Robert Palle - Chief Executive Officer Eric Skolnik - Chief Financial Officer Steven Shea - Chairman of the Board

Richard Greulich - REG Capital Advisors George Gaspar - Private Investor Gregory Urbin - Private investor

Good day, ladies and gentlemen. And welcome to Blonder Tongue Laboratories' Third Quarter 2017 Results Conference Call. [Operator Instructions] And at this time, it is my pleasure to turn the floor over to your host Bob Palle, CEO. Sir, the floor is yours.

Thank you very much. Good morning, everyone. Welcome to Blonder Tongue's third quarter 2017 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 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 that you refer to our prior SEC filings, our Form 10-Qs for the second quarter 2017 at prior quarters, and 10-Ks for years 2015 and 2016 for additional information concerning factors that could cause actual results to differ from the information discussed this morning. With me today are Eric Skolnik, Blonder Tongue's Chief Financial Officer; and Steve Shea, Chairman of the Board. All of us will be available to answer any questions you may have following our presentations. First, the essence of the second quarter press release comments bear repeating. Although net sales improved modestly at approximately 3% year-over-year, we're pleased with the continuing sales growth of our data products. Strength in this category seems to be following the national trend to deliver more file-based over-the-top video content and less live linear video content. The reduction in sales of our digital video category was anticipated in part because 2016 included sales for a large retail chain deployment that was not expected to repeat in 2017. And of course, the continuing reduction of analog product sales is inevitable. We're very excited to announce the introduction of our next gen gateway or NeXgen Gateway (NXG) product line, which made its debut and live demonstration at the national SCTE•ISBE exhibition in Denver in October. The NXG product line enables service providers to easily upgrade, expand, and diversify service offerings in their hospitality, commercial, and institutional systems at a fraction of the cost of competing solutions. Initial reactions and feedback we received at the SCTE•ISBE were extremely positive. While we remain cautious regarding the remainder of 2017 and early 2018 in most product categories, we are optimistic about growth opportunities for NXG product sales as 2018 unfolds. Similar to the comments made in my prepared remarks for the second quarter on positive side, we received delivery accelerations of and order additions to the future delivery database blanket orders mentioned in the first and second quarter conference call. However, immediate delivery based order input for October and the first part of November has been less than expected. The feedback we are receiving is that there still remains a high level of market uncertainty especially telling us the feedback from our premier distributors. These counter balancing data points give rise to why we anticipate the sales will be basically flat for the remainder of 2017 and the early part of 2018. Now I'd like to turn the call over to Eric Skolnik, the Company's Chief Financial Officer and following Eric we will have an open question-and-answer session. Eric?

Thank you, Bob. Net sales increased $144,000 or 2.7% to $5,576,000 for the third quarter of 2017 from $5,432,000 for the comparable period in 2016. Net loss for the three months ended September 30, 2017 was a loss $153,000 or $0.02 loss per share, compared to a loss of $642,000 or $0.08 loss per share, for the comparable period in 2016. The increase in net sales is primarily attributed to an increase in sales of data products offset by a decrease in digital video headend products, analog headend products, HFC distribution products and contract manufactured products. Sales of data products were $1,782,000 and $315,000, digital video headend products were $2,100,000 and $2,763,000, analog headend products were $324,000 and $559,000, HFC distribution products were $838,000 and $1,046,000, and contract manufactured products were $244,000 and $465,000 in the third three months of 2017 and 2016 respectively. For the nine month period ended September 30, 2017 net sales increased $656,000 or 3.9%, to $17,713,000 in 2017 from $17,057,000 in 2016. Net loss for the nine months ended September 30, 2017 was $640,000 loss or $0.08 loss per share, compared to $857,000 loss or $0.12 loss per share, for the comparable period in 2016. The increase in net sales is primarily attributed to an increase in sales of data products offset by a decrease in digital video headend products, analog headend products, and contract manufactured products. Sales of data products were $5,168,000 and $1,592,000, digital video headend products were $7,330,000 and $8,889,000, analog video headend products were $1,360,000 and $1,789,000 and contract manufactured products were $599,000 and $994,000 in the first nine months of 2017 and 2016 respectively. Now I'd like to turn the call over to our Q&A session.

Thank you. The floor is now open for questions. [Operator Instructions] And we have a question from Richard Greulich with REG Capital Advisors. Richard, state your question.

Thank you. Hello, Bob and Eric.

Hello, good morning.

What is the addressed market size of NeXgen product?

Estimating 250 million a year.

And is that product available for delivery now?

Well, the product is a series of - it's a modular product, so there's a series of modules and so the essence of the product is deliverable now. Yes, but then, oh, I wanted to have this input and that output - okay, we have that output done, but we're working on that the next input you need for that. So, there are - there's a lot that's not released yet, but the essence of the product is really sent for sale.

Okay, I have a question. Are you familiar with the company called ViXS in Canada that was recently purchased by Pixelworks?

We are.

And where do you overlap in their product line?

Okay, well, this is a device provider like mini Intel, if you will a mini Intel and so we use Intel devices in our product line right. We also use ViXS devices in certain of our product lines. Not all of them, but certain of our product lines. So, there are - it's called as the - the acronym is ASIC, A-S-I-C, application specific integrated circuits is what they design and sell to OEMs, original equipment manufacturers like ourselves or [indiscernible].

Okay, what products in particular that you have would be using their ASIC?

In our encoder products - certain of our encoder products. Not all, but certain of our encoders.

Okay and does the purchase by Pixelworks make them a more let's say, solid supplier?

I honestly don't know. I don't know the financial condition of Pixelworks, so we didn't have any concern initially about being able to get continuing of supply of the ASICs that we buy from them and that was our initial reaction. We haven't dug down deeper as to where they would be on future needs from us and future features that they would be developing. We haven't worked at that. There is a lot of device suppliers out of the five or six credible device suppliers that do the same thing as ViXS. So, we're not threatened long term regardless of what happens to them and we hope that the Pixelworks transaction is a benefit to them, but we honestly don't know.

Yeah, I think it is. But anyway, thank you very much for your insights.

Thank you.

Our next question comes from George Gaspar, Private Investor. George, state your question.

Sorry, I got late in getting on the call, so I may be laboring you a little bit. Just in the generalization area of you current revenue stream, you're implying that you're cautious regarding the remainder of this year and into early 2018, is this pretty flat going out for you in current products and that you're going to have to review reach forward with you new product innovation coming in here in early 2018 now or are you going to have to broaden your product base much more in order to really get some headwind, not headwind, but some real potential to boost the revenue stream for the company.

We think this introduction of new product line is what that's going to help boost the revenues for the company and the comments where I said that there are counter balancing data points where we have large relationships and large blanket orders with certain customers and those are being extended and timely and so we're feeling pretty good about the growth prospects there. But then, the other is that the distributor COG rate that we have, which are the best on the planet are still complaining that the activity is low. So, with those two counter balancing data points, we think well our present business would probably wind up flat based on those two differing inputs. I mean we see healthy order input from our direct system provider accounts and even the distributors, our channel partners face aces in places where some guys are up, and some guys are down, but everybody is complaining. So, I don't know what to say.

Okay, alright and then in terms of the financial, how do you stack up now in terms of your financial agreements, your funding agreements and have you got more flexibility now that you seem to have things under better control. Could you make some comment about your financial flexibility?

Sure. Well, as you know, last year in December we refinanced our debt and that relationship has been working very nicely. So, as we've been moving along, obviously we've been able to meet our obligations as they come due and our cash flow has been pretty relatively steady. So, it's been good.

Okay. All right. And just - if I could just double back on your new product development that you're introducing, what does this system go for? Can you just give us an idea of what you can sell this for?

Yeah. Well, we are going to probably get some dog price on some big jobs of the under ten ground and 7,500, 6,500 and then others that are - that are - have more features required in those of the 12, 13, 14, 15,000. But I think you can probably remember a number like 10,000.

Okay.

So, that's -

Okay. Great. Okay. Well, good luck to you going forward here now. Thank you.

Thank you very much.

Thank you so much.

Our next question comes from Gregory Urbin, private investor. Gregory, state your question.

Good morning, guys.

Good morning.

Good morning.

Eric, specifically on the cash flow, it looks like in the last quarter because of the impact of inventories and receivables that turned negative. Any comments on that?

It's just the normal ebb and flow of the normal operations, so.

Cutting the borrowing capacity, a bit, what is the total borrow capacity currently?

At the - let's see. We had at the end of September, we had the availability to borrow 800 - let's see where, was it $813,000.

On the revolver.

Plus, we -

Plus, we have, yep, plus we also have the $250,000 availability on the subordinated loan facility.

And haven't had to drop down on that at all this year, correct?

That is correct.

Okay. Hopefully it won't either. Now, getting back to on the revenue side, it looks like there's very little predictability about the - regarding the rollout and sales of the next-gen product over the next few quarters. Any - can you comment on that at all?

We're working on stuff, but it's not in the boat yet, so just we have a very positive feedback and we have good interest from blue chip clients.

What?

And we're going to save a bunch of money. So, I don't - you're a smart guy, right.

I'm not as smart as I would like. What would be the primary drivers for that product?

It would be that - its lower cost for initial deployment and its future proof based on the most modern technology and approaches that are available. We are the last guys that go - we should have done a good job of leapfrogging. The other guys that are out there and also, we have the future in mind when we design this. So, as you retire one approach, you slide models out and you deploy the new approach and you slide modules in.

Is this likely to replace the whole category of products you have on the market now?

No.

Relatively -

No, it's incremental. No, it's incremental.

It's incremental. Okay.

No, let's say, mostly incremental. We are going to have encoder modules and stuff, but the heart of the product is incremental.

Is it largely or partly you tell me to meet the trend for the over-the-top distribution?

The - we already have - we already have product lines that meet the over-the-top distribution and that key component to that that's located at the center of the star heading to the hub that would become a blade and a module in this system. Although it's not a module in our initial release, it's still a product that's outboard of the chassis 1RU, but we'll eventually migrate that into our chassis. So, the - I don't know if that answers your question or not. I just -

I was just looking for where the growth opportunities are going to be if the –?

Over-the-top delivery is a large part served by the guys that we sell to in our marketplace, so DOCSIS-based systems and we already have a pretty good DOCSIS-based headend piece that's a heavy participant in the over-the-top deployments and hospitality and then, of course, that technology will migrate into the MDUs and other pocket community service. And so, we think we're working it. We think it's a big - we think it's a big growth opportunity and we even talk about it in my quote in the press release and again this morning, because I just cut and pasted that quote into these prepared remarks.

For the DOCSIS equipment, primarily from China currently?

The -

Lower margin.

The - it is primarily our - one of our key technology partners is a China technology partner, yes.

Right, well, what I was getting at, the margins with the new next-gen I assume might be higher?

With the new next-gen, we expect that the margins will be higher on that product line, yes.

Okay.

That's what we're projecting.

All right. We'll look forward to some pickup and growth. Of course, I guess, we all do. And finally, I know this was posed a few calls back, but since the last report over the last quarter, there have been two or three days where the volume spikes have been incredible in those stocks. What do you all make of that? And does that worry some at all?

This is strictly a guess. I don't know what everybody else, maybe there is like eight or 10 or 15 people on the call, we could call guess, but my guess is that there's somebody with a program trading operation or program and that program trading operation says do X and now do X again, do X again and just keeps pushing it and we get these million dollar days as a result and then you wonder it winds up back where it was at the end of the day or the next day and then that doesn't continue at a million dollars a day for any days in a row. And my suspicion was this is second time it happens, the first it happens, and I think somebody made a mistake and then they discovered their mistake and they went, oh, shit, and then they sold them off quickly and they - we wound up back where we were. Otherwise you would see a 13G or you would see some sort of filing if someone was accumulating for a different purpose like acquiring the company or something. And I can tell you that this is certainly not me and it's not anybody in this room or any people that we know. They have no idea.

Right. And there is - it doesn't accompany any news release.

It does not accompany anything.

It might be good for some traders, but for the rest of us, it doesn't - doesn't do much. Anyway, well, it's going to be four and a half months before we chat again I hope and trust that any positive news that you'll get at all on the wire when you can?

Any major accomplishments or major contracts we would do an individual press release, yes.

I appreciate it and good luck, guys.

Thank you very much.

Thank you very much.

Our next question comes from Richard Greulich with REG Capital Advisors. Richard, state your question.

Yeah, actually my questions were answered. Thank you.

[Operator Instructions] And there appears to be no further questions. I'll turn the floor back over to Bob Palle.

Thank you very much. Thanks everybody for participating this morning and have a great day and a great week. Talk to you in next quarter. Thank you.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time and have a great day.