ADDvantage Technologies Group, Inc. (NASDAQ: AEY) (“ADDvantage
Technologies” or the “Company”) today reported its financial
results for the three- and six-month periods ended March 31, 2020.
“While we continue to see strong drivers in the
need for 5G networks, immediate and near term activity has slowed
industry wide significantly impacting our Fulton business and
leading to lower operating margins and net losses,” commented Joe
Hart, Chief Executive Officer. “In addition, our Nave and Triton
businesses experienced softening sales during the quarter. This is
not unexpected given the challenges in a COVID-19 environment, but
with a view towards the long term we continue to improve operations
and personnel to position us for profitable growth as the economy
recovers. We are fortunate that our businesses are classified as
‘essential services’ and are allowed to continue operations in
either providing needed network equipment or installing or
maintaining cellular network communications.”
“In response to the pandemic, we have
implemented across the board COVID-19 best practices and taken the
necessary precautions with our teams to ensure their health and
safety,” continued Hart. “I applaud our employees’ diligence and
professionalism during these unprecedented disruptions and am happy
to share that to date no employees have tested positive for the
virus. We remain confident and optimistic about our future, even as
we endure the current environment.”
“During the second quarter we recorded inventory
related adjustments of $2.3 million,” Hart continued. “The write
down was partly necessitated by carrying inventory quantities in
excess of demand. We continue our efforts to improve operational
processes at Nave and Triton and have put additional checks in
place to improve our inventory acquisition and management efforts
going forward. In addition, the losses reported include impairment
charges of $3.9 million and $4.8 million for intangible assets and
goodwill, respectively, related to these acquisitions. These
non-cash charges at Nave and Triton, which total $11.0 million,
significantly increased our quarterly net loss.”
“We see flat revenue performance in our Wireless
segment in the second half of the fiscal year due to a lack of
visibility on the timing of 5G buildout,” Hart continued. “We made
several recent leadership changes at Fulton to address operational
issues which significantly impacted our direct costs in the second
quarter and should see a return to normalized gross margins. These
operational challenges should be behind us. In our Telcom segment,
Triton and Nave often perform well in a challenging economy as
businesses look to repair instead of replace existing telephony
systems.”
“Importantly, we were able to improve our
liquidity position by securing a long-term bank loan of $3.5
million, payable in semi-annual installments with the final payment
due June 2023,” concluded Hart. “This loan correlates with the $5.8
million promissory note receivable resulting from our 2019 sale of
our cable business. In addition, subsequent to March 31, 2020, we
applied for and received a $2.9 million SBA Payroll Protection
Program (‘PPP’) loan. We believe we will comply with the conditions
of the loan that will result in the PPP loan converting all or part
into a grant. This strengthening of our balance sheet further
enhances our capability to be a meaningful participant in future 5G
activity. We continue to believe there is substantial and growing
pent-up demand for 5G related work on existing towers, new raw-land
sites and small cell networks.”
Financial Results for the Three Months
ended March 31, 2020
Sales decreased 7.2% to $12.0 million for the
three months ended March 31, 2020 compared with $12.9 million for
the three months ended March 31, 2019. The decrease was primarily
due to decline in sales in the Telco segment, specifically $1.4
million at Nave primarily from equipment sales. This decrease was
offset by an increase in the Wireless segment of $0.5 million.
Gross profit decreased $3.9 million to a gross
loss of $0.4 million compared with a gross profit of $3.5 million
for the prior year three-month period. The decrease was due to
lower Telco segment sales and a $2.1 million write-down of obsolete
inventory for the Telco segment’s Nave and Triton businesses. The
Wireless segment experienced labor cost and operational
inefficiencies in the current year due to repositioning our
Southern workforce to the North. The resource shift to the North
was necessary to match our labor force to the immediate customer
demand.
Operating expenses increased $0.2 million to
$2.0 million for the three months ended March 31, 2020 compared
with $1.8 million the same period last year.
Selling, general and administrative expenses
increased $0.5 million to $3.1 million for the three months ended
March 31, 2020 compared with $2.6 million for the same period last
year. This increase was due primarily to the Wireless segment
increased payroll-related expenses for the three months ended March
31, 2020 compared to the prior year as we were ramping up the
back-office support for this segment in the prior year.
Impairment of intangibles including goodwill for
the three months ended March 31, 2020 was $8.7 million related to
the write-down of goodwill and other certain intangible assets in
the Telco segment.
Loss from continuing operations for the three
months ended March 31, 2020, was $14.7 million, or $1.41 per
diluted share, compared with a loss from continuing operations of
$1.2 million loss, or $0.12 per diluted share, for the same period
of 2019.
Adjusted EBITDA for the three months ended March
31, 2020 was a loss of $5.4 million compared with a loss of
$909,000 for the same period of 2019.
Financial Results for the Six Months
ended March 31, 2020
Sales increased 31.6% to $25.9 million for the
six months ended March 31, 2020 compared with $19.7 million for the
six months ended March 31, 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 $7.3 million to $11.5 million for the six months ended
March 31, 2020 compared with $4.2 million for the six months ended
March 31, 2019. Sales for the Telco segment decreased $1.0 million
to $14.5 million for the six months ended March 31, 2020 compared
with $15.5 million for the same period last year. The decrease in
sales resulted primarily from a $1.4 million decrease in equipment
sales at our Nave unit offset by an increase in equipment sales of
$0.4 million at our Triton unit.
Gross profit decreased $2.0 million to $3.2
million for the six months ended March 31, 2020 compared with $5.2
million for the prior year six-month period primarily due to a
write-down of obsolete inventory for the company’s Nave and Triton
businesses. In addition, the Wireless segment also experienced
labor cost and operational inefficiencies in the current year due
to repositioning our Southern workforce to the North.
Operating expenses increased $1.6 million to
$3.9 million for the six months ended March 31, 2020 compared with
$2.3 million for the same period last year. The increase in
operating expenses of $1.4 million was due primarily to the
addition of the Wireless segment in the previous year.
Selling, general and administrative expenses
increased $1.6 million to $6.1 million for the six months ended
March 31, 2020 compared with $4.5 million for the same period last
year. This increase was primarily due to the addition of the
Wireless segment of $1.9 million in the previous year.
Loss from continuing operations for the six
months ended March 31, 2020, was $16.4 million, or $1.58 per
diluted share, compared with a loss from continuing operations of
$2.4 million, or $0.24 per diluted share, for the same period of
2019.
Adjusted EBITDA for the six months ended March
31, 2020 was a loss of $6.7 million compared with a loss of $1.6
million for the same period of 2019.
Balance sheet
Cash and cash equivalents were $4.2 million as
of March 31, 2020, compared with $1.2 million as of September 30,
2019. As of March 31, 2020, the Company had inventories of $5.4
million, compared with $7.6 million as of September 30, 2019.
Outstanding debt was $7.0 million as of March
31, 2020 comprised of $3.5 million on a revolving line of credit
and $3.5 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
On April 10, 2020, the company entered into an
SBA Payroll Protection Program (“PPP”) loan with its primary lender
in the principal amount of $2.9 million. These funds will be used
exclusively to help meet payroll, rent and utility expenses as
envisioned by the PPP program. The company met all eligibility
requirements to qualify for the loan and expects that it will meet
the guidelines for forgiveness of the repayment.
While the company continues to perform
“essential services” during the COVID-19 pandemic, the wireless and
telecom equipment markets have slowed down and have been impacted
in these first few months of the virus. While we continue to assess
the COVID-19 situation, the extent to which the COVID-19 pandemic
may impact our business, operating results, financial condition, or
liquidity in the future will depend on future developments,
including the duration of the outbreak, travel restrictions,
business and workforce disruptions, and the effectiveness of
actions taken to contain and treat the disease. In the meantime, we
are making concerted efforts to manage our expenses and improve our
utilization of resources during this period of uncertainty.
On April 24, 2020, the company entered into an
Equity Distribution Agreement under which the company may offer and
sell, from time to time shares of the Company’s common stock.
Earnings Conference Call
The Company will host a conference call today,
Thursday, May 14, 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: 10009509.
Replay number: 1-844-512-2921 (domestic) or
1-412-317-6671 (international)Available through: May 28, 2020
Access code: 10009509.
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 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 STATEMENTS OF OPERATIONS(UNAUDITED)
|
Three Months Ended March 31, |
|
Six Months Ended March 31, |
|
|
|
|
|
|
2020 |
|
|
|
2019 |
|
|
|
2020 |
|
|
|
2019 |
|
Sales |
$ |
11,959,125 |
|
|
$ |
12,889,940 |
|
|
$ |
25,921,483 |
|
|
$ |
19,700,037 |
|
Cost of sales |
|
12,397,762 |
|
|
|
9,413,424 |
|
|
|
22,768,138 |
|
|
|
14,500,132 |
|
Gross profit |
|
(438,637 |
) |
|
|
3,476,516 |
|
|
|
3,153,345 |
|
|
|
5,199,905 |
|
Operating expenses |
|
1,967,134 |
|
|
|
1,838,452 |
|
|
|
3,854,860 |
|
|
|
2,331,274 |
|
Selling, general and
administrative expenses |
|
3,079,181 |
|
|
|
2,599,236 |
|
|
|
6,098,584 |
|
|
|
4,538,841 |
|
Impairment of intangibles
including goodwill |
|
8,714,306 |
|
|
|
‒ |
|
|
|
8,714,306 |
|
|
|
‒ |
|
Depreciation and amortization
expense |
|
507,785 |
|
|
|
387,703 |
|
|
|
955,359 |
|
|
|
687,088 |
|
Loss from operations |
|
(14,707,043 |
) |
|
|
(1,348,875 |
) |
|
|
(16,469,764 |
) |
|
|
(2,357,298 |
) |
Other expense: |
|
|
|
|
Interest income |
|
86,672 |
|
|
|
‒ |
|
|
|
175,303 |
|
|
|
‒ |
|
Income from equity method investment |
|
18,500 |
|
|
|
55,000 |
|
|
|
40,500 |
|
|
|
55,000 |
|
Other income (expense) |
|
(92 |
) |
|
|
(40,509 |
) |
|
|
(57,134 |
) |
|
|
(40,420 |
) |
Interest expense |
|
(59,118 |
) |
|
|
(19,775 |
) |
|
|
(82,678 |
) |
|
|
(42,752 |
) |
Total other income (expense),
net |
|
45,962 |
|
|
|
(5,284 |
) |
|
|
75,991 |
|
|
|
(28,172 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
(14,661,081 |
) |
|
|
(1,354,159 |
) |
|
|
(16,393,773 |
) |
|
|
(2,385,470 |
) |
Provision (benefit) for income
taxes |
|
‒ |
|
|
|
(143,000 |
) |
|
|
(15,000 |
) |
|
|
29,000 |
|
Loss from continuing
operations |
|
(14,661,081 |
) |
|
|
(1,211,159 |
) |
|
|
(16,378,773 |
) |
|
|
(2,414,470 |
) |
|
|
|
|
|
Income (loss) from discontinued
operations, net of tax |
|
‒ |
|
|
|
(4,704 |
) |
|
|
‒ |
|
|
|
159,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
$ |
(14,661,081 |
) |
|
$ |
(1,215,863 |
) |
|
$ |
(16,378,773 |
) |
|
$ |
(2,254,844 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share: |
|
|
|
|
Basic |
|
|
|
|
Continuing operations |
$ |
(1.41 |
) |
|
$ |
(0.12 |
) |
|
$ |
(1.58 |
) |
|
$ |
(0.24 |
) |
Discontinued operations |
|
‒ |
|
|
|
(0.00 |
) |
|
|
‒ |
|
|
|
0.02 |
|
Net loss |
$ |
(1.41 |
) |
|
$ |
(0.12 |
) |
|
$ |
(1.58 |
) |
|
$ |
(0.22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
Continuing operations |
$ |
(1.41 |
) |
|
$ |
(0.12 |
) |
|
$ |
(1.58 |
) |
|
$ |
(0.24 |
) |
Discontinued operations |
|
‒ |
|
|
|
(0.00 |
) |
|
|
‒ |
|
|
|
0.02 |
|
Net loss |
$ |
(1.41 |
) |
|
$ |
(0.12 |
) |
|
$ |
(1.58 |
) |
|
$ |
(0.22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per share
calculation: |
|
|
|
|
Basic |
|
10,423,514 |
|
|
|
10,361,292 |
|
|
|
10,392,404 |
|
|
|
10,361,292 |
|
Diluted |
|
10,423,514 |
|
|
|
10,361,292 |
|
|
|
10,392,404 |
|
|
|
10,361,292 |
|
A reconciliation by segment of loss from operations to Adjusted
EBITDA follows:
|
Three Months Ended March 31, 2020 |
|
Three Months Ended March 31, 2019 |
|
|
|
|
|
|
Wireless |
|
Telco |
|
Total |
|
Wireless |
|
Telco |
|
Total |
Loss from operations |
$ |
(2,795,785 |
) |
|
$ |
(11,911,258 |
) |
|
$ |
(14,707,043 |
) |
|
$ |
(1,113,584 |
) |
|
$ |
(235,291 |
) |
|
$ |
(1,348,875 |
) |
Impairment of intangibles
including goodwill |
|
‒ |
|
|
|
8,714,306 |
|
|
|
8,714,306 |
|
|
|
‒ |
|
|
|
‒ |
|
|
|
‒ |
|
Depreciation and amortization
expense |
|
153,374 |
|
|
|
354,411 |
|
|
|
507,785 |
|
|
|
90,003 |
|
|
|
297,700 |
|
|
|
387,703 |
|
Stock compensation expense |
|
29,962 |
|
|
|
58,457 |
|
|
|
88,419 |
|
|
|
21,113 |
|
|
|
30,656 |
|
|
|
51,769 |
|
Adjusted EBITDA
(a) |
$ |
(2,612,449 |
) |
|
$ |
(2,784,084 |
) |
|
$ |
(5,396,533 |
) |
|
$ |
(1,002,468 |
) |
|
$ |
93,065 |
|
|
$ |
(909,403 |
) |
|
Six Months Ended March 31, 2020 |
|
Six Months Ended March 31, 2020 |
|
Wireless |
|
Telco |
|
Total |
|
Wireless |
|
Telco |
|
Total |
Loss from operations |
$ |
(3,883,229 |
) |
|
$ |
(12,586,535 |
) |
|
$ |
(16,469,764 |
) |
|
$ |
(1,113,584 |
) |
|
$ |
(1,243,714 |
) |
|
$ |
(2,357,298 |
) |
Impairment of intangibles
including goodwill |
|
‒ |
|
|
|
8,714,306 |
|
|
|
8,714,306 |
|
|
|
‒ |
|
|
|
‒ |
|
|
|
‒ |
|
Depreciation and amortization
expense |
|
300,070 |
|
|
|
655,289 |
|
|
|
955,359 |
|
|
|
90,003 |
|
|
|
597,085 |
|
|
|
687,088 |
|
Stock compensation expense |
|
38,767 |
|
|
|
67,292 |
|
|
|
106,059 |
|
|
|
21,113 |
|
|
|
84,976 |
|
|
|
106,089 |
|
Adjusted EBITDA
(a) |
$ |
(3,544,392 |
) |
|
$ |
(3,149,648 |
) |
|
$ |
(6,694,040 |
) |
|
$ |
(1,002,468 |
) |
|
$ |
(561,653 |
) |
|
$ |
(1,564,121 |
) |
(a) |
|
The Telco
segment includes inventory-related non-cash adjustments of $2.3
million for both the three and six months ended March 31,
2020. |
ADDVANTAGE TECHNOLOGIES GROUP, INC.CONSOLIDATED
CONDENSED BALANCE SHEETS(UNAUDITED)
|
March 31, 2020 |
|
September 30, 2019 |
Assets |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
4,156,068 |
|
|
$ |
1,242,143 |
|
Restricted cash |
|
104,300 |
|
|
|
351,909 |
|
Accounts receivable, net of allowance for doubtful accounts of
$250,000 and $150,000, respectively |
|
4,893,779 |
|
|
|
4,826,716 |
|
Unbilled revenue |
|
1,660,710 |
|
|
|
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 |
|
5,406,181 |
|
|
|
7,625,573 |
|
Prepaid expenses |
|
1,124,087 |
|
|
|
543,762 |
|
Other assets |
|
163,727 |
|
|
|
262,462 |
|
Total current assets |
|
18,943,767 |
|
|
|
18,965,147 |
|
|
|
|
Property and equipment, at
cost: |
|
|
Machinery and equipment |
|
3,422,299 |
|
|
|
2,475,545 |
|
Leasehold improvements |
|
483,928 |
|
|
|
190,984 |
|
Total property and equipment, at
cost |
|
3,906,227 |
|
|
|
2,666,529 |
|
Less: Accumulated
depreciation |
|
(1,126,489 |
) |
|
|
(835,424 |
) |
Net property and equipment |
|
2,779,738 |
|
|
|
1,831,105 |
|
|
|
|
Right-of-use operating lease
assets |
|
5,178,084 |
|
|
|
‒ |
|
Promissory note – noncurrent |
|
4,390,738 |
|
|
|
4,975,000 |
|
Intangibles, net of accumulated
amortization |
|
1,584,349 |
|
|
|
6,002,998 |
|
Goodwill |
|
57,554 |
|
|
|
4,877,739 |
|
Other assets |
|
180,452 |
|
|
|
176,355 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
$ |
33,114,682 |
|
|
$ |
36,828,344 |
|
ADDVANTAGE TECHNOLOGIES GROUP, INC.CONSOLIDATED
CONDENSED BALANCE SHEETS(UNAUDITED)
|
March 31, 2020 |
|
September 30, 2019 |
|
|
|
|
Liabilities and
Shareholders’ Equity |
|
|
Current liabilities: |
|
|
Accounts payable |
$ |
4,375,148 |
|
|
$ |
4,730,537 |
|
Accrued expenses |
|
1,363,364 |
|
|
|
1,617,911 |
|
Deferred revenue |
|
260,420 |
|
|
|
97,478 |
|
Bank line of credit |
|
3,500,000 |
|
|
|
‒ |
|
Note payable – current |
|
1,244,289 |
|
|
|
‒ |
|
Operating lease obligations – current |
|
1,219,301 |
|
|
|
‒ |
|
Financing lease obligations – current |
|
317,023 |
|
|
|
‒ |
|
Other current liabilities |
|
‒ |
|
|
|
757,867 |
|
Total current liabilities |
|
12,279,545 |
|
|
|
7,203,793 |
|
|
|
|
Note payable |
|
2,213,104 |
|
|
|
‒ |
|
Operating lease obligations |
|
4,174,774 |
|
|
|
‒ |
|
Financing lease obligations |
|
708,825 |
|
|
|
‒ |
|
Other liabilities |
|
14,530 |
|
|
|
177,951 |
|
Total liabilities |
|
19,390,778 |
|
|
|
7,381,744 |
|
|
|
|
Shareholders’ equity: |
|
|
Common stock, $.01 par value; 30,000,000 shares authorized;
10,971,950 and 10,861,950 shares issued, respectively; 10,471,292
and 10,361,292 shares outstanding, respectively |
|
109,720 |
|
|
|
108,620 |
|
Paid in capital |
|
(3,722,126 |
) |
|
|
(4,377,103 |
) |
Retained earnings |
|
18,336,324 |
|
|
|
34,715,097 |
|
Total shareholders’ equity before treasury stock |
|
14,723,918 |
|
|
|
30,446,614 |
|
|
|
|
Less: Treasury stock, 500,658 shares, at cost |
|
(1,000,014 |
) |
|
|
(1,000,014 |
) |
Total shareholders’ equity |
|
13,723,904 |
|
|
|
29,446,600 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders’ equity |
$ |
33,114,682 |
|
|
$ |
36,828,344 |
|
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