Q3 2021 ADDvantage Technologies Group Inc Earnings Call
Please standby.
Good day and welcome to the advantaged Technology's fiscal 2021 third quarter financial results Conference call. Today's conference is being recorded and now at this time I'd like to turn the conference over to Mr. Boss Hayden IR. Please go ahead Sir.
Thank you operator, we are joined today by Joe Hart, President and CEO as well as Michael rent you achieved the company's interim financial officer before we begin today's call I would like to remind you that this conference call may contain forward looking statements, which are subject to safe Harbor provisions of the private Securities Litigation Reform guidance 1995. These forward looking statements include among other things statements regarding future events.
Or just the ability of advantaged technology, its subsidiaries to maintain strategic relationships and agreements with certain original equipment manufacturers and multiple system operators as well as future financial performance and advantage technologies. These statements involve a number of risks and uncertainties participants are cautioned forward looking statements are only predictions and may materially differ from the actual future events or.
Our results due to a variety of factors such as those contained in advanced technologies. Most recent report on Form 10-K filed with Securities and Exchange Commission actual 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.
Advanced technologies, most recent report on Form 10-K.
The guidance regarding the anticipated future results on this call is based on limited information currently available to advanced technologies, which are subject to change, although any such guidance and factors influencing it may change advanced technologies will not necessarily update this 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 tables issued earlier today were located which are located on our website advantage technology Com you will 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.
Now I'll turn the call to Joe Hart, President and Chief Executive Officer of Advanced Technologies. Joseph Please go ahead.
Yes.
Thank you Brett.
Good morning, and thank you to everyone joining us on the call today.
This was an encouraging quarter for us.
Revenue has increased by more than 40% compared to Q3 of fiscal year 2020.
And gross profits were up through nine months by 7% year over year.
Before talking about our wireless business and the building five G way.
I want to give due recognition to our telecom group for a great third quarter.
As we reported in our earnings release, the third fiscal quarter benefited from 65% higher revenue in our telco segment, specifically from nave communications and all time high for nave.
There's the ongoing chipped in electronics supply chain issues for new technology drove higher demand for refurbished alternatives.
Well, how your volumes have generally continued into our current fourth fiscal quarter.
Well, we anticipate a leveling off of demand at some point in future quarters.
I'll bet at a somewhat elevated level relative to the recent past.
Nave is having a really strong year and Triton Datacom has made a nice recovery.
From earlier Covid related softness.
Sales in the year.
What is especially encouraging is.
This revenue growth came from our telecom business, where the work from home trend a global shortage of semiconductors and electronics drove increased demand for our refurbished telephone equipment.
We anticipated revenue growth from our wireless segment should be incremental to this.
The long awaited five G expansion has begun in earnest.
And the hard work to position our company as a key player in the development of five gene networks by our Fulton technologies team is paying off.
Over the last few months, we have one site awards to upgrade technology to five G for over 1000 cell sites.
And we are increasing our staffing to meet this growing demand.
Last year at this time, we were lucky if we had visibility to workload more than four to six weeks out in front of us as the volume of construction across the industry was still down.
Last summer, we were running with about eight crews in any given week with steady work.
Currently we are running between 25 to 30 crews on a daily basis, and we'll be ramping up from there as we move into our new fiscal year in October.
In the last few months, we also added two new major tier one clients in the five juice space.
We are confident that the wireless segment revenue in the second half of calendar 'twenty one.
The period encompassing our fourth fiscal quarter of this year, which is the current quarter and the first fiscal quarter of next year, which begins in October.
These will gradually double the levels, we reported in the first half of calendar 2021.
Moreover.
This represents only a portion of the total work to be done.
We already have purchase orders in hand for fiscal year 'twenty 'twenty, two construction services that exceed the total value.
Of our fiscal year 2021 total wireless revenue.
The initial awards are from multiple carriers, including both long standing customers and two new entrants into the market.
We have been awarded work in seven major markets some of which are new for us, but all are in the greater Midwest and southwest regions contiguous to our historical basis in Chicago and Dallas.
More than 80% of the New site awards are for the installation of new five G radios and antennas.
But some also involve decommissioning and removing older technologies on the tower or rooftop.
To make room for new five G installations to follow later.
And in some cases, we are installing additional forging frequencies at the site.
As I've previously indicated the.
Five G expansion is massive.
It represents a multiyear secular trend not just for tower work, but for data centers technology providers handset manufacturers and wireless carriers.
The capital expenditure plans and wireless carriers are public and often discussed.
Tower work is just one piece of this effort.
We are strategically positioned to capture a meaningful portion of this work due to our established relationships and experienced crews.
Under Fulton technologies, and key markets across the very center of the United States from Texas up to the Great Lakes.
The expected incremental revenue from our wireless segment in the fourth quarter.
Along with the higher telco sales should help us finish the year strong.
With improved margins and significant momentum heading into the new fiscal year.
I'm encouraged by what this all suggests for our second half of the calendar year.
We are benefiting from improved operational efficiency and with a higher volume of work driven by all four carriers now building out their networks at the same time to compete and five G.
We are well positioned for success.
The recent improvement in our telecom segment gives us a stronger base from which to grow.
While we expect demand to normalize somewhat at higher levels than we have enjoyed historically, but likely not at the level that it was in the third fiscal quarter.
This growth reflects progress the new leadership has made and the new customers and partners, our nave and Triton Datacom businesses.
Got it.
With that I'll now turn the call over to Mike Ramsey, our interim CFO to provide a more detailed review of our financial results.
Mike. Please go ahead.
Thank you Jill.
Sales for the third quarter of fiscal 'twenty, 'twenty, one or $17 million up 42% compared to 12 million in the third quarter of fiscal 2020.
The increase of 5 million was driven by a nearly $6 million increase in the telco segment.
Partially offset by a nearly 1 million decrease in the wireless segment.
The telco segment realized increased demand for refurbished telecommunications equipment, while delays in infrastructure spending for the major U S carriers contributed to the lower wireless segment results.
Gross profit increased by $98004.3 million compared with $4.2 million for the same quarter last fiscal year.
Gross profit margin was 25%.
Compared to 35% for the prior year third quarter.
Gross profit margins of 30% for the current fiscal quarter in the wireless segment were in line with historical levels.
Margin in the third quarter last year were unusually high at 44% due to change order revenue recovery from the second quarter of 2020.
Operating expenses increased by 500000 to $2.5 million for the quarter ended June 30th 2021 compared with 2 million for the same quarter last year.
Which was due primarily to increased personnel related costs in our wireless segment as we ramp to be anticipated tower services work.
Selling general and administrative expenses for the quarter increased by $1.1 million to.
$3.6 million compared with $2.4 million for the same quarter last year.
This increase was due largely to higher commissions associated with increased revenue in our telecom segment.
As well as increased stock based compensation expense.
Net loss for the quarter was $2.1 million.
Or a loss of 17 cents per diluted share based on 12, and a half million shares.
Paired with net income of 23000 or earnings of 0.0 cents per diluted share based on 11.2 million shares for the same quarter last year.
Adjusted EBITDA was a loss of $1.5 million for the third quarter of fiscal 2021.
Paired with an adjusted EBITDA loss of 179000 for the same quarter last fiscal year.
Turning to our balance sheet cash and cash equivalents were $3.6 million as of June 30th 2021.
Paired with $8.3 million as of September 32020.
Cash was used primarily to fund operations.
As of June 32021.
And September 32020, the company had net inventories of $5.6 million.
Outstanding debt went down by 700000 to $7.3 million at June 32021 comprised of $2.8 million of our revolving line of credit.
$2.9 million of notes payable.
And $1.6 million of financing lease obligations.
<unk> two 8 million as of September 32020, which was comprised of $2.8 million of our revolving line of credit $4.1 million of notes payable and $1.1 billion of financing lease obligations.
At June 30, 2021 notes payable were comprised of a $2.9 million P. P. P loan for which we have applied for forgiveness.
We continue to believe we are sufficiently capitalized.
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.
Thank you and if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure that your mute function is turned off to allow your signal to reach our equipment.
Once again that is star one if you'd like to ask a question, we'll pause for just a few moments to allow everyone an opportunity.
And once again that is star one if you'd like to ask a question.
All right, we'll take our first question from William Delmar with S. A advisory. Please go ahead.
That's very good color. Thank you very much.
But my main question like everybody else is.
The revenue growth is there the business is there but she is there.
When do we get some real profit here.
Kind of my question, where do we get some bottom line profit. That's my question. Thank you.
Yes, good morning, Hi, this is Joe.
It's an excellent question and it's one that we ask ourselves and our board asks us every quarter.
I think we are on that bring we have been anticipating this ramp.
<unk> five <unk> construction.
For a number of quarters now.
We have built up the team and then building up the tower crews.
As a bit of a slow grinding process as we hire people and train them, but we've been ramping up to.
To meet this expected demand for.
Construction work.
For a number of quarters now we think that this current fourth quarter is that transition period.
We think we're set up.
And we have.
Budgeted for 2022 to have a very successful year.
Starts in October.
Still a little bit of carryover as we ramp.
As I've been talking about I think we'll be headed towards a doubling of our wireless revenue and this is that time frame. The next.
60 to 90 days, where that'll be taking place so.
Can't make a promise about the fourth quarter I think it's going to be quite a bit improved over where we've been.
And we believe that the October quarter, which is first quarter for next year will be that period, where we finally break into profitability.
Thank you and once again Thats star one if you'd like to ask a question.
We'll take our next question from George Gaspar Private Investor. Please go ahead.
Good morning.
A question regarding.
The expectations on that.
Substantial increase.
Volume of business expected.
How are you going to handle this from a financing point of view it appears as though youre going to need some additional cap.
Capital too.
Afford to accomplish.
Everything that you've laid out here in terms of the momentum and the number of crews you're working and so on.
How are you going to handle this requirement for capital.
Thanks George.
Another great question.
What is it.
We're sitting on about $4 million of cash at the moment and some additional liquidity that's available to us.
We feel that we're sufficiently capitalized for the wrap up of the business.
We see next year as being quite an increase Bob.
Based on the cash flow and positive EBITDA, which we're forecasting.
We believe we.
During this quarter, we will be stifling that cash burn.
Comes from that negative EBITDA and that.
We're sufficiently capitalized to to work our way through the ramp.
Into.
Quite an extended 2022.
Okay.
Yeah.
And then the overview.
Looks very positive, including your telephonic area wireless.
Do you have sufficient facilities now.
With the expansion you did in north of Miami, and and I believe you're in Alabama.
Alabama, or Tennessee, I can't remember, which.
And.
What are you doing.
Are you going to re.
Require putting more facilities.
Tension.
On that side of the equation.
No we think we're.
We think we're in great shape on the facilities for both nave and Triton.
Triton is located the Triton is located just north of Miami, It's an enterprise networks products.
Company.
We probably don't see a lot of growth in that area, especially since.
Covid is a remains a part of society at the moment. So we think it will remain stable.
And then as far as nave communications, we relocated everything to our great National three P. L called Palco Telecom and Huntsville, Alabama, there, they're a very large company and our business is a relatively smaller portion of their <unk>.
Overall business and activity. So we're in great shape on both of those businesses as far as facility.
I see okay, alright, and.
In terms of the.
The overview.
The in store work for five G can you explain a little bit about that.
How far away from tower, the tower work that Youre, obviously very involved in.
How far are you getting it to.
To.
Implant.
Additional equipment away from towers can you describe how you are involved in that kind of thing.
I would judge, but I'm not sure I exactly understand the question are when you say install equipment away from the towers are are you thinking about small cell or something like that and the small guy yes.
Yes, yes, just a yeah.
Just.
To accept a the communications coming off towers.
Yeah, there there has been.
A fair amount of work on the small cell side of the business.
Yes.
It has somewhat slowed and.
I can't tell you at a macro level, it's decline, but I can tell you that it's a bit stalled out there.
Crown Castle and a few others are still building their small cell programs, but the carriers right now are.
Primarily focused on adding five G to their macro cell site.
Yeah.
When we go through these generational upgrades three G <unk> five G.
All the carriers.
It has to go in and they start in the core urban areas, then go to the suburban and outlying.
Towns and cities around the major metropolitan areas. They do the highway corridor from city to city and then they do the world areas. So it's about a five year.
Spread of the work typically five years six years.
So right now they're all focused on building out their major metropolitan areas and that's where.
The lion's share of our work is right now okay could I ask one additional question. Please.
As it relates to cruise.
Can you give us some information that you had basic eight crews and you're at 25 to 30 crews running now.
And it sounded like you're actually could expand that going forward.
Any thoughts and how many in house crews do you have an and.
And then I would say crews can you identify that and where do you think youre going to the top.
Top side of our operations when it comes to crude.
Crude crude development and expand our script.
Discrete applications.
<unk> of those crews.
Yeah.
Sure.
As of yesterday is a crew log we had 28 productive crews and we had a couple of doing some tiger team work and work and somewhere in a couple were in training.
About 16 of those crews are in house crews.
The rest are subcontractors, we always want to use it.
About 50, 50, 60, 40.40 60, we're always wanted to have a blend.
Subcontractor crews.
Aid that reduces our investment.
A fair amount, but also it provides a layer of buffer for the ups and downs in schedule that Myers happen throughout a year right. Yes, I think I think we're in an excellent position crew count wise for this current.
In the beginning of the next quarter I think we'll probably peak.
Somewhere about 40 crews and that is based on the work that we have in hand or visibility to at this particular moment as.
As we anticipate will be awarded.
Even more work as we continue through the next couple of quarters.
That crew count will will go up based on the additional work we get awarded so we anticipate quite.
Quite a bit more work, but we already have.
A major increase in our hands for next year versus this past year.
Okay. Thank you well it looks like there's a tremendous amount of momentum going here and with this kind of a development of the.
The increase in crew counts and that are actually in the operation.
I would expect that you could really.
Surprises saw with Bard.
Bottom line profitability here before very long that could be substantial and the relative modest number of shares outstanding and the company yet. Thank you.
Thank you George.
Thank you and we'll take a follow up question from William Wilmar.
Yeah, Hi, a couple of other little points I'd like to expand on.
In your last presentation, which was a year ago I believe July you gave some really strong revenue estimates.
How do you feel about those revenue estimates going into 2020 one.
Let's see I'll use it calendar excuse me calendar or.
Or who can handle fiscal 'twenty 'twenty two fiscal 'twenty 'twenty two so I'm I'm interested are you planning to upgrade that presentation number one.
You talk about additional.
Additional employees how qualified.
The way. It is today is finding qualified employees for much of anything is pretty impossible. So how are you able to screen. These new groups that you are bringing in that arent just wasting your money.
And.
Do you think on the last point.
You do not put out much press about contractual agreements.
Do you think that near term that whenever you have received some meaningful contractual agreements that you might start putting out more press, which might excite more investors with might excite the stock price, which might allow you to maybe raise some additional working capital at a much.
Higher prices.
You have very little participation here you guys are small volume of stock trading today.
For an industry, that's really in the forefront right now of telecommunications in Europe, you're following appears to be somewhat limited.
So again backlog I'm looking for qualified employees more presentation with the public.
Thank you.
Sure.
Well I think you're referring to the presentation.
We made.
But one of the Microcap conferences, where you were.
We were laying out what are sort of mid term sort of three to five year growth.
Uh huh.
Goal.
And we laid out about $250 million.
10% EBITA is where we wanted to get to them.
That's still a realistic goal.
The starting point, so that the real ramp moved out almost a year as the sprint T mobile merger was delayed.
As the dish entry into the wireless market was was delayed by that merger.
And so you know, we're we're probably 12 months behind the curve on getting rolling on bad growth curve, but that was also intended to be.
Our multi year combination of organic growth and.
Some M&A activity to get us to that point.
We're we're solidly.
Headed for that right now we will be updating that presentation.
And putting that out there.
And there are the near term.
And then to your point about cruise.
Yeah, we agree I mean, the labor market across the country.
Is is tight but.
Fulton technologies, which is our wireless subsidiary has been in the business for about 28 years. It has an excellent reputation in the wireless community for four good workmanship, both quality and timeliness of performance safety record et cetera.
And as we have been building up our workload.
All of these crews talk and.
We have a reputation for.
Paying our subcontractors on time.
A reliable fashion, which is huge for both small.
Contractor firms.
Cash is king.
And so the combination of all.
Great technology good benefits.
Good future right a lot of these guys want to be with stable companies that are really starting to grow.
And so we've been able to attract.
A few.
<unk> experienced foreman.
Top 10 technicians ground technicians.
We have more than doubled the workforce.
We train them in house, we certify them for safety in the rescue training.
The Osha regulate regulations, we put them through quite a good training program.
We also have a good fleet of vehicles and we have.
Excellent safety personal safety equipment.
That word gets around so we're.
We're not having any trouble.
Tracking crews.
So okay.
It is attributed to the great work that <unk>.
People in our Fulton organization have done both by reputation as well as backing it up with great training and good management skills.
So I think we're in we're in.
Right good shape.
From a both internal crews as well as subcontract crews.
And as far as more publicity.
Most almost all of our contracts with the carriers and the OEM and sometimes the integrators.
<unk>.
A clause in them that requires us to get written permission.
From them before we use their name in any kind of publication now.
Under <unk>.
Typical circumstances, that's that's not a big deal but.
If I take a new entrant like dish.
[laughter] dishes trying to roll out a brand new <unk>.
<unk> network nationwide and it's gonna take I'll say three to five years typically.
I have some FCC mandates.
As to what percentage of the nation's population they have to cover it by certain dates.
We're just a small fish in the big sea from their perspective.
We have.
10, or 20 crews doing dishwasher.
Yeah.
It's a blip on the screen for them for what they've got accomplish nationally.
So it's really not appropriate for us to put press releases out saying.
Hey, we've got you know.
We've got 10 crews, we've got 20 crews working for dish because.
They're trying to build.
They're trying to cover a population of <unk>.
300 million people. So it is it needs to be appropriate before we go to our clients and say hey.
We would like to put out a press release announcing the work because we already have all the multiyear master service agreements in place there's no new information there.
No.
If we if.
If we signed a big contract that was really material we'd ask for permission.
And then.
That's kind of why you see me talking about.
Existing clients versus new entrants.
I'm trying to give.
Relevant information to people who are in the space.
Everybody knows.
Kind of what I'm talking about.
Right.
Sorry can I ask you one other quick that's vague yeah.
One more quick question, the bloated infrastructure bill that might get past the money, we don't have of course.
It primarily deals with broadband they say how does broadband mix with what you're doing can you can you attack that potential.
Potential revenue flow that could generate from this broad band exercise because the government is trying to portray.
Okay.
Well I think <unk>.
Mid to long term.
It could be something that.
We will be able to play a role in I think it's it's really talking about making sure that all of those school districts are able to reach their students regardless of where they live in the district.
And provide it with inexpensive broadband connection.
A lot of that will be fiber based it's also getting broadband <unk>.
Internet connectivity out to the rural areas.
And that will be both fiber based to a great extent and it will most likely be some kind of fixed wireless.
Application.
And the last mile but.
A lot of this to your point a lot of this is still speculative.
It seems to be heading in that direction, but it will take a few years to get some momentum in the meantime, we are we are focused on what's in front of US right now, which is primarily macro cell upgrading to <unk> great.
Great.
Thank you for your time I really appreciate your responses.
You're welcome.
Thank you and we'll take a follow up from George Kasper.
Yes.
Additional.
We're just talking about but I'd like to just highlight something here.
We're noticing and I'm in Milwaukee downtown area.
Yeah.
And I'm a block away from the National International headquarters for northwestern mutual.
And they have a communications.
Huge communication center Kratz revenue have very.
Substantial high rise for a lot of their operations and they've been there there was a cable.
Five G cable being put.
Ran ran under sidewalks.
And we're noticing it up in some of the suburbs like Charlotte North of Milwaukee proper.
There's a lot of cables going blocked up black underground.
Can you explain that.
That.
The equipment.
That has to be connected to underground cables, when they come out to and received.
Communications and and they move it.
Can you explain a little bit of that and do you get well you'd be getting involved than with the communications that has to be connected to the underground work.
So that.
I believe what you're describing is is really a.
Fiber optic cable installation that's taken place there.
Probably hooking up a number of the buildings in that area yes.
Potentially go into.
Other enterprise networks, but.
Which is a business that we're not currently in.
You know that's the fiber business is something that's been declared dead at least four times in my career and then it comes Roaring back.
About every five to seven years.
A massive business right now it's not what we do it's not our core competency.
Fiber network construction take some very expensive equipment, you'll see a directional boring machines in the city streets dumped.
Dump trucks excavators et cetera.
That's not what we do currently George So it's not something we have a plan to to go do.
At the end of the day fiber also goes to all the cell sites.
So we do some work to extend that fiber from the street back to the cell site. So we touch it.
We do some of that work, but it's principally related to cell site.
Technology.
Okay, alright, well thanks for that explanation.
Youre welcome.
Yeah.
Thank you and that does conclude today's question and answer session I'd like to turn the conference back over to management for any additional or closing remarks.
Yeah.
Yeah.
Well this is Joe again, I would just like to thank everyone.
A number of you I recognize your names from the list of attendees have.
It had been with us for a while I appreciate that.
You're sticking with us.
As an investor and some of you are new to advantage technologies, we think we have a very bright future.
It has been is painful for us as it has for you as investors.
To live through.
You know the losses, we've incurred the last couple of years.
We think we're on the brink this quarter of moving away from that and.
I'm using a transitional.
But two.
'twenty 'twenty two should be an excellent year for us and I haven't been able to say that in quite some time so.
I appreciate you participating in today's call and your interest in and vantage technologies. Thank you.
Thank you that does conclude today's conference. We thank you all for your participation and you may now disconnect.
Yeah.
Okay.
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Okay.
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