This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk03: Good morning, ladies and gentlemen, and welcome to the Blonder Tongue Laboratory's second quarter 2021 earnings call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Ted Grau, CEO of Blonder Tongue Laboratories. Ted, the floor is yours.
spk01: Hi, thank you. Good morning, everyone. Thank you for joining us and participating in our 2021 second quarter and first half 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, our filed 10-Q forms for each quarter of 2020, and for the first and second quarters of 2021. Each of those filings include additional detailed information concerning factors that could cause actual results to differ from the information discussed this morning. With me today is 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 continue a recovery throughout Q2 that began in the middle of Q1. Company sales were 13.2% higher in Q2 2021 versus Q2 2020 a year ago, finishing at $4.338 million. The markets where we operate appear to be on a slow but steady recovery at the moment, with the company experiencing an approximate 8% increase in average bookings to $1.647 million per month in the second quarter compared to the first quarter of this year, 2021. These bookings have also included several first-time product wins with service providers as well as sales growth of our Clearview transcoder and NXG IP video processing product lines with several existing customers. Overall results for the first half included a modest but positive $126,000 of net cash provided by operating activities and a net income of $1.212 million. As mentioned in our press release and filings, we are intentionally moving our set-top box CPE initiatives into a services support and fulfillment business model to ship the cost of goods sold in that program onto our product partners, so we have already started seeing a reduction in revenue, but expect to realize much higher margins and an improvement on the efficiency of our capital on those products. We're working now to grow sales of the more traditional Blonder Tongue product lines with a large group of new customers that we've established over the last two years by using our set-top and CPE program. Additionally, we are not seeing any material growth in our DOCSIS product line since a large drop-off that happened at the beginning of the pandemic. The hospitality industry, which represents the larger share of our DOCSIS technology sales, have been slower to recover than the service operator and telecommunications market segments. The timing of potential sales growth in our DOCSIS products will generally track that industry. There will be a hospitality industry conference at the end of September, the first in over two years, that will let us comment with more detail on this next quarter. On the topic of efficiency and margins, we had a small decline in blended gross margins since last quarter to 39%, down from 42.6% in Q1. We see this as a temporary effect from a three-week printed circuit board supply delay that we experienced mid-quarter and some specific raw materials price increases, and which together caused a slight increase in product labor in in the content of our products during the quarter. We also responded with selective short-term product price increases that are now absorbing those higher material and labor costs for as long as they will last. Although we have not been completely immune to the well-publicized recent global supply chain issues, our team, led by our head of operations, Alan Horvath, and head of supply chain, Larry Walco, and their teams have managed the situation incredibly well so far. Part of this is due to the multi-decade relationships that this team has with our technology suppliers and our distributors and their overall experience level. But part of it is also because we have chosen to continue to build the large majority of our products in our own factory in New Jersey and are just more adaptable and agile to changing situations in product demand, stocking, and supply chain. Where some of our competitors who build products exclusively overseas have had to begin to quote customers four-, five-, and six-month lead times on some products, all of Blondertongue's U.S.-built product lines continue to be available within our normal lead times. In summary, overall, it was a solid quarter on the company's path working towards a more complete recovery. We will see an upcoming large-scale resumption of telecommunications, service provider, hospitality, and AV integrator industry trade shows in with associated marketing activities and expanded direct customer engagements upcoming in Q3 and Q4. As we've mentioned in previous quarter earnings calls and in our press release this morning, we'll also have some new product announcements in the coming months focused on ISP data delivery technologies and furthering our expansion into over-the-top or OTT video as well as IP or internet protocol and IPTV video technologies. At this point, I would like to pass the floor over to Eric Skolnick, our Chief Financial Officer, to cover our detailed financial results. Eric?
spk02: Thank you, Ted. Blundertongue reported net sales of an increase of $507,000, or 13.2%, to $4,338,000 for the second quarter of 2021, from $3,831,000 for the comparable period in 2020. That income for the three months ended June 30, 2021, was $1,626,000, or 11 cents per diluted share, compared to a net loss of $1,194,000, or a 12-cent loss per diluted share for the comparable period in 2020. The increase in sales for the second quarter is primarily attributable to an increase in sales of video transcoder products, next-gen IP video signal processing products, and digital video head-end products, offset by a decrease in sales of DOCSIS data products and CPE products. Sales of transcoder products were $1,337,000 and $279,000. Next-gen products were $470,000 and $285,000. Digital video head end products were $968,000 and $745,000. DOCSIS data products for $327,000 and $701,000, and CPE products for $288,000 and $1,026,000 in the second three months of 2021 and 2020, respectively. For the six months ended June 30, 2021, net sales decreased $292,000, or 3.7%, to $7,589,000, in 2021 from $7,881,000 for the comparable period in 2020. Net income for the six months ended June 30, 2021 was $1,212,000 or $0.08 per diluted share compared to a net loss of $3,274,000 or a $0.34 loss per diluted share for the comparable period in 2020. Net cash provided by operating activities was $126,000 for the first six months of 2021 compared to net cash used in operating activities of $2,029,000 for the comparable period in 2020. The decrease in sales for the six months is primarily attributable to a decrease in sales of DOCSIS data products, digital video head-end products, HFC distribution products, and TPE products, offset by an increase in sales of transcoder products and NXG products. Sales of DOCSIS data products were $355,000 and $1,572,000. Digital video head end products were $1,511,000 and $1,802,000. HFC distribution products were $923,000 and $1,170,000. CPE products were $983,000 and $1,672,000. Transcoder products were $2,073,000 and $394,000. And NXG products were $891,000 and $481,000 for the first six months of 2021 and 2020, respectively. The company expects bookings of transcoder products to remain healthy as market exposure to and acceptance of those products continues. The company expects sales of our CPE products to continue to trend lower than in prior periods, as Ted mentioned, as the company, consistent with its business plan, transitions these products into a higher margin but lower revenue services, fulfillment, and support business model, and works to promote an expanded array of distribution, content delivery, and processing technologies that to those service provider customers. The company's primary sources of liquidity have been its existing cash balances, cash generated from operations, and amounts available under the MidCap facility. At June 30, 2021, the company had $487,000 available under the MidCap facility. As this goes in the company's 2020 annual report on Form 10-K last year, the company experienced a decline in sales, a reduction in working capital, and a loss from operations and net cash use 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 floor to the question and answer session.
spk03: Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone now. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 now. Please hold a moment while we poll for questions. Your first question is coming from Gregory Urban. Your line is live.
spk04: Good morning, Luke and Ted. Good morning. Hi, Greg. Number one, on the cash flow, it looks like maybe this quarter was slightly negative. Is that correct?
spk01: Yes, very slightly negative.
spk04: Do you expect over the next quarter or two for that to turn positive?
spk01: I can tell you we're doing everything we can to make it positive. I definitely... did not come over to Blonder Tongue, nor is any of the management team here to continue with negative cash flow. It's simply a matter of, in the short term, we had some supply chain challenges. I think we did a fantastic job working with them. You look at our competitors and a lot of stuff in the industry, you see news articles about Ford having to stop producing pickup trucks and all sorts of things because of lack of chips. Our team worked around basically everything that was coming at them on a weekly basis. It did consume a little more cash than we had planned for the quarter. I cannot sit here and say that we've seen a dramatic recovery in the supply chain situation, but it's definitely stable at the moment. We do not have any particular things we know of that are going to catch us in the next quarter, but we remain a little guarded, and I can't give you any firm commitment. But if things work the way that we believe they're going to work, then we'll see an improvement on the cash. flow going forward.
spk04: Any chance by year end we might see a positive EBITDA?
spk01: Certainly, again, we're not here running this company to continue to run negative EBITDA business. The market has not fully recovered yet from the pandemic, although we are seeing good, solid, steady, slow progress towards where we need it to be. We're also bringing out some new products in the second half. You add all those up, and I think we'll get there eventually. I cannot sit here and give you any particular guidance on if we'll get there in the second half particularly, but I do believe we will get there long term.
spk04: Thank you. Could you elaborate any on the new products? Is that for head in?
spk01: Yeah, they're a combination of products that will modernize some of our older video modulation and video transmission equipment. There are a few things related to expanding our products in the data delivery or ISP service provider business, which we don't do a lot of business in today. It's very small. And and a few other products that will expand the sort of modernization and newness and relevance to some broadcasting customers that we have long term. So it's a combination.
spk04: That might increase the R&D over the next quarter or so.
spk01: I'm sorry, the what? Oh, no, we're not increasing R&D costs. No, our R&D costs are very, very steady. I cannot think of anything that we're doing that would have a specific increase off the top of my head.
spk04: Head count now compared to last quarter?
spk02: It's about the same.
spk04: All right. Other couple things, given the spread of this Delta variant, what impact are you seeing near-term? With the COVID.
spk01: So not to overly mimic what I'm hearing politicians say, but right now it seems to be the pandemic of people that have not gotten vaccinated. Our customers are not behaving any different. different in any big way from what we've seen them do in this slow, steady recovery. We're not seeing any knee-jerk reactions. We're not seeing any big negative turns. We're not seeing people cancel meetings or anything like that. Right now, at this moment, we don't see any big changes.
spk04: That's good to hear. I heard, because I had a tech come in from my upgrade my DirecTV receiver, that there's going to be a change of ownership of DirecTV. Any comment on what that might mean for Blonder?
spk01: I would say that we've never had as good a relationship or as strong of an active selling market for our technology into the DirecTV dealer market as we have right now. It is growing. It's strong. We have new products that are hitting that market now that we've put out over sort of slowly in increments over the last year, and they're all being well-received, and they're all growing. And we keep in touch with the guys at DirecTV in the middle and upper management, and things are good. They're telling us it's business as usual. They're all excited about the ownership change. They feel like they'll have a management team that's entirely focused on their business segment as opposed to a wider range of of conglomerate activities that, you know, their old management team were more focused on, you know, the telephone business, wireless, and entertainment. Not that there's anything wrong with that, but I can tell you the people we talked to were very excited about the transition. They feel like there'll be a good focus on their business, and they don't see any disruptions or anything that they're thinking or planned at this point. Okay.
spk04: That's good to hear. That's all I have right now until I get a look at the 10Q. So I look forward to hearing from you in future quarters.
spk02: Thank you so much. Thank you so much, Greg.
spk03: We have no further questions from the lines at this time. I would now like to turn the floor back to Ted Grau for closing remarks.
spk01: Great. So thank you, everybody, for attending the call. We appreciate your continued support in the company and interest in Blonderton Laboratories and look forward to talking to you all again next quarter. Thank you.
spk03: Thank you, ladies and gentlemen. This does conclude today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.
Disclaimer