ADDvantage Technologies Group, Inc. (NASDAQ: AEY) (“ADDvantage
Technologies” or the “Company”) today reported its financial
results for the three- and nine-month periods ended June 30, 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.
For further information:Hayden IRBrett Maas(646)
536-7331aey@haydenir.com
-- Tables follow –
ADDVANTAGE
TECHNOLOGIES GROUP, INC. |
CONSOLIDATED
CONDENSED BALANCE SHEETS |
(UNAUDITED) |
|
|
|
|
|
|
|
|
June 30, |
|
September 30, |
|
|
2020 |
|
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 |
|
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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) 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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