ADDvantage Technologies Group, Inc. (NASDAQ: AEY) (“ADDvantage
Technologies” or the “Company”) today reported its financial
results for the three and twelve months ended September 30,
2020.
ADDvantage’s Chief Executive Officer, Joe Hart,
commented, “With 2020 being a challenging global business
environment, ADDvantage Technologies group was identified as an
‘essential service’ as we provide critical infrastructure in
building and supporting communications services. We have been
resilient in our cost and cash management as we had significant
hurdles to overcome in both our Telco and Wireless business during
fiscal year 2020. These hurdles were primarily driven by the shift
to remote work as offices shut down impacting our Telco business
and closure of special outdoor event or large gathering events
impacting our Wireless business.”
“During this business environment, we wanted to
accomplish three strategic imperatives in strengthening our balance
sheet for sustainable growth.”
“First, we wanted to increase our overall cash
position and did so by increasing our cash holdings to over $8
million while maintaining working capital1 at over $11
million.”
“Second, we wanted to use this environment to
reshape our Telco and Wireless business for expanded growth plus
drive a more nimble and leaner business model by reducing overhead
and direct expenses. For Telco, we took major write-downs of
Goodwill, Intangibles and Inventory at over $11 million. This
action made our Telco business nimble and more competitive in both
a COVID and post-COVID business environment. For growth, we
invested in our Wireless business by increasing our revenue
coverage model by adding resources in sales and back office in
supporting the increase 5G build opportunities. For Telco growth,
we completed our investment for a new facility for our Triton
business in improving efficiencies and employee work environment
while allowing for expansion.”
“Third, continue to attract and retain great
people to support growth. In fiscal year 2020, we rewarded key
functional team members with restricted stock awards tied into the
financial success of the company and shareholder returns. We
added new talent within our Executive leadership team that, from
experience, know how to scale through growth while working within a
lean operation. Overall, our people drive our business and continue
to excel during these challenging times.”
“With these FY2020 strategic imperatives we
continue to transform our business model by streamlining our
expenses and improving our operational efficiency and positioning
the Company for growth and profitability as the 5G transformation
accelerates. Over the past year, we have improved gross margins by
more than 1,500 basis points, and eliminated approximately $0.5
million in quarterly operating expenses, resulting in a significant
narrowing of our loss from operations.”
“We continue to improve our liquidity, with cash
in excess of $8 million and working capital over $11 million in
preparing for 5G growth. We are seeing clear signs that the 5G
transformation will begin in earnest in 2021, and we are
well-positioned to capture a meaningful share of the tower work
related to this important project in the geographic areas we
currently serve. Apple recently released the new 5G capable
handset, providing the clearest indication yet of the impending 5G
opportunity. With all of the Carriers advertising 5G services, the
actual long-term upgrade of the networks is just about to begin in
2021. These 3G, 4G and now 5G cycles typically last 7-10 years and
require major Capex spend by every Carrier principally in the first
5 years of each cycle.”
“Our Telco business delivered the strongest
quarter of the fiscal year in Q4 as spending started to return to
normal after pandemic cutbacks, giving us optimism as we head into
our new fiscal year. We anticipate double-digit revenue growth for
our business in fiscal 2021 and anticipate reaching positive net
income on a quarterly basis by the end of the year. We enter 2021
with a lean and efficient organization, strategically positioned
throughout the middle of the country, with strong relationships
with the leading Wireless Carriers and Telco clients and we have
significantly improved our liquidity to execute our growth
strategy. We are already starting to see wireless activity picking
up in our southwest region, another positive indicator. All
indications from trade news and industry press releases are that 5G
network construction will be in full swing by midyear 2021.”
Financial Results for the Three Months
ended September 30, 2020
Fourth quarter sales decreased to $12.2 million
compared with $17.9 million for the three months last year a
decrease of 31%. The decrease of $5.3 million in the Wireless
segment compared to the prior year quarter was the result of the
impact of COVID business environment and 5G delays in
infrastructure spending from the major U.S. carriers. Traditionally
Wireless has earned $4 to 5 million in revenue for the construction
and deployment of large complex temporary cell sites during the
summer months for county fairs, air shows, and large events such as
the Democratic National Convention in Milwaukee, Indy 500, World
Series, etc. which were either rescheduled or cancelled in
2020.
We also experienced a decline in sales in the
Telco segment of $0.4 million resulting from a decrease in
equipment sales at Triton, which sells office telephone and IP
products for enterprise networks, as most large offices were closed
during the quarter also as a result of the COVID-19 pandemic.
Even with a $5.6 million sales decrease, gross
profit increased $0.7 million to $4.4 million compared with a gross
profit of $3.7 million for the same quarter last year. The increase
was primarily due to Telco segment profit improving by $1.2
million, partially offset by the Wireless segment margin decrease
of $0.5 million. Gross profit margin improved to 36% from 21% from
the prior year fourth quarter due to 2,000 basis point improvement
in the Wireless services group and a 1,700 basis point improvement
in the Telco business.
Operating expenses decreased $0.5 million to
$1.9 million for the quarter ended September 30, 2020 compared
with $2.4 million the same period last year, as a result of cost
reduction efforts in our Wireless segment.
Selling, general and administrative expenses for
the quarter increased $0.6 million to $3.2 million compared with
$2.6 million for the same quarter last year. This increase was due
to an investment in building out the sales team for the Wireless
segment.
Net loss for the quarter was $1.0 million, or a
loss of $0.09 per diluted share, an improvement of $0.6 million,
compared with a net loss of $1.6 million, or a loss of $0.15 per
diluted share for the same quarter last year.
Adjusted EBITDA loss for the quarter was $0.1 million compared
with an Adjusted EBITDA loss of $0.9 million for the same quarter
last year.
Financial Results for the Fiscal Year
Ended September 30, 2020
Overall sales decreased 9% to $50.2 million
compared with $55.1 million last year. The decrease in sales was
driven principally by the global COVID-19 pandemic and investment
delays in 5G network build-outs. Sales for the Wireless segment
decreased $1.6 million to $21.4 million for the year compared with
$23.0 million in the prior year. Wireless was significantly
impacted during the summer months by crowd safety restrictions due
to COVID-19. Traditionally Fulton has earned significant revenues
for the construction and deployment of large complex temporary cell
sites for summer and fall festivals, county fairs, air shows, and
large events like the Democratic National Convention in Milwaukee,
Indy 500, World Series, etc. which were cancelled or rescheduled
this year.
Sales for the Telco segment decreased 10% or
$3.4 million to $28.8 million for the year compared with $32.2
million last year. The decrease in sales resulted primarily from
Telcom and IP office equipment as customers delayed build-out of
new office space and upgrades of office space communications
equipment as employees were sent home to work during 2020.
Annual gross profit decreased 13% or $1.8
million to $11.7 million compared with $13.5 million for the prior
year, primarily related to the Telco segment, for which gross
profit decreased $2.0 million as a result of an increase in our
reserve for inventory obsolescence in Q2, partially offset by an
increase in gross profit of $0.2 million in the Wireless segment as
a result of operational cost reduction efforts in the second half
of FY2020.
Operating expenses for the year increased $1.8
million to $8.2 million compared with $6.4 million last year. The
increase is attributable to having four full quarters of Wireless
expense in 2020 versus three quarters in 2019, as the Fulton
acquisition concluded in the second quarter of 2019. Additionally,
the Company incurred one-time facility costs as a result of moving
into Triton’s new facility in the first fiscal quarter of 2020 and
additional operating personnel costs.
Selling, general and administrative expenses
increased $1.3 million to $11.2 million for the year compared with
$10.0 million last year. Of this increase, $0.9 million is
attributable to having four full quarters of Wireless expense in
2020 versus three quarters in 2019, as the Fulton acquisition
concluded in the second quarter of 2019. This increase is partially
offset by a decrease of $0.4 million in general and administrative
personnel costs in the Telco segment.
Impairment of intangibles including goodwill was
$8.7 million in the Telco segment in the second fiscal quarter. The
Company determined that changes in the economy related to the
COVID-19 pandemic and the continued losses experienced in the Telco
segment had caused the carrying amounts on our books for intangible
assets, including goodwill, to exceed their fair values. Therefore,
after performing the appropriate valuations, the Company recorded a
$3.9 million impairment charge for intangible assets and $4.8
million for goodwill in the Telco segment.
Net loss for the year was $17.3 million, or loss
of $1.55 per diluted share, compared with a net loss $5.3 million,
or loss of $0.51 per diluted share, for the prior year. The current
year net loss includes one-time charges to the Telco segment
including the $8.7 million write-off of intangible assets and
goodwill and a $0.7 million impairment related to a right of use
asset for a facility that we no longer use. Also in the Telco
segment, the Company had inventory obsolescence charges of $1.8
million for the year compared to $0.7 million for prior
year. The Company recognized a $1.2 million tax benefit for
the year ended 2020, compared to a tax benefit of $13 thousand for
the prior year. The prior-year included approximately $1.3 million
in losses from discontinued operations.
Adjusted EBITDA for the year was a loss of $7.0 million compared
with a loss of $2.3 million for the same period of 2019.
Balance sheet
Cash and cash equivalents were $8.4 million as
of September 30, 2020, compared with $1.6 million as of
September 30, 2019. As of September 30, 2020, the Company
had inventories of $5.8 million, compared with $7.6 million as of
September 30, 2019.
Outstanding debt was $8.0 million as of
September 30, 2020 comprised of $2.8 million on a revolving
line of credit (LOC), $4.1 million of notes payable and $1.1
million in financing leases compared with no debt as of
September 30, 2019. At September 30, 2020, notes payable
were comprised of $1.2 million notes payable with our primary
banker, which correlate to payments that we will receive from the
$3.8 million promissory note receivable balance from the 2019 sale
of our cable business, and $2.9 million on our Payroll Protection
Program (PPP) loan. We have applied for forgiveness of the PPP
loan.____________________________________
1 Working Capital is defined as Current Assets
minus Current Liabilities
Earnings Conference Call
Date: |
Thursday,
December 17, 2020 |
Time: |
9 a.m. Eastern |
Toll-free Dial-in Number: |
1-855-327-6837 |
International Dial-in Number: |
1-631-891-4304 |
Conference ID: |
10012176 |
|
|
A replay of the conference call will be available
through December 31, 2020. |
Toll-free Replay Number: |
1-844-512-2921 |
International Replay Number:
|
1-412-317-6671 (international). |
Replay Passcode: |
10012176 |
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) 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.
Contacts:ADDvantage
Technologies Group, Inc. 1221 E. Houston Broken Arrow, Oklahoma
74012
Hayden IRBrett Maas(646)
536-7331aey@haydenir.com
-- Tables follow –
ADDvantage Technologies Group,
Inc.Consolidated Balance
Sheets(unaudited)
|
September 30, |
(in thousands, except
share amounts) |
2020 |
|
2019 |
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
8,265 |
|
|
$ |
1,242 |
|
Restricted cash |
108 |
|
|
352 |
|
Accounts receivable, net of allowances of $250 and $150,
respectively |
3,968 |
|
|
4,827 |
|
Unbilled revenue |
590 |
|
|
2,691 |
|
Promissory note, current |
1,400 |
|
|
1,400 |
|
Income tax receivable |
1,283 |
|
|
21 |
|
Inventories, net of allowance of $3,054 and $1,275,
respectively |
5,756 |
|
|
7,626 |
|
Prepaid expenses and other current assets |
884 |
|
|
806 |
|
Total current assets |
22,254 |
|
|
18,965 |
|
Property and equipment, at
cost: |
|
|
|
Machinery and equipment |
3,500 |
|
|
2,476 |
|
Leasehold improvements |
720 |
|
|
191 |
|
Total property and equipment,
at cost |
4,220 |
|
|
2,667 |
|
Less: Accumulated
depreciation |
(1,586 |
) |
|
(836 |
) |
Net property and
equipment |
2,634 |
|
|
1,831 |
|
Right-of-use assets |
3,758 |
|
|
— |
|
Promissory note,
long-term |
2,375 |
|
|
4,975 |
|
Intangibles, net of
accumulated amortization |
1,425 |
|
|
6,003 |
|
Goodwill |
58 |
|
|
4,878 |
|
Other assets |
179 |
|
|
176 |
|
Total assets |
$ |
32,683 |
|
|
$ |
36,828 |
|
Liabilities and Shareholders’ Equity |
|
|
|
Current
liabilities: |
|
|
|
Accounts payable |
$ |
3,472 |
|
|
$ |
4,731 |
|
Accrued expenses |
1,499 |
|
|
1,618 |
|
Deferred revenue |
113 |
|
|
97 |
|
Bank line of credit |
2,800 |
|
|
— |
|
Notes payable, current |
1,709 |
|
|
— |
|
Right-of-use obligations, current |
1,275 |
|
|
— |
|
Finance lease obligations, current |
285 |
|
|
— |
|
Other current liabilities |
41 |
|
|
758 |
|
Total
current liabilities |
11,194 |
|
|
7,204 |
|
Note payable |
2,440 |
|
|
— |
|
Right-of-use obligations, long-term |
3,310 |
|
|
— |
|
Finance lease obligations, long-term |
791 |
|
|
— |
|
Other liabilities |
15 |
|
|
177 |
|
Total
liabilities |
17,750 |
|
|
7,382 |
|
Shareholders’ equity: |
|
|
|
Common stock, $.01 par value; 30,000,000 shares authorized;
11,822,009 and 10,861,950 shares issued, respectively; 11,822,009
and 10,361,292 shares outstanding, respectively |
118 |
|
|
109 |
|
Paid in capital |
(2,567 |
) |
|
(4,377 |
) |
Retained earnings |
17,382 |
|
|
34,715 |
|
Treasury stock, zero and 500,658 shares, at cost at September 30,
2020 and 2019, respectively |
— |
|
|
(1,000 |
) |
Total
shareholders’ equity |
$ |
14,933 |
|
|
$ |
29,447 |
|
|
|
|
|
Total
liabilities and shareholders’ equity |
$ |
32,683 |
|
|
$ |
36,828 |
|
ADDvantage Technologies Group,
Inc.Consolidated Statement of
Operations(Unaudited)
|
Three months ended September 30, |
|
Years ended September 30, |
(in
thousands except share and per share amounts) |
2020 |
|
2019 |
|
2020 |
|
2019 |
Sales |
$ |
12,239 |
|
|
$ |
17,859 |
|
|
$ |
50,182 |
|
|
$ |
55,118 |
|
Cost of
sales |
7,883 |
|
|
14,188 |
|
|
38,502 |
|
|
41,660 |
|
Gross
profit |
4,356 |
|
|
3,671 |
|
|
11,680 |
|
|
13,458 |
|
Operating expenses |
1,890 |
|
|
2,421 |
|
|
8,166 |
|
|
6,364 |
|
Selling,
general and administrative expense |
3,153 |
|
|
2,577 |
|
|
11,249 |
|
|
9,962 |
|
Impairment of right-of-use asset |
— |
|
|
— |
|
|
660 |
|
|
— |
|
Impairment of intangibles including goodwill |
— |
|
|
— |
|
|
8,714 |
|
|
— |
|
Depreciation and amortization expense |
357 |
|
|
383 |
|
|
1,554 |
|
|
1,453 |
|
Gain on
disposal of assets |
133 |
|
|
345 |
|
|
133 |
|
|
345 |
|
Loss
from operations |
(911 |
) |
|
(2,055 |
) |
|
(18,530 |
) |
|
(3,976 |
) |
Other
income (expense): |
|
|
|
|
|
|
|
Interest income |
63 |
|
|
96 |
|
|
321 |
|
|
96 |
|
Interest expense |
(70 |
) |
|
(11 |
) |
|
(254 |
) |
|
(80 |
) |
Income from equity method investment |
— |
|
|
61 |
|
|
41 |
|
|
136 |
|
Other expense, net |
(73 |
) |
|
(342 |
) |
|
(160 |
) |
|
(224 |
) |
|
|
|
|
|
|
|
|
Total
other expense |
(80 |
) |
|
(196 |
) |
|
(52 |
) |
|
(72 |
) |
|
|
|
|
|
|
|
|
Loss
before income taxes |
(991 |
) |
|
(1,562 |
) |
|
(18,582 |
) |
|
(4,048 |
) |
Income
tax benefit |
(13 |
) |
|
— |
|
|
(1,249 |
) |
|
(13 |
) |
Loss
from continuing operations |
(978 |
) |
|
(1,562 |
) |
|
(17,333 |
) |
|
(4,035 |
) |
|
|
|
|
|
|
|
|
Loss
from discontinued operations, net of tax |
— |
|
|
— |
|
|
— |
|
|
(1,267 |
) |
|
|
|
|
|
|
|
|
Net
loss |
$ |
(978 |
) |
|
$ |
(1,562 |
) |
|
$ |
(17,333 |
) |
|
$ |
(5,302 |
) |
|
|
|
|
|
|
|
|
Loss per
share: |
|
|
|
|
|
|
|
Basic and diluted |
|
|
|
|
|
|
|
Continuing operations |
$ |
(0.09 |
) |
|
$ |
(0.15 |
) |
|
$ |
(1.55 |
) |
|
$ |
(0.39 |
) |
Discontinued operations |
— |
|
|
— |
|
|
— |
|
|
(0.12 |
) |
Net loss |
$ |
(0.09 |
) |
|
$ |
(0.15 |
) |
|
$ |
(1.55 |
) |
|
$ |
(0.51 |
) |
Shares
used in per share calculation: |
|
|
|
|
|
|
|
Basic and diluted |
11,163,660 |
|
|
10,361,292 |
|
|
11,163,660 |
|
|
10,361,292 |
|
Non-GAAP Financial Measure
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
restructuring charge, stock compensation expense, other income,
other expense, interest income and income from equity method
investment. 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 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.
A reconciliation by segment of loss from operations to Adjusted
EBITDA follows:
|
Three months ended September 30,
2020 |
|
Three months ended September 30,
2019 |
|
Wireless |
|
Telco |
|
Corp |
|
Total |
|
Wireless |
|
Telco |
|
Corp |
|
Total |
Loss from operations |
$ |
(283 |
) |
|
$ |
(743 |
) |
|
$ |
115 |
|
|
$ |
(911 |
) |
|
$ |
99 |
|
|
$ |
(1,258 |
) |
|
$ |
(206 |
) |
|
$ |
(1,366 |
) |
Depreciation and amortization expense |
158 |
|
|
177 |
|
|
22 |
|
|
357 |
|
|
82 |
|
|
296 |
|
|
5 |
|
|
383 |
|
Impairment of intangibles including goodwill |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Impairment of right of use asset |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Stock
compensation expense |
(53 |
) |
|
(94 |
) |
|
554 |
|
|
407 |
|
|
31 |
|
|
16 |
|
|
— |
|
|
47 |
|
Adjusted EBITDA (a)(b) |
$ |
(178 |
) |
|
$ |
(660 |
) |
|
$ |
691 |
|
|
$ |
(147 |
) |
|
$ |
211 |
|
|
$ |
(946 |
) |
|
$ |
(201 |
) |
|
$ |
(936 |
) |
|
For the year ended September 30, 2020 |
|
For the year ended September 30, 2019 |
|
Wireless |
|
Telco |
|
Corp |
|
Total |
|
Wireless |
|
Telco |
|
Corp |
|
Total |
Loss from operations |
$ |
(4,420 |
) |
|
$ |
(14,226 |
) |
|
$ |
115 |
|
|
$ |
(18,531 |
) |
|
$ |
(1,469 |
) |
|
$ |
(2,300 |
) |
|
$ |
(204 |
) |
|
$ |
(3,974 |
) |
Depreciation and amortization expense |
620 |
|
|
912 |
|
|
22 |
|
|
1,554 |
|
|
254 |
|
|
1,194 |
|
|
5 |
|
|
1,453 |
|
Impairment of intangibles including goodwill |
— |
|
|
8,715 |
|
|
— |
|
|
8,715 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Impairment of right of use asset |
— |
|
|
660 |
|
|
— |
|
|
660 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Stock
compensation expense |
11 |
|
|
9 |
|
|
554 |
|
|
574 |
|
|
62 |
|
|
137 |
|
|
— |
|
|
199 |
|
Adjusted EBITDA (a)(b) |
$ |
(3,789 |
) |
|
$ |
(3,930 |
) |
|
$ |
691 |
|
|
$ |
(7,028 |
) |
|
$ |
(1,153 |
) |
|
$ |
(970 |
) |
|
$ |
(199 |
) |
|
$ |
(2,322 |
) |
(a) |
The Wireless segment includes acquisition expenses of $0.2 million
and integration expenses of $0.3 million for the year ended
September 30, 2019, related to the acquisition of Fulton. |
|
|
(b) |
The Telco segment includes an inventory obsolescence charge of $1.8
million and $0.7 million for the years ended September 30, 2020 and
2019, respectively. In addition, the Telco segment includes a
lower of cost or net realizable value charge of $0.1 million and
$0.7 million for the years ended September 30, 2020 and 2019,
respectively. |
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