Q4 2022 ADDvantage Technologies Group Inc Earnings Call

Good day and welcome to the advantaged technologies third quarter financial results 20 twenty-two conference call today's call is being recorded.

At this time I would like to turn the call over to Kim Rogers Hayden IR. Please go ahead ma'am.

Thank you Carrie we are joined today by Joe Hart, President and CEO as well as Michael Rutledge, The company's Chief Financial Officer before we begin today's call I'd like to remind you that this conference call may contain certain 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 ability of advantage technologies and its subsidiaries for the Aries to maintain strategic relationships and agreements with certain original equipment manufacturer.

And multiple system operators as well as the future financial performance of advantage technologies.

These statements involve a number of risks and uncertainties participants are cautioned that these forward looking statements are only predictions and may materially differ from actual future events or results due to a variety of factors such as those contained in advantage technologies. Most recent report on Form 10-K on file with.

The Securities and Exchange Commission.

Financial 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 an advantage 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 advantage technology, which is subject to change, although any such guidance and factors influencing it may change advantage technologies will not necessarily update the information as the company will only provide.

Guidance at certain points during the year, such information and 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, which are located on our website at advantage technology is dot com you will find a reconciliation of these non.

<unk> 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 would now like to turn the call over to Joe Hart, President and Chief Executive Officer of advantage technology.

Joe. Please go ahead.

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

We delivered record net income this quarter of $1 $5 million.

Reflecting the combined benefit of strong demand higher revenue and are focused on cost rationalization and operational efficiency.

Advanced technologies is now in an excellent position to make another leap forward in 2023.

Consolidated revenues increased 31% for the quarter to $25 $9 million, our second highest quarterly revenue ever.

Behind only the recent June 22 quarter.

While revenue increased 31% for operating expenses actually declined by more than $3 million or about 12%.

This reflects our cost reduction initiatives and focused on operational efficiencies specifically in our wireless segment.

We have targeted approximately $2.4 million in reduced wireless expenses on an annual basis, and we're making good progress in that effort.

We recognize some of that benefit in the third quarter.

But we still have work to do to achieve the full benefit and we are on target to see those annual savings over the next several quarters.

This was the fifth quarter in a row with wireless revenue over $7 million and we almost crossed 8 million in Q3.

As the growth in five G tower work continues for our wireless division.

We also benefited from strong growth in our telco business with over $18 million in sales, which represents telco second highest quarterly sales volume, reflecting continued demand for our optical transport wireless and enterprise network offerings.

We expect.

Continued growth in our wireless segment as we move into fiscal 2023.

When combined with cost and expense reductions, we expect to achieve net profitability in our wireless business during 2023.

Our growth continues to be broad based involving both new and long time customers and including all four wireless carriers and the major Oems and tower companies.

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

Our pipeline of new projects, meaning work, we have been awarded where we are awaiting for purchase orders or permitting is complete.

Is that an all time high and gives us significant confidence that the growth will continue as we enter into the new year 2023.

<unk> and the associated infrastructure Buildout represents a multi year growth opportunity for tower work across all four of the major wireless carriers.

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

Our telco segment had another great quarter as we bring solutions to the demand for optical transport equipment and fiber networks across the United States.

We also support the need for new and refurbished products for wireless and enterprise networks through our nave and Triton business units.

This was the sixth consecutive quarter of revenue over $11 million in sales.

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

We anticipate a leveling off of demand at some point in future quarters, albeit at a somewhat elevated level relative to our recent past.

However, we continue to see a global supply chain issues and micro chip shortages throughout the industry, which drive demand for our product offerings.

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.

As a reminder, we have changed our fiscal year from September 30 to December 31, which we believe will streamline our reporting process and better align our reporting cadence with other companies.

As a result, we are reporting the three months ended September 30, 2022 as our third quarter and comparing it to the September 30 quarter last year.

Which at the time was our first fiscal quarter.

The year to date periods, both compare the period from January one to September 30 of 2022 and 2021.

Consolidated sales increased $6 2 million or 31% to $25 9 million for the third quarter up from $19 7 million for the three months ended September 32021 the.

The increase in sales was due to increase in increases in wireless sales of <unk> nine.

$9 million in telco telco sales of $5 3 million.

Consolidated gross profit increased $3 five to $8 $5 million from the quarter compared to 5.0 million for the same period last year.

The increase was due to an increase in the telco segment of $2 6 million in at <unk> 9 million increase in gross profit for the wireless segment through both increased revenues and stronger margins.

Consolidated selling general and administrative SG&A expenses include overhead, which consist of personnel insurance professional services communication and other cost categories.

Increased <unk> 1 million or 2% to $4 5 million for the three months ended September 32022.

Up from $4 4 million for the same period last year the.

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

During the quarter, we realized a three.

$3 million.

Gain on the sale of company owned and leased vehicles from our wireless segment in connection with our cost cutting measures mentioned earlier in the year.

Net income for the quarter was a record $1 5 million or <unk> 11 per basic and diluted share based on 13 6 million shares compared with net income of <unk> 6 million or <unk> per basic and diluted share based on $12 5 million charge for the same quarter last year.

The period ended September 32021 included a $3 million gain from the forgiveness of our PPP loan.

Year to date for the period from January one 2022 to September 32022 sales were $77 5 million, an increase of 57% compared to $49 4 million for the same period last year.

Wireless segment revenue increased 48% to $22 9 million and telco segment revenue increased 61% to $54 6 million.

Gross profit was $22 4 million or 29% gross margin compared to gross profit of $12 5 million or 25% gross margin for the same period last year.

Operating expenses increased $300000 to $7 6 million from $7 3 million.

In the same period last year year to date net income was $1 million or seven cents per basic and diluted share compared to a net loss of $4 5 million or 36 per diluted share last year.

This includes a gain of <unk>.

300000 for the sale of the company owned and leased vehicles from some wireless segment.

The current quarter.

Current nine month period. The nine month period ended September 32021 included a $3 million gain from the forgiveness of our PPP loans.

Turning to our balance sheet cash and cash equivalents were $4 9 million at September 32022, compared to $1 8 million at December 31, 2021.

We generated $5 $2 million in cash from operations year to date.

During the nine months, we paid down our working line of credit and as of September 32022, we have.

$1 7 million of our outstanding debt consisting of vehicle financing leases.

As of September 32022, we had net inventories of $8 6 million $8 7 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 facilitate any questions.

Yes.

Thank you.

If you would 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. Your mute function is turned off to allow your signal to reach our equipment.

Again press Star one to ask a question.

We'll pause for just a moment to allow everyone an opportunity to signal for questions one moment.

Once again, ladies and gentlemen, if you'd like to ask a question. Please press star one.

We'll take our first question from the line of George Gaspar prior.

Private investor.

Thank you.

Good afternoon, there and congratulations on a great quarter.

Hi.

Just like to see if you can.

Give us some kind of a comparison of.

Your employment.

Telephonics side.

And your facility North of Miami.

Alright, and do you have enough for this facility to carry out what youre trying to expand on.

And what can you give us an idea of how many personnel.

You have involved in that operation.

Maybe let's say on a quarterly basis going forward since the beginning of this year.

And what your thoughts are.

Going forward on the operation there.

Hello.

Hi, George this is Joe.

Okay.

This.

This is a pretty detailed question George.

Okay.

Yes.

So look Triton Datacom is a.

It's a small operation it's a small refurbished.

Switches routers telephone sets desktop speaker phones et cetera.

It's a great.

Operation, but its small yes, typically runs a little north of about 30 people.

The turnover is huh.

Probably.

Two or three people a year that doesn't have high turnover.

And it's a small local group that has been working together now for almost probably 10 years. So we moved it to a brand new facility.

In the middle well was probably late 2018.

We tripled the floor space and expanded it.

And added.

So a lot of extra space in a brand new manufacturing.

Manufacturing building in.

In Pembroke Pines, Florida, So it's got plenty of room for growth.

<unk>.

A very modern.

Operating facility, it's got a good management team.

And we feel confident.

And its operating performance the quality of its products.

And I think they do a great job.

Okay Alright.

And I'd, just like to point out something that you might be interested in.

And getting a hold of.

There is.

Hey.

Yes.

Yes.

Hey.

Yes.

Bottom line personnel I don't.

If you've ever heard of it.

Lee.

Release.

And.

They have.

Just the latest copy.

Yes.

This year don't be afraid to buy refurbished.

It's a tremendous.

Commentary on telecommunications equipment.

And how much.

The opportunity is in the refurbished refurbishing smartphones.

Other types of equipment, that's going into telecommunications and it would seem like.

This is just trying to highlight maybe what you're experiencing as you're moving forward.

But it's it's amazing it's a couple of pages and it is.

It's very very bullish on.

Outlook for the whole area, so that should be pretty good for you all.

And then on the wireless area.

Can you.

Identify.

What's your crew count is internally at this point and how it's changed.

It's a quarter to quarter in the first three quarters this year and.

And what has happened on your crew count exterior of what you have it.

Within the company can you give us a little bit of a sense of how thats going.

Hmm.

Sure to some extent George.

I always try to be a little bit.

Vague just because it is a competitive issue amongst wireless construction companies, but.

I would say.

Back mid year of calendar 2021.

We were probably at around the 20 crew level.

We ramped up in the second half of last year too.

Plus minus 40 crews.

And then where we're currently running at about 30.

But in.

In Q3.

Our revenue went up.

About $700000 Q3 over Q2.

With fewer crews.

When we laid out some less productive teams.

We added some.

Much more experienced higher quality games.

And I think our our management team in the wireless segment.

Is doing a great job of improving efficiency and productivity.

So it's not just about the gross crew count.

About doing good quality work on the first strip.

And not having to waste money on second and third trips to fixed any kind of defects. So.

I think I think our team is in a good place now it's been a.

It's been a fast and furious 18 months as we ramped up last year and.

We got smarter, we reduce some expenses.

A few.

Unnecessary head count.

I think we're in a much better place.

And if you look at.

The improvement.

The loss from operations, so the wireless segment Youll.

You'll see that we've improved over $2 million a quarter from the start of the year. So.

We're making great progress and I feel like the wireless segment.

Through Fulton technologies is really poised to have a great 2023.

I see well, it's very impressive to hear.

The fact that you're.

Your.

Crew count dropped.

In the latest quarter end.

Eric Youre getting it.

Good improvement that's very impressive.

Okay.

Can you.

<unk>, if if you're getting more opportunity to do things and high towers.

With five G is continuing to expand now and get further deployed.

Are you are you able to do more on high towers and or are you able to do things away from high towers now.

Yes.

I'm not sure exactly what you mean by high towers.

George in our industry.

Hi towers about 1000, 2000 foot tall, and it's used for broadcast for TV and radio.

Our towers typically run from about 150 feet to about.

400 feet, but yes.

All of our work is basically on towers.

We do do maybe about 15% to 20% of our work is on rooftops.

<unk>.

Because rooftops probably make up about.

30% well in a metropolitan area Rooftops makeup maybe 40% of the sell side. So we do both rooftops and tower sites.

Okay is there do you sense that there is a.

At technology change that's coming about.

And towers and tower.

Smith.

That's up there.

Potentially in the past has had more China.

Product and styles and maybe mark concerned about.

Not wanting to have those <unk>.

<unk> with what's being transmitted.

Maybe that's a pretty that's this is a pretty high technical comment.

I'm asking for.

Comment on it.

Well I think it relates to that.

Yes.

It's widely published that.

The U S is flat.

Restrictions on a company called Huawei.

Yes, it's a Chinese manufacturer, it's one of the two big ones from China.

And they are very densely populated throughout the Midwest and.

Northern West States and.

The federal government is actually subsidizing, the rip and replace.

So huawei equipment with approved.

Approved.

And I'll say defense industry.

Qualified contractors, so the typical Ericsson, Nokia, Samsung et cetera et cetera. So.

We haven't seen any of that work ourselves yet it's still in the very formative stages.

Anything that's sort of government related has.

A different set of contractual requirements to it so.

Watching it we're waiting for it.

Stay in touch with the industry and what the opportunities are that come up but.

Yes, theres going to be.

So probably a few billion dollars worth of replacement that takes place and it's widely publicized so it's easier to think about it.

Alright.

So.

Going forward prices overall looks.

Pretty favorable from here and.

Notice that you've.

Reduce further year.

And that situation.

Sure.

Pretty modest level and.

Alright is there any thought that.

That you might be looking to try to expand the company's operations through maybe an acquisition that would add further to what the company can do.

Well I think this year, we set out on a definite.

Hard past to get the company back to profitability.

And we've accomplished that in these last two quarters.

We're heading into <unk>.

Both high holiday season.

As well as the beginning of winter weather up north so.

We will see some slight decline in revenues because of that.

As we enter.

Hard into the fourth quarter.

I think we're always open from a strategic perspective, we're always open to expanding our business both organically.

I think we've done a nice job of this year.

Almost.

Probably 50% to 60% growth rate this year over last.

In total and.

If we find the right acquisition that has a decent price or maybe a merger with a couple of other companies.

Well, we'll look forward to it both opportunistically and.

Very carefully but.

Right now we're still on the mission to.

To make this company a profitable investment for folks like yourselves.

Invested over the years.

Okay and then.

Finally.

Just doing the number of shares outstanding in the company, which is what 13.

That's less than 14 million shares.

Hi.

And it looks like Youre going to have a shot at it.

With the fourth quarter.

Fiscal year.

For the calendar year.

Youre going to be in the mid $100 million range.

I assume and.

That's going to be pretty impressive and with this.

Modest number of shares outstanding.

Think that the more you can leverage now.

Wall Street is going to become more interested in what you're accomplishing no doubt about it.

Comment on that.

And we certainly hope so.

I always listen to the advice of investors George.

Alright, well congratulations Super Super trend here, and it's exciting looking at what could possibly.

Emerge for the company over.

In the coming years will take care.

Thank you very much.

Once again, ladies and gentlemen, if you would like to ask a question. Please press star one.

And there appears to be no further questions at this time I would like to turn the conference back over to the speakers. Please go ahead.

Alright, well I guess I would like to conclude this call with thank.

Thank you for the interest of investors and investment advisors.

We think we think we're on a good path with advanced technologies.

We appreciate your interest and participation in the call today and look forward to future conversations.

You.

That concludes today's conference. Thank you for your participation and you may now disconnect.

[music].

Ladies and gentlemen. This call has ended you may now disconnect.

Thank you.