ADDvantage Technologies Group, Inc.

Thank you for standing by. This is the conference operator. Welcome to the AdVantage Technologies third quarter 2020 earnings conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, You may signal an operator by pressing star and zero. I would now like to turn the conference over to Mr. Brett Moss of Hayden IR. Please go ahead, sir.

Thank you, operator. We're joined today by Joe Hart, President and CEO, and Jared Watson, Chief Financial Officer. Before we begin today's call, I'd like to remind everyone that this conference call may contain forward-looking statements which are subject to the safe harbor provision of the Privacy Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding future events, such as the ability of Advantage Technologies and its subsidiaries to maintain strategic relationships and agreements with certain original equipment manufacturers and multiple system operators, as well as the future financial performance of Advantage Technologies. These statements involve a number of risks and uncertainties. Participants are cautioned that these forward-looking statements are only predictions and may materially differ from the actual results due to varying factors. such as those contained in Advantage Technologies' most recent report on 10-K and 10-Q on file with the Securities Exchange Commission. Financial information presented on this conference call should be considered in conjunction with the consolidated financial statements and notes included in the company's press release issued earlier today and included in Advantage Technologies' most recent reports on Form 10-K and 10-Q. The guidance regarding anticipated future results on this call is based on limited information currently available on Advantage Technologies, which is subject to change. Although any such guidance and factors influencing it may change, Advantage Technologies will not necessarily update this information, as the company will only provide guidance at certain points during the year. Such information speaks only as of the date of this call. During this call, we may also present certain non-GAAP financial measures, such as non-GAAP net income and certain ratios that are used with these measures. In our press release and in the financial tables issued earlier today, which are located on our website at advantagetechnologies.com, you will find a reconciliation of the non-GAAP financial measures with the closest GAAP financials and as discussed as to why we believe these non-GAAP financial measures are relevant. These financial measures are included for the benefit of investors and should be considered in addition to and not instead of GAAP measures. I would now like to turn the call over to Joe Hart, President and Chief Executive Officer of Advantage Technologies. Joe, please go ahead.

Thank you, Brett, and thank you everyone joining us today. I hope that everyone is healthy and safe as COVID-19 and the uncertainty surrounding it continues to impact our lives. The health and safety of our employees and customers continues to be a top priority and a key pillar of our culture. We have taken a variety of steps to ensure we are doing as much as we can to protect everyone while continuing to operate, including requiring work from home arrangements for a large portion of our workforce, restricting travel, and practicing social distancing. Our tower crews are considered essential workers, and we have invested in PPE and taken other precautions to protect them as they do their important work. The recent pandemic and disruptions it caused reinforced the need for 5G now more than ever before. More of our lives have moved online with work, shopping, dining, and entertainment, all requiring some component of network connectivity. The promise of higher quality and faster speeds make 5G an eventual necessity, and the shift in our lifestyles may make it a must-have sooner rather than later. Economic uncertainty and the shaky business climate have caused several of the large wireless providers to temporarily press pause on large investments and upgrades to 5G in 2020. And that is having a direct impact on our near-term revenues. However, it is our view, and that of some of the biggest OEMs and integrators in the industry, that this is a temporary phenomenon that is creating pent-up demand and will soon be corrected as the business climate stabilizes. T-Mobile, following its merger with Sprint, is expected to be the biggest player in the near term, with a significant list of sites to upgrade for 5G and thousands of Sprint sites that need to be either integrated or decommissioned. Our understanding is that the real estate and permitting work is well underway, and much of the equipment is being purchased. The industry consensus is that much of this work may start in calendar Q4 of 2020. Other providers have significant quantities of work as well, and we expect these to begin to be released between now and early 2021. We have not missed out on any meaningful projects today. The 5G initiative is just delayed, partly due to COVID, partly due to the economy, And lastly, due to critical architecture decisions and OEM negotiations on equipment supply by the carriers. A recent study in June of this year from Ericsson Mobility, one of the three largest wireless manufacturers in the world, shows that there were 390 million mobile subscriptions in North America in 2019, of which 310 million were smartphones. Those numbers are forecasted to grow to 440 million and 360 million respectively by 2025. Of the 390 million mobile subscriptions in 2019, 350 million were using 4G and less than 1 million were using 5G. By 2025, the number of 5G subscriptions in North America will grow to 320 million as 4G declines to 110 million. During this time, the amount of data traffic per smartphone will increase five times, driven heavily by video applications and usage, and the total amount of mobile data traffic will increase six times. All of this spells tremendous demand for increased bandwidth and capacity across all wireless networks in the U.S., but also throughout the fiber optic backhaul network. While some of the carriers are announcing 5G availability this year, it is limited in coverage and scale in the initial stages. The lion's share of the work to upgrade these networks is just beginning and will last the next five to seven years. Meanwhile, our business strategy remains unchanged, and we continue to be optimistic about long-term growth opportunities. As our revenue has faced recent headwinds due to the economy and the delayed 5G rollout, we have taken steps to reduce our overhead expenses. Year over year, we have reduced our quarterly SG&A expenses by 15%. In addition, we have taken steps to improve our gross margins. In the third fiscal quarter, we booked change order revenue for which expenses had already been incurred, and this revenue benefited our gross margin. In addition, our wireless services segment enjoyed a more favorable sales mix in the quarter, and we began to see the impact of the new leadership in this segment on our margins. While we are very happy with the gross margins achieved in Q3, we do not see them as being sustainable at that high of a level. However, we are targeting 30 plus percent margins in this segment at reasonable revenue levels, and this quarter shows that we are moving in that direction. We expect wireless revenues to expand favorably starting in Q2 of fiscal 21. as the major carriers roll out their respective build plans. U.S. wireless industry CapEx spending is expected to reach $37 billion for the combined wireless carriers in 2022. And that does not include spending by the major tower infrastructure owners. CapEx spend is forecasted to stay in the mid $30 billion throughout the rest of the decade according to Deutsche Bank research. The steps we have taken to reposition the company put us in a stronger position to capture a meaningful share of market opportunities when activity inevitably resumes. We have built a core infrastructure and a range of offerings through a series of acquisitions that equips us to compete effectively for new business. We are positioning not only for growth, but for profitable growth by continuing to improve our existing operations and personnel and further refine our inventory management practices. The result of these efforts are becoming apparent in our financial results. On a consolidated basis, our third quarter gross margin improved to 34.7% up from 26.1% in the year-ago quarter, a nearly 900 basis point improvement year over year, despite the 32% decline in revenue. As I mentioned, this improvement was due to the contribution of our wireless services group. Our telco segment was also impacted by the overhang from the pandemic. Sales were lower at Triton in Q3, as many of its customers were closed for business and spending on telecom equipment for office environments nearly came to a standstill during the second quarter. Conversely, sales at NAVE were up slightly as demand for used core network equipment remained strong. We expect that Triton sales will improve during Q4 as the office environment starts to reopen. We are now in a stronger financial position with more than $10 million in cash, which is a sufficient backstop to support our operations until the wireless construction activity and volume picks up late in calendar 2020 and hits a high level in 2021 and beyond. Our balance sheet is noteworthy, as we have effectively doubled our net cash over the last nine months. Jared will provide additional details with regards to our balance sheet momentarily, but we expect that our cash will be approximately twice our debt by fiscal year end. Part of improving our operations also includes corporate functions such as cash management. We continuously evaluate our cash flows and access to capital and believe we are sufficiently capitalized for a range of potential best case, worst case, and most likely scenarios. I remain confident that we have sufficient capital resources and a balance sheet that will support the execution of our plans to be a recognized participant in the massive 5G opportunity. Subsequent to the end of the quarter, we announced several key management changes that elevate our team and give us the expertise and leadership to execute our strategies. Jared Watson, who you will hear from in just a few minutes, was appointed as our Chief Financial Officer. Jared comes to us with more than 20 years of corporate financial leadership, including multiple Fortune 500 organizations. He has led large teams and has demonstrated his ability to apply analytics to support strategic decision-making, which will be critical as we move forward with our business development plans. In July, Reginald Jaramillo was promoted to president of our telecom segment, and Jimmy Taylor was affirmed as the permanent president of our wireless segment. Jimmy initially came in from outside our organization to serve as president of our wireless segment on an interim basis in March. He is a 35-year industry veteran with extensive experience in operations, business development, and strategic transactions. He has a deep understanding of the wireless services industry and where it is headed, along with a comprehensive knowledge of the particulars of our business. In addition, he has a wide network of wireless service industry contacts that will help us as we expand our customer relationships, build our backlog, and pursue opportunities in the 5G space. Jimmy and I have worked together multiple times in the last 20 years, and we are both quite familiar with what it takes to substantially grow a services company in the wireless industry. Reggie's institutional knowledge, combined with his financial services and telecommunications background, will be extraordinarily beneficial in his new role. Reggie not only understands the numbers, but he has experiential knowledge of how communication networks are put together and how the equipment that we sell fits within a network architecture. who comes with 15 years of broadband network experience. With that, I will now turn the call over to our Chief Financial Officer, Jared Watson, for a more detailed review of our financial results. Jared, welcome to the company, and please go ahead.