity out there that we don't see over the next 6 to 12 months; but I mean, that changes as opportunities, being an entrepreneurial business model. But we -- if business contains -- stays at this level, we're optimistic that our inventory will be reduced because we will not be buying unless those opportunities come available. But a year from today, we're at this same level, we can see a large amount of inventory, based upon the demand, not be turned back into inventory, but into cash.

Okay, all right. And secondly, in the Company's attempting to review its equipment repair services business options, are there any areas of activity that you see that you could try to get into to better utilize the Company's operations in general, facilities, employees that you have? Do you see that? Is there anything out there connected with your mainstream business or would you have to step outside to really effectively get you to a new business frontier tier?

We're trying to maximize and fully utilize our repair centers in their locations by going after regional or national contracts in our existing marketplace. The problem we have in certain times -- there's a few small operations in regional markets that are just striving to stay existent and I understand to keep their heads above water, and they put some price pressures on the amount that you can charge.

But just to answer your question, yes, we're analyzing these opportunities as they come available throughout the United States and they are ongoing. But it's -- again, it's always that there's those little guys out there that can provide a product, a service that maybe in a certain areas that's a little less than we can, but they can't provide the degree of warranties, they can't provide the degree of expertise on the total lines. Where we really excel is some of the higher end, more expensive equipment because most of the smaller service centers do not have that expertise and most people won't entrust them to work on a $5000 or $10,000 piece of equipment. That's the way we like to do it because that's where it really maximizes our intellectual property and our talent, and we can get the most bang for our bucks on our service.

Great. Okay, all right. Thank you.

Thank you. (Operator instructions). We'll take our next question from Aram Fuchs with Fertilemind Capital.

Yes, I was wondering if -- you didn't mention any of the stimulus dollars. I know it's been pushed out to January, but maybe you can talk, give a little more detail on that? And I believe last quarter you also mentioned that you're -- because many of the rural phone companies, due to the advent of DSL 2.0, they are becoming video providers and that you thought you might be able to sell some equipment to them. Could you just talk about both the stimulus dollars and the push into the rural Landscape?

Yes. I looked at -- yes, this is Ken. I saw an article just this week. Can you believe this? The feds have underestimated the amount of money it's going to require to do all this.

Right.

And what we have seen some of the stimulus money that's been out has been for the mapping and to come up with a plan on what is needed. And they've - I've seen, like, four or five contracts and most have been state agencies that have been out and they won't be having that. They just put the contracts out to do the mapping.

So we don't see a lot of that money -- I think it's no different than going out into most of the stimulus monies out there. It hasn't reached the goal yet and it's going to require so much more than they ever anticipated. But as far as the rural, they are looking at that, too. I think a lot of the rural guys that I can see right now are worried about is "are they going to continue to get those funds, universal service fees through their systems right now?" They are concerned that that may change.

So, yes, we're selling quite a few TELCOs, certain product lines but they still have the same restraints that everybody else. And the paperwork to get this money, it seems to us is very cumbersome, no different than some of the SBA loans that they put out there. I heard yesterday it took 32 pages to get one of these $35,000 loans just to be documented. So it hasn't hit yet, okay?

Right.

This is Dave. What I think will happen -- out of, we'll say around the country there's 1,000 people -- I mean 1,000 different places and this is just guessing the quantity, that people are looking at these for upgrades. What everybody forgets about, even if they get their money, they have to maintain them and almost any place that makes sense financially, a lot of them have been done. But what I think will happen, these guys will look at all the possibilities and then they are going to set down and say, guess what, the economy is coming back and these 400 over here out of the 1,000 makes sense. We could get it one way or the other and a lot of them are going to be entrepreneurs that are going to use either refurbished gear or figure out some other way of doing it.

So I think it will affect us, but it's going to be towards the tail end as they finally figure out what they are going to do and finding the gear. But there's no question there's a pickup in interest over the last, oh, 90 days as far as quotes on possible locations.

And WiMAX seems to have finally gotten some respect in terms of delivering DSL speed, broadband, and I was wondering if you're contemplating offering those to your customer base?

Yes, we have some product lines that are complementary with the Motorola and perhaps some of the Cisco product lines. But it's a separate business up to now. We're looking at additional product lines ongoing, but that seems to be -- there is a market out there already and there's a distribution channel that has taken care of that industry. If we feel there's an opportunity to maximize our resources, we'll look at it. But up to now, most of our customers are in the hard line or fiber to home I think would probably be more where people would be going, don't you, Dave?

Yes, in our line. That's just not our field. It's a different type of field, and honestly, the margins are not very good. So the risk of going into it and all of that, we would have to look at it very, very closely.

And my last question is, you didn't mention any, you didn't give any color on your Latin American business. Can you talk a little bit about that?

Yes, I mentioned a little bit about it, but we just did quite a large deal down there for some line equipment, but the one that was really driving that business was the used converter box business. That has really become a commodity. The prices have dropped because some of our competitors had some product and they needed cash, but the biggest problem of all is the lack of cash because of their economies and our operators here have a difficult time. It's that much more difficult to get it out of the country. In addition to that, the difference in the dollar has really been a problem, particularly in Mexico and a few other places.

So, yes, the converter box business has really dropped off and we -- there's still going to be a big demand there. We just don't know when that's going to pick up. They still have -- need a lot of product. I mean, we're looking at some opportunities with lots of boxes, but it's always about money. And until that clarifies, I mean, we're not prepared to take that big a risk, particularly when they are not paying their bills to other people. So we're optimistic that it will change, but it's going to take awhile. It's going to lag in the United States, I believe.

Great, thanks for your time.

Thank you. We'll take our next question from Christopher Samsung with Samsung Partners.

Can you give us some updates, if there are any, on your relationships with Scientific Atlanta and Motorola? And then a quick follow-up, what are your expectations in terms of stock buybacks going forward? It would seem like this might be an opportune time to possibly accelerate those activities. Thanks.

Yes, Chris, you know, Cisco has now fully taken over the Scientific Atlanta division and the contractual relationships. They are in the process of extending the contract for a period of time and they are renegotiating. And one thing that we've been dealing with, we've been spending quite a bit of time training our staff because Cisco is requiring certification at certain levels, what we call the Video Transport Group, which we're part of, so that's - we've really -- we've enhanced our skill sets and meeting the designations that they're required; but those are really, our Motorola contract's in place. We don't see any changes.

Of course, Motorola, that division we work with placed themselves up for sale. As I said about Cisco, they are the driver on that. So at this time, we're still operating under existing agreements. And the stock, we're -- it's ongoing. We bought 200,000 shares last year. We're -- we have opportunities at different times in addition to that. My brother and I, over the last few years, have bought many dollars of stock, too, to support the prices and that's something that we still have out there. We just got to maximize where's the best place to put our money at any given time. So it's still on the table.

And from the way it sounds, the opportunities in your -- that you would normally see with respect to future inventory, that there aren't -- there isn't a lot of that right now. So presumably, from your comments, it would sound like with cash flow, at least in the near term, maybe the consideration is towards either paying down debt or buying back stock?

Yes, I mean, you can see that we've paid off, at this point, all of our line of credit. We still have it out there in case it's ever needed. The only other -- we owe on that particular, on the main building here, and it's -- the problem there is our interest rate is like 1.7% on that particular part of the debt. And on the other debt, the long-term debt that we have, it's -- we have a financial swap in place and we've got to be careful with that one. And it still is less than 6% and I think we all would agree over the next three or four years, 6% may be quite cheap.

So, yes, you make the right point. We're going -- we believe we're going to have additional cash and it is the appropriate place to find other opportunities to maximize shareholder value, or is it to buy stock back? So, yes, hopefully, we're going to be offered that opportunity in 2010.

Great, thanks.

Thank you. (Operator Instructions). Gentlemen, it appears (multiple speakers) --

Thanks for all of the questions. Dave, Scott and I and all of our employees would like to wish everybody a happy holiday period, and we appreciate you for joining us today. Thank you.

Thank you. Ladies and gentlemen, this does conclude today's presentation. We appreciate your participation. You may now disconnect.