Bob Palle - President Emily Nikoo - EVP Eric Skolnik - CFO

Armen Grigorian - Redmount Capital Richard Greulich - REG Capital Advisors George Gaspar - Private Investor Gregory Irvin - Private Investor Peter Abramson - Private Investor Marc Franklin - Wells Fargo

Welcome to the Blonder Tongue Laboratories 2015 First Quarter Earnings Call. [Operator Instructions]. It is now my pleasure to introduce your host Mr. Bob Palle, President of Blonder Tongue Laboratories. Thank you, sir. You may begin.

Good morning, everyone. Welcome to Blonder Tongue 2015 first quarter financial reporting teleconference. Before we begin this morning with any details of performance, I’d like to preface my remarks and those made by other Blonder Tongue representatives who may be speaking today by reminding you that we will be discussing certain subjects, which will contain forward-looking statements including management’s view of our prospects and the evolving trends in the marketplace. As you know the future is impossible to predict and so I caution you that actual results may differ from those that maybe projected in our comments this morning. I would ask you to refer to our prior SEC filings, our Form 10-Ks for 2013, 2014 and our Form 10-Qs from prior quarters, for additional information concerning factors that could cause actual results to differ from the information discussed this morning. With me today are Blonder Tongue’s Executive Vice President, Emily Nikoo and Eric Skolnik, our Chief Financial Officer. All of us will be available to answer any questions you may have following our presentation. The first segment of my prepared remarks are parallel to the quote in the press release from this morning but are worth repeating. We were unable to meet our sales goal for the first goal for the first quarter despite meaningful progress on several opportunities that we have been working for some time. The decrease in sales relative to the first quarter of 2014 is primarily due to the successful completion in 2015 of a key MSOs deployment to deliver video in gated communities and legacy fitness center. We did not experience a sales success having a similar magnitude in the first quarter of 2015. These opportunities remain and several other opportunities we have discussed in prior calls remain viable as we move further into 2015. However several of them have been delayed in-part due to the M&A activity in the cable industry sector. As mentioned in our most recent Form 10-K and our Form 10-Q will be filed for this period we have implemented a multi-phased cost reduction program that will be completed in the second quarter of 2015 the benefits of which should be realized beginning in the third quarter of 2015. Regardless the commitment from management is that the company will make the necessary adjustments to be profitable beginning in the third quarter of 2015. The generalized message in the last conference calls bears repeating. To be successful in the future we must take the relationship building and past accomplishments in the CATV MSO and satellite systems communities to the next level meaning increased penetration of the targeted accounts by offering new innovative solutions to the key service providers and their respective stakeholders. We made significant progress in all areas we’re seeking new business and this Ms. Nikoo, the company's Executive Vice President will share a more detailed information on these and her prepared remarks, but first I would like to turn the call over to Eric Skolnik, the company's Chief Financial Officer. Following Eric, Emily and following Emily we will open it up to question and answer session. Eric?

Thank you, Bob. Net sales decreased $836,000 or 15% to $4.742 million for the first quarter of 2015 from the $5.578 million for the comparable period in 2014. The net loss for the three months ended March 31, 2015 was $1.415 million or $0.23 loss per share in 2015, compared to $1.161 million or $0.19 loss per share for the comparable period in 2014. The decrease in net sales is primarily attributed to a decrease in sales of digital video headend products, and analog video headend products. The sales of digital video headend products were $2.109 million and $2.404 million and analog video headend products were $1.40 million and $1.671 million in the three months of 2015 and 2014 respectively. The decrease in the net loss -- some of the increase in the net loss quarter-over-quarter is primarily attributed to decrease in sales and a decrease in gross margin to a less favorable product mix. Now I would like to turn the call over to Emily. Emily?

Good morning, everyone. I want to begin with my comments today with a quick summary of where Blonder Tongue products are installed so that you’ve a little better feel of the company and maybe how my remarks ends with that. You can find our products in lodging and hospitality, multi-dwelling units or apartments, broadcast studios, education and universities as well as K-12 healthcare which can mean hospitals, express care or the fitness centers that Bob mentioned. Government facilities and offices, prisons [ph], airport, stadiums, arenas on and on, casinos, retail stores which you know from previous releases. So when Bob talked about our multi-faceted opportunities to replace the lost revenue, they can be from a wide variety of operators whether it's the largest cable operator or MSO, a telco, or a satellite provider or the new companies that are emerging that is squarely focused on streaming media. The opportunities can also evolve around a market specific deployment like the retail and lastly they can stem from new technology breakthroughs that come across to our company. The bottom-line is our opportunities and the solutions we’re creating cover this full gamut, it's not single company, a single market or a single technology so let me give you some more details. As Bob, indicated the decrease in sales is primarily due to the successful completion of a key MSO customers deployment. When those sales are removed from the top line the sales are flat. Now they are flat to the q, which is historically our softest quarter, the bad news is that our core didn’t grow. So the new opportunities that Bob has alluded to become even more critical. The good news is that the deployment mentioned was successful and as a company we perform very well for this MSO. Though by taking that performance and listening to the Top MSOs and their requirements in this environment which we’re referring to on the commercial deployment that I’ve mentioned we developed and encoded an optimized for public, educational and government deployments and this also in our industry referred to as a mpeg and over time the mpegs are being updated by the operators to HD as they renew their franchise agreements and if you understand these agreements you know that having the very best performance for the very lowest price is imperative, it's nearly taken a year but the BT [indiscernible] mpeg encoder is just being formally approved by three of the top six MSOs. And it's under evaluation at two of those as well as several mid-range MSOs. This is an extremely important development as it confirms BTs credibility with these key industry players and opens the door to greater opportunities with them. The results from these efforts particularly should be apparent beginning in the third quarter and fourth quarter's. As an update on the DirecTV relationship, BT did receive approval for the BT product to be deployed by DirecTV affiliates and the initial deployments are going well. That being said this is a very competitive market not certainly to the other hardware vendors but the ever evolving business structural that exist with marketing and [indiscernible]. We have our work cut out for us but we have made the very important first step. In the last shareholder call someone asked are there other opportunities like the previous electronics retail store deployment, the answer is yes and the potential is similar in magnitude. Not only are we working with other retailers for similar basic capabilities but we’re also working on a next generation requirement. The details can be seen in our press releases for a recent and upcoming trade shows. Our retail virtual show includes the latest encoding and decoding to manage ultra-HD for 4k as it's known in the vernacular. We’re always looking for technology that can help our customers. Recently we have partnered with companies like Vanguard Video and [indiscernible] on our latest live cast and coding products. One provides high efficiencies video coding for improved bandwidth requirements to become imperative in the 4k world and the other provides a broadcast quality encoder that allows broadcasters, sports networks and service providers to utilize the public internet network as way to deliver studio quality IP video reliably and securely. As we progress in these initiatives we will be making further announcements, since [Technical Difficulty] feature releases. Our next major event will be the InfoComm Show where we will be demonstrating our latest virtual showroom. IP and Digital Signage solution to professional AV community. Bob?

Thank you, Emily and thanks Eric. That concludes the prepared remarks segment and we will like to open it up to Q&A session.

[Operator Instructions]. Our first question comes from the line of Armen Grigorian with Redmount Capital. Please go ahead with your question.

I wanted to ask, actually I’ve few questions. I wanted to start first I understand it was a tough quarter but while we enjoyed listening to the future business of the revenues, I would like to drill down a little bit into what we can control in our business. What is the -- this is to [indiscernible] departure, I did not see anything referred to the promissory note that you own to the company, what is the status? Has he repaid, is he planning to repay?

In the fourth quarter of 2014 it wasn’t a promissory note it was just an advance there was evidence of a promissory note and that amount was in question from collectability as a result of his discharge from bankruptcy which occurred in the fourth quarter of 2014 and as a result of that he was no longer obligated to pay that and so in 2014 and it was written off and it was reflected in our comments, in our 10K.

Second question, Scott [ph] for you was, during the last call and also the last filing there were some discussions about the deliverables that you had to deliver to the bank to meet and expect their needs to extend the line of credit. Can you I don’t know if you can but can you elaborate a little bit on the status on that?

Sure the information that was required to be delivered to the lender was in fact delivered and in the 10Q which will be filed sometime publically tomorrow, it will outline the terms and conditions of an amendment to our credit agreement but basically it's just is that the $500,000 over advance that was given to us is now replaced with a more of a 35% advance rate on our inventory which approximates pretty much what the $500,000 was. So the short answer to your question is yes, all our deliverables were met and bank agreed to keep the accommodation, or an accommodation through September but did not advances any more money beyond the first $500,000 basically.

Great job, at least that part so hopefully by September 30th few more things will happen. And the last question was to Bob, Bob first of all we do all appreciate how much effort you must have put over last quarter and as I said I appreciate Emily's discussion on a future business but when I look at a sizeable business like ours, Blonder Tongue, I kind of -- I’ve a strong conviction that the company can and should be profitable. I don’t know if you have can ask it but if you could ask it that would be great. Do you’ve have any roadmap for next 90 to a 180 days or maybe 360 days on adjusting the overhead cost and over the company to meet the current revenue streams. Because I understand a lot of things can happen, but when it comes to customers I’ve learnt from other businesses that we have owned our own, they are beyond our control. We are here to serve them when they need us. But what is our control is great job like Scott is doing dealing with the banks and also great job the management does with dealing with cost and expenses, managing the business prudently. So what are the plans? Are we going to put the sharp pencil to the paper?

Well that’s what we have been doing Armen, so if we need to do more, if it looks like we need to do more we will do more but right now we think that we made significant adjustments that should be satisfactory but that’s kind of week by week, month by month, quarter by quarter process.

One of the reasons that I'm a shareholder of this company, Bob is I consider you as a partner, I mean you’re a sizeable shareholder. You’ve always been committed to the success of the company. So first congratulations on being the decision maker at this point and thank you for your time and Emily, Scott, Bob. Thank you.

Thank you. Our next question comes from the line of Richard Greulich with REG Capital Advisors. Please go ahead with your question.

Couple of questions, Bob in the last call you mentioned you had picked up a contract manufacturing opportunity, is that going to be generating any revenue in the second quarter or if not when will that start?

It started in the first quarter; it was about a $170,000 in the first quarter.

Is that the run-rate you are likely to be for the rest of the year or was that the initial part?

No it will be increasing and thinking that the total revenue by year-end should approximate a 1.3 million to a 1.5 million.

Okay. I'm assuming that the gross margin on that business is let's say maybe two thirds of what the corporate average or something like that? Is that a reasonable assumption?

It's not quite that bad.

It's not quite that bad you’re right, contract [Multiple Speakers] significantly less, yes.

The annualized $1 million cost reduction becomes an annualized 2 million but does that kick-in is it reasonable assume that let's say by the third quarter you’re seeing the full $1 million annualized but not really the full 2 million annualized?

It's going to slide in and maybe this is just hope, but we’re hoping that it will have pretty much really good impact in future.

Okay. In order to be profitable in Q3 I was just modeling real quickly, you need about close to 7 million in revenues, 35% gross margin and that assumes that you only get a quarter of a million cost reductions, if you get more than maybe you don’t really need quite as much revenue. 35% gross margins--

I'm not fast enough to [indiscernible] don’t sound unreasonable I don’t whether profitable fixture falls out of that but I'm just not fast enough with the math on this call to follow that all the way through, but the two numbers you gave us 7 million and 35% gross margin we’re prognosticating those were whole.

So the bank did want to advance the extra 0.5 million, do you need to go someplace else to get or as you look at the next couple of quarters will you be okay with what you’ve?

We think that we have between the combinations of our current situation coupled with the cost reductions that we just talked about that we will be okay on liquidity going forward.

Is there any reason to think that the fourth quarter would be stronger than what you normally do, I know it usually phase after the third quarter little bit on a quarter to quarter basis.

History normally repeats and the fourth quarter is normally softer than the third, but we’re working on somethings that could change that dramatically.

You’ve mentioned in your remarks in the press release about even though you hadn't generated the revenues from some of the programs you have at your site would make equal progress. I was unable to hear all of them, so I don’t know if you addressed that but could you get a little more detail of that meaningful progress with some of the business you’re chasing?

Well what happens is in the negotiating process you get a feel for whether you’re getting close to getting the deal or it's slipping away from you. So those prognostications are based on favorable positive input back to us on those several large opportunities. In addition when we were working on this very, very large cable operators requirement now we are approved at three of top six, that was a 55 page quality document that was basically they erased Bellcore off the top and put another name there and so that took a year, so that was not easy but it shows the industry of what we’re capable and by the way we’re the first one through the door on that and so we should do well there. So this is significant progress. These things take months and relationship building takes months and years, so we’re really, really pleased with that. And the other activities also but that one. Now a formal approval is in the rear view mirror now is a matter of promotion and it's a long slow burn because as Emily, indicated the mpeg encoder application is -- well she didn’t say this but I will say it. To them they look at it sum cost, they don’t get any revenues from this but they have to supply it as far as their franchise agreements. Right so they are looking for very cost effective solution, but we have -- our video quality has been compared to products that cost or price that 10 to 20 times our price, very, very favorable [indiscernible]. That’s how we got first in the door and then Emily shepherded it the approval activities, the testing activities, her team shepherded it that from page 1 to page 55. And we got feedback that nobody else that they ever tested and you can take them all has come away with this few gigs or whatever or things that need to be discussed at the end of the day and then of course they have this process where they surprise you with their unwritten things. So it was a monumental accomplishment, not trivial.

And also wanted to thank Emily for, I thought that was a good discussion because it's difficult for the outsider to sometimes realize the multiple relationships that you’ve to get into in order to grow the business. I had a question though regarding the cable business in the merger and acquisition activity going on. So doesn’t really pose a big question mark still that you really don’t know who is going to be marrying up with who? [Technical Difficulty].

Yes that’s why we mentioned it, not just an in passing comment it's extremely important and has affected everyone in this sector and you can look at those people that those people that participate in our sector and look at their sector is segmented out, you can see what's happened with them and what's happened with us it's not dissimilar.

Is there a silver lining in certain scenarios there?

I don’t know about silver lining, I think that time passes we get more and more opportunities because we’re now seeing as a very credible player for some tough assignments and so although the delay may hurt our short term sales, the long term relationships seem to be building very, very well.

I was just going to say just as mergers and acquisitions end up kind of putting a question in the marketplace, it does put question in terms of how far they should go as far as the builds but their whole point is going to still be increasing bear revenue. Want to be in areas that we deploy in on the business services side, I'm just talking right now on the MSO for moment because it applies in all of the other -- all our other customers as well but there is one area of real potential growth whereas the residential side has been relatively flat. So there is opportunity there once some of the dust settles and some of these obligatory like the mpeg that talked about.

Thank you. Our next question comes from the line of George Gaspar, a Private Investor. Please go ahead with your question.

First question would be on the cost reduction front, can you give us an outline of the your employment comparisons, six months ago at the end of your past fiscal some place around that time and then the current situation and then where are you’re looking to have your personnel situation out in the third quarter when you’ve your cost reduction established?

Well I guess part one was we have reduced our headcount by approximately 10% from where it was. And so that level would pretty much remain constant plus or minus for the rest of the year unless we have decided that we needed to do further cost reduction so that’s pretty much the answer from a headcount perspective.

And so as you approach the third -- the second half of the year and you’ve had this employment reduction your cost reduction starts to hopefully fall to the bottom-line. You feel pretty comfortable that in trying to get upticked on volume, your revenue volume that you have the appropriate level of personnel or do you’ve to suddenly switch back on employment acquisition?

No I think we’re okay, we would obviously if the uptick was substantial then that would be a different story but we are okay to ride up slightly and if the business was booming of course then we may need to hire some more vehicle.

But we don’t think we would need to hire them in the non-direct areas, so we would be hiring direct labor people only if at all.

And at this point how many sales personnel do you have in the operation?

In the sales activity it's 20 people, 30, I mean you were talking about direct sales people that go out and make sales calls or we have a marketing group, we have key account sales people and we have inside sales people and--

If you look that total broad area of internal and external or let's say internal what are you looking at in terms of numbers? Internal personnel that are fulltime on your staff, I assume on the external side do you reseller?

Yes we have a large distributor and I wasn’t counting the distributor network which has 100s of sales people and we have key people that coordinate with them and massage down that’s where a lot of our sales come from. I can go back and get you a specific number but it wouldn’t surprise me if it was 25 or 30.

All right, one additional question. In the general cable area the opportunity looking forward, the future appears reduced with trend in the general cable area. Can you cite any increments of opportunity in the general cable business outlook that would have positive opportunities for your company?

Well I did mention it quite frankly. I appreciate what you’re saying as far as for the general conversation regarding cable the media tends to want to give it a demise or pick some of the bloom off the road but keep in mind that relative to $25 million - $30 million company there -- we get a very, very small slice of what they do and it's huge for us and again the business services side which I'm kind of referring to all of these things, the airport, the stadiums the hospitality side etcetera that is an area that with not a lot of effort on their side they can actually have a significant growth. Not only that, in the overall industry for that market like we indicated from the satellite side, telcos, integrators in general and also the streaming operators, we’re pretty agnostic in that respect and the fact that we pretty much serve any one of them. So if it's not an MSO, but obviously the MSOs we’re focused on obviously because they are so large relative to us. But we definitely are also in communication with all of the other ones that I had mention in trying to serve it. I mean there is integrators that do schools all the time and those are very good customers of ours. And the hospitality, they are alternate providers that are serving major hotel chains all over the country that we serve. So does that kind of answer your question a little bit?

Yes it does and maybe you could, if you wouldn’t mind, if you could cite a thought on this. There seems to be an ongoing problem that’s developing on cable line bandwidth on the return cable line bandwidth and that there is a significant change our expectation going into 2016 on amplifiers, on cable lines. Now if that happens maybe it won't happen but does that, do you interface in that area at all?

We do. And I think you asked a similar question in the last call, right George?

Yes I did.

And we answered the same way; I applaud you for doing your homework. And maybe we didn’t applaud you on the last call but we did after the call internally here, so that guy is doing his homework and your absolutely right and it is a big opportunity and these step functions do opportunity for all the players and so we’re actively involved in that.

In addition, the conversation that I didn’t use the acronym it's ATVC or H.265 is kind of the next in coding technique compression technique and it's basically as these various encoders are and tools are developed and standardized you get better and better compression so that you get similar quality with half bandwidth, so you went from mpeg 2 to 4 and now they are going to this ATVC which is the high efficiency video coding. And we’re also involved on that side which is basically how do you get more out of the existing type. So there is changing out the pipes, and it's also, it's very much a function of how large the companies are if they can afford to do these types of things right? And some of the conversation that you’re seeing is going to be relative to more of the residential environment rather than the environment that we’re talking about as well. So there is a couple of caveats out there.

And just want to say generally and very enthusiastic about your company's position at this point in time, your capitalization, if you guys can get this turned upside and break into this new market and get some momentum and your bottom-line I mean what could fall on a per share basis your bottom-line could be very significant. Hopefully you can pull it off.

Thank you.

Thank you very much.

We also believe in same thing. Thank you.

Thank you. Our next question comes from the line of Gregory Irvin, a Private Investor. Please go ahead with your question.

Quickly what -- since the Q is not out yet, what is the cash flow from operation for this quarter?

Sure, the cash flow from operations for the quarter was a loss for operations used in operating activities of $362,000.

So there is a fair chance to Q2 that could be neutral or on the plus side?

I don’t think so; I think it's not going to start to turnaround until this Q3.

All right. Different focus, is there anything on the near term or mid-term horizon I was driving a difficult [indiscernible] roll out, similar to what you casted last year.

Are you talking about the retail side?

Yes the retail side.

That was in my prepared remarks. That’s kind of what I was talking about this virtual showroom or the retail market and as I mentioned there are similar potentials, similar levels of magnitude, slightly different companies, slightly different deployments and timing of it we don’t know just yet. But we’re definitely working both again similar capability of what we did last year with different companies and in addition the next generation of it. So to give you feel what was deployed last year was basically being able to have on a per-store basis being able to take off-air feeds and be able to distribute it to all of the TV. So what that means is if you’re shopping in a store you’re able to see the NBA playoff that is being played rather than having to go home and try to figure out what happened. So that was that deployment but in addition you got now what happens when 4K comes out in a much bigger way. And what about other locations of other types of video requirement whether they be digital signage related or not and those are the types of things that we’re working. So yes we will be doing press releases related to it but we’re definitely, there are opportunities in that area.

Yes that’s what I was referring to because I assume just having that [indiscernible] but it would make it easier sale.

Exactly and you know it's not insight for these stores to do this kind of an upgrade and it's not something that happens quite overnight even though it's more of a hit and "immediate hit" rather than the slow roll out like we talked about on the mpeg encoder. When it does occur, yes.

[Operator Instructions]. Our next question comes from the line of Peter Abramson, a Private Investor. Please go ahead with your question.

I just want a real big picture kind of question on the cost reductions. At the end of the day assuming they are on in place and assuming kind of typical gross margins, will the company be profitable or breakeven on kind of the base level of sales that Emily described or let's say base sales of 25 million a year?

That’s the goal, that’s exactly right Peter.

Okay so the goal is to be profitable on 25 million in revenue on the base got it. Okay, that’s great and you’ve got a lot of obviously you’re working a lot of sales prospects, as discussed on the call. I guess Eric was there any non-cash inventory charges in Q1?

Yes we increased our reserves by about $31,000 nothing significant.

Okay. And then I noticed what's the total debt in March, it looks like all of debt has been classified as current.

Right, it had to be classified as current because of the fact that our agreement expires in February 1, of 2016 so it's now falling back into the current section but the total debt is about 5.7 million.

Okay, 5.7 million total. And then I imagine what's your timing in terms of working on extension or enhancing, is that kind of Q3?

Our timing is it's going to be an ongoing process so we will have to figure out obviously when the time comes if there -- whether it's an extension or refinancing with a different lenders obviously we believe is as such.

And then how do you feel about the inventory position today? What opportunities are there for inventory harvesting, for cash kind of in the near term?

Well the one thing that was done as part of the reductions and control that Bob put insights [ph] with just really managing any of the raw material. I don’t know if you want to talk about that at all Bob?

We have adjusted our mass production schedule so that we should be able to do just as well on serving the customers as we do now, with less working capital. So that’s -- I’ve targeted like a 1 million - 2 million for that, and I think once we accomplish that I think we maybe be able to do another 1 million, 2 million.

Okay so the overall goal is still on process to increase the turns and kind of harvesting--

Exactly.

You think there is about a 1 million near term and maybe long term another million?

Correct.

Thank you. Our next question comes from the line of Marc Franklin with Wells Fargo. Please go ahead with your question.

Just a quick question about the Former Chairman, I know this -- I looked at the [Technical Difficulty] including I guess some stock options and retired on March 22nd, how much of that was a paid pro-rate through the first quarter of this current year and will there be any more payments to [indiscernible] ongoing in the second quarter or there after?

His salary was seized at the time of the retirement.

Basically through the fourth quarter, it was short of a few days and then -- this is all disclosed in the public documents is the deferred compensation agreement and so there is deferred comp that is paid six months following his retirement, otherwise it's not declared as deferred comp and so there is a modest amount then and then that’s it.

And that’s well not digging into the 10K or maybe it's in the 14, I'm not sure but that’s all, can you put a number on that just for--

Is it okay if I guess and I'm not exactly sure, 160.

Okay. And so that’s includes the part, the salary through March?

No that’s deferred comp part.

And what was his salary roughly the same about a 100 grand in the first quarter of '15?

It will be something like that, yes.

Okay so I just wanted to see how much that -- those payments adversely affected that March quarter result and then the -- the other question I have is inside I don’t have no clue about the technology, and the [indiscernible] but your factory -- last I looked you had a 130,000 square feet and 20 acres and I wondered you still own that or is it encumbered?

Yes we still own it, and yes it's encumbered. All of our assets are cross collateralized under our agreement with our bank.

And would you say that the value of that property has that increased in any way, I mean is that a good area? I don’t know much about New Jersey.

Well the value of our property exceeds the value of what our lender is lending on that specific piece.

So would you be able to characterize -- so would characterize it as being worth more than the amount, the sale value in the books?

It's worth more than what's on the books of course.

Maybe we were in the slum area, I don’t know.

Thank you. Ladies and gentlemen, we have no further questions at this time. I would like to turn the floor back over to management for closing remarks.

Okay. Thank you very much for participating in the Blonder Tongue conference call. Internally we have been criticized for the separation remarks here but I hope everybody has a great day and we’re going to get back to work.