Company to divest Cable TV segment operations and
to refocus business activities in the Telco segment
ADDvantage Technologies Group, Inc. (NASDAQ: AEY),
today announced its financial results for the fourth quarter and
fiscal year ended September 30, 2018.
Joe Hart, President and CEO of ADDvantage
Technologies, said, “Revenues for fiscal 2018 declined 3% year over
year, as the Cable TV segment was impacted by ongoing market
weakness and the loss of a large repair business customer early in
the year. This was partially offset by an increase in Telco segment
sales, driven by a solid performance at both Triton Datacom and
Nave Communications. Nave’s improved results were a result of the
new strategy and restructuring initiatives implemented during the
fiscal year which strengthened its business model and drove sales
growth.
“After being appointed CEO in July 2018, we
implemented an internal operational efficiency review to analyze
our company fundamentals and establish a framework for growth. This
enabled us to start putting in place several initiatives that are
intended to transform the Company’s prospects and drive improved
financial performance in both the near and long-term. To this end,
in December 2018 we entered into an agreement, subject to
shareholder approval, to sell the Cable TV segment business for
$10.3 million. We also closed the sale of the Cable TV segment’s
Broken Arrow, Oklahoma facility for $5.0 million, in November 2018.
Divesting the Cable TV segment is in line with our long-term
strategy to drive growth organically and through acquisitions
within the telecommunications industry. When finalized, our
transition out of the Cable TV segment will allow us to redirect
our resources into the wireless and wireline services part of the
telecommunications industry, where we see significant opportunity
for growth,” Mr. Hart continued.
“After an operational review of our Telco
segment in July, we moved Nave’s warehousing and operations to
Palco Telecom, a world-class third-party logistics company. This
will re-position Nave as a high-quality option for refurbished
telecom equipment, including the repair, testing, and certification
of equipment, centralize its operations and enable it to broaden
its customer base in the U.S. Likewise, at Triton we are planning
to move out of the over-crowded existing facility in Miami, Florida
to a newly constructed facility in nearby Pembroke Park, Florida,
where we will be able to expand and improve our operational
capacity and efficiency, stock additional product, grow our sales
platform in the broker market and expand into the telephone carrier
market. We believe these initiatives should allow the Telco segment
to grow sales and improve its overall financial performance.
“As part of our strategy to expand into the
broader telecommunications market, we recently announced our
decision to enter the wireless infrastructure services market. This
comes at a time when all major U.S. carriers are planning to
rollout 5G in the wireless space over the next ten years and there
is an opportunity for the Company to participate in this
fast-growing market. To accelerate this strategy, yesterday
we announced that we entered into an asset purchase agreement to
acquire the assets of Fulton Technologies, Inc. and Mill City
Communications, Inc. for a purchase price of $1.7 million.
These two wireless infrastructure services companies have strong
reputations in the wireless services industry and maintain solid
contractual relationships with the four major U.S. wireless
carriers and national integrators and original equipment
manufacturers that support these wireless carriers. We
anticipate that the purchase price plus integration costs would be
similar to the costs we would have incurred to launch this services
platform from scratch, while providing the additional benefit of an
experienced operational team and a pre-existing revenue stream from
the major customers in the industry. Once we finalize the
acquisition and integrate these two companies into our business, it
should increase our total addressable market significantly,
diversify our revenue streams, and drive growth.
“Despite the challenging year in 2018, we
believe that we have made, and are continuing to make, the
necessary changes to position our company for long term success in
2019 and beyond. We believe there are many opportunities in the
Telco market and look forward to improving our existing Telco
businesses over the next several months, as well as developing this
wireless infrastructure business offering in order to drive both
topline and bottom line growth and build value for our
shareholders,” concluded Mr. Hart.
Results for the three months ended
September 30, 2018
Consolidated sales decreased 12% to $10.9
million for the three months ended September 30, 2018 compared with
$12.3 million for the three months ended September 30, 2017.
The decrease in sales was in the Cable TV segment and Telco segment
of $0.6 million and $0.8 million, respectively. The decrease
in Cable TV sales was due to a decrease in repair service revenue
and in refurbished equipment sales of $0.6 million and $0.2
million, respectively, partially offset by an increase in new
equipment revenue of $0.2 million. The decrease in sales for the
Telco segment was due to a decrease in equipment sales and
recycling revenue of $0.7 million and $0.1 million,
respectively. The decrease in equipment sales for the Telco
segment was due in part due to disruptions caused by the move of
the Nave inventory warehousing and fulfillment operations to Palco
Telecom.
Consolidated operating, selling, general and
administrative expenses remained relatively flat at $3.6 million in
both periods.
The Company recorded a restructuring charge of
$0.9 million for the three months ended September 30, 2018, in
connection with moving Nave’s inventory warehousing and fulfillment
operations to Palco Telecom.
The Company recorded a provision for income
taxes for the three months ended September 30, 2018 of $1.7 million
despite its pretax losses for the quarter. This provision was
primarily the result of a valuation allowance that was recorded
against its deferred tax assets of $2.6 million.
Net loss for the three months ended September
30, 2018, was $4.8 million, or $0.47 per diluted share, compared
with a net loss of $0.3 million, or $0.03 per diluted share, for
the same period of 2017.
Adjusted EBITDA for the three months ended
September 30, 2018 was a loss of $1.8 million compared with income
of $0.1 million for the same period ended September 30, 2017.
Results for the twelve months ended
September 30, 2018
Consolidated sales were $47.4 million for the
twelve months ended September 30, 2018, compared with $48.7 million
for the twelve months ended September 30, 2017. The decrease
in sales was in the Cable TV segment of $2.9 million, partially
offset by an increase in the Telco segment of $1.5 million.
Consolidated operating, selling, general and
administrative expenses decreased 2% to $14.3 million for the
twelve months ended September 30, 2018 from $14.7 million for the
same period last year. This decrease in expenses was due to
the Cable segment of $0.7 million, partially offset by an increase
in the Telco segment of $0.3 million
The Company recorded several non-recurring, or
increased, charges during the year ended September 30, 2018,
totaling $3.9 million, which negatively impacted results. These
consisted of:
- A restructuring charge of $0.9 million in the Telco segment, in
connection with moving Nave’s inventory warehousing and fulfillment
operations to Palco Telecom.
- A goodwill impairment charge of $1.2 million, which represented
the carrying value of goodwill for the Cable TV segment.
- An increase in our reserve for excess and obsolete inventory of
$1.8 million for the Cable TV segment as compared to $0.6 million
in the prior year.
The loss from equity method investment for the
twelve months ended September 30, 2018 of $0.3 million consisted
primarily of a legal settlement with a subcontractor on the YKTG
Solutions wireless cell tower decommissioning project and the
associated legal expenses.
The Company recorded a provision for income
taxes for the twelve months ended September 30, 2018 of $1.6
million despite its pretax losses for the year. This
provision was primarily the result of a valuation allowance that
was recorded against its deferred tax assets of $2.6 million.
Net loss for the twelve month period ended
September 30, 2018 was $7.3 million, or a loss of $0.71 per diluted
share, compared with a net loss of $0.1 million, or $0.01 per
diluted share, for the fiscal year 2017.
Adjusted EBITDA for the twelve months ended
September 30, 2018 was a loss of $1.5 million compared with income
of $1.9 million for the same period ended September 30, 2017.
Cash and cash equivalents were $3.1 million as
of September 30, 2018, compared with $4.0 million as of September
30, 2017. The decrease in cash was due primarily to the
extinguishment of one of the Company’s term loans in December 2017
by paying the outstanding balance of $2.7 million and the first
annual guaranteed payment of $0.7 million related to the
acquisition of Triton Miami, Inc. As of September 30, 2018,
the Company had inventory of $18.9 million, compared with $22.3
million as of September 30, 2017. The Telco segment wrote-off
inventory of $0.2 million as a result of moving Nave Communications
inventory to Palco Telecom.
Subsequent events
In November 2018, the Company closed on an
agreement with a company controlled by David Chymiak, who is the
Company’s Chief Technology Officer, director and substantial
shareholder, to sell its Broken Arrow, Oklahoma facility for $5.0
million in cash. This transaction resulted in a pretax gain
of $1.4 million. In connection with the sale of the Broken Arrow,
Oklahoma facility, Tulsat entered into a ten-year lease with Mr.
Chymiak for a monthly rent of $44,000, or $528,000 per year.
Tulsat, as tenant, will be responsible for most ongoing expenses
related to the facility, including property tax, insurance and
maintenance. As a result of the leaseback, the pretax gain of
$1.4 million will be deferred over the lease period.
On December 26, 2018, ADDvantage Technologies
entered into an agreement with a company controlled by David
Chymiak to sell the Cable TV segment business for $10.3
million. This sale is subject to shareholder approval, which
is anticipated to occur in the third fiscal quarter of 2019.
The purchase price will consist of $3.9 million of cash and a $6.4
million promissory note to be paid in semi-annual installments over
five years with an interest rate of 6.0%. We estimate that
this sale will result in a pretax loss of approximately $2.8
million.
On December 27, 2018, the Company entered into
an agreement to acquire the assets of Fulton Technologies, Inc. and
Mill City Communications, Inc. for a purchase price of $1.7
million. The transaction is expected to close in early
January 2019. A deposit of $500,000 was paid on December 27,
2018 in connection with signing the purchase agreement. This
acquisition represents the Company’s entry into the wireless
infrastructure services market.
In October and November 2018, the Company paid
off its outstanding term loans and line of credit totaling $2.6
million with its primary financial lender. Therefore, the
Company is no longer under its forbearance agreement.
In December 2018, the Company entered into
another credit agreement with a different financial lender.
This credit agreement contains a $2.5 million revolving line of
credit and matures on December 17, 2019.
Earnings Conference Call
The Company will host a conference call on Friday, December
28th, at 12:00 p.m. Eastern Time featuring remarks by Joseph Hart,
President and Chief Executive Officer, Dave Chymiak, Chief
Technology Officer, Scott Francis, Chief Financial Officer, and Don
Kinison, Vice President of Sales. The conference call
will be available via webcast and can be accessed through the
Investor Relations section of ADDvantage's website,
www.addvantagetechnologies.com. Please allow extra time prior
to the call to visit the site and download any necessary software
to listen to the Internet broadcast. The dial-in number for the
conference call is 1-866-548-4713 (domestic) or 1-323-794-2093
(international). All dial-in participants must use the following
code to access the call: 1660239. Please call at least five minutes
before the scheduled start time.
For interested individuals unable to join the conference call, a
replay of the call will be available through January 11, 2019 at
1-844-512-2921 (domestic) or 1-412-317-6671 (international).
Participants must use the following code to access the replay of
the call: 1660239. An online archive of the webcast will be
available on the Company's website for 30 days following the
call.
About ADDvantage Technologies Group, Inc.
ADDvantage Technologies Group, Inc. (NASDAQ: AEY) supplies
the cable television (Cable TV) and telecommunications industries
with a comprehensive line of new and used system-critical network
equipment and hardware from a broad range of leading manufacturers.
The equipment and hardware ADDvantage distributes is used to
acquire, distribute, and protect the communications signals carried
on fiber optic, coaxial cable and wireless distribution systems,
including television programming, high-speed data (Internet) and
telephony. Through the planned acquisition of Fulton, the Company
plans to provide turn-key wireless infrastructure services, such as
the installation and decommissioning of equipment on cell sites,
for wireless carriers, national integrators, and original equipment
manufacturers that support the wireless carriers. In
addition, ADDvantage operates a national network of technical
repair centers focused primarily on Cable TV equipment and recycles
surplus and obsolete Cable TV and telecommunications equipment.
ADDvantage operates through its subsidiaries, Tulsat,
Tulsat-Atlanta, Tulsat-Texas, NCS Industries, ComTech Services,
Nave Communications and Triton Datacom. For more information,
please visit the corporate web site
at www.addvantagetechnologies.com.
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
MeasuresAdjusted 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
restructuring and impairment charges, other income, interest income
and income from equity method investment. Management believes
providing Adjusted EBITDA in this release is useful to investors’
understanding and assessment of the Company’s ongoing continuing
operations and prospects for the future and it is a used by the
financial community to evaluate 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 STATEMENTS OF OPERATIONS |
(UNAUDITED) |
|
|
Three Months Ended September 30, |
|
Twelve Months EndedSeptember 30, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Sales |
$ |
10,905,795 |
|
|
$ |
12,333,174 |
|
|
$ |
47,413,987 |
|
|
$ |
48,713,746 |
|
Cost of sales |
|
9,491,972 |
|
|
|
9,066,590 |
|
|
|
36,191,011 |
|
|
|
33,903,153 |
|
Gross profit |
|
1,413,823 |
|
|
|
3,266,584 |
|
|
|
11,222,976 |
|
|
|
14,810,593 |
|
Operating, selling,
general and administrative expenses |
|
3,607,729 |
|
|
|
3,633,711 |
|
|
|
14,325,268 |
|
|
|
14,664,987 |
|
Restructuring
charge |
|
941,059 |
|
|
|
– |
|
|
|
941,059 |
|
|
|
– |
|
Goodwill impairment
charge |
|
‒ |
|
|
|
– |
|
|
|
1,150,059 |
|
|
|
– |
|
Income (loss) from
operations |
|
(3,134,965 |
) |
|
|
(367,127 |
) |
|
|
(5,193,410 |
) |
|
|
145,606 |
|
Other expense: |
|
|
|
|
Loss from
equity method investee |
|
– |
|
|
|
– |
|
|
|
(258,558 |
) |
|
|
– |
|
Interest
expense |
|
(44,733 |
) |
|
|
(109,958 |
) |
|
|
(231,888 |
) |
|
|
(389,722 |
) |
Total other expense,
net |
|
(44,733 |
) |
|
|
(109,958 |
) |
|
|
(490,446 |
) |
|
|
(389,722 |
) |
|
|
|
|
|
Loss before income
taxes |
|
(3,179,698 |
) |
|
|
(477,085 |
) |
|
|
(5,683,856 |
) |
|
|
(244,116 |
) |
Provision (benefit) for
income taxes |
|
1,667,000 |
|
|
|
(218,000 |
) |
|
|
1,636,000 |
|
|
|
(146,000 |
) |
|
|
|
|
|
Net loss |
$ |
(4,846,698 |
) |
|
$ |
(259,085 |
) |
|
$ |
(7,319,856 |
) |
|
$ |
(98,116 |
) |
|
|
|
|
|
Loss per share: |
|
|
|
|
Basic |
$ |
(0.47 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.71 |
) |
|
$ |
(0.01 |
) |
Diluted |
$ |
(0.47 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.71 |
) |
|
$ |
(0.01 |
) |
Shares used in per
share calculation: |
|
|
|
|
Basic |
|
10,306,145 |
|
|
|
10,225,995 |
|
|
|
10,272,749 |
|
|
|
10,201,825 |
|
Diluted |
|
10,306,145 |
|
|
|
10,225,995 |
|
|
|
10,272,749 |
|
|
|
10,201,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018 |
|
Three Months Ended September 30, 2017 |
|
Cable TV |
|
Telco |
|
Total |
|
Cable TV |
|
Telco |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
operations |
$ |
(1,322,317 |
) |
|
$ |
(1,812,648 |
) |
|
$ |
(3,134,965 |
) |
|
|
248,471 |
|
|
(615,598 |
) |
|
|
(367,127 |
) |
Restructuring
charge |
|
‒ |
|
|
|
941,059 |
|
|
|
941,059 |
|
|
|
‒ |
|
|
‒ |
|
|
|
‒ |
|
Depreciation |
|
55,014 |
|
|
|
34,078 |
|
|
|
89,092 |
|
|
|
78,318 |
|
|
39,843 |
|
|
|
118,161 |
|
Amortization |
|
− |
|
|
|
313,311 |
|
|
|
313,311 |
|
|
|
− |
|
|
313,311 |
|
|
|
313,311 |
|
Adjusted
EBITDA (a) |
$ |
(1,267,303 |
) |
|
$ |
(524,200 |
) |
|
$ |
(1,791,503 |
) |
|
$ |
326,789 |
|
$ |
(262,444 |
) |
|
$ |
64,345 |
|
(a) The Telco segment includes earn-out expenses
of $0.1 million for the three months ended September 30, 2017
related to the acquisition of Triton Miami, Inc.
|
|
|
|
|
|
|
Year Ended September 30, 2018 |
|
Year Ended September 30, 2017 |
|
Cable TV |
|
Telco |
|
Total |
|
Cable TV |
|
Telco |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
operations |
$ |
(2,570,050 |
) |
|
$ |
(2,623,360 |
) |
|
$ |
(5,193,410 |
) |
|
|
1,834,484 |
|
|
(1,688,878 |
) |
|
|
145,606 |
Restructuring
charge |
|
‒ |
|
|
|
941,059 |
|
|
|
941,059 |
|
|
|
‒ |
|
|
‒ |
|
|
|
‒ |
Goodwill
impairment charge |
|
1,150,059 |
|
|
|
– |
|
|
|
1,150,059 |
|
|
|
– |
|
|
– |
|
|
|
– |
Depreciation |
|
247,790 |
|
|
|
130,406 |
|
|
|
378,196 |
|
|
|
303,571 |
|
|
143,263 |
|
|
|
446,834 |
Amortization |
|
− |
|
|
|
1,253,244 |
|
|
|
1,253,244 |
|
|
|
− |
|
|
1,267,182 |
|
|
|
1,267,182 |
Adjusted
EBITDA (a) |
$ |
(1,172,201 |
) |
|
$ |
(298,651 |
) |
|
$ |
(1,470,852 |
) |
|
$ |
2,138,055 |
|
$ |
(278,433 |
) |
|
$ |
1,859,622 |
(a) The Telco segment includes earn-out expenses of $0.2 million
for the year ended September 30, 2017 related to the acquisition of
Triton Miami, Inc.
|
|
ADDVANTAGE TECHNOLOGIES GROUP, INC. |
CONSOLIDATED CONDENSED BALANCE SHEETS |
(UNAUDITED) |
|
|
September 30, |
|
2018 |
|
2017 |
Assets |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and
cash equivalents |
$ |
3,129,280 |
|
|
$ |
3,972,723 |
|
Accounts
receivable, net of allowance for doubtful accounts of $150,000 |
|
4,400,868 |
|
|
|
5,567,005 |
|
Income
tax receivable |
|
178,766 |
|
|
|
247,186 |
|
Inventories, net of allowance for excess and obsolete |
|
|
inventory
of $4,965,000 and $2,939,289, respectively |
|
18,888,042 |
|
|
|
22,333,820 |
|
Prepaid
expenses |
|
264,757 |
|
|
|
298,152 |
|
Assets
held for sale |
|
3,666,753 |
|
|
|
‒ |
|
Total current
assets |
|
30,528,466 |
|
|
|
32,418,886 |
|
|
|
|
Property and equipment,
at cost: |
|
|
Land and
buildings |
|
2,208,676 |
|
|
|
7,218,678 |
|
Machinery
and equipment |
|
3,884,859 |
|
|
|
3,995,668 |
|
Leasehold
improvements |
|
200,617 |
|
|
|
202,017 |
|
Total property and
equipment, at cost |
|
6,294,152 |
|
|
|
11,416,363 |
|
Less: Accumulated
depreciation |
|
(4,276,024 |
) |
|
|
(5,395,791 |
) |
Net property and
equipment |
|
2,018,128 |
|
|
|
6,020,572 |
|
|
|
|
Investment in and loans
to equity method investee |
|
49,000 |
|
|
|
98,704 |
|
Intangibles, net of
accumulated amortization |
|
6,844,398 |
|
|
|
8,547,487 |
|
Goodwill |
|
4,820,185 |
|
|
|
5,970,244 |
|
Deferred income taxes,
net of valuation allowance |
|
‒ |
|
|
|
1,653,000 |
|
Other assets |
|
134,443 |
|
|
|
138,712 |
|
|
|
|
Total assets |
$ |
44,394,620 |
|
|
$ |
54,847,605 |
|
|
|
|
Liabilities and
Shareholders’ Equity |
|
|
Current
liabilities: |
|
|
Accounts
payable |
$ |
4,657,188 |
|
|
$ |
3,392,725 |
|
Accrued
expenses |
|
1,150,010 |
|
|
|
1,406,722 |
|
Notes
payable – current portion |
|
2,594,185 |
|
|
|
4,189,605 |
|
Other
current liabilities |
|
664,374 |
|
|
|
664,325 |
|
Total current
liabilities |
|
9,065,757 |
|
|
|
9,653,377 |
|
|
|
|
Notes
payable, less current portion |
|
‒ |
|
|
|
2,094,246 |
|
Other
liabilities |
|
801,612 |
|
|
|
1,401,799 |
|
Total liabilities |
|
9,867,369 |
|
|
|
13,149,422 |
|
|
|
|
Shareholders’
equity: |
|
|
Common
stock, $.01 par value; 30,000,000 shares authorized;
10,806,803 and 10,726,653 shares issued, respectively;
10,306,145 and 10,225,995 shares outstanding, respectively |
|
108,068 |
|
|
|
107,267 |
|
Paid in
capital |
|
(4,598,343 |
) |
|
|
(4,746,466 |
) |
Retained
earnings |
|
40,017,540 |
|
|
|
47,337,396 |
|
Total
shareholders’ equity before treasury stock |
|
35,527,265 |
|
|
|
42,698,197 |
|
|
|
|
Less:
Treasury stock, 500,658 shares, at cost |
|
(1,000,014 |
) |
|
|
(1,000,014 |
) |
Total shareholders’
equity |
|
34,527,251 |
|
|
|
41,698,183 |
|
|
|
|
Total liabilities and
shareholders’ equity |
$ |
44,394,620 |
|
|
$ |
54,847,605 |
|
|
|
|
|
|
|
|
|
For further informationCompany Contact:Scott
Francis (918) 251-9121
KCSA Strategic CommunicationsElizabeth
Barker(212) 896-1203ebarker@kcsa.com
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