Blonder Tongue Laboratories, Inc. (OTCQB:BDRL) Q3 2022 Earnings Conference Call November 4, 2022 11:00 AM ET
Company Participants
Ted Grauch – Chief Executive Officer
Eric Skolnik – Senior Vice President and Chief Financial Officer
Conference Call Participants
William Velmer – S.A. Advisory
George Gaspar – Private Investor
Operator
Good morning, ladies and gentlemen, and welcome to the Blonder Tongue Laboratories Third Quarter 2022 Earnings Call. At this time all participants have been placed on a listen-only mode. [Operator Instructions]
It is now my pleasure to turn the floor over to your host, Mr. Ted Grauch , CEO of Blonder Tongue. Ted, the floor is yours.
Ted Grauch
Thank you. Hi, good morning, everyone, and thank you for joining us this morning and participating in Blonder Tongue Laboratories third quarter 2022 earnings call. I’m Ted Grauch, President and Chief Executive Officer of the company. As we give our remarks this morning, we will be discussing certain subjects that will contain forward-looking statements, including management’s view of our prospects and evolving trends in the market.
As you know, the future is all but possible to predict, and so I caution you that actual results may differ materially from those that may be projected in our comments. We would ask you to refer to our prior SEC filings, including our Form 10-K for the years 2019, 2020 and 2021 and our filed Form 10-Qs for the four quarters of 2020, the four quarters of 2021 and the first and second quarters of 2022 and our upcoming third quarter 2022 10-Q. Each of those filings include additional detailed information concerning factors that could cause actual results to differ from the information we are discussing this morning.
With me today is Eric Skolnik, our Chief Financial Officer and Senior Vice President. Eric’s remarks will follow mine and will cover our detailed financial results. Both of us will be available to answer questions you may have during the Q&A session immediately following our prepared remarks.
In the third quarter of 2022, Blonder Tongue Laboratories had a net loss of $703,000 due to being held to monthly allocations with several key semiconductor suppliers and elevated raw materials costs in the chipset broker markets that have persisted the last nine months to 12 months. Over the last quarter, the company has been – has seen a continued stabilization in the semiconductor markets and a general improvement in future lead times for parts, including specific improvements in some chipset allocations that will begin before the end of the year, with further improvements expected in the early part of 2023.
Demand for the company’s highest technology and highest margin products are currently strong, with very healthy new bookings during Q3 as well as October and an overall sales backlog in excess of $7 million at the end of September and growing. With supply chain stabilizing over the last three months, we are happy to report that our R&D has been able to refocus more time and effort in product development and product customization in support of customer acquisition activities.
We recently announced that our Drake PEG PLUS product was standardized by a major Tier 1 cable operator in North America due to features and functions that we created specifically for use in large-scale video backhaul [Technical Difficulty].
Operator
Apologies, ladies and gentlemen, Ted’s line appear to have dropped. He should be call in back in any second. We have Ted back in the conference. Can you hear me, Ted?
Ted Grauch
Yes, I can. Sorry. The line dropped here.
Operator
Okay. Your line is live Ted.
Ted Grauch
Great. Hi everybody. Sorry about that my line dropped here. Eric, where did I get to?
Eric Skolnik
Large-scale video backhaul.
Ted Grauch
Thank you. All right. We recently announced that our Drake PEG PLUS product was standardized by a cable – by major Tier 1 cable operator in North America due to features and functions we created specifically for use of large-scale video backhaul architectures as well as our strong reputation for reliability. In addition to that press release, we continue to win smaller deals with other service operators as well as becoming network certified and approved to deploy our equipment on some of the largest telecommunication systems in North America.
Our NXG video processing platform has experienced a 52% revenue growth year-on-year. And our video encoder and transcoder products, including our Drake and ClearView lines have seen just over 9% year-on-year revenue growth during the first nine months of 2022 versus the same period in 2021.
At the current time, demand for these products continued to be strong despite the current macroeconomic climate. Our DOCSIS high-speed data product lines have also seen recoveries this coming primarily from pent-up demand in the hospitality markets. That demand had been exceptionally suppressed during the initial 18 months of the pandemic.
In the coming months, we are planning for additional product releases. In our ClearView and our Drake lines as well as expanding features and functionality in a range of products that match our customers’ transitions into various forms of IP television distribution and streaming technologies.
As we look forward to the end of the year and into 2023, we are working to take advantage of additional semiconductor allocations and availability expected between now and the end of the year and continuing to work on our manufacturing and operating efficiencies, towards improving performance in the upcoming quarters.
Now, I would like to pass the call over to Eric Skolnik, our Chief Financial Officer, to cover our detailed financial results. Eric?
Eric Skolnik
Thanks, Ted. The company’s net sales increased $1,090,000 or 26.1% to $5,262,000 for the third quarter of 2022 from $4,172,000 for the comparable period in 2021. Net loss for the three months ended September 30, 2022, and was a loss of $703,000 or a loss of $0.05 per diluted share compared to a net loss of $201,000 or a loss of $0.02 per diluted share for the comparable period in 2021.
The increase in sales in the third quarter is primarily attributable to an increase in sales of our NXG IP video signal processing products, our DOCSIS data products and our coax distribution products, offset by a decrease in sales of CPE products. The company experienced an increase in NXG IP video signal processing products as these product lines represent newer products, and newer technologies with growing demand from customers. The company expects sales of these product lines to remain at these levels or to increase during the remainder of 2022.
The company experienced an increase in DOCSIS data products due to the pent-up demand caused by the pandemic as these products are used primarily in hospitality and assisted living environments. The company expects sales of these products to remain at these levels during the remainder of 2022.
The company experienced a reduction in CPE product sales due to the continued deemphasis of this product line which the company expects to continue during the remainder of 2022. Although the company does not expect overall sales to return to pre-pandemic levels during 2022, the company does expect overall sales to be higher during 2022 due to the approximately $7.162 of sales backlog at September 30, 2022.
For the nine months ended September 30, 2022 net sales increased $1,076,000 or 9.2% to $12,837,000 in 2022 from $11,761,000 for the comparable period in 2021. Net loss for the nine months ended September 30, 2022, was $3,010,000 or $0.23 per diluted share loss compared to net income of $1,011,000 or $0.08 per diluted share for the comparable period in 2021.
The increase in sales for the first nine months of 2022 is primarily attributable to an increase in sales of NXG IP video signaling processing products and encoder/transcoder products and DOCSIS data products offset by a decrease in sales of CPE products and analog modulation products. The company experienced an increase in next-gen IP video signal processing products as these product lines represent newer products, and newer technologies with higher demand from customers. The company, as I said earlier, expect sales of these product lines to remain at these levels or increase during the remainder of 2022.
Company experienced an increase in encoder/transcoder products as these product lines also represent newer products and newer technologies with higher demand from customers. The company expects sales of these product lines to remain at these levels or to increase during the remainder of 2022.
The company experienced an increase in DOCSIS data products due to the pent-up demand caused by the pandemic as these products are used primarily in the hospitality and assisted living environments. The company expects sales of these products needs to remain at these levels during the remainder of 2022. The company experienced a reduction in CPE products due to the continued deemphasis of this product line, which the company expects to continue during the remainder of 2022.
The company experienced a reduction in analog modulation products through discontinued market shifting away from analog modulation solutions. The company expects sales of analog modulation products continue to decline during the remainder of 2022. The company’s loss from operations was a loss of $475,000 in the third quarter of 2022 compared to a loss of $703,000 for the comparable period in 2021. This also represents an improvement from the $962,000 loss from operations, which was incurred in the second quarter of 2022.
The company’s net cash used in operating activities was $220,000 in the third quarter of 2022 compared to cash used in operating activities of $753,000 in the comparable period of 2021. This also represents an improvement from the net cash used in operating activities of $1,450,000, which was incurred in the second quarter of 2022.
The company’s primary sources of liquidity have been its existing cash balances, amounts available under the MidCap Facility and amounts available under the subordinated loan facility. As of September 30, 2022, the company had approximately $4,318,000 outstanding under the MidCap Facility and $520,000 of additional availability for borrowing under the MidCap Facility.
On October 28, 2022, the company entered into the 14th amendment to the MidCap facility two among other things, extend the expiration date of the loan agreement to June 30, 2023, and modify the definition of borrowing base to extend the companies with advance and the amortization of the company’s over advanced facility until December 1, 2022, and to increase the 2022 over advanced facility to $1,500,000.
As discussed in the company’s most recent annual report on Form 10-K, the company experienced a decline in sales, a reduction in working capital, a loss from operations and net cash used in operating activities in conjunction with liquidity constraints. These factors raise substantial doubt about the company’s ability to continue as a going concern.
As of September 30, 2022, the above factors still exist. Accordingly, there still exists substantial doubt about the company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of the liabilities that might be necessary, should the company be unable to continue as a going concern.
Now I’d like to open up the call for the question-and-answer session.
Question-and-Answer Session
Operator
[Operator Instructions] Thank you. Your first question is coming from William Velmer of S.A. Advisory. William, your line is live.
William Velmer
Yes, how are you guys doing? Good quarter. A couple of points I’d like to make. We have featured your company in our publications. So, we follow you. I am impressed, probably the most impressive – well a few things. The most impressive side of the company is the continual strong insider buying that I see in this company, which indicates to me that the future of the company presents opportunity to investors because, obviously, insiders wouldn’t be buying as much stock as they have bought, if they thought the company was going under. So, I like that. I like the fact you’re introducing new products, I like that, of course.
But what we need to do is somehow get to profitability, I mean you just can’t keep losing tons of money. I mean your revenues went up $1 million for the quarter and you still lost a bunch of cash. You just got to somehow either raise prices or reduce staff or I know you got to keep R&D in place. But you just can’t keep losing money. So my one question is, do you have any kind of guidance for 2023.
Ted Grauch
So first of all, thanks for the question, and thanks for the positive comments. And yes, I think the management remains very optimistic about the future and the opportunities that the company has going forward. We absolutely understand the company cannot continue to be turning in performance numbers like this, and we’ve been doing a tremendous amount – if you follow the company over the last few years, we have had a tremendous number of operational expense reductions across a wide range of areas and a wide range of aggressive activities to get the operating costs down, the efficiencies up.
The thing that’s really been the headwind for us the last nine months, as I wrote in the – in the press release, and we’ve said it a couple of times this year in different quarterly earnings calls is the semiconductor industry is just – there’s been very little attitude we’ve been able to do in the time frame that these costs and an allocation – limitations on the quantity of chips that we can get. We’ve renegotiated a lot of these – certainly, all the most important deals have been renegotiated to the extent that can be done.
We’re faring better than some of our competitors. We’re – we know that. Our lead times on products are much less than some of our competitors. At the same time, you’re absolutely, right. There’s no argument for anybody being happy with the kind of performance that we’ve been doing last year. We do see light at the end of that tunnel, but I can say specifically, we’re doing and we’re pushing the envelope pretty much as hard as we feel like we can and still operating the company with firing on all cylinders with the staff and with the availability of raw materials at this moment.
In terms of 2023, the company doesn’t normally give guidance for future quarters. All I can say are the things that we inferred in the press release and in the comments this morning, which is we’re very happy that we start seeing significantly higher allocations on semiconductors. We couple that with the fact that the demand on our – a very large portion of our revenue equates to the most modern products that we have in our portfolio. Those are the growing products. Those have significant demand. And those – that demand is not yet shown any decline based on the current overall economic conditions that we’re seeing around in U.S. and around the world.
So in other words, the recessionary pressures are not impacting the demand for our products. We’re simply limited to the quantity that we can produce based on the raw materials we have. So as that starts to lessen because we have specific indications from semiconductor companies that our allocations are increasing on specific dates coming forward in the very near future this quarter, then we have optimism for next year. But beyond that, we would prefer not to speculate in specific.
William Velmer
Can I answer ask other question?
Ted Grauch
Sure.
William Velmer
So it appears that – and I’m not an expert, but it appears you have some really cutting-edge technology in regards to your product mix. Is there a certain point in time where – I mean I’m assuming you had to be – you’ve had to been approached by other companies to maybe merge into them or take advantage of selling the company in order to survive or – not even to survive – the prosper. I mean that is still a possibility, I assume.
Ted Grauch
So we did a press release in the first quarter that said that we are open to those kinds of strategic alternatives for the company, whether they’d be mergers, acquisitions or other types of strategic investments. We’ve talked to a number of companies; we are currently actively talking to a number of companies. So that is not off the table, and it’s absolutely something that the management and the Board would invite at the right financials that maximize shareholder value.
William Velmer
Even though your numbers aren’t the greatest at this point with respect to income, which there isn’t any. The goodwill of the technological advances that you have has got to be worth a lot more than what’s indicated in your balance sheet. So it’s like it could be a very juicy acquisition for a company that has the need for what you offer on a larger scale. So, okay. Well, thank you very much for your time. It was a very good call.
Ted Grauch
Thank you. We appreciate the question.
Operator
Thank you very much. Your next question is coming from George Gaspar, who is a shareholder.
George Gaspar
Yes. Thank you kindly.
Ted Grauch
Hi, George.
George Gaspar
Good morning. Could you outline the amount of total sales that you have for this year from products that have been introduced into the market in the last 12-months versus, what you had before. Can you give us a level of percentage increase of the new products to the total? It might be hard to do maybe, but…
Ted Grauch
Yes, I think it rests of the top of our head, just quickly. Look, I can say that the NXG product line and our encoders and transcoders in our digital modulation products taken together and our DOCSIS products taken together are a significant share of the company’s revenue. And those are the products that have grown the most this year.
Yes, so it’s hard for me to give a precise number. But certainly, we’ve already – we reported the 52% increase on our NXG sales and the 9.1% increase on our encoder and transcoder product lines. So you can see that, that – those products, which do have the higher margins overall in our mix are growing the fastest. And those are the products that we’re actively bringing out either new versions of those products to hit different parts of the market or adding new features and functions to zero in on some very specific sales opportunities that are out there as technology demand changes from different cable satellite and telco operators around North America.
George Gaspar
Great. And next question and your – the first questioner, did a really good job of covering an enormous amount of cross section. But can you just drill in a little bit more on why you haven’t tried to establish a broader financing program, considering the prospects that you have moved into the market and that those that are still coming, it would seem – that you should be enthusiastic about going ahead and trying to establish a broader financing program at this point in time.
I think the fact that you haven’t done it is what’s not – what is holding shareholders and potential buyers of your stock back. And are you doing this on purpose, not to finance because of conversations you’re having on a possible acquisition or merger or whatever. But it seems that there’s some real momentum here, and you’ve really done a marvelous job of bringing new products into the market that look like they have a much broader scale. And it would just seem logical that you would set up a broader financing program to get this situation in the marketplace, stock market turned around. Can you comment on that?
Ted Grauch
Sure. Eric, is that something you feel that you can comment on? Or I can take a crack at it.
Eric Skolnik
Sure. That obviously, a company our size is limited in the opportunities that we have in both the debt and equity markets. So yes, we are constantly exploring these types of opportunities. But unfortunately, due to our size, and the market conditions, there’s not always a lot of opportunity available to us.
And as I reported earlier, we were successful of extending our existing revolving line of credit through June 30. And the increase would be 2022 over advance to $1.5 million from the current $1 million, which would allow us another $500,000 of additional monies to come into the company under that facility. So that’s the extent that we have currently, and we’re – as I said earlier, we are absolutely always entertaining other opportunities.
George Gaspar
Okay. And then – just a view on the increase in your – the product line that you introduced into the market. And I know early on, saw our back as maybe your last two calls or three, you’ve already indicated that some of the lost generation is because you had committed to sell products that were in backlog, but at the cost of the raw materials chips, whatever, were increasing, and you are having to absorb those costs without being able to increase the sales price of your products that has been going on for a couple of three quarters at least or four maybe.
But it sounds like this is starting to moderate that when the raw material products are more available, and there might be some reductions on cost structure and that you’ve moved the prices that you’re getting for the product higher, are you close to a transition where all of a suddenness is going to be really clicking over to the positive side?
Ted Grauch
So we do believe – when you break apart some of the things you said and answer them more directly. So – we’re not seeing any cost decrease on raw materials yet, but what we have seen, the positive thing that I mentioned in the press release and the comments this morning were more in line with the cost structure has stabilized. We’re not seeing many new things coming up on our supply chain that we didn’t expect in the last quarter. So that’s really, really positive because it’s the surprises and the redirection of resources and allocating time and money to just work around a problem didn’t know was going to happen until the week before – until the week it happened. That has been consuming an awful lot of our engineering and our operations overhead – buying new PC, I don’t want to get in all the board details, but you get the point. That has been really a big drag on moving the ball forward from an R&D, new product development perspective earlier this year. That stabilized in Q3 [ph] for sure.
George Gaspar
Okay.
Ted Grauch
Now the other thing that I can say is, yes, we have increased pricing on our products across the board on multiple occasions since the fourth quarter of last year in direct relationship with our increasing cost structure for building these products.
Since those have not gone down, it certainly not reduced any prices. We have continued to increase prices even during the third quarter in a targeted way. And we do believe that here now into Q4, we’ve either caught up or almost completely caught up on delivering on products that were sold at – and we have on purchase orders that were at the previous pricing levels, which I think you’re referring to some of the previous comments in previous earnings calls, the time lag between the one increase, pricing a product and then we can actually realize the increase in the margin on that product because of the backlog.
So we’re in a good position there. We’re also finishing the amortization of some onetime expedited fees that we had to incur about a year ago with some semiconductor products to get on some allocation with big guys. So that’s going to have a positive on our margins going forward when those get finished.
Overall, when you get through the end of the year and into 2023, the current view, unless something else happens in the supply chain market looks pretty positive both on a margin and availability and a total top line revenue number.
George Gaspar
Yes. Could I ask one additional question and answer? If you, could you divide out the backlog that you have now is in – a $7 million plus, how much of that backlog relates to products that have been introduced into the market in 2022 versus products that were in the market before that. Can you analyze that for us?
Ted Grauch
I don’t have the data in front of me for that. I mean, it’s a healthy portion of it is our products in the NXG and ClearView and Drake product lines. So those encoders/transcoders – the newer products, basically a very healthy push to that.
George Gaspar
Yes. Okay. Because just a comment that’s very important, and it creates even more positive view for shareholders to be thinking about improvement in the company’s operations that could really get to a black line at the bottom. Thanks. Okay. All right thank you kindly.
Ted Grauch
Thank you so much. We appreciate your questions.
Operator
Thank you. [Operator Instructions] Okay. We appear to have no further questions in the queue. I will now hand back over to Ted for any closing comments.
Ted Grauch
Great. Thank you. I would like to thank everyone for attending Blonder Tongue Laboratories Third Quarter 2022 Earnings Call and for all of your questions today. Thank you, and goodbye.
Operator
Thank you, ladies and gentlemen. This does conclude today’s conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.
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