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spk02: Good morning, ladies and gentlemen, and welcome to Blonder Tongue Laboratory's first quarter 2021 earnings call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Ted Grau, President and CEO. Sir, the floor is yours.
spk09: Thank you.
spk07: Hi.
spk09: Good morning, everyone, and thank you for joining us and participating in our 2021 first quarter earnings call. I'm Ted Grau, Chief Executive Officer and President of the company. As we give our remarks this morning, we will be discussing certain subjects that will contain forward-looking statements, including management's view of our prospects and evolving trends in the market. As you know, the future is all but impossible to predict, and so I caution you that actual results may differ materially from those that may be projected in our comments. We would ask you to refer to our prior SEC filings, including our Form 10-K, for 2019 and 2020, and our filed 10Q forms for the first, second, third, and fourth quarters of 2020. For additional detailed information concerning factors that could cause actual results to differ from the information discussed this morning. With me today are Stephen Shea, Chairman of the Board of Blunderton Laboratories, and Eric Skolnick, our Chief Financial Officer and Senior Vice President. Eric's remarks will follow mine and will cover our detailed financial results. All of us will be available to answer questions that you may have during a Q&A session immediately following our prepared remarks. The company saw product demand begin to recover during the very end of Q1 after facing the last 12 months in a very difficult pandemic-affected marketplace. Overall, the company's sales were 19.7% lower in Q1 2020 versus Q1 2021, And yet, we were still successful in generating positive cash flow from operations for the quarter and increasing our gross margin and associated operating margins compared with 2020. This was only possible due to our team's extensive work during all of 2020 in making the changes necessary to operate the company more efficiently. We also began a process in Q1 of the technology and sales focus on the growing IP, IP television, and broadband-oriented market segments with all of our cable and telecommunications customers and through our distribution channels. Our long-term operating expense reduction programs were finally completed in Q1. Those efforts combined with the sales focus I just mentioned yielded an improved product mix in our sales that more than offset the lower revenue level year on year. Higher operating efficiency combined with product mix yield a gross margin of 42.6% for the quarter, up from 13.7% for the same period last year. A specifically encouraging element during Q1 was our increase in our NXG platform product sales and opportunities. Additionally, our Clearview video transcoder product line that was introduced during 2020 continued to gain sales with additional customers, and we've had additional Clearview models gain service operator qualification during the quarter. Also during the first quarter, the company benefited from supply chain commitment and investment decisions that we made during Q4 2020 and that have enabled us to run our manufacturing without interruption year to date. This is in contrast with the recent impacts that many electronics companies have had for semiconductor and other parts shortages that we've all read about in the news. Blonder Tongue products remain readily available to our customers at our normal lead times. and we have achieved some customer wins in late Q1, with our favorable product availability in the market being a contributing factor. As the company heads towards the middle of the year, our near-term activities are to continue the plans that I have mentioned over the last year on these earnings calls and in our filings and press releases, specifically to continue to expand our direct relationships with telco, cable, and fiber optics-based service operators, and to focus our products and sales efforts with a goal towards achieving improved product mixes and to run the company in a way that is as financially efficient as possible. As I also mentioned in last quarter's earnings calls, we believe that a major indicator of our progress in the company's structure and health is indicated by the reduction in cash used in operating activities. In Q1, while managing the company with a year-on-year reduction in sales of 19.7%, we had net cash from operating activities of $234,000 compared to net cash used in operating activities of $842,000 for the first quarter of 2020, a significant change. At this point, I would like to pass the floor to Eric Skolnick, our Chief Financial Officer, to cover the detailed financial results for the first quarter of 2021. Eric? Thank you, Ted.
spk08: Blind or Tongue Laboratories Inc. net sales decreased $799,000, or 19.7%, to $3,251,000 for the first quarter of 2021 from $4,050,000 for the comparable period in 2020. That loss for the three months ended March 31st, 2021 was a loss of $414,000 or a loss of 4 cents per share compared to a loss of $2,080,000 or a loss of 21 cents per share for the comparable period in 2020. Net cash provided by operating activities was $234,000 for the first quarter of 2021 compared to net cash used in operating activities of $842,000 for the comparable period of 2020. The decrease in sales is primarily attributed to a decrease in sales of DOCSIS data products, digital video head-end products, and hybrid fiber coax or HFC distribution products, offset by an increase in sales of video transcoder products and NXG Internet Protocol IP video digital signal processing products. Sales of DOCSIS data products were $28,000 and $871,000. Digital video head-end products were $543,000 and $1,057,000. HFC distribution products were $427,000 and $688,000. Transcoder products were $736,000 and $115,000, and NXG products were $421,000 and $196,000 in the first three months of 2021 and 2020, respectively. As previously disclosed in our 8-K filed on April 7, 2021, On April 26, 2021, the company received a payroll tax credit of $577,000 through the Employee Retention Tax Credit, or ERTC, for the first quarter of 2021. The amount was recorded as other income and included in prepaid and other current assets as of March 31, 2021. The company's primary sources of liquidity have been its existing cash balances, cash generated from operations, and amounts available under the mid-cap facility. At March 31, 2021, the company had $537,000 available under the mid-cap facility. As disclosed in the company's most recent annual report on Form 10-K, the company experienced a decline in sales, a reduction in working capital, a loss from operations, and net cash used in operating activities in conjunction with liquidity constraints. These factors raise substantial doubt about the company's ability to continue as a going concern. The above factors still exist. Accordingly, there still exists substantial doubt about the company's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of the liabilities that might be necessary should the company be unable to continue as a going concern. Now I'd like to open up the call to the question and answer session.
spk02: Thank you. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We do ask if you are listening via speakerphone to please pick up your handset for optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone at this time. Our first question today is coming from Drew Ciccarelli, a private investor. Your line is live.
spk05: Hey, guys. Thank you very much for your time this morning. Good morning. Quick question for you. Under the $537,000 you have currently available, how much has total been used out of that so far?
spk08: No, that represents the unused portion of the $537,000 at March 31st.
spk05: Okay. How much cash is currently on the balance sheet?
spk08: You mean like at March 31st, we report... $56,000 of cash on the balance sheet.
spk05: And then with the NYSE sending the non-compliance, what is the game plan there to get the shareholder equity up?
spk08: Ted, do you want to handle that?
spk09: Sure. We have already filed a revised recovery plan with the NYSE American. It brings into account a reasonable plan that we believe is achievable if the company decides to execute on all those portions of the plan between now and the end of the year. The measurement is to be made by the NYSE American approximately December 10th, and then they will make a decision whether we're in compliance or not, and they have a choice to then move towards a potential delisting at that point. But we have a plan. The plan includes elements that we've already previously talked about, such as the forgiveness of our PPP loan from last year that is about $1.76 million of the deficiency and some other elements.
spk05: Got it. Lastly, the debt that the company has, can you go into the high-level details of the current debt the company has?
spk08: Sure. At March 31st, we had approximately $1,280,000 worth of subordinated convertible debt, predominantly with related parties. At March 31st, we had balance under our line of credit of about $1,238,000. We have $1,769,000 of the PPP loan that Ted mentioned that we expect to have forgiveness this year. And then there's about, I think, about $50,000 worth of other small miscellaneous stuff.
spk05: And what is the 1.28 in convertible debt? What does that convert at?
spk08: It's at different conversion prices. Some of it is at $0.55 per share. Some of it is at $0.593 per share. And some of it's at $1 per share. It was in our 10K, all the details.
spk05: Gotcha. Awesome. Last question. I thank you again. I've emailed you guys over the last week or two. Every email has been picked back. at Blondertongue.com. Is there a better email?
spk08: No, that should be it. So I guess we'll have to investigate what the issue is.
spk05: Information got sent back. T. Grouch and E. Skolnick all got sent back from at Blondertongue.com.
spk09: What's the email that you're sending from that could be just a spam blocker problem?
spk05: Drew at VenturesideCapital.com.
spk09: We'll take a look.
spk05: Thank you very much. I appreciate your time.
spk07: Of course. Thank you very much for the questions.
spk02: Thank you. Our next question today is coming from Gregory Urban, a private investor. Your line is live.
spk04: Morning, guys. Morning. Hi, Greg. I highlighted the things you mentioned earlier. And I'll just go over them briefly one at a time. The cash flow from operations was a real turnaround. Primary question is, do you see that as being sustainable over the course of the year?
spk09: So I really appreciate you using that word, turnaround. I like it a lot. Thank you. The question of whether it's sustainable really has so many factors related to will the sales sustain? Will our product mix be able to be sustainable? We're optimistic, but there's a lot of factors out there in the market. Right now, we feel pretty good, but we'll take it one quarter at a time and see how things are developing. The elements that are sustainable are with an incredibly high level of confidence are the operating expense changes we've made to the company, the updated sets of technology that we've completed last year that are looking like they've got better traction in the market as the economy starts to recover from the effects of the pandemic, and the wider range of customers that we're dealing with, both in the distribution and service operator markets. all those things look pretty positive.
spk04: All right. And number two is the gross margins. Incredible reversal there again. Same question. Do you see them staying in the 35 to 40 plus percent range?
spk09: Yeah, we try not to do too much... forecasting in this company, just to stay in the conservative side. The product mix that we're putting forward in the coming quarters should be the same or very similar to what we were able to do in Q1. Whether those margins will be sustainable, I need to leave it a little bit open-ended and see how it goes. You can imagine that we're going to do everything in our power to make them be at that level or better.
spk04: Well, since the NextGen and the, I take it, the Clearview were, you know, the best sellers this quarter, we can attribute largely that margin increase to those lines, correct?
spk09: Those were two really big contributing factors, among other things, yes.
spk04: One that I didn't notice, I'm sure it will be in the queue, is the DOCSIS, it looks like it fell off the cliff. What happened there?
spk09: On that one, the really big thing is on that one, it really is a comparison on quarter, one quarter last year, which was pre-pandemic. We started to see the effects of the pandemic on our sales and product mix right at the end of the quarter last year, literally like the last week of the quarter last year, right? So you can kind of look at the first quarter of 2020 as being the last sort of normal quarter for the last year. And there we had very good and very strong sales of DOCSIS products that go into a lot of hospitality settings, a lot of small and medium businesses, a lot of B2B kind of locations. you can imagine that there's been a huge impact on those portions of the products in our product portfolio over the last year. And Q1 this year is no exception to that. So we have not seen any kind of major recovery in the hospitality sector as it relates to our products yet. We've seen, as you've seen, a sales increase in some other sectors that are very encouraging. But the hospitality portion of our products sales, and in particular the DOCSIS products, that's modems, it's transmission equipment called CMTSs and some other things. Those have not recovered from the pandemic, and that's why that's such a stark difference.
spk04: Yeah. What about the, what is it, the CPE equipment, the set top, how is that doing?
spk09: So the CPE, I think the best way to characterize that without going too much into forward-looking statements is we're still playing a role in that and we're gonna watch the market over the coming quarters to see which areas that we've been working in are going to lead to either growth in the top line or growth in the margin level. And we're kind of adapting as we see that. They've been good so far this year, but we kind of see that market is changing over the coming months. There's still a lot of opportunities there, but we may be changing some of the things we're doing in terms of product mix and and services and software versus hardware, et cetera.
spk04: Correct me if I'm wrong. That was sort of a, this is my characterization, an interim income source over the last year or so that maybe its future is not so bright as far as the product mix goes.
spk09: from the very beginning we wanted to jump into that product, adding that product mix, knowing full well that there was going to be a short term period of time that we'd have a lower margin, uh, mix associated with it because the product line was, was the, was the tool that we were able to use to establish, uh, compelling and, and, and, um, genuine supply relationships with a large number of service operators that have traditionally not purchased from us or have traditionally purchased our products through distribution channels and not had direct relationships with us. One interesting data point is over the last year and a half to two years, we've established roughly 65, 70 new relationships directly with small and medium-sized service operators around the country that we didn't have before we had that CPE product on. So if you measure that as one element of the success of the strategy, that has done very, very well.
spk04: Intangible result of being a door opener for you.
spk09: Yes, exactly, exactly, exactly. And you can imagine we're already in the process of trying to turn those new relationships into sales of a broader range of our product lines, including the NXGs, the Clearviews, and encoders, and many other products.
spk04: Another positive was that you mentioned there's no supply issues. In contrast, I know, following other companies, that that is somewhat of a factor. So that's good to hear as well.
spk09: Thanks very much on that. Yes, we, several of the management in the company, including myself, have backgrounds working extensively in Asia with Asian suppliers and other positions I've held in different companies over the last 20 years, including the semiconductor industry, where I used to work at Intel and STMicroelectronics. And our contacts are There really were, in that industry, really were key to us understanding that there was a potential disruption in supply pretty early. And we sort of doubled down on commitments and stocking up on raw materials ahead of when it actually started to be a problem. So we were a little lucky there. I think we made the right decisions. Of course, hindsight's always 20-20. So those were good decisions.
spk04: A question regarding the employee retention facility, that $577,000 income, I take it if the company hadn't received that, that the overall net loss would have been closer to $1 million. Am I correct in assuming that?
spk08: Well, yeah. I take that. Yes. Okay. But do you want to, Ted, do you want to talk about, you know?
spk04: No. No. Well, I'm glad that's available. And looking at the term, I initially mentioned, I missed that on the 8K because I was more concerned about the delisting risk. But I see that it goes back to comparisons in similar quarters to 2019. Is that, you know, you need a 20% loss and gross loss
spk08: comparing those quarters is that all or nothing help me here is that yes the measurement is you take you look at each quarter and you compare it back to the comparable quarter in 2019 and if you have sustained a loss a loss in revenue of 20% or more you qualify for the ERTC program
spk04: Might the strategy be to stay slightly under that in order to take advantage of that program? I mean, you want your sales and whatnot to go up, but you don't want to lose that on the other hand.
spk09: Well, I mean, what we're fundamentally focused on, Greg, as a company, is we want to grow both the top line and the bottom line. Right. If the market shows us that it's growing and it's good, high-margin, important revenue, I would be very happy to not qualify for the program in exchange for us growing our business. We do not want to be a company... that looks at that income stream as important to our ongoing success. It cannot be. It is not now, and it's not going to be. While the situation is where it is right now, which is the market is showing some signs of recovery, it looks pretty good, but we're not over that threshold. And as long as we're fully in compliance with the qualifications, we're going to absolutely take advantage of it.
spk04: That's what I would expect. And let's see, going back to the delisting, looking at that, the criteria for the various stages of that, the $6 million requirement of shareholder equity and then four and then two, and right now it looks like we're at about a million and a half of shareholder equity. And looking to satisfy all those looks like it's going to be a big step up, particularly to get to $6 million by the end of the year. I assume you're confident or fairly confident that you can get there and get the exchanges off your back or get it off shareholders' back, because it's a major concern for me, this delisting. And as I understand it, you could get a call at any time and – the listing would be a problem.
spk09: Well, in terms of we could get a call at any time, that measurement of the company will not happen until roughly December 10th, December 11th. So we're not in a situation where we could just get a call at any time. And as we answered to Drew's question just a few minutes ago, We have submitted a plan that will get us fully compliant before that measurement has to happen in the middle of December. So now the question is executing on that plan and making the decisions that we need to make to get the company back over there. So there is a path. It's been laid out in front of the NYSE and submitted as a formal plan. And we're working towards that plan.
spk04: Excuse me, that must have been my misreading or misinterpretation. No, no. Let's see what else I have in product. The total number of shares outstanding?
spk08: As of May 6th, the number of shares outstanding were 11,960,505.
spk04: And if you could, a little color or elaboration on your service operator base, how you're doing with the big two or three and where you're looking for growth over the near to medium term with the various product lines.
spk09: Sure. The Clearview product, The largest base of sales are into markets that are serviced by DirecTV. We do have a direct relationship with DirecTV on a communications basis, but the products are actually purchased through distribution channels to their dealer network. That's going very well. that lined up right with what we've already publicly announced, um, on the growth, the Clearview product lines. Um, some of those products are into, um, into cable operators as well. The large majority is, is in the direct TV, um, uh, SMB and bulk video markets. Um, and that's going very well and growing pretty well so far this year. Um, We're doing very well in growing both our relationships and potential business in the Tier 1. Nothing that I can publicly talk about because, as you can imagine, most of the Tier 1 relationships we have have nondisclosure agreements in place, and we can't even... mention the names of the companies, let alone the specifics of any particular deal. But we are growing our business in the tier one segment. Those are all direct relationships where we sell directly to those operators. We don't sell through any intermediary or distribution channels in those relationships. And they're growing really nicely. And we've established new beachheads from a potential sales perspective recently during Q1. And things are going well there. The growth this year is mostly going to come from growing the NXG, the Clearview, and a restoration of some of the lost hospitality and SMB, small and medium business segments that were lost during the worst of the pandemic situation. So if we could simply recover those, but also count on the new sales that we've gotten with the newer products during the last 12 months, we'll be in pretty good shape.
spk04: In regard to streaming, do you have competitive with the hardware in that niche? Well, not niche. Well, if it's a niche, it's a growing niche.
spk09: It certainly was a niche, and now it's not. That's right. We're... The best way to characterize that is we've done investment, as I wrote in the press release, a lot of the product mix growth has been in products that we've developed. They're parts of our NXG product line. They're parts of other encoder and transcoder product lines that are now incorporating some of the newer OTT style technologies, such as If anybody's a technologist on the call, things like MPEG-DASH, HLS, CDN technologies, content delivery network technologies, IP-packetized video, those technologies are now starting to show up as features and enhancements and even in some cases separate product SKUs in our portfolio, and that's part of what's been driving We're looking to continue to finish, not finish, but continue the additional development that we're doing, the R&D and the engineering, to expand that portfolio in that area, because that's the growing segment in video, as well as continue to try to grow products in our data and broadband portfolio, which is, frankly, an even faster-growing portfolio. that we're very keen to get more fundamentally into this year.
spk04: Well, thank you. And finally, and this was touched on in the last call, in the services that you may be working on to deliver independent of hardware, are you able to talk about that at all?
spk09: Sure. A lot of that's still kind of in planning and product development. But the one area that we have done a good job of in the first quarter is we have started racking up more sales in service level agreements that are related to our current product. We revamped that program. early in the year, launched new product literature and started selling and supporting some different policies related to our SLA agreements. So that's another, frankly, probably a very small factor why our margins stood up stronger in Q1, a very small factor, but it's an area that we think has a lot of potential to it. So we're putting a lot of focus on that and then some other affiliated services that I won't talk about quite yet.
spk04: All right. Well, thank you very much. It's good to hear from you guys and just wish you well in the future.
spk09: Your questions are always very appreciated, Greg.
spk07: Really appreciate it. All right. All right, guys. Good day.
spk02: Thank you. Our next question today is coming from George Gaspar, a private investor. Your line is live.
spk01: Thank you. Good morning. Most of the questions that I had were just recently answered here on the call, which was very good. One question here is about your employment situation with your current staff. And I know you've done a lot to try to economize it and bring your costs into a more precise level relative to your revenue stream. How do you view... the requirement for going forward to try to recapture more of your markets? Can you do it with the existing employment situation, or do you have visions of needing to accomplish it by 5%, 10%, 15% or more? Can you talk about that? Sure. So the way...
spk09: I think the best way to think about the operational changes we made over the last year and a few months is it was slow and iterative, meaning we would make some changes in a certain area, we would test, we'd see what effect that was having on a particular department's ability to do their job. And then we would you know, recalibrate and figure out what could be done more either there in a different part. So it was, you know, compared to a fairly, um, strong, fast set of actions. We did it in this way because what we wanted to do was to end up with a structure and a capability that we would be happy to live with for a long period of time. And, and, and as, as, as we work towards getting the revenue to grow and the margin levels to grow, I didn't want to structure that I have to add back a bunch of costs to to in order to to to perform and deliver on a larger revenue. So I think we've, I think we've accomplished that. And so where we're looking to potentially add staff. And if we do, if and when we do start adding staff back, it will be offset by other other reductions, either other parts of the company or in or in other operating costs, it would be in expanding sales and marketing activity in order to capture that revenue, that more that revenue and the most interesting revenue out there. That would be the area we would actually... We don't believe we need to expand cost or expand cost in manufacturing and operations, in engineering, or for the most part in support.
spk01: Yes. Okay. Good. Thank you for that answer. Just one last. Any observations in terms of expansion going more international?
spk09: We've looked into it. We do have some distributors of ours that are active in Latin America that are bringing a non-material amount of sales to us right now. And we're seeing some signs that that may be growing as those other economies start potentially recovering from the pandemic effects. So that will just sort of pick up naturally, potentially. But when we looked into it before, the costs associated with expanding into markets that were already served by fairly well-entrenched competitors were, it's not that we felt like we couldn't do it. We felt like it was expensive, and the outcomes were a little bit questionable, how long it would take for us to make meaningful inroads into taking market share away from it. from other competitors. And we felt like those resources were better spent to shore up where we are right now. And we were going to have better return on investment by focusing on US and Canada.
spk01: Right. Okay. Well, thank you very much for your explanations. Good luck going forward here.
spk09: Thanks for the question. Appreciate it.
spk02: Thank you. Our next question is coming from Dave Cole, a private investor. Your line is live.
spk06: Hi. I have a couple questions. They loop back around to the listing and outstanding shares, but I was wondering, by the end of the year, is there an estimate on what the fully diluted number of shares would be? You said there's about 11 million outstanding right now, but after conversion, what would that be?
spk08: Well, it depends. We have approximately It would be another $2,060,000 of shares under our convertible debt structure. And the outstanding warrants that we had from our private placement, that's about another 929,000 shares. And then, of course, there's also the potential dilution. for our employee and director stock options. And depending, you know, without, I'm not sure of the exact mix, some of them may be in the money, some of them may not be in the money. That's another 3,982,000. So the potential common shares that are outstanding in addition to the existing shares is 6,971,000 additional shares right now.
spk06: So we're looking at possibly having 17 million
spk08: That would be every single one of them converted correct, yes, but that's not necessarily likely.
spk06: Okay. And part of the listing requirement is a dollar bid for 30 days, right?
spk08: No. The only listing requirement that we have right now is that we need to be back in compliance with our stockholders' equity of a minimum of $6 million by December 10th.
spk06: Okay. Also, along those lines, how closely are we tracking and executing the continued listing plan that was submitted? Last I saw, I think it was an 8K, said we were not in line or in compliance yet with the plan?
spk08: Well, correct. What happens is we are required each quarter to basically update our plan and describe any changes to the plan compared to the actual results of the quarter. So the NYSD American has certain thresholds that, so if you, for example, if you're below X, and then you're below Y, you're going to get another notice. And that's generally what's happened here is that even though our updated plans may still show compliance by December 10th, at that specific period in time, one report, the NYSE is required to send us a notice of deficiency. And that's what happened.
spk06: All right. And my last, I think this is my last question. at least on this subject. If there is a delisting, what's going to happen after that? Does the company go private? Are we going to list on OTC bulletin board or somewhere else with less requirements and then wait till we regroup and then come back to the NYSE American? Has there been any consideration of that?
spk08: I don't think we're really prepared to talk about it this time. We have our plan in place with the NYSE American, and that's what we're driving toward at this time.
spk03: But there certainly are other markets where the stock can trade without going private. And the notion of going private is not reporting. That's not going to happen. There are alternatives, like you mentioned, like the bulletin board, which is not called the bulletin board anymore. It's called something else. I don't recall exactly. Yeah.
spk06: Yeah. It's still called bulletin books.
spk03: Is it?
spk06: Okay. Yeah. I call it that. Pink sheets. It's OTC and other stuff. Yeah. I mean, I go back a ways.
spk07: Okay. Thank you.
spk02: Thank you. Once again, ladies and gentlemen, if there will be any final questions or comments, please press star one at this time. We have no further questions in queue. Do you have any closing comments that you'd like to finish with?
spk09: Sure. I just want to thank everybody who joined the call. We appreciate everybody's participation and interest in our company and ongoing investment, and we look forward to talking to everybody next quarter.
spk07: Thank you all very much.
spk02: Thank you, ladies and gentlemen. This does conclude today's event. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.
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