Sign in

You're signed outSign in or to get full access.

AT

ADDVANTAGE TECHNOLOGIES GROUP INC (AEY)·Q3 2023 Earnings Summary

Executive Summary

  • Q3 2023 sales fell 60% year over year to $10.34M, with gross margin compressing to 27% from 33% and a net loss of $2.73M ($0.19 per share), driven by sharp Telco and Wireless revenue declines amid industry-wide headwinds .
  • Management executed ~$2M in fixed cost reductions and is expanding Fulton Technologies into Broadband and Fixed Wireless construction; fiber construction backlog “increased substantially” over a few months, positioning for more durable revenues .
  • The company flagged going-concern risk and is exploring additional funding and replacing its AR factoring facility maturing Dec 17, 2023; Q3 cash was $1.63M and outstanding debt $3.6M .
  • Near-term narrative hinges on 5G construction resumption in 2024 and growing optical transport orders in Telco; investors should watch funding developments and backlog conversion as catalysts .

What Went Well and What Went Wrong

What Went Well

  • Cost actions: “We have taken proactive steps to reduce our fixed costs by $2 million this year” amid segment headwinds .
  • Strategic expansion: “Aggressively expanding our Fulton Technologies business into adjacent Broadband and Fixed Wireless construction…representing a more durable revenue stream” with backlog “increased substantially over just a few short months” .
  • Telco signs of demand: “Telco Segment is also experiencing a start to increased monthly sales due to an increase in orders for Optical Transport equipment,” while inventory down $1.8M YTD .

What Went Wrong

  • Severe revenue decline: Q3 sales fell 60% YoY to $10.34M, with Telco down $11.4M and Wireless down $4.2M versus prior year; operating income swung to a loss of $2.23M .
  • Margin and profitability pressure: Gross margin slipped to 27% (from 33%), and Adjusted EBITDA was negative at $(1.86)M vs $2.24M last year; net loss was $(2.73)M .
  • Liquidity and going-concern: Cash fell to $1.63M vs $2.55M at year-end; outstanding debt $3.6M; unaudited financials include a going-concern explanatory paragraph and management is pursuing new funding and factoring replacement .

Financial Results

Consolidated Performance vs Prior Periods and YoY

MetricQ3 2022Q1 2023Q2 2023Q3 2023
Revenue (Sales, $USD Thousands)$25,926 $14,720 $12,088 $10,341
Gross Profit ($USD Thousands)$8,543 $3,417 $3,272 $2,839
Gross Margin (%)33.0% 23% 27% 27%
Operating Expenses ($USD Thousands)$2,303 $2,047 $1,967 $1,689
Income (Loss) from Operations ($USD Thousands)$1,792 $(2,553) $(2,300) $(2,229)
Net Income (Loss) ($USD Thousands)$1,483 $(2,748) $(2,834) $(2,727)
Diluted EPS ($)$0.11 $(0.21) $(0.20) $(0.19)

Segment Adjusted EBITDA (Non-GAAP)

Segment Adjusted EBITDA ($USD Thousands)Q3 2022Q1 2023Q2 2023Q3 2023
Wireless$50 $(1,764) $(1,371) $(1,672)
Telco$2,187 $(73) $(413) $(184)
Total$2,237 $(1,837) $(1,784) $(1,856)

Balance Sheet and Operating KPIs

KPIQ1 2023Q2 2023Q3 2023
Cash and Equivalents ($USD Thousands)$2,555 $2,832 $1,632
Inventories, Net ($USD Thousands)$8,469 $8,076 $7,788
Unbilled Revenue ($USD Thousands)$3,124 $1,831 $1,232
Outstanding Debt ($USD Millions)$1.7 (vehicle leases) $3.8 $3.6
Shares Used in EPS Calc (Basic & Diluted)13,273,330 13,999,816 14,256,869

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Wireless construction activityFY 2024 (qualitative)N/A“Construction is expected to pick back up in 2024” Narrative only
Broadband/Fiber initiativesMulti-year (qualitative)N/ABacklog for fiber network construction “increased substantially” in recent months Narrative only
Funding/Factoring facility2023N/APursuing other funding arrangements; AR factoring facility matures Dec 17, 2023 New disclosure

Note: No formal numerical revenue/EPS/margin guidance ranges were provided in Q3 materials .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Supply chain normalization (Telco)Sudden Telco demand drop as customers work off 2022 overstock; inventory reductions and cost controls initiated Continued Telco headwinds; some increase in optical transport orders; Telco inventory down $1.8M YTD Mixed
5G construction activity (Wireless)Late Q2 downturn by major customers; carriers slowing; pickup expected later 2023/2024 “Ongoing downturn” now; construction expected to pick back up in 2024 Deteriorated near term; potential recovery 2024
Broadband/Fiber expansionPursuing BEAD/RDOF-driven opportunities; WTS partnership progress Aggressive expansion into Broadband & Fixed Wireless; fiber backlog increased substantially Improving
Cost reductionReducing OpEx/SG&A to return to profitability ~$2M fixed cost reduction completed YTD; SG&A down 31% YoY in Q3 Improving
Liquidity/Going concernExploring funding; going-concern paragraph noted (Q1/Q2) Reiterated funding pursuit and going-concern emphasis; AR factoring maturity noted Persistent risk

Management Commentary

  • “We have taken proactive steps to reduce our fixed costs by $2 million this year… expanding our Fulton Technologies business into adjacent Broadband and Fixed Wireless construction… more durable revenue stream… backlog for fiber network construction has increased substantially over just a few short months.” — Joe Hart, CEO
  • “We are carefully managing costs to navigate the ongoing downturn in 5G-related build activity… Construction is expected to pick back up in 2024.” — Joe Hart, CEO
  • “Our Telco Segment is also experiencing a start to increased monthly sales due to an increase in orders for Optical Transport equipment… methodically reduced our Telco inventory levels by $1.8 million over the first nine months.” — Joe Hart, CEO
  • Earlier in the year: “Orders for used and refurbished equipment in our Telco segment have been drastically reduced due to the overstocking done in 2022… Wireless segment was hit… by a sudden downturn in 5G-related build activity… We are aggressively pursuing opportunities to design and build fiber networks… BEAD and RDOF funding will provide… a few hundred billion.” — 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 are taking steps to reduce costs while maintaining focus on the growing wireless opportunity.” — Joe Hart, CEO

Q&A Highlights

  • The company held its Q3 2023 conference call on Nov 14, 2023 with CEO Joe Hart and CFO Michael Rutledge; third-party transcript references confirm participants and timing .
  • Themes evident from call materials and prepared remarks: 2024 expected resumption of wireless construction, expansion into Broadband and Fixed Wireless with growing backlog, and pursuit of funding arrangements given going-concern disclosure .
  • No numerical guidance ranges were provided; commentary remained qualitative around backlog growth and industry timing .

Estimates Context

  • Wall Street consensus estimates via S&P Global were unavailable for AEY for Q3 2023; therefore, comparisons to consensus EPS and revenue cannot be provided at this time.
  • Investors should rely on reported actuals and monitor future coverage updates.

Key Takeaways for Investors

  • Revenue contraction and margin compression persisted in Q3, with sales down 60% YoY to $10.34M and net loss of $(2.73)M, reflecting Telco inventory digestion and Wireless 5G build slowdown .
  • Cost discipline is tangible: ~$2M fixed cost cuts and SG&A down 31% YoY; watch for further operating leverage as Broadband projects scale .
  • Strategic pivot: Fulton’s push into Broadband and Fixed Wireless with a “substantially” higher fiber backlog may stabilize revenues versus cyclical 5G builds; execution on backlog conversion is central to near-term trajectory .
  • Liquidity risk remains elevated: cash $1.63M, debt $3.6M, going-concern paragraph; funding and AR facility replacement are near-term catalysts to de-risk .
  • Telco early green shoots (optical transport orders) could aid recovery as customers finish inventory burn; monitor Telco order cadence and inventory trends .
  • Without formal guidance, narrative drivers are industry timing (5G build resumption in 2024) and public broadband funding tailwinds (BEAD/RDOF) .
  • Near-term trading: sensitive to financing updates and backlog announcements; medium-term thesis depends on Broadband revenue durability and Wireless activity normalization .

Source Documents

  • Q3 2023 8-K/Press release and financial tables: Nov 14, 2023 .
  • Q2 2023 8-K/Press release and financial tables: Aug 14, 2023 .
  • Q1 2023 8-K/Press release and financial tables: May 15, 2023 .
  • Q3 2023 earnings call transcript reference: Seeking Alpha (Nov 17, 2023) .
  • Q3 2023 reporting announcement (schedule): Nov 1, 2023 .