Earnings Transcript for AMMX - Q1 Fiscal Year 2020

Operator: Greetings. And welcome to AmeraMex International First Quarter 2020 Conference Call. [Operator Instructions] Please note, this conference call is being recorded.

It is now my pleasure to turn the conference over to your host, Marty Tullio. Thank you. You may begin. :

Marty Tullio: Good morning, everyone. Sorry for the little delay. Before we begin today's call, it's important that everyone understand that statements made in this conference call that relate to future financial results, market size or growth plans, are forward-looking and involve certain risks and uncertainties associated with demand for the company's products and services and development of markets for the company's products and services. Actual results, events and performance may differ materially. Conference call participants are cautioned not to place undue reliance on these forward-looking statements, which speak only as the date of this conference call. AmeraMex is not obligated to release publicly any revisions to these forward-looking statements as a result of unanticipated events after to date of -- today's phone call.

Now I'd like to turn the call over to AmeraMex CEO, Lee Hamre. Good morning, Lee. :

Lee Hamre: Good morning, Marty. How are you today?

Marty Tullio: Good. Thanks.

Lee Hamre: Thanks for joining us this morning for our first quarter conference call and COVID-19 update. We hope you and your families are all doing well since we last spoke with you. With me today by phone is our CFO, Hope Stone; and Board members, Mike Maloney, Marty Tullio, Jeff Morris and Brian Hamre.

As we discussed in our March 30 year-end conference call, California, the most populous state in America, is still under lockdown. This lockdown has delayed a $5.6 million order placed during the first quarter. This longtime customer believes that once the state is reopened, the order will be quickly reactivated. The opportunities are working -- the opportunities we are working on are not going away. Some are just delayed until things return to normal. Hope has been working with our bank to secure financial assistance from the Small Business Administration. This has not been an easy job as there was a lot of confusion. But she persevered, and we have been notified that we will receive $228,000-plus under the SBA Paycheck Protection Program, allowing us to keep all of our employees on board. :

Then last Friday, we were notified that AmeraMex was approved for the SBA disaster assistance loan, which could be up to as much as $2 million. We have yet to be notified the amount we're receiving or the terms, but this puts AmeraMex in a healthy financial position. :

While we are also working with our customers that may require assistance, Hope and her team have been contacting our vendors to see what assistance may be available for AmeraMex. We have found that businesses are eager to work together so that their customers weather the storm. We are pleased that we are busy, and our shop is practicing the 6 feet of social distance. We're allowing only 1 customer in our office at a time. Our employees are servicing contracts with our customers and traveling to do so. Delays have been minor. Our finance, administrative and sales teams are working remotely and have been able to maintain their workload. I personally have been working remotely now for 7 weeks. :

We do not foresee a long-reaching effect to our operations due to this quarantine. We fully expect an operations explosion once the stay-at-home order is lifted. And as we get closer now to what we all expect to be able to go back in business, I have actually received some new orders and looking at possibly some more today. And we will make the announcement when we close these orders, and they're all good forward orders. :

I would like to turn the call over to our CFO, Hope Stone, so that she can provide an overview of our year-end financials and operations. Hope? :

Hope Dilbeck-Stone: Thanks, Lee, and good morning, everyone. As Lee mentioned earlier, most of California is still on lockdown. After consulting with our outside legal and auditing team, which most are working from home, we have accepted the SEC's offer to extend the deadline for the annual report from May 14 to May 29, 2020. We will also issue an 8-K to extend the deadline for the quarterly report, our 10-Q for the 3 months ending March 31, 2020. This will -- this report will now be filed June 29, 2020, due to COVID-19 issue.

Let us begin with the P&L statement. Revenue was $1.7 million for the quarter compared to revenue of $2.4 million for the first quarter of 2019. This is due in order -- excuse me, this is due in part to orders for new equipment taken during the first quarter that will not ship until the second and third quarters. The delay of the $5.6 million order affected revenue, but our customer is confident that is only being delayed until the ports in California can fully reopen. :

Gross profit as a percentage of revenues was 29% based on gross profit of 429 -- $492,687. Profit margins were up slightly from the first quarter of 2019. Income from operations for the year was $1.7 million compared to income of $2 million for year ended 2019. There was a net loss for the first quarter of $60,000 compared to a net loss of $282,618 for the first quarter ended 2019. The net loss was due in part to delayed shipping of equipment to our customers. The net loss for the first quarter of 2019 was due in part to the extinguishment of debt. :

On the balance sheet, total assets increased $2.3 million and include a $530,000 deferred tax asset and an increase in inventory of approximately $1.9 million. Total liabilities for the period increased from $11.4 million in the first quarter of 2019 to $13.7 million for the first quarter of 2020. This increase was due in part to an increase in inventory of $1.9 million. :

Currently, our financials are holding strong. We have accepted all offers from lenders to move monthly payments to the end of the notes. This strategy provides a buffer in case some of our customers are unable to pay, which could cause potential cash flow issues. Our buffer will safeguard against liquidity, profitability and financial concerns. :

I would like to turn the call back to Lee. :

Lee Hamre: Thanks, Hope. We are busy as ever, and as of today, have booked $4.3 million in sales, along with our customer feel -- our customer that feels confident that we can rebook the $5.6 million order within the next several weeks. And we'll keep you posted on that with an announcement.

As discussed in our year-end conference call, our revenue for 2019 is the highest since 2008, and we are off to an excellent start in 2020. We expect to continue the growth we have enjoyed in the past several years and make 2020 another banner year. :

Operator, would you like to begin the Q&A? :

Operator: [Operator Instructions] Our first question comes from [ Alan Cohen ] with [ V&C Financial ].

Unknown Analyst: Thanks very much for the blood, sweat and tears you've been putting into the company. We all appreciate it for many years. I have 2 questions. The first is, I'm just a little confused about -- I see we have interest expense of $253,000 for the quarter, which would -- which really is attributed to the entire loss, let's say. And it seems to me that we have that interest expense because of the increase in inventory. Is that a correct statement? And if so, I guess that's just a judgment call on your part that you decided to increase indebtedness to increase our inventory at the extent of that interest?

Lee Hamre: That increase in inventory all went out on a long-term rental contract. So it's in inventory, but it's earning money at a considerably higher pace than its costing.

Unknown Analyst: Oh, I see. I see.

Hope Dilbeck-Stone: And we had put -- go ahead.

Lee Hamre: Yes. We'll often go out and find something to fill a rental contract and buy it, which, of course, increases inventory. But on the other side of the coin, if it's going out on rent for a number of months, then it pays itself down to when we get it back, we can sell it for excellent profit.

Unknown Analyst: Right. Right. Hope said that the biggest debt -- or the reason for the loss this quarter was extinguishment of debt. But it looks like it was just interest expense. Are we saying the same thing or not?

Hope Dilbeck-Stone: No. That was for 2019. It was just a comparison between the 2, first quarter 2019 to the first quarter 2020. The extinguishment of debt was in 2019.

Unknown Analyst: Right. So the interest expense is purely interest on our debt?

Hope Dilbeck-Stone: Yes. And the way that it worked for this first quarter, we had purchased the equipment prior to the rental period started. So you'll see the spike in the rental revenue next quarter.

Unknown Analyst: Okay. Second question is, I don't know how long ago, I'm going to say within the last year, that you talked about buying back stock. From the looks of the balance sheet, unless it's -- it doesn't look like anything has been bought, or it may have been bought and not canceled. Can you give us a status or an update on how much was purchased and what your plans are for the future?

Lee Hamre: We've bought back a little stock. We've got a broker that's doing -- buying off the open market for us. And we have not put it back into our -- the company proper yet, I don't think, but we will be. We haven't done much. It took a while to set up the account and to fund it. And as we buy back stock, we will -- it will show as a reduction in -- well, no, it wouldn't -- yes, it will. If we put it back into the company proper, it will reduce the number of shares that are issued.

Unknown Analyst: Outstanding?

Hope Dilbeck-Stone: Yes. We will cancel them, yes. [indiscernible] Yes. It's quite a process before you'll see it on the books. We have to -- once it's been purchased, it has to go through a lot of -- they have a different process just before it comes to me where I can make a change in the financials.

Unknown Analyst: Okay. So can you tell us what your plans are in the future? Do you have a specific plan at specific prices, or not?

Lee Hamre: We're just buying at market price. I'm totally confident that the company is going to do well this year and better next year. I think that, that speaks for itself. If we're buying back stock, it helps the stockholders because there's fewer shares out there. And it's telling you that we're confident.

Unknown Analyst: I mean -- so do we have a plan on a specific amount of money that was directed towards this or will be directed towards this? Or a number of years, quarter or [indiscernible]?

Lee Hamre: We don't have a specific number on that yet. But we're going to -- basically, it depends on our profit margins. So how much can we afford to put back into that without being a problem with cash flow, and we don't want to do that. So we can make an announcement. And hey, I mean, I'm sure Marty can do something to tell you what we've done after we've done it.

Unknown Analyst: That would be great. And second of all, I agree very much with you. It's better not to have a specific plan, but rather buy it when you think the price is right and when the opportunity exists on your balance sheet -- on our balance sheet to -- I agree with you on that. But obviously, I think we're all anxious to know how that's going and how it will be going.

Lee Hamre: Sure. Yes.

Operator: [Operator Instructions] Our next question comes from [ John Rogers ], a private investor.

Unknown Shareholder: How are you, Lee? I hope you're doing well.

Lee Hamre: Yes, doing okay. What can I do for you?

Unknown Shareholder: Good. I have a question. The OTCQB minimum requirement is $0.01, right? Is there any risk of us losing that status with the price where it is and where it's been -- when it's been dipping below?

Marty Tullio: May I answer that, please?

Lee Hamre: Marty?

Marty Tullio: This is Marty. We have to close under -- bid under $0.01 for 20 -- I think, 20 consecutive days. And once we do, we would receive a notification, and then we would have x amount of days to correct the issue. So we've bounced back up every time it has dropped down, and the last bit of the day was below $0.01. So we still look really strong there. It does bounce back up, and we've never gone more than a couple of days under $0.01.

Unknown Shareholder: Okay. So it resets every time it drops below $0.01 -- or once it drop -- once it raises back above $0.01?

Marty Tullio: It does.

Unknown Shareholder: Oh, okay. Okay. And if it did stay under, would that be incentive for you guys to buy back shares and make sure that it stays above that $0.01 mark?

Marty Tullio: We can only buy back shares at the lowest bid offer on the day. So the -- what this does, it prohibits a company from buying back shares to increase their shareholder price. So whatever the lowest bid of the day is, that's what our broker can bid at to buy the stock.

Unknown Shareholder: Okay. Using the previous day or the same day?

Marty Tullio: No. I'm sorry, I have to look at the documentation. I believe it's the same day. It could be a 10-day thing, but I believe it's the same day because the brokers don't really want to go back and calculate 10 days before they buy stock. So they just have to bid at the lowest bid price. And I'm sure it's the same day. But I'll clarify that for you, if I may, and get back to you if you'd like to send me an e-mail with your contact information.

Unknown Shareholder: Okay. Will do.

Lee Hamre: Thanks, John.

Marty Tullio: Thank you.

Operator: We have reached the end of the question-and-answer session. At this time, I'd like to turn the call back over to management for closing comments.

Lee Hamre: We would like to thank all of you for participating in the call and for your continued support. Please follow the government's recommendations for social distancing. And we will talk with you at the end of the second quarter, if not before that.

Operator: This concludes today's conference, you may disconnect your lines at this time, and we thank you for your participation.