Q2 2020 Earnings Call
Thank you for Saudi by dozens of conference operator.
Welcome to that body technologies second quarter 2020 on this conference call. As a reminder, all participants I don't listen only mode and the conference is being recorded.
The presentation, there will be an opportunity talks questions.
During the question Q you May Press Star then one on it sounds like.
You need assistance or the conference call you might still want to operate on pressing star and zero.
I would not have to turn the call myself with the Brett.
Oh. Please go ahead.
Thank you operator, we're joined today by Joe Heart, President CEO, Scott Francis Chief Accounting Officer before I begin today's call I would like to remind everyone. At this conference call may contain forward looking statements, which remains subject to safe Harbor provisions of the private Securities Litigation Reform Act of 90 95.
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 furniture or I'm, sorry, your future financial performance of Addvantage technologies. These statements involve a number of risks and uncertainties.
Bins are cautioned that these forward looking statements are only predictions and may materially differ from the actual future results or results due to various factors such as those contain advantages technologies. Most recent report on form 10-K, and 10-Q on follow the Securities 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 advantage technologies. Most recent reports on form 10-K, and 10-Q the guidance regarding anticipated future results on this call is based on limited information currently available on advantaged technologies, which is subject to change.
Although any such guys in factors influencing that made it may change advanced technologies will not necessarily update the information the company will only provide guidance at certain points during the year such information speaks only as of the data. This call. During this call. We may also present certain non-GAAP financial measures such as non-GAAP net income certain ratios that are used with these measures entered.
Freshly said in the financial tables issued earlier today, which are located on our website at Addvantage technologies Dot com, you'll find a reconciliation of these non-GAAP financial measures with the closest GAAP financials and a discussion as to 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'd like that I would like to now I'll turn the call ratio heart prejudice, President and Chief Executive Officer of Advanced Technologies. Joe. Please go ahead.
Thank you Brett and thank you everyone for joining us today.
I want to start by expressing my hope that everyone on the call is healthy and safe.
Oh the advantage team are all calling in from their homes today, and we've been working remotely and managing the business by your own call like much of America for the past six weeks.
The quarantine that's created new challenges and shown the mere on existing challenges across our entire society.
The shift of employees from the office or resources, where centralized two distributor workforce at home spread all over.
Let's put a spotlight on the weakness of the existing network and served as yet another catalyst for the five GE expansion.
Let's stay at home orders are underscoring the importance of connectivity via telecom.
And highlight the critical role it plays in our lives from distance learning per student collaboration for remote Workforces viewing of digital entertainment and the rapid acceptance of Tele medicine.
Well the need has never been greater in the near term.
And then make along with M&A activity in our industry and other factors have slowed the Fiveg initiative.
This industry wide timing pattern.
Coupled with some operational issues in our wireless segment, which we have addressed.
And the impact of non operational write downs CNR telco segment.
Attributed underperformance that did not meet our expectations.
The sudden and dramatic shift in the economic climate had a significant impact on our financial results for the second quarter fiscal 2020.
While our construction crews are designated as he central workers.
And we are able to proceed on any project offered us.
The slowdown in overall site construction by the carriers and the Colvin disruption the lazy awarding many projects, resulting in a 7% year over year decline at our revenue.
In addition, our neighborhood Triton businesses experienced softening sales during the quarter.
This is not unexpected given the challenges during the cold 19 environment.
Many businesses not only ours have been impacted.
However, I am encouraged that during challenging economic period.
They need more or less expensive used telecom equipment gross and with it we often see growth in demand for our repair services.
As such we continue to improve operations and personnel to position us for profitable growth during the weeks and months to calm and as the economy recovers.
Well our visibility is limited in the near term.
We expect that the economic recovery largely drive the pace at which telecom projects resumed and five GE installations accelerate.
And provide a catalyst for improvement in our top and bottom line results.
More importantly, our business strategy remains unchanged and we remain optimistic about long term growth opportunities.
He steps, we have taken to reposition the company.
Put us in a stronger position to capture a meaningful share of market opportunities when activity inevitably resumes.
Through acquisitions, we have built a core infrastructure and range of offerings that enable us to compete effectively for no business.
By continuing to improve our existing operations I'm personnel, while further refining our inventory management practices.
We are positioning for profitable growth that's circumstances improve.
In our wireless segment.
<unk> flat revenue performance for the second half of the fiscal year.
The timing of an acceleration in fiveg adoption remains unclear.
In the interim we recently made several key leadership changes to address operational issues that impacted our second quarter results and specifically our gross margins.
We believe these changes will result in a return to more normalized gross margins going forward.
We remain confident in our business strategy and our ability to capture a meaningful share fiber infrastructure projects once the massive roll out inevitably accelerates in the regions we serve.
This opportunity continues to be significant.
Despite limited visibility on the timing.
Just this week at an Investor Conference T. Mobile's President of Technology noted that they plan to upgrade 1000 existing sites per month to five G.
And we'll be expanding their nationwide macro base station footprint by 15000 towers during the coming years.
This is part of a capex investment up $60 billion.
He also served by this summer T mobile expects to increase the number of sites per month.
Will we see.
2.5 gigahertz by GE radios from approximately 65000 macro sites that exist today.
With initial plans to upgrade 25000 to 30000 within the next two years.
In addition, he said that T mobiles in active discussions with tower companies to build an additional 15000 sites to reach their goal of 85000 macro sites across the United States.
We also heard recently that dish dish wireless will begin rebuilding [laughter], sorry, well begin building its new five gene that world sometime later this year.
And that 80 M.P.M. allows him well continue to expand their initial fiveg footprint throughout the country into new markets over the next few years.
That's an tower crews or position throughout the central region of the country and continue to work today through this pandemic by following all of the best practices for safety and hygiene.
We believe that we are ready and deployed to take advantage of the growth curve for fiveg that will be ramping up during the second half of this calendar year in the region that we serve.
In our telco segment.
We continue to refine our operations, particularly our inventory management systems and the valuation of inventories on hand.
This resulted in a write down of obsolete inventory at Maven Triton.
In aggregate amount of $2.3 million.
While this charge was non cash it clearly impacted our gross margins for the quarter.
We have put additional inventory controls in place and believe our inventory challenges have been largely resolved.
The last we are reporting for the second fiscal quarter triggered a revaluation of intangible assets, including goodwill related to acquisitions, we made over the past few years.
The revaluation resulted in an impairment charge of 3.9 million related to intangible assets and a $4.8 million goodwill impairment during the quarter.
These non cash items also had an impact on our bottom line.
And the and the noncash write down of inventory and impairment charges had a negative impact to earnings of $11 million.
Despite the impact of the write downs in the second fiscal quarter that were largely driven by legacy inventory management practices.
Treatment nave, often perform well in a challenging economy as businesses look to repair instead of replace existing to less than a system.
Given the current economic landscape and our limited visibility for demand over the next few quarters.
We have evaluated our liquidity position and access to capital under a number of scenarios to conclude that we are now sufficiently capitalized so whether that near near term market and economic conditions.
By the current pandemic until more normalized business conditions return.
This included a new long term bank loans.
Three and a half million dollars.
End of 2.9 million.
S.P.A. loan.
At least a portion of which we expect will convert to a grant.
Scott will provide additional details about our balance sheet momentarily.
I'm confident that we have sufficient cash resources and a stronger balance sheet to support the execution of our plans to be a meaningful participant in future fiveg activity.
With that I'll now turn the call over to our Chief Accounting Officer, Scott Francis for a more detailed review of our financial results.
Scott. Please go ahead.
Thank you Joe.
For the second quarter fiscal 2020, our total sales were $12 million, which are down 7.2% from 12.9 <unk> for the second quarter fiscal 2019.
The decrease in sales was due to weaker near term economic and market conditions and both of our business segments.
Revenue for the wireless segment was 4.7 million and the second quarter fiscal 2020, an increase of $500000 compared to 4.2 million and next year ago quarter.
Our sales for the Telco segment were 7.3 by him for the three months ended March 31, 2020, which was down from 8.7 <unk> for the same period of last fiscal year.
The decrease in sales for the Telco segment was primarily due to a 1.1 million dollar decline and equipment sales at nave.
Our gross profit decreased 3.9 million to a loss of 439000 for the second quarter fiscal 2020, compared with the gross profit a 3.5 million in the year ago quarter.
Gross profit for wireless segment was $200000 or 4% for the second quarter fiscal 2020, and 1.3 million or 31% for the same period of last year.
Our folsom business incurred additional operating costs in the second quarter fiscal 2020, resulting from operational inefficiencies, we experienced when we repositioned our southern workforce to the north.
As Joe indicated earlier many of these operational issues have already been addressed what should now allow from normalization of margins on future quarters.
For the Telco segment, our gross profit was a loss of $600000 for the second quarter fiscal 2020 compared to gross profit of 2.2 billion a year ago quarter.
Our gross profit was negatively impacted in this segment by an increase in inventory obsolescence expense, a 2.1 million and an increase in lower cost or market inventory valuation adjustments of 200000 dollar set our nave and Triton businesses.
As Joe discussed we have put additional controls in place to improve or and inventory management going forward.
Operating expenses increased $129000 to 2 million for the three months ended March 31, 2020, compared with 1.8 million for the same period of last year.
Our selling general and administrative expenses increased $480000 to 3.1 billion for the second quarter fiscal 2020, compared with 2.6 million for the same period of last year.
This was primarily due to increased payroll related expenses as we were ramping up our back office support and our wireless segment last year [noise].
In the second quarter fiscal 20.
We performed an assessment or intangible assets and goodwill as <unk> as a result of our continued operating losses and the uncertainties surrounding the cobot 19 pandemic on the overall economy, and the resulting impact on our business.
This is not resulted in record and noncash impairment charges and our telco segment totaling 8.7 million against intangible assets and goodwill.
Other income for the second quarter fiscal 2020 was $46000 compared to other expense of $5000 for the second quarter fiscal 19.
The increase was due to interest income of $87000 earned on a promissory note from leveling <unk>, which was resulted from the sale of our cable business is last year.
And this was partially offset by an increase in interest expense of $39000 on our outstanding debt.
The loss from continuing operations was $14.7 million or a loss of $1.41 per diluted share for the second quarter fiscal 2020, compared with a loss from continuing operations of 1.2 million or a loss of 12 cents per diluted share for the same period and 20 <unk> team.
Adjusted EBITDA for the three months ended March 31st 2020 was a loss of 5.4 million compared with a loss of $909000 for the period a year ago.
Now turning to the balance sheet cash and cash equivalents were 4.2 million as of March 31st 2020, compared with 1.2 land as of September Thirtyth of 2019.
As of March 31st 2020, the company had an that inventories of 5.4 million compared to 7.69 as of September Thirtyth 2019.
The company had 3.5 my Undrawn on its revolving line of credit as of March 31st 2023, and a half million outstanding notes payable for the for a total debt at $7 million. This compares to no debt as of September started in 2019.
Subsequent to quarter end, we entered into an S.P.A. payroll protection program loan on the amount of 2.9 billion, which we intend to use for proceeds we intend to use the proceeds for the payment of payroll expenses rent and utilities in accordance with the guidelines alone.
Oh, the 6.4 million in proceeds receipt received from the three and a half Mandela note payable, which we got a March 2020, and the 2.9 million payroll protection program long, we believe that most of these payments for these loans will not have to be repaid using funds generated from our own operations.
The three and a half million dollar note payable will be paid by payments received from a promissory note with leveling <unk>.
And we anticipate that the payroll protection program loan will mostly be forgiven under the rules still being finalized by the S.P.A. Congress.
We also recently filed a shelf registration statement and could raise additional cash that's selling common shares utilize an aftermarket offering.
As Joe discussed we believe we are sufficiently capitalized with appropriate backstops to support our near term business conditions until more normalized conditions retire.
This concludes the financial overview segment of our remarks I when I was trying to call over to the operator to facilitate any questions.
Well now begin to question answer session.
During the question to you May Press Star then one on a telephone keypad.
You have your tone.
West.
If you think its speakerphone. Please pick up you had said before passing any keys.
Three questions. Please press Star then too.
Well pause for a moment, let's call it is going to Q.
Once again, if you have a question. Please press Star then one.
The first question is from George Gasper private Investor. Please go ahead.
Yes can you hear me.
Yeah.
Hello, Yes.
Yes, George Yes, we can area.
Okay I could you.
Relate your operations.
On the your wireless crew.
Right now how many cruise.
You have.
Inside your company.
How many are you using outside.
What are the comparisons at the end of the past quarter here.
Versus the previous corridor and the beginning of the year can you give me handling that.
Mm.
Yes, George that's.
Oh, that's kind of a sign line between providing our competitors information on our on our resources.
HM.
Yes, and then what we might.
Ah provide took customers so.
I'd like to not be too specific on that I would say that.
The workload has.
Decreased.
Pretty dramatically from let's start on Q2 to the end of Q2.
And it is sort of flattening out at the moment.
Well be in.
In total we probably have.
Half the number of crews that.
We started the quarter with in totality.
And we're sitting there right now now.
Hi, I'm pretty sure George you've asked this question on previous quarters. So you you probably have some notes that you're comparing that to and right.
I have told you that.
In general.
We like to have a balance of about.
Say, 40% in house crews to 60%.
Subcontractor cruise.
And that can vary up and down as you're going through the year and having all that many some kind of come subcontractor cruise.
Provides kind of some insulation to our internal employees.
At the moment.
We are predominantly in house crews. So we feel we have worked hard to protect our own internal workforce or they are fully engaged at the moment.
And we have enough work for them and we have some smaller complement a subcontractor crews but.
By having the the PPP loan.
It's allowed us to really focus on protecting our own employees and in in keeping the in house crews working so kind of a combination of you know what the market is dictating as far as purchase order value and consistency.
As well as the ability to keep.
The internal employees on the payroll.
Right. Okay next question would be.
When you do you have a sad geographic go.
Outline of.
Predominantly where you're working on a the wireless.
[music].
And.
And your install for Fiveg.
Well, we we don't have <unk>.
We don't have any by GE work happening at the moment because.
We we work in the central region. So throughout the Midwest, So basically from Ohio across to Nebraska across the topic of <unk> and then we worked down into Oklahoma, Arkansas, Texas, but by GE hasn't really.
Taken hold much in the central U.S.
People like T Mobile just announced you know they've been concentrating on the northeast corner store. So typically you would see your for some reason they chose Philly for one of their first two in the house gigahertz Fiveg installation, Julie and New York City, and then you might.
She always San Fran come next what a central region with Chicago, Dallas, and Houston will be sort of next on the list. So I believe that are most likely fourth quarter, we'll see central region Fiveg.
Start.
Okay, and I assume youre aware there.
Yeah, George well weather weather had.
Some impact in Q2 as it always does January through March up North right right.
So it slows you down it doesn't stop you, but the lions share of our work. This last quarter was up in the up in that whole Midwest.
To northern Plains region, so it slows things down, but it doesn't stop them.
So.
Okay, and Georgia, Yes, I would just asked I would just ask you that [laughter] on our last call other callers.
Ask that we we we kinda limit the number of questions in a row. So okay. If you don't mind I'd like to take some other questions and then if that's your time there could circle back to you later, okay. Thanks right Okay.
Once again, if you have a question. Please press Star then one.
Well pause for a moment is called is trying to Q.
This includes a question answer session I'm, sorry, if we if we if we do have time operator then.
We should respect, Georgia George had an additional question.
Certainly.
The next question is from Sam Heppelmann <unk> Baby capital. Please go ahead.
Hi, sorry, you're going to focus and the next two quarters I'm just I.
I mean to put a bump me surviving or you're going to be focused on.
That are kind of what is going to be a strategy I'm not going for the next two quarters, just kind of in a broad yeah, just a little bit more color.
Thank you.
[noise], well I would say.
Assuming that the workload that we have in front of us today.
Continues at.
<unk> relatively flat level, which for US is go low point of most fiscal years. So typically we bottom out in Q2 from a revenue perspective, because the weather up north and slow down in business. It's also the changing fiscal years.
For the big customers of ours, so assuming that that revenues stay flat as I said we were.
Predicting for the next two quarters.
And.
Our focus is to try to get.
All of our costs in alignment with a lower revenue expectation.
I'll try to do our very best to maintain or field workforce through.
Through the slower periods and then at the same time make sure there.
You know we have the bone in muscle to be able to scale back up.
In the five GE a wave of a site construction begins which I believe we'll start sometime between July and the ended the year, but I don't particularly you have that knowledge of when the carrier.
There's precise schedules will take place so it's more about keeping costs.
In alignment.
Trying to continue to look for some improvements in our SGN and things like that but.
Oh no debt, we don't have any intention to increase our debt.
And.
Well you know as Scott said.
We we.
We are fortunate that we have.
The mechanisms to pay for that that.
Oh, Thank you appreciate it.
The next question comes from George Gasper Private Investor. Please go ahead George.
Okay fine thank you I'm going to.
Talking about the implementation of Fiveg moving forward.
Can you describe a little bit about your work.
From the main towers that you're doing work on it.
And what what's the prospect moving away from those towers.
That gives you opportunities you do spread.
The connectiveness out into an an area can you do a little explanation on that.
Well I think that <unk> from our perspective, there's two aspects to this.
There's a macro sites, which are the bid and towers or rooftops buildings that or sites that control, a geographic or sell sell coverage area.
Then there's no small cell activity, which is light pole telephone Poles Billboards you know loan sorta 30 foot took 40 foot off the ground level activity.
I.
I think we see.
Yes on the small cell side, you know we see the continued.
Reluctance and.
[laughter] slowness in the municipal permitting and.
Oh approvals processes. So I think a small cell activity generally speaking is sorta slowed down by back now it's also the change your.
No.
I'm going from Fourg to Fiveg, so whatever equipment, they're going to use for Fiveg that also has to be decided upon them ordered from the Oems for small cells, just like the macro sites.
So I think there's a lot of engineering work going on by all the carriers to make those final decisions and work with the manufacturers are on getting in Q4 of the manufacturing cycle. So I.
I don't see a bold your work right now no small cells, but oh, we have the ability and have done some small cell deployments in the past him.
Some in Fort worth some and locked up in Minneapolis, and Oh, a few other markets, but though.
No it's been sporadic at best so far.
Okay, Alright, and then add can you.
Elaborate a little bit on the recent consolidation that you made and the.
<unk>, the and the telephonic area and north the Miami and the consolidation that you had to go through and how do you expect <unk>, where do you gonna Dude here to really start ramping up your your sales volume would be the sale of new product or <unk> or will it be ironic.
Banded amount to repair work can you give us a little.
Right on that.
Well.
There's there's two aspects right, there's the nave operation, which was in Baltimore and we moved the actual inventory we moved it down the Huntsville, Alabama Palko right I won't go right. So there.
They they they do all that.
Inventory control pick pack and ship they do that from film on itself. We also recently moved to a new facility just outside Miami or for that Triton folks and that operation is is working very smoothly and the productions really in good shape and.
It's really a nice operation with great people and good processes. So.
Focus now needs to be on.
Really developing our relationships with carriers and the reseller is a hosted PBX services and also.
Work and some of the larger.
Manufacturers like an I.B.M., the juniper Sienna trying to expand the relationships.
So that even though we are too small divisions that we can provide oh value added services, either in repairing products or and providing refurbish product and ER and the biggest thing that could help us.
Is.
For.
The.
Solution to the current Ur Cobot 19 prices.
'cause Triton is a.
PBX telephone switches routers product, which is for office environments and business environments and most of those people are now working from home right for the last month and a half and potentially for the next few months as well so while we saw.
A little spike in business when people move to their homes. Because there are companies gave them office phones to take with them right. So they could still be in the company network and when they move back into their offices, we expect to see a subsequent spike or when the math takes place. So you know a little bit.
And that's on certain George as to timing now resolution to the current pandemic.
Oh I see that's good explanation. Thank you if I could ask one additional question. This would be on the macro view outside of your general operations.
Currently do you do you see any possibilities of and train to broaden.
Your capacity of the work that you do in in maybe the wireless area, particularly <unk> to <unk>.
<unk> keep keep your crews busier or add to just broaden their horizon for revenue generating capacity.
Well.
I think although all the major carriers generally or slower at the moment, but going to build up to some kind of varying crescendo towards the end of the year as they go into 2021.
For full blown fiveg build out.
We in the meantime have been trying to Oh.
When business and get long term contracts with.
Those companies that build brand new sites on behalf of the carriers.
So typically the tower company.
So whether it's all a crown castle, its D.A. or not so good government agency has to be a but the tower company American tower Tillman infrastructure unity, I mean, those companies that own their own towers.
Build their own towers, we kind of focused on trying to win some business with them because that's that business goes on year round. So we are trying to.
Broaden the portfolio from a customer base perspective.
Okay. Okay sounds good okay, well I hope that a you can work on getting through this current mass out because of the virus and and really pick up some momentum going toward the end of this year. Thank you.
Thank you George.
This concludes the question and answer session Oh, Let's turn the conference back over Johari for any closing remarks.
Well.
[laughter].
I guess I would try to go off script for a second ingest stuff. Thanks, everyone for a pending the call and.
We appreciate your interest in Addvantage technologies, or we've had some exceptional challenges and add to make some pretty drastic accounting adjustments in this past quarter, but.
<unk>, we really do believe that we have a very good future ahead of us and bad.
You can read or the industry trade news and press around what all the carriers are doing with Fiveg.
We're going to be a part of that and we feel that we have a good future and so we asked for your continued interest in our company and thank you for tuning into the call today.
This concludes todays conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
[music].
[noise] [noise] [noise] [noise] [noise] [noise].
[music].