Q3 2021 Blonder Tongue Laboratories Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the Blonder tongue Laboratories' third quarter 2021 earnings call at.
At this time all participants are in a listen only mode and the floor will be opened for your questions and comments following the presentation.
It is now my pleasure to turn.
The floor over to your host Ted Grau, Sir the floor is yours.
Thank you hi.
Hi, everybody good morning.
And thank you for joining us and participating in our 2021 third quarter and first nine months earnings call.
I'm, Ted grow Chief Executive Officer, and President of.
Okay.
As we give our remarks. This morning, we will be discussing certain subjects that will contain forward looking statements, including management's view of our prospects and evolving trends in the market as you know the futures all but impossible to predict so I caution you that.
The comparable results may differ materially from those that may be projected in our comments.
We would ask you to refer to our prior SEC filings, including our Form 10-K for 2019, and 2020 and our filed 10-Q forms for each quarter of 2020 and for the.
That acts and second quarters of 2021, and our upcoming 10-Q for the third quarter of 2021.
Each of those filings include additional detailed information concerning factors that could cause actual results to differ from the information discussed this morning.
With me today are Steven Sheng.
First one of the board for Blonder tongue laboratories.
And Eric Skolnik, our Chief Financial Officer, and senior Vice President Eric.
Eric's remarks will follow mine and we will cover our detailed financial results.
All of us will be available to answer questions. You may have during the Q&A session immediately followed following our prepared remarks.
Overall sales for the third quarter increased slightly by $1000 to $4 172 million from $4 $1 seven 1 million in the third quarter of 2020.
This yielded a net loss of $201000 for the quarter compared.
Churn with a net loss of $1 $787 million for the third quarter of 2020 last year.
Despite this quarterly loss the fundamental change from one year ago is the product mix being sold and the expanded customer base of the company.
Overall, we made strong progress.
Impaired in the third quarter on several fronts.
We've had strong sales growth of our newer high technology products.
This is yield higher margins on a large portion of our sales those.
Those include our video encoding transcoding digital video transmission video security and video signal processing.
Progress lines, such as art and Xg, our clear view in our Aircastle product lines.
Second on the sales front, we've performed very well in the quarter, turning a number of customer relationships into longer term more consistent supply arrangements and we greatly increased our bookings.
<unk> product multi months product backlog in the process of doing that.
Additionally, we've had a couple of significant product design wins at major service operator accounts that have yielded bookings last quarter during Q3 for.
For delivery in Q4, and Q1 2022.
And.
And these these design wins also have the possibility of yielding some longer term sales.
The overall sales performance and slow, but steady market recovery are providing us with current optimism and increase in sales for future quarters.
Third we've been able to maintain the gains that we made in 2020.
And in terms of lowering our overall operating expenses, while at the same time continuing to invest in the company's long tradition of engineering and R&D.
We've continued to release, a number of new products and product enhancements this year, including during the third quarter.
On the negative side like most companies in the electronics industry.
While we are starting to see some operational impacts from the global supply chain situation in.
In our case, we experienced a very specific short term semiconductor disruption late in the quarter of Q3.
This disruption and the related increase in the cost of some semiconductors.
Had a material adverse impact on the results of operations for the quarter.
The unexpected increase in material costs negatively affected our margins and delays in obtaining a portion of our semiconductor supply resulted in delayed product shipments of several products by as much as a month.
Reward based on negotiations with and the agreement from several key customers, we've been able to successfully implement certain product price increases on the affected products that have offset our higher material costs.
We were also able to resume full production of the products that were affected.
By the end of the quarter.
Overall as we enter the fourth quarter. The company has seen growing bookings and a recovering telecommunications cable TV and fiber optic technology marketplace, but at the same time, we are seeing a tightening of the supply chain situation on a range of semiconductor and other.
<unk> components.
During Q3, and even earlier, we have been compensating for these challenges by performing longer look ahead planning on AR.
On our manufacturing jobs.
Right now it appears that disruptions in supply chain, we will continue to provide us and many other companies with challenges into 'twenty.
Electronic too.
Now I would like to pass things over to Eric Skolnik, Our Chief Financial Officer to cover our detailed financial results Eric.
Thanks Ted.
<unk> laboratories, net sales increased $1000 or 0.0% to 2% to.
$2 million $172000 for the third quarter of 2021 from $4 million $171000 for the comparable period in 2020.
Net loss for the three months ended September 32021 was a loss of $201000 or <unk> <unk> loss per diluted share compared to a net loss of one.
$4 million $787000 or a diluted loss of <unk> 18 per share for the comparable period in 2020.
The third quarter included an increase in sales of IP video trends coated products and Nexgen IP digital video processing products offset by a decrease in sales of.
$1 million video head end products consumer premise equipment, CPE products and hybrid fiber coax HFC distribution products.
Sales of Trans kroner products were $1 million $732000 and $543000 nexgen products for $420000 and 89000.
Analog analog video.
Go ahead and products were $176000 and $323000 CPE products were $113000 and $1.379 million and HFC distribution products were $404000 and $599000 for the third three months of 2020.
In 2020, respectively.
But the minus nine months ended September 32021, net sales decreased $291000 or two 4% to $11 million $761000 in 2021 from $12 million $52000 for the comparable period.
Do you want to <unk> 'twenty.
Net income for the nine months ended September 32021 was $1 million $11000 or <unk> <unk> per diluted share compared to a net loss of $5 million $61000 or <unk> 52 loss per diluted share for the comparable period in 2000.
<unk> and 'twenty.
Net income for the nine months ended September 32021 included one $769000.
As related to a gain on our debt forgiveness of the Companys PPP loan.
And $1 million $804000 of other income related to the employee retention tax credit.
Net cash used in operating activities was $627000 for the first nine months of 2021 compared to net cash used in operating activities of $2 million $149000 for the comparable period of 2020.
The decrease in sales for the nine months is primarily attributable.
The decrease in sales of DOCSIS data products digital video head end products HFC distribution products CPE products and analog video <unk> products offset by an increase in sales of video Transco to products and X gene products sales of DOCSIS data products were $681000 and 1 million 800.
<unk> 7000 digital video <unk> products were 2 million $348 $2.603 million HFC distribution products were $1.327 million and $1 million $769000 CPE products were $1 million $96000 and three.
$151000 analog video head end products were $657000 and $838000 Trans coda products were $3 million $805000 and $937000 in NXT products were $1.311 million and $570000.
Million in the first nine months of 2021 and 2020, respectively.
The company expects bookings trends coated products to remain healthy as market exposure to an acceptance of those products continues.
We expect sales of CPE products to continue to trend lower than in prior periods as the company consistent with its business plan transition.
Since these products into a higher margin, but lower revenue services fulfillment and support business model and works to promote an expanded array of distribution content delivery and processing technologies to those service provider customers the.
The company's primary sources of liquidity have been its existing cash balances cash generated from operations.
Amounts available under its revolving credit facility, which is the midcap facility.
That's available under the subordinated loan facility and cash generated from sales from from its common stock as well as funds made available to the company through participation in several federal government financial assistance programs implement pursuant to the coronavirus.
Wanna virus aid relief and economic Security Act, including the Paycheck protection program and the employee retention tax credit.
At September 32021, the company had $516000 available under the Midcap facility.
As disclosed in the company's 2020 annual report on Form 10-K.
Last.
Year. The company has experienced a decline in sales a reduction in working capital loss from operations and net cash used in operating activities in conjunction with liquidity constraints. These factors raise substantial doubt about the company's ability to continue as a going concern certain of the above factors still exist accordingly, theres still exists substantial doubt about.
The company's ability to continue as a going concern the financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of the liabilities that might be necessary should the company be unable to continue as a going concern now.
Now I would like to open up the call to the question and answer session.
Ladies and gentlemen, the floor is now opened for questions. If you have any questions or comments. Please press star one on your phone now we ask that will posing your question you. Please pickup your handset if listening on speaker phone to provide optimal sound quality.
Once again, if you have any questions or comments. Please press star one on your phone now please.
Hold a moment, while we poll for questions.
Your first question is coming from George Gasper Euro.
Your line is live.
Hi, good morning.
Hey, good morning, quite frankly, the report looks pretty good.
My question relates.
So that product line shift that's underway.
<unk>.
And can you.
<unk>.
Give us some comparison as two.
The size of the market.
That you're entering into versus the size of the market.
To set you are coming out of.
I know that might be very difficult to answer.
Got it.
I think it's important to get an idea of that.
Product areas that you're moving into.
Have a reasonable reasonably broad markets.
Can you get into that.
Mark.
I can talk in.
At a high level on the question.
I think when it gets into details that I think it's a very.
It's a little bit of a murky field in terms of nailing down specific numbers in terms of tax right.
What I can say is that the trend scooter.
The video Transcoding video encoding business.
Appears very healthy to us the market appears very healthy to us it's growing from the segments that we're going after we're going after segments that we were not.
Directly.
<unk>.
Had significant market share and in the past so that they are they are markets that had.
<unk>.
They are much larger markets than the small percentages that we played in the past, we're making some headway.
They're in gaining share for sure.
<unk>.
How much larger they are beyond where we're at I mean, we certainly know that there is a lot of growth. There's a lot of service operators that are not our customers today that we are actively going after.
But I would.
Would hesitate to give you any hard numbers, we don't we do know it's a much larger market than the portion that we are currently winning them.
Well, what's impressive is the.
Transition that you have going it's it's very significant how you have moved and.
And Vic.
And the contraction of the previous markets that you're in.
It isn't the problem.
Of getting components.
Similar in nature as a problem in other words.
The unit.
Alex that you're moving into.
Versus where you come from.
Are the problems in the industry pretty much common throughout the whole area or.
Do they have.
There's there's more problems in the.
The Trans corridor area that you're going into.
No we don't see.
Any particular segment of technology is seen any particular.
Problem with the supply chain, it's really a broad problem.
It's a problem of some of the materials that are used by the semiconductor manufacturers in their building.
Different products.
It is it is a broad problem across.
Small and large suppliers in the industry. It is it is an amazing situation. So I don't think that our I don't think.
Paraphrase your question, we're not specifically seen a problem because.
We're in a big focus on growing our encoder and transcoding business.
We would be seeing this across the board now now in both the press release and in my.
Spoken comments earlier in the call.
We pointed out a very specific situation that happened.
In Q3 that was related to a specific <unk>.
Supplier. So one of the things I've mentioned this on I think the last two quarterly calls we've held up we believe we've held up incredibly well through supply chain disruptions that started earlier in the year and where.
We had been hearing third hand from some of our customers that that some of our competitors had been quoting things like 456, and seven month lead times on products, we were within our normal.
Two to four to six week kind of Timeframes across the board. We were we were holding up incredibly.
Well the one thing that happened in the middle of Q3.
Really came out of left field because it was on products that had been.
Ordered.
Over a year ago had been had been confirmed.
As having monthly delivery dates on specific dates.
Through the quarter and all through Q4 and came with the with basically one week's notice we had a specific supplier call us up.
One week before delivery was available was supposed to be arriving on our doorstep and say there aren't any chips.
And by the way are.
Our costs are going up dramatically to produce these chips. So let's work out how we can continue to supply to go. So it took quite a lot of activity.
With that specific situation back into shape.
And then following the resumption of production we had to run around.
And the sales teams had to go to every affected customer where.
We're not just going to absorb these these dramatic price increases and take the entire hit on our margins we were successful at.
At passing that along the customer thankfully we have great.
<unk> customer base, and then just a great great set of relationships.
With our customers so that that although that was not an easy situation. It was successful in the end.
What we don't know.
I still feel like we're holding up better than others.
But we do we do we are seeing.
A wider range of smaller parts, becoming harder to get.
And so we're still successful are overall, our product our production lines are still up and running at full capacity right now.
But we're.
We're nervous and I think I think the news indicates that we should be nervous and we should be doing everything in our power to.
To find ways to.
To mitigate any risk in the supply chain area and we're doing that right now it just didn't and some I I. It was interesting the way you Act are.
<unk> reviewed the our ability to get your customers to come through and start lifting off and supporting.
Some of the cost increases that you're you've run into and I, obviously, they're anxious to get the product and so you I assume that's got a lot to do with your ability to get them to raise the prices are versus what they were expecting to pay or previously.
Is that correct.
That is correct, but it also you know another tool was you know we made assurances that as soon as the costs of our production go down we're gonna be resuming.
You know, we're not going to be taken advantage of this long term. So it got a little bit of a two to a direction in terms of trust.
Hum.
Yeah.
Yeah, I think I'll, just use that okay, alright, well and just summation from here and it's pretty exciting to see what you have accomplished and the that's the nine months of this year and I I think it goes a long way.
Hey, with suggesting that.
You're not too far away from a moving from the deficit side too.
The profit side at the bottom line here I would I.
We'd hope that we're not too far away on that thank you.
Oh sure Yeah, and I do want to you know point.
Point out that you know I certainly did not want to have this call.
Reporting yet another loss for the quarter and you know I I do believe that if it weren't for these these specific specific supply chain issues, we'd be having a.
More positive numbers to show today.
Right. Thank you.
You're welcome thank.
Thanks for the question.
Your next question is coming from Gregory urban.
Your line is live.
Good morning, guys.
Hi, Greg.
Congrats and you know keeping the lights on.
[laughter] monitoring Ah.
What what you just said.
If it sounds like if you subtract out the supply chain issues are the two things would happen number one given the change in the product mix.
The margins would.
The higher <unk>.
And that they are you know sales would be up to the point where for.
For the first time in how long, we would have a positive quarter as Oh my presumption there correct.
Well I had certainly been working.
With Eric and the other management of the company to achieve that last quarter for sure 100% at its I was I was feeling very very optimistic that we would've been able to get there.
We definitely hit some headwinds in the middle of the quarter and the end of the quarter that worked very strongly against us.
To.
To answer specifically on some of the specific answer to your question absolutely. The margins would have been significantly higher for the quarter. If it hadn't been for four four for the for that is the main supply chain issue and some other smaller ones that arent really material.
They it definitely impacted our.
Margins in a big way for the quarter No question about it would we have been profitable.
For the quarter, if it hadn't been for those specific things I think the strong likelihood would have been very high but we don't want to peg without doing a very detailed analysis.
Exactly you know specific impacts.
<unk>, we don't want to sit here and say, 100% one way or the other we certainly would have been a lot more.
The number would have been much better if it hadn't been for the situation. There's another element to the what happened in Q3 and the supply chain disruption that that also negatively impacted.
The margins, which is we had to literally shift production planning around every single week that we were running through these disruptions through the middle and the end of the quarter and that meant we had to we were able to sorry, we had to run smaller batch sizes on different products, which as you can imagine works against you in terms.
Efficiency it put some more labor on a per unit basis. It just it's all the things you don't want to do when you run a factory right, but we were forced into that because of.
You can't get parts to build on what you are supposed to build in a certain quantity than when you make the adaptation and you shift and we did what we needed to do.
But that was the other it wasn't just so when you see the margin numbers.
It wasn't 100% of those lower numbers are not all from material cost. It was the fact that we also had to run smaller batch sizes on other products to compensate and keep the line running.
And that negatively affects the margins.
<unk> because of the labor content.
Thanks for that explanation, but overall it looks like comparing a Q.
Q3 to Q2 of this year.
Margins are only down a little over 1%.
It wasn't a tremendous decline.
Yeah, Oh, okay.
I don't have those numbers exactly in front of me, but on the on the affected products.
The most affected products so on a blended basis I'm not going to say you're wrong, because you probably have the numbers in front of you and I don't but what what I.
He was alluding to before was that for.
For the most affected products there was a much more substantial.
Product margin impact on those particular products for the quarter now when you blend them in with everything else, we build maybe it didn't have such a big impact but.
I know, we would've had a much more substantial.
Profit on those products, if we haven't been disrupted.
Subtracting out again subtracting out supposedly went could subtract out the supply chain issues.
Can you give us any idea of what your overall.
Margin target is for the whole.
Across all.
All product lines.
Yeah, I don't think we should give you a particular number I know.
That you know I would personally like.
Us to be.
Four or five points better than we've been running the last few months and I think we have a path to get there if the supply chain issues.
Issues don't don't.
Let me say it a different way if it weren't for the supply chain issues I think theres, a very clear path for us to getting through.
Three or four three or four points better than we'd been running the last few months or the sorry, the last few quarters, okay, well, thanks for that that sounds good to Myers.
I I, certainly liked like bigger numbers than that but you know.
I want to be a little bit conservative on on this.
And I.
I missed it Eric do you have the cash flow from operations for Q3.
Sure obviously, it's it's a.
We don't report that but I can tell you what it is for Q3, our cash flow.
<unk> used in operating activities was 753.
Thousands of dollars for just the quarter alone.
That compares to $120000 for the Q3 of 2020.
I'll use and operating activities.
And it looks like we're still in good standing with Midcap and.
Very much so yes.
Okay well.
I saw that you.
You had the fifth amendment and then.
And I assume it was related to supply chain you had the the issuance of the one promissory note.
Correct, yes.
Well I hope hopefully.
Well it was good that you were able to obtain that but I guess, depending on supply chain issues.
There'll be further negotiation.
Anticipated.
In that area.
Let's see what else overall.
It's.
You know things sound like they're.
They are improving with the relationships there.
Mt.
The product mix available.
To address your new markets.
And it's that and it's good.
The two we're able to supply and resolve the supply chain issue that plagued that came that was apparent at the end of the quarter.
Hum.
I appreciate what you've said already regarding the supply chain.
But but youre still anxious so that it sounds.
That's gonna be the May.
A major factor overhanging our future operations.
Correct.
For the foreseeable future I would totally agree with that and what what's.
What's.
What's what's challenging.
As you know just as we felt like we were really feeling great about the sales situation and the bookings have been really fantastic. The last three to four five months.
And they continue now the challenge has sort of shifted unexpectedly too you know.
Producing the things that had been booked right. So it's and keeping the flow and keeping the factory at a capacity. So that we have the efficiencies that yield the margins that we'd like to be to be getting so yes that that is the that that looks to be the major headwind for the next.
Three months six months kind.
Timeframe beyond that it's hard to say, but.
It's got to be a frustrating feeling like you've got this one this one.
One person between our one entity between you and the goal line and you know it.
It's yes, you're absolutely right Greg.
And finally, you can literally any any feedback any anything from the exchanges about a potential listing problem.
Well, we continue to file our quarterly updates with our with the NYSE American, but Eric I think.
Touch on that.
Yes, yes, we would owe them another quarterly update after we.
While the Q, so, but we haven't.
The last time, we had conversations with them.
<unk> was was pretty much they accepted our revised plan and were still.
Our best to make compliance by December time.
Well. Thanks, guys are overall I agree with George as you know it sounds positive but.
But nonetheless frustrating so keep up the good work hopefully keep your spirits up as they go along.
Yeah.
Thank you very much Greg we really appreciate your calls every quarter. Thank you.
Okay.
Your next question is coming from David Cool.
Your line is live.
Alright, thank you.
A while back I don't know if it's the last.
A quarter or two quarters ago.
You mentioned some development with dash for doing some screaming.
<unk>.
I was wondering if.
That was still in progress and how it's going and how long would it be before there's an MVP.
Uh huh.
Oh minimum.
Minimum viable viable product.
Available.
Yeah.
Yeah, So we have.
We have prototypes of that product already sitting with a number of operators.
It is.
Past the N V P product stage, it's it's it's.
It's we'd got feature complete and.
We are actually winning some sales there are small initially.
We expect that to grow so the product is basically ready and it's sitting both in long term QA in our lab, but also sitting at.
More than five service operators around the country are approaching 10 at this point some of which have already started to purchase the product.
Oh nice.
Yeah.
So what kind of content.
Streamed.
So the way you shouldn't visualize this is.
A lot of service operators have been moving their fundamental distribution technologies to a sort of over the top style distribution, even if they themselves are not providing that content over the top like a Netflix style.
Service offering they'll they'll still use the same kinds.
Technologies like Mpeg dash or HOS two to route their content around their own private networks right. So as those operators make that fundamental architectural change in the way they distribute video.
The equipment that we create and produce and sell.
<unk> to the market has to has to follow that.
Arc of of a technology transition so.
Those operators that have made the full transition to IP TV style technologies for their residential services. They also need technologies like ours too.
Grab those signals and process them and provide them to different.
Different types of needs like M. D use like B to B interfaces like head and distribution equipment scrambling equipment.
Content protection equipment.
So that's that's where we're.
Sure.
Applying mpeg dash and HOS and some other technologies.
Okay. So.
Oh, I'm, sorry, I didn't mean in trouble, but let me just see if I could summarize that so it sounds like.
The application.
It is.
To be used by other companies because stream their content to their.
Customer so are there any internal.
People.
That's correct.
Hey.
Can you talk about the pricing model on that and.
Yeah.
Where do you expect that to go.
Is it.
Before current customers or is it for something.
Is it something any body could use without your hardware.
Yeah.
Oh, I see what you're saying no today. The current model is that we provide that that those.
Just more Gs will be riding on top of our own hardware, we will enhance the business model by all those products with the with the with the latest technology require a service level agreements. So we will have a recurring element to the revenue stream with those products.
Technology, because they they they they need maintenance state.
New features.
New elements to the standard come up and they need some firmware updates and software updates. So that's that's how we enforce our Nf L a element onto them.
Onto that revenue model.
So it does and so it is an overall better revenue model when we when we win.
Product yields and we're starting to see an uptick in our SLA Oh percentages for sure.
Okay, great. Thank you.
Yeah, you're welcome.
We have no further questions from the lines at this time I would now like to turn the floor back to Ted for closing remarks.
Windows right.
Thank you all for listening and.
We look forward to.
And hearing from everybody next quarter and we appreciate everybody's.
This morning, Thank you.
Yeah.
Thank you ladies and gentlemen. This concludes today's event you may disconnect at this time.
And have a wonderful day. Thank you for your participation.
Okay.