ADDvantage Technologies Group, Inc.

Please stand by, we're about to begin. Good day and welcome to the Advantage Technologies fiscal 2021 fourth quarter and year end financial results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brett Maas with Hayden IR. Please go ahead.

Thank you, operator. We're joined today by Joe Hart, president and CEO, as well as Michael Rutledge, company's chief financial officer. Before we begin today's call, I'd like to remind you this conference call may contain forward-looking statements which are subject to safe harbor provisions of the Private 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 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 actual future events or results due to a variety of factors, such as those contained in Advantage Technologies' most recent report on Form 10-K 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 report on Form 10-K. 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 the 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 financial tables issued earlier today, which are located on the website at advantagetechnologies.com, you will find a reconciliation of these non-GAAP financial measures with the closest GAAP financials and discussion about why we believe these non-GAAP financial measures are relevant. These financial measures are included for both the benefit of investors and should be considered in addition to and not instead of GAAP measures. I'd 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 to everyone joining us on the call today. The fourth quarter finally showed the momentum we have been discussing for some time now. Wireless segment revenue jumped from 4.1 million in the third quarter to 7 million in the fourth quarter. And we are confident that over the next six to nine months, wireless revenue related to tower work and other aspects of the 5G rollout will double again. This growth has been broad-based. It involves several carriers, not just one customer, including both long-standing customers and one new entrant to the market, Dish Wireless. The work touches all the regions we service, and our pipeline of new projects, meaning work we have been awarded where we either have purchase orders in hand or are waiting for purchase orders as permitting is complete, gives us significant confidence that the long-awaited 5G surge will occur in 2022. The significant uptick in our fourth fiscal quarter validates this expectation. We already have purchase orders in hand for fiscal year 2022 construction services that exceed the total value of our fiscal year 2021 total wireless revenue. Simultaneously, Our telco segment continued to deliver strong results. The ongoing chip shortages and electronic supply chain issues made new equipment more expensive and harder to source. This makes the refurbished alternatives sold by Nave and Triton more attractive, especially for work from home folks looking for affordable options. We continue to anticipate a leveling off of demand at some point in future quarters albeit at a somewhat elevated level relative to the recent past. The result of all this was that our NAVE business had a really strong year with revenue up 45%, and Triton Datacom has made a nice recovery from a COVID-related softness in sales earlier in the year. Overall, we delivered 62% revenue growth and positive earnings per share for the quarter. Now much of the profit was related to the one-time benefit on the extinguishment of debt related to the forgiveness of our PPP loan. Gross margin dropped from 36% to 26% quarter over quarter. The 36% margin on Q4 of fiscal year 2020 benefited from the recovery of change order revenues from its previous Q2 of 2020 and was a one-time event. Margins during the recent Q4 21 were at 26%. Those have been impacted due to the mobilization and material costs related to starting up multiple new markets. This is expected to carry over into our current Q1, but should normalize over the rest of our fiscal year 2022. We expect as workloads in the new markets increase, and as we move through fiscal 2022, we will benefit from better economies of scale, making that segment of our business significantly more profitable. Over the last few months, we have won site awards to upgrade technology to 5G for over 600 cell sites, and we have increased our staffing to meet this growing demand. In fact, Staffing is the most challenging part of this growth in this tight labor market. Currently, we are running between 35 to 40 tower crews, up from 25 crews a few months ago. And we will be ramping up considerably from there during our Q2 of fiscal year 2022 to meet even greater expansion in the second half of this fiscal year 2022. As I previously said, the 5G network expansion will be massive, especially now that AT&T and Verizon are starting to build out their C-block spectrum. You are just starting to see the opportunity manifest in our results reported yesterday. This opportunity represents a multi-year secular trend, not just for tower, but for data centers, technology providers, handset manufacturers, and wireless carriers. The capital expenditure plans of wireless carriers are public information and often discussed. Power work is just one piece of this effort, and we are strategically positioned to capture a meaningful portion of this work due to our established relationships and experience crews under Fulton Technologies in key markets across the very center of the United States. With that, I'll now turn the call over to Michael Rullage, our new CFO, to provide a more detailed review of our financial results. Michael, please go ahead.

Thank you, Joe. Sales for the fourth quarter of fiscal 2021 were $19.7 million, up 61% compared to $12.2 million in the fourth quarter of fiscal 2020. This increase of $7.5 million was driven by nearly $5.3 million increase in the telco segment and a $2.2 million increase in the wireless segment. Gross profit increased by nearly $700,000 to $5.0 million, our highest level of gross profit in more than two years, compared with $4.4 million for the same quarter last fiscal year. Gross profit margin was 26% compared to 36% for the prior year fourth quarter. Gross profit margins were 27% for the current fiscal quarter in the wireless segment due to the costs associated with new markets, as Joe mentioned. Our operating expenses increased by $0.7 million to $2.6 million for the quarter ended September 30, 2021, compared with $1.9 million for the same quarter last year, which was due primarily to increased personnel-related costs in our wireless segment as we ramped for the anticipated tower services work. Selling general administrative expenses for the quarter increased $1.2 million to $4.4 million, compared with $3.2 million for the same quarter last year. This increase was due largely to higher commissions associated with increased revenue in our telco segment, as well as personnel costs associated with supporting the company's growth. Finally, net income for the quarter was $0.6 million, or five cents per diluted share, based on 12 million shares, compared with a net loss of $1 million or a loss of 9 cents per diluted share based on 11.2 million shares for the same quarter last year. Included in the fourth quarter net income was a non-recurring gain of extinguishment of debt of 3 million related to the forgiveness of our PPP loan. For the year, sales were 62.2 million, up 24% compared to 50.2 million last year. Our telco segment increased by 12.6 million offsetting a $0.6 million decline in the wireless segment. Our gross profit increased by more than $5 million to $16.1 million compared with $11.7 million last year. Gross profit margin was 26% compared to 23% last year. Operating expenses increased by $1.1 million to $9.3 million for the year compared with $8.2 million last year. Selling general and administrative expenses for the year increased by 3.6 million to 14.9 million, compared with 11.2 million last year. Net loss for the year was 6.5 million, or a loss of 52 cents per diluted share, based on 12.4 million shares, compared with a net loss of 17.3 million, or a loss of $1.55 per diluted share, based on 11.2 million shares last year. Now, turning to our balance sheet, Cash and cash equivalents were 2.6 million as of September 30, 2021, compared with 8.3 million as of September 30, 2020. Cash was used primarily to fund operations. And at September 30, 2021, the company had net inventories of 5.9 million. Our outstanding debt decreased during the year, ended September 30, 2021, by 3.9 million to 4.1 million which is comprised of $2.1 million on a revolving line of credit and $2.0 million in financing leases. At September 30, 2021, outstanding debt was $8 million. We continue to believe we are sufficiently capitalized with appropriate backstops to support near-term business conditions until more normalized business conditions return. This concludes the financial overview segment of our remarks. I will now turn the call over to the operator to facilitate any questions.

Of course, thank you. And if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. If you find your question has been answered, you may remove yourself by pressing star two. Again, it is star one if you would like to ask a question. And we'll pause just for a moment to allow everyone an opportunity to signal for questions. And as another reminder, it is star 1 if you would like to ask a question. And we'll go ahead and take our first question from William Velmer from SA Advisory. Please go ahead.

Thank you very much for taking my call. A couple of quick questions. For fiscal, for the year just ending, $62 million in revenue, did you give any – I didn't hear if you gave guidance for upcoming year for total revenue anticipated. That's the first question.

Yes, thank you for your call. This is Joe Hart. No, we didn't give guidance. We have not traditionally given guidance.

Okay. Your presentation that was put out last summer, kind of stale. You were looking for $277 million in potential revenue and a huge EBITDA ending 2023. Do you anticipate updating that presentation so it's more believable than stale?

Yes, we do. That presentation was... We were intending to raise capital in order to go on an aggressive M&A program. We were doing that right in the height of the start of COVID. That was... You know, that effort to raise capital was frankly pretty disappointing, but totally understandable given our recent three, four year history of losses. So we believe that the best way to turn the company around was to completely get focused on organic growth, which we have done and which the shareholders will see evidence of. now and during 2022 and once we're healthy and profitable again this year then we will look at potentially raising capital to do something with m a but for right now we've been focused on organic okay and a minor question you notice the airlines are kind of all paranoid about uh 5g and they want the feds to slow down the rollout what is the major do you see a major problem there

Is there really a problem or is it just the paranoia of the major airlines?

Well, I'm certainly no radio frequency expert, but I read everything that I possibly can read about this particular subject. And you've also seen in some recent earnings releases from the big carriers and some of the big construction companies like Moftec and DICOM and others. First of all, the FCC didn't put this frequency up for auction before about five years of study on this particular subject and the sensitivity for airlines. Secondly, this fee block is used widely around the world with no impact on the airlines or aircraft communication. Lastly, the carriers have just spent, I don't know, a total of $50, $60 billion to buy this frequency. So they are proceeding with building out the network using this C-block spectrum. Now, what they have agreed to do is not turn on sites that are in the airport glide path anywhere near an airport. They'll leave those sites muted until the politics of this all get flushed out. But for right now, everybody is building, but not necessarily turning on that spectrum for the sites. So it hasn't affected construction at all.

Okay, one more question for you. The numbers are all over the place, but from what I could tell, you would be considered an infrastructure plague. and I saw in 2021 it was estimated in the U.S. alone infrastructure with respect to 5G was about $19 billion. Worldwide, the numbers range from the next couple of years up to $80 billion to $111 billion. It's just they're all over the place. I really hope that the company is really able to capitalize on this money that is being spent on this industry, and I hope your numbers can expand more than you think. think they were or are planning to tell us because there is so much work out there it's just amazing so that's kind of my last comment yeah we we would agree with you wholeheartedly so thank you for that comment thank you very much sir welcome and we'll go ahead and move on to our next question from uh george gasper please go ahead yes uh good morning everyone joe uh

I'd like to talk a little bit more about this crew number that you related to on the wireless. You indicated I think it was 35 to 40 crews that you have exposed in the market now?

Yes, that's correct. That's what I said.

Okay. And how many of those crews are in-house crews versus outside crews?

So thanks. The good news is you're consistent with your questioning, George. So I'm always prepared for it, I think. So what I've said for a long time and based on my years and years of experience with this work is you always want to be at least 50% subcontract. And in case like this, where you're in rapid growth, um, I like to go to about two-thirds subcontract and one-third in-house. And you use that subcontractor buffer to protect you from sort of the ebbs and flows, the ups and downs in the construction workload. So we're about two-thirds subcontract at the moment.

I got you. Okay. And just to give us a level of the tremendous progress that in crew count exposure. If I remember, two years ago, it was about maybe 12 to 14 crews. And then this past year, a year ago, it was maybe, what, 18 to 20. And so can you describe how fast this crew count has gone up to the 35 to 40 range?

Well, I mean, it's all about building the backlog. Over the last couple years, really 2020 and 2021, you know, the wireless infrastructure business has been plagued with a really all-time low of construction activity. You have the delay in the T-Mobile Sprint merger. DISH wasn't even approved, let alone building anything. And then you had AT&T and its debt pay down at the global corporate level. So a lot of things really impacted it. So there just wasn't the volume of work. And you've heard me say quarter after quarter, look, it hasn't happened yet, but it is coming. Well, now AT&T and Verizon are are really starting to build strong again. T-Mobile has been consistently constructing, you know, the last six to 12 months. And then you have DISH that has FCC mandates to cover 70% of the population here by 2023. So, you know, it's all come together simultaneously at last. It took a little bit longer than the 3G and 4G cycles, but this current cycle is definitely on a very swift and steep ramp. And we're trying to be prudent. You saw that our operating expenses increased, and some of that is the onboarding and training, a couple weeks of training, and then some OJT with these new tower crews, that's an expense. Mobilizing to new markets and setting up cross-docs and other logistics facilities in Detroit, St. Louis, Austin, San Antonio, Houston, Arkansas. I mean, these new markets that we've been talking about adding, each of those take some incremental expense to get started. But then as the volume builds up in those markets, the payoff is there. You cross over into acceptable and target-level profitability. So it's a bit of a slow-moving process. We have a team made up of very seasoned veterans who have been through this kind of ramp before. So I think it's all finally coming together nicely.

I see. Okay. This is Specifically on crew count, can you relate in the first quarter since it's now the 28th of December, what would be your average crew count for this first quarter ending this month relative to the fourth quarter of your past fiscal year? Can you give us those numbers? Sure.

Yeah, I would say the crew counts increased by about, I mean, 10 or so. So when I compared 35 to 40 to 25 a few months ago, that was real-time information. So we have been running 35 to 40 the last couple months. We reported... that we were at 25 in August. So that was the last quarterly conference call we had with you. So during this quarter, I hesitate to give guidance, but we're on the same plane in Q1 as Q4. And then we're going to see a drastic ramp up as we move into Q2 and through the rest of the year. Second half of 22 should be quite active, as I said in my remarks.

Yes, and Joe, just also in terms of the magnitude of where you're generating your revenues from, it's not just putting something on a tower, but it's the additional that's required away from the tower in terms of this 5G build-out?

Well, for us, it's mostly work on the cell side. So there is groundwork to add platforms and equipment. In some cases, we are bringing fiber optic cable in from the property line or out at the right-of-way. We bring the fiber into the cell site, especially for somebody new like DISH. who's going on to existing cell sites for the first time. So there is some ground-level infrastructure work that is part of the revenue stream from each cell site.

Okay. All right. And could I reach into the telco side? Congratulations on the significant build-out of the new facility in Florida. Obviously, that's helped Telco get moving up. I know you're in Alabama now. Your revenue stream has really moved forward on a repair basis. Is this giving you some technology thoughts on continuing to try to drive forward what Telco is all about? in the near term and in the longer term? Can you describe any of that?

I am grateful and obviously pleased that the Triton Datacom revenue stream returned. During COVID, that revenue stream was cut in half on a monthly basis. It came back to normal, and the team has done a nice job of, you know, building that up a little bit beyond what used to be normal. Maeve has somewhat unpredictably taken off very nicely this past year and continues so in this current quarter. What we don't know, George, is how long that will last. I mean, all of you, you see the pictures of, You know, ships in the Los Angeles port, all the supply chain articles that are out there. I mean, it's got an impact, especially on ships for the core telephone network. The question is, how long will it last? And that we don't have a crystal ball on. So we're optimistic that it will be a good to decent year for the telco event. We just have no way of knowing for sure.

I see. Okay. And then lastly, on the number of shares outstanding in the company at this point in time, it's about 12.4 million, if I recall. That's a very modest number of shares by all contents in the stock market today for companies that are out there really growing companies. And the shareholders have got to be pleased that you only have that many shares out and you're into this huge expansion program now in the wireless area. So the question is basically, how do you view the need for getting some additional capital through stock sales or through acquisitions? And that brings up the point. I know that I think you've made some comments in the past about maybe trying to make an acquisition or two to expand this operations. Can you share any thoughts on this?

Well, I think as I said to our first caller, you know, we we took a run at trying to raise capital about a year and a half ago or so. And in that environment at that time, it just, uh, it didn't make sense. Um, and quite frankly, I think everybody that's an investor is on the call knows that, you know, we have not had a good financial performance history, um, our job and our pledge really is to get that turned around here in 2022. So we believe we're being very sober up about this, that we need to have that get to break even quarter followed by a couple of strong quarters of profitability. And then we'll look at trying to raise capital in a significant way to do some more aggressive M&A. But again, For right now, our focus is on getting this company profitable.

Okay. And, John, that's a very nice approach you just related to everyone on this call. And I appreciate everything you're really trying to do. And it's absolutely amazing the momentum that you have going and that you've been able to do it, holding things together the way you have. Yes. We're all looking forward to something very substantial going forward by the end of this current fiscal year. Take care.

Thanks, George.

And we'll go ahead and move on to our next question. And as a reminder, it is star one if you would like to ask a question. Star one if you would like to ask a question. And we'll move on to our next question from Edward Colverwall. Please go ahead.

Yes. I was the original underwriter in the company and also raised money for them privately a ways back. It was a different company. But I see you have, or I understand you have a registration with the SEC. Is that correct?

Yes. Are you referring to the S3 registration that we did about a year, year and a half ago?

I'm not sure. In one of your recent releases, you indicated an SEC registration. It sounded like it was something that you could sell shares along the way at your discretion.

Yes, that's the S3 registration that we filed about a year and a half ago, and it is still current. We have not been selling shares, I mean, to any substantive way due to the share price and the performance, the kind of the combination of those things. So it is still available to us. You're correct. It was originally about $13, $13.3 or $4 million. And about a year ago, we sold... about a million shares. That raised the float and it raised the total outstanding by about a million shares. We did that sort of in progress sort of thing.

What price was that?

Those were at about $380, $379, $380 average. So, I mean, the share price just hasn't been where it makes any sense to be selling. So, um, you know, yeah.

Well, you certainly are making a sizable turnaround here.

No, we hope so. I mean, that's all of our effort is focused on that. uh, uh, We're headed in the right direction.

Thank you very much.

We'll take a quarter. Yep. Thanks.

And we'll go ahead and move on to our next question from Kurt Karamanidis from Carl and Henning. Please go ahead.

Hi, guys. You alluded to, you know, strong top and bottom line growth in 22, and I think You've kind of mentioned this while I was in queue, but do you see profitability ramping like each quarter in your backlog book, meaning Q1, whatever that's going to be, and then getting better per quarter as the year kind of goes out, not so much seasonality as much as just building out all the backlog?

Yeah. I know the answer to your question. I'm trying to decide how much of that I want to give because I've always tried to stay away from specific guidance. I think that this current quarter is still one of the ramping. So it's, you know, some of the material costs to get started in these new markets, you make an upfront investment. To get the material, you make an upfront investment in a couple people per market and the upfront investment in setting up the logistics and cross stocks and things like that. And we've had some training costs for tower crews during this current quarter. So this quarter started back in October. So it's been part of the ramp process for really a calendar 2020 to, uh, take off of growth. So without trying to be impolite at the same time, not go into too much more detail, uh, hopefully you get the picture. I mean, so we're, we're, we're just about at the tail end of that. Um, we're going through the Christmas break and then, uh, We see calendar 22 as an exciting year for us on the wireless side and continued growth on the telco side.

Great. Thank you.

And with that, we have no further questions. I would now like to hand the call back over to management for any additional or closing remarks.

Thank you, Operator. So I would say to those folks that have been investors for a long time and those folks that have just recently joined as investors in AEY, that it's been a long pull. It's been a long transition here the last couple of years. We put both of our telco equipment operations into AEY. new facilities in Florida and a 3PL location in Huntsville, Alabama. That's been reported for the last couple of years. It really paid off this last year in 2021 on the equipment side of our business. On the wireless side of our business, we bought Fulton back in early 2019. We were off to a good start in 2019 and then the construction growth just kind of went flat in 20 and 2021. We've seen a ramp up in the Q4 of our fiscal year 21, which we reported on today. I have described a situation where we are clearly in a steep ramp kind of environment as we grow into calendar 2022. Um, we know that our obligation is to get this company turned around and profitable again. And everybody in the company is focused on that. Um, it's not going to be an immediate, like we had this call and suddenly we're going to be profitable, but we are within reach of that over the next few months. So, uh, We think this is going to be the year that AEY starts to deliver for its shareholders, and we are pledged to make that happen. So thank you for your continued investment, and we hope we can return the confidence. Thank you very much.

And with that, that does conclude today's call. Thank you for your participation. You may now disconnect.