ADDvantage Technologies Group Inc (AEY) 2018 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to today's ADDvantage Technologies First Quarter 2018 Earnings Call. As a reminder, today's conference is being recorded.

And at this time, I'd like to turn the floor over to Elizabeth Barker of KCSA Strategic Communications. Please go ahead.

Thank you, Greg. 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 events, such as the ability of ADDvantage Technologies and its subsidiaries to maintain strategic relationships and agreements with certain original equipment manufacturers and multiple system operators as well as the future financial performance of ADDvantage Technologies. These statements involve a number of risks and uncertainties.

Participants are cautioned that these forward-looking statements are only predictions and may materially differ from 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 presented on this conference call should be considered in conjunction with the consolidated financial statements and notes included in the company's press release issued earlier today and included in ADDvantage Technologies' most recent report on Form 10-Q filed earlier today.

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 factors influencing it may change, ADDvantage Technologies will not necessarily update the information, as the company will only provide guidance at certain points during the year. Such information speaks only as of the date of this call.

During this call, we may also present certain non-GAAP financial measures such as non-GAAP net income and (technical difficulty) ratios that are used with these measures. In our press release and in the financial table issued earlier today, which is located on our website at addvantagetechnologies.com, you will find a reconciliation of these non-GAAP financial measures with the closest GAAP financials and a discussion about why we think these non-GAAP financial measures are relevant. These financial measures are included for the benefit of investors and should not be -- and should be considered in addition to and not instead of GAAP measures.

With nothing further, I'd now like to now (technical difficulty) to David Humphrey, President and Chief Executive Officer of ADDvantage Technologies. David, the floor is yours.

Thank you, Elizabeth. Welcome, everybody, to the ADDvantage Technologies' Fiscal First Quarter 2018 Conference Call. With me today is Dave Chymiak, our Chief Technology Officer; Scott Francis, our Chief Financial Officer; and Don Kinison, our Vice President of Sales.

Before I turn the call over to Scott to provide detailed financial results, I will provide a brief update on our performance over the most recent fiscal quarter and comment on our outlook for the rest of the year.

Revenues for the first fiscal quarter 2018 were relatively flat compared with the same period in the prior year, the result of lower sales in the Cable TV segment which offset improved Telco segment sales. On the Telco side, we are pleased with the overall direction that this segment is moving, as it generated improved year-over-year sales across all our product lines. The increased sales was driven by Triton, which also led to improved gross margins in the Telco segment on a year-over-year basis.

As discussed on our last earnings call, Nave Communications has experienced challenges which have impacted Telco segment results over the past several quarters. We are pleased to report that we have started to see improved results from Nave, driven by the improved sales strategy and sales organization restructuring implemented in late fiscal 2017. We have made some headway with our strategy to further penetrate our current customer base and to target a broader end-user and reseller customer base.

Although there is still more work to be done, we have confidence in Nave's business model and we believe that we will see improved top line and bottom line results from Nave over the next few quarters as our growth strategy continues to take effect.

Moving on to the Cable TV segment. Sales from the Cable TV segment were down in the first fiscal quarter of 2018, resulting from lower equipment sales as well as a loss of one significant customer in our repair business. Customers lost in our repair business did not significantly impact margins. However, our gross margin eroded this quarter due to a high volume of equipment sales at lower-than-usual margins to a single customer. Since the Cable TV segment continues to face market challenges as evidenced by this quarter's results, we have consolidated some of our repair facilities and are making further operational enhancements that we believe will support the efficient running of this business over the longer term.

With that, I'll now turn the call over to Scott to discuss the financial results for the first fiscal quarter. Scott, please proceed.

Thank you, David. For the fiscal first quarter of 2018, our total sales increased 2% to $12.3 million from $12.1 million for the same period of last year. Sales for the Cable TV segment decreased $800,000 to $5.8 million compared with $6.6 million for the same period of last year. The decrease in sales is due to a decrease in refurbished equipment sales and repair service revenue of $500,000 each, partially offset by an increase in new equipment revenue of $200,000. The decrease in the refurbished equipment sales was due primarily to an overall decrease in demand for the 3 months ended December 31, 2017, as compared to the same period in the prior year. The decrease in the repair service revenue was due primarily to the loss of a significant repair customer in this past quarter.

Sales for the Telco segment increased $1 million to $6.5 million compared to $5.5 million for the same period of last year. The increase in sales for our Telco segment was primarily due to an increase in equipment sales and recycling revenue of $700,000 and $300,000, respectively. The increase in Telco equipment sales was primarily due to Triton Datacom, which offset the continued lower equipment sales from Nave Communications.

Our consolidated gross profit decreased by $600,000 or 16% to $3.4 million for the 3 months ended December 31, 2017, from $4 million for the same period of last year. The decrease in gross profit is mostly attributable to the Cable TV segment of $1.1 million, partially offset by an increase in the Telco segment of $500,000. Gross profit for the Cable TV segment decreased to 21% for the 3 months ended December 31, 2017, from 37% for the same period of last year. The decrease in our gross profit margin was due primarily to a significant decrease in -- excuse me, significant increase in volume for a new equipment sales customer with very low margins.

Our gross profit margin for the Telco segment increased to 34% for the 3 months ended December 31, 2017, from 29% for the same period of last year. The increase in gross margin was due primarily to higher gross margins from equipment sales to end-user customers and our recycling programs.

Our operating, selling and general administrative expenses remained flat at $3.6 million for both the 3 months ended December 31, '17 and '16. This was due to an increase of $100,000 in the Telco segment, including earnout expenses of $100,000 related to the Triton Miami acquisition, offset by decrease in Cable TV segment expenses.

The provision for income taxes was $300,000 for the 3 months ended December 31, '17, compared to provision for income taxes of $100,000 for the same period of '16. The increase in the tax provision was due primarily to the Tax Cuts and Jobs Act enacted on December 22, 2017. One of the provisions of this legislation was to reduce the corporate income tax rate effective January 1, 2018.

As a result of the reduced corporate income tax rate, we remeasured our deferred tax assets at the reduced corporate income tax rate, which resulted in income tax expense of $400,000. We estimate that our effective income tax rate for the remaining quarters of fiscal year 2018 will be approximately 27% as a result of this legislation.

Our net loss for the 3 months ended December 31, '17, was $700,000 or $0.07 per share compared with a net income of $200,000 or $0.02 per share for the same period of last year.

Our consolidated adjusted EBITDA decreased $700,000 to $0.1 million for the 3-month period ended December 31, 2017, from an adjusted EBITDA of $800,000 for the same period of last year. The Cable TV segment adjusted EBITDA decreased $1.1 million to a loss of $100,000 for the 3-month period ended December 31, '17, from $1 million for the same period of last year. While the Telco segment adjusted EBITDA increased $400,000 to $300,000 for the 3-month period ended December 31, '17, from a loss of $100,000 in the same period of last year.

Our cash and cash equivalents were $400,000 as of December 31, '17, compared with $4 million as of September 30, 2017. As part of our overall plan to become compliant with our financial covenants with our primary financial lender, we extinguished one of our term loans in December '17 by paying the outstanding balance of $2.7 million. As a result, we were in compliance our financial covenants at December 31, '17.

In addition, we also paid the first annual guaranteed payment of $700,000 related to the acquisition of Triton Miami, Inc. in this past quarter. As of December 31, 2017, the company had inventory of $22.4 million compared with $22.3 million as of September 30, 2017.

This now concludes the financial overview for the fiscal quarter -- first fiscal quarter of 2018.

I'll now turn the call over to the operator for questions.

(Operator Instructions) First, we'll hear from [George Gaspar].

First question on the cable side. Can you give us a little thought on why the customer backed away on the cable repair side? Any particular reason that led to that?

[George], that was a bid processes that they put out for national bid. We were a large supplier of theirs. They loved the work we did. But we -- the work we were doing was at the local level. It was a corporate decision. We ultimately lost the bid.

I see. So it was over a bidding process where somebody else underbid what your bid was?

I can't tell what their bid was. I think ours was a very competitive bid, and certainly the quality of our work wasn't ever questioned by that customer of ours. They very much liked the quality of the service we provided them.

Okay. And this consolidation that's going on that was referred to in the release on your repair services areas, geographically speaking, where are you pulling out of? And how are you consolidating? To -- from where to where?

We've shut down 2 facilities, our Nebraska and our Arizona operation. And we've reduced the staff size in our Texas operation at this point in time. And we're looking at things in Kingsport, Tennessee.

I see. So that's going to just filter back into Tulsa, Oklahoma, then? Is that it?

Some of that business will; some of it will be lost. But if it's unprofitable, we can't maintain the operations.

Okay, all right. Is there anything that is being worked on to try to turn this cable area around as far as the services that you can provide?

George, this is Dave. We're continuing on everything that we're doing. We've got the sales from the South. We're looking at all opportunities. We're just working at it.

Okay, all right. And overall, on the other side of the business, any comments on new product development focus to broaden what you're all doing?

We're going to broaden the product lines in -- within those operations. I don't know that it's necessarily new products, but it's just going to continue to broaden the customer base and broaden the lines of product that we offer on the Telco side.

George, we're always looking for complementary services as well as products that relate to those 2 business lines. And we'll continue to evaluate that.

Okay. And I got a question on the financial side. The payment of the debt repayment, was that to also execute a new debt payment agreement? Do you not have to have a new debt requirement set up? Have you done that?

Yes, George, this is Scott. No, we didn't have to do that. All of our debt -- all of our term loans are underneath our master credit agreement. So all we effectively did was we paid off one of our term loans, and so there was not a new agreement executed. We just extinguished one of the existing term loans. We have 3. Now we're down to 2. That's all underneath the master credit agreement that we have with our primary bank.

Right. Okay. And then if I could just go back for a question on Nave. Sounds like it's potentially, maybe able to get into the bottom line positive situation going forward. Is that the way you're perceiving it for the current quarter and going ahead?

I won't talk to the current quarter, George. But I will answer to your question as, yes, we anticipate Nave continuing to improve and getting into the black.

Okay. And then just on the Telco. The $700,000 that was paid, is that going to be a quarterly payment going forward? For how long?

This is an annual payment, George. So it's an annual. So it's on the anniversary date of the acquisition. So there is 3 of them in total...

Okay. So there's 2 more to go within -- beyond what you've accomplished there?

That is correct.

(Operator Instructions) And it looks like we'll move back to George Gaspar for some follow-up questions.

Yes, just additional question. I noticed in your annual report filing and so on that there is a considerable decline in the share count by Ken Chymiak. Looks like there was execution over the quarter to sell about 800,000 shares or something like that. Any comments you can make on that? I know that his percentage of interest in the company is considerably below where it originally was, now. I'm not sure you can, but if you got any comment to make on that, I'd appreciate it.

We really can't. I mean you know that he's no longer our executive chairman anymore. What he chooses to do with his stock is certainly his business. And Dave probably knows some, since it's his brother, but he's not really at liberty talk about it as well. But I appreciate your question, George.

Okay. All right, well, yes, I assume that he's totally out of the company, basically, other than the stock ownership?

I think that's fair to say. I mean he's still an insider because of his brother's ownership and his ownership. But he's not part of the management team or the executive staff, correct.

Okay. And that looks like that does conclude the question-and-answer portion of the call. I'd like to turn the floor back to Mr. David Humphrey for any additional or closing remarks.

Well, thank you to everyone who has joined us today and for your continued support of ADDvantage Technologies. While the Cable TV segment has faced market challenges this quarter, we're encouraged by the improving results from our Telco segment and believe we'll be able to deliver on our overall growth strategy. Triton continues to perform well. We are cautiously optimistic they're seeing early signs of improvement at Nave. Looking ahead, we will continue to review our operations to optimize our performance across both the Cable TV and Telco segments as we seek to leverage the market opportunities and gain additional market share.

With that, I'd like to thank our shareholders for their support and patience as we continue to implement our strategic growth plan and build value for shareholders. That concludes our call. Thank you.

Ladies and gentlemen, that concludes our program for today. Thanks for joining. You may now disconnect.