Q3 2023 ADDvantage Technologies Group Inc Earnings Call
Speaker 1: Greetings and welcome to the Advantage Technologies Group fiscal 2023 second quarter financial results.
Speaker 1: At this time, all participants are in listen-only mode.
Speaker 1: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and then zero on your telephone keypad.
Speaker 1: As a reminder, this conference is being recorded.
Speaker 1: It is now my pleasure to introduce your host, Mr. Brian Siegel. Thank you and you may proceed so.
Speaker 2: Thank you, Claudia. Joining me today is Joe Hart, President and CEO , and Mike Ruglage, 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.
Speaker 2: of 1995. These four looking statements include, among other things, statements regarding future events such as the ability to maintain strategic relationships and agreements with certain original equipment manufacturers and multiple system operators as well as the future financial performance.
Speaker 2: These statements involve a number of risk and uncertainties. Participants are cautioned that these forwardlifting statements are only predictions and may materially differ from actual future events or results due to a variety of factors. As such, those contained in the most recent reports on forms 10K, 10Q, and 8K on file of the SEC.
Speaker 2: Financial information presented on this conference call should be considered and conjunction with the Consolidate Financial Statements and Notes, including the company's press release issued earlier today and included its most recent reports on form 10K and 10Q. The guidance regarding anticipated future results on this call is based on limited
Speaker 2: certain points during the year. Such information is valid only as of the date of this call.
Speaker 2: During this call, we may also present certain non- GAAP financial measures, such as non-gap net income and certain ratios that are used in these measures. In our press release, and in the financial tables issued earlier today, which are located on our website at vantagetechnologies.com, you'll find a reconciliation
Speaker 2: of these non- GAAP financial measures with the closest GAAP financial s, and we discussed about why we believe the non- GAAP financial measures are relevant.
Speaker 2: These financial measures are included for the benefit of investors and should we consider them in addition to a non-set of GAAP measures .
Speaker 2: I would now like to turn the call over to Joe Hart, President and Chief Executive Officer of Advanced Technology. Joe, please go ahead.
Speaker 2: Thank you, Brian , and thank you to everyone joining us on the call today.
Speaker 2: We continue to navigate a challenging environment for both our telco and our wireless segments.
Speaker 2: while laying the groundwork for better days in the future. Both segments of our business were impacted by macro headwinds during the quarter.
Speaker 2: The results we are reporting today are not what we envisioned, especially for our wireless business.
Speaker 2: As has been widely reported, several carriers have paused CapEx investments.
Speaker 2: Swalling the deployment of 5G upgrades.
Speaker 2: We are responding by carefully managing expenses and broadening our offerings to address a wider range of projects.
Speaker 2: Our wireless segment was hit late in the second quarter by a sudden downturn and 5G-related build activity by a couple of large wireless customers and an overall slowdown in the industry by the National Wireless Careers.
Speaker 2: Construction is expected to pick back up later this year and in 2024, as wireless data consumption and network demand continues to climb at an increasing rate.
Speaker 2: The wireless industry faces significant change.
Speaker 2: Several large construction services providers in the industry, companies that have served large carriers in many areas of the country, have failed over the last 12 months.
Speaker 2: Others are struggling.
Speaker 2: This has created Greenfield opportunities for reliable partners, and we believe we are well positioned to capture a meaningful share of the near-term, cat-expend in key geographies.
Speaker 2: Our efforts to expand our addressable market in the wireless segment are accelerating. Our efforts to expand our addressable market in the wireless segment are accelerating.
Speaker 2: And under the leadership of Brian Davidson, our new Chief Revenue Officer, we are optimistic that we can secure additional projects from wireless carriers over the next few quarters.
Speaker 2: Our recently announced strategic partnership with Walker Technical Solutions.
Speaker 2: is making encouraging progress on a significant multi-year program in the wireless space.
Speaker 2: The program will aid in a carrier significantly increasing its diversity spend and create a new source of revenue to Fulton Technologies for many years to come. We have added key personnel with deep industry experience to lead this important initiative.
Speaker 2: We're also very encouraged by the federal government's funding of the Rural Broadband Program, BEAD, and the Rural Digital Opportunity Fund, known as RDOF.
Speaker 2: Both programs will provide funding of a few hundred billion in fiber and fixed wireless network investment over the next several years.
Speaker 2: We are aggressively pursuing opportunities to design and build fiber networks across multiple regions.
Speaker 2: Compounding the challenging conditions in our wireless segment is continued depressed demand for refurbished solutions through our telco segment.
Speaker 2: As we discussed last quarter,
Speaker 2: The rapid normalization of the supply chain over the last few months has significantly slowed demand for our telco business.
Speaker 2: Companies no longer need to build inventory to account for supply chain challenges and chip shortages.
Speaker 2: And many customers have significant inventory in-house that they want to work off before resuming purchases. Orders for used and refurbished equipment in our telco segment have been drastically reduced due to the overstocking done in 2022 by our customers. And we have been forced to wait for the burn off of that access inventory.
Speaker 2: by the Optical Network providers sometime later this year. Simultaneously, we have been methodically reducing our telco inventory levels in light of lower demand.
Speaker 2: We again lowered our SG&A expenses, and we believe that as conditions improve, we can return to profitability as revenues normalize in the wireless division later this year, and 2024 construction returns to normal.
Speaker 2: With that, I'll now turn the call over to Michael Relage, our CFO , to provide a more detailed review of our financial results. Michael, please go ahead.
Speaker 3: Thank you, Joe. Consolidated sales decreased $15.7 million or 57% to $12.1 million for the second quarter from $27.8 million for the three months ended June 30, 2022.
Speaker 3: The decrease of primarily due to a decrease of 14.8 million or 72% in telco revenue and a decrease of 0.9 million or 13% in wireless revenue.
Speaker 3: Gross profit was 3.3 million.
Speaker 3: or a 27% gross margin compared to gross profits of 8.1 million or a 29% gross margin for the same period last year.
Speaker 3: Operating expenses decreased half a million dollars, or 23%, to $2.0 million, reflecting the previously announced cost reduction initiatives taking place in 2022.
Speaker 3: Consolidated selling general and administrative or S-GNA expenses.
Speaker 3: include overhead, which consists of personnel, insurance,
Speaker 3: Professional services, communication, and other cost categories decreased 0.8 million or 21 percent to 3.3 million for the three months ended June 30.
Speaker 3: 2023 from 4.1 million for the same period last year. Net loss for the quarter was 2.8 million, or a 20 cent per basic and deluded chair loss compared to net income of 0.9 million.
Speaker 3: or $0.07 per basic and diluted share for the same quarter last year.
Speaker 3: Turning to our balance sheet, Caching Cache Equivalence was 2.8 million at June 30, compared to 2.6 million at December 31, 2022. In April , we entered into a securities purchase agreement issuing 13% senior secured promissory notes in the aggregate principal amount of up to $3 million. $3 million.
Speaker 3: Turning to our balance sheet, cash and cash equivalents was $2.8 million at June 30 compared to $2.6 million at December 31, 2022. In April , we entered into a securities purchase agreement issuing 13% senior secured promissory notes in the aggregate principal amount of up to $3 million, convertible into shares of common stock of the company.
Speaker 3: as well as the issuance of up to 72,000 shares of common stock as a commitment fee and warrants for the purchase of up to 648,000 shares of common stock of the company raising net proceeds of 2.8 million
Speaker 3: As of June 30, 2023, the company had net inventories of $8.1 million.
Speaker 3: Down from 8.5 million at March 31 and 9.6 million at December 31, 2022. Reducing AHRQ's inventory exposure in our telco business has been an area of focus for us.
Speaker 3: Our outstanding debt at June 30 was $3.8 million.
Speaker 3: This concludes the financial overview segment of our remarks. I will now turn the call over to the operator to facilitate any questions.
Speaker 1: Thank you very much. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star and then 1 on your telephone keypad.
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Speaker 1: Just a reminder, please limit your questions to one question and one follow-up question. We will pause momentarily to poll for questions.
Speaker 1: Ladies and gentlemen, just another reminder, if you'd like to ask a question, please press star and then one. If you'd like to ask a question, please press star and then one. We'll pause for questions.
Speaker 1: The first question comes from George Gasko, who's a private investor. Please proceed with your question, George. Okay, thank you. Good afternoon.
Speaker 1: comes from George Glasgow, who's a private investor. Please proceed with your question, George. Okay, thank you. Good afternoon.
Speaker 4: question about the wireless area. Can you identify the crews that you're operating with in house?
Speaker 4: Cruz and outside Cruz that you're using now.
Speaker 4: And at the beginning of the third court, at the...
Speaker 4: quarter that you're in now versus what you had in the second quarter. Can you identify that?
Speaker 2: I can address it.
in a fairly broad fashion, George. The wireless group was doing fine this year.
Until the month of June So the last 60 days have dropped quite a bit as.
You know, dishes, one of our big customers and they finished the phase two of their build out and launched that phase two network in June .
So they've taken a pause and for them before they start their next or third bigger phase it'll probably be three four months before they get back in action and get the real estate permissions required for phase three.
So, they've slowed down and really AT&T, it's been widely announced that AT&T has been going through a slowdown. They're in a similar situation, but for a different reason. So,
Our in-house crews remain the same as they have been. I haven't, we haven't reduced the in-house crews because we have enough work for them. We have reduced
our number of subcontracted crews in the central region. And why we use a lot of subcontractors so that we can manage through the highs and lows during the construction year.
So I would say we're probably currently running in total at about 40 to 50% of a crew count that we had.
currently running in total at about 40 to 50% of the crew count that we had in the first.
for months, five months of the year and through most of last year in the peak. So it's down right now. Now there's more work coming that we can see, but we don't have it in hand at the moment. So, I think we're gonna go through...
The two months we've already experienced and maybe a couple more before the work picks back up going into fourth quarter.
Verizon and T-Mobile still continue to build not at a great pace.
but, you know, at a steady pace.
So every indication is that
You know, dish will pick back up as they go into phase three of their build and they get their cat backs funding, the merger with Echo Star, they get that done. And then AT&T will pick back up as they go into the next capital year of 2024. So...
I think next year is going to be a very strong year. And we have a number of initiatives in place that we're working on. So I think this is a temporary slowdown and that's what all the analysts that are looking at.
both a carrier and OEM earnings reports are saying so.
That's what I'm going to stick with. Okay, and then could you identify a little bit more about, if there's any changes in what you're installing on towers, are you getting yourself in a position where you can do more work on a tower?
as opposed to what you've been doing in the past, or is it still a steady trend of what you have been doing?
up to now. Well, I mean, we do, I mean, we currently perform...
all nature of work and activity.
that customers are asking for on towers.
on towers.
The only thing we don't do much of is actually...
erecting new towers. We're not really in the steel stacking business. We do the technology upgrades, both at the base of the tower as well as on top of a tower. And we do integration of those radio networks. So we...
We do most everything that anyone could ask for on a tower already and been doing it for a few decades.
So I don't see any change there. What we are excited about is our push into, you know,
project and construction management of fiber optic cable networks. And as I talked about in my remarks, the federal funding has come through recently. And in very large amounts of money up into $60 to $80 to $100 billion.
And there are matching funds that go along with that of 30 to 50% in terms of matching funds that take that end above, you know, closer to $150 billion available for the next five years or so. So, you know, we're really excited about that. We have a good team.
Program management, construction management, working with subcontractors, and working and we're gonna focus on similar geographies so that we don't get stranded, 10 states away from our home base. Okay, and could I ask an additional question please? If it's a quick one, George, yeah, I don't wanna. Okay, somebody else wants a question. Okay, I'd like to know about your future financing requirement.
going forward relative to what you released as far as your financial capacity. Now, do you have some indications that you're going to have to do something near term here to broaden your
flexibility so that you can start turning around the amount of volume that you're going to do and have the finances available to you to handle that.
Well, I think we view the next four to six months is kind of a bridge period to 2024. So we're looking at multiple alternatives to make sure that we stay healthy and
continue to pay our bills and get to 2024. And Michael Rutledge or CFO , Michael, you might have some more comments in that regard. Yeah, sorry, I was coming off on mute.
We certainly are evaluating our needs on a daily if not weekly basis. So as we see an opportunity to
both are our balance sheet, we will address it. Okay, so at least feel you got the flexibility now to handle your activity level going forward. I'd say given where we're at.
that we expect what we're starting to see the wireless work start to pick up so that we're you know we sort of bottomed out on wireless in June July and it's picking back up. I think we're going to be we're going to be fine in that regard.
On the telco side, you know, the orders, order activity continues to remain flat at the reduced level. So, you know, NAV has always been a profitable contributor. So I think we're gonna, I think we're gonna be fine. And we just got to get through this bridge period.
to get us into the new capital year. Yes. Okay. Thank you.
Thank you very much. There are no further questions at this time. I'd now like to turn the floor over to Mr. Joe Hart for closing remarks. Thank you, sir.
Yes, I'd like to say that, you know, we appreciate those who are invested in the company today and have been with us for quite a few years. We had a big growth year last year in 2022. I grew the business in all aspects by...
40, 50% across all the entities. This year, the drop in telco product demand.
was both a surprise, both that it happened so quickly, as well as to the level it did. We feel that once the fiber optic providers burn off that excess inventory that I described earlier.
that it will return to a new normal. It most likely won't get back to 2022 levels, but we think it's gonna be fine. The company has a strong management team. We have a strong board of directors that is supportive of the company.
And most importantly, we feel that investors that have been with us for a number of years, sometimes a decade or more. So we feel that we're going to get through this and you know, it's always an uncertain system.
path that you go because it's dependent upon customers. We have some good partnerships in place. We think that Walker Technical Solutions is going to be a very good strong partnership and help lead us to...
you know, a very good future. So we've got our heads down trying to keep costs low, reduce inventories and
get this business turned around. And thank you for attending the call, and thank you for your support.
Thank you very much, ladies and gentlemen, that are complete today's conference. Thank you very much for joining us. And may now disconnect your line.
Hey, did you hang up? Oh, it's great.