EX-99.1 2 pressrelease_12172019.htm PRESS RELEASE - Q4 2019 EARNINGS

ADDvantage Technologies Reports 101%
Increase in Fiscal 2019 Full-Year Revenue

Farmers Branch, Texas, December 17, 2019 – ADDvantage Technologies Group, Inc. (NASDAQ: AEY) (“ADDvantage Technologies” or the “Company”) today reported its financial results for the three- and 12-month periods ended September 30, 2019.

Fiscal 2019 Full-Year Financial and Business Highlights
Sales of $55.1 million, up 101% (excluding Cable Segment results in 2018)
Results include $1.8 million in inventory-related and acquisition integration charges
Excluding these charges, the Company achieved its second consecutive quarter of positive Adjusted EBITDA
Loss from continuing operations narrowed $1.8 million to $4.0 million
Exceptional growth in revenue and EBITDA of Nave Communications
Completed the move into a new, larger and more efficient facility for Triton Datacom
Acquired and integrated Fulton Technologies, enabling entry into the wireless communications services business, which is poised for significant growth with the advent of 5G technology
Completed divestiture of Cable TV business and related real estate assets for $14.2 million
Appointed John Shelnutt to Board of Directors as an independent director

“The second half of our fiscal year demonstrated the progress we have made in positioning all the segments of our business for sustainable growth and positive EBITDA contribution,” said Joe Hart, President and CEO. “As we move into the historically slower portion of our fiscal year impacted by winter weather, customer budget cycles and the holiday season, we are focused on streamlining our processes and developing a strong backlog of work for the calendar year. Accordingly, we expect continued year-over-year improvement throughout fiscal 2020.”

“Our Wireless segment achieved positive EBITDA contribution, excluding corporate expenses, more rapidly than expected,” continued Mr. Hart. “In just our first nine months of operating this segment, Fulton was able to achieve revenue of $22.9 million as we continue to integrate and ramp up the operation, demonstrating Fulton’s growth potential. As part of the acquisition, we were able to hire and retain the majority of Fulton’s existing employee base, and we continue to successfully recruit strong industry talent throughout the business to help us implement operational improvements with a focus on improving our quality and project margins. We are seeing increased opportunities in the industry as wireless carriers prepare for the roll out of 5G and the required densification of their networks. In addition, ongoing consolidation in the wireless industry is expected to create incremental opportunities as networks are rationalized and a new carrier potentially expands their network to gain market share.”


“Simultaneously, our Telecommunications segment is operating at a more efficient level, also contributing positive EBITDA before the impact of the inventory charges and the allocation of corporate overhead,” added Mr. Hart. “We continue to see efficiencies from the operational restructuring put in place earlier this fiscal year, which has enabled us to focus our core team on sales, procurement and recycling opportunities. We are also ramping up our repair activities to take advantage of our new capabilities as we further expand our business lines. We have recently added new employees to our Nave and Triton Datacom teams with strong experience in online marketing and sales across both enterprises. The new facility for our Triton Datacom business has enabled us to significantly streamline and improve our processes including inventory management, shipping and receiving and the refurbishment operations. The added space will allow us to develop the internal systems necessary to expand our refurbishment capabilities and new equipment sales by adding additional product lines and manufacturers. This transition bolsters our confidence that Triton is poised to expand, capture additional market share and develop new customers.”

Financial Results for the Three Months ended September 30, 2019

Sales increased 182% to $17.9 million for the three months ended September 30, 2019 compared with $6.3 million for the three months ended September 30, 2018. The increase in sales was driven by an increase in revenue in both the Wireless and Telco segments.

Revenues for the Wireless segment were $10.0 million for the three months ended September 30, 2019, as a result of the acquisition of Fulton Technologies, which closed on January 4, 2019. The Company did not report any revenues for the Wireless segment for the three months ended September 30, 2018.

Sales for the Telco segment increased $1.6 million, or 25%, to $7.9 million for the three months ended September 30, 2019 from $6.3 million for the same period last year. The increase in sales resulted from an increase in equipment sales of $0.6 million and an increase in recycling revenue of $1.0 million. The increase in Telco equipment sales was due to increased sales at Nave Communications of $0.2 million and Triton Datacom of $0.4 million. The increase in recycling revenue was due primarily to increased volume of recycling shipments at Nave Communications.

Gross profit increased $0.3 million, or 24%, to $1.8 million compared with $1.4 million for the prior year three months period due to an increase in the Wireless segment of $1.0 million, partially offset by a decrease in the Telco segment of $0.6 million. The decrease in the Telco segment gross profit was impacted by an increase in obsolescence expense of $0.5 million and an increase in lower of cost or net realizable value expense of $0.6 million.

Operating, selling, general and administrative expenses increased 33% to $3.4 million compared with $2.6 million for the three months ended September 30, 2018. The increase in expenses was due to an increase in the Wireless segment of $1.2 million, partially offset by a decrease in the Telco segment $0.4 million.

Other income of $0.1 million for the three months ended September 30, 2019 compares to other expense of $0.1 million for the year ago period. The 2019 period includes interest income of $0.1 million related to the promissory note resulting from the sale of the Cable TV business and

payments received under a loan to the former YKTG Solutions partners of $0.1 million, which was partially offset by other expense of $0.1 million related to factoring of the Company’s accounts receivable in the Wireless segment and interest expense. Other expense in the three-month period ended September 30, 2018 consisted solely of interest expense.

The Company recorded a benefit for income taxes of zero for the three months ended September 30, 2019, compared with a provision of $1.7 million for the three months ended September 30, 2018. The tax provision in 2018 was due primarily to the establishment of a valuation allowance.

Loss from continuing operations for the three months ended September 30, 2019, was $1.5 million, or $0.15 per diluted share, compared with a loss from continuing operations of $3.8 million, or $0.37 per diluted share, for the same period of 2018.

Adjusted EBITDA for the three months ended September 30, 2019 was a loss of $1.2 million compared with a loss of $0.7 million for the same period ended September 30, 2018.  The Telco segment includes an inventory obsolescence charge of $0.6 million and $0.1 million for the three months ended September 30, 2019 and 2018, respectively.  In addition, the Telco segment includes a lower of cost or net realizable value charge of $0.7 million and $26 thousand for the three months ended September 30, 2019 and 2018, respectively.  For the three months ended September 30, 2018, the Company recorded a $0.9 million restructuring charge, which was excluded from the Adjusted EBITDA calculation.

Results for the 12 months ended September 30, 2019

Sales increased 101% to $55.1 million for the 12 months ended September 30, 2019 compared with $27.5 million for the 12 months ended September 30, 2018. The increase in sales was driven by an increase in sales in the Wireless segment of $22.9 million and an increase in sales in the Telco segment of $4.7 million.

Revenues for the Wireless segment were $22.9 million for the 12 months ended September 30, 2019, as a result of the acquisition of Fulton Technologies. The Company did not report any revenues for the Wireless segment for fiscal year 2018.

Sales for the Telco segment increased $4.7 million, or 17%, to $32.2 million for the 12 months ended September 30, 2019 from $27.5 million for the same period last year. The increase in sales resulted from an increase in equipment sales of $3.8 million and an increase in recycling revenue of $0.9 million. The increase in Telco equipment sales was due to increased sales at Nave Communications and Triton Datacom of $1.9 million each. The increase in recycling revenue was due primarily to increased volume of recycling shipments.

Gross profit increased $1.7 million, or 23%, to $9.1 million for the 12 months ended September 30, 2019 due to an increase in gross profit in the Wireless segment of $2.0 million, which was partially offset by a decrease in gross profit in the Telco segment of $0.3 million. The decrease in the Telco segment gross profit was impacted by an increase in obsolescence expense of $0.5 million and an increase in lower of cost or net realizable value expense of $0.5 million.


Operating, selling, general and administrative expenses increased $2.8 million, or 27%, to $13.1 million for the 12 months ended September 30, 2019, up from $10.3 million for the same period last year. This increase was primarily due to increased expenses in the Wireless segment of $3.5 million, partially offset by a decrease in Telco segment expenses of $0.7 million.

Other expense for the 12 months ended September 30, 2019 includes $0.2 million of expense related to the Wireless segment accounts receivable programs, which was partially offset by payments received under a loan to the former YKTG Solutions partners of $0.1 million. This compares to a loss on the equity investment of $0.3 million for the 12 months ended September 30, 2018 consisting primarily of a legal settlement with a subcontractor on the YKTG Solutions wireless cell tower decommissioning project and the associated legal expenses.

The benefit for income taxes from continuing operations was $13,000 for the 12 months ended September 30, 2019, compared to a provision for income taxes of $1.5 million for the 12 months ended September 30, 2018. The tax provision in 2018 was due primarily to the establishment of a valuation allowance.

Inclusive of the $1.8 million in inventory-related and acquisition integration charges described above, loss from continuing operations for the 12 months ended September 30, 2019, was $4.0 million, or $0.39 per diluted share, compared with a loss from continuing operations of $5.8 million, or $0.56 per diluted share, for the same period of 2018, which includes a $0.9 million restructuring charge and $0.4 million of inventory-related charges.

On May 29, 2019, at a special stockholders’ meeting, the Company’s stockholders voted in favor of selling the Company’s Cable TV segment to Leveling 8, Inc. (“Leveling 8”), a company controlled by David Chymiak. David Chymiak is a director and substantial shareholder of the Company, and he was the Chief Technology Officer and President of Tulsat LLC until the closing of the sale on June 30, 2019. Therefore, the Company classified the Cable TV segment as discontinued operations.

Loss from discontinued operations, net of tax, was $1.3 million for the 12 months ended September 30, 2019 compared to a loss of $1.5 million for the same period last year. This activity included the operations of the Cable TV segment prior to the sale on June 30, 2019. The Company recognized a loss on the sale of the Cable TV segment of $1.5 million for the year ended September 30, 2019. The Cable TV segment recognized a goodwill impairment charge of $1.2 million for the year ended September 30, 2018.

As a result of the sale of the Cable TV segment to Leveling 8, Inc., which closed on June 30, 2019, and the sales of three Cable TV segment facilities to David Chymiak LLC prior to the sale of the Cable TV segment, the Company will receive total proceeds of $14.2 million. These proceeds consist of $7.1 million in cash received from the facility sales, a receivable of $0.7 million received in the fourth quarter of 2019 and a promissory note of $6.4 million to be paid over five years. Subsequent to September 30, 2019, the first installment of the promissory note for principal and interest was paid by Leveling 8 to the Company.


Adjusted EBITDA for the 12 months ended September 30, 2019 was a loss of $2.3 million compared with a loss of $1.3 million for the same period ended September 30, 2018. The Wireless segment includes acquisition expenses of $0.2 million and integration expenses of $0.3 million for the year ended September 30, 2019, related to the acquisition of Fulton Technologies, Inc.  The Telco segment includes an inventory obsolescence charge of $0.7 million and $0.2 million for the years ended September 30, 2019 and 2018, respectively.  In addition, the Telco segment includes a lower of cost or net realizable value charge of $0.7 million and $0.2 million for the years ended September 30, 2019 and 2018, respectively. For the twelve months ended September 30, 2018, the Company recorded a $0.9 million restructuring charge, which was excluded from the Adjusted EBITDA calculation.

Balance sheet
Cash and cash equivalents were $1.2 million as of September 30, 2019, compared with $3.1 million as of September 30, 2018. As of September 30, 2019, the Company had inventory of $7.6 million, compared with $7.5 million as of September 30, 2018.

Earnings Conference Call
The Company will host a conference call today, Tuesday, December 17, at 4:30 p.m. Eastern Time featuring remarks by Joseph Hart, President and Chief Executive Officer, Kevin Brown, Chief Financial Officer, Colby Empey, President of the Wireless Services Division, Don Kinison, President of the Telecommunications Division, and Scott Francis, Chief Accounting Officer. The conference call will be available via webcast and can be accessed through the Investor Relations section of ADDvantage's website, www.addvantagetechnologies.com.

Please allow extra time prior to the call to visit the site and download any necessary software to listen to the Internet broadcast. The dial-in number for the conference call is 1-800-239-9838 (domestic) or 1-323-794-2551 (international). All dial-in participants must use the following code to access the call: 7965894. Please call at least five minutes before the scheduled start time.

A replay of the call will be available through December 31, 2019 at 1-844-512-2921 (domestic) or 1-412-317-6671 (international). Participants must use the following code to access the replay of the call: 7965894. An online archive of the webcast will be available on the Company's website for 30 days following the call.

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 restructuring expense, 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.

-- Tables follow –


ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)

 
Three Months Ended
September 30,
   
Twelve Months Ended
September 30,
 
 
2019
   
2018
   
2019
   
2018
 
Sales
 
$
17,858,730
   
$
6,335,494
   
$
55,118,297
   
$
27,473,282
 
Cost of sales
   
16,072,268
     
4,897,341
     
46,025,775
     
20,056,067
 
Gross profit
   
1,786,462
     
1,438,153
     
9,092,522
     
7,417,215
 
Operating, selling, general and administrative expenses
   
3,403,485
     
2,558,759
     
13,068,636
     
10,274,113
 
Restructuring charge
     
941,059
   
     
941,059
 
Loss from operations
   
(1,617,023
)
   
(2,061,665
)
   
(3,976,114
)
   
(3,797,957
)
Other income (expense):
                               
Interest income
   
96,411
   
     
96,411
   
 
Income (loss) from equity method investee
   
60,500
     
     
135,505
     
(258,558
)
Other expense
   
(91,032
)
 
     
(223,999
)
 
 
Interest expense
   
(11,290
)
   
(39,164
)
   
(79,902
)
   
(210,182
)
Total other income (expense), net
   
54,589
     
(39,164
)
   
(71,985
)
   
(468,740
)
                                 
Loss before income taxes
   
(1,562,434
)
   
(2,100,829
)
   
(4,048,099
)
   
(4,266,697
)
Benefit for income taxes
     
1,686,000
     
(13,000
)
   
1,517,000
 
Loss from continuing operations
   
(1,562,434
)
   
(3,786,829
)
   
(4,035,099
)
   
(5,783,697
)
                                 
Loss from discontinued operations, net of tax
     
(1,059,869
)
   
(1,267,344
)
   
(1,536,159
)
                                 
Net loss
 
$
(1,562,434
)
 
$
(4,846,698
)
 
$
(5,302,443
)
 
$
(7,319,856
)
                                 
Loss per share:
                               
Basic
                               
Continuing operations
 
$
(0.15
)
 
$
(0.37
)
 
$
(0.39
)
 
$
(0.56
)
Discontinued operations
     
(0.10
)
   
(0.12
)
   
(0.15
)
Net loss
 
$
(0.15
)
 
$
(0.47
)
 
$
(0.51
)
 
$
(0.71
)
Diluted
                               
Continuing operations
 
$
(0.15
)
 
$
(0.37
)
 
$
(0.39
)
 
$
(0.56
)
Discontinued operations
     
(0.10
)
   
(0.12
)
   
(0.15
)
Net loss
 
$
(0.15
)
 
$
(0.47
)
 
$
(0.51
)
 
$
(0.71
)
Shares used in per share calculation:
                               
Basic
   
10,361,292
     
10,306,145
     
10,361,292
     
10,272,749
 
Diluted
   
10,361,292
     
10,306,145
     
10,361,292
     
10,272,749
 



   
Three Months Ended September 30, 2019
   
Three Months Ended September 30, 2018
 
   
Wireless
   
Telco
   
Total
   
Wireless
   
Telco
   
Total
 
                                     
Loss from operations
  $
(179,066
)
  $
(1,437,957
)
  $
(1,617,023
)
   
    $
(2,061,665
)
  $
(2,061,665
)
Depreciation
    77,729
      32,635
      110,364
     
      34,078
      34,078
 
Amortization
   
6,100
     
266,775
     
272,875
     
     
313,311
     
313,311
 
Restructuring charge
 
   
   
   
     
941,059
     
941,059
 
Stock compensation expense
   
30,562
     
16,039
     
46,601
     
     
33,032
     
33,032
 
Adjusted EBITDA (a)
  $
(64,675
)
  $
(1,122,508
)
  $
(1,187,183
)
  $

    $
(740,185
)
  $
(740,185
)

(a)
The Telco segment includes an inventory obsolescence charge of $0.6 million and $0.1 million for the three months ended September 30, 2019 and 2018, respectively.  In addition, the Telco segment includes a lower of cost or net realizable value charge of $0.7 million and $26 thousand for the three months ended September 30, 2019 and 2018, respectively.

   
    Year Ended September 30, 2019
   
Year Ended September 30, 2018
 
   
Wireless
   
Telco
   
Total
   
Wireless
   
Telco
   
Total
 
                                     
Loss from operations
  $
(1,513,280
)
  $
(2,462,834
)
  $
(3,976,114
)
  $

    $
(3,797,957
)
  $
(3,797,957
)
Depreciation
    237,333
      130,159
      367,492
     
      136,761
      136,761
 
Amortization
   
18,300
     
1,067,100
     
1,085,400
     
     
1,253,244
     
1,253,244
 
Restructuring charge
 
   
   
   
     
941,059
     
941,059
 
Stock compensation expense
   
62,190
     
137,102
     
199,292
     
     
155,174
     
155,174
 
Adjusted EBITDA (a)(b)
  $
(1,195,457
)
  $
(1,128,473
)
  $
(2,323,930
)
  $

    $
(1,311,719
)
  $
(1,311,719
)

(a)
The Wireless segment includes acquisition expenses of $0.2 million and integration expenses of $0.3 million for the year ended September 30, 2019, related to the acquisition of Fulton Technologies, Inc.
(b)
The Telco segment includes an inventory obsolescence charge of $0.7 million and $0.2 million for the years ended September 30, 2019 and 2018, respectively.  In addition, the Telco segment includes a lower of cost or net realizable value charge of $0.7 million and $0.2 million for the years ended September 30, 2019 and 2018, respectively.



ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
   
September 30,
 
   
2019
   
2018
 
Assets
           
Current assets:
           
Cash and cash equivalents
 
$
1,242,143
   
$
3,129,280
 
Restricted cash
   
351,909
   
 
Accounts receivable, net of allowance for doubtful accounts of
$150,000
   
4,826,716
     
2,578,998
 
Unbilled revenue
   
2,691,232
   
 
Promissory note – current
   
1,400,000
   
 
Income tax receivable
   
21,350
     
178,766
 
Inventories, net of allowance for excess and obsolete
inventory of $1,275,000 and $815,000, respectively
   
7,625,573
     
7,462,491
 
Prepaid expenses
   
543,762
     
253,405
 
Other current assets
   
262,462
   
 
Current assets of discontinued operations
 
     
16,925,526
 
Total current assets
   
18,965,147
     
30,528,466
 
                 
Property and equipment, at cost:
               
Machinery and equipment
   
2,475,545
     
1,084,024
 
Leasehold improvements
   
190,984
     
190,984
 
Total property and equipment, at cost
   
2,666,529
     
1,275,008
 
Less: Accumulated depreciation
   
(835,424
)
   
(773,312
)
Net property and equipment
   
1,831,105
     
501,696
 
                 
Promissory note – noncurrent
   
4,975,000
   
 
Investment in and loans to equity method investee
 
     
49,000
 
Intangibles, net of accumulated amortization
   
6,002,998
     
6,844,398
 
Goodwill
   
4,877,739
     
4,820,185
 
Other assets
   
176,355
     
125,903
 
Assets of discontinued operations
 
     
1,524,972
 
                 
Total assets
 
$
36,828,344
   
$
44,394,620
 
                 
Liabilities and Shareholders’ Equity
               
Current liabilities:
               
Accounts payable
 
$
4,730,537
   
$
3,300,388
 
Accrued expenses
   
1,617,911
     
711,936
 
Deferred revenue
   
97,478
   
 
Notes payable – current portion
 
     
1,996,279
 
Other current liabilities
   
757,867
     
664,374
 
Current liabilities of discontinued operations
 
     
2,392,780
 
Total current liabilities
   
7,203,793
     
9,065,757
 
Other liabilities
   
177,951
     
801,612
 
Total liabilities
   
7,381,744
     
9,867,369
 
                 
Shareholders’ equity:
               
Common stock, $.01 par value; 30,000,000 shares authorized;
10,861,950 and 10,806,803 shares issued, respectively;
10,361,292 and 10,306,145 shares outstanding, respectively
   
108,620
     
108,068
 
Paid in capital
   
(4,377,103
)
   
(4,598,343
)
Retained earnings
   
34,715,097
     
40,017,540
 
Total shareholders’ equity before treasury stock
   
30,446,614
     
35,527,265
 
Less: Treasury stock, 500,658 shares, at cost
   
(1,000,014
)
   
(1,000,014
)
Total shareholders’ equity
   
29,446,600
     
34,527,251
 
                 
Total liabilities and shareholders’ equity
 
$
36,828,344
   
$
44,394,620