ADDvantage Technologies Group Inc (AEY) 2018 Q4 法說會逐字稿

Good day, and welcome to the ADDvantage Technologies Fiscal Year 2018 Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Elizabeth Barker of KCSA Strategic Communications. Please go ahead.

Thank you, operator. 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 the 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-K 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 certain ratios that are used with these measures. In our press release and in the financial table issued earlier today, which are 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 be considered in addition to and not instead of GAAP measures.

With nothing further, I would now like to turn the call over to Joe Hart, President and Chief Executive Officer of ADDvantage Technologies. Joe, please go ahead.

Thank you, Elizabeth. Welcome everyone to the ADDvantage Technologies Fiscal Fourth 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.

We are entering into a new chapter in our company's development, and it's a pleasure to be here today to speak with all of you about our current market positioning and our plans for the future. As you can read from our recent press releases, it has been a very busy couple of months here at ADDvantage Technologies. I'm going to use today's call to recap our fiscal 2018 operational results, including the driving forces behind both our Cable TV and Telco segment results. Then I will discuss the exciting initiatives that we are implementing to position us to leverage the new opportunities that we are seeing emerge in the telecommunications market.

As you may have seen from our recent press releases, we are affecting major changes in all areas of our business, most significantly, divesting the Cable TV segment, implementing strategic reforms at both Nave and Triton to improve efficiencies in our Telco segment. And we're acquiring a new wireless infrastructure services business, further diversifying our Telco offering and allowing us to target new customers in the wireless market. These initiatives are expected to transform the company's prospects and to drive shareholder value.

Revenues for fiscal 2018 declined 3% year-over-year. This decline was driven by ongoing trends in the Cable TV market that have impacted top line revenues over the past decade. These declines resulted primarily from the consolidation of cable television operators and major Cable TV OEMs as well as an overall decrease in bandwidth upgrades by the cable operators. These industry-wide trends led to a 13% decline in Cable TV segment revenues year-over-year caused in part by losing a large repair business customer in the first quarter of 2018. This impacted all subsequent quarterly results. This reduction in top line revenues forced us to close 3 of our repair facilities and downsize headcount at our remaining repair locations.

We have talked at length about the challenges facing the cable segment on previous earnings calls. And we have talked about our plan to adapt to these changing market conditions by focusing our growth strategy on the Telco segment, where we believe there are significant opportunity to expand the breadth of our services and the size of our customer base. The Cable TV underperformance this year once again validated this strategic direction.

As mentioned on our last earnings call, after being appointed CEO at ADDvantage Technologies in July of this year, we initiated a comprehensive operational review of our existing business units to analyze our company fundamentals and establish a framework for growth. As a result of this review, we now have a clear plan of action to divest the Cable TV segment operations and to focus our resources in the Telco segment, both by improving its existing operations and by entering complementary verticals within the telecom market.

We have already made material progress towards these objectives. On December 26, we entered into an agreement to sell the Cable TV segment for $10.3 million to a company controlled by Dave Chymiak, who is our Chief Technology Officer, Director and a substantial shareholder. This sale is subject to shareholder approval, which we anticipate occurring in our third fiscal quarter of 2019. Dave is the original founder of Tulsat, and we believe that this sale will allow Dave the flexibility to rejuvenate the cable business as he sees fit and to provide a fresh start for the dedicated employees within the cable segment that have been with him for over 25 years. Dave will no longer be an employee of ADDvantage, but will continue as a member of our Board of Directors.

In November, we closed on the sale of the Cable TV segment's Broken Arrow, Oklahoma facility for $5 million in cash, also to a company controlled by Dave Chymiak. We will lease the facility from Dave's company, which will allow us to continue to carry out our Cable TV operations until such time that we complete the sale of the Cable TV segment. The sale of Cable TV, combined with the recent sale of the Broken Arrow facility, will inject over $15 million into our business.

When finalized, our transition out of the Cable TV segment will allow us to redirect our resources into the telecommunications market, where we see significantly -- significant opportunity for growth. The insights derived from our operational review have already helped to identify opportunities to grow and diversify our revenue streams within Telco. Don Kinison, VP of Sales; Scott Francis, our CFO; and myself spent the month of July visiting our Telco locations in Miami and Baltimore as well as with Telco telecom in Huntsville, Alabama. We met with our management teams, observed operations, asked questions and more importantly, listen to the people in the field, explain how they could reduce cost, improve efficiency and grow their business.

We have put in place several initiatives that are intended to build on our existing Telco offering and drive improved financial performance in both the near and the long term. As a reminder, our existing operations in the telecom market consist of our Nave Communications and Triton Datacom businesses.

Nave Communications is a provider of quality-used telecommunications networking equipment to telecommunication carriers and brokers primarily in the U.S. Triton Datacom provides new and refurbished enterprise networking products, including desktop phones, enterprise switches and wireless routers to brokers and end users across the U.S.

In fiscal 2018, we reported a 6% increase in Telco segment sales, driven by our solid performance at both Triton Datacom and Nave Communications, which both reported slightly improved results year-over-year. Nave's improved results were a result of the new strategy and restructuring initiatives implemented earlier in the fiscal year, which strengthened its business model and drove sales growth. While we are encouraged by this progress, we believe there is room to improve the running of this business and are taking steps to further optimize operational efficiencies and maximize its revenue potential.

In September of 2018, we moved Nave's operations from Baltimore, Maryland to a world-class third-party reverse logistics partner, Palco Telecom, located in Huntsville, Alabama. This move will allow Nave to begin serving a much wider geographic customer base, opening up additional sales and revenue opportunities. The movement of inventory and order fulfillment operations will also streamline operations and improve shipping times across the U.S., which will contribute to lower operating costs.

Over the years, Nave has built up a diverse long-term customer base and sells well-known trusted products from top OEMs, including Cisco, ADTRAN, Lucent, Ciena and Fujitsu. We are building on this background to reposition Nave as a high-quality option for used telecom equipment in response to increased customer and industry demand for higher quality products. This path forward combines the best attributes of Nave's operation with Telco's experience and dedication to quality.

To advance this goal, we are improving our testing and certification capabilities to ensure the highest quality products will be delivered to our customers. Furthermore, with the move to Telco and our increased investment in testing equipment, Nave plans to begin offering customers repair services in late 2019. We believe that by offering a broader suite of solutions and better quality products to our customers, we will generate increased top line revenue and profitability for Nave.

Now moving on to Triton, which reported a $0.3 million increase in 2018 sales compared with the prior year. While this performance was in line with our expectations, we have been focused on identifying ways in which we can strengthen Triton's operating performance. As a result of our internal operation review, we determined that our current facility was hindering our ability to perform efficiently. This prompted our decision to relocate our Triton operation to a new facility just down the road that will allow us to refurbish more customer-prem units per person and also will expand our models that we refurbish by focusing on additional manufacturers that our customers are requesting.

In addition, we identified new product lines that we plan to stock in order to reach a broader customer base and open more sales opportunities. As a result, we are investing in additional new and refurbished inventory, but with a commitment to buy what we know we can sell. We believe that together, the move of our facility in 2019 and investing in additional inventory product lines across multiple manufacturers will provide the platform for us to grow Triton's top line revenues and improve its overall bottom line results.

Before turning the call over to Scott to discuss the financial results, I'm going to now talk about one of our most exciting initiatives for 2019. We recently announced our decision to enter into the wireless infrastructure services market. This comes when all major U.S. carriers are planning to roll out 5G in the wireless space over the next 5 to 10 years. To accelerate this strategy, yesterday, we announced that we entered into an asset purchase agreement to acquire the assets of both Fulton Technologies and Mill City Communications for a purchase price of $1.7 million. These 2 wireless infrastructure services companies have strong reputations in the wireless services industry and maintain solid contractual relationships with the 4 major U.S. wireless carriers, the national integrators and original equipment manufacturers that support the wireless carriers. We anticipate that the purchase price plus integration costs would be similar to the cost we could have incurred to launch these services platform from scratch, while providing the additional benefit of an experienced operational team, great crews and a pre-existing revenue stream from the major customers in the industry.

Once we finalize the acquisition and integrate these 2 companies into our business, it should increase our total addressable market significantly. It should diversify our revenue streams and drive long-term sustainable growth. Most importantly, it gives us a wireless services platform in the Midwest and Southwest that we can scale with the growth of the emerging 5G market opportunity. We look forward to providing more updates on subsequent earnings calls as we move forward with these strategic initiatives.

With that, I will now turn the call over to Scott Francis, our CFO, to take you through the financial results for the year. Scott, please go ahead.

Thank you, Joe. For the fiscal fourth quarter of 2018, our total sales decreased 12% to $10.9 million from $12.3 million for the same period of last year. Our sales for the Cable TV segment decreased $600,000 to $4.6 million for the 3 months ended September 30, 2018, from $5.2 million for the same period of last year. The decrease in sales was due to a decrease in repair service revenues and in refurbished equipment sales of $600,000 and $200,000, respectfully, partially offset by an increase in new equipment revenue of $200,000. The decrease in repair service revenue was due primarily to the loss of a large repair business customer in the first fiscal quarter of 2018, as Joe referenced earlier.

Sales to the Telco segment decreased $800,000 to $6.3 million for the 3 months ended September 30, 2018, from $7.1 million for the same period of last year. The decrease in sales for the Telco segment was due to a decrease in equipment sales and recycling revenue of $700,000 and $100,000, respectfully. The decrease in Telco equipment sales was due primarily to Nave due in part to disruptions caused by the move of the Nave inventory, warehousing and fulfillment operations to Palco Telecom. The decrease in our recycling revenue is due primarily to timing of recycling shipments for the quarter.

Our consolidated gross profit decreased $1.9 million or 57% to $1.4 million for the 3 months ended September 30, 2018, from $3.3 million for the same period of last year. The decrease in gross profit was in the Cable TV segment and Telco segment of $1.7 million and $200,000, respectfully. The Cable TV segment's gross profit was negatively impacted by an increase in our reserve for excess and obsolete inventory of $1.3 million for the 3 months ended September 30, 2018, as compared to $150,000 for the same period of last year.

Consolidated operating and general administrative expenses remained relatively flat at $3.6 million for both years. We recorded a restructuring charge of $900,000 for the 3 months ended September 30, 2018, in connection with our decision to move Nave's inventory management and order fulfillment operations to Palco. As a result, we incurred the following charges at Nave: first, we recorded an intangible impairment charge of $400,000 related to inventory tracking software that will no longer be utilized; secondly, we've incurred moving expenses of $400,000 to transfer Nave's inventory from a facility in Baltimore, Maryland to Palco's facility in Huntsville, Alabama; and thirdly, we incurred severance expenses of $100,000 for Nave's operations employees.

Our provision for income taxes for the 3 months ended September 30, 2018, was $1.7 million. We recorded provision for income taxes for the quarter, although we had pretax losses due primarily to a valuation allowance that we provided of $2.6 million that was recorded against our deferred tax assets.

Net loss for the 3 months ended September 30, 2018, was $4.8 million or a loss of $0.47 per share compared with a net loss of $300,000 or $0.03 per share for the same period last year. Our adjusted EBITDA for the 3 months ended September 30, 2018, was a loss of $1.8 million compared with income of $100,000 for the same period ended September 30, 2017.

Now moving on to the 12 months results. For the 12 months ended September 30, 2018, our total sales were $47.4 million, down from $48.7 million for the 12 months ended September 30, 2017. Sales of the Cable TV segment decreased $2.9 million to $19.9 million for the 12 months ended September 30, 2018, from $22.8 million for the same period of last year. The decrease in sales was due primarily to a decrease of $2.8 million and $1.3 million on repair services revenue and refurbished equipment sales, respectfully, partially offset by an increase of $1.2 million in equipment sales. The decrease in repair service revenue was due primarily to the loss of a large repair business customer in the first fiscal quarter of 2018. As a result of this loss, in 2018, the company closed 3 of its repair facilities and reduced personnel at its remaining repair facilities. The decrease in the refurbished equipment sales was due primarily to an overall decrease in demand for the year ended September 30, 2018, as compared to the prior year.

Sales for the Telco segment increased $1.5 million to $27.5 million for the 12 months ended September 30, 2018, from $25.9 million for the same period of last year. The increase in sales resulted from an increase in equipment sales of $1.6 million, partially offset by a decrease in recycling revenue of $100,000. The increase in Telco equipment sales was due primarily to increased sales in Nave Communications and Triton Datacom of $1.2 million and $300,000, respectfully. The increase in equipment sales at Nave can be attributed in part to the company addressing the lower equipment sales that have been experiencing over the past several quarters by restructuring its sales force and implementing a new sales strategy, as Joe referenced earlier.

Consolidated gross profit decreased $3.6 million or 24% to $11.2 million for 2018 from $14.8 million for 2017. The decrease in gross profit was due to a decrease in the Cable TV segment of $3.9 million, partially offset by an increase in the Telco segment of $300,000. The Cable TV segment's gross profit was negatively impacted by an increase in our reserve for excess and obsolete inventory of $1.8 million for the year ended September 30, 2018, as compared to $600,000 for the same period of last year.

Also as discussed earlier, we recorded a restructuring charge of $900,000 for the 3 months ended September 30, 2018, in connection with our decision to move Nave's inventory management and order fulfillment operations to Palco. We recorded a goodwill impairment charge of $1.2 million for the year ended September 30, 2018, which represented the carrying value of goodwill for the Cable TV segment. Since there were indicators of possible impairment in the Cable TV segment, we performed a goodwill impairment analysis in our third quarter of '18. These indicators included lower operating results from the Cable TV segment compared to the same quarters in the prior year, lower projected results and management discussions surrounding various strategic alternatives given the lower operating performance. This analysis resulted us in recording a goodwill impairment charge.

Other income and expense primarily consists of activity related to our investment on YKTG Solutions, including equity earnings and losses. Equity losses for the year ended September 30, 2018, were $300,000 and 0 for the year ended September 30, 2017. The equity losses for September 30, 2018, consisted primarily of a legal settlement with our subcontractor on the YKTG Solutions wireless cell tower decommissioning project and its associated legal expenses. Our provision for income taxes for the year ended September 30, 2018, was $1.6 million. We recorded a provision for income taxes for the quarter, although we had pretax losses due primarily to a valuation allowance we provided of $2.6 million that was recorded against our deferred tax assets.

Our net loss for the 12-month period ended September 30, 2018, was $7.3 million or a loss of $0.71 per share. Adjusted EBITDA for the 12 months ended September 30, 2018, was a loss of $1.5 million compared with income of $1.9 million for the same period ended last year. Cash and cash equivalents were $3.1 million as of September 30, 2018, compared with $4 million as of September 30, 2017.

Now I would like to discuss in more detail some of the major transactions that have occurred subsequent to September 30, 2018, for which many of these Joe has already discussed. In December 2018, we entered into an agreement with a company controlled by Dave Chymiak to sell our Cable TV segment for $10.3 million. This sale is subject to shareholder approval, which we anticipate occurring in our third fiscal quarter of 2019. The purchase price will consist of $3.9 million of cash and a $6.4 million promissory note to be paid in semi-annual installments over 5 years with an interest rate of 6%. We estimate that this sale will result in a pretax loss of approximately $2.8 million. In November '18, we closed on an agreement with a company controlled by Dave Chymiak to sell our Broken Arrow facility for $5 million in cash. This facility contains our operations of one of our Cable TV segment subsidiaries, Tulsat, and our company's headquarters. This transaction resulted in a pretax gain of $1.4 million. In connection with the sale of this facility, Tulsat entered into a 10-year lease with Mr. Chymiak for a monthly rent of $44,000 or $528,000 per year. As a result of this leaseback transaction, the pretax gain of $1.4 million resulting from the sale will be deferred over the lease period.

In October, November '18, we used internal funds and cash provided by the sale of our Broken Arrow facility to pay off our outstanding term loans and line of credit with our primary financial lender, totaling $2.6 million. Therefore, we are now no longer under our forbearance agreement with the Bank of Oklahoma. Then in December of '18, we entered into another credit agreement with a different financial lender. This credit agreement contains a $2.5 million revolving line of credit facility that matures on December 17, 2019.

This concludes the financial overview section of our remarks right now. I will now turn the call over to the operator for questions.

(Operator Instructions) We'll take our first question from Michael Hess with Hess Investments.

I am -- first of all, just wanted to understand when we sell the Cable TV business and when we sold our facility and, for example, the Cable TV business, we said we'd lose $2.8 million. Is that already in the September 30 numbers? Or that will be in the December numbers? Or when will those hit?

This is Joe Hart. Scott, do you want to answer that?

Yes, I will. Thank you, Michael. So these transactions were all subsequent to September 30. So these actual gains and losses resulting from the cable transactions you referenced will occur in December and then later. It's a little complicated because the gain on the building sale actually because of the nature of the transaction mean a sale leaseback will actually occur over the 10-year lease. And then, the loss on the sale of the cable transaction will actually not occur until shareholder approval, which we anticipate in our third quarter. So you won't actually see that until that point in time. Now with that said, once that occurs, which we believe it will, then the actual gain and resulting from that building transaction will actually get rolled into that -- will actually get rolled into the loss on the Cable transaction because now Cable won't be part of us. So it will be a net approximate $1.4 million is what we're thinking at the end of the day that will get recorded. But that again won't be until the third quarter.

And how does the Cable TV sale work? I know we're selling it, I guess, for less than inventory. Are we selling off inventory between now and the third quarter? Or are certain liabilities being sent over to the buyers? How does that sale work?

Scott, you might as well stay with it.

I will do that. Okay. So Michael, again, with that, we are actually selling the stock of those companies of all the different cable companies that comprise the segment. There's 5 of them. So it is the entire net asset position of the business itself, so it's not just -- except for cash. So really what happens there is it's not just inventory, it's AR, AP, all the liabilities associated with it. And so that's just the way it's all turning out as it all -- subject to the $2.8 million loss after you remove the facility for -- the Broken Arrow facility. It's effectively a net asset sale, net of the $2.8 million loss. That's how...

And will you be able to sell off the inventory between now and the third quarter? Does that go to them? Or is it like a working capital adjustment? Like how does that work?

There's a traditional working capital adjustment as in every deal. But yes, the company will operate as is where it is until such point as the shareholder approval in the third quarter. So it is still ADDvantage's business. Profits, everything still come to ADDvantage in that period of time, right, until that shareholder approval takes place. So it's still our company to operate.

And we'll take our next question from [George Gaspar].

Just an ongoing question regarding the previous question. How do you handle the sale and the rental cost? Can you identify if the facilities -- because much of the facility there was handled for the cable operation and its inventory. How does that all get cranked out in terms of your future rental costs post -- past the execution of this agreement to sell the cable operation?

Thank you, George. I'm just going to ask Scott to stay with it. These are all in the same vein. So Scott, take it away.

Okay. So [George], I may need you to kind of -- I kind of lost what your real question was there. So can you help me on what -- I kind of lost where you were going. You're asking about how the rental expense is going to affect ADDvantage in terms of what?

Well, here, you've made a deal to sell -- you've already got a transaction selling the facilities, which are now renting. But the rent -- I assume that the rent covers the operation of the cable operation within the facilities. When sale is affected selling the cable operation, you will no longer be utilizing a significant part of those facilities.

Right.

Will that change the rent cost structure associated with the continuing company, ADDvantage Technologies?

Okay. Now I'm following where you're going now. So what will happen is, we sold our Broken Arrow facility, which held Tulsat and our headquarters. What will happen is, upon the sale consummation in the third quarter, we will move our headquarters, people, which is less than 20 folks to a different facility. That's why we -- and have some rent expense, but it will be a nominal expense there on a month-over-month basis. We'll go into an office space here. That's one reason why we affected the lease being at Tulsat, not at ADDvantage. So that way, when the sale takes place, Dave will -- and as -- company will effectively get the 10-year lease of the facility, right? Does that make sense? And/or does that answer your question?

So I assume that there is going to be some accounting adjustments here in terms of the cost structure related to the parent company versus netting out after the sale of Tulsat is completed -- the cable operation, excuse me.

Well, there will be -- yes, there will be all sorts of adjustments that we'll be going through, more likely than not. I don't want to speak completely out of term, but this will be -- have to be going through a restatement process for discontinued operations and so forth. So this will be a complete rework in terms of the financials that what you'll be seeing, retro and post, right? So that way you can see everything.

Okay. And then in summation on this, it sounds like ultimately, you could move the ADDvantage Technologies headquarter elsewhere from its previous location?

Yes. ADDvantage headquarters is basically back office personnel. So it's HR, IT, accounting folks, and we can move them into an office space relatively easily. We're not dealing with 10 floors of people or anything like that. It won't be a hard move for us.

Right. And if I could ask an additional question on the 5G concept. How long do you see it taking to get operational in that area, beyond what you are acquiring?

Well, we are going to be taking over existing operations teams. So the Fulton and Mill City companies, they have standing operations in Dallas, Chicago and Minneapolis and they have existing management teams and existing tower crews and small cell construction crews. So these are entities that have been operating for more than 20 years and are well known to the wireless community and have a book of business that they bring with them. And it's a platform that we think we can really scale up nicely as the business starts to emerge for the 5G growth pattern.

Okay. And can you tell us this, what's the initial revenue stream that could come along with the acquisition that you're making -- that you made?

The current -- yes. Well, I would just say that the current business for them, for calendar year 2018 is about approximately $20 million in revenue. And we expect that we'll launch some additional growth initiatives, which we'll build that up in calendar 2019.

Take our next question from Sam Rebotsky with SER Asset Management.

Could you sort of -- continuing on the sale of the transaction, it states we estimate the sale will result in a pretax loss of approximately $2.8 million. Does that take into consideration any goodwill you're carrying on the books that hasn't been written off? And does that take into consideration until the time of the sale, the losses that will occur up until that time frame?

Yes. Thanks for your question, Sam. I'm just going to deflect that one to Scott, since he's on a roll here.

Yes. Thanks, Joe. So Sam, good question. In the third quarter of this year, we had already written off all of the goodwill related to the cable segment. So that -- the goodwill values there on the cable segment are 0 now. So there is nothing left there. As far as the loss that we've anticipated, the $2.8 million, it does not try to project in any gain -- income or losses that the cable segment may be having over the next several months right until the sale is taking place. That is as of -- that's as of the date of the -- entered into the agreement a couple of days ago, right?

Okay. So the loss of $2.8 million is as of December 26?

Yes. It's an estimate as of that date, but yes.

So to the extent it closes, you expect the third quarter to get approval. So you're talking about 6-month time frame and the fact that we lost 2.6 -- about $2.6 million for the cable for the year ending September 30, 2018. That sort of gives you as much losses that you might expect for the period until the closing.

I'm not -- I don't know really how cable is going to perform. So here's what I would tell you is to the extent that cable's performance continues on the same trajectory that it has, any net income or losses that cable has, ADDvantage will absorb because it is still our entity. It's part of our net income. And as I was mentioning to [George] earlier, ultimately, we will be restating our financials as discontinued operations and then ADDvantage will then show the continuing of the Telco segment with also now the new wireless infrastructure business and then, the cable segments will be collapsed into the discontinued operations segment. And so -- but to answer your question, yes, but it will be absorbed into ADDvantage, not as the gain/loss on the transaction. I just want to make sure we're -- that's clear.

Okay. I just trying to -- sort of make some kind of rationale based on the numbers you've shown and the loss you projected in and that seems logical. Now let me look at the year-end. The cable TV showed a $2,570,000 loss and the Telco showed $2,623,000, and you're carrying this substantial goodwill. How do we substantiate and sort of with these losses on the Telco, sort of maintain the goodwill that we have?

Joe, do you want me to go ahead and take that?

Yes. Sorry, Scott.

That's fine. So Sam, we do our analysis on goodwill each year. So Telco -- cables, we happened to do earlier in the year because of some indicators that were there. So -- and that's why we did the write-off in the third quarter. With the Telco, because of the initiatives that we have in place right now, we have shown our projections and done our analysis that would suggest that we can sustain the goodwill that's there. Now admittedly, and for whatever reason, these are initiatives and strategies that for whatever reason they don't work, like we expect them to, then we will have to go in and remodify and redo. And then we -- obviously, every year, we go through that analysis. And if they don't pan out the way we were thinking, then yes, we could have impairment charges that would result. But that's the analysis that we went through. If we're successful on these initiatives for which we think we will be, then the goodwill will be justified based on the results that we'll see. So it's not based certainly on past, but based on the future projections, right?

Yes. How much do you have to grow sales to eliminate this loss?

Eliminate the loss on...

On the Telco?

Well, we don't traditionally provide future guidance there, Sam. So we can't -- we're not prepared to be able to provide that information to you. What I could tell you is that you could take the margins that we have been generating at the Telco segment and extrapolate it out and you can do that calculation. Not trying to deflect, but we just don't typically provide the guidance there to show that.

Are our sales -- what percentage of our sales is increasing?

Again, I'll have to say the same thing. I can't give forward guidance on that. We don't traditionally do that. So...

Okay. Say, the September quarter, what did the sales do over the prior September quarter and the June quarter?

Okay. So as I said in our 3 months' information, the Telco actually did -- slightly go down for the 3 months and a lot of that was due to the disruption caused by our Palco move and at the Nave operation. So this last quarter wasn't probably a fair quarter to assess, and a lot of these initiatives we're putting into place will be effective more in -- probably more like in January, February, March time frame forward. So that's -- it's not on a historical basis. So that's what we're trying to do these various initiatives that Joe was discussing to then effectively be able to increase our top line revenue, but it will be a similar -- many of these will be a similar margin and in terms of sale. To the extent we get into new businesses like the repair, that could have different margins but those are brand new.

Do we have any backlog that we can talk of?

Joe or Don, if you want to address that, you can.

Yes. I mean, I would say that the Nave and Triton businesses aren't so much about backlog. I mean, it's based somewhat on inventory sales as well as new product sales. But really, it's a function of fulfilling orders that come in every day, every week of each quarter and not really a backlog-like environment. Don, maybe you can add something there?

No, I think you're correct. I mean, our month-over-month and quarter-over-quarter numbers, as we forecast them, are relative to what the business is doing at the current time. So in terms of having a funnel of expected deals that are coming in, we have a little bit of that, but that's not necessarily how the business functions. And Scott spoke earlier and Joe focuses on continuing to grow the business and grow our relationships with our customers while reducing operational efficiencies, overall, helping the bottom line. And so far, we're on track to do that and feel very comfortable in where we're at in both of those businesses.

Yes. And I would say that moving the Nave inventory and order fulfillment down to Palco really allows us to gain some major operational efficiency, reduce our operating costs and expand into some additional services like the test and repair of circuit boards and products that were previously manufactured by the OEMs. In the case of Triton, it's investing in some additional inventory, moving them out of cramped facilities that they've been in for their formative years into a facility that -- where we can add product lines and additional refurbishment services. So that's what's going on with those 2 operations. In the case of backlog, as we evolve into the wireless services here with the acquisition of Fulton and Mill City, that business has a better kind of backlog to it. Typically, with sell-side services and infrastructure, typically your backlog's running out about 2 months on average, sometimes 3 months of backlog, where you have orders that have been assigned to you and you're just going to schedule them in over the coming 8- to 12-week period. So it's not typically large, massive infrastructure or multi-year projects. It's an ongoing business that matches up to the resources you have available.

We'll move to our next question. Follow-up from Michael Hess.

I've got the line to ask a follow-up question. I'm not sure if you can answer this given what you guys have just said, but I was wondering what color you could give on how the calendar fourth quarter has gone.

It would be a combination of probably Scott and Don. So Scott, do you want to go first?

Well -- and I think Michael, I think, again, we really don't provide guidance. So we really can't provide a lot of color there in terms of actual physical numbers. So just rest assured, we are trying to put these initiatives into place. There's a lot of moving parts right now and trying to make this growth initiative that we're trying to put into place, but we just don't -- we don't provide the forward looking at this point in time.

Okay. Well, congratulations on the transactions, guys.

Appreciate it very much, Michael.

And that concludes today's question-and-answer session. I'd like to turn the conference back to Joe Hart for any additional or closing remarks.

Thank you, operator, and thank you to everyone who joined for the call today. And we really do appreciate your questions. We learn from them every time we get some. So thanks for that. We're entering a transitional time here in the company's development as we execute against the growth strategy that we have in place, and we're trying to further diversify the company into new verticals within the telecom industry, but we also are trying to reduce our operating costs and improve the way we do our business week in, week out, and really build up our Telco operations. We're encouraged by the progress we've made so far. We think we have a solid plan in place to drive forward our development over the next several months and in the coming year. And we think we can drive both top line and bottom line growth, which is important to you as investors. We expect these plans together with our strategy to divest Cable TV and grow our Telco operations and to add the new wireless services will really allow us to take advantage of the coming market opportunity. So thanks for your participation in the call. And with that, I'll turn this back to the operator to close the session.

Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.