ADDvantage Technologies Group Inc (AEY) 2014 Q4 法說會逐字稿

Good day and welcome to the ADDvantage Technologies fourth-quarter fiscal 2014 conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Garth Russell of KCSA Strategic Communications. Please go ahead.

Thank you. Before we begin today's call, I would like to remind you that this conference call may contain certain 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 results, events such as the availability 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 contained in ADDvantage Technologies most recent report on Form 10-K on file with the Securities and Exchange Commission. Financial information resented on this conference call should be considered in conjunction with the consolidated financial statements and notes thereto, including ADDvantage Technologies most recent report on Form 10-K filed earlier today on December 9, 2014.

The guidance regarding anticipated future results on this call is based on limited information currently available on ADDvantage Technologies to which are subject to change.

Although any such guidance and 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'd now like to turn the call over to David Humphrey, President and Chief Executive Officer of ADDvantage Technologies. Dave, the floor is yours.

Thank you, Garth. Welcome to ADDvantage technologies fiscal 2014 fourth-quarter conference call. With me today is Dave Chymiak, our Chief Technology Officer, and Scott Francis, our Chief Financial Officer.

Before I turn the call over to Scott who will provide the detailed financial results for the quarter and fiscal year ended September 30, 2014, I wanted to offer a brief update on the Company's operations and strategies.

We've seen the initial impact of our growth strategy take hold in fiscal 2014 as we reported a significant increase in net sales for the period. The majority of this positive momentum is a result of our acquisition of Nave Communications earlier in the year.

As expected with any acquisition, it was an early transition period that impacted Nave's overall performance. By the end of the fourth quarter, though, Nave demonstrated improved results both in top-line revenue and EBITDA, bringing it more in line with our expectations.

We believe that Nave is well-positioned in the telco market to continue this improved performance in fiscal 2015 as they differentiate themselves in the marketplace by having a broad range of used inventory in stock, an experienced sales support teams with strong customer relationships and the ISO and telecommunication certifications in place that many of the telco providers require of their equipment vendors.

Our cable TV business has experienced top-line revenue declines since 2008 due to decreased planning expansions and bandwidth upgrades as a result of lower new housing developments and an overall lower cable-television subscriber base. Therefore, our strategy has been primarily focused on organic growth to gain market share in a shrinking capital equipment market by expanding our product offerings with our broad range of OEM partners and realigning our salesforce to more effectively reach our customer base.

During 2014, although we still experienced an overall top-line revenue decline, we did see our top-line revenues stabilize in the later half of the year as a result of this strategy.

In addition, it bears mentioning that despite our top-line revenue decline, this segment has been and still remains profitable.

We believe that the overall telecommunication industry still has good opportunities as the industry is working to meet the ever-increasing demand for Internet services, as well as continuing to provide quality voice and video to their customers.

In order to accomplish this, the communications service providers will need to upgrade their networks to meet this demand, and we are well positioned to provide their equipment needs for both the cable TV and telco providers.

In addition, after completion of the integration of Nave Communications into our business, we will continue to evaluate companies to acquire in the broader telecommunications market to help us grow our business and take advantage of the opportunities in this industry.

We made considerable progress on our growth strategy during 2014 by restructuring our cable TV business through selling Adams Global in January and expanding our sales force, as well as completing the Nave acquisition, which allowed us to expand in the telco industry. As a result, we believe our net sales and EBITDA will grow in fiscal 2015 and beyond.

I've now like to turn it over to Scott who will provide the financial results.

Thank you, David. For the fourth fiscal quarter of 2014, total net asset sales increased $4.5 million or 59% to $12.1 million compared with $7.6 million for the same period of last year. Net sales for the cable TV segment decreased slightly to $7.3 million for the three months ended September 30, 2014, from $7.6 million for the same period of last year. The decrease in net sales was due primarily to a decrease in new equipment sales of $0.6 million, which was partially offset by an increase in refurbished equipment sales of $0.4 million.

Our net sales for the telco segment were $4.8 million for the fourth quarter ended September 30, 2014, and zero for the same period last year as a result of our acquisition of Nave Communications. Net sales for the telco segment consisted of $4.1 million of used equipment sales and $0.7 million of recycling revenue.

Our consolidated gross profit increased $1.9 million or 81% to $4.3 million for the three months ended September 30, 2014, from $2.4 million for the same period of last year. The increase in gross profit was due primarily to gross profit from the telco segment of $2.1 million as a result of the Nave Communications acquisition, while gross profit from the cable TV segment decreased slightly to $2.2 million for the three months ended September 30, 2014, from $2.4 million for the same period of last year.

Our operating, selling and general administrative expenses increased by $1.8 million or 125% to $3.3 million for the three months ended September 30, 2014, from $1.5 million for the same period of last year. This increase was primarily due to $1.8 million in telco segment expenses as a result of the Nave Communications acquisition.

Our net income from continuing operations for the three-month period ended September 30, 2014, was $0.6 million or $0.06 per diluted share compared with net income from continuing operations of $0.5 million or $0.05 per diluted share for the same period of last year.

Discontinued operations for the three months ended September 30, 2013, included the operations of Adams Global Communications prior to the sale on January 31, 2014.

Our EBITDA for the three-month period ended September 30, 2014, was $1.2 million compared with $1 million for the same period in 2013.

Now for the results for fiscal year ended September 30, 2014. Our consolidated net sales increased $7.2 million or 25% to $35.9 million for the fiscal year ended September 30, 2014, from $28.7 million for the fiscal year ended September 30, 2013. The increase in net sales is primarily attributable to $8.7 million in net sales from the telco segment as a result of the Nave Communications acquisition, partially offset by a decrease in the cable TV segment at $1.5 million.

Net sales for the telco segment consisted of $7.5 million of used equipment and sales of $1.2 million of recycling revenue. Our net sales for the cable TV segment decreased $1.5 million to $27.2 million for the fiscal year ended September 30, 2014, from $28.7 million for the previous fiscal year. This decrease is primarily due to decreases in new equipment and refurbished sales of $0.7 million and $0.6 million. The decrease in overall equipment sales was due primarily to the continued decrease in plant expansions and bandwidth upgrades in the cable television industry and the absence of equipment sales as a result of Hurricane Sandy in fiscal year 2013, partially offset by supply in major MSO -- for some major MSO equipment for certain projects this year.

Consolidated gross profit increased $2.9 million or 33% to $11.6 million for the fiscal year ended September 30, 2014, from $8.7 million for the fiscal year ended September 30, 2013. The increase in gross profit was due primarily to an increase in the telco segment of $3.8 million as result of the Nave Communications acquisition, partially offset by a decrease in the cable TV segment of $0.9 million, primarily as a result of lower net sales.

Our operating facility general and administrative expenses increased $4.7 million or 81% to $10.5 million for the fiscal year ended September 30, 2014 from $5.8 million for the previous fiscal year. This increase was primarily due to increased expenses of the cable TV segment of $0.5 million and the telco segment of $4.2 million as a result of the Nave Communications acquisition. The telco segment expenses also included $0.6 million of direct costs in connection with the acquisition of Nave.

Net income from continuing operations for the fiscal year ended September 30, 2014, was $0.7 million or $0.07 per diluted share compared with the net income from continuing operations of $1.8 million or $0.18 per diluted share for fiscal year of 2013. The decrease is primarily the result of acquisition-related expenses of $0.6 million in the telco segment associated with the acquisition of Nave Communications and decreased operating income of $1.4 million from the cable TV segment.

The loss from discontinued operations included the operations of Adams Global Communications prior to the sale on January 31. For the fiscal year ended September 30, 2014, this loss of $36,000 compared to $102,000 for fiscal 2013. The loss on sale of discontinued operations net of tax of $600,000 for fiscal year 2014 consisted of a pretax loss of $900,000 from the sale of the net assets of Adams Global for $2 million in cash and a pretax loss of $100,000 from the sale of Adams Global facility for $1.5 million in cash.

EBITDA for the fiscal year ended September 30, 2014, was $1.9 million compared with $3.2 million for fiscal year 2013. Our cash and cash equivalents on hand were $5.3 million as of September 30, 2014, compared with $8.5 million as of September 30, 2013. Our cash and cash equivalents decreased due primarily to the acquisition of Nave Communications and some purchases of inventory, partially offset by the sale of Adams Global Communications and the associated facility.

As of September 30, 2014, we had inventory of $22.8 million compared with $18 million as of September 30, 2013. The increase in inventory was due primarily to the acquisition of Nave and new cable equipment inventory purchases with certain manufacturer incentives.

This concludes the financial overview for the quarter and fiscal year ended September 30, 2014. I'll now turn the call back over to David.

Thank you, Scott. In 2015 we will build upon the changes we implemented in 2014. This will be achieved by expanding our product offerings and customer base on the cable side. On the telco side, our focus will be further expand our customer base internationally and to increase services we provide to our customers.

In addition, we will continue to look for acquisition opportunities in the broader telecommunications market. We appreciate your continued support as we will continue to find innovative ways to improve our business and grow our operations.

This concludes our prepared remarks. I would now like to turn it back over to the operator and open the call for any questions. Operator?

(Operator Instructions). Doug Ruth, Lenox Financial Services.

Hi, congratulations. That was a really nice report.

Thank you, Doug.

Could you give us some detail or a little color on how you plan to realign the cable TV segment? It seems like there's still a struggle there.

Well, there is, Doug. We continue to see the decline in revenue, but we believe that the way we can organically grow this business can grab a greater portion of share -- our portion of the market share is through hiring additional salespeople at the local level. And that we can -- we will see increased sales both on new equipment and our used equipment. We'll also see if we can't get our salespeople to focus more on the service side to see if we can't expand our repair business as well. And that's our greatest opportunity, as well as looking for other products that we can add to our portfolio of sales to our customer base.

Dave, any other follow-up comments on that?

No.

Okay.

Are we close to hiring any additional people at this point in sales?

We just completed a hiring about a month ago, and we'll continue to look for additional candidates, Doug.

Okay. I was impressed with the growth of the international sales. Could you offer some color on how you are able to achieve what you have been achieving?

Yes, this is Scott, Doug. Some of that was from our telco segment where we've been able to increase some of the international front. As you know, telco can be more of a worldwide acceptance of the same type of technologies as compared to cable is a little more limited. And so the Nave acquisition, the Nave salespeople already had some business in that, and we are trying to expand a little bit in that European market. And that's what we're hoping can be something that we can hopefully build upon on into 2015. But that was a lot of the driver.

Well, that's a significant achievement. Could you offer -- the product offerings where you are expanding, could you give us a little color as far as what you think is missing from the portfolio currently?

Well, Doug, a couple of years ago, we added some Fujitsu equipment in our NCS operation, and that added revenue and profitability although that's line has been diminished in the cable space as Fujitsu looks for other product lines in other markets.

We picked up the Triveni line about three or four years ago, and that's added revenue every year for the last three years. So those types of product lines is what we'll pick up, but we -- as you know, we have already got a breadth of opportunities with other products. But I think the greatest opportunity right now may be in the fiber space. So we're going to look for additional fiber opportunities for equipment sales.

But, again, the key for us is that we need to understand the equipment better than our customer base because that's what they generally look for us to do is to be in their expert on the equipment and its implementation, which is where Dave's strength of himself and his organization has always been.

Anything else to add, Dave?

No.

Okay.

How close are we to an additional acquisition, or what can you give us an [Addbot]?

I can't really comment on that, Doug, other than we're not as aggressively looking right now as we try to complete the integration of Nave, but we've looked at a few deals here and there, and we will probably try to reactivate and be much more aggressive on that certainly in 2015 as our strategy moving forward.

And the margin should just go higher in the next fiscal year with the integration of Nave? We could expect a margin expansion. Is that a reasonable goal?

Well, we certainly want to expand our revenue base. That may or may not -- I don't necessarily anticipate an increase in margin base as a result of that as we continue to expand our sales.

Just to clarify, Doug, when we are saying integration of Nave, what we're saying is we are trying to get them into our processes into the fold, if you will. That's not necessarily a synergistic operation as much as it is trying to get them into our Sarbanes-Oxley, our audits, everything we have been trying to do under our ledger systems. That's what we've been working with them on. So it's not necessarily a synergy operation as much as it is trying to make sure we are all on the -- kind of beating to the same drum here.

Well, in addition to that, I've spent a lot of time with Dave to try to get to understand their business and also see how ADDvantage Technologies can assist their business. One of the ways we're trying to do that is give them access to our capital and allow them to expand our inventory. Also understanding, though, that inventory ties up cash, and that is certainly not our goal. But we want to provide them with unique opportunities to take positions where they might not have taken them in the past.

All right. Well, I want to offer my congratulations to the management team. You've got the Company operating in the higher level, and I'm grateful for what you're doing there for the shareholders.

Thank you, Doug.

(Operator Instructions). George Casper, private investor.

Yes, good morning. Very good quarter. Congratulations. First question would be relative to revenue outlook. You're pretty far along here now in the first quarter being the 9th of December. Is there anything that you could say about your revenue trends versus the -- I think you're going to be up against $6.9 million last year. Can you get close in the first quarter to the [$12.1 million] that you accomplished in September for that is for the December 31 quarter?

George, I very much appreciate your question. It's something we've historically not really responded to. I will tell you, though, we are hopeful as we are always hopeful, that we will be able to continue to grow the business over time.

Was there anything in the quarter from the standpoint of integrating the Nave in that was unusual in terms of volume that wouldn't necessarily be there in the current quarter?

No, I don't see anything particularly unusual.

No, okay. All right. And then a technical question back on the cable side of the business. And if you make any comments about this current problem in terms of bandwidth on cable lines in the United States and the need to maybe do a lot of upgrading of amplifier equipment that's on cable lines and how you might integrate into that segment of the business, can you give us any color on that?

Yes, actually, George, we can. It's certainly an important aspect of a growth opportunity for us. There's really three different ways people can take and expand that capacity. T

he first one is to simply go all fiber. And the all-fiber play is something that we may be able to have a play in, but it's not the heart of our business. And that's also the most expensive changeup, but it gains you the most capacity.

The second opportunity is we replaced existing equipment with new equipment, and we certainly can provide new equipment sales. And the third one is one that Dave is particularly focused on, and that's where they upgrade the existing app systems. I'll turn that over to Dave to kind of talk a little bit about that.

Yes, George, we've been watching this for some time, and it looks like most of the people have started asking questions in the last 90 days. Most of them are looking for it in their budgets towards the end of 2015. 2016 it looks like there's going to be a lot of upgrades.

There's still the best we can tell out there between 10 million and 12 million maybe even more amplifiers out there in the country --

10 to 12 million.

-- 12 million amplifiers still out there in the country that may need upgrading and/or replaced.

Okay. And that's something that would tend to be more than a year out from now but revealing just the same.

In fairness, we're seeing requests for the product now daily.

Okay. All right.

For budget purposes.

All right.

It's different, system by system, questions that Dave gets. Sometimes it is systemwide for companies. Most of the time it's local systems about changing this one or upgrading that.

Right. As this becomes an apparent problem, which sounds pretty significant and it obviously could get worse -- I mean obviously the cable guys are trying to push more data out over their systems and retrieve data coming back in larger volumes -- what does this possibly offer for AEY in terms of becoming more of a field service provider? In other words, just actually getting direct into the field work on the cable lines? If it was, let's say, -- if this was structured where city to city had to make a major changeup where it would cause the cable companies to look away from themselves for somebody to do the service work, is that any possibility for expansion for the Company?

It is a possibility. As these changeout systems go beyond what the MSOs themselves can handle, they have to maintain their systems, and we will have to continue to do that. So many of the changeouts are going to require them to go to third parties and do these changeouts.

We're not experts on one on logistics nor on going up on the line and actually pulling those apps. Where our competency is is actually changing out those apps and doing it quickly and doing it on a good quality job, which is where our core competency plays.

So we'll be a major player on a good portion of that project work. I don't necessarily see us, but it's still a possibility of us going and actually doing some of the fieldwork as well.

Okay. All right. And then just a follow-up comment on the previous questioner and complementing the Company, I think that your Company is really in a very unique position. If you look at your size and you look at the financial strength of the Company and the retained earnings that the Company has, there's very few companies in your market cap category that would be able to reflect the retained earnings capacity that AEY and the book value capacity relative to current market price. So hopefully that puts you in a pretty good position to look to broaden your participation in the market and lift this Company well beyond $50 million a year of possibility on the revenue side.

That's certainly one of our objectives is to, again, since I've been here, the goal and the charge that I've been given by the board is to see if we can't find an organic growth opportunity to present our existing cable business that Dave and I worked very closely on and ultimately look through for additional acquisition utilizing the cash flow of the base cable business. And Nave was the first step, but we don't anticipate that is the last one.

So we agree with you. We think we are in a very unique position from a size standpoint to have a significant impact on our overall stock price, but again we can't predict that.

Great. Okay. All right. And then one last on the comparison that's coming up for the first quarter. This past year the revenue was reported at close to $6.9 million. Are there any adjustments downward or upward in that revenue stream? I mean I'm just looking at I am not sure when Nave became effective. Or will the comparison be against that $6.9 million, whatever you do report for the quarter ending December?

George, I don't have that number right here in front of me, and I apologize. The only thing we would potentially adjust, depending on which when you're looking at, is we do pull out the Adams Global Communications sale. So just be aware of that, but other than that, there's no adjustment for Nave per se. That will just be added on top of, but you would need to pull out, and we will be pulling out Adams Global. That's reflected in our 10-K and the quarterly numbers there.

Okay? But other than that, yes, that's where we would be at.

Okay. All right. So, that's good. I appreciate it. Thanks very much.

Thank you very much, George. Appreciate your support.

At this time, there are no additional questions in the queue. I'd like to turn it back over to our speakers for any additional or closing remarks.

Very good. Thank you, operator. Well, again on behalf of ADDvantage Technologies, I want to thank all of our investors that continue to support our stock and continue to support us on this call as well. Again, we understand the goal is to continue to grow the business, and we are very focused on that on both the existing business that we now own in both sectors. Our goal is to try to help our cable base, as well as try to figure out how to expand and grow Nave, and then also continue to look for additional acquisitions.

So that's where our focus will continue to be on, and we agree with George. We think we are in a unique position to try to move this Company along both from an operational and profitability standpoint and hopefully ultimately on the stock value of the Company.

So thank you all, again. Appreciate your continued support. That ends our comments, operator.

That concludes today's conference. We appreciate your participation.