AEY - ADDvantage Technologies Reports Financial Results for Third Quarter of Fiscal 2020

August, 11 2020 04:06 PM ADDvantage Technologies Group Inc.

CARROLLTON, Texas, Aug. 11, 2020 (GLOBE NEWSWIRE) -- 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 IR
Brett Maas
(646) 536-7331
aey@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.

Company Name:	ADDvantage Technologies Group Inc.
Stock Symbol:	AEY
Market:	NASDAQ

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