Earnings Transcript for AMMX - Q2 Fiscal Year 2019

Operator: Greetings, welcome to the AmeraMex Second Quarter Financial Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I'll now turn the conference over to your host, Marty Tullio. Ms. Tullio, you may begin.

Marty Tullio: Thank you, Omar. Good morning, everyone. Before we begin today’s call, it is important for 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 of 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 today’s conference call. Now, I would like to turn the call over to AmeraMex CEO, Lee Hamre. Good morning, Lee.

Lee Hamre: Good morning, Marty. Okay. This is Lee here, AmeraMex CEO. Thanks for joining us this morning for our second quarter conference call for the quarter ended June 30, 2019. With me today are Hope Stone, our CFO and board members Brian Hamre, Mike Maloney, Jeff Morris and Marty Tullio. We're pleased that Brian and Jeff have joined our board. They increase the board to five members allowing us to better meet SEC board committee guidelines. Jeff will be heading up the audit committee, while Brian will be heading up the compensation committee. Brian and I had worked together for over 22 years before he left the company to pursue a different area of heavy equipment business. He did a great sales job and really helped in expanding our customer base. Jeff and I have worked together over the past 30 years as his company provided financing so that we could purchase much of our rental equipment and also finance customers that needed to finance things they purchased from us. Both Brian and Jeff bring needed expertise to our board and their entrepreneurial and industry skill sets are going to be a great help. This will allow them to provide valuable guidance as we continue to drive profitability and stock value for all AmeraMex shareholders. We look forward to their contributions. We're all pleased that AmeraMex is now fully reporting and listed on the OTCQB Venture Market. As a lot of you know this has been a long, tough road to get here. And we're real pleased that we've gotten here. To those shareholders that believed in us and stayed with us, we thank you sincerely. These are important milestones as the company is focused on revenue growth and building shareholder value. The more stringent reporting standards and an investor transparency will give our existing and potential investors the information they need to analyze value and trade our stock. Our next step is to launch an investor awareness campaign this fall that will have us participating in investor conferences, web based presentations and investor newsletters. We will announce interviews and conferences that we will be attending. I would like to turn the call over now to our CFO, Hope Stone so that she can provide an overview of our financial statements for the second quarter. Hi, Hope.

Hope Stone: Thanks, Lee. Good morning, everyone. Before I begin, I want to remind everyone that financial for the comparable 2018 period may have changed by the adjustments that were made during the SEC audit process. Revenue, we are pleased to report revenue of $5.5 million for the second quarter ended June 30, 2019, an increase of 79% when compared to revenue of 3.1 million for the second quarter 2018. Revenue for the six month period was 7.9 million, a 54% increase when compared to revenue of 5.1 million for the 2018 comparison. Gross profit as a percentage of revenue for the quarter was 11%. Gross Profit as a percentage of revenue for the six month period was 15%. Profit margins were down for the six month period when compared to the same 2018 period due to increased sales of new equipment this year. Net income for the quarter was $24,032 down significantly when compared to net income of 250,586 for 2018. This downturn was due to low profit margins and increased operating expenses. There was a net loss for the six month period, $267,564 compared to a net income of $467,425 for the 2018 period. The loss is due in part to a onetime charge of $566,838 for debt extinguishment. The payment of the debt reduced the company's interest expense significantly, which going forward will have a positive effect on the bottom line. Without the onetime charge the company would have reported net income for the six month period of $149,302. I've been with the company since June 2018. During those 14 months, we have completed our two year SEC audit. Working closely with our auditors, we have made significant changes as to how our accounting department operates and how we report our financials. After years of being a semi-private company and utilizing an accounting methodology that did not parallel todays required GAAP, Generally Accepted Accounting Principles. I am pleased that we now have the programs and procedures in place to report in a timely manner using GAAP. I would like to turn the call back to Lee.

Lee Hamre: It's me again. Our core business by the end of June, we had sales in excess of 5 million and look forward to the next two quarters as they are generally our strongest. We expect to surpass 2018 sales of 10 million, but really can't make revenue projections. While our revenue was up for the six month period by 54%, I was disappointed in our bottom line for the period. As Hope mentioned, we took a onetime charge of over $0.5 million for paying off debt. Without the charge we would have had yet another profitable quarter and six month period. We've been profitable almost every quarter. But in addition to the onetime charge, the revenue for the six month period consists mainly of new forklifts. They were ordered back in 2018 by the customer and they shipped from the factory during this period and that was 4.2 million of our sales. And as we've said before new equipment has a much lower profit margin. It gives us access to used equipment to same customers locations that by the new. So it's first, dealing with the lower profits to get access to the used equipment that has much higher profits. We recently purchased 21 used loaded container handlers and miscellaneous dock equipment in Seattle. It was a cost of $1.175 million. We've already sold several of the loaded handlers and a couple of the trucks and recovered about $0.5 million of that investment. We've just completed breaking down the rest of the equipment and removing it from the terminal. Half of it is brought in here to our yard in Chico to start working on refurbishment. And the other half we've moved across Puget Sound our storage yard and we'll transport it later. It takes a crane, several mechanics and three semi-tractors and trailers, one multi axle for the chassis and two regular trucks to move one machine. So just moving one of these machines from Seattle down to Chico, California is about a $15,000 adventure. So we're trying to sell some of them from Seattle. They're going to export to South America or Central America we can load them out of this Seattle terminal as easily as we can in California and not have to invest the 15,000 to move to California. So that's why we have some in storage up there to try and capitalize on not having to pay the transportation. We would normally refurbish one machine at a time and now we have nine of these machines in the yard here in Chico and we're trying to get started on all of them. As discussed in an earlier news release the resale of refurbished equipment is extremely profitable for AmeraMex and because the demand is growing, we're spending approximately $0.5 million very soon on refurbishing our facilities to be able to do more work at a time. I feel like AmeraMex has turned the corner and ready to write a new chapter in its history. We and our consultants have worked so hard to become a fully reporting company up listed to the OTCQB Venture Market. To my knowledge we're only one of six publicly traded companies in this industry. These companies are very large and provide a wide variety of rental equipment, from size machine equipment to construction equipment to container handling equipment and all kinds of machinery. But it's a very small number of companies that really would even compete with us at all. I have a personal goal that I've had since we first went public in 2006. I want to get up on the balcony and ring the bell on NASDAQ and that's our next goal. Although we're on the OTCQB, I'm fighting to get my chance to ring the bell. We believe now our stock price will begin to increase due to an IR program we're going to start, the added market exposure provided from being listed on OTCQB Venture Market and with continued top and bottom line growth. This will give us the tools needed to grow the company through the addition of sales people, increased rental, pool equipment and increased product line. When our stock price reaches what I believe a realistic valuation, we would like to once again consider acquiring small, well run companies that would expand our territory and product line. We're all excited about our prospects. Okay, operator, we're ready to do the Q&A.

Operator: At this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from David Knock, Private Investor. Please proceed with your question.

Unidentified Analyst: Hey, Lee, Dave Knock here. And I still don't understand the reason why you're continuing to keep your stock at a penny stock. You can't really have dividends. Over the last five years – five days, for instance, I've only seen about four transactions over 100,000 shares. I mean it doesn't like sound like you have investors really looking at this or even institutions or anything like that. Is there any consideration for a reverse stock split the future?

Lee Hamre: We have discussed it, although it's a pretty big negative for a lot of shareholders and I don't think we're quite ready. What we're going to do instead we'd – like I explained earlier in the conference call, we're going to do some promotions starting in September, go to some meetings and go to some presentations, now that we're on the QB market, we can get a lot more attention from potential large investors than we could get as a pink sheets company. And that should help considerably. Doing the – a reverse split is something that carries a lot of negative with it. And we don't really want to do the negative if we can avoid it. And it may be something – like I said, I want to ring the bell on NASDAQ and we have to be like $4 a share to even qualify. So to get to that point, we're probably talking about down the road reverse, but we right now we're not looking at doing that in the near future at all.

Unidentified Analyst: Okay, thank you.

Operator: Our next question is from Allan Cohen, B&C Financial. Please proceed with your question.

Allan Cohen: Lee, first of all, thanks for the good job that you're doing. We appreciate the hard work you're putting in. My question Lee is about the extinguishment of debt the onetime charge that you had, can you please elaborate on how much debt was extinguished? And what were the terms and why the decision was made to do what you did?

Lee Hamre: Well, after a long, drawn out recession, which lasted twice as long as I expected, we were in a position of relatively high debt, a lot of different places. And up until I was able to make it happen. We couldn't qualify to pay that debt all off. But we got to the point where we could add a credit line offered to us that was large enough to pay off all of that debt. And currently we have no debt at all except our credit line. And so we paid off all those debts and bills and long-term debt and everything we had on the books that paid in full out of the credit line. And now we're working on paying back as much as the credit line every month as we can. But our interest cost is considerably less now. It's just one interest payment a month. And it's much easier to manage the inventories when it's all on one credit line. And that's basically what happened is we finally were doing well enough to qualify for a big credit line. And we did it.

Allan Cohen: So it's basically refinancing and can you tell us how much interest was saved or what kind of rates you're up against?

Lee Hamre: Our credit line, I don't know the – I think the credit line is 10%. And we were paying more than that in some places and less than that in other places. But it was I think – well, you're asking me stuff, I'm not sure I can. I know and I don't want to be unclear. Hope's here. Hope can clarify on that. She's coming around the desk here and she will answer your question best she can.

Hope Stone: Hi, there. Okay, so our debt – the interest we are paying on a monthly basis range anywhere from 10% to 29% on individual note for equipment financing. And so with our debt consolidation, we were able to remove multiple payments throughout the course of the month into one interest payment that's running about $50,000 a month. And then we have a revolving credit of 2.5 million, as we pay down our principle that we have more availability for – more purchase – purchasing of equipment. It saved us considerably. Basically the extinguishment of debt costs were for all of the penalties we had to do – we incurred in paying off the notes early before term. And unfortunately, like Lee was saying, during the economic downturn, we had to get financing where we could and so the deal was definitely not to our benefit. So in wiping that off of the books with the onetime hit going forward, we are going to see things a lot smoother, a lot cleaner. Our cash flow is freed up so that we have the ability to pay our vendors and do all the things that we need to do to keep the place running. And so it was a positive thing for the company for sure.

Lee Hamre: This is Lee again and actually that credit line being up and running is the only reason I was able to buy those 20 machines in Seattle, that $1.175 million purchase was – I knew about and watched those kind of deals go by and couldn't even do anything about it for the last 10 years. But with this credit line in place, I was able to make an offer. It was accepted. We paid them for the equipment and we removed the equipment and that costs of 1.175 million should be a gross revenue in the $3 million to $3.5 million range when we finish marketing all those machines. That's how we make money. That's how the company is going to grow.

Allan Cohen: Totally good, Lee, I appreciate it. Can I also ask how much rental income we have coming in? Is it a significant amount now from all the rentals that you've been getting involved in last couple of years?

Lee Hamre: Yeah, right now our rental income monthly is approximately $185,000 every month and it varies up and down a little bit.

Allan Cohen: Do you have a goal of trying to get that the X amount of dollars or not?

Lee Hamre: Yes, I announced my goal couple years ago actually to increase the rental equipment fleet to $10 million. I believe we're at about eight currently that's out on – 8 million value this out on rent and I am still targeting 10 million. Our total inventory is over 10 million now, but what's actually out on rent is probably eight.

Allan Cohen: Lee thanks very much and keep up the good work. We appreciate the work you're putting in.

Lee Hamre: Alright, well thank you.

Operator: [Operator Instructions] There are no further questions at the time and I would like to turn the call back over to Lee Hamre for closing remarks.

Lee Hamre: Okay, thank you. We would like to thank all of you for participating in the call today and for your continued support. We look forward to speaking with you when we report financial results at the end of the third quarter. We will have another conference call and hopefully have a lot of good news. Thank you. Thanks again. I appreciate everybody call.

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