Q2 2022 ADDvantage Technologies Group Inc Earnings Call
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Okay.
Good day, ladies and gentlemen, and welcome to the advantage technologies fiscal year 2022 second quarter financial results Conference call.
Today's conference is being recorded at this time I would like to turn the conference over to Brett Maas. Please go ahead Sir.
Thank you operator, we are joined today by Joe Hart, President and CEO as well as Michael Rutledge, The company's Chief Financial Officer before we begin todays call I'd like to remind you that this conference may contain forward looking statements, which are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995. These forward looking statements include among other things statements regarding future events such as the.
We have advantaged technologies, its subsidiaries to maintain strategic relationships and agreements with certain original equipment manufacturers and multiple system operators as well as future financial performance of the advantage technologies. These statements involve a number of risks uncertainties participants are cautioned that these forward looking statements are only predictions and may materially differ from actual future results.
Results due to a very a variety of factors such as those containing the advantage technologies. Most recent report on Form 10-K on file with the Securities Exchange Commission.
All 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 or actually yesterday.
Who did an advantage technologies. Most recent report on Form 10-Q, the guidance regarding anticipated future results on this call is based on limited information currently available and advanced technologies.
Although any such guidance and factors influencing it may change your advanced technologies will not necessarily update the information as the company will only provide guidance at certain points during the year.
May just because it's always the date of this call. During this call. We also may present, certain non-GAAP financial measures such as non-GAAP net income and certain ratios that are used with these with these measures in our press release and in the financial tables issued earlier today, which are located on our website of advanced technologies Dot 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 I'd now like to turn the call over to Joe Hart, President and Chief Executive Officer of Advanced Technologies. Just please go ahead.
Thank you Brett and thank you to everyone joining us on the call today.
This was a record quarter for us.
For some time, we've been expecting a surge in <unk> tower work and that has clearly occurred.
<unk> way it happens simultaneous with a boom for our telco segment as well.
The result is revenue of nearly $24 million up nearly 90% year over year.
We expect this encouraging revenue trend to continue based on site awards and a growing pipeline of war.
The progress is not as evident on our bottom line yet but.
But we have implemented significant cost reduction initiatives to address this.
That's the five G work surged.
We move quickly to meet the demand.
Now that we have more visibility into the schedule our customers expect over the next few months.
We have strategically reallocated resources to meet near term demand and have scaled back our back end support infrastructure.
The result is approximately $2 4 million and reduced expenses on an annual basis.
And we should see the initial benefits of these cuts in the current quarter, our third fiscal quarter, which ends in June .
I would note that most of the personnel reductions were achieved through natural attrition.
So there are no restructuring or severance costs associated with this initiative.
Investor should expect margin expansion in a material improvement in our operating and net losses beginning in the current quarter.
We are clearly focused on improving bottom line profitability and not just topline growth.
Wireless revenue related to tower work and other aspects of the <unk> rollout has already increased by 55% year to date compared to last year year over year.
We expect that it will continue to grow throughout this fiscal year.
In fact, all last year, we generated approximately $21 million in wireless revenue and we've generated almost $15 million in just the first six months of this year.
Our growth continues to be broad based involving several carriers, including both longstanding customers and new players in the market.
The work touches all the regions, we service spread across the center of the United States.
We are the leading vendor in several large metropolitan areas.
Our pipeline of new projects, meaning work, we have been awarded where we're waiting for purchase orders as permitting is complete.
It gives us significant confidence that the growth will continue in the near term.
The <unk> opportunity represents a multiyear secular trend not just for tower, but for data centers technology providers handset manufacturers and wireless carriers.
Each of the carriers are investing tens of millions of dollars in the expansion and the Capex plans of carriers are public and widely discussed.
As this wireless segment quickly expands we are simultaneously benefiting from other secular trends that are driving strong results in our telco segment.
Global supply chain issues and chip shortages continue to impact the market for new telco equipment.
In addition, many people are working from home requiring an expansion of the telco infrastructure to facilitate a remote workforce.
Officers are clothing, either because of challenges related to the pandemic are often because their workforce is now remote creating a market for office equipment for us to purchase at attractive prices to refurbish and to resell.
All of these factors make our refurbished equipment sold by nave and Triton, a more compelling and viable option and.
In the year to date performance supports this.
This was the fourth consecutive quarter of revenue over $11 million and in fact, the nearly $16 million in telco segment revenue was an all time record high.
The second quarter telco revenue alone exceeded the revenue for the six first six months of last year and our telco segment is contributing solid and positive contribution margin to our company.
We continue to anticipate a leveling off of demand at some point in future quarters, as the global supply issues and chip shortages subside.
Albeit at a somewhat elevated level relative to the recent past.
The CEO of Intel was quoted recently is predicting that the global chip shortage may last into 2024.
Sure.
Overall, we delivered 88% revenue growth in the quarter.
Our wireless margins and overall profitability were impacted by the increased spending to ramp up crews and capabilities in advance of the coming demand.
But we believe that will improve in the current quarter with further merger margin expansion as we move through the year as our business reaches the necessary inflection points, where volume is able to offset fixed cost.
At the same time as we are reducing our fixed costs by $2 $4 million annually or 600000 per quarter.
We are committed to delivering a bottom line net profit in the coming quarters.
With that I'll now turn the call over to Michael Rutledge, our CFO to provide a more detailed review of our financial results.
Michael Please go ahead thank.
Thank you Joe.
<unk> sales increased $11 1 million or 88% to $23 8 million for second quarter from $12 7 million for the three months ended March 31 2021.
The increase in sales was due to increases in wireless sales of $3 4 million and increased telco cells of $7 7 million.
Consolidated gross profit increased $2 6 million to $5 8 million for the quarter compared to $3 2 million for the same period last year.
The increase was due to an increase in our telco segment of $2 6 million and a slight increase in gross profit from the wireless segment.
As Joe mentioned, we expect margin expansion, particularly in our wireless segment in the second half of the fiscal year related to our cost reductions.
Operating expenses increased $600000 to $2 8 million for the quarter compared to $2 2 million for the same period last year.
The increase reflects the company's investment in its regional growth strategy strategy related to expected <unk> and infrastructure growth.
Selling general and administrative expenses increased 93000, or 2% to $3 9 million for the second quarter from $3 8 million for the same period last year.
The increase in SG&A relates primarily to increased selling and commissions.
Expenses expenses to support higher revenues I think it is important to note that the SG&A increased less than $100000, while revenue increased more than $11 million.
Net loss for the quarter was $1 4 million or a loss of 11 cents per diluted share based on $13 1 million shares compared with a net loss of $3 1 million or a loss of 25 cents per diluted share based on 12 4 million shares for the same quarter last year.
Turning to our balance sheet cash and cash equivalents were $3 9 million at March 31, compared to $1 8 million as of December 31, 2021.
Cash was used primarily to fund operations.
As of December 31, 2020.
March 31, 2021, the company had net inventories of $5 8 million.
We continue to believe we are sufficiently capitalized with appropriate backstops to support near term business conditions until more normalized business conditions return.
This concludes the financial overview segment of our remarks, I will now turn the call over to the operator to associate any questions.
Thank you, ladies and gentlemen, if you would like to ask a question. Please see now by pressing star one on your telephone keypad.
Speaker phone. Please make sure your mute function is turned off to allow youll seen it to reach our equipment.
Again press Star one to ask a question.
Just for a moment to allow everyone an opportunity to see nipple questions.
We take our first question from Josh.
Caspar.
Private Investor Your line is open. Please go ahead.
Yes, hi, good morning, everyone.
Can you hear me.
Yes, good morning, George Good morning.
Just to start out here.
This app.
Margin expansion potential.
Yeah.
Are you pretty much true.
Your.
Wireless.
Backlog.
You might have been completing.
With that.
Costs associated with them.
And you're going through process would be much improved because.
That's over or can you highlight a little bit more on that.
Sure. This is Joe.
Yeah.
We launched business.
In seven.
Geographic markets with a new wireless carrier.
About nine months ago.
And.
The premise for that was that we would get sufficient volume in each market to warrant the investment.
Two to three head count to oversee the work in those geographies.
The volume didn't actually come through in a couple of those markets.
So.
We decided that we.
We needed to pull back on that investment and really that's that's the crux of it.
Overall.
It hasnt affected our backlog.
Our backlog for the second half of the year is larger than the backlog for the first half of the year on the Fulton side of the business. So we.
We feel that we're at a more steady profitable.
Equilibrium state and that.
That allowed us to then trim the back office support that we had set up for a large wave of work to come suddenly so.
We've trimmed the expenses.
It was a fair bit of head count, but also involves fleet.
<unk> expenses fuel per.
<unk> things like that so it's both.
The direct margin level.
We made improvements in our cost of goods sold and at the same time the back office support.
We consolidated centralized and made it.
More efficient.
We're in good standing with the customers and we're bringing on additional carrier work.
The other big three so I feel like we're in.
A more stable.
Manageable profitable.
Structure.
At the moment so I.
I think we're in a much better condition.
We had to focus on deploying tell lots of markets simultaneously, yes that is always a bit challenging and we got that back under control and now we're focused on.
Profitable work at both.
The gross margin level as well as the operating margin level.
Okay.
What was impressive yesterday you were.
This past quarter with this nice.
Improvement.
With accomplished with some pretty tough weather a crushed.
Midwest and southwest.
Uh huh.
I think that that would be in your favor going forward from it.
In terms of this third quarter that youre in now.
Mike a quick additional question on wireless.
Can you break down the <unk>.
Out of your volume revenue volume that's associated with.
Direct on tower work versus.
Land work.
It's it's all on the tower.
It's all on the tower Oh, okay. So.
So are you.
I think there was a comment earlier.
The opening comments about.
Breaking out.
Thanks Mark.
Business in terms of.
Other types of work associated with wireless.
Uh huh.
How long before that kind of work.
<unk>.
I mean it it comes.
It tends to come in waves, depending upon what the carriers are doing so.
<unk>.
Carriers are going onto new sites or new sites for them.
There could be some.
Fiber backhaul and electrical work that goes along with that that's on the ground.
To bring either backhaul into the cell site or power into the sell side. So that just kind of comes hand in glove with the.
Really the installation of say, an AT&T or Verizon on a site that they haven't previously been located on.
But for.
So right now we're sticking to.
What we're good at and what were already widely deployed at.
Sure.
Future kinds of work will be something that.
We will put in a strategy document that we put out and put it on the website.
Okay.
And one last.
They're expanding their business activity.
It appears as though there.
A lot of concern about.
Moving electricity.
Throughout the United States on a broader basis that there is.
Shortage is starting to show.
Is there a possibility that you could do.
Doing some.
I work in now and then.
Wireless connection.
Along the way.
Okay.
I had a thought on your part.
I don't I don't believe so George I think that would be something.
The carriers.
Their own strategy and risk management departments would be would be dealing with something like that that down at our level in the food chain.
I don't think that's going to impact us at all because I mean, we can actually stand up and build the sites using generators, we don't need permanent power to get a site built so.
I think for at least.
In the next 12 months barring some unforeseen.
Macro political event right.
It's not going to have an impact on our business right. Okay.
On the telco side.
And are there areas of activity that you could potentially look at expanding your base of operations.
I know that this chip shortages.
It has been an opportunity for a repair of existing equipment.
Are there areas in the telco area.
You could add to do in the future have you thought about that.
Sure.
I think.
Different.
Representing different OEM equipment.
Some different types of equipment.
Nave communications tends to deal in the public switched network and transport networks.
Triton Datacom deals with enterprise networks are office communication products.
No.
Both.
Both of those presidents, Mike Burch, and Damon sector are looking at ways of expanding both in product lines as well as with different Oems and with new customers.
One of the I'll.
I will say previous issues, we had was that.
With restricted cash resources.
Sure.
We were basically.
Inhibiting.
Any rapid growth for both of those companies.
When Michael Rutledge was able to convert our banking facility.
With a vast bank out of Oklahoma.
$19 million worth of capacity.
So we're in a different situation now.
Ian.
The fellows running nave and Triton are really now able to.
Approach it with a much more aggressive mindset. So we feel very bullish about our ability to continue to grow the telco segment.
While we're going through this wireless growth period with five G. So I think we're in a good spot.
And now really.
The job for Michael and I is to get this business on a profitable standing right now in this current quarter and moving forward and Thats, what Michael and I are focused on.
In closing I, just an observation.
The revenue stream of the past quarter and what you've got the momentum you've got growing here in this existing quarter.
You're you're gonna be reaching toward hopefully being able to deliver a $100 million in revenue stream on annual basis going forward.
You don't out.
That's pretty impressive.
A company with 13 million shares out.
And.
Selling add a little more than a dollar a share.
If you get this bottom line built up there should that shareholders should be able to enjoy.
Something they've been waiting for for a long time at the bottom line. Thank you.
Thank you George.
Yeah.
Thank you once once again, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.
It appears there are no further question at this time.
I'm, so sorry, we do have one.
In the Q.
Kennedy's Tal I'm hanging Inc. Your line is open. Please go ahead.
Hi, guys I apologize I got a little late in case. This has been going over but your telco segment did you have a buildup of inventory to enable you to have this kind of sales or can you keep that up do you have the ability to get inventory to move it or are you selling it down.
Where you wont have the inventory as the quarters go by here.
We did not add to.
Inventory.
We we did by products that were available on the market.
We are in some ways, we sell from inventory other ways, where a bit of a broker.
And we will find the need from a client and then go find the source for the product and then we'll match those two things together and make the sale so.
We're really focused on not building inventory.
That has been a problem in past years, and I'll say three to five years ago that was a problem.
We've worked hard collectively as a management team to to get that.
In control so.
I don't see any.
Anything inhibiting us from from growing the telco business and a very strong fashion.
For the next couple of years now I'm not in charge of the global chip shortage or supply chain issues from Asia or anything like that but both of those.
<unk> actually help our business for nave and Triton.
Yes, exactly so are you I assume you would have a lot higher margin on selling your inventory then being the broker.
Yes, we would.
Okay, great. Thanks, a lot.
Youre welcome.
Thank you once again, ladies and gentlemen, if you would like to ask a question. Please see Nomura.
Please seek no star one on your telephone keypad.
It appears there are no further question at this time I would like to turn the call back to diminishment for any additional or closing remarks.
Thank you operator.
This is Joe again.
Like where we are clearly focused on getting this company in a profitable situation and doing it this year and quickly.
The $2 $4 million cost reduction.
<unk> is the beginning of it.
We will continue to shape and trim.
The back office and support structure to both enable the growth of our business, but at the same time.
Not be overspending or over committing on that so.
I consider it a work in progress.
But it has.
Michael and myself that is our total focus.
To get this in a positive net income perspective on a quarter over quarter basis moving forward those actions are in place already.
We finished Q2 strong.
And had an excellent margin in even better April .
We feel that the trends are in place and the metrics are in place.
To make this a place worth investing in once again. So thank you for your continued interest and your support and.
We feel a strong obligation to return.
That support to you. Thank you again.
Thank you and that concludes today's call. Thank you for your participation you may now disconnect.
Yeah.
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