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Edited Transcript of AEY earnings conference call or presentation 14-Aug-17 4:00pm GMT

Thomson Reuters StreetEvents

Q3 2017 ADDvantage Technologies Group Inc Earnings Call

BROKEN ARROW Aug 17, 2017 (Thomson StreetEvents) -- Edited Transcript of ADDvantage Technologies Group Inc earnings conference call or presentation Monday, August 14, 2017 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David E. Chymiak

ADDvantage Technologies Group, Inc. - Chairman of the Board, CTO, VP, President of Tulsat Corp and Director of Tulsat Corp

* David L. Humphrey

ADDvantage Technologies Group, Inc. - CEO, President and Director

* Don Kinison

ADDvantage Technologies Group, Inc. - VP of Sales

* Garth Russell

Kanan, Corbin, Schupak & Aronow, Inc. - MD of the IR Team

* Scott A. Francis

ADDvantage Technologies Group, Inc. - CFO, CAO, VP and Secretary

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Presentation

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Operator [1]

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Good day, and welcome to the ADDvantage Technologies Third Quarter 2017 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Garth Russell of KCSA Strategic Communications. Please go ahead, sir.

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Garth Russell, Kanan, Corbin, Schupak & Aronow, Inc. - MD of the IR Team [2]

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Thank you. Before beginning today's call, I would 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 future forward-looking statements are, among other things, statements regarding future events, such as the ability of ADDvantage Technologies and its subsidiaries to maintain strategic relationships and agreements with certain original equipment manufacturers and multiple system operators as well as the future financial performance of ADDvantage 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 ADDvantage 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 in ADDvantage Technologies' most recent report on Form 10-Q filed earlier today. The guidance regarding anticipated future results on this call is based on limited information currently available on ADDvantage Technologies, which is subject to change. Although any such guidance and factors influencing it may change, ADDvantage Technologies will not necessarily update the information and the company will only provide guidance at certain points during the year. Such information speaks only as of the date of this call. During this call, we may also present certain non-GAAP financial measure such as EBITDA and certain ratios that are used with these measures in our press release and in the financial tables issued earlier today, which is located on our website at addvantagetechnologies.com. You'll find a reconciliation of these non-GAAP financial measures with the closest GAAP financial measures and a discussion about why we think 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.

With nothing further, I'd now like to turn the call over to David Humphrey, President and Chief Executive Officer of ADDvantage Technologies. David, the floor is yours.

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David L. Humphrey, ADDvantage Technologies Group, Inc. - CEO, President and Director [3]

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Thank you, Garth. Welcome, everyone, to ADDvantage Technologies Fiscal Third Quarter 2017 Conference Call. With me today is Dave Chymiak, our Chief Technology Officer; Scott Francis, our Chief Financial Officer; and Don Kinison, our Vice President of Sales. Before I turn the call over to Scott to provide the detailed financial results, I want to provide an update on our recent performance and briefly comment on our ongoing strategic initiatives.

Sales in the third quarter of fiscal 2017 increased 29% compared to last year, which includes sales from our new subsidiary, Triton Datacom, which offset sales decline for Nave Communications. I'm pleased to say that sales from our Cable TV segment increased slightly to $6 million for the third quarter compared to the same period last year. This segment of our business has had a fairly consistent sales performance for the last several quarters.

For the first 9 months for fiscal 2017, revenue is up $600,000, generating an increase in gross profit and positive cash flow for our company. Looking ahead, we are in the process of reviewing our various operations and operating results to optimize the performance within this segment as well as continuing to look for strategic opportunities to leverage our inventory position and technical sales force within the Cable TV market in order to gain greater market share.

In terms of our Telco segment, we saw sales increase to $7 million compared to $4.1 million for the third quarter of fiscal 2016. This is the second full quarter financials to include the acquisition of the Triton business. The Triton acquisition has further diversified our business and we are pleased so far with both the top line and bottom line performance for the Triton business. While the Triton acquisition highlights the immediate scale that we gained through the addition of the Triton business, this benefit was negatively impacted by the continuing poor performance within Nave Communications. In an effort to improve the top line results and, therefore, the overall operating results with Nave, we are in the process of implementing several changes by our VP of Sales, Don Kinison. Don has been working with the Nave team on evaluating the market challenges we have faced in order to develop or revise sales strategy for Nave. While it is too early in the process to discuss specific details of the strategy that Don plans to implement, I can say that it isn't focused on just one thing. The sales strategy will focused on both who and how we sell to our existing and prospective customer base as well as the sales organizational structure. We believe that Nave's performance will be turned around once the sales strategy and revised organization is fully implemented.

With that, I will now turn the call over to Scott Francis, our Chief Financial Officer, who will take you through the financial results in more detail.

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Scott A. Francis, ADDvantage Technologies Group, Inc. - CFO, CAO, VP and Secretary [4]

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Thank you, David. For the fiscal third quarter of 2017, our total sales increased 29% to $13 million from $10.1 million for the same period of last year. Sales for the Cable TV segment increased $0.1 million to $6 million for the 3 months ended June 30, '17, from $5.9 million from the same period of last year. The increase in sales was due to an increase in new equipment sales and repair sales of $200,000 and $300,000, respectively, partially offset by a decrease in refurbished equipment sales of $0.4 million. The increase in the new equipment sales and repair sales is due primarily to an overall increase in our market demand.

Sales for the Telco segment increased $2.9 million to $7.0 million for the 3 months ended June 30, '17, from $4.1 million for the same period of last year. The increase of sales for the Telco segment was due to an increase in used equipment sales and new equipment revenue of $3 million and $100,000, respectively, which was partially offset by a decrease in recycle revenue of $200,000. The increase in Telco used equipment sales was primarily due to the Triton Datacom, which offsets the continued lower sales from Nave Communications. As David mentioned earlier, Don Kinison is addressing the lower sales at Nave Communications.

Consolidated gross profit increased $300,000 or 8% to $3.8 million for the 3 months ended June 30, 2017, from $3.5 million for the same period of last year. The increase in gross profit was in the Telco segment of $500,000, offset by a decrease in the Cable TV segment of $200,000.

Gross margin for the Cable TV segment was 31% for the 3 months ended June 30, '17, compared to 36% for the same period of last year. Our gross profit margin for the Telco segment decreased to 27% for the 3 months ended June 30, '17, from 32% for the 3 months ended June 30, '16. The decrease in the gross margin was due primarily to lower margins from equipment sales related to Triton Datacom and lower gross margins for refurbished equipment sales from Nave Communications as a result of an increased percentage of sales to resellers as compared to end-user customers and increased sourcing of equipment to fulfill equipment sales.

Our operating, selling, and general administrative expenses increased $700,000 to $3.8 million for the 3 months ended June 30, '17, from $3.1 million for the same period of last year. This increase in expenses was due to the Telco segment of $800,000 due primarily to operating expenses of $800,000 from Triton Datacom and Triton Datacom earn-out expenses of $100,000.

The increase in the Telco segment was partially offset by $100,000 decrease in operating expenses in the Cable TV segment. Net loss for the 3 months ended June 30, 2017, was $67,000 or $0.01 per share compared with a net income of $316,000 or $0.03 per share for the same period of last year. Our consolidated EBITDA decreased $300,000 to $400,000 for the 3-month period ended June 30, '17, from EBITDA of $700,000 for the same period of last year.

The Cable TV segment EBITDA decreased $100,000 to $500,000 for the 3-month period ended June 30, '17, from $600,000 for the same period of last year. While the Telco segment EBITDA decreased $200,000 to a loss of approximately $100,000 for the 3 months ended June 30, '17, from an income of $100,000 for the same period of last year.

The Telco segment includes earn-out expenses of $100,000 for the 3-month period ended June 30, '17.

For the 9 months ended June 30, '17, total sales increased 26% to $36.4 million from $28.9 million for the same period of last year. Sales for the Cable TV segment increased $600,000 to $17.6 million for the 9 months ended June 30, 2017, from $17 million for the same period of last year. The increase in sales was due to an increase in new equipment sales and repair sales of $500,000 and $900,000, respectively, which was partially offset by a decrease in refurbished equipment revenue of $800,000. The increase in the new equipment sales was due primarily to increased sales in the first and third quarters of '17, which was partially offset by a general decrease in demand in the second quarter.

Sales for the Telco segment increased $6.8 million to $18.9 million for the 9 months ended June 30, '17, from $12.1 million for the same period of last year. The increase in sales for the Telco segment was due to an increase in used equipment sales and recycling revenue of $6.6 million and $0.2 million, respectively. The increase in Telco equipment sales was primarily due to Triton Datacom.

We recognized revenues from Triton Datacom starting on October 14 of '16, which was the date of the acquisition. This increase was offset by the continued lower sales from Nave, which we are addressing, as discussed earlier in the call. Consolidated gross profit increased $1.7 million or 18% to $11.5 million for the 9 months ended June 30 of '17, from $9.8 million for the same period of last year. The increase in gross profit was in both the cable TV and Telco segment of $0.4 million and $1.3 million, respectively. Gross margin for the Cable TV segment was 34% for the 9 months ended June 30 of '17, compared to 33% for the same period of last year.

Gross margin for the Telco segment was 29% for the 9 months ended June 30 of '17, and 35% for the 9 months ended June 30 of '16. The decrease in gross margin was due primarily to lower gross margins from equipment sales related to Triton Datacom, and lower gross margins for refurbished equipment sales from the remaining portion of the segment as a result of an increased percentage of sales to resellers as compared to end-user customers and increased sourcing of equipment to fulfill equipment sales.

Our operating, selling, and general administrative expenses increased $2 million or 23% to $11 million for the 9 months ended June 30 of '17, from $9 million for the same period of last year. This increase in expenses was due to the Telco segment of $2.2 million, partially offset by a decrease in the Cable TV segment of $200,000.

The increase in the Telco segment was due primarily to operating expenses of $2 million from Triton Datacom, acquisition-related costs of $200,000 and Triton Datacom earn-out expenses of $200,000. In addition, for the 9 months ended June 30, 2016, the company recorded a reduction in expense of $200,000 for the March 16 earn-out accrual related to the Nave Communications company acquisition. Net income for the 9-month period ended June 30, '17, was $161,000 or $0.02 per diluted share compared to $486,000 or $0.05 per diluted share for the same period of '16.

Our consolidated EBITDA remained relatively flat at $1.8 million for the 9 months ended June 30 of '17, and June 30 of 2016. The Cable TV segment EBITDA increased $600,000 to $1.8 million for the 9-month period ended June 30 of '17, from $1.2 million for the same period of last year. The Telco segment EBITDA decreased $600,000 to a loss of $16,000 for the 9 months ended June 30, 2017, from $541,000 for the same period of last year. The Telco segment EBITDA includes the impact of Triton Datacom acquisition-related costs of $200,000 and Triton Datacom earn-out expenses of $200,000.

Cash and cash equivalents were $3.7 million as of June 30 of '17, compared with $4.5 million as of September 30, 2016. The decrease in cash was due to cash used in investment activity of $5.5 million, offset by cash provided by operations and financing activities of $2.3 million and $2.5 million, respectively. The cash used in investing activities resulted primarily for the acquisition of Triton Datacom for $6.6 million, and the final and annual installment payment related to the Nave Communications acquisition of $1 million. This was partially offset by payments received on a note to the YKTG Solution's venture of $2.3 million. The cash provided by financing activities was due to cash borrowing of $4 million to finance the Triton Datacom acquisition, partially offset by principal payments on a notes payable of $1.5 million.

As of June 30, 2017, the company had net inventory of $22.7 million compared with $21.5 million as of September 30, 2016. Also, at June 30, 2017, we were not in compliance with one of our debt compliance covenants, which was our fixed charge coverage ratio debt covenant with our primary financial lender under our credit and term loan agreement. We notified our primary financial lender of the covenant violation, and on August 8, 2017, the primary financial lender granted a waiver of the covenant violation. Although the violation has been waived as of June 30 of '17, we believe that the company may again be out of compliance with their debt covenants of September 30, 2017. This covenant violation was due primarily to lower operating results from Nave Communications in fiscal year 2017. Given our ability to continue to service our debt, our past relationship with our primary financial lender and the sales strategy we are implementing within Nave, which we discussed earlier, we expect to be able to obtain covenant waivers from our primary financial lender until such time that we are in compliance once again with our debt covenant.

This concludes the financial overview section of our remarks. I'll now turn the call over to the operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) There are no questions -- excuse me, our first question comes from [George Jasper], Private Investor.

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Unidentified Shareholder, [2]

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First question on the financial statement. Notes payable are in the current liability area. I assume that -- can you address how much of that relates to the Miami acquisition? And what happens to this notes payable situation? And when does -- I assume you've got to refinance that and would it go -- be considered into a long-term debt situation as opposed to current liability?

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Scott A. Francis, ADDvantage Technologies Group, Inc. - CFO, CAO, VP and Secretary [3]

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Yes. So, [George], this is -- and you are right, we did classify the entire note payable balance in as a current portion, but that is primarily due to the covenant violation and the fact that we couldn't "guarantee" that we wouldn't be in violation within the next 12-month period. And as what I said on the call, that's subject to getting our Nave Communications sales volume up thereby getting better margins down to the bottom line, right? So with that said, we had to put the $6.8 million all as current that we are not having to refinance because we did get a waiver from our bank and what that effectively means is we are running business as usual, in layman's terms. So no acceleration of debt payments, nothing is going to happen out of the normal. So this next quarter, we will make our normal principal payments as we always would have. And it's just a classification issue that we're having to do from an accounting side. Does that help answer your question?

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Unidentified Shareholder, [4]

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Yes. Okay. All right. And is that majority of what's there on that note, that $6,829,000? How much of that is from the acquisition?

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Scott A. Francis, ADDvantage Technologies Group, Inc. - CFO, CAO, VP and Secretary [5]

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The acquisition itself, we borrowed $4 million in the acquisition. And if I recall correctly, it's about -- we're somewhere in the 3.5, 3.7 still left on that, probably about 3.7 right now. So -- and -- but of course, that's not current. We've -- of the balance, I think the re-class was -- we pushed $4.5 million, $4.6 million up into current from long term. So that's how it's going to work.

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Unidentified Shareholder, [6]

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All right. I'd like to get into the various operations in terms of segment outlook. And could you -- I don't know if you mentioned this, this decommissioning business that you were into on cell towers, was there any revenue in the quarter? And have you been paid back for the advancements that you made to the joint venture?

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Scott A. Francis, ADDvantage Technologies Group, Inc. - CFO, CAO, VP and Secretary [7]

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So -- okay, so related to YKTG Solutions, where we're at right now, as we've stated, we -- this year reflected over $2 million against it. We are now down to under $300,000 left on our books related to the investment for what we recorded. About roughly -- if I can do it in rough numbers, about $200,000 of that was related to the wireless provider, another $100,000 was left over with the partners as we have it recorded right now. That's not the entire amount that we advanced, but that would get us into not having to record any losses. So we've got a -- that's where we're at right now. We're -- and I've collected already a decent amount of that. The amount still was with the provider as of now, as of the mid-August year.

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Unidentified Shareholder, [8]

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All right. And there is no activity going on anymore like that joint venture?

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Scott A. Francis, ADDvantage Technologies Group, Inc. - CFO, CAO, VP and Secretary [9]

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No. Right now, it's pretty quiet on the -- there's nothing related to the decommissioning project. We've got some little cleanup things on some billings and so forth but nothing of (inaudible).

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Unidentified Shareholder, [10]

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Okay. All right. And the next one is the cable -- the TV Cable segment outlook. Anything that you could relate on the going-forward view of the business?

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David L. Humphrey, ADDvantage Technologies Group, Inc. - CEO, President and Director [11]

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Of course, [George], we don't make forward-looking statements, but we always give the opportunity for Dave to kind of tell us what he's seeing in the business these days. So, Dave, if you don't mind, I'll turn it over to you.

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David E. Chymiak, ADDvantage Technologies Group, Inc. - Chairman of the Board, CTO, VP, President of Tulsat Corp and Director of Tulsat Corp [12]

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All right, [George]. Seeing more activity if we're looking for pricing on fiber optic nodes, and it's shifting a little bit in what's out there. The marketplace is needing a lot of bandwidth for the forward direction right now more than they are the reverse path, and that's where the demand is right at the moment.

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Unidentified Shareholder, [13]

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Okay. And how does that -- can you expand your business, do you think, on the basis of how you view things now, say, as the revenue stream?

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David L. Humphrey, ADDvantage Technologies Group, Inc. - CEO, President and Director [14]

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That would be a forward-projecting statement. But again, I'll Dave answer, from an industry-wide standpoint, what he's seeing again.

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David E. Chymiak, ADDvantage Technologies Group, Inc. - Chairman of the Board, CTO, VP, President of Tulsat Corp and Director of Tulsat Corp [15]

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[George], we're gearing up for it inventory-wise, so we're seeing a lot of quotes for it. So we're gearing up for it.

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David L. Humphrey, ADDvantage Technologies Group, Inc. - CEO, President and Director [16]

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We're looking for any opportunities, that's what Dave's certainly is always ready to. We've got the inventory, we've got the sales people ready to answer any of our customers' needs.

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Unidentified Shareholder, [17]

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Okay. And can you edify any further on this amplifier situation that you all have spoken about for a couple of years now? I'm thinking that this was going to move forward in some pretty significant manner. Is there any identification of that business occurring or not?

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David E. Chymiak, ADDvantage Technologies Group, Inc. - Chairman of the Board, CTO, VP, President of Tulsat Corp and Director of Tulsat Corp [18]

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We're still quoting and everybody's postponing basically right now.

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Unidentified Shareholder, [19]

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I see. Okay. All right. And then on the communications area, Nave, what's the prospect for getting that in the black and moving forward on a revenue stream basis?

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David L. Humphrey, ADDvantage Technologies Group, Inc. - CEO, President and Director [20]

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[George], I can tell you that it's really all about sales, and we've got the right guy here at the table, Don Kinison, to do that for us. I feel very positive about what's going to happen in the future. I just can't -- I can't give you a projection as to when, but I'm fully confident that Nave will be back in the black.

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Don Kinison, ADDvantage Technologies Group, Inc. - VP of Sales [21]

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[George], I can tell you, over the last couple of months, we've been doing a pretty extensive review of the sales and the operational aspects of the organization. I'm not prepared to speak to it at this time, as we're starting to implement some of those changes. Not all of them have been implemented yet at the moment. We'll be prepared to speak to that in the future.

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Unidentified Shareholder, [22]

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Okay. All right. And can anybody make a comment about the Miami acquisition and how that's viewed at this particular time on a growth basis going forward relative to what the revenue stream was when the operation was acquired?

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David L. Humphrey, ADDvantage Technologies Group, Inc. - CEO, President and Director [23]

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Yes, [George], they're not growing a lot, but they're certainly operating the way that we've expected them to. And I think we see some potential long-term synergies, and Don has got a lot of experience in that segment of the market. Unfortunately, we're not going to bring it to bear, while he really needs to focus all of his energies on Nave, as we've already talked about in the call. But I think long term, we see some opportunities on the Miami, Fort Lauderdale/Triton acquisition.

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Don Kinison, ADDvantage Technologies Group, Inc. - VP of Sales [24]

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[George], I have had a moment to spend a little bit of time with Triton since I've come onboard to ADDvantage. I'm very pleased with the organization, its structure and its functionality. Although we're going to review as well the sales and operational aspects of the business, I don't feel it is necessary to do at this time, as it is the -- it's the focus specifically on Nave, as Dave has spoke to.

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Unidentified Shareholder, [25]

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Okay. All right. And going forward, I know I asked this last quarter, I believe, I know that AEY is still not part of the value line, small-, mid-cap publication. And there are a lot of companies that are smaller than ADDvantage Technologies that are listed in there. Is there any reason to think that you would try to get ADDvantage Technologies included in that circulation that comes weekly on small-, mid-cap range area?

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David L. Humphrey, ADDvantage Technologies Group, Inc. - CEO, President and Director [26]

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I think, [George], you make an excellent suggestion. I think, at this point in time, we wouldn't probably actively pursue that until we get our Nave business turned around. But when we do that, I think that's an excellent suggestion, something we'll take a serious look at. Dave, do you have any thoughts or comments on that? Okay.

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Operator [27]

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(Operator Instructions) Our next question comes from [Sam Robotsky] with SCR Asset Management.

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Unidentified Analyst, [28]

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Tell me, with the acquisitions you've made, have you saved any -- what have you saved so far in the consolidation? And what do you expect to save?

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David L. Humphrey, ADDvantage Technologies Group, Inc. - CEO, President and Director [29]

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I'm not sure how to -- I'm not sure what your question is when you talk about save.

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Unidentified Analyst, [30]

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What's that?

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David L. Humphrey, ADDvantage Technologies Group, Inc. - CEO, President and Director [31]

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I'm not sure how to answer your question. I'm not sure what you mean by what we saved.

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Unidentified Analyst, [32]

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In other words, have you -- I mean have you saved -- have you -- what have you -- have you been consolidating anything? Do you expect to consolidate to save costs for duplications?

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Scott A. Francis, ADDvantage Technologies Group, Inc. - CFO, CAO, VP and Secretary [33]

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Yes. So [Sam], this is Scott. The acquisitions that we have done haven't been primarily on a synergistic relationship. When we did the Nave acquisition, it was a completely different segment, marketplace than on our Cable segments were. So it wasn't meant to be synergistic as well as even Triton, albeit in a similar type of space, but definitely a different customer base and how it sells. So what I can tell you is we are on, back-office wise, we are working and getting everyone on our same systems and our AP credit collections, all those types of things, payroll. So that's where the savings will come in, but not as much on the operational aspects of it. It's mostly in the back office, if that helps.

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Unidentified Analyst, [34]

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Yes. Okay. And as far as the inventories you're carrying, what would you say the aging -- is it 1 year, 2 year, 3 year, the obsolete -- the $3 million credit that you have? Does that cover any potential obsolete? Or what would you say the age of your inventory is?

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David L. Humphrey, ADDvantage Technologies Group, Inc. - CEO, President and Director [35]

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I'll address the second part of your question first. The $3 million that we have rounded there is meant to cover, of course, an estimate, but it is meant to cover any -- not just our obsolete inventory but the potential of any excess inventory that we might have as well that we just can't sell. So that is meant to cover that. The -- as far as the first part of your question, what's the age, that's very significantly depending on which segment of the business you're talking about. So if I can talk a little bit to the Telco side, if you look at Triton, they are more of a traditional, shall we say, a reseller that's going to refurb and sell what they have, so they're not going to hold inventory very with long. By its very definition, it's older inventory because it's -- maybe because some of it -- this isn't brand new out of the box, because they're refurbishing used equipment, right? And then number -- as far as our Nave folks go, they are more of a reseller model so they will hold their inventory a little longer than our Triton business. But they're definitely not someone that's going to be holding out there, 3, 5, 10 years. They're going to recycle their excess inventory supply and so forth to the extent they can't sell. So they're probably -- I can't give specific ages, but it's going to typically be less than a 2-year type model. And then as far as Cable, that's a whole other world. It's -- we have a different model at Cable. We have everything from brand new in the box to stuff that literally can be 15 years old to service our industry. Because literally, we have players in our industry that needs stuff that's 15 years old to replace, but then they also have things that are brand new out of the box. So it varies greatly depending on which part of the inventory that we're looking at. David, is that fair?

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David E. Chymiak, ADDvantage Technologies Group, Inc. - Chairman of the Board, CTO, VP, President of Tulsat Corp and Director of Tulsat Corp [36]

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No, that's fair. Some of it's older. The big thing on the cable side, a lot of product is available from the manufacturer for 10 years, 15 years to be purchased. So it's not a big turnover like -- we don't have a lot of software in the cable industry in our equipment that's out in the field. In fact, there's none. And in the -- at the end of it, if there's a bigger turnover, and software becomes a factor on a lot of inventory that sells over 5 years.

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Unidentified Analyst, [37]

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I guess one of the reasons for asking this question, I've been involved with another company that had to write off older inventory because it's not allowed in certain defense areas to be utilized. Even though it may be good, it may not be able to be utilized. And I was wondering if there's any products of that nature as part of your inventory.

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David L. Humphrey, ADDvantage Technologies Group, Inc. - CEO, President and Director [38]

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No. We -- I don't think we have a situation like that. We continuously review our inventory. That's why our obsolescent numbers are the way they are, because Dave does carry a lot of older inventory. Dave continuously reviews it on a quarterly basis and does a detailed review of his inventory while operating companies within the cable group once a year. We will do a more detailed review of our Telco businesses as well. I can't promise you that there won't be write-downs. Those certainly do exist in a company like ours that carries inventory, but we do try to be diligent and on top of our business lines.

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Unidentified Analyst, [39]

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Okay. Now the other thing is, I guess, you're carrying intangibles and goodwill of $15 million and your stock -- you have 10 million shares and the stock is trading $1.50, so that's $15 million. Your equity is about $41 million. Do you see based on the stock valuation to have to write off any of this goodwill or intangibles? Is that -- from an accounting point of view?

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David L. Humphrey, ADDvantage Technologies Group, Inc. - CEO, President and Director [40]

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What I can tell you there, [Sam], is we'll be evaluating our intangibles and our goodwill. We typically do it in the fourth quarter of every year unless there's an event that occur to tell us to do it otherwise. There's certain accounting processes that we go through: one, the stock price, i.e., a market value of a public company is one of those factors that you look at. But we look at cash flow projections, historical and our own plan and forecasting mechanisms as well, and then look at also what our asset basis realizations can be. So there's all sorts of factors that go into it. I can't address on this call whether or not I think there would be a write-off or not other than we review it every single year and make those 2-factor determinations.

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Unidentified Analyst, [41]

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Well, on the other side of the coin, even though -- have you thought of -- I mean, maybe with your covenants, you can't buy stock. But instead of doing acquisitions, is there any judgment whether your stock is worth buying where the prices are relative to doing acquisitions?

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David L. Humphrey, ADDvantage Technologies Group, Inc. - CEO, President and Director [42]

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We very much appreciate your question, [Sam], this is something the board has taken up on a couple of different occasions. But we did buy stock back about 3 or 4 years ago to complete a commitment that the board had made 10 years earlier, and we completed that transaction. The board is committed to growing the business through acquisitions and organic growth within our business lines that we have. And so they're not really -- don't want to commit any of our capital and our cash positions to buying stock back.

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Unidentified Analyst, [43]

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And a final question. Based on the technology and the changes that are taking place, is there -- and the fact with all the wireless going on, is there any way that you need to do to make yourself profitable or what do you see your profitability in the future? I mean, you've made these acquisitions. You feel strong about what you're doing. But the question, where do we see profitability happening?

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David L. Humphrey, ADDvantage Technologies Group, Inc. - CEO, President and Director [44]

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I very much appreciate your question on that front. I will tell you, the real key for us as these markets continue to evolve, the Cable and the Telco industry, the place that we play in is in the infrastructure space. And really, that's all about transporting, not just Cable TV and telephony service, but of course, now, the Internet, which is a growth engine for both industries. And so it's all about the pipe. And what Dave in his business really provides is a lot of pipe capacity. And even on the wireless infrastructure, while your wireless connects up to your phone wirelessly, it eventually has to hit some infrastructure and get itself back into either the net or into these telephony networks. So that's where we really play in, is that pipe, both in the Telco and the Cable space. And that pipe is going to be around a long time even [with wireless].

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Unidentified Analyst, [45]

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Yes. So you feel you're ready to be profitable and improve profitability going forward?

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David L. Humphrey, ADDvantage Technologies Group, Inc. - CEO, President and Director [46]

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Absolutely.

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Operator [47]

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(Operator Instructions) And there are no further questions. I'll turn the call over to David Humphrey for closing remarks.

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David L. Humphrey, ADDvantage Technologies Group, Inc. - CEO, President and Director [48]

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Thank you. Before we conclude the call, I'd like to reiterate that our Cable TV segment has performed relatively consistently over the past several quarters. We are in the process of reviewing our operation to optimize our performance and leveraging our inventory in technical sales force in order to gain additional market share. Also, we are making the necessary investments in our Telco segment in an effort to turnaround the lower sales volume at Nave Communications. We look forward to the progress this segment is poised to show as turnaround strategy is implemented over the next few quarters as directed by our VP of Sales. In closing, we are confident that the market opportunity is there and we will bring together the people and infrastructure needed for its success. Thank you all to our investors. We appreciate your loyalty, support and patience as we continue to build value together. Thank you all. This completes our call.

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Operator [49]

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