Good day, ladies and gentlemen. And welcome to Blonder Tongue Second Quarter 2019 Results Conference Call. All lines have been placed on a listen-only mode. And after today's prepared remarks, you will have the opportunity to ask questions. Also a reminder that today's conference is being recorded. [Operator Instructions]. And now to get us started with opening remarks or introductions, I am pleased to turn the floor to CEO, Mr. Bob Pallé. Please go ahead, sir. Bob Pallé: Good morning, everyone. Welcome to Blonder Tongue's 2019 second quarter and six months financial reporting teleconference. We thank you for your participation. Before we begin our presentation this morning, 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, so I caution you that actual results may differ from those that may be projected in our comments this morning. For additional information concerning factors that could cause actual results to differ from the information that will be discussed this morning, I ask you that you refer to our prior SEC filings, including our form 10-Qs for prior quarters, including the first, second and third quarters of 2018 and the first and second quarters 2019 and our 10-Ks for years 2018 and 2017 as well as our SEC 8-K filings. With me today are Steve Shea, Chairman of the Board; Ted Grauch, President and Chief Operating Officer; Eric Skolnik, Senior Vice President and Chief Financial Officer. Our presentations will follow in that same sequence. And following the presentation, all of us will be available to answer any questions you may have during the question and answer period. As stated in the last teleconference and in my letters to you from prior years, we outlined the areas within which we needed to achieve major improvements in order to effect a successful turnaround in our financial performance and as a result of those major improvements drive an increase in stockholder value. We remain committed to achieving those goals. We believe that our comments in the press release this morning bear repeating. Although sales in the second quarter of 2019 showed a 3% increase over sales in the second quarter of 2018 and a 33% increase over the first quarter of 2019, we are disappointed in the amount of the increase and the resulting financial performance. We are taking steps to address these issues by making adjustments to our operating expenses so that they better align with our current sales forecast and by increasing the intensity of our new product sales initiatives. Despite this second quarter and year-to-date performance, we're pleased with the early responses to both our IPTV, set-top box and NexGen gateway introductions. We anticipate that these initiatives will be the catalyst for an increase in sales in future periods. Continuing, we have engaged the management talent and committed the resources to move the new development sales initiatives forward, which as you can see from the details in the 10-Q for this reporting period resulted in an increase in expenses. Also you can see in Note 3, the positive outcomes are detailed by product category. Unfortunately, at this point, we find ourselves in a time period where we can see the positive outcomes for the execution of the initiatives we plan with a totality of the forecasted financial impact of those initiatives is not yet where it needs to be. Regardless, we remain committed to getting there. Now, I'd like to turn the call over to Ted Grauch, BT's President and Chief Operating Officer. Ted?

Thank you, Bob, and good morning everyone. Clearly, the Q2 results were below our expectations and counter to our extensive efforts to expand sales and marketing and our addition of new product lines and product features that we began during Q1 of 2019. The primary situation that we've seen in Q2 has been an overall decline in demand for the traditional broadband HFC hybrid fiber-coax, distribution equipment across the entire industry, coupled with the increased cost of sales, marketing and engineering that we've taken on in order to ship our product mix to a more modern product focus including, the focus on delivering digital-based, delivery to video, IP television and IP delivery of data services. On the positive side of the company operations, our flagship NexGen NXG product line began shipping to our first Tier 1 operator customer during Q2, and we have seen a distinct positive momentum in our distribution channels, who are beginning to stock larger volumes of NXG products and they're increasing their own sales efforts and promotion of Blonder Tongue's NeXgen Gateway video signal-processing gateway. We have also begun to have significant market traction in the value-added reselling of our IPTV set-top box product line, and we are tracking to our internal sales and margin goals on that new line of business. We expect that this trend of lower spending in hybrid fiber-coax or HFC, and broadband distribution product may continue due to a number of overlapping factors in the market that include political and tariff concerns, but also included general trend towards a larger percentage of content distribution over digital fiber and lower percentage of distribution by hybrid fiber-coax or HFC. In light of these trends, the management team is in the process of taking the necessary measures to lower our operating costs in our legacy areas of business, while maintaining our new investment in growth areas of technology, and the associated sales initiatives. Now, I would like to turn the call over to our Chief Financial Officer, Mr. Eric Skolnik. Eric?

Thank you, Ted. Although this second quarter of 2019, net sales were up 3% as compared to prior year, our gross margin decreased to 36.9% compared to 41.5% in the prior period, due to our more traditional product mix being blended with lower margin product lines. Operating expenses for the second three months of 2019 were up approximately 18.4% as compared to the comparable period last year. This increase is primarily due to salary and headcount increases necessary due to the company's prior continued efforts to contain and reduce these costs, as well as an increase in various consulting fees. For the six months ended June 30, 2019 net sales were down 10.5% as compared to prior year and our gross margin decreased to 32.5% compared to 41.5% in the prior period, due to the aforementioned blended product mix. Operating expenses for the first six months of 2019 were up approximately 25.6%, as compared to the comparable period last year. Again, this increase is primarily due to salary and headcount increases necessary due to the company's prior continued efforts to contain and reduce these costs. We have not made any adjustments to the credit facility since our last call. However, we still expect that further changes to accommodate our progress will be made in the coming months. Now, I'd like to open-up the call to the question-and-answer session.

Gentlemen, thank you. [Operator Instructions] We'll take a question from Gregory Urbin [ph], Private Investor. Please go ahead, sir. Your line is open.

Good morning guys. Bob Pallé: Good morning Greg.

Good morning.

I think the way I look at things and I know this is traditional way that the results are outlined on the PR, but I -- my own comparison I look at Q1 versus Q2 and it seems you made progress. Sales are up as you did mention 33%, profits up. And net loss quarter-to-quarter is down 50% and operating expenses is pretty much flat when comparing the two quarters. So I take that as progress. The question is if -- what the -- assuming that the margins are going to stay about the same in the 36%, 37% range, what level of sales would be necessary to achieve breakeven? And what might a time line for that be? Bob Pallé: Okay. Well, the -- those two questions are inextricably linked. The answers are inextricably linked as you know because if you get a large uplift in the networking products where the margins are high versus the CPE products where the margins are lower then it's going to come at a much lower overall -- the breakeven is going to be a much lower overall sales number. Whereas if reverse is true then you need a much larger overall sales number. So we're really pleased with the pool on our networking products introductions, but the sales cycle for those is longer than we had expected. And we put that -- we previously announced those findings in our letter to shareholders and in the prior leases. The CPE products I'll let Ted speak to because he brought that initiative to the company when he came and has led its introduction and I'm really pleased with that, but I'll let him speak to that. And if we get in the budgeting process for this year and this cycle, this budgeting process for the major service providers then 2020 could really be a nice year for us, because both the sales and our margins are very high potentially very high I mean. So Ted?

Sure. So without getting into predicting specific numbers and I'm not trying to cite your question, but to give you the kind of information I feel like is publicly -- that we can make publicly available the – clearly, the margins on CPE business are going to be lower than what we call the core or traditional networking video distribution and management business. As a rule of thumb, if we can run about 2.5 or three times revenue in the CPE versus an equivalent level of revenue in our core traditional business, we'll end up with an equivalent net margin. And that's what we're going after at least. The terms on inventory on CPE is also a lot faster, so that's benefiting us from a cash flow perspective. So frankly what we're trying to achieve in the not too distant future is to get some multiple of revenue on CPE versus the traditional core business so that the two create a nice blend and they complement each other. The other element of the strategy, which is actually core to the overall thinking is that by bringing these more fast sales cycle, CPE products to market, we are able to create direct sales and more meaningful direct sales relationships with a wider range of service operators directly, and thereby be able to affect their decision making on some of the traditional video products, which are higher margins. So what we want to see is a higher uplift in the core or traditional product lines, coupled with a faster turn blend in the newer CPE technologies and overall become more relevant to the different people in our industry that are the core decision-makers. And that's what we're going after.

All right. Well, thanks for the explanation on that. Do you expect -- looking at the -- to drivers to the future the set-top box initiative I assume, and the NexGen, which one of those has the prospect of a higher growth rate over the short-term?

In the very short-term ,it's the set-top product line. But go ahead Bob I'm sorry. Bob Pallé: No I was -- I have the same statement.

Okay. Is that because of the longer lead times necessary to get the products out…

No. Not at all. Not at all. We actually can turn around NexGen deliveries relatively quickly when we want to sell it. Simply the deliberation process inside of these service operators around the country in Canada by the way, it's a long process to win core video distribution business. Now once they've decided to go with your product as we noted in the press release -- sorry -- as we noted in my comments earlier in the call, we have won our first Tier 1 and working on several others. Those took a long time and the other ones are taking a long time the ones we have not won yet. The benefit of those though is when you do win them it's harder for your competitors to then go back and displace you. And just where we are in the overall sales cycle, there’s longer sales to close. They tend to take five, six, seven, eight core decision-makers at -- and operator have to align with each other and say, yes we believe the Blonder Tongue's technology is the right way to go and supplant one of our competitors for us to win the core business. Once we've done that it's a better margin, more stable long-term business. But that's really the difference. On the CPE or, for the moment, set-top box side we've caught a particular wave and this wasn't just by coincidence. It was an analysis that was done last year and decisions made in the late fall in January, that led us to, say, that there's a particular wave of technology change going on in the second and third tier cable operator and municipal operator markets around the country and we want to bring a particular set of products to market that we capture that wave. And we've done a very good job of capturing that wave so far and that looks to be very, very positive through at least the end of the year and likely well into 2020.

But any number on the total size of the set-top box market?

Not on this call, no. I think we're reluctant to make any predictions at this moment, but we are very positive that it's going to add to the overall positive cash flow of the business. Even though it dilutes margin at the top side, the fact that it's got fast returns, it's not going to greatly affect our ability to manage the cash flow at all, and it should be positive on several fronts to the company.

And I take your impression, or at least the way I hear it, is that wave has not yet crafted.

No, not nearly. No. Bob Pallé: Far from it.

In the last call you mentioned potential or the likelihood of some new vertical markets. Anything new to add on that?

We'll be making some press announcements on that between now and middle of fourth quarter on that.

I look forward.

They're well underway to launch additional product line.

Not to take up too much time, but I'm curious, how -- you say you're going to work on the OpEx expenses. I'm curious how can you do that? They seemed relatively flat and I think they're running fairly lean now. What more can be subtracted?

You want me to handle that Bob or do you want to handle it?

Are we looking at headcount reductions or -- Bob Pallé: Go ahead. There's just -- we just found that, there's more we can do and I don't think we needed to go into the details on this call, but we're striving to be more flex-oriented and craft our expenses around the amount of work that we have here in New Jersey. And I'd rather not get into it, but if Ted wants to give you some more information that's fine.

I was only going to reiterate what I said earlier, Greg, which is that, at the top line of operating expenses you may not see a big overall movement. But what we're doing is trimming the operation expenses related to the more legacy products that we've seen the decline in market demand on. So you can see that the overall operational costs are blended between the new investments we've made and running, what we might call, business as usual in the previous product lines, which are still very good product lines and they still sell well. They just are not selling as well as we had anticipated this year. So the related operating costs for those product lines in market demand decline is what we're focusing on.

Great. Well, I appreciate that. It looks like the path to profitability is not going to be so much in operating expense; it's going to be in revenues. That where I'm focusing. I know I asked last time and I'll ask again regarding China and the tariff issues, where are we there? Bob Pallé: Well, they just yesterday released the real List 4 and the dominant category that we'd use for importing a multiplicity of our key products that we do import are impacted to the 10% amount. And we know that there has been a counter by the Chinese government by revaluing their currency to offset that. So, we're in negotiations but negotiations are less than 24 hours old and we will make a plan to try to mitigate those expenses. But 10% is not 25%, but it is 10%. So--

Is that a greater likelihood now compared to three months ago moving those back from China to-- Bob Pallé: There will be a blend, Greg and that's exactly the initiative I may have spoken about on previous calls. And with that we're going to leverage our factory to the extent that we can to mitigate the impact of the tariffs. That's part of our strategy and part of the good part of now having our own factory here in New Jersey.

So, that's all I have. I'll just remind people as I started out initially I think comparisons' sake are better made from quarter-to-quarter rather than from quarter two 2019 to quarter two 2018. I think it's more apples to apples if we compare Q1 to Q2. And thanks for your time. Bob Pallé: Of course. Have a good day.

[Operator Instructions] We'll take our next question from the line of Richard Greulich with REG Capital.

Thank you. With the pronounced slowdown in more legacy products, will that cause any inventory obsolescence valuations to be made? Bob Pallé: We have taken action earlier in the year and it's detailed in the Q and you can find its $730,000 and that was a preemptive strike. And since that -- that margin was that February 1, was that--

$650,000 or something in Q1 and then it's stopped to like $730,000. Bob Pallé: Yes right. So, the increased since that period of time traditional -- what we find more obsolescence. We have a very active program on this. We meet once a month then we do stuff about it and so $80,000 over the last six months, it's $10,000 $15,000 a month. We think that's modest. And the -- we don't see any large inventory impact because of the legacy product comments that we made this morning.

Okay. Thank you. Were you intending to lease out some of the space in your building? Bob Pallé: We are. Yes sir, that's part of the plan.

Okay. But you haven't done that yet? Or you're... Bob Pallé: Well -- okay. So there is a process here. I don't think that's -- I don't think there's anything that I say here that's any secret. Like all accounts, they have their infrastructures. And guys who work there for 20, 30 years and their -- the children and grandchildren also work there lower levels and they have a bunch of requirements that they -- over a model exclusivity acceleration, tell you about rather than giving you a full list of what you need to do to get space ready to rent. And so, it's not for the faint-hearted. It's not easy and get through the process. We are now on the far side of that process and we believe we have -- I'm looking at Eric. He's nodding his head up and down. We now have the talent satisfied and we have almost all of the work completed. So that a perspective we'll see -- can see oh I'd see light at the end of the tunnel, I can get a real move-in date, I know where you're going to get a CO, I can see you're in compliance with 90% of this and it says the last few things. Until you reach that tipping point, it's really hard to get a prospect to need space now to get us here. So it's just normal stuff really.

And does the tariff situation give you pause about leasing out as much space as you might otherwise have decided to do? Bob Pallé: No. We are at about 15%, 20% of capacity and we could double or triple -- in fact, we can probably double or maybe even triple on a single shift, but we have lots of open production time and stuff. But even with leasing the -- and the reason is because of the migration of automation, we run some SMP lines and it's a principal work that's done and we have enough final assembly space to grow a lot larger than we are here now. So, we think that the tariff thing could be a blessing if we can get some other companies to commit to put their work here which we think is a possibility. We're working on it. We don't know what the results will be, but we think it could be a win-win for both parties. So, we're hopeful and we're working on that.

That could be as a contract manufacturer to those parties? Bob Pallé: It's exactly -- exactly. Yes sir. Yes sir, exactly.

Interesting. Okay. Thank you, very much. Bob Pallé: For an ODM flash contract manufacturer. Thanks, Rich.

And gentlemen, we have no questions in the queue. [Operator Instructions] And we have no questions from the phone. I'll turn it back to the leadership team for any closing or additional remarks. Bob Pallé: Thank you all for participating in Blonder Tongue's financial reporting teleconference. We look forward to speaking with you at the next teleconference. Have a great day and a great next quarter. Talk to you soon.

Ladies and gentlemen, thank you all for joining us today. You may now disconnect.