ADDvantage Technologies Group Inc (AEY) 2021 Q1 法說會逐字稿

Thank you for standing by. This is the conference operator. Welcome to the ADDvantage Technologies Group to report fiscal 2021 first quarter financial results conference call. (Operator Instructions) And the conference is being recorded. (Operator Instructions)

I would now like to turn the conference over to Brett Maas, Hayden IR. Please go ahead.

Thank you, operator. We are joined today by Joe Hart, President and CEO; as well as Jarrod Watson, Chief Financial Officer.

Before we begin today's call, I'd like to remind you that this conference call may contain forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding future events such as the ability of ADDvantage Technologies and its subsidiaries to maintain strategic relationships and agreements with certain original equipment manufacturers and multiple system operators as well as the future financial performance of ADDvantage Technologies. These statements involve a number of risks and uncertainties. Participants are cautioned that these forward-looking statements are only predictions and may materially differ from the actual future events or results due to 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. 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 the call, we also may 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 tables issued earlier today, which are located on our website at addvantagetechnologies.com, you'll find a reconciliation of these non-GAAP financial measures with the closest GAAP financials and a discussion about why we believe 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.

I would like to now turn the call over to Joe Hart, President, Chief Executive Officer of ADDvantage Technologies. Joe, please go ahead.

Thank you, Brett, and thank you to everyone joining us on the call today. It has been just over a month since we last spoke with the investment community, which is during our full year fiscal 2020 earnings call late in December. Since that time, we have continued our efforts to streamline our expenses, improve operational efficiencies and position our Wireless business for growth and profitability ahead of an acceleration in the transition to 5G by the wireless carriers.

The first fiscal quarter was impacted, as it often is, by the typical seasonal challenges, including the winter weather, the holidays, and we further experienced some COVID-19-related crew quarantines in late November in the North. November through March is also a period when our high-margin specialty work in the North takes a hiatus until the warm weather returns in the spring. However, our confidence and optimism about the 5G rollout has only been strengthened by some of the advancements in press releases we've seen over the last 90 days.

We continue to believe that we will capture a meaningful share of new business opportunities as demand for 5G accelerates. And while this rollout has certainly taken longer than we anticipated due to the pandemic and other factors, we are now seeing clear and unambiguous signs that the rollout will happen in the second half of this calendar year.

We have seen a notable uptick in our sales and bid activity, and we are seeing accelerating demand in anticipation of the 5G rollout, though the velocity has yet to reach the desired levels. In response, we are prudently ramping up our crew capacity in anticipation of expected demand. Our confidence that we will play a meaningful role has been validated as we have been added to the preferred vendor list for several key carriers, and we have been given strong indications that we may be the lead vendor in several large and important markets.

The recent FCC C-Band Auction raised over $81 billion as both existing wireless and broadband carriers pursued the additional 3.7- to 3.98-gigahertz spectrum made available to help facilitate the expected 5G growth and network capacity needs. We have multiyear service agreements in place with all of the major players in this auction and are well positioned to assist them in their growth plans throughout the Southwest and Midwest regions.

In addition, DISH, the newly approved fourth wireless carrier, has reportedly secured leases on over 20,000 existing tower sites owned by Crown Castle and gained access to over 300,000 sites owned by Vertical Bridge. According to Fierce Wireless reports, DISH has committed to build a cloud-native 5G nationwide wireless network and has committed to build at least 15,000 sites to meet its minimum requirement to cover 70% of the U.S. population by mid-2023. This initiative is on top of the ambitious plans of T-Mobile and others, as publicly reported.

We currently expect the second half of calendar 2021 to benefit from the higher volumes and our business's scale to drive improvements in profitability on these expected levels. We are encouraged by the slight uptick in Q1 revenue in our Wireless segment of approximately $500,000, particularly given the typical seasonality I mentioned earlier.

Additionally, while consolidated revenues declined $1.2 million year-over-year, gross margins were improved. In fact, we generated the same $3.6 million in gross profit this Q1 as in the prior year, even at lower revenue levels, reflecting the progress we have made in aligning expenses with revenue and improving our operational efficiency. I am encouraged by what this portends for our second half of the year with improved operational efficiency and higher volume of work, driven by all 4 carriers building out their networks at the same time to compete in 5G.

In the Telco side of our business, revenue was up 5% over the first quarter of last fiscal year. We have entered into agreements with new customers and partners for the Nave and Triton Datacom businesses that give our salespeople access to new clients, product lines and a much higher level of consignment-based inventory to offer our customers. This equates to better use of cash, lower operating costs and reduced inventory. Our sales teams at both companies have fully adjusted to the remote-working environment and are selling at higher levels than the past.

While our Triton business is still being impacted by the nationwide shutdown of most offices and the move to remote work, our team has added new offerings and new clients to offset a great deal of that impact felt throughout the second half of last year.

We remain hopeful that the COVID vaccine, besides being a safeguard for the health and wellbeing of many Americans, will lead to a return to the office for most U.S. workers and have a positive impact on the sale of enterprise network products in the second half of this year. Importantly, the work we completed last year to rationalize our telco cost structure translated to a significant improvement in EBITDA contribution on those higher revenues for this portion of our business.

Our balance sheet remains quite strong, following the actions we took in fiscal 2020 to bolster our overall cash position, create an excess reserve and working capital in anticipation of accelerating 5G infrastructure buildout. There is also an increased vigilance around managing our inventory. As of the end of the first quarter, we had approximately $5.7 million in cash on our balance sheet.

We continue to expect that the 5G transformation will begin in earnest in 2021, and we remain confident in our abilities, our offerings and our position in the areas that we currently serve. We are seeing increased activity from all of the carriers, and the amount of capital expenditures anticipated as the 5G expansion rolls out are significant.

Overall, it has been a relatively uneventful few weeks since we last spoke. However, we remain highly optimistic about the forthcoming opportunities in the second half of our fiscal year, and we are confident that we are taking the right steps to capitalize on those opportunities.

In closing, I'd like to thank our shareholders and institutional investors. It has not been an easy last 2 years as we have rebuilt our Telco businesses, Nave and Triton; sold off our legacy cable TV business, Tulsat; acquired a new wireless services company in Fulton Technologies; and lastly, pivoting our business to be ready to grow with the coming wave of investment in the fifth generation of wireless technology. We are ready, and it is about to begin in a big way in the second half of 2021. Thank you for your investment and for your support.

With that, I'll now turn the call over to our Chief Financial Officer, Jarrod Watson, for a more detailed review of our financial results. Jarrod, please go ahead.

Thank you, Joe, and thanks to everyone on the call. Sales for the first quarter of fiscal 2021 decreased to $12.7 million from $14 million in the prior year. $1.6 million of this decrease came from our Wireless segment as the group continues to experience the impact of COVID-19 on its business and 5G delays in infrastructure spending from the major U.S. carriers. This decline was offset by a nearly $340,000 increase in revenue from our Telco segment.

One of our telco subsidiaries, Triton, sells office telephone and IP equipment for enterprise networks. And most large offices continue to be closed, also as a result of the COVID-19 pandemic. However, we saw an overall sales increase this quarter from the Telco segment, slightly impacted by a decline in telco recycle sales.

Gross profit increased by $37,000 to $3.63 million compared with $3.59 million for the same quarter last fiscal year, despite the $1.2 million decline in sales. The increase in gross profit was primarily due to the Telco segment where gross profit improved by $300,000, which was partially offset by a decrease in the Wireless segment gross profit of $264,000 because of the segment's lower revenue.

Gross profit margin improved to 28%, up from 26% for the prior first quarter, as well as Wireless margins improved 312 basis points and Telco margins improved 293 basis points.

Operating expenses decreased $84,000 to $2.05 million for the quarter ended December 31, 2020, compared with $21.14 million (sic) [$2.14 million] for the same quarter last year, which was driven by cost reductions in our Wireless segment.

Selling, general and administrative expenses for the quarter increased $0.4 million to $3.2 million compared with $2.8 million for the same quarter last year. This increase was due to an investment in building out the sales team for our wireless group and noncash stock compensation.

Net loss for the quarter was $1.95 million or a loss of $0.16 per diluted share based on 12.4 million shares compared with a loss of $1.72 million or a loss of $0.17 per diluted share based on 10.4 million shares for the same quarter last year.

Adjusted EBITDA was a loss of $1.3 million for the first quarter of fiscal 2021, which was essentially flat to the same quarter last year.

Turning to our balance sheet. Cash and cash equivalents were $5.7 million as of December 31, 2020, compared with $8.4 million as of September 30, 2020. Cash was primarily used to fund operations. As of December 31, 2020, the company had inventories of $6.2 million, up from $5.6 million at September 30, 2020.

Outstanding debt went down by $1.3 million to $6.7 million at December 31, 2020, comprised of $2.8 million of a revolving line of credit, $2.9 million of notes payable and $1 million of financing lease obligations compared to $8 million as of September 30, 2020. This was comprised of $2.8 million of a revolving line of credit, $4.1 million of notes payable and $1.1 million of financing lease obligations.

At September 30, 2020, notes payable were comprised of $1.2 million from our primary banker, which correlates to payments that we received from a $3.8 million promissory note and $2.9 million of a PPP loan, for which we have applied for forgiveness.

Subsequent to year-end, we renewed our revolving line of credit for 1 more year to a maturity of December 17, 2021, and we paid off the $1.2 million note payable to our primary banker. We continue to believe we are sufficiently capitalized with appropriate backstops to support near-term business conditions until more normalized business conditions return.

This concludes the financial overview segment of our remarks. I will now turn the call over to the operator to facilitate any questions.

(Operator Instructions) The first question comes from William Velmer with S. A. Advisory.

My only question really, your last presentation was quite interesting and thorough, and you've listed some guidance in that press release -- I mean, in that presentation. Do you expect that, that guidance will remain in effect for the year '21 to '23, as you mentioned, I think, on one of the later pages of the presentation?

Thanks for your question. This is Joe Hart.

Can you hear me?

Yes. Yes.

Did you get my question?

Yes, I did. I did. I think where this business is going is that while the big ramp-up of construction for 5G has been, I'll say, on idle, right, you need -- you see all the TV commercials and you read all the press and you say, oh, 5G is everywhere.

But it's not.

Well, it's all marketing, and they're trying to sell their services at the very front end of the 5G wave. It typically takes about 3 to 5 years at a minimum for the carriers to upgrade all of their sites in every state across the country to the new technology. I mean it's a repeated pattern from 3G, 5G, 4G, et cetera.

So we, in fact, are now seeing the very front end of that construction wave just starting to happen. And while T-Mobile has been building, the other carriers have been relatively silent and relatively low level of activity. We are now seeing that ramp start here at the moment, and then it will kick in, in a fairly big way, April, May, June, and then it will take off and stay that way for somewhere between 3 to 5 years. It's predictable. It's something that has to happen. You can't just upgrade a few of your sites to 5G. You have to upgrade them all. Because otherwise, your subscribers cannot get roaming service at 5G levels across the nation as they travel in their cars, they take trips, they drive around their neighborhoods. You have to do them all at some point.

So that wave is just starting here from a construction aspect. And we're really nicely positioned to take advantage. So while we say that our business is going to pick up in the second half of our year, it doesn't mean it's going to drop off because the fiscal year ends, then there's a pause, then we have a slump, and then we pop back up, right? Once this wave starts, it's going to continue for the next 3, 4, 5 years, and it's very predictable. I'm not the only source of this. I'm not an oracle. It's just a continued pattern from 3G to 4G to 5G.

Okay. One more quick question. On the anticipation of this huge growth that you're entering, is there a potential of a money raise in a form of an S-1 or a 425 or some other, an ATM? Is there -- is that on the table down the road as this thing ramps up? And maybe in the next 6 to 9 months, would you be doing a financing, do you think?

Well, I think we've published a strategy that we put on our website. I presented last summer at the LD Micro conference on our growth strategy. Our growth strategy does include an M&A component to it. We do believe that based on any candidates that we come across and we look at adding to our portfolio that there will be a need for additional capital to fund any of those acquisitions.

So we do anticipate that there will be some need to raise capital as we move forward here with our growth plan. And we also have a very publicly filed S-3 that's been out there now for a little more than 6 months, where we occasionally sell some shares through the shelf registration. So turning a combination of things, it's probably a natural evolution, and it's part of our combined organic and M&A growth plan.

Great. I've been a publisher of a financial publication since '84, and we're expecting to write you guys up in our next newsletter, which will be out soon. So I like what I hear. I like what I see. I like the industry. It's a great, great situation for us. And I like your professional presentation as well.

Thank you.

Thank you.

The next question comes from [Sean Johnston], a private investor.

This is Sean. Can you hear me clearly?

Yes, Sean.

Mr. Hart, excellent presentation, and I really appreciate the clarity on just kind of explaining that it typically takes about 3 to 5 years minimum to kind of make that upgrade kind of get to full fruition because a lot of us drive around, we see all the infrastructure, and so I think that was great.

My question is, I think the last presentation you guys brought in the summer was fantastic. Do you know if you guys plan to maybe release another investor presentation anytime soon? Because the last one you guys put out was fantastic. And that's my question.

Yes, I don't think we have a plan to issue another investor presentation. It's an interesting idea. I think that we are at the point where there will be some additional contracts. There will be some additional new business that, at the appropriate times, will be announceable events, and that will be assuming that all material is something that we have to publish.

But as -- I've got to be a little bit cryptic here, Sean. But as our growth plans unfold, we must publicly disclose that information. And it may be a timely thing to publish an update to our investor presentation in a couple of months' time. But personally, to maintain our credibility with the investors, I'd like to wait until we have some material growth in our hands before we start making any additional promises for the future.

(Operator Instructions) There are no more questioners in the queue. This concludes the question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

This is Joe. I would just like to thank everybody for joining the call today, and we appreciate your interest and your investment. And we feel a strong obligation to get this business back to full profitability and growth so that we can support the confidence that investors have shown in ADDvantage Technologies. So thank you very much for being on the call today.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.