Q3 2022 ADDvantage Technologies Group Inc Earnings Call

Alright.

Good day and welcome to the advantage Technology's fiscal 2022 third quarter financial results Conference call Today's conference is being recorded.

At this time 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 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 call may contain certain forward looking statements, which are subject to safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

Looking statements include among other things statements regarding future events, such as the ability of advantaged technologies and its subsidiaries to maintain strategic relationships and agreements with certain original equipment manufacturers and multiple system operators as well as future financial performance of advanced technologies.

Statements involve a number of risks and uncertainties participants are cautioned that these forward looking statements are only predictions and may materially differ from the actual future events or results due to a variety of factors such as those contained in advantaged technologies. Most recent report on Form 10-K on file with the Securities and 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 and included in advantages technologies. Most recent report on Form 10-K, the guidance regarding anticipated future results on this call is based on limited information currently available on advantaged technologies, which is subject to change although any such guidance.

And factors influencing it may change advanced technologies will not necessarily update the information as the company will only provide guidance at certain points during the year such information speak as only of today's the day of today's 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 fragile.

First issued earlier today, which are located at our website at advantage technology is dot com you will find a reconciliation of these non-GAAP financial measures with the closest GAAP financials and 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 not instead of GAAP measures.

Without another way I'd like to now turn the call over to Joe Hart, President and Chief Executive Officer of Advantaged technologies Jos Please go ahead.

Thank you Brett and thank you to everyone joining us on the call today.

This was another record quarter for us.

With positive net income of $875000 and.

And a 63% increase in revenue compared to last year and 17% over the previous quarter.

To put our improved financial performance into context through nine months of fiscal 2022, we have surpassed revenue for all 12 months of fiscal 2021 by more than $8 million or about 13%.

Perhaps more importantly, we achieved GAAP profitability in the quarter.

With earnings per share of seven per share.

This was the fourth quarter in a row with wireless revenue over $7 million and continued growth in five G tower work for our wireless division.

We also benefited from continued strong growth in our telco business, reflecting continued demand for our optical transport switch router and enterprise network offerings.

Both sides of our business are performing well.

With double digit revenue growth and increasing gross margins.

The result is total company revenue of nearly $28 million for the quarter.

More than we generated in the first two quarters last year and up 63% year over year.

Our telco segment delivered a historical record for both revenue and margin for the quarter.

Nave communications reported almost as much revenue this quarter as they did for all of fiscal year 2020.

Triton Datacom revenues for Q3, we're almost half of last year's total revenue.

We expect this encouraging revenue trend to continue for some time into fiscal 2023.

Telco has been helped somewhat by the global supply chain and chip shortage issues that continue.

But more importantly, the shift in focus to optical and wireless products and change and business unit leadership has driven the success in telco.

The wireless cost reduction initiatives, we introduced during the second fiscal quarter and that continued into the third fiscal quarter.

Drove a significant improvement in gross margins and lower expenses helped lead to GAAP profitability in the third quarter.

This contributed to our first quarter of GAAP profitability.

Since the third quarter of fiscal 2020.

We have targeted approximately $2 $4 million in reduced wireless expenses on an annual basis.

And we are on track to see those annual savings over the next several quarters.

Wireless revenue related to tower work and other aspects of the <unk> rollout.

Has already increased by 61% year to date compared to last year.

The year over year, we expect that it will continue to grow throughout this fiscal year and into fiscal 2023.

Our growth continues to be broad based involving all four carriers, including both long standing customers and new players in the market.

The work touches all of the regions, we service spread across the center of the United States.

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 multi year growth opportunity for tower work across all four of the major wireless carriers.

Each of those carriers are investing billions of dollars in the expansion and the Capex plans of carriers are public and widely discussed.

Our telco segment had a great quarter.

And while the global supply chain and chip shortages issues, where the original catalyst for the growth in our nave and Triton businesses.

The revenues and margin growth, primarily have been caused by a pivot and focus by the new leaders of those business units more heavily towards the optical transport switch router and enterprise network offerings to the optical fiber network providers.

This was the fifth consecutive quarter of revenue over $11 million for telco.

And in fact, the $21 million in Q3 for the Telco segment was at all time record the.

Second quarterly record in a row.

Our telco segment continues to generate solid and positive contribution margin to our company.

There may be a leveling off of demand at some point in future quarters, albeit at a somewhat elevated level relative to the recent past.

But we really believe that the change in focus on product strategy.

And the change in business unit leadership has positioned this segment nicely for continued success.

I would like to close my remarks by giving a shout out to all of our management and staff for all of their hard work and long hours and keeping our customers happy and delivering a great quarter to our shareholders.

I would also like to thank those investors that have remained with us through these past few years.

We appreciate your support.

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 you Joe.

Consolidated sales increased $10 8 million or 63% to $27 8 million for the third fiscal quarter up from $17 million for the three months ended June 32021.

The increase in sales is due to increase in wireless sales of $3 1 million.

And telco sales of $7 7 million.

Consolidated gross profit increased $3 8 million to $8 1 million for the quarter compared to $4 3 million for the same period last year.

The increase was due to an increase in the telco segment of $3 1 million and $742000 increase in gross profit from the wireless segment due to both increased revenues and stronger markets.

Consolidated selling general and administrative expenses include overhead, which consist of personnel insurance professional services communication and other cost categories increased 550000, or 16% to $4 1 million for the three months ended June 32022.

From $3 6 million for the same period.

The increase in SG&A relates primarily to increased selling and commissions expenses to support higher revenues.

Net income for the quarter was 875000 or <unk> <unk> per diluted share based on $13 2 million shares compared with a net loss of $2 1 million or a loss of 17 cents per diluted share.

5 million shares.

At the same quarter last year.

This represents our first quarter reporting net income.

Excluding the quarter, we received our forgiveness notice for our PPP loan since the quarter ended June 32020.

Turning to our balance sheet cash and cash equivalents were $4 2 million at June 30, compared to $2 6 million as of September 32021.

We've generated over $5 million in cash from operations year to date.

As of June 32022, the company had net inventories of seven 6 million.

We continue to believe we are sufficiently capitalized with appropriate backstops to support near term business conditions.

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.

Like to ask a question. Please signal by pressing star one on your telephone keypad. If you are 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 to ask a question no pause for just a moment to allow everyone an opportunity.

And once again that is star one.

We will take our first question from Kurt tremendous with Carl M. Hennig, Inc. Please go ahead.

Hey, guys congratulations on the quarter.

I'm just wondering like on the cadence.

Did things build steam month by month and is that carrying into the next quarter or holiday how did the quarter kind of go in all of those things are looking.

True.

I mean, I would say that <unk>.

Our revenue has been building quarter over quarter for probably the last.

Five quarters.

The wireless team.

Grew about 70%.

These last three four quarters in a row compared to last year.

The telco segment.

He has been doubling or tripling.

And that's been kind of a steady drumbeat ramp up over the last almost 24 months.

So the margin growth.

It has gone along with that and then.

We've picked up about four points of margin over the last year steadily increasing and improving.

And.

I would say our focus on.

Controlling our.

Our expenses on the wireless side and reducing our Cogs as crude attributed to that margin improvement.

And so I would say just the gelling of the management team overall and a very clear.

Our focus on cost and expense control to improve profitability.

Is what's been driving this.

Okay, Great and then maybe I know you got on a minute Julie So your outlook is still pretty strong or how are you feeling about the.

Outlook.

I mean, you can never you can never truly predicted.

By month quarter by quarter.

We're not in that kind of business, but we see nothing that indicates that it's going to fall off or.

Change in any dramatic fashion.

We try we try real hard not to give guidance.

I would just say we're on a good path.

Yeah.

Great Congrats on the quarter. Thanks, a lot.

Thank you.

Thank you and once again that is star one if you would like to ask a question.

And we'll take our next question from George Gasper private Investor.

Thank you.

Congratulations on the quarter.

That's very impressive.

Joe Hart there.

Can you.

Give us a little.

Further.

<unk> of <unk>.

<unk> and the wireless operation.

What kind of crew count do you have and has it changed.

House versus.

Using outside crews can you explain that.

For us and.

Can you explain a little bit about what your activities are in terms of are they still strictly or mostly on the <unk>.

Tower.

Or are you getting away from the tower and trying to expand your activities there.

Yeah.

No I wear the wireless segment, we're clearly focused on tower work and for those that might be new to the call.

We're not building towers, we're upgrading technology that goes on the hours so.

That's clearly our focus on the wireless segment.

Crew count crew counts always.

Fluctuation I would say quarter over quarter.

And as a matter of fact.

We did a lot.

A lot of work here.

And the amount of hundreds of sites that we upgraded to <unk> four one of the new carriers. These last.

12 months.

That was a simpler scope of work so we're actually reconfiguring. The crews as we go after more work with AT&T and Verizon and T mobile.

That requires.

A little bigger tower crew than the previous work. So I would say that the amount of people focused on that business.

Remain the same.

Crew counts can fluctuate as far as our blend of subcontractor work to in house work I mean, George that kind of goes up and down all the time I mean, one of the benefits of using subcontractor crews is that.

It can help here.

Help you with fluctuations in the overall workload so that remains very strong.

Both in the north and South regions. So I would say you can tell by the revenue.

Four quarters in a row.

Steady as she goes.

And.

We just continue to try to widen our footprint with <unk>.

All four major carriers.

And Joe does.

Are you are you able to pick up activity away from the tower install work.

Is there that opportunity for you.

Yeah, I mean, I would say generically.

Generically theres opportunity for integration work and engineering work.

Maintenance work, but but quite honestly.

George we want to stay focused on what we're good at and.

Getting that.

Nicely profitable fashion, so we're trying not to be distracted from our mission right now alright.

And you mentioned originally there.

This is the center part of the United States is an important area of your activity alright.

Trying to expand.

<unk>.

The footprint of where you're operating at this point in time on the wireless area.

I mean, we can always be convinced by a carrier or a tower company too.

Move into a new geography, but for right now we're trying to maintain discipline and.

Reduce our costs improve our margins.

One of the reasons one of the contributors the contributing factors in getting to net positive income.

Does that.

We decided to be more disciplined and focused with our wireless geographic expansion.

Yes.

Get our overhead expenses and our our Cogs.

The right place so.

The combination of telco.

Just knocking it out of the park this quarter and.

Injecting some discipline and focus in the wireless division has allowed us to turn to positive net income so we'd like to keep that.

We'd like to keep that train rolling in that direction.

We don't want to be distracted, we don't want to be distracted right now with.

Going off on some new adventure.

Okay, and then a question on that.

Just the telephonic area in general.

You're still basically north of.

Miami from the standpoint of your operation there and you're working is it out of.

Alabama and <unk>.

And are you.

You come up with.

And new opportunities to add to your product activity and repair activity.

Because it looks like you've really taken off.

And you must be gaining momentum and then responsibility for what Youre doing and there's got to be.

Your customers they've got it I appreciate very much what you've been able to accomplish in the last say three or four quarters relative to some of the problems that the industry is having.

Yes.

I've said it a couple of times in my remarks.

No.

I think.

Michael and I made the decision that.

Mike Burch for nave communications, and Damon collector and Triton Datacom.

Were the key players and where the right guys to put in charge of those businesses.

They've done an excellent job.

They've they've been able to pivot us into some new product areas.

And essentially we are trying to.

Bill the telco business, which is following the fiber optic cable.

Massive expansion that's happening across the United States, So when I refer to optical transport products.

Routers switches.

Things like that.

It's it's to follow that wave of fiber construction, that's taken place across the U S.

So.

I think both of those guys have done a great job, but at the same time.

Our wireless team has been probably in.

A less desirable mode and trying to get cost and expense under control and has been doing a really nice job of.

Bringing that into the mode of profitability. So we still got more work to do.

But I think we're in a good place.

Got it.

The quarter represents.

Alright.

Well, you're coming along in both areas of activity primary areas of activity.

And it looks like Oh.

You are having some real opportunity to grow.

Tenneco side.

With that change.

Changes that are taking place in the market area. So.

It looks like you've got a combination of two areas of activity here that you can really accomplish broadly going forward and we certainly hope that you can continue to show that and then.

In the next quarter and obviously the next fiscal year should be a real breakout could be a real breakout for you over off too. Thanks.

Yeah.

Thank you George.

Thank you and once again that is star one if you would like to ask a question.

Yeah.

Once again, please press star one if you'd like to ask a question.

We'll take our next question from Bob Johnson private Investor.

Yes, congratulations on the good quarter.

I think we heard that.

There was some concern over Chinese components.

L towers.

Uh huh.

It might cause us some vulnerability since our relations with China are not too good.

Have you guys.

I think you might be referring to the whole.

Press about Huawei.

<unk> is a Chinese manufacturer that.

Installed wireless networks for a lot of customers and there has been press about they installed their Chinese made equipment on a lot of cell towers.

In the Midwest and Nir strategic Air force bases, et cetera, et cetera et cetera right.

Im not the authority on that but I think thats, what youre, referring to and the federal government.

<unk> is really.

Band that equipment from being in the network and has massive mulch.

Multibillion dollar rip and replace program that it is funding.

To subsidize the replacement of that.

Chinese manufactured equipment.

By those.

We're all carriers, who are using them.

Most of the big four don't don't use them, but.

I think thats, what youre, referring to Bob if it doesn't sound like it.

Point me in another direction, yes no.

Thats probably correct so.

I was just curious as to whether that opened up any kind of offer additional opportunities for you guys.

Well I think I'll be like.

So I probably know somebody is going to have somebody is going to have to do the physical work off.

<unk> taken out that old equipment, and replacing it with new equipment.

Depending upon who it's manufactured by the new equipment.

Its radio so it'll be Ericsson Nokia Samsung.

It'll be one of the.

The usual Oems.

In the world.

Wireless space.

Well, we'll be looking for opportunities in that space, but.

As I said to George.

Not going to chase it outside of R.

Our strong geographic areas, where we've got a lot of confidence.

Yeah, Okay. Okay. Thanks for the response welcome.

Youre welcome.

Okay.

Thank you and what's your net star one.

And with no additional questions in the queue I would like to turn the conference back over to management for any additional or closing remarks.

Hi, This is Joe I'd, just like to close by thanking all of you that have called in for your interest and those that listened to it.

Later by recording.

We appreciate.

<unk> investor interest in advantaged technologies group.

We think we have a bright future and.

We ask for your support and thank you for it.

That's all thank you operator.

Thank you that does conclude today's conference. We thank you all for your participation you may now disconnect.

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