Q3 2020 ADDvantage Technologies Group Inc Earnings Call
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The conference operator.
Welcome to the advantage technologies third quarter earnings.
Earnings Conference call.
As a reminder, all participants are in listen only mode and the contracts being recorded.
After the presentation, there will be an opportunity to ask questions.
He joined the question Q you My Press Star then one on your telephone keypad.
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I wouldn't I would like to turn the conference over to Mr., Brett Maas Hayden IR. Please go ahead Sir.
Thank you operator, we're joined today by Joe Heart, President CEO, and Jerred Watson Chief Financial Officer before we begin today's call back to remind everyone that this conference call may contain forward looking statements, which are subject to the safe Harbor provision of the private Securities Litigation Reform Act like 95.
Forward looking statements include among other things statements regarding future events, such as the ability of advanced technologies as of series to maintain strategic relationships and agreements with certain original equipment manufacturers and multiple system operators as well as the future financial performance of advantage technologies. These statements involve a number of risks and uncertainties participants are cautioned that these forward looking statements are all.
<unk> predictions and may materially differ from the actual results or results due to various factors such as those contained an advantage technologies. Most <unk>. Most recent report on 10-K and 10-Q I 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 the company's press release issued earlier today and includes an advantage just 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 advantage technologies.
Which is subject to change, although any such guidance or factors influencing it may change advanced technologies will not necessarily update this information the company will only provide guidance at certain points during the year such information speaks only as of today. This call. During this call may also present certain non-GAAP financial measures such as net income GAAP non-GAAP net income and certain ratios that are used with these.
<unk> measures in our press release, and then the financial data tables issued earlier today, which are located on our website Addvantage technologies Dot com, you'll find a reconciliation of the non-GAAP financial measures was the closest GAAP financials and as discussion as to why we believe these non-GAAP financial measures are relevant. These financial measures are included for the benefit of investors that she can.
It should be considered in addition to and not instead of GAAP measures.
Now, let's turn the call to Joe Heart, President and Chief Executive Officer of advantage technologies Joe's. Please go ahead.
Thank you Brad and thank you everyone joining us today.
I hope that everyone is healthy unsafe says cold in Nigeria, and the uncertainties surrounding it continues to impact our lives.
The health and safety of our employees and customers.
Tends to be a top priority and keep pillar of our culture.
We have taken a variety of steps to ensure we are doing as much as we can triple check every one while continuing to operate including requiring work from home arrangements for a large portion of our workforce restricting travel and practicing social distance.
Our tower crews are considered the central workers and we have invested MPB and take another precautions to protect them as they do their import more.
The recent pandemic and disruptions that caused.
Reinforce the need for Fiveg now more than ever before.
Moreover, our lives have moved online with work shopping dining and entertainment.
All requiring some component of Networkone activity.
The promise of higher quality and faster speeds met by GE and eventual necessity and the shift in our lifestyles may make it a must have sooner rather than later.
Economic uncertainty and the shaky business climate that caused several of the large wireless providers.
Boy early breast pause on large investments and upgrades to fly Jeep and 2020.
And that is having a direct impact on our near term Lebanon's.
However, it is our view.
And that of some of the biggest Oems and integrators and the industry.
But this is a temporary phenomenon that is creating pent up demand and will soon be corrected as the business climate stabilizes.
T mobile following its merger what scrip.
We expect it to be the biggest player in the near term.
With a significant list of sites to upgrade for Fiveg.
And thousands of sprint side.
Needs to be either integrated or do condition.
Our understanding is that's a real estate and coordinating work is well underway.
Much of the equipment is being purchased.
The industry consensus is that much of this work may start in calendar Q4 of 20 Twond.
Other providers have significant quantities of work as well.
And we expect these two begins freely between now and early 2021.
We have not missed out on any meaningful projects today.
The five GE initiative is just delay.
Partly due to cold it partly due to the economy.
And lastly did a critical architectural decisions and OEM negotiations on equipment supply by the carriers.
A recent study in June of this year from Ericsson mobility.
One of the three largest wireless manufacturers in the world.
Shows that there were 390 million mobile subscriptions North America in 29.
Oh, which 310 million more smartphones.
Those numbers are forecasted to grow to 440 million and 360 million respectively by 2025.
Oh, the 390 million mobile subscriptions and 29 too.
360 million well using for GE.
In less than 1 million, where he is inside you.
Slide 2025.
Number five GE subscriptions in North America will grow to 320 million.
As for GE declined 210.
During this time the amount of data traffic per smartphone.
We'll increase five times driven heavily by video applications and usage and the total amount of mobile data traffic will increase.
Yes.
All of this spells tremendous demand for increased bandwidth and capacity.
Across all wireless networks in the U.S.
But also through out the fiber optic backhaul network.
Well some of the carriers are announcing fiveg availability this year.
It is limited in college and scale in the initial stages.
The Lions share of the work to upgrade these networks is just beginning and will last the next five to seven years.
Meanwhile, our business strategy remains unchanged.
And we continue to be optimistic about long term growth opportunities.
That's all revenue has faced leasing headwinds due to be economy, and the delayed by GE roll out.
We have taken steps to reduce our overhead expenses.
Year over year, we have reduced our quarterly SGN expenses by 15%.
In addition, we have taken steps to improve our gross margins.
In the third fiscal quarter, we booked change order revenue for what you expenses had already been incurred.
And this revenue benefited our gross margin.
In addition, our wireless services segment enjoyed a more favorable sales mix in the quarter.
And we began to see the impacts of the new leadership in this segment on our margins.
[laughter].
Well, we are very happy with the gross margins achieved in Q3.
We do not see them as being sustainable at that high level.
However, we are targeting 30 plus percent margins in this segment at reasonable revenue levels and this quarter shows that we are moving in that direction.
We expect wireless revenues to expand favorably starting in Q2 fiscal 21.
As the major carriers roll out there with respect to build plans.
[laughter].
You asked wireless industry Capex spending.
Expected to reach $37 billion or the combined wireless carriers and 2022.
And that does not include spending by the major tower infrastructure owners.
Capex spend is forecasted to stay in the mid 30 billion throughout the rest of the decade, According to Deutsche Bank Levy Sir.
The steps we've taken to reposition the company.
Let us in a stronger position to capture a meaningful share of market opportunities when activity inevitably reasons.
We have built a core infrastructure and the range of offerings. Louis series of acquisitions that equips us to compete effectively well new business.
We are positioning not only for girls.
Profitable growth.
By continuing to improve our existing operations in personnel and further refine our inventory management practices.
The result of these athletes are becoming apparent in our financial results.
[laughter].
On a consolidated basis, our third quarter gross margin improved to 34.7%.
Up from 26.1% in the year ago quarter.
A nearly 900 basis points improvement year over year.
Despite the 32% decline and 11.
As I mentioned this improvement was due to the contribution of our wireless services group.
Our telco segment was also impacted by the overhang from the Pembina.
Sales were lower that's right and then two three as many of its customers workloads business and spending on telecom equipment or office environment nearly came to a standstill during the second quarter.
Conversely.
Sales that made were up slightly as demand for use core network equipment remained strong.
We expect that driving sales well improved during Q4 as the office environment starts to reopen.
Well now in a stronger financial position with more than 10 million in cash.
Which is a sufficient backstop to support our operations until the wireless construction activity in volume picks up late in calendar 2020, and hit the high level and 2021 and beyond.
Our balance sheet is noteworthy.
As we have effectively doubled our net cash over the last nine months.
Good will provide additional details with regards to our balance sheet momentarily.
Well, we expect that our cash will be approximately twice our debt.
Hi fiscal year.
Part of improving our operations also includes corporate functions such as quick cash management.
We continuously evaluate our cash flows and access to capital.
And believe they are sufficiently capitalized or range of potential best case worst case, and most likely scenarios.
I remain confident that we have sufficient capital resources and the balance sheet that will support the execution of our plans to be a weaponize participant in the massive five GE opportunity.
Subsequent to the under the quarter, we announced several key management changes that elevate our team and give us the expertise and leadership to execute on strategy.
Gareth Watson, who you will hear from in just a few minutes was appointed as our Chief Financial Officer.
Jared comes to us with more than 20 is corporate financial leadership, including multiple fortune 500 organizations.
He has led large schemes and has demonstrated visibility to acquire analytics.
Supports strategic decision, making which will be critical as we move forward with our business development plans.
In July.
Reginald how a meal was promoted to president of our Telecom segment and Jimmy Taylor was affirmed that the permanent president of all wireless segment.
Give me initially came in from outside organization to serve as President of all wireless segment on an interim basis in Macau.
He is a 35 year industry veteran with extensive experience in operations business development and strategic transactions.
He has a deep understanding of the wireless services and understand where that's headed along with a comprehensive knowledge of the particulars about business.
In addition, he has a wide network of wireless service industry contacts there will help us as we expand our customer relationships build our backlog and pursue opportunities in the five do space.
Jimmy and I have worked together multiple times in the last 20 years.
Both quite familiar with what it takes to substantially grow it services company in the wireless industry.
Let me destitution, all knowledge combined with his financial services and telecommunications background will be extraordinarily beneficial and his new role.
Glad you're not only understands the numbers, but he has experience all knowledge about communication networks or put together.
Hobby equipment that we sell fits within the network architecture.
Comes with 15 years of broadband network experience.
With that I'll now turn the call over to our Chief Financial Officer, Jared Watson for more detailed review of our financial results.
Jared welcome to the company and please go ahead.
[noise] [noise]. Thank you Joe it's hard to be here and I look forward to seeing some view on this call. There's a troubled returns to normal.
For the third quarter fiscal 2020, our total sales were $12 million. This is down 32% from 17.6 million because the third quarter fiscal 2019.
The decrease in sales was primarily due to delays in infrastructure spending from the major U.S. carriers and lower equipment sales to our enterprise customers. There's offices were closed or had limited occupancy during the quarter.
Both of these were a result of dependent.
Sales for the wireless segment were 5.1 million in the third quarter fiscal 2020, a decrease in a 3.6 million compared to 8.7 million in the same quarter a year ago.
Sales for the Telco segment were 6.9 million for the three month ended June 30, 2020, which was down from 8.8 million for the same period last fiscal year.
The decrease in sales.
For the Telco segment was primarily due to a $2.2 million decline in sales are Triton, which was partially offset by a 300000 dollar increase sales at night.
Our gross profit decreased $417000 to $4.2 million for the third quarter fiscal 2020 compared to $4.6 million in the same quarter a year ago.
The declining gross profit was due to our telco segment as the gross profit in the wireless segment was essentially flat year over year.
What does it no you said, our gross profit margin increased by nearly 900 basis points year over year to 34.7%.
26.1% and the same quarter a year ago, but the reason is Joe already mentioned.
We're very pleased with this performance. So we continue to focus heavily on gross margin improvement sustained margins at this level will be difficult in the near future, but we are focused on margin improvement.
Operating expenses increased $386000 to $2.0 million for the three month ended June 30, 20, twond compared with $1.6 million for the same period last year.
Selling general and administrative expenses decreased $426000 to $2.4 million for the third quarter fiscal 2000, <unk> compared to $2.8 million for the same period last year.
This was primarily due to a decrease in personnel expenses. The telco segment, which is partially offset by an increase expenses in the wireless segment largely as a result for the acquisition of bolt.
Other income and expense with a three month ended June 30, 2020 was essentially zero outlets compared to 0.2 million for the same period last year.
The income for the three month ended June 32019 is primarily related to a sale of assets gain and loss on sale of assets of zero point Threemillion, partially offset by refactoring arranged <unk> on our wireless division.
We have to nonrecurring events in the quarter first we recorded at 660000 dollar impairment charge related to the right. It used to asset. This involves because there will be in Baltimore, which previously how sort telco segment.
We had we have moved maybes entire inventory and or the other operations from the facility ingested Marilyn Taco Telecom, a third party reverse logistics provider in Huntsville, Alabama.
Following this we subleased adjusted facility the tenant vacated in under GAAP, we worked hard to impair the asset.
However, this was <unk> impairment was more than offset by a 1.2 million dollar tax benefit from the Cures Act as we were able to look further back to recoup taxes paid against net operating losses.
Inclusive of these charges income from continuing operations was a positive $23000.
Or less than a penny per diluted share for the third quarter fiscal <unk> fiscal 2020, compared this with a loss from continuing operations at 58000 or approximately a penny per diluted share for the same period a year ago.
Adjusted EBITDA for the three month ended June 30, 20 to one was a lots of $187000 compared with a positive adjusted EBITDA of $176000 for a year ago the same period.
Turning to the balance sheet.
Cash and cash equivalents were up $9.2 million $10.4 million as of June 30, 2020, compared with $1.2 million as of September 30, 29 too.
I think 2030 20 Twond the company had net inventories of $6 million compared to $7.6 million as of September 32019.
The company had $2.8 billion drawn on its revolving line of credit as of June 32000, $24.8 million outstanding notes payable for a total debt of $7.6 million. This compares to know bank debt as of September 30 to one of them.
As Joe discussed we continue to believe we are sufficiently capitalized with appropriate backstops to support our business until donor business conditions conditions the term.
This concludes the financial overview segment of our remarks, I'll now turn the call over to the operator, we'll take any questions.
Thank you.
We will now begin to question answer session.
John The question Q, you made fresh start.
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Once again, if you have a question. Please press Star then one thing or telephone keypad now.
The first question comes from George Caspar, a private Investor. Please go ahead.
Thank you.
Good afternoon, everyone [laughter].
Got it yet or could you please jo Ann and any others.
Comment about your.
Internal.
Growth expectations on crews or how many crews do you have now relative to let's say you had at <unk> and three months ago, and maybe back at the beginning of this.
Current fiscal year.
And how you're viewing the crew count going forward can you give us some color on that.
Well count.
Crew count.
It fluctuates with the amount of backlog and work in hand, George and so we've been able to maintain our internal cruise both in the north in the south and keep them a busy with plenty of work.
And we use our subcontractor cruise.
As the <unk>.
Black.
That allows us to vary up and down with the workload changes throughout or any any year.
Were.
Hi, Bill obviously in a lower total crude state.
[laughter] This particular point.
But we're starting to see at a creep back up.
We've got a.
No.
Activity with the various recruiting agencies to.
Start bringing in additional internal resources.
And we have our contracts group.
You know.
Continuing to work with all the various.
Our sub contractors out there in the marketplace.
So they're ready to flex up when we get the the purchase orders for the new work, So I would say.
Crew count were.
Probably a little under a half of what we started the year with.
I would say that you know we expect.
Hi, sometime in the first calendar quarter.
2021.
That you know, we would probably be up who.
Ah double what we currently have and added toward a three react sub that crew count as we progress into.
Our Q3, which is sort of that Oh, you know screen time right when the warm weather starts hitting.
So deliberately trying to stay away from exact numbers, George because we've been talking about that.
Every quarter.
All right and then just a follow on.
Question on the.
Is that particular part of your business.
Okay as you move forward and it sounds like it's the momentum is some place into.
Hopefully early 2021.
Are you gonna have more cruise associated with.
[noise] fiveg activity away from tower work directly.
But to take and EM and and.
I take your crews into setting up.
At distances away from towers in cities and it can you explain a little bit of that please.
Okay with with that last part <unk>, where are you referring to like small cells compared to.
Uh-huh.
They tell us.
Okay.
Well the first part of your question I.
Uh huh.
I believe that by the end of this calendar year.
We'll be by and large.
Finished up with any remaining.
For GE expansion.
We're frequency upgrade and that next year will be exclusively a fiveg related.
Oh, along with maybe a little bit of decommissioning work of the spring sites hopefully.
On behalf of T mobile.
So you know ATM timber ryzen kinda continue to build up and you know are beginning to grow their five GE or expansion.
Into next year.
Well, there's probably that near term big player or given the consolidation with spreads and.
Just sort of reconciling which sites they'll keep him which sites so a.
The commission, but the bulk of that works gonna be fiveg related and then.
Most of.
I'll say the market analysts.
Our predicting that dish wireless will start sometime in calendar 2021 to build their new network as well so that'll all be five GE related work now from time to time, we may be higher debt go build a new tower or somebody that will be the and then.
I would panic and you know.
Probably put a multitude of technologies on that tower, Florida.
But.
The small cell work itself.
Depending upon which carrier talking about.
Verizon has been built on small cells, probably four seven or eight years now at a pretty steady state that pace continues.
Hey, PMP kind of up and down on the volume up small cells I I see small cell.
Percentage of the total pie.
Growing, but it'll probably be most of 2021 before.
The ratio of small cells to macro cells starts to get anywhere close to either.
And then there's plenty of.
Literature to read on that with people probably better inform that are but you know where we continue to keep our eye on small cell and that's something that's attractive to us.
I see okay, well, thank you very much for the explanations.
You're welcome George.
Thank you.
Once again, if you have a question. Please press star one walking in your telephone keypad now.
The next question comes from Al Ais, a private Investor. Please go ahead.
Hello, everyone.
Hi couple of questions for you a one off them as because off the coast situation.
It could possibly extend front or six to.
Nine months, depending on the vaccine.
Hi, how are you going to mitigate the risk and possibilities of people working from home or enterprises, it's still shutdown.
Our next few months.
In a sense, what you're doing possibly to differently. That's you have experienced over the last few months and the second question is.
Are you planning to extend your business.
Abroad to middle East or Asian countries at the same time to increase your ER.
Parents Anda Anda Fiveg networks.
Okay. Thank you al.
So.
Really almost from the beginning in regards to precautions around a cold in 19.
Probably.
80% of our office and sales staff.
And any of our entities are working from home, we're working at a voluntary flex office environment. You know they can come use the office if they need to you know from a home living or family situation.
Or they can work from home. So we've been we've [laughter] through zoom and Microsoft teams. We've found that our business has continued to operate at full speed or regardless of where people are located.
Our Miami operation is a hands on ER.
Technical staff and we do temperature checks or you know hand, Sanitizers week, we sanitize the facility multiple times, a day and Oh, we've had quite success. There are tower crews they work remote wherever the towers are and.
They have a mass and gloves and hand sanitizer.
Everything else and.
You know to the greatest extent possible, we're trying to protect them. So.
No.
Never say never but we we've been quite a fortunate here almost a five months.
Or more into the pandemic that.
You know, we we've been a without incident or or stoppage in our work. So hopefully that will continue there isn't there isn't any precaution that we have read about or no that we are already taking so Ah you know.
Well, let's see how that goes so we don't exceed we don't see any impact to our business over the next six to nine months from that.
You know so I think there okay there.
As far as a expansion plans for international work.
We do a little bit upselling of some of our products.
But.
Let's go overseas, but those are through brokers and you know broker website things like that but we have no plans from a services perspective in wireless to go outside the U.S.
In the near future.
Okay. Thank you and are you planning to possibly expand your services beyond Fiveg.
And provide services, including the cloud based services.
Oh, that's that's something that.
You know, we're always looking at I mean, I'd I wouldn't say cloud specific but.
You know we.
On the wireless services side were principally a construction services company either a big towers are small cells.
We need to.
Look into.
Expanding our services portfolio.
More on the front end of engineering site acquisition permitting and maybe some network design.
As well as on the backend to do sell side integration and commissioning work.
On the ground at the cell sites, so well, we're we're looking at how to expand our portfolio but.
I would say that or you know.
The cloud you don't working in the cloud or other than using it for storage that's not our core competency.
Oh. Thank you all the question I have some blocked everywhere.
Thank you.
Thank you.
Once again, if you have a question. He spent star then one on your telephone keypad now.
There are no more questions on this phone.
This concludes the question answer session I would now like to turn the conference back over to Mr., Joe hard for any closing remarks.
Thank you operator.
I'll just close by thanking.
Everyone that joined US today and your interest in advantage technology.
We continue work to work very hard to improve our results and to makes US an investment worth your while so we appreciate it and a wish you a.
I wish you well and hope that you stay safe in the coming months.
Thank you.
Thank you.
This concludes todays conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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