Attached files
| file | filename |
|---|---|
| 8-K - QUARTER 3 EARNINGS RELEASE 8-K - ADDVANTAGE TECHNOLOGIES GROUP INC | q3_08112020.htm |
ADDvantage Technologies Reports Financial Results for Third Quarter of Fiscal 2020
“We continue to lay the groundwork to position ADDvantage Technologies for the widely anticipated acceleration of the 5G network rollout,” commented Joe
Hart, Chief Executive Officer. “During the quarter, we solidified our management team, adding a proven CFO and addressing leadership of our two main operating segments. The 5G expansion remains a critical initiative, particularly amidst the Pandemic
and the strains of the work-from-home situation, but the expected investments by the large wireless providers are still largely in a holding pattern, impacting our near-term sales. As the roll-out accelerates, with our strong customer relationships,
we are well-positioned for this 5G opportunity to help our customers grow and for the U.S. to take a leadership position in the 5G roll-out.”
“Meanwhile, the company’s strategy and focus on execution is starting to pay off as we improved gross margins by 9% year-over-year,” continued Hart.
“Driving the gross margin improvement was our Wireless division by achieving favorable sales mix and the recognition of change-order revenue for which costs had previously been booked in Q2. This was added to an improvement in operational efficiency
which underscores the earnings power of the company as the 5G opportunity materializes. Year-over-year, we have reduced our quarterly SG&A expenses by 15%. We also strengthened our balance sheet as cash exceeds $10 million and working capital is
almost $10 million. This solidifies our place in an industry readied for explosive growth.”
Financial Results for the Three Months ended June 30, 2020
Sales decreased 32% to $12.0 million for the three months ended June 30, 2020 compared with $17.6 million for the three months ended June 30, 2019. The
decrease was due to a decline in sales in the Wireless
segment of $3.6 million due to the cancellation of most summertime special events in the Midwest due to the COVID-19 pandemic in which we normally provide
substantial temporary wireless networks and the delay in infrastructure spending from the major U.S. carriers on the ramp up of construction for 5G. We also experienced a decline in sales in the Telco segment of $1.9 million resulting from a decrease
in equipment sales at Triton, which sells enterprise telephone equipment, as many of its customers were closed during the quarter also as a result of the COVID-19 pandemic.
Even with a $5.5 million sales decrease, gross profit only decreased $0.4 million to $4.2 million for the three months ended June 30, 2020 compared with a
gross profit of $4.6 million for the prior year three-month period. The decrease was primarily due to the Telco segment as the Wireless segment was essentially flat. Gross profit margin improved from 26% to 35% year-over-year due to the recognition
of project change-order revenue for which costs had already been recorded, a more favorable sales mix and the initial impact of operational initiatives in the Wireless services group.
Operating expenses increased $0.4 million to $2.0 million for the three months ended June 30, 2020 compared with $1.6 million the same period last year.
The increase is attributable to increased expenses in the Telco segment including additional personnel costs.
Selling, general and administrative expenses decreased $0.4 million to $2.4 million for the three months ended June 30, 2020 compared with $2.8 million for
the same period last year. This decrease was due to a decrease equally between our Telco and Wireless segments.
Net Income for the three months ended June 30, 2020, was $23,000, or $0.00 per diluted share, compared with a net loss of $1.5 million, or $(0.14) per
diluted share, in the year-ago quarter. The net gain for the third fiscal quarter of 2020 included a $660,000 impairment charge related to a right of use asset associated with a building lease for a property formerly used by the Telco segment. This
was more than offset by a $1.2 million tax benefit related to the CARES act. The year-ago period included approximately $1.4 million in loss from discontinued operations.
Adjusted EBITDA for the three months ended June 30, 2020 was a loss of $187,000 compared with positive Adjusted EBITDA of $176,000 for the same period of
2019.
Financial Results for the Nine Months ended June 30, 2020
Sales increased 2% to $37.9 million for the nine months ended June 30, 2020 compared with $37.3 million for the nine months ended June 30, 2019. The
increase in sales was driven by the January 4, 2019 acquisition of Fulton Technologies to create the company’s Wireless Segment. Sales for the Wireless segment increased $3.6 million to $16.6 million for the nine months ended June 30, 2020 compared
with $13.0 million for the nine months ended June 30, 2019. Sales for the Telco segment decreased $3.0 million to $21.4 million for the nine months ended June 30, 2020 compared with $24.4 million for the same period last year. The decrease in sales
resulted primarily from a $1.8 million decrease in equipment sales at the Company’s Triton unit and a $1.2 million decrease in equipment sales at the Company’s Nave unit.
Gross profit decreased $2.5 million to $7.3 million for the nine months ended June 30, 2020 compared with $9.8 million for the prior year nine-month period
primarily due to an increase in inventory obsolescence expense of $2.4 million for the company’s Nave and Triton businesses and increased expenses related to repositioning the Company’s Southern workforce to the North. This was partially offset by
the addition of a full 3 quarters of gross profit from the acquisition of Fulton in January 2019.
Operating expenses increased $2.3 million to $6.3 million for the nine months ended June 30, 2020 compared with $3.9 million for the same period last year.
The increase in operating expenses was due primarily to the addition of the Wireless segment in the previous year, additional facility costs as a result of moving into Triton’s new facility in the first fiscal quarter of 2020 and additional personnel
costs.
Selling, general and administrative expenses increased $0.7 million to $8.1 million for the nine months ended June 30, 2020 compared with $7.4 million for
the same period last year. This increase was primarily due to the addition of the Wireless segment of $0.9 million in the previous year, partially offset by a decrease in personnel costs in the Telco segment as well as Corporate overhead reductions.
Impairment of intangibles including goodwill for the nine months ended June 30, 2020 was $8.7 million related to the write-off of goodwill and certain
intangibles in the Telco segment in the second fiscal quarter.
Net loss for the nine months ended June 30, 2020, was $16.4 million, or ($1.49) per diluted share, compared with a net loss $3.7 million, or $(0.36) per
diluted share, for the first nine months of last year. The net loss for the first nine months of fiscal 2020 included the $8.7 million write-off of goodwill, the $660,000 impairment related to a right of use asset, partially offset by the $1.2
million tax benefit. The prior-year period included approximately $1.3 million in losses from discontinued operations.
Adjusted EBITDA for the nine months ended June 30, 2020 was a loss of $6.9 million compared with a loss of $1.4 million for the same period of 2019.
Balance sheet
Cash and cash equivalents were $10.4 million as of June 30, 2020, compared with $1.2 million as of September 30, 2019. As of June 30, 2020, the Company had
inventories of $6.0 million, compared with $7.6 million as of September 30, 2019.
Outstanding debt was $7.6 million as of June 30, 2020 comprised of $2.8 million on a revolving line of credit and $4.8 million of notes payable, compared
with no debt as of September 30, 2019. The payments required under the $3.5 million notes payable correlate with payments that we will receive from the $5.8 million promissory note receivable balance from the 2019 sale of our cable business.
Subsequent to Quarter End
Subsequent to June 30, 2020, the Company announced several management changes. First, Jarrod Watson was appointed as the Chief Financial Officer of the
Company. Mr. Watson comes to the Company with more than 20 years of corporate financial leadership, including multiple Fortune 500 organizations. Reginald Jaramillo was promoted to President of the Telco segment. Mr. Jaramillo has 15 years of
experience in the telecommunications industry working for companies such as Cox Communications, Time Warner Cable and Suddenlink Communications. Jimmy Taylor was named President of the Wireless segment, where he had been serving in that capacity on
an interim basis since February 2020.
Earnings Conference Call
The Company will host a conference call today, Tuesday, August 11, at 4:30 p.m. Eastern Time.
Webcast: www.addvantagetechnologies.com
Dial-in number: 1-855-327-6837 (domestic) or 1-631-891-4304 (international)
Access code: 10010577
Replay number: 1-844-512-2921 (domestic) or 1-412-317-6671 (international)
Available through: August 25, 2020
Access code: 10010577
About ADDvantage Technologies Group, Inc.
ADDvantage Technologies Group, Inc. (Nasdaq: AEY) is a communications infrastructure services and equipment provider operating a diversified group of
companies through its Wireless Infrastructure Services and Telecommunications segments. Through its Wireless segment, Fulton Technologies provides turn-key wireless infrastructure services including the installation, modification and upgrading of
equipment on communication towers and small cell sites for wireless carriers, national integrators, tower owners and major equipment manufacturers. Through its Telecommunications segment, Nave Communications and Triton Datacom sell equipment and
hardware used to acquire, distribute, and protect the communications signals carried on fiber optic, coaxial cable and wireless distribution systems. The Telecommunications segment also offers repair services focused on telecommunication equipment
and recycling surplus and related obsolete telecommunications equipment.
ADDvantage operates through its subsidiaries, Fulton Technologies, Nave Communications, and Triton Datacom. For more information, please visit the
corporate web site at www.addvantagetechnologies.com.
Cautions Regarding Forward-Looking Statements
The information in this announcement may include forward-looking statements. All statements, other than statements of historical facts, which address
activities, events or developments that the Company expects or anticipates will or may occur in the future, are forward-looking statements. These statements are subject to risks and uncertainties, which could cause actual results and developments to
differ materially from these statements. A complete discussion of these risks and uncertainties is contained in the Company’s reports and documents filed from time to time with the Securities and Exchange Commission.
Non-GAAP Financial Measures
Adjusted EBITDA is a supplemental, non-GAAP financial measure. EBITDA is defined as earnings before interest expense, income taxes, depreciation and
amortization. Adjusted EBITDA as presented also excludes impairment charges for operating lease right of use assets, intangible assets including goodwill, stock compensation expense, other income, other expense, interest income and income from equity
method investment. Management believes providing Adjusted EBITDA is presented below because this metric is used by the financial community as a method of measuring our financial performance and of evaluating the market value of companies considered
to be in similar businesses. Since Adjusted EBITDA is not a measure of performance calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, net earnings as an indicator of operating performance.
Adjusted EBITDA, as calculated in the table below, may not be comparable to similarly titled measures employed by other companies. In addition, Adjusted EBITDA is not necessarily a measure of our ability to fund our cash needs.
-- Tables follow –
ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
|
June 30,
2020
|
September 30,
2019
|
|||||||
|
Assets
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$
|
10,365,744
|
$
|
1,242,143
|
||||
|
Restricted cash
|
105,117
|
351,909
|
||||||
|
Accounts receivable, net of allowance for doubtful accounts of
$250,000 and $150,000, respectively
|
3,164,893
|
4,826,716
|
||||||
|
Unbilled revenue
|
677,702
|
2,691,232
|
||||||
|
Promissory note – current
|
1,400,000
|
1,400,000
|
||||||
|
Income tax receivable
|
34,915
|
21,350
|
||||||
|
Inventories, net of allowance for excess and obsolete
inventory of $3,400,000 and $1,275,000, respectively
|
5,964,490
|
7,625,573
|
||||||
|
Prepaid expenses
|
1,013,645
|
543,762
|
||||||
|
Other assets
|
289,300
|
262,462
|
||||||
|
Total current assets
|
23,015,806
|
18,965,147
|
||||||
|
Property and equipment, at cost:
|
||||||||
|
Machinery and equipment
|
3,503,199
|
2,475,545
|
||||||
|
Leasehold improvements
|
846,783
|
190,984
|
||||||
|
Total property and equipment, at cost
|
4,349,982
|
2,666,529
|
||||||
|
Less: Accumulated depreciation
|
(1,326,477
|
)
|
(835,424
|
)
|
||||
|
Net property and equipment
|
3,023,505
|
1,831,105
|
||||||
|
Right-of-use operating lease assets
|
4,158,786
|
‒ |
||||||
|
Promissory note – noncurrent
|
2,950,000
|
4,975,000
|
||||||
|
Intangibles, net of accumulated amortization
|
1,504,773
|
6,002,998
|
||||||
|
Goodwill
|
57,554
|
4,877,739
|
||||||
|
Deferred income taxes
|
1,220,564
|
‒ |
||||||
|
Other assets
|
178,602
|
176,355
|
||||||
|
Total assets
|
$
|
36,109,590
|
$
|
36,828,344
|
||||
|
June 30,
2020
|
September 30,
2019
|
|||||||
|
Liabilities and Shareholders’ Equity
|
||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable
|
$
|
4,786,788
|
$
|
4,730,537
|
||||
|
Accrued expenses
|
1,415,792
|
1,617,911
|
||||||
|
Deferred revenue
|
241,452
|
97,478
|
||||||
|
Bank line of credit
|
2,800,000
|
‒ |
||||||
|
Note payable – current
|
2,580,652
|
‒ |
||||||
|
Operating lease obligations – current
|
1,224,630
|
‒ |
||||||
|
Financing lease obligations – current
|
328,151
|
‒ |
||||||
|
Other current liabilities
|
‒ |
757,867
|
||||||
|
Total current liabilities
|
13,377,465
|
7,203,793
|
||||||
|
Note payable
|
2,171,680
|
‒ |
||||||
|
Operating lease obligations
|
3,809,803
|
‒ |
||||||
|
Financing lease obligations
|
855,052
|
‒ |
||||||
|
Other liabilities
|
15,000
|
177,951
|
||||||
|
Total liabilities
|
20,229,000
|
7,381,744
|
||||||
|
Shareholders’ equity:
|
||||||||
|
Common stock, $.01 par value; 30,000,000 shares authorized; 11,294,839 and 10,861,950 shares issued, respectively;
11,294,839 and 10,361,292 shares outstanding, respectively
|
112,950
|
108,620
|
||||||
|
Paid in capital
|
(2,592,034
|
)
|
(4,377,103
|
)
|
||||
|
Retained earnings
|
18,359,674
|
34,715,097
|
||||||
|
Total shareholders’ equity before treasury stock
|
15,880,590
|
30,446,614
|
||||||
|
Less: Treasury stock, 0 and 500,658 shares, respectively, at cost
|
‒ |
(1,000,014
|
)
|
|||||
|
Total shareholders’ equity
|
15,880,590
|
29,446,600
|
||||||
|
Total liabilities and shareholders’ equity
|
$
|
36,109,590
|
$
|
36,828,344
|
||||
ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
Three Months Ended June 30,
|
Nine Months Ended June 30,
|
|||||||||||||||
| 2020 |
2019 |
2020 |
2019 |
|||||||||||||
|
Sales
|
$
|
12,021,820
|
$
|
17,559,315
|
$
|
37,943,303
|
$
|
37,259,352
|
||||||||
|
Cost of sales
|
7,851,241
|
12,971,910
|
30,619,379
|
27,472,042
|
||||||||||||
|
Gross profit
|
4,170,579
|
4,587,405
|
7,323,924
|
9,787,310
|
||||||||||||
|
Operating expenses
|
1,998,184
|
1,611,751
|
6,276,442
|
3,943,026
|
||||||||||||
|
Selling, general and administrative expenses
|
2,420,629
|
2,846,168
|
8,095,815
|
7,385,008
|
||||||||||||
|
Impairment of right of use asset
|
660,242
|
‒ |
660,242
|
‒ |
||||||||||||
|
Impairment of intangibles including goodwill
|
‒ |
‒ |
8,714,306
|
‒ |
||||||||||||
|
Depreciation and amortization expense
|
241,501
|
382,565
|
1,196,860
|
1,069,653
|
||||||||||||
|
Loss from operations
|
(1,149,977
|
)
|
(253,079
|
)
|
(17,619,741
|
)
|
(2,610,377
|
)
|
||||||||
|
Other income (expense):
|
||||||||||||||||
|
Interest income
|
83,544
|
‒ |
258,847
|
‒ |
||||||||||||
|
Income from equity method investment
|
‒ |
20,005
|
40,500
|
75,005
|
||||||||||||
|
Other income (expense)
|
(29,454
|
)
|
158,739
|
(86,588
|
)
|
118,319
|
||||||||||
|
Interest expense
|
(101,327
|
)
|
(25,860
|
)
|
(184,005
|
)
|
(68,612
|
)
|
||||||||
|
Total other income (expense), net
|
(47,237
|
)
|
152,884
|
28,754
|
124,712
|
|||||||||||
|
Loss before income taxes
|
(1,197,214
|
)
|
(100,195
|
)
|
(17,590,987
|
)
|
(2,485,665
|
)
|
||||||||
|
Benefit for income taxes
|
(1,220,564
|
)
|
(42,000
|
)
|
(1,235,564
|
)
|
(13,000
|
)
|
||||||||
|
Income (loss) from continuing operations
|
23,350
|
(58,195
|
)
|
(16,355,423
|
)
|
(2,472,665
|
)
|
|||||||||
|
Loss from discontinued operations, net of tax
|
‒ |
(1,426,970
|
)
|
‒ |
(1,267,344
|
)
|
||||||||||
|
Net income (loss)
|
$
|
23,350
|
$
|
(1,485,165
|
)
|
$
|
(16,355,423
|
)
|
$
|
(3,740,009
|
)
|
|||||
|
Income (loss) per share:
|
||||||||||||||||
|
Basic
|
||||||||||||||||
|
Continuing operations
|
$
|
0.00
|
$
|
(0.00
|
)
|
$
|
(1.49
|
)
|
$
|
(0.24
|
)
|
|||||
|
Discontinued operations
|
‒ |
(0.14
|
)
|
‒ |
(0.12
|
)
|
||||||||||
|
Net income (loss)
|
$
|
0.00
|
$
|
(0.14
|
)
|
$
|
(1.49
|
)
|
$
|
(0.36
|
)
|
|||||
|
Diluted
|
||||||||||||||||
|
Continuing operations
|
$
|
0.00
|
$
|
(0.00
|
)
|
$
|
(1.49
|
)
|
$
|
(0.24
|
)
|
|||||
|
Discontinued operations
|
‒ |
(0.14
|
)
|
‒ |
(0.12
|
)
|
||||||||||
|
Net income (loss)
|
$
|
0.00
|
$
|
(0.14
|
)
|
$
|
(1.49
|
)
|
$
|
(0.36
|
)
|
|||||
|
Shares used in per share calculation:
|
||||||||||||||||
|
Basic
|
11,079,580
|
10,361,292
|
10,955,235
|
10,361,292
|
||||||||||||
|
Diluted
|
11,216,688
|
10,361,292
|
10,955,235
|
10,361,292
|
||||||||||||
A reconciliation by segment of loss from operations to Adjusted EBITDA for the three and nine months ended June 30, follows:
|
Three Months Ended June 30, 2020
|
Three Months Ended June 30, 2019
|
|||||||||||||||||||||||
| Wireless |
Telco |
Total |
Wireless |
Telco |
Total |
|||||||||||||||||||
|
Income (loss) from operations
|
$
|
(253,416
|
)
|
$
|
(896,561
|
)
|
$
|
(1,149,977
|
)
|
$
|
(454,672
|
)
|
$
|
201,593
|
$
|
(253,079
|
)
|
|||||||
|
Impairment of right of use asset
|
‒ |
660,242
|
660,242
|
‒ |
‒ |
‒ |
||||||||||||||||||
|
Impairment of intangibles including goodwill
|
‒ |
‒ |
‒ |
‒ |
‒ |
‒ |
||||||||||||||||||
|
Depreciation and amortization expense
|
143,245
|
98,256
|
241,501
|
81,607
|
300,958
|
382,565
|
||||||||||||||||||
|
Stock compensation expense
|
25,577
|
35,769
|
61,346
|
12,166
|
34,436
|
46,602
|
||||||||||||||||||
|
Adjusted EBITDA
|
$
|
(84,594
|
)
|
$
|
(102,294
|
)
|
$
|
(186,888
|
)
|
$
|
(360,899
|
)
|
$
|
536,987
|
$
|
176,088
|
||||||||
|
Nine Months Ended June 30, 2020
|
Nine Months Ended June 30, 2019
|
|||||||||||||||||||||||
| Wireless |
Telco |
Total |
Wireless |
Telco |
Total |
|||||||||||||||||||
|
Loss from operations
|
$
|
(4,136,645
|
)
|
$
|
(13,483,096
|
)
|
$
|
(17,619,741
|
)
|
$
|
(1,568,255
|
)
|
$
|
(1,042,122
|
)
|
$
|
(2,610,377
|
)
|
||||||
|
Impairment of right of use asset
|
‒ |
660,242
|
660,242
|
‒ |
‒ |
‒ |
||||||||||||||||||
|
Impairment of intangibles including goodwill
|
‒ |
8,714,306
|
8,714,306
|
‒ |
‒ |
‒ |
||||||||||||||||||
|
Depreciation and amortization expense
|
461,672
|
735,188
|
1,196,860
|
172,240
|
897,413
|
1,069,653
|
||||||||||||||||||
|
Stock compensation expense
|
64,344
|
103,061
|
167,405
|
31,628
|
121,063
|
152,691
|
||||||||||||||||||
|
Adjusted EBITDA (a)
|
$
|
(3,610,629
|
)
|
$
|
(3,270,299
|
)
|
$
|
(6,880,928
|
)
|
$
|
(1,364,387
|
)
|
$
|
(23,646
|
)
|
$
|
(1,388,033
|
)
|
||||||
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(a)
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The Telco segment includes inventory-related non-cash adjustments of $2.3 million for the nine months ended June 30, 2020.
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