Robert Palle - CEO Steven Shea - Chairman of the Board Bruce Gureck - COO Eric Skolnik - CFO

Greetings and welcome to the Blonder Tongue Laboratories' First Quarter 2018 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Bob Palle, Chief Executive Officer for Blonder Tongue Laboratories. Thank you. You may begin.

Good morning, everyone. Welcome to Blonder Tongue's 2018 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 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 that you refer to our prior SEC filings, our Form 10-Q for the first quarter 2018 and prior quarters, 10-Ks for years 2017 and 2016, and the 10-K/A that was filed most recently for additional information concerning factors that could cause actual results to differ from the information that will be discussed this morning. With me today are Steven Shea, Chairman of the Board; Bruce Gureck, Chief Operating Officer; and Eric Skolnik, Chief Financial Officer. All of us will be available to answer any questions you may have following our presentations. First, I would like to to introduce Mr. Bruce Gureck, the newest member of the BT family, and the newest member of the BT executive officer team. Bruce is a seasoned industry veteran, and we anticipate he will be a tremendous asset to the company. Following my remarks, Bruce will provide his view of the market and the company's prospects. Following Bruce's comments, Eric will provide his financial report. And following Eric, we will open the call up to the question-and-answer session. Before I continue with any new information, the essence of my first quarter press release comments bear repeating. While we were disappointed by our year-over-year revenue performance, which was down more than 10% through rigorous expense controls and an improvement in gross margin, we were able to show positive operating income and narrow the year-over-year loss from $256,000 in the first quarter of 2017 to $63,000 in the first quarter of 2018. Looking ahead, first quarter order input was softer than we would have liked, and as a consequence remain concerned regarding revenues for the second and third quarters. As previously reported, we anticipate revenues to return to 2017 levels as we move into the fourth quarter and anticipate that that improvement will continue into 2019. The introduction BT NXG product line continues in the MSO laboratory testing phase. As reported in the last investor conference call, we continue to be pleased with the test results so far. All feedback we have received as part of the test processes has been extremely positive. Also, we will be shipping the first system today. The revenue from this first system sale will be approximately $50,000. Now, I'd like to turn the call over to Bruce Gureck so that he may present his remarks. Bruce?

Thank you, Bob. It's exciting to be part of the team. Overall, we see a very steady market pull for our traditional product lines. Regarding our new NXG product, it shows tremendous promise within existing customer accounts as well as with new customers based on our marketing efforts so far. Our efforts are concentrated right now on completing the MSO lab trial that Bob mentioned and executing on a new product introduction plan for the NXG across the entire market. Beyond that, we are hard at work to finding roadmaps for additional new products. And now, I'd like to turn the call over to our CFO, Eric Skolnik. Eric?

Thanks, Bruce. Although net sales decreased $610,000 or 10.2% to $5,363,000 for the first quarter of 2018 from $5,973,000 for the comparable period in 2017, the company continued to generate operating income. Overall net loss for the three months ended March 31, 2018, was a $63,000 loss or $0.01 loss per share compared to a loss of $256,000 or a $0.03 loss per share for the comparable period in 2017. The decrease in net sales is primarily attributed to a decrease in sales of digital video headend products and analog video headend products, offset by an increase in sales of data products and contract manufactured products. Sales of digital video headend products were $2,543,000, and $3,171,000. Analog video headend products were $330,000 and $586,000. Data products were $1,399,000, and $1,130,000, and contract manufactured products were $224,000 and $88,000 in the first three months of 2018 and 2017 respectively. Now, I'd like to turn the call over to our Q&A session.

Thank you. At this time we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Dale Norton, private investor. Please proceed with your question.

Good morning gentlemen.

Good morning.

Just out of curiosity, when do you anticipate the sale leaseback to close, number one? And number two, does this include land, building, and building improvements or is there something else that I need to consider?

We anticipate closing, as of this time, probably some time in June. And your question regarding what is it, it's the entire facility, yes land, building improvements, everything.

Okay, in other words, machinery and office is going to be -- continuing to be on your balance sheet?

That is correct.

Okay, another one here. Your term debt dropped, what, five hundred and some thousand dollars ahead of your amortization. Can you talk to that a little bit? And I was a little bit surprised given that your interest expense seemed a little bit high. Am I missing something here?

Yes. I don't know what you're looking at because our term debt on our balance sheet on March 31, 2018, long-term piece is $3,036,000. And at December 31st it was $3,094,000.

Okay. Well, I must've made a mistake on that then, okay. Let's see. I see that the R&D expense was a bit higher. Are you expecting a little bit higher level this year than you had last year or is that just an anomaly?

Maybe it's an anomaly, but I can tell you that it's driven by the fact that our NXG product, all those prototypes and whatnot, were issued from the stock room into the engineering department. And I think we'll salvage some of that later and so you may see an anomaly the other direction in a later quarter. But if it's $50,000 one way or the other, it's a lot, you know.

Okay, sure. Finally, I noticed in scanning through the Q that you've changed the presentation in inventories. And I no longer see a reserve for slow-moving. Can you explain what reasoning went into removing that information?

Sure. It has to do with the way that the accounting pronouncements describe how you're supposed to value your inventory. You're supposed to value your inventory at net realizable value, so since you're supposed to present your inventory in net realizable value, by definition there should not be a reserve against it. So the “reserve” is netted into the various components above.

Yes, I could see that from looking at your year-end statement.

Yes.

Okay, one more. And you indicated that manufacturing overhead is down. I'm a little bit curious how you do that because your absorption had to be down because your sales were down?

I'm not sure what you're referring to?

Okay, well I saw a -- when you're talking about --

We understand the construct of your question; we're just -- I don't know whether we're prepared to dig into the statements and parse out the overhead percentage as a percent -- we do it as a percentage of labor, and it winds up as a percentage of the direct labor, and so we'd have to dig into those numbers.

Yes, obviously that's pretty common.

Talk about it later. If you want to talk about that offline or something, we'd be willing to, but we're not --

I may do that, thank you. I appreciate that.

It's just we're not prepared to dig in -- I'd take like five or ten minutes just for us to figure it out probably, but [indiscernible].

Yes, I may do that later. Thank you, gentlemen.

Thank you.

I won't bother you anymore. Thank you.

Thank you. [Operator Instructions] Mr. Palle, there seems to be no other questions. I'll turn the floor back to you for any final comments.

Thank you very much for everyone participating, listening in. And have a great day, and have a great couple of months. We'll talk to you at the next investor conference call in June.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.