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ADDVANTAGE TECHNOLOGIES GROUP INC (AEY)·Q1 2023 Earnings Summary

Executive Summary

  • Q1 2023 revenue fell 38% year over year to $14.7M; gross margin contracted modestly to 23% (from 24%), and net loss widened to $2.7M ($0.21 per share) as Telco demand dropped sharply with supply chain normalization .
  • Telco segment revenue declined $7.9M YoY and $3.5M sequentially as customers worked down inventories; Wireless revenue decreased $1.2M YoY amid weather-related delays, though management continues to see strong near‑term opportunity and added a Chief Revenue Officer to accelerate growth .
  • Operating expenses declined 29% to $2.0M, reflecting cost-reduction initiatives; adjusted EBITDA was negative ($1.84M) versus ($0.60M) in the prior-year quarter, driven by Wireless losses and Telco softness .
  • Liquidity: cash was $2.6M; subsequent to quarter-end, AEY raised ~$2.9M net via 13% senior secured notes with conversion features, strengthening near‑term funding flexibility .

What Went Well and What Went Wrong

What Went Well

  • Cost discipline: Operating expenses down 29% YoY to $2.0M; SG&A declined 6% YoY to $3.6M, reflecting ongoing cost-reduction efforts .
  • Strategic hiring: Appointment of Brian Davidson as Chief Revenue Officer to enhance sales execution and broaden addressable market in Wireless .
  • Management confidence in Wireless: “We continue to win new business and we have barely scratched the surface of the total near-term opportunity” — CEO Joe Hart .

What Went Wrong

  • Telco demand reset: “Rapid normalization of the supply chain had a significant and abrupt impact on our Telco segment,” causing revenue to drop $7.9M YoY and $3.5M sequentially as customers paused purchases to work off inventory .
  • Weather delays: Wireless segment revenue fell $1.2M YoY due to weather-related delays, pushing consolidated adjusted EBITDA to ($1.84M) .
  • Profitability pressure: Net loss widened to $2.7M (vs. $1.4M prior year), with loss from operations of ($2.55M) as gross profit decreased to $3.4M on lower volumes .

Financial Results

Consolidated P&L (oldest → newest)

MetricQ3 2022Q4 2022Q1 2023
Sales ($USD Millions)$25.926 $19.554 $14.720
Gross Profit ($USD Millions)$8.543 $5.341 $3.417
Gross Margin %33% 27% 23%
Operating Expenses ($USD Millions)$2.303 $2.245 $2.047
Loss from Operations ($USD Millions)$1.792 ($0.296) ($2.553)
Net Income (Loss) ($USD Millions)$1.483 ($0.493) ($2.748)
EPS (Basic & Diluted) ($)$0.11 ($0.04) ($0.21)

Segment Adjusted EBITDA (oldest → newest)

Segment Adjusted EBITDA ($USD Millions)Q3 2022Q4 2022Q1 2023
Wireless$0.049 ($0.705) ($1.764)
Telco$2.187 $0.788 ($0.073)
Total$2.236 $0.083 ($1.837)

Reported Segment Revenue Deltas (Q1 2023)

SegmentYoY Change ($USD Millions)YoY Change (%)QoQ Change ($USD Millions)
Telco($7.9) (49%) ($3.5)
Wireless($1.2) (15%) n/a (not disclosed)

Balance Sheet KPIs (point-in-time)

Metric ($USD Millions unless noted)Sep 30, 2022Dec 31, 2022Mar 31, 2023
Cash and Cash Equivalents$4.923 $2.552 $2.555
Restricted Cash$1.785 $1.101 $1.473
Accounts Receivable (net)$2.403 $1.682 $1.635
Unbilled Revenue$2.578 $5.005 $3.124
Inventories (net)$8.665 $9.563 $8.469
Total Current Assets$22.002 $21.404 $18.666
Accounts Payable$9.025 $9.407 $8.755
Accrued Expenses$1.771 $1.445 $1.552
Deferred Revenue$0.287 $0.148 $0.207
Total Current Liabilities$13.458 $13.282 $12.760
Shareholders’ Equity$12.470 $12.047 $9.698
Outstanding Debt (vehicle leases)$1.7 (as of 9/30/22) $1.9 (as of 12/31/22) $1.7 (as of 3/31/23)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ2 2023 and FY 2023None providedNone providedMaintained (no formal guidance)
Gross MarginQ2 2023 and FY 2023None providedNone providedMaintained (no formal guidance)
OpEx / SG&AQ2 2023 and FY 2023Cost-reduction initiatives ongoingContinued cost discipline signaledMaintained (operational focus, not numeric guidance)
Segment-specificQ2 2023 and FY 2023None providedTelco demand recovery timing/magnitude uncertain; Wireless opportunity emphasizedNarrative update; no numbers

No explicit quantitative guidance ranges were provided in Q1 materials.

Earnings Call Themes & Trends

Note: Q1 2023 call transcript content was inaccessible via the tool; themes below are drawn from press releases and 8-Ks.

TopicPrevious Mentions (Q3 2022)Previous Mentions (Q4 2022)Current Period (Q1 2023)Trend
Supply chain normalization/inventoryStrong Telco demand due to supply constraints; customers pivoting to optical/refurbished solutions Weather/economic headwinds; continued Telco strength; carriers seeking new partners Abrupt Telco demand drop as customers work down inventories; timing of recovery uncertain Deteriorating demand short term in Telco
Wireless execution and opportunityMoving toward profitability; expanding presence with carriers; 5G tower work 11% Wireless revenue increase; industry upheaval creates opportunities; new long-term contracts possible Weather delays impacted results; “barely scratched the surface” of near-term opportunity; CRO hired to accelerate growth Positive long‑term, near‑term delays
Cost reduction/operational disciplineOpEx down; SG&A up slightly to support growth OpEx down 10% YoY; SG&A down 16% OpEx down 29% YoY; SG&A down 6% YoY Continuing improvement
Liquidity/capital structurePaying down line of credit; cash increased Line of credit paid off; cash $3.7M at 12/31/22 Cash ~$2.6M; raised ~$2.9M net via 13% secured notes post quarter Liquidity bolstered post quarter
Macro/weather impactsNoted as potential impact to Wireless seasonality Q4 seasonality/Weather impact typical Weather delays negatively impacted Wireless in Q1 Persistent seasonal/weather sensitivity

Management Commentary

  • “In our wireless segment, weather-related delays impacted results but we continue to win new business and we have barely scratched the surface of the total near-term opportunity.” — Joe Hart, CEO .
  • “The rapid normalization of the supply chain had a significant and abrupt impact on our Telco segment…customers are pausing purchases to work off inventory…We believe there will be an improvement in demand once inventory levels are depleted, but it is difficult to predict the timing or magnitude of this recovery.” — Joe Hart .
  • Appointment: “Brian Davidson…joined us as our new Chief Revenue Officer, and we are confident this addition will further accelerate our growth and expand our addressable market.” — Joe Hart .
  • Post quarter financing: ~$2.9M net proceeds from 13% senior secured notes with conversion features to support operations and liquidity .

Q&A Highlights

  • The Q1 2023 earnings call was held May 15, 2023 at 5 p.m. Eastern; however, the full transcript content was inaccessible via the tool, and Q&A details could not be retrieved .
  • No additional Q&A themes or clarifications can be validated from accessible sources.

Estimates Context

  • Wall Street consensus estimates (S&P Global) for AEY Q1 2023 were unavailable via the tool due to missing CIQ mapping; therefore, comparisons to consensus and beat/miss determinations cannot be made at this time [SpgiEstimatesError].
  • Given the magnitude of Telco demand normalization and weather impacts in Wireless, sell-side models (where maintained) likely need to reset near‑term Telco revenue and margin assumptions and reflect a slower Wireless ramp pending seasonal and operational normalization .

Key Takeaways for Investors

  • Telco reset is the core driver: revenue down $7.9M YoY and $3.5M sequentially as customers digest inventories; monitor Telco order flow and inventory depletion signals for timing of recovery .
  • Wireless remains the growth vector but is weather-exposed: segment adjusted EBITDA loss widened to ($1.76M); watch for seasonal normalization, CRO impact, and new carrier wins to drive improved utilization and margins .
  • Cost actions are tangible: OpEx down 29% YoY and SG&A down 6% YoY; support for margin stabilization once volumes return .
  • Liquidity improved post quarter via ~$2.9M net financing; cash $2.6M and inventories $8.5M at quarter-end; near‑term funding runway enhanced while revenue visibility in Telco is limited .
  • Trajectory check: Consolidated sales fell sequentially from $25.9M (Q3’22) to $19.6M (Q4’22) to $14.7M (Q1’23); investors should seek evidence of Telco demand re-acceleration and sustained Wireless backlog to reestablish growth .
  • Trading implications: Absent consensus data, headline prints are negative, but any signals of Telco orders resuming or new Wireless contracts could serve as catalysts; conversely, prolonged inventory digestion could pressure shares. Near‑term setup is event-driven around demand recovery indications .